MINUTES FOR THE COMMITTEE OF THE WHOLE
OF THE CAPE CORAL CITY COUNCIL
Wednesday, May 19, 2010
Meeting called to order by Mayor Sullivan at 5:00 p.m.
and McClain were present. Kuehn was excused.
PRESENTATION FROM BURTON AND ASSOCIATES
Public Works Director Pavlos advised they were instructed to go back and look at all the options to minimize potential rate increases. He thanked staff members and those who supported them in order to get the information together to present a summary of all available potential options. He introduced members of the Bond Counsel, Burton and Associates, and the Financial Advisor. He reviewed what they had considered when producing the models. He indicated the numbers used were the most current available.
Andrew Burnham, Senior Vice President of Burton & Associates, explained that Option 1 was to accept the updated rate study and to adopt lower rates and what that represented. He noted there was a reduction in the initial rate adjustment plan with the scenario of not going forward with Utilities Expansion due to reductions in the key areas of operating costs for 2011 and the Financial Advisor’s update on Interest Rate Assumptions on long-term debt. He indicated that revenue estimates came in with 1% of the actual revenues. That, combined with lower costs, resulted in a reduction in the estimated rates over the years. He noted Option 1 did not consider other revenue sources.
Steven Miller, Nabors, Giblin & Nickerson, stated he would review the report by explaining the Options and review the pros and cons of each of them. He made it clear that other than Option 1, they all required an issuance of a bond in order to take out, pay off or refund existing water and sewer revenue bonds. He stated Option 1 was to accept the updated rate study and take on lower rates for 2011, 2012, and 2013. He indicated the pro to this was that it was immediate relief, quick, and in total control of the Commission, with no cost to implement. He added there was no debt required to be issue to accomplish this Option. He stated the con was that this continued to place the burden on the ratepayers. He noted that Option 2 was to impose a Public Service Tax. He indicated some pros were that it was very low cost to implement, totally within control of the Commission, quick relief, and some non-rate payer contribution. He added that it was a new revenue source, and that these types of bonds would have good interest rates. The cons were that there would be a burden on all developed property; a new tax would require the issuance of debt with marginal relief for ratepayers. Options 3 (a) and 3 (b) had the same pros and cons but with a slightly different degree. He indicated Option 3 (a) was to impose a Capital Facility charge on the current areas that already had lines. The pros were that non-ratepayers would contribute, and that it was a new revenue source. The cons were high cost to implement, and the possibility of a significant time delay, and the fact that this was not a strong credit source adding that current economic conditions and the City’s credit score could affect the ability to get the bond. He noted the cons were the same for 3 (b) with the exception that the validation process for 3 (b) was at greater risk of being challenged. He stated 4 (a), (b), and (c) were resuming the Utilities Expansion Program (UEP) along with layering on a Capital Facility charge. The pros were a new revenue source, expanding the rate base, and there would be an economic benefit by creating jobs. The cons would be the validation process, moderate cost to implement, and a risk in achieving the goal. He stated another option would be to go forward with the UEP without charging a Capital Facility charge. This option would result in a 5 ½% increase in rates for 2012 and 2013, with a 3 ½ % increase after that. He noted the last option was General Obligation (GO) bond. The pros with this option would be a wide variety of residents contribute, voters decide, no validation, should be no legal challenge, lowest borrowing cost, would not be a very long process. The cons; no control by Council, some costs involved with a special election, and voters decide.
Discussion held regarding the various options available to them and the cost comparisons.
Councilmember McClain noted he was under the impression that the validation process was not going to be an issue.
Mr. Miller stated that both 3 (a) and (b) were likely to be challenged, however, 3 (a) was legally stronger and had a better chance of getting through the legal process without significant delays.
Mayor Sullivan questioned if the area marked 1-8 was water only.
Mr. Miller answered in the affirmative.
Mayor Sullivan stated he did not like the idea of a public service tax because it did not include all residents
Councilmember Donnell thanked them for the presentation and the attached documentation. He suggested they attempt a GO Bond, adding that he liked the idea of the residents making the decision.
Councilmember McGrail stated he felt they needed a unified Council to show the citizens that they listened to them. He questioned the Capital Facility Expansion Charge to lot owners for SW 6 & 7 and North 1-8.
Public Works Director Pavlos explained the lower number was a Capital Facility Expansion Utility Charge for water only in N 1-8, the higher amount was for 6 & 7 which included water and wastewater.
Discussion held regarding charging a Capital Facility charge and water only in the North Cape.
Councilmember McGrail stated they needed to provide a service to people if they were going to charge for that service. He questioned why people wouldn’t want the service if they were already paying a fee for it. He stated it boiled down to what would happen to the rates. He reviewed what the average water bill would be with each of the options. He noted a GO Bond would stabilize the rates and voiced his concerns about loosing residents because of high water bills. He stated he would support a GO Bond.
