Devils Lake Water Improvement District Sewer System Financial Evaluation

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Devils Lake Water Improvement District

LINCOLN COUNTY, OREGON November 26, 2018

Sewer Service Financial Evaluation White Paper

Low Pressure Sewer System East Side of Devils Lake, Oregon

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Table of Contents 1.0 Executive Summary .......................................................................................................................... 3

1.1 Project Overview ......................................................................................................................... 3 1.2 Cost Summary ............................................................................................................................. 6 1.3 Case History – Voyage Lake Local Improvement District (LID) ............................................... 7

2.0 Residential Related Costs.................................................................................................................. 8 2.1 Background .................................................................................................................................. 8 2.2 Tank / Pump System and Controls .............................................................................................. 8

2.2.1 Tank / Pump / Controls ........................................................................................................... 8 2.2.2 Installation ............................................................................................................................... 8

2.3 Service Lateral Installation .......................................................................................................... 9 2.4 Decommissioning Existing Septic Tank ...................................................................................... 9 2.5 Operation and Maintenance (O&M) .......................................................................................... 10 2.6 Cost Summary ........................................................................................................................... 10

3.0 Sewer District Related Costs........................................................................................................... 11 3.1 Introduction ............................................................................................................................... 11

3.1.1 Lincoln County Department of Planning and Development ................................................. 11 3.1.2 Lincoln County Public Works ............................................................................................... 11

3.2 Transmission Pipeline – “Backbone” System ........................................................................... 12 3.2.1 District Administration .......................................................................................................... 13

3.3 Cost Summary ........................................................................................................................... 13 4.0 City of Lincoln City Related Costs ................................................................................................. 15

4.1 System Development Charge (SDC) ......................................................................................... 15 4.2 User Rates .................................................................................................................................. 16

5.0 Rate Study – Financial Impacts and User Rates ............................................................................. 17 5.1 Residential User Rate Breakdown ............................................................................................. 17 5.2 Sewer District User Rate Breakdown ........................................................................................ 17 5.3 Combined User Rate Breakdown – Projected User Rate .......................................................... 18

6.0 Conclusion and Next Steps ............................................................................................................. 20 6.1 Next Steps .................................................................................................................................. 20

7.0 Sewer District Formation – General Information ........................................................................... 21 7.1 Initial Steps ................................................................................................................................ 21 7.2 Formation .................................................................................................................................. 22 7.3 Hearing ...................................................................................................................................... 23 7.4 Election ...................................................................................................................................... 23

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Section

1 1.0 Executive Summary

1.1 Project Overview The Devils Lake Water Improvement District (“DLWID”) retained Civil West Engineering to perform a financial evaluation of a proposed central sewer collection system to serve residents on the east side of Devils Lake. This White Paper (“Paper”) summarizes probable project costs and financial impacts to the residents. For many years there have been discussions regarding the installation of a central sewer system to serve residents on the east side of Devils Lake. The City of Lincoln City, Oregon (“City”) evaluated and studied the feasibility of providing a centralized sewer system as found in a draft sewer system pre-design report completed by Pace Engineering in July 2015 (“Pace Report”). The Pace Report included technical design information and provided a preliminary over-all construction cost estimate of the central sewer system based on market costs at the time the report was prepared. The Pace Report did not; however, include costs for the individual residential on-site system. The fundamental reasons or advantages for installing a central sewer system are: (1) There is always the possibility that a lake resident may someday incur an unwanted and unanticipated expense to replace their existing septic system, and (2) protection of the lake and surrounding environment. For residential on-site septic systems that are failing (not providing adequate treatment, water surfacing and causing a potential health and environmental hazard, etc.), Quinn Andreas, Lincoln County Senior Environmental Health Specialist, has been requiring most repairs on Devils Lake to install what Oregon administrative rules call an Alternative Treatment Technology (ATT) with Treatment Standard 2 (requiring disinfection, like Ultra Violet). These systems can cost in the range of $25,000 to 35,000 +/- depending on local conditions. Additionally, the ATT systems are required to have a maintenance contract through a provider which can cost $200/year +/-. Table 1.1 shows the financing obligation for an individual resident if a $30,000 ATT system was required to be installed on their property. A monthly payment of $255.86 would be required for 15-years (if financed).

