Memorandum

City of Lawrence                                                        

Utilities Department

TO:	David L. Corliss – City Manager Diane Stoddard - Assistant City Manager Cynthia Wagner - Assistant City Manager
FROM: CC:	Dave Wagner – Director of Utilities Mike Lawless – Asst. Director of Utilities
	Philip Ciesielski – Asst. Director of Utilities Ed Mullins – Finance Director
Date:	August 3, 2011
RE:	Information Related to System Development Charges

During the August 2, 2011 City Commission Meeting, the Commission requested information on deferring the increase in System Development Charges (SDCs) for another year. Staff has prepared the following information to respond to this request.

Without an increase in the SDCs, the projected balance in the water and sewer capital account would be reduced to less than $350,000 at the end of 2012. A continued deferral of the calculated increase in SDCs would require an increase in water and sewer rates in the future in order to fund the projects identified in the current capital improvement plan. Attached is the prioritized list for the proposed 2012 CIP with recommended reductions.

Another way of analyzing the impact of not increasing the SDCs is to calculate how much water and sewer rates would need to increase to produce the same amount of revenue. The estimated SDC revenue increase was $106,000. Anticipated revenue is evenly divided between water and sewer system development charges. To increase water and sewer revenue by $53,000, respectively, would require a water increase of 0.4% and a sewer increase of 0.3%. The overall increase would be 0.37%. 

The SDCs are the buy-in cost of the available capacity provided within the water and wastewater systems. They are calculated using the replacement cost of the existing plant (transmission lines, storage, pumps, and treatment plants) plus the amount of construction in progress and future capital projects for those same categories. The amount of related outstanding debt is deducted from this amount to determine a unit equity value or the value of one unit of capacity. Multiplying the unit equity value by the equivalent customer demand based on meter size determines the SDC.

Funds generated from the SDCs are used to pay for design, construction, interest, and debt costs associated with capital improvement projects that expand the water and wastewater systems. Past and present projects that expanded capacity include:

• Wastewater Treatment Plant Expansion
• Clinton WTP Filter Expansion
• Kaw Lime Residuals
• Pump Station 16 Rehabilitation and Expansion
• Stone Ridge Water Tower
• Clinton WTP Expansion
• Pump Station 25 and Forcemain Upgrade
• Pump Station 9 Wet Weather Storage
• SE Area Benefit District Participation
• Anaerobic Digester Improvements

In 2010, the debt payment for the Clinton WTP Filter Expansion and the Kaw Lime Residuals Project totaled nearly $850,000. The debt payment on the Wastewater Treatment Plant Expansion was more than $2.9 million. These costs alone exceed the SDCs collected in 2010.