Councilmember Deile stated he supported Option 1 and noted the options were not mutually exclusive. He indicated the numbers as they ran through the years reflected the costs of financing and those costs could rise causing a rise the bond costs.
Michael Burton, President of Burton & Associates explained that all scenarios were subject to change, which could result in additional costs.
Discussion held regarding the group of residents who would pay the GO bond and the percentage of contribution for each.
Councilmember Deile asked Mr. Miller to describe what the challenges would be for the validation process.
Mr. Miller stated the challenge would be with the Capital Facility Expansion charge, and whether the city could legally impose that. He stated the issues varied depending on if they had the service available to them or no service and no plan to provide that service.
Councilmember Deile continued by reviewing some of the challenges of charging the Capital Expansion Fee and asked if there was a determination as to what “reasonable” time was concerning providing the benefit.
Christopher Traber, Nabors Giblin & Nickerson, stated there had been no case law that clearly defined “reasonable.”
Mr. Miller stated the firm’s litigation partner indicated there was no clear definition adding they would have to develop a strategy in order to succeed. He stated a refund policy should be a part of that strategy, which made it more difficult in purchasing a bond.
Councilmember Chulakes-Leetz questioned if there would be any problems combining Options 1, 3(a) and 5.
Mr. Miller indicated there would be no problem with using that combination of options.
Councilmember Chulakes-Leetz stated the next regular election to place the GO Bond on was November of 2011. He indicated the goal was not to have to pay the costs for a special election. He reminded everyone that most of the occupied properties were the voters. He requested staff to provide the impact a GO Bond would have on various priced developed properties.
Mayor Sullivan stated he had an issue with asking people who had already paid their impact and assessment fees to pay again. He asked if those people could come back and sue the City.
Mr. Miller indicated the GO Bond would go before the residents for them to make the decision. He added that Council could legally impose a tax on the residents.
Councilmember Brandt asked if the concept of setting aside a portion of the debt and charge properties that had not paid a fee was part of the plan for 3 (a) and (b) or would it be a lump sum.
Public Works Director Pavlos indicated it was similar to 3 (a) and (b), although the amount was lower. He explained 3 (a) and (b) was the full impact fee, not just a portion of it.
Discussion held regarding the interest rates on an Assessment Bond.
Julie Santamaria, Director of RBC Capital Markets, indicated they could use any extra monies to pay on-going costs, lowering the utility rates.
Councilmember Brandt questioned if excess money could be refunded to the ratepayers annually without lowering the rates.
Discussion held regarding excess revenues and Rate Stabilization Funds.
Councilmember Brandt questioned if they could move forward on 1, 3(a), (b) and 5.
Mr. Miller answered in the affirmative.
Public Works Director Chuck Pavlos noted if they combined those options, they would have to do an engineering analysis to check capacity in order to ensure they didn’t charge residents for a service they could not provide.
Councilmember McClain reiterated the differences between 3 (a) and (b). He asked if it were possible to implement a pre-payment discount to avoid paying interest on the bonds.
Mr.Traber explained it would reduce the net positive effect to the ratepayer.
Councilmember McClain voiced his desires to make sure they were presented as two separate packages. He noted he thought a GO Bond would be charged to everyone and noted it would help the future properties because the debt would be lowered. He explained how it would be a win-win situation for everyone.
Public Works Director Pavlos explained how the impact fee would not be affected by a GO Bond.
Mr. Miller stated there would not be a need to implement a facility expansion charge if they utilized a GO Bond.
Mayor Sullivan explained the differences between assessments and impact fees.
Councilmember McGrail agreed they should not consider a Public Service Tax. He questioned if impact fees for future residents would be affected if they implemented a GO Bond.
Public Works Director Pavlos explained they would have to update the impact fee study.
Mr. Miller indicated if they went with a GO Bond they would be required to levy the amount of millage needed to go forward.
Councilmember McGrail asked what the assumption was on the average home value and vacant lots.
Sheena Milliken explained they took the taxable values from the tax rolls for the 2009 and 2010 tax year and separated single family residential by the department of revenue code and looked at where the parcel was located in order to get the average value. She noted she did the same for vacant lots and indicated she would get the values she used.
Councilmember McGrail stated his concern was that if the assessments were too high, lot owners would walk away from their properties. He stated the GO Bond did not un-duly stress the vacant lot values and that every person in the City on average would contribute $136.00. He stated if they stayed with option one, he would pay more in rates than to go with the GO Bond option.