Table 1.1 – Individual Septic System Repair Cost* Individual Replacement (ATT) 15-year loan term

Capita l Cost $30,000

Loan Needed $30,000

Interest Rate 5.000%

Loan Period (yrs ) 15

Annual Annuity $2,890.27

Monthly Financed Payment $240.86

Monthly Payment (maintenance contract) $15

Total Residential Cost $255.86 *Debt payment based on: 15-year loan, 5%

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When septic systems fail, most properties on the lake, according to Mr. Andreas, will require advanced treatment (ATT), either due to space limitations (no room to put another septic / leach field system), proximity to the lake, or high groundwater / saturation layer of the soil. Devils Lake has significant water quality issues and does not meet state or federal water quality standards. Failed septic systems that surround the lake are a noted source of nutrient contamination. The City has determined that constructing a sewer system to replace the existing septic systems is needed (Pace Report, 1:1). The Pace Report concluded that the most affordable sewer system would be installing a small diameter, low-pressure sewer line versus a large gravity sewer. Individual grinder pumps will pressurize the system and deliver sewer from the homes to the City’s central collection system for treatment and disposal. The Pace Report discussed the technicalities and details of an Environment One Corporation (“E1”) grinder pump (“GP”) low-pressure sewer collection system. The Pace Report contains significant information and will be used and referenced herein for its technical value and initial project cost estimate; the Pace Report is the technical foundation for this White Paper. No attempt was made to study and reevaluate any technical or design criteria. The most recent construction estimate for the "backbone" of a low-pressure system for the north and east side areas of the lake is $7.12 million as found in the Pace Report. The "backbone" includes only the main line in the road in front of the home, and a service lateral from the main pipeline to the homeowner's property line. The system “backbone” cost will be shared by all users. The extension of the service lateral from the property line to the home and the cost of an E1 system (pump and tank, connection, and decommissioning of the existing septic tank) will be the individual property owner’s responsibility and in addition to the shared cost. A map from the Pace Report shows the anticipated project area to be served by a central sewer system. Within this area, the City of Lincoln City currently provides water to 442 predominately single-family residential accounts. Each of these accounts has an on-site wastewater system (septic tank and drain field) that could be eliminated once a sewer system is installed. The new collection system will connect to the City’s wastewater collection system where there is adequate capacity to convey, treat, and dispose of wastewater from the project area (Pace Report, 1:1). Table 1.2 (Table 2.2 of the Pace Report) shows the anticipated growth of the area. For purposes of this financial analysis, project costs will be spread among 626 equivalent dwelling units (EDUs).

Table 1.2 – Growth Projections

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Oregon has several legal structures that can be used for implementing wastewater projects in unincorporated areas, such as a sanitary district, or a local improvement district. For purposes of this White Paper, the legal entity created to serve the residents of east Devils Lake will be called the “Sewer District.” The most important feature is that no “Sewer District” can be formed, no sewer system can be installed, and no property owners can be assessed any costs without a majority vote in favor of the assessments by the property owners within any proposed sewer district. Financing and funding solutions and options for a capital sewer project will need to be researched. Today, very few grants are available, but there are federal and state funding agencies that can be approached for some grant assistance. Other sources of financial assistance, due to the prestige and environmental and economical impacts of Devils Lake, may be from federal or state appropriations and private foundations. Otherwise, the financing of a sewer infrastructure project will generally consist of low-interest loans that translate into monthly user fees for the individual user (resident). There will be a debt obligation that will be the responsibility of the residents.

This financial evaluation takes the existing capital cost estimate (Pace Report) and identifies and includes additional costs that have come forth. The following cost contributors are presented and discussed in more detail in subsequent sections with probable costs of each contributor given along with a probable financial impact to the individual user.

1. Residential capital costs: This cost will be the responsibility of the individual property owner and will vary from home to home. This cost includes equipment (tank, pump, controls, existing tank decommissioning, etc.) and installation and a service lateral pipeline from the tank to the property line. This cost was not previously quantified in the Pace Report but will be herein. Cost information was obtained from E1 and local contractors and verified with the City.

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2. Sewer District capital costs (“backbone” collection system): These costs include pipelines, valves, connection to City services, etc. This cost was calculated in the Pace Report. No attempt was made to verify or substantiate the Pace Report capital costs. However,

a. it appears full travel-lane grinding and overlay on East Devils Lake Road, as required by Lincoln County, was not included in the Pace Report but will be added herein. Lincoln County Public Works and Planning Departments were contacted.

b. at the suggestion of the City, a budgetary expense was added for private road restoration and drainage.

c. in conversation with the City, many non-construction expense items were adjusted upward, e.g. contingency.

d. inflation adjustment and interim financing costs were added.

3. City of Lincoln City: The City was contacted and there were no immediate capital costs identified that would be directly attributed to this project. The City will assess an established System Development Charge (SDC) to users within the Sewer District as is assessed to every new user. The current 2018 SDC Sewer Improvement Fee is $3,930 (subject to increase on an annual basis). The SDC money goes towards capital improvement upgrades City-wide.

4. Operation and Maintenance (O&M): O&M of the Residential, Sewer District public sewer system, and City services were quantified, and a monthly cost per user (e.g. resident) derived. The City will charge the Sewer District for the operational use of their system an established monthly user fee.

1.2 Cost Summary This White Paper focuses solely on the financial feasibility of implementing a central sewer collection system. Cost contributors to the individual resident were researched, quantified, and an appropriate cost estimated. Communication with the City, County, and local equipment supplier and contractors were done. The purpose of this White Paper is to provide financial information sufficient to educate the impacted residents and the general public. The following table summarizes the total probable project costs and converts those costs to an individual user rate (dividing the Sewer District cost by 626 EDUs). It is projected, based on project costs and financing scenarios described in later sections herein, a monthly user rate of $368 is likely, compared to $256/month if a resident were to be required to make their own repairs to their own on-site system.

