Water & Sewer Development Fee Study Presentation of Results to Town Council Raftelis Financial Consultants, Inc.

1. Water & Sewer Development Fee Study Presentation of Results to Town CouncilRaftelis Financial Consultants, Inc. December18, 2007

2. Presentation Overview • Cary’s water and sewer development fee history • Fee calculation methodologies • Cary’s approach and current calculation methods • Consultant recommendations • Comparison to North Carolina peers • Action items _______________________________________________________________________________________________________________________________________________________________

3. Cary’s Water and Sewer Development Fee History • 1987 – Water and sewer acreage fee structure converted from flat rate to tiered • 1994 – Water connection charge implemented • 1998 – Water and sewer acreage fees eliminated and development fees implemented • 2004 – Fees reduced by 30% effective 3/1/2004 _______________________________________________________________________________________________________________________________________________________________

4. AWWA / WEF Endorse Two Methodologies: • System Buy-In approach • Marginal/Incremental Cost approach Focuses on the proportional cost of existing system components with additional capacity currently available to serve new customers. Focuses on the cost of additional facilities included in an approved capital improvements program required to provide capacity to meet anticipated growth in demand. _______________________________________________________________________________________________________________________________________________________________

5. Methodology – Conceptual Objectives • Calculate cost basis • Use System Buy-In or Marginal / Incremental Cost approach • Determine cost of capacity • Cost per gallon per day • Allocate costs to customers • Determine level of service for each type of customer • Express as gallons per day of capacity _______________________________________________________________________________________________________________________________________________________________

6. Common Water and Sewer Development Fee Assessment Methods • Meter Size Approach: Fees vary based on ratio of potential demand • REU Approach: Customers classified by common business or residential characteristics • Fixture Unit Approach: Fees based on the number of specific fixture units for each customer • Square Footage/Acreage Approach: Fees based on typical demand associated with square footage of home or lot _______________________________________________________________________________________________________________________________________________________________

7. Cary’s Approach • Marginal / Incremental Cost approach • Based on 10 year CIP • Includes growth related CIP only • Discounts CIP and debt service using 5% discount rate • Deducts total present value of debt principal • Residential development charged based on house size (applies to water and sewer development fees) • Non-Residential development charged based on projected peak demand for water and average demand for sewer _______________________________________________________________________________________________________________________________________________________________

8. Cary’s Approach • Marginal / Incremental Cost approach *Net Present Value (NPV) of 10-year CIP plus projects appropriated through FY 2007, less portion funded with debt _______________________________________________________________________________________________________________________________________________________________

9. Cary’s Current Calculation Method Residential fee: • Cost per gallon per day X Equivalent Dwelling Unit usage factor (435 for water and 348 for sewer) = Development Fee for mid-sized home • Single Family - scaled by adjustment factor to determine fee for different size homes • Multi-Family – scaled by adjustment factor and number of units _______________________________________________________________________________________________________________________________________________________________

10. Current Residential Water Development Fees _______________________________________________________________________________________________________________________________________________________________

11. Current ResidentialSewer Development Fees _______________________________________________________________________________________________________________________________________________________________

12. Recommended Methodology • Adjust the calculation of the debt service credit • Forecast annual debt service costs for future bonds • Convert to a cost per gallon per day based on projected demand • Discount debt service to present value • Reduces the amount of the debt service offset • Produces a higher cost basis for the assets ($/gpd) _______________________________________________________________________________________________________________________________________________________________

13. Results of Recommended Methodology NOTE: Capacity Costs equal present value of capacity related projects in the 10-year CIP plus prior costs associated with WWRWMF _______________________________________________________________________________________________________________________________________________________________

14. Observations from Analysis of Cary’s Billing Data Peak & average demand • Peak demand for customers without a separate irrigation meter is within the range of demand levels used in the original (1998) analysis • Peak demand levels for customers with separate irrigation meters are significantly above the prior usage levels. • The difference between peak and average demand for residential customers, both with and without irrigation meters, is higher than the 1.65 system-wide factor used in the original analysis. _______________________________________________________________________________________________________________________________________________________________

15. Recommendations for Water and Sewer Residential Development Fees • All residential customers should be charged a consistent water and sewer development fee • Based on house size • Separate fee for irrigation meter • Factors for house size • Use data based on Cary sample • Use average for homes with and without separate irrigation meters _______________________________________________________________________________________________________________________________________________________________

16. Recommendations for Water and Sewer Residential Development Fees • Maintain peak demand factor of 435 gpd for water • Based on system-wide peaking factor of 1.65 • Consistent with prior methodology • Within the range of current data • Maintain average demand factor of 348 gpd for wastewater • Accounts for inflow & infiltration in system • Consistent with prior methodology _______________________________________________________________________________________________________________________________________________________________

17. Recommendations for Water and Sewer Residential Development Fees • Separate fee for irrigation meters • Demand factor of 330 gpd • Difference between peak demand for residential customers with irrigation meters (715 gpd) and factor applied for standard meter (435 gpd) • Development fee for irrigation meter does not apply to reclaimed water. • Typically not charged for reclaimed water _______________________________________________________________________________________________________________________________________________________________

18. Recommended Cost Justified Residential Development Fee by House Size _______________________________________________________________________________________________________________________________________________________________

19. Other Water and Sewer Development Fee Recommendations • Multi-family • Maintain existing adjustment factor of 0.645 for water and 0.67 for wastewater • Consistent with factors developed for other communities • Non-residential development • Maintain policy of individualized development fees • Based on customer estimate of peak (water) and average (sewer) demand _______________________________________________________________________________________________________________________________________________________________

20. Water & Sewer Development Fee Rates for Morrisville • Currently charge a 9% differential on Morrisville rates and development fees • Based on merger cost analysis • Revenue stream expected to repay merger costs within 15 years • Capital costs are the same for all customers regardless of location _______________________________________________________________________________________________________________________________________________________________

21. Water & Sewer Development Fee Rates for Morrisville Keeping Morrisville fees equal to or greater than their current level preserves the revenue stream Suggest holding Morrisville fees steady until Cary’s fees are equal, then raise the fees in concert so that Morrisville and Cary water and sewer development fee rates are the same (up to the maximum cost justified level of fees) _______________________________________________________________________________________________________________________________________________________________ 21

22. Comparison to NC Peers – Water Development Fees(Includes acreage, facility, tap, connection & development fees) Residential Customer with 2,500 SF Home (5/8” meter) _______________________________________________________________________________________________________________________________________________________________

23. Comparison to NC Peers – Sewer Development Fees(Includes acreage, facility, tap, connection & development fees) Residential Customer with 2,500 SF Home (5/8” meter) _______________________________________________________________________________________________________________________________________________________________

24. Action Items • Provide direction as to percentage of fees to be charged • Provide direction on effective date of new fees _______________________________________________________________________________________________________________________________________________________________

25. Action Items • Instruct staff whether to proceed with public review/adoption process • Call for public hearing • Advertise public hearing • Hold public hearing • Vote on new maximum fees _______________________________________________________________________________________________________________________________________________________________