Memorandum 15-016 Free Main Allowance for the Natural Gas Line Project

Memorandum 15-016

TO:                       Mayor Wythe, and Homer City Council

THROUGH:       Marvin Yoder, Interim City Manager, Jo Johnson, City Clerk, John Li, Finance Director, Carey Meyer, Public Works Director, Rick Abboud, City Planner, Katie Koester, Community and Economic Development Coordinator

FROM:                 Julie Engebretsen, Deputy City Planner

DATE:                  February 2, 2015

SUBJECT:         Free Main Allowance Work Session

Staff members Jo Johnson, Carey Meyer, John Li, Rick Abboud, Katie Koester and myself met in preparation of this work session on Monday February 2nd. The free main allowance is a fee that people pay when they hook up to natural gas. Enstar collects the fee, and annually refunds the City. The City has stated that these funds will be used equally between all property owners in the assessment district. To date, we don’t know how much money Enstar has collected, but we hope to have an update at the meeting. After much staff discussion, there are three key points that emerged.

Key Points:

1. The City needs to create a reserve fund for the free main allowance. Enstar will send the City a check every year, for ten years, with the free main allowance funds collected for the year. These funds should not be deposited in the general fund.

2. There has been discussion of whether the City could credit free main funds against the assessment amount, resulting in a lower assessment, or a reduced bill the first year. At this point, we don’t have the free main funds, nor do we know how much they might be. So the assessment amount is moving forward without this potential credit.

3. In the coming months, Council should pass a resolution setting the policies the City will follow with the free main allowance. Finance Director Li is working with Enstar to learn when during the year the City should expect payment and the amounts for 2013 and 2014. When considering this resolution, staff has some suggestions:

               A. Plan to credit the free main allowance toward the assessments in year 1, 2, 5 and 10, and only when the amount is over a certain dollar amount, say $100.00. There are two parts to these suggestions. First, we expect the majority of the free main allowance in years one and two, when the majority of people will have hooked up to gas. Second, there will be a smaller amount of free main funds over 10 years. But it’s a large administrative burden to credit accounts and issue checks; we don’t want to be sending $3.00 checks. Council can determine a dollar amount over which the City would apply a credit to the assessment amount. (The Borough has a $25 threshold, for example). For land owners that have paid the assessment in full, the current land owner would receive a refund check.

B. Refund 70-80% of the free main allowance to the assessment district. Retain a percentage to cover the costs of bad debt, and low income deferred assessments. The City has a 10-year loan, but it is possible not everyone will have paid their assessment in full in that timeframe. This policy can be revisited in future years and amended by resolution as needed.

Requested actions:

Direct staff/attorney to draft an ordinance creating a reserve account for free main fund.
Direct staff/attorney to begin drafting a resolution, creating policies for dispersing the free main allowance. Bring the resolution to a future work session.

Backup Material:

1.  Free Main Allowance information from City of Homer website

2.  Assessment Repayment Schedule

3.  Example from the Kenai Peninsula Borough