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Table 1.3 – Sewer District Cost Summary

CategoryEstimated Total

Project Cost

Estimated Total Project Cost per

UserCapital Costs - Debt Obligation Residential Costs 24,000$ 24,000$ 192.68$ a Sewer District Area Costs 10,810,000$ 17,270$ 57.60$ b City Costs (SDC) 3,930$ 3,930$ 31.55$ c

Sub-Total Capital Debt 10,837,930$ 45,200$

O&M Costs - Continuous Monthly Reoccurring Residential (per resident) 10.00$ Sewer District (per resident) 14.64$ City (per resident) 70.77$

Sub-Total O&M (monthly)Total Project Costs and User Rate 10,837,930$ 45,200$

281.84$

95.41$ 377.25$

Individual Projected User Rate

(monthly)

a. Debt payment based on: 15-year loan, 5% b. User rate based on: 30-year loan, 2%, $2.0M grant, 626 Users c. Payback based on: 15-year loan, 5%

1.3 Case History – Voyage Lake Local Improvement District (LID)

The Voyage Lake LID provides a recent local example of how a Sewer District may be created. The establishment of the Voyage Lake LID was a citizen driven effort in 2013. Efforts were supported by approximately 70% of the landowners and homeowners in the proposed LID who joined to petition the City of Lincoln City to formally create the LID through a Resolution of the City. This LID project is a type of model that could be applied generally to the sewering of the rest of the watershed. The low-pressure sewer system was installed in 2016. Property owners are required to hook up within 20 years, or the sale of their house, or in the event that the owner’s existing septic system requires a repair permit. (Sewer – Voyage Lake LID (completed), obtained via dlwid.org). Additional information about forming a sewer district is found in Section 7.

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Section

2 2.0 Residential Related Costs

2.1 Background The City of Lincoln City potable water system currently serves approximately 442 residential accounts. Each account also represents a future sewer connection to the Sewer District. Each resident in time would be required to connect to the central sewer system, via an E1 system. The magnitude of anticipated cost for each personal resident to install their own E1 grinder pump has been researched and summarized below. Both initial capital costs and on-going O&M costs are considered. Costs associated with the individual on-site system installation includes:

1. Tank/Pump System and Controls. Residents will be required to purchase and install a new tank and grinder pump system.

2. Service Lateral Installation. Residents will be required to connect their tank/pump system to the mainline collection system in the nearest road right-of-way. East Devils Lake Road is the predominate main pipeline routing.

3. Decommissioning Existing Septic Tanks. Existing tanks will need to be decommissioned

according to DEQ requirements and filled with sand as discussed below.

4. Operation and Maintenance (O&M). Residents will be expected to pay for electricity and perform regular O&M.

The Pace Report (Section 4.4.4) discusses in depth the anticipated residential equipment and other pertinent information.

2.2 Tank / Pump System and Controls E1 will provide the equipment, a private contractor will do the installation.

2.2.1 Tank / Pump / Controls The E1 model WH231 is the City of Lincoln City standard and represents the minimum tank capacity acceptable. The volumetric capacity of the tank is 237 gallons. The grinder pump is generally located near the house to minimize the length of sewer pipeline and electrical connections. Controls for each grinder pump installation are typically located on the outside of the house but as near as feasible to the grinder pump (Pace Report, 4:7-8).

2.2.2 Installation A private contractor will install the system and an E1 authorized representative will inspect and approve the installation before operation. Installation costs can vary from resident to resident. For purposes of this Paper, local contractors provided a range of costs they have experienced, and the average was used. Impacts to installation costs include:

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1. Topography of the site; access to the site 2. Rock and other subsurface obstructions 3. Distance from home to tank, and from tank to roadway (service lateral) 4. Internal home plumbing 5. Landscape, site work, home improvements, etc. 6. Decommissioning of the existing onsite system

2.3 Service Lateral Installation Service lateral installation costs from the E1 system to the road right-of-way will vary depending on the distance from tank to right-of-way and terrain to trench through. The resident will be connected from the individual pump to the public service lateral via a 1.25-inch High Density Polyethene (HDPE) pipeline. The cost estimate herein used 200-feet of pipeline installed and assumed some obstructions encountered such as rock, roots, etc.

2.4 Decommissioning Existing Septic Tank Each septic tank must be decommissioned according to the Oregon Department of Environmental Quality (DEQ, agent) requirements, which are:

1) The owner must decommission a system when: (a) A sewerage system becomes available and the facility the system serves has been

connected to that sewerage system; (b) The source of sewage has been permanently eliminated; (c) The system has been operated in violation of OAR 340-071-0130(13) and a repair permit

and Certificate of Satisfactory Completion have not subsequently been issued for the system;

(d) The system has been constructed, installed, altered, or repaired without a permit required in this division, and a permit has not subsequently been issued for the system; or

(e) The system has been operated or used without a required Certificate of Satisfactory Completion or Atomization Notice and a Certificate of Satisfactory Completion or Authorization Notice has not subsequently been issued for the system.

