A Public Improvement Task Force has been studying issues that fall under the general heading of "adequate public facilities." The aim of the task force, and of the idea of adequate public facilities, is to coordinate the timing and location of growth in Lawrence and Douglas County. A coordinated approach is needed to ensure that adequate infrastructure is in place to service that growth, to maximize the effectiveness of public investment, and to provide equitable distribution of the costs of infrastructure. The following is a summary of the task force's findings to date.
The first principle of the adequate public facilities approach is that public improvements must precede growth. The first step in determining future public improvements needs is to plan the new growth areas. The community wide comprehensive plan is the fundamental planning document. Refinements in the form of area plans and nodal plans add detail to the planning analysis. The city's capital improvement plan views the infrastructure needs from a financial point of view.
The task force has identified some additional specific planning questions for which answers could be required in advance of building in newly developing areas:
Answering these questions provides a more comprehensive understanding of the city's infrastructure costs than is being prepared under the current development regulations.
Once the planning basis is in place, the task force suggests that no building permits in new growth areas should be issued until the following infrastructure is in place:
Responsibility for these improvements rests in some cases with the city, in others with the property owners or developers. Possible changes to current regulations and financing methods for these improvements will be suggested later in this summary.
Water and Wastewater. The current mechanisms in place for evaluating and providing for future needs in these areas meet the standards of the adequate public facilities approach. An ongoing master planning process and periodic rate studies provide the information needed to evaluate the current system development charges, or impact fees. The task force recommends that this process continue, and that the City Commission adjust the impact fees based on the options presented by consultant.
Local and Residential Collector Streets. Responsibility for these streets typically rests with the developer. In the case of "boundary line" roads, it is sometimes necessary to build collector streets when adjacent property owners are not all in agreement with the need or the timing. In general, the task force recommenmds maintaining the current system for constructing such streets, with two possible modifications to deal with such timing issues.
First, deferrals of special assessments for benefit districts may be used to reduce the hardship on property owners who see little or no benefit in the improvements, and to avoid forcing development of such properties by imposing unsupportable tax burdens on them. Second, an alternative to establishing benefit districts would be for the city to collect an "escrow fee." This fee would represent the developer's proportionate share of the cost of a street, and set that money aside for to be spent only on that street's construction. The escrow fee structure will be discussed in more detail later in this summary.
Major Collector and Arterial Streets. Responsibility for the construction of streets of these classifications varies from case to case. The task force suggests that these streets would best be constructed in advance of development, in order to help guide the timing and direction of new city growth.
Moving the construction schedule for collector and arterial roads raises several issues. The first is the need to identify the revenue sources that will pay for the construction, and to what extent those costs will be recouped by the city as private development proceeds. Costs of construction may be higher when streets "lead" the development process, since right of way may have to be purchased, rather than being donated as part of the negotiation between the city and developers. A key component of this proposed change in the timing of major roadway construction will be the coordination of the projects with both the city Capital Improvement Plan and the County's rural planning efforts.
Several options for financing advanced construction of streets were discussed by the task force. The use of deferred special assessments and escrow fees has already been mentioned above. Much of our discussion focused on two other methods, which are being employed in neighboring areas: impact fees and excise taxes. In brief, impact fees would be collected based on the cost of the specific improvements for which the fee is levied, while excise taxes can be used for any city purpose, but the amount of which could be determined based on the costs for specific public improvements like arterial streets.
Stormwater. Lawrence currently requires stormwater detention features for most new development. We also have a stormwater utility fee that pays for projects to correct past shortcomings in our stormwater control system. However, new federal mandates, as well as current best engineering practices indicate the need for improvements to Lawrence's stormwater regulations.
Among the issues the task force believes need to be addressed, the most pressing may be the EPA mandates which are scheduled to come into full force in 2008. The need to resolve differences and coordinate efforts between Lawrence and Douglas County is another significant issue.
The task force recommends that the stormwater utility be continued to "retrofit” existing areas of the city. In newly developing areas, the city should move away from its current model of requiring stormwater detention on a project by project basis, and develop instead a watershed model. This would view all the area within a given watershed as a whole, and propose a unified strategy for controlling stormwater within it. Such an approach would likely lead to the creation of features such as stormwater districts and stream corridors, and suggests coordination with the city's Parks and Recreation efforts in identifying greenbelts and other open space. Coordination with zoning regulations is another important component of a move towards watershed management. Coordination with Soil Conservation District programs may be possible, given that prevention of soil erosion is a goal of the new EPA mandates. Transfer of development rights is a tool which might be pursued in implementing watershed plans.
