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CASE REVIEW RATES FOR SPECIAL UTILITY DISTRICT By: Je~ie Hart, Finance Officer and Steve Jankowski, City Engineer #/ Background: In March of 1987 the City Council received and accepted a feasibility report for trunk and lateral sanitary sewer an~ mink watcrmain for the industrial and commercial area of the City, referenced as Improvement ~Project 87-19. The project was originally requested by three properties located at the intersection ~ Sunfish Lake Blvd. and Industry Avenue, Mate Punch and Die Company, The Iron Works and Sauter and Sons, Inc. Both Mate Punch and Die Company and the Iron Works planned to expand their businesses and Sauter and Sons, Inc. planned to develop their property shortly thereaftep, In addition, Ivan Schwan. zman had requested that the City provide sewer and water service to [/is property located west of the Riverside West plat. The preparation and acceptance of this feasibility study was in response to the requests from the property owners ~nd a recommendation from the Economic Development Commission to extend utilities to the in~rsection of Sunfish Lake Blvd. and Industry Avenue and across Highway 10 to the S chwartzmaniproperty. Financing for the project was through the use of tax increment funds. By using tax increment funds, the City ~as able to consmact the sewer and water systems as utilities in accordance with Minnesota State Statute Chapter A service availab~ility surcharge (S.A.S.) was established and is currently charged at the time of hook-up to the sy~stems. The S.A.S. is currently billed quarterly over a period of ten years and is anticipated to provide the resources to extend the mmk utilities. The S.A.S. is subject to change from year to yea~ based on current interest rates and the Eng~neenng News Record Construction Cost Index. HoWever, once the hookup ~s made, the price fo.r the user is fixed. In addition to tho S.A.S., a user rate was established which'is anticipated to cover the City's cost of providing the~ateral service, operation and maintenance costs, ownership fees and a margin. This fee was determined by estimating the typical lot to be served to be one acre with 200 feet of frontage. It was ~sumed that the capitalized cost would be amortized over a thirty year period at eight percent inte~st adding the capitol~zed cost to the current sewer and water charges to come up with a user fee that covers lateral cost. These user fees were established, and currently are as follows: Sewer W~tcr QuarterlyFees per 1,000 gallons $ 2.73 $ 2.20 Minimum Fee per Quarter $205.00 $165.00 (The above fees are based on usage of 75,000 gallons per quarter) The lateral service cost, before capitalizing interest and-amortizing over thirty years, was estimated to be $7,500. Th{re was no consideration given for an inflator on the lateral service cost due to the manner in which:it was to be billed. The manner in which the minimum fee per quarter is split depends on the iamount of water actually used during the quarter. The actual charge for usage,based on non-special district rates, is calculated and the amount of the minimum fee remaining, ff any~ is then allocated towards the lateral service cost. Billing the lateral service costs in this manner a~pears to be "hiding" the actual costs for the lateral service and has made it increasingly difficult to administer and control. I