2) Procedures for decommissioning. (a) Tanks, cesspools, and seepage pits must be pumped by a licensed sewage disposal

service to remove all septage. (b) Tanks, cesspools, and seepage pits must be filled with reject sand, bar run gravel, or

other material approved by the agent, or the container must be removed and properly disposed.

3) If, in the judgment of the agent, compliance with section (2) of this rule is not reasonably possible or necessary to protect public health, welfare, safety, or public waters, the agent may waive one or both of those requirements. (340-071-0185)

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Lincoln County does not have a decommissioning fee, nor does the County physically go out to inspect that it was done. The cost for filling a typical septic tank with sand can be approximately $600-1,000.

2.5 Operation and Maintenance (O&M) The residents will be required to pay for the electricity to run the pumps. Other on-going O&M and other anticipated expenses include service calls and repair costs. O&M costs are estimated below.

2.6 Cost Summary The following is a cost summary of the equipment, installation, and other requirements discussed above. Table 2.6a is a breakdown of the initial capital costs. Table 2.6b is a breakdown of the O&M costs.

Table 2.6a – Initial Capital Costs*

Item No. Description Unit Quantity Unit Cost Item Cost1 237 gallon tank/ Grinder Pump / Control Panel LS 1 6,000.00$ 6,000.00$ 2 Installation LS 1 5,000.00$ 5,000.00$ 3 Electrical Service LS 1 1,200.00$ 1,200.00$ 4 Service Line Installation (HDPE 1.25-inch) LF 200 35.00$ 7,000.00$ 5 Decommissioning existing septic tanks LS 1 800.00$ 800.00$

Estimated Construction Costs 20,000.00$ Contingency (20%) 4,000.00$

Estimated Project Total 24,000.00$ Estimated Monthly Payback (15-year loan term) 192.68$

Residential-Related Capital Construction Costs

*Costs could vary greatly depending on length of pipeline installed, obstructions encountered, and other unseen conditions, etc.

Table 2.6b – Residential O&M Costs

Item No. Description Annual Cost1 Electricty (annual) 20.00$ 2 Service calls and repair costs (average annual) 100.00$

Estimated Annual O&M Costs 120.00$ Estimated Monthly Equivalent 10.00$

Residential Operation and Maintenance Costs (Annual Costs)

For a typical resident to install an E1 GP system it would cost approximately $22,800. The largest variable to this cost is the length and effort of installing the service lateral. For a typical resident to operate and maintain an E1 GP system, an annual cost of $120 is estimated ($10.00/month).

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Section

3 3.0 Sewer District Related Costs

3.1 Introduction There are 442 residential water users who will be sewer customers. Approximately 111 residential lots and two non-residential lots are developable. Approximately 71 EDUs exist with B’nai B’rith. The total number of EDUs project-related costs will be dispersed among is 626 (Pace Report, 2:6, Table 1.1 herein). The more EDUs to spread out the capital cost, the more affordable it is to an individual user. This section represents area-wide costs that will be equally shared among all users and future potential users of the sewer system. In preparation for this Paper, Lincoln County was contacted to learn of any expectations, insights, and requirements they may have regarding the proposed sewer project.

3.1.1 Lincoln County Department of Planning and Development Onno Husing and Hui Rodomsky, Lincoln County Department of Planning and Development, were contacted. They confirmed with their regional representative at Department of Land Conservation and Development that “to sewer areas within an Urban Growth Boundary, there are no categorical regulatory blocks. However, there will be conditions / agreements / annexation / etc. for extending sewer, which is customary.” Within the projected Sewer District, two independent calculations were made by the County and City suggesting the maximum density could be as high as 1,000 homes. In addition to residential home building, the County now allows an Accessory Dwelling Unit (ADU) per single family dwelling. If residents started to construct ADUs, a large number of ADUs would add to water consumption and subsequent sewer flows. Flow projections found in the Pace Report did not account for ADUs. Before design and project funding is finalized, it is recommended that reasonable growth projection be reconsidered, taking into account the impact ADUs could have. System pipe sizes should be reevaluated to accommodate the appropriate projected flow. If ADU and/or home density projections are found to be significant, and pipe sizes are increased, the project costs contained even within this Paper may need to be adjusted upward.

3.1.2 Lincoln County Public Works In communication with Roy Kinion, Public Works Director, and Kelly Foley, Bridge/Permits Supervisor, requirements for placing a pipeline in East Devils Lake Road were obtained. The actual pipeline location within the road was not determined at this time. In short, the pipeline trench will be required to be patched as well as a full-lane (14’-15’ wide) grind and overlay. Asphalt cost is a significant contributor to this sewer project. The requirements for pavement trench restoration are as follows:

• Trench back fill: Compacted 3/4" or 1" minus crushed aggregate. • Trench edge: T-cut edge of trench 12" each side to create a clean edge and support ledge at 4"

depth. • Trench Paving: Compacted 4" lift of A/C hot mix.