Fire Protection. Lawrence maintains a high level of service in this category, as evidenced by our city's ISO rating. The task force recommends maintaining the current rating.
The Fire Department has its own master plan for future fire station construction, a plan that will need updating in light of the newly adopted urban growth area. However, the plan does not anticipate funding mechanisms. Traditionally, new fire stations have been funded by the city at large using capital improvement funding.
The task force has discussed the possibility of asking that new development pay the capital cost of new fire stations, with the costs of staffing, operating, and maintaining those stations to be borne by the city at large. The most likely financing method would be an impact fee. It would be relatively straightforward to assess the cost per household (or per business) of a new fire station based on the area that each station can serve and the planned density of that area.
Neighborhood Parks and Open Space. The Parks and Recreation Master Plan identifies the need for a neighborhood park within one mile of any part of the city. Stated another way, a neighborhood park should serve an area of four square miles. Identifying future park land in advance of development is a goal of the adequate public facilities effort. It also creates the opportunity for coordination with the Lawrence school district. Locating future school sites within or adjacent to park sites provides advantages for both city and school planning efforts.
As with the fire protection issue, the task force suggests that capital costs, and in particular land acquisition costs, could be assessed to new development, while operating costs would continue to be the responsibility of taxpayers at large. Several possible financing options were suggested. Impact fees could be applied to park and green space acquisition. Donations of land could be encouraged in lieu of fees. Finally, conservation easements could be used to allow private ownership of green space maintained for the public benefit. The latter method would seem applicable only in special cases, since the maintenance of lands covered by conservation easements remain the private owners' responsibility.
In considering "level of service" issues in established neighborhoods, the task force believes it is important to recognize that these areas developed under standards and expectations that may differ from current policies. Except in situations where there are clear public safety and property protection issues, such as stormwater control, such neighborhood standards should be respected and supported in making infill development decisions.
Because infill development provides many community benefits in terms of efficient use of city services, public improvement policy should provide incentives for such development. The task force recognizes that deferring special assessments until redevelopment occurs in established neighborhoods may mean in reality that the city never recoups the deferred costs.
There are several methods available for financing public infrastructure. These methods have advantages and disadvantages from administrative, legal, and public policy value standpoints.
City Financing / City Debt Financing. The City has taxing and rate collection authority to provide resources for the construction of public improvements. Much existing infrastructure has been paid with these resources. In any number of street improvements, traffic signals, sidewalks, etc. have been constructed with City at-large financing. The City’s development policy has generally struck a balance between City at-large financing and development financing, providing that new infrastructure: water, sewer, roads, sidewalks, stormwater will be the financial responsibility of the property owner developer; while the City at-large will be responsible for maintenance of infrastructure and the construction of projects which have a City wide benefit. There are few administrative and legal hurdles for City financing of public infrastructure, the challenge is the burden borne by public taxpayers and ratepayers. The significant public policy discussion has centered on the appropriate roles of the City at-large (taxpayers and ratepayers) versus property owners/developers in the financing of public infrastructure. There is strong support for the view that property and development benefiting from public improvements, or impacting the community with a need for new public improvements, should bear all or part of the burden of financing the cost of public improvements – rather than City taxpayers and ratepayers.
Benefit District Financing. Lawrence had traditionally used benefit district financing as a vehicle to finance a number of public improvements, particularly collector streets and sanitary sewer improvements. Some developments choose to privately finance all public improvements (the cost of such improvements paid by the development), other developments take advantage of benefit district financing. Under benefit districts, the City creates the benefit district, indicating which property benefits from the pending improvement. The City finances the design and construction of the public improvement and then assesses the cost for the improvement back on to the benefiting property based on the pre-determined method of assessment. This method allows some flexibility to create benefit districts reflecting the needs of both the City and the property owners. Because not all public improvements are specially assessed throughout the City, there is some unpredictability on the part of homeowners with benefit district financing. It is possible for a homeowner to receive a special assessment for an improvement (e.g. a collector street serving her neighborhood) and not have previously “read the fine print” advising them of the possibility of this financial obligation when purchasing the property.