Councilmember Chulakes-Leetz indicated the vacant lots that had assessments paid off seemed to be holding their values. He voiced his concerns regarding lowering the lot values with Option 3 (b). He suggested they get Option 1 initiated immediately before they took their district work period. He reiterated that Option 1 gave the rate payers a 33% decrease in the forecasted rate increase for October; going from a 15% increase to 10.5% increase.
Public Works Director Pavlos stated the new rates would be adopted by a Resolution, which could be done by June 14, 2010. He added that they did not have to legally notice the lower rates.
City Attorney Menendez indicated they would first have to adopt the rate study, then bring forth the Resolution.
Councilmember Chulakes-Leetz indicated his desire was to have the new rates adopted prior to October.
City Manager Schwing indicated he could do that.
Councilmember Chulakes-Leetz continued by stating he supported Option 3 (a) and Option 5. He suggested they move forward with Option 3 (a) first.
Mayor Sullivan explained their intention was to keep the impact on the lot owners low enough to keep them from walking away. He reviewed his plan for lowering the rates, indicating his intention was not to take on the entire amount of the UEP debt.
Discussion held regarding a GO Bond and potential rebates.
Public Works Director Pavlos explained the best option for the ratepayers was a GO Bond.
City Attorney Menendez explained the difference between Option 3 (a) and 3(b) was the availability of service. She reviewed the difference between the two, focusing on the capacity to deliver the service.
Councilmember Deile asked what the interest rate was for Option 5.
Julie Santamaria, Director of RBC Capital Markets, indicated it was 5 ½%.
Councilmember Brandt stated they were talking about water and indicated the capacity was there. He noted if there wasn’t enough, it would be easier and cheaper to add to the capacity. He noted a GO Bond may not level the playing field, but would be a start in the right direction. He indicated he wanted to see more information on Option P (3). He stated they needed to look at a few other issues such as when they were going to do things and the steps they needed to take. He stated they needed to put this on an agenda for a voting meeting to settle.
Sheena Milliken stated the average single-family homesteaded property with utilities was $92,575.00. The average single-family homesteaded property without utilities was $59, 224.00. The vacant property was $20,943.00, which was from the Property Appraisers 2009 tax roll data. She stated they would provide new numbers when they released the 2010 tax data. She indicated the $48.00 charge was based on $20,000, so if the average dropped down to $10,000, the $48.00 would be cut in half to $24.00.
Councilmember McGrail explained that they based annual charges for the GO Bond on property values.
Mayor Sullivan stated one way to see if utilities added any value to a lot would be to acquire comps for unimproved lots with and without utilities.
Councilmember Chulakes-Leetz stated he would be willing to work with Dawn Andrews to get those comps.
Mayor Sullivan indicated they would like to see those numbers.
Recess: 7:02 PM Reconvened: 7:28 PM
CITIZENS INPUT TIME
Phil Boller, resident, reviewed how the different options would affect his rates. He also did some comparisons to other locations.
Arnold Kempe, resident, explained there was no case law that defined what a reasonable amount of time was. He noted the costs should be allocated where the benefits were. He did not support a GO Bond or Public Service Tax. He suggested they use a special assessment. He noted before they did that, they would have to break out all the costs in order to determine which ones they could charge as a special assessment. He indicated that to the best of his knowledge there were no Florida Appellate decisions specifically setting forth a time limitation on assessments.
David Downs, resident, indicated the GO bond was not the way to go and stated the undeveloped lots needed to contribute to the costs of the Kismet plant, instead of the ratepayers who would be paying twice. He asked what the term of the bond would be. He stated the undeveloped lots were still getting a free ride. He voiced his belief that there were savings to be had in operating expenses.
James Farris, resident, stated they needed to figure out what went wrong, and why they needed more money. He indicated the GO Bond was not the answer.
John Barth, resident, indicated that they needed to go to the County if they were going with special assessments. He stated they probably would not make a large amount of money with the empty lots. He indicated that although a GO Bond would not solve all their problems, it was better than a Public Service Tax.
Mayor Sullivan stated the reason why they needed more money was because they had paid too much for the utilities expansion program. He noted adding users tended to increase the rates. He indicated the term of a GO Bond would be 30 years. He reviewed the average cost of a lot and rates versus taxes.
Council Member Chulakes-Leetz questioned if staff could get the breakout of costs that Mr. Kempe suggested. He stated he believed the dialog created on this issue had allowed for progress. He suggested that they needed to further evaluate the assessment methodology.
Councilmember McGrail stated they had decided to go forward with option 1, and explained what they were trying to accomplish. He stated the well water quality was not better in the north than city water in most cases. He indicated that long-range plans included sewer and city water for everyone. He concluded by stating the October increase was going to be 10.5 % instead of 15%.
There being no further business, the meeting adjourned at 8:12 p.m.
Rebecca van Deutekom, CMC