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• Grind: Full lane width 2" grind. • Overlay: Full lane width 2" compacted A/C hot mix.

o County will require full lane paving regardless of the pipeline location and trench width. • Striping: Water base paint. • Traffic control required: one lane is to remain open at all times. Short-term closure of the entire

road is possible with extenuating circumstances and notice and coordination with the County. Approved and appropriate detours will be required.

It was confirmed there will be no other costs attributed to the project due to nearby bridge work or East Devils Lake Road being an emergency evacuation route. County improvements on East Devils Lake Road is not on the current Capital Improvement Plan; no work is anticipated in the near future. As this sewer project progresses, it would be wise to keep the County abreast of the work and try to coordinate a joint-venture road improvement project, thereby reducing the project cost to the sewer users.

3.2 Transmission Pipeline – “Backbone” System Transmission pipeline will vary in size throughout the project, with the larger pipes at the end of the collection system. The pipeline will be located within county road right-of-way and private roads. East Devils Lake Road will be the predominate pipeline route. In the Pace Report it appears the cost to overlay a full lane width was not included. The Pace Report estimated the overall project cost to be $7.12M (no attempt was made to verify or substantiate this capital cost, there was no indication that extensive asphalt repair was included in the initial cost estimate). The following additions and adjustments were made to the Pace Report estimate per conversations with the City, County, and others:

• Added asphalt lane repair and stripping of East Devils Lake Road (as required by Lincoln County) • Added private road restoration and drainage budget (as suggested by Lincoln City) • Adjusted most non-construction items, e.g. increased contingency percentage • Added cost due to inflation • Added interim financing that will be required of most funding agencies.

O&M of the collection system may include:

• Repairs that naturally occur and replacement of fittings, valves, and meters which will also tend to wear out and need to be replaced periodically.

• Due to the low flows expected initially (small number of connections), periodic flushing of the pipelines may be required.

• Although the pipelines are expected to last for over 30-years, a capital reserve fund has been included.

For convenience, Table 3.2 shows the original Pace Report cost estimate.

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Table 3.2

3.2.1 District Administration Once the Sewer District is formed, administration functions will be necessary for billing and other purposes. For purposes of this Paper, it is assumed a full-time person will be hired with benefits. The annual cost of approximately $50,000 is estimated for this administrative person.

3.3 Cost Summary Table 3.3a is a revised opinion of probable cost for the construction of a central sewer system based on the discussion above. Table 3.3b is a breakdown of the anticipated O&M costs. In order for the project to be financially feasible, all 626 residents will be required to pay for the initial capital project, whether they hook-up or not. The revised project cost is estimated to be $10.81M. A

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monthly assessment of approximately $57.60 will be billed to each of the 626 residents, assuming $2M grant is obtained. Only those who are connected to the system will pay the additional monthly O&M costs of $14.64. The Sewer District should anticipate one-third of the water user residents (200+/-) connecting right away. As such, an interim rate of around $45/month may be required to meet the anticipated annual financial obligations. As more residents connect, the monthly user cost would be lowered.

Table 3.3a – Revised Opinion of Probable Cost

Item No. Description Unit Quantity Unit Cost Item Cost1 Construction Subtotal per Pace Report LS 1 4,822,900.00$ 4,822,900.00$ 2 Asphalt repair, full-lane (2" grind and overlay) LF 23000 38.00$ 874,000.00$ 3 Road Striping LF 23000 2.25$ 51,800.00$ 4 Private Road Restoration, Drainage LS 1 600,000.00$ 600,000.00$

Estimated Construction Costs 6,348,700.00$ Contingency (25%) 1,587,200.00$ Geotechnical 50,000.00$ Engineering and Construction Observation (20%) 1,269,700.00$ Administrative/Legal (5%) 317,400.00$ Easements and Right-of-way, Surveying 150,000.00$ Permitting 50,000.00$ Inflation Accounting (10%) - Added to account for increases since 2015 Pace Report 634,900.00$ Interim Project Financing 400,000.00$

Estimated Project Total (rounded) 10,810,000.00$ Estimated Project Cost per User (626 Users) (rounded) 17,270.00$

Monthly User Rate ($2M grant) 57.60$

East Devils Lake Sewer District - Central Sewer System Capital Costs

Table 3.3b – Sewer District O&M Costs

Item No. Description Item Cost Annual Cost1 Administration 50,000.00$ 50,000.00$ 2 Pipe system maintenance (flushing, etc.) (annual) 50,000.00$ 50,000.00$ 3 Pipe system repairs (30-years) (Capital Reserve Fund) 300,000.00$ 10,000.00$

Estimated Annual O&M Costs 110,000.00$ Estimated Monthly User Rate (626 Users) 14.64$