One of the challenges facing all methods of financing public improvements is that property owners adjacent to or benefiting from a public improvement have different time expectations for developing their property and when a public improvement is needed. One property owner may be seeking to develop their property immediately and requesting a benefit district to finance a needed public improvement, another property owner may want to wait several years for development, another property owner may not be planning to ever develop/ re-develop their property. This “timing” problem can be a significant hurdle with benefit districts. One method the City has used to attempt to address the timing issue is “Agreements Not to Protest a Benefit District.” These agreements commit the property to participation in a benefit district for a needed public improvement, but do not stop a proposed development until the public improvement is in place. Thus a developer can execute an “Agreement Not to Protest a Benefit District” (committing the property to participation in a benefit district) and not construct the improvement at the time of development. While Agreements Not to Protest a Benefit District remain a useful tool in forecasting future improvements and financial obligations, these Agreements are also criticized because many future property owners do not appreciate the financial commitment benefit districts involve. These Agreements also push public improvement questions into the future, while the desire for adequate public facilities indicates those improvements should be constructed concurrent with development.
Another timing issue involves property owners whose property benefits from the improvement but have no plans for current development or redevelopment of their property. These property owners frequently have been long-time residents of collector streets – built to earlier rural standards – who now face unwanted development near their homes and unwanted special assessments to pay for the infrastructure necessitated by the development. Assessing these property owners can result in a tremendous financial burden. The Task Force recommends the formal adoption of a City policy that would allow the City, but not require the City, to defer assessments in these or similar circumstances until the property develops or redevelops. Excluding these property owners from a benefit district is not usually a legal option. Delaying the improvement until these properties develop harms property owners seeking to develop. A draft recommended policy has been reviewed by the Task Force.
A financing method, which the City may wish to explore, is the use of escrow accounts. Under this requirement, the developer/ property owner would provide to the City the estimated amount of their contribution to a public improvement (in lieu of another financial requirement such as a benefit district). The City could then only expend these funds on the related public improvement, such improvement to be constructed within a specified period of time. Any escrowed funds not used for proportionate share of the project would be returned to the developer. This process allows for funds to be received by the City early in the development process – reflecting the timing interests of various property owners and developers. It is likely that City participation will also be needed for these public improvements because it is unlikely that all property owners will have provided escrowed funds at the time a public improvement is constructed. This City participation may also include benefit district financing for properties not paying escrowed funds.
Escrow Financing is similar in concept to impact fees.
Several Kansas communities have enacted local legislation requiring the payment of impact fees from developing property owners. Lawrence has system development charges for water and wastewater that generally follow the legal and administrative requirements of impact fees. A key requirement of impact fees is that the fee be equitable to the burden/impact created by development, in other words that property creating a similar demand for a certain public infrastructure would pay the same fee amount as a property with the similar demand. Impact fees must also be proportionate, having some reasonable relationship to cost of meeting the public infrastructure demand. Revenues from impact fees are not general fund resources available for any public expense but must instead be spent on public infrastructure for the purposes collected. For example, an impact fee for road improvements from a development would need to be spent for road improvements associated with that development. Impact fees could also be used with other infrastructure financing tools, such as benefit districts and City at-large financing. There is no statutory authority for cities in Kansas to enact impact fee legislation. Cities that have enacted impact fees have used home rule authority.
Several Kansas communities have also enacted local legislation for an excise tax on platting property. Typically, these revenues are used by the taxing jurisdictions to fund public improvements in the community. A number of Johnson County cities have enacted plat excise taxes and earmark those revenues for street improvements. Kansas courts have upheld this legislation, which is generally viewed as having greater legal support than impact fees in Kansas. As with other taxes, revenues are not specifically tied to a particular purpose. An excise tax on platting property would apply to all platting actions within a community, not necessarily those that generate a demand for new infrastructure. Excise taxes could also be used with other infrastructure financing tools, such as benefit districts and City at-large financing
Next Steps Toward a Comprehensive Public Improvements Policy
Short-term recommendations:
The Task Force recommends that the City Commission adopt the following changes to the City’s development policy: 1) allowing for the deferral of certain special assessments, 2) the escrowing of certain funds for public improvements, and 3) linking building permits in developments to certain public improvements in the capital improvements plan. The recommended language is attached. Additionally, City staff is recommending “clean-up” provisions to the development policy to ensure that current practices (e.g. bike lanes, traffic calming, traffic impact analysis) is included in the revised document .
The Task Force understands that the City’s current water/wastewater rates are under analysis, and that recommendations from the report will include recommended rate adjustments and adjustments to the City’s system development charges.
Long-term recommendations:
1) The Task Force recommends the solicitation and retention of consultant services for a cost of growth study as outlined below.
2) The Task Force also recommends that the City pursue watershed stormwater
planning efforts as outlined by the City’s stormwater engineer.
