Memorandum 16-027 Deferred Assessments for Shellfish Avenue/South Slope Water Project

Memorandum 16-027

TO:                       Mary K. Koester – City Manager

FROM:                 Carey Meyer – Public Works Director

DATE:                  January 4, 2016

SUBJECT:         Future Intention to Create Deferred Assessments

                                             Shellfish Avenue/South Slope Drive Water Main Extension Project

Question – How should benefitted property owners pay their fair share of the cost

of a water main?

Background: The Water/Sewer Master Plan for the City of Homer calls for improvements to the City’s water system that would improve the reliability of the water service to the community and provide piped drinking water to those that are not currently served.  The extension of a water main along Shellfish Avenue/South Slope Drive (see attached map) is one of those improvements. Public Works has completed the design of the improvement and has obtained a grant to help pay for construction.  Normally, these types of improvements are constructed through the formation of a Special Assessment District (SAD) where benefitted property owners are assessed for their fair share.  Water and sewer SAD assessments have normally been distributed equally to all benefitted lots.

Public Works has engaged the property owners within the project area (see attached letters) to inform them of the project and discuss how they might be assessed for their fair share. There has been no support for creating a SAD. Those that have responded support deferred assessments as the preferred method of assessing their share, but feel that equal assessments were not fair because lots sizes vary dramatically in this neighborhood.  

There is precedence for creating deferred assessments on benefitting properties to provide a mechanism for fairly charging the cost of water improvements to benefitted property owners.  These deferred assessments are not created without the opportunity for the affected property owners to comment and if created do not become due until the property owner connects to the new water main.  Connection to the water main may be contingent upon the installation of sewer service to the property before water service connections to the water main are approved.

Three schedules (A, B, and C) are attached that estimate the assessment for each benefitted lot (based on equal, per frontage foot and per benefitted area).

Equal assessments are calculated by dividing the total assessable cost by the number of benefitted lots. Frontage foot assessments are prorated for each lot based on the percent of frontage each lot has on the right-of-way. Benefitted area assessments are based on the prorated share of the lot areas benefitted, except large parcels which the area is limited to the front 200 feet. Attached is a map showing in yellow the areas used to estimate assessments under Schedule C – benefitted area method.

Equal Assessments:

The attraction of equal assessments is simplicity.  When every benefitted lot contains one house, the benefit received by each lot is essentially the same.  The cost to provide service to the lot may not be equal because lots with more frontage cost more to serve. Larger lots are generally more costly to serve than smaller lots. When lot size within a district vary significantly, the large lots (which have a greater probability of being subdivided) are not initially assessed based on their ultimate capacity to support additional homes. There is a significant administrative burden associated with monitoring into the future the subdivision of large lots, collecting future assessments, and trying to reimburse other lots in the neighborhood. This method is most attractive when all benefitted lots are similar in size.

Frontage Foot Assessments:

The attraction of frontage foot assessments is that each lot is assessed based on the cost of extending a road, water main, or sewer main across the front of each benefitted property. Larger lots are generally more costly to serve than smaller lots. The disadvantage comes when dealing with lots in a cul-de-sac’s or flag lots; because of their configuration results in very small lot frontages (not representative of the benefit they are receiving).

Benefitted Area Assessments:

The advantage of creating assessments using a benefitted area method is that the assessment for each lot can reflect the square footage of land benefitted by the road, water or sewer improvement. Larger parcels are assessed based on the area near the right-of-way that directly benefits from the improvement. The subdivision of larger lots in the future does not change the area benefitted; no unfairness is created as the neighborhood develops. Lot configurations (cul-de-sac and flag lots) do not distort assessment fairness. Areas that are not developable (i.e. - wet, steep sloped, or inaccessible areas) can accurately be removed from the assessment calculation. Larger lots are generally more costly to serve than smaller lots.

One More Thing:

It is good time to recognize that the cost per lot to provide road, water and sewer improvements in neighbor-hoods comprised of relatively large lots is higher than those comprised of smaller lots. Larger lots are generally more costly to serve than smaller lots, because they are generally wider and require more road or pipe to get across the front of the lots. The attached table (showing per lot assessments under the three scenarios) also shows what each lot would be assessed if the total cost of the proposed water main was assessed in a normal LID situation. Neighborhoods find it difficult to pay for road, water and sewer improvements when lot density is low. These improvements become affordable only when large lots are subdivided; reducing the cost per lot. In this case, because the City has obtained a grant that covers a significant portion of the design and construction costs, the cost per lot (in this large lot neighborhood) is comparable to what it would cost per lot in a “normal” sized lot neighborhood. Housing is more affordable when lot sizes are small.

Recommendation: The City Council approve this Memorandum which reflects the Council’s intention to create deferred assessments on benefitted property owners based on the “benefitted area” method described herein.  The intent of the City Council is to create deferred assessments by Resolution on benefitting property owners after actual costs are known and a public hearing is held where each property owner can been given the opportunity to comment. The Council may revise the method of assessment at that time.