Sewer District Operation and Maintenance Costs (Annual Costs)

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Table 4.1

Section

4 4.0 City of Lincoln City Related Costs The sewer project was discussed with Ron Chandler, City Manager, Lila Bradley, Director of Public Works, and Stephanie Reid, City Engineer. The City is willing and able to provide the needed treatment and disposal of the Sewer District’s wastewater. Sewer from the Sewer District will be transported to Lincoln City’s central sewer system where it will be transported via the City’s pipelines to their treatment plant for treatment and disposal. When the Sewer District is formed, negotiations with the City may be necessary to solidify a working relationship and understanding. City imposed costs to users of the Sewer District are expected to be based on existing methodologies established for user rates and System Development Charges (SDCs).

4.1 System Development Charge (SDC) Lincoln City will impose an SDC charge to the individual users of the Sewer District. The one-time fee is due when connection to the sewer system occurs. The SDC charge is the same rate imposed on all new users, whether in City limits or not. Currently the SDC charge is $3,930 per user connection. The SDC may increase annually based on the Engineering News Record (ENR) Construction Cost Index. Presently, the SDC is expected to increase by 3.5% next year. Table 4.1 shows the relevant portion of the City’s System Development Charges handout summary. Table 4.2 provides a scenario if the SDC was financed over 15-years. This charge could be included in an individual resident loan obtained for the installation of an on-site E1 system.

Table 4.2 – SDC Financing Summary* Lincoln City - SDC Charge 15-year loan term

Capita l Cost $3,930

Loan Needed $3,930

Interest Rate 5.000%

Loan Period (yrs ) 15

Annual Annuity $378.63

Monthly Financed Payment $31.55 *Debt payment based on: 15-year loan, 5%

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Table 4.3 4.2 User Rates Lincoln City will impose a sewer fee to the individual users of the Sewer District. The fee is paid monthly once connection to the sewer system occurs. The fee pays for daily operation and maintenance costs of the sewer system infrastructure. Table 4.3 shows the relevant portion of the City’s water and sewer rates handout summary, showing the currently established sewer user rates. Because the Sewer District is outside City limits, the user rate is higher, currently $60.70/month for 400 cubic feet of water usage (as metered on the water system). If more water is used beyond 400ft3, then an extra charge of $10.07 per 100ft3 of water is billed. The user rates are subject to increases on an annual basis, as high as 6% to 8%. The City Engineer indicated it is typical for users to use more than the base 400ft3 of water a month. For purposes of this Paper, it will be assumed that a typical household will use 500ft3 of water per month, making their monthly charge $70.77.

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Section

5 5.0 Rate Study – Financial Impacts and User Rates With the information obtained from the above communication and research, total monthly user rates were calculated. Different financial scenarios are presented for loan payback. The rate study and financial analysis combines the Residential, District, and City costs to determine the probable total monthly financial obligation to each resident.

5.1 Residential User Rate Breakdown If the residents need to finance their tank/pump system and SDC charge, there are possible low-interest loans available through the Oregon Department of Environmental Quality (DEQ) and/or US Department of Agriculture (USDA). The following financing scenarios (Table 5.1) were calculated using the costs presented in Table 2.6a. An interest rate of 5% and financing over 10-, 15-, and 20-years are presented. $192.68/month would be required for a 15-year loan term to pay off the initial installation. An additional $10.00/month includes electricity and other costs presented in Table 2.6b.

Table 5.1 – Residential Financing Costs Residential Financing 10-year loan term 15-year loan term 20-year loan term

Capita l Cost $24,000 $24,000 $24,000

Loan Needed $24,000 $24,000 $24,000

Interest Rate 5.000% 5.000% 5.000%

Loan Period (yrs ) 10 15 20

Annual Debt Payment (Capita l ) $3,108.11 $2,312.21 $1,925.82

Monthly Financed Payment (Capita l ) $259.01 $192.68 $160.49

Annual O&M $120.00 $120.00 $120.00

Monthly Payment (O&M) $10.00 $10.00 $10.00

Total Residential Cost $269.01 $202.68 $170.49

5.2 Sewer District User Rate Breakdown Financing of a large capital project will be required. Table 5.2 shows an anticipated user rate for the residents of east Devils Lake for only the “backbone” capital cost (Table 3.3a) and O&M (Table 3.3b) associated with the central sewer system and administration of a Sewer District. Three rates are presented, each varying depending on the amount of grant dollars received for the project. User rates were based on the following criteria:

a. Interest rate of 2%; 30-year payback term b. 626 users (Equivalent Dwelling Units, EDUs) as indicated in Pace Report c. O&M to include administration of the Sewer District d. 10% reserve payment required from most funding agencies

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With a $2M grant, the monthly user rate would be $57.60 for 30-years. An additional $14.64/month for O&M would be required.