Cost of Growth Study
Study Objectives:
Phase I
1) Determine the actual/projected public costs and benefits associated with current and projected growth of the Lawrence community within a projected five-year time horizon
Public costs shall focus on collector/arterial streets; intersection improvements; parks and open space; City recreation facilities; and fire/medical facilities. Other public facilities shall be included as appropriate. Costs shall include capital and operating costs. Public costs shall not include water/wastewater infrastructure. The inter-relationship of City public infrastructure with other public facilities and services will also be addressed as appropriate.
Benefits shall include tax and fee revenues, community economic benefits associated with growth, and other appropriate benefits.
2) Examine methods for the appropriate allocation of public costs, including tax, fee, impact fee, exactions, excise tax and other options. Examination shall include administrative, community economics, public finance, equitable, and legal considerations.
After consultation and direction from client, prepare draft local legislation implementing appropriate public cost allocation method(s).
Criteria for evaluation of proposals shall include:
Previous relevant experience in assisting growing communities with evaluation of costs and benefits associated with community growth; evaluation of methods for public cost allocations; and successful implementation of recommended methods. Successful applicants shall integrate consultation with community members into their work, including those representing neighborhood and development members.
Respondents should provide a listing of references, estimated project deliverables (work product) and an estimated timeline for completion of the study. Proposals should also indicate the ability to respond to specific Kansas law requirements for aspects of the study.
Short-term recommendation policy amendments:
The City, pursuant to direction of the City Commission, shall have the authority to pay all or a portion of the special assessments to be assessed against a property in a special assessment benefit district. The City, pursuant to direction of the City Commission, shall have the authority to enter into an agreement with a property owner whereby all or a portion of the special assessments to be assessed against a property in a special assessment benefit district are deferred. The assessments may be deferred until certain conditions in the deferral agreement are met. Conditions in the deferral agreement may include, for example, the development or redevelopment of the property, the rezoning of the property to a certain use or density of use, the issuance of a building permit, or the transfer of the property to another property owner. Because payment of special assessments by the City and/or deferral of special assessments by the City increases the City at-large financial obligation for funding public infrastructure, the City desires to limit the payment and/or deferral of special assessments to situations wherein the special assessments create an undue financial hardship on the property owner. Such situations may include: the construction of certain public improvements that provide a limited benefit to the property and the pre-existence of a residential use which has existed for a number of years prior to City annexation and City development. The discretion to reduce or defer special assessments shall rest solely with the City Commission on a situation-by-situation basis, which shall consider the fiscal consequences of increases to City at-large obligations in considering whether to reduce or defer special assessments. Nothing in this policy statement shall create an obligation of the City to reduce or defer special assessments, unless an agreement containing such obligation has been approved by the City Commission.
As an alternative to the installation of a specific public improvement, and as an alternative to requiring the financial participation in a special assessment benefit district for the financing of a specific public improvement, the City may require a property owner seeking to develop property to provide the City with funds equal to an amount representing the property’s estimated proportionate share of the costs for the installation of a specific public improvement. The City and the property owner shall enter into an agreement for receipt, crediting and expenditure of such funds. Such agreement may provide for the phased development and/or phased payment of funds to finance the specific public improvement. Such funds shall be placed in a separate account of the City and expended, within an agreed upon timeframe, solely on the specific public improvement. Such funds may be spent on the design, property acquisition, construction, inspection and related and necessary costs of such public improvement. The City Director of Public Works shall certify the property’s estimated proportionate share of the costs for the installation of a specific public improvement in the City/Property Owner Escrow Agreement. After the final acceptance of the specific public improvement by the City, the City Director of Public Works shall provide a detailed accounting of all funding sources for the specific public improvement and a reconciliation of funds and expenditures. The City/Property Owner Escrow Agreement shall provide for the appropriate distribution of funds in the event that the funds initially provided exceed the proportionate share of the costs for the installation of the specific public improvement.
Unless specifically authorized by the City Commission, no building permit shall be issued and no building activity allowed until all necessary public improvements have been installed and accepted by the City. Necessary public improvements shall include, but not be limited to: potable waterlines, sanitary sewer lines, local, collector and arterial streets installed to current City standards serving the site of the building permit, sidewalks adjacent to streets, and stormwater improvements. In the determination of whether all necessary collector and arterial streets have been installed to current City standards, the City Director of Public Works shall rely upon whether the most recently adopted City Capital Improvement Plan limits development in a certain area until a planned collector or arterial street is installed. The City recognizes that infill development may have special characteristics and existing neighborhood standards requiring different development standards.