Fernandina Beach impact fees will be revisited in 2015

Submitted by Suanne Z. Thamm
Reporter – News Analyst

December 19, 2014 7:19 a.m.

DSCN3774The Fernandina Beach City Commission (FBCC) held a special meeting December 17, 2014 to receive a presentation on a recent impact fee study. Following discussion, the FBCC unanimously approved Resolution 2014-175 to allow Burton & Associates to conduct the 2014-2015 water and wastewater revenue sufficiency analysis study as a sole source vendor for $24,985.

By adopting the resolution the city is attempting to address concerns raised in the recent impact fee lawsuit regarding the “dual rational nexus test” that Judge Brian Davis ruled the city had failed to meet in establishing water impact fees. Until the city acts to establish a water impact fee that meets the test, there will be no water impact fee imposed on new construction or additional water fixtures. The sewer impact fee, which was not challenged under the recently settled suit, will remain as it is currently set.

Should the city decide to reimpose a water impact fee or adjust the sewer impact fee following the completion of the study, there will be at least two public meetings held for a full discussion by the FBCC and the public.

The city anticipates such public meetings to take place in early 2015.

Michael Burton, Burton & Associates, explains impact fee studies to FBCC.
Michael Burton, Burton & Associates, explains impact fee studies to FBCC.

Michael Burton of Burton & Associates, walked commissioners through his presentation, which was also attended by Charter Officers and city Utilities Department Director John Mandrick.

Burton first explained impact fees, also called capacity fees, and the requirements of the Dual Rational Nexus Test. Impact fees must meet all state statute requirements and all judicial standards established through case law.

The statutory requirements include:

  • The calculation of impact fees must be based upon the most recent, localized data;
  • Separate reporting/accounting of impact fee revenue and expenditures are required to be recorded in a distinct fund;
  • The administrative charges collected in impact fees must be based upon actual costs; and
  • 90 days’ notice must be given prior to the effective date of an ordinance imposing or amending a system capacity fee.

The Dual Rational Nexus Test that must be satisfied:

  • The impact fee must be proportionate to the benefit received by the new connection, and
  • The impact fee funds collected must be used to fund assets benefitting the new connection.

Burton said that two studies are required to meet the Dual Rational Nexus test. The first, a water and sewer capacity fee (impact fee) study, establishes water and sewer capacity fees in accordance with State Statutes and case law, thus meeting the first prong of the test. The second is a water and sewer revenue sufficiency analysis study that projects the sufficiency of revenues over a 10-year forecast, determines the annual rate adjustments if required, and clearly shows the use of capacity fee revenues in the financial plan to pay for excess capacity that has been, and continues to be funded by the system for the benefit of future connections to the system. This second analysis provides proof that the second prong of the dual rational nexus test has been met.

Burton preferred the use of the term “capacity fee” in discussing what locals have termed an “impact fee.” He explained that in setting such fees, government bodies must show that rates are fair and equitable to those who currently benefit from the services and future users. While current users pay for adding future capacity, future users pay for recovery of initial capital costs when they begin using the system. To better illustrate the underlying principle, he used an example of five people buying a van for carpooling. If they purchased a van with a capacity for 10 riders, each would initially pay 20 percent of the cost. But as additional riders joined the carpool, rate adjustments would be made to equalize the contributions of the initial investors and the later investors.

Impact fees were last studied in 2008. By law, the government entity imposing impact or capacity fees must be even handed in cost recovery. The entity may decide not to impose any fees to encourage economic development or impose 100 percent cost recovery through the fees. But the entity must be consistent in application fees across classes of users. This means that residential customers cannot be charged fees at a different rate than commercial customers.

Burton presented several slides based upon an analysis of available local data. Before the recent lawsuit, the city charged impact fees of $1,500 per equivalent residential unit (ERU) for water and $1,385 per ERU for sewer. Only sewer fees are collected currently. He suggested that the city has two options: to adopt new fees at full cost recovery or to do so at partial cost recovery. He recommended adopting a fee at 95 percent recovery. By so doing, Fernandina Beach’s fees would be on the lower end of comparable water system fees charged in the region, and fees for combined water and sewer impact fees would place the city’s rates between those of JEA and Hilliard. The combination of water and sewer impact fees at 95 percent of cost recovery would result in an increase of $395 or 13.7 percent over the combined fees before the moratorium on water system fees was instituted.

sewerfeeCommissioner Tim Poynter asked how the recommendation would fit with the settlement of the recent impact fee case, expressing concern that it might lead to another lawsuit. Burton replied that one of the problems with the recent lawsuit was that the city’s consultant at the time that the fees were established had no detailed analysis studies to back up the fees in question. He said that with studies as back up, it is legal to include debt service in impact fees. He added that his firm has advised other government entities in Florida in this regard and that they have not been legally challenged. In response to commissioner questions he added that he carries $3M in insurance to cover legal challenges.

Burton advised commissioners that it is within their power to set fees at any range for cost recovery up to 100 percent, that they may charge different rates for each of the two fees (water and sewer), but that the same fee must be assessed to all customers for each specific service.

Fernandina Beach attorney Clinch Kavanaugh
Fernandina Beach attorney Clinch Kavanaugh

Local attorney Clinch Kavanaugh, who was on the prevailing side in the recent lawsuit, chastised the city for not providing adequate notice for a meeting of such importance. City Attorney Tammi Bach said notice had gone out before noon on Thursday, December 11, 2014. Kavanaugh also reminded Burton and the commissioners that Judge Davis’ ruling was based upon more than the city consultant’s failure to provide detailed analysis of the fees. He asked how Burton’s recommendation would stack up with the state’s Public Service Commission (PSC). Burton replied that the PSC jurisdiction covered only privately owned utilities. They use different criteria to rank cost recovery than those used for government entities.

City Manager Joe Gerrity stressed that the commission was only being asked to approve the studies, not to adopt or change any city impact fees. Any such action would take place in 2015 with all legally required notice and public involvement.

Bowman said that most cities charge some level of impact fees for cost recovery and capacity.

Commissioner Pat Gass moved approval of Resolution 2014-175 to conduct the water and wastewater revenue sufficiency analysis study and was seconded by Vice Mayor Johnny Miller. The motion passed unanimously.

In response to a question Burton indicated that his team could have the draft study ready for staff review in 30 days, adding that it might be ready for commission review in six weeks.

Suanne Thamm 4Editor’s Note: Suanne Z. Thamm is a native of Chautauqua County, NY, who moved to Fernandina Beach from Alexandria,VA, in 1994. As a long time city resident and city watcher, she provides interesting insight into the many issues that impact our city. We are grateful for Suanne’s many contributions to the Fernandina Observer.