Table 5.2 – Sewer District Financing Costs Sewer District Financing No Grant $1,000,000 Grant $2,000,000 Grant

Capita l Cost $10,810,000 $10,810,000 $10,810,000

Loan Needed $10,810,000 $9,810,000 $8,810,000

Interest Rate 2.000% 2.000% 2.000%

Loan Period (yrs ) 30 30 30

Annual Annuity $482,665.66 $438,015.74 $393,365.82

Monthly Income Required $40,222.14 $36,501.31 $32,780.48

Monthly Income Reqd' w/ 10% reserve $44,244.35 $40,151.44 $36,058.53

Number of EDUs (Current and Anticipated) 626 626 626

Monthly Cost per EDU (capi ta l ) $70.68 $64.14 $57.60

Annual O&M $110,000.00 $110,000.00 $110,000.00

Monthly Payment (O&M) per EDU $14.64 $14.64 $14.64

New Average Residential Water Bill $85.32 $78.78 $72.24

Based on current funding programs and recent discussions with state funding agencies, there is a good possibility of receiving grant funds for the capital project, as shown above. Grant funding could come from a single agency or a combination of agencies. Grant funding amounts will depend on medium household income and other criteria. “Grant” dollars might also be possible from a state appropriation. For purposes of illustration, a $2M grant (20% of the project) was deemed reasonable. Possible funding agencies include:

• Business Oregon • Oregon Department of Environmental Quality • USDA Rural Development • State Appropriations

5.3 Combined User Rate Breakdown – Projected User Rate Based on Tables 4.2, 4.3, 5.1, and 5.2, Tables 1.3 / 5.3 presents a sample financial scenario.

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Table 5.3 – Sewer District Cost Summary

CategoryEstimated Total

Project Cost

Estimated Total Project Cost per

UserCapital Costs - Debt Obligation Residential Costs 24,000$ 24,000$ 192.68$ a Sewer District Area Costs 10,810,000$ 17,270$ 57.60$ b City Costs (SDC) 3,930$ 3,930$ 31.55$ c

Sub-Total Capital Debt 10,837,930$ 45,200$

O&M Costs - Continuous Monthly Reoccurring Residential (per resident) 10.00$ Sewer District (per resident) 14.64$ City (per resident) 70.77$

Sub-Total O&M (monthly)Total Project Costs and User Rate 10,837,930$ 45,200$

281.84$

95.41$ 377.25$

Individual Projected User Rate

(monthly)

a. Debt payment based on: 15-year loan, 5% b. User rate based on: 30-year loan, 2%, $2.0M grant, 626 Users c. Payback based on: 15-year loan, 5%

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Section

6 6.0 Conclusion and Next Steps The sewer project purported in the Pace Report and this Paper is a significant undertaking. The costs and investments are significant. The potential rewards and benefits of removing septic leaching into Devils Lake is also a real positive. A project of this magnitude will require strong public support and financial assistance. This Paper provides sufficient financial information to prospective funding agencies for their initial review and consideration. It is not purported that the information contained in this White Paper will completely satisfy every funding agency or private foundation. Additional information and/or analysis may be required by the respective funding agency or private source. Each funding agency, private foundation, government entity, and political avenue will typically have their own funding application, information needed, and procedures they require. Although this Paper will be a good and valuable start for such applications and funding solicitations, additional information should be anticipated with each entity contacted.

6.1 Next Steps Next steps include, at a minimum and not necessarily in order:

1. Public outreach regarding the overall project (Pace Report) and this Paper and the scope or work and probable costs associated with a sewer project.

2. Multiple public meetings, if necessary, to help educate the public. 3. If public sentiment is favorable to a sewer project, then a Sewer District would need to be formed

(brief formation information found in Section 7 below). This is an involved process. 4. Project funding and financing options and opportunities researched and a level of comfort

obtained that financial assistance is available. To make this project manageable, grants and loan-forgiveness money is important. A One-Stop meeting with Business Oregon, USDA Rural Development, and other funding agencies should be scheduled soon to work through options.

5. Inclusion of local, state, and possibly federal elected officials to help find money for the Devils Lake area.

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Section

7 7.0 Sewer District Formation – General Information

A County Service District is a separate legal and financial entity, which has taxing authority. Service Districts are generally established for the purposes of providing specific service facilities, as identified in ORS Chapter 451.010. County Service Districts are commonly used in Oregon to provide and finance a variety of services including, but not limited too; water, sewer, library, public safety, fire, and extension services. The formation of a district and any change of organization or proceedings are to be initiated, conducted, and completed as provided by ORS 198.705.

The following is an excerpt from a Special District Association of Oregon (SDAO) 2003 manual entitled: Formation, Alteration and Dissolution of Special Districts. The information is not intended to be all inclusive or detailed, and some information may be out of date, but it is simply to provide some general information about the process of forming a Sewer District.

7.1 Initial Steps Formation of a special service district is a community effort that should involve all of the interested citizens in the community. Special districts are government entities that have legal and ethical obligations that go beyond simply providing a service. The first step in forming a special district is to form a committee to analyze the need for the district and to discuss the steps that must be undertaken. It is advisable to employ an attorney or a consultant familiar with the specific type of special district and election laws at this stage in the process. Formation may take as long as 12 to 24 months, depending on the type of district. Districts that involve public facilities construction may require advanced preparation (i.e. sewer or water systems). In addition, there are important state and county deadlines which must be met and should be considered in the planning process. The following steps are general guidelines to the formation of most types of special districts: 1. Citizen committee formed approximately 9 to 12 months prior to March 31st -- the date by which

the county assessor and the Department of Revenue must be officially notified of the formation of a new district.

2. The committee must determine who will initiate the formation and where the initiators will derive financial support.

3. The Committee should study the feasibility of forming a district by estimating the following:

a. The area to be served (rough boundaries should be established; specific boundaries will be required with the formal proposal).

b. The assessed valuation of the area to be served. c. Sources of potential revenue, such as taxes, user fees, grants, etc.

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d. The anticipated level of services to be provided. e. The cost to provide these services.

4. Notices advising of any proposed formation discussion should be developed and distributed as

widely as possible. 5. The committee should hold a meeting open to the public on the date, time, and place specified in

the notice, in order to determine voter interest.

7.2 Formation The boundaries of a new district may only include territory that can be reasonably served by the facilities or services of the proposed district. There are three procedures that may be used to form a special district: the filing of a petition for formation; the consent of all property owners within the area of the proposed district; or initiation and order of the county board. Only initiation by petition will be discussed: Initiation by Petition Pursuant to ORS 198.800, formation of a special district may be initiated by a petition filed with the county board. The petition contains information like (not a complete list): 1. A statement that the petition is filed pursuant to ORS 198.705 to 198.755. 2. A statement of the names of all affected districts and all affected counties. 3. A designation of the principal act of each affected district. 4. A statement that district board members are or are not to be elected and, if so, the number of

members on the board. 5. A proposed permanent tax rate sufficient to support the services and functions described in the

economic feasibility statement and a declaration of the rate of taxation necessary to raise an amount of revenue equal to the proposed permanent tax rate.

6. A statement of the proposed terms and conditions, if any, to which a proposed formation is to be subject.

7. A request that proceedings be taken for formation of the district. 8. A permanent tax rate and tax rate need not be included in the petition if no tax revenues are

necessary to support the services and functions described in the economic feasibility statement. The petition must be signed by at least: 1. 15% of the electors or 100 electors, whichever is more, registered in the territory to be included in

the proposed district; or 2. 15 landowners or the owners of 10% of the acreage, whichever is greater, within the territory to be

included in the proposed district. Before circulating the petition for formation of a district, the persons designated on the petition as the chief petitioners must complete an economic feasibility statement for the proposed district. That feasibility statement forms the basis for any proposed permanent tax rate. The feasibility statement must contain:

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1. A description of the services and functions to be performed or provided by the proposed district; 2. An analysis of the relationships between those services and functions and other existing or needed

government services; 3. A proposed first year line item operating budget and a projected third year line item operating

budget for the new district that demonstrates its economic feasibility. The economic feasibility statement must be attached to the petition when it is filed with the county and before it is circulated for signing. The prospective petition must include a description of the boundaries of the territory proposed to be included in the district. After circulation of the petition, the county clerk has ten (10) days from the date the petition is received to review the petition and determine whether it has been signed by the requisite number of qualified signers. If the clerk determines there are sufficient signatures, the clerk files the petition.

7.3 Hearing Once proper petitions have been filed with the county and have been approved by endorsement by any agency required by the principal act, the county is required to set a hearing on the petition. The hearing must be held between 30 days and 50 days after the date the petition is filed. Notice of hearing must be posted in at least three places and published by two insertions in a newspaper. Upon conclusion of the hearing, the county board must evaluate the formation petition by applying the criteria in ORS 199.462. That statute requires consideration of local comprehensive planning for the area, economic, demographic and sociological trends and projections pertinent to the proposal, past and prospective physical development of land that would directly or indirectly be affected by the proposed district and the statewide goals. The board may modify the boundaries of the proposed district to include or exclude territory considering the benefit the proposed district will have to territory in or out of the district. If the county board approves the formation of the petition, the board adopts an order identifying the name and boundaries of the proposed district and setting a time and place, between 20 and 50 days from the date of the order, for a final hearing on the petition.

7.4 Election If the approved petition includes a permanent tax rate, an election on the question of formation of a special district is required. The county board has thirty (30) days after the date of the election to canvass the votes and adopt an order regarding the proposed formation. If a majority vote favors formation of the district, the board adopts an order creating the district. After the date of the formation order, the inhabitants of the territory within the new district become a municipal corporation with all the powers conferred by the principal act. The new district pays the costs of forming the district and the county clerk refunds any cash deposit or other form of security to the persons who post the security with the county. If a majority votes against formation of the district, the county board will adopt an order dismissing the petition.