Item 8CAGENDA ITEM # 8C
JULY 14, 2008
CITY OF ATLANTIC BEACH
CITY COMMISSION MEETING
STAFF REPORT
AGENDA ITEM: Rate Study for Water and Sewer System Development Chazges
SUBMITTED BY: Donna Kaluzniak, Utility Director
DATE: June 27, 2008
BACKGROUND: The City charges water and sewer impact and capital improvement fees, or
System Development Charges (SDCs) when customers build new homes or businesses. These fees
cover the cost to provide facilities for new connections and capacity increases, such as upgraded
treatment plants and distribution/collection lines.
The purpose of establishing cost-based SDCs is to bring equity between existing and new customers
and ensures that "growth pays for growth." Past changes in these rates were made in 1983 and 1992,
and were not based on engineering analysis. New regulatory requirements will call for lazge capital
projects-and construction costs have risen dramatically in the last several years.
The City Commission awarded a contract to HDR Engineering, Inc. to perform the rate study, and
that study is now complete. Recommended increases for the System Development Chazges are as
follows, based on the size of the water meter, which indicates required capacity:
Water Fees:
Size of Meter, Inches Existin Chaz a Pro sed Char e
3/4 $ 325 $1,140
1 $ 550 $1,904
1.5 $1,075 $3,796
2 $1,725 $6,076
3 $3,250 $11,400
4 $5,425 $19,004
6 $10,800 $37,996
8 $15,000 $60,796
Sewer Fees will be modified, also using meter size for fee determination. Our current fees aze based
on type of use, with various methods to calculate the fee amount. This is an administrative burden,
and some uses aze not included in our current code. The existing charge for residential connections is
$1,250 regazdless of meter size.
AGENDA ITEM # 8C
JULY 14, 2008
Sewer Fees:
Size of Meter, Inches Pro osed Char e
3/a $4,050
1 $6,764
1.5 $13,487
2 $21,587
3 $40,500
4 $67,514
6 $134,987
8 $215,987
Florida Law requires a minimum 90-day notice before the new fees can be imposed. This agenda
item begins the 90-day window.
BUDGET: The revised System Development Charges will impact the budget as new developments
are built.
RECOMMENDATION: Authorize staff to prepare an Ordinance amending the impact and capital
improvement fees (System Development Charges) as recommended by HDR Engineering, Inc.
ATTACHMENTS: 1. Report from HDR Engineering, Inc. City of Atlantic Beach Water and
Sewer System Development Charges.
REVIEWED BY CITY MANAGER:
2
AGENDA ITEM # 8C
JULY 14, 2008
City of Atlantic Beach
Draft Report
Water and Sewer
System Development Charges
July 2008
:: ,
~,
Prepared by
~ HDR Engineering, Inc.
AGENDA ITEM # 8C
NLY 14, 2008
July 3, 2008
Ms. Donna Kaluzniak
City of Atlantic Beach
800 Seminole Road
Atlantic Beach, FL 32233
Subject: City of Atlantic Beach
Water and Sewer System Development Charges -Project #80
Dear Ms. Kaluzniak:
Enclosed please find HDR's final report regarding the City's system development charges
(SDCs) for the water and sewer utility systems. The conclusions and recommendations
contained within this report should enable the City to implement cost-based SDCs that meet the
City's objectives.
This report has been prepared using "generally accepted" financial and engineering principles.
The City's financial, budgeting, planning, and engineering data were the primary sources for
much of the information contained in this report.
HDR appreciates the opportunity to assist the City in this matter. We also would like to thank
you for assistance provided to us on this project.
Sincerely,
HHDR ENGINEERING, INC.
Jeff McGarvey
Management and Planning Services Lead
Enclosure
HDp Engineering, Inc.
500 t 08th Avenue N[ I Phane 1425) 4506200
Suite 1200 Faz 14251453-7107
Oeftovue. WA 98004-5549 ~w,nv hdnnc coin
AGENDA ITEM # 8C
NLY 14, 2008
Executive Summary ....................................................................................................................1
Introduction ............................................................................................................................1
Summary and Conclusions ....................................................................................................1
Section 1 Introduction ......................................................................................................1-1
1.1 Introduction .............................................................................................................1-1
1.2 Organization of Report ...........................................................................................1-1
1.3 Disclaimer ...............................................................................................................1-1
Section 2 Overview of System Development Charges .................................................. 2-1
2.1 Introduction ............................................................................................................. 2-1
2.2 Defining System Development Charges ................................................................ 2-1
2.3 Economic Theory and System Development Charges ........................................... 2-1
2.4 System Development Charge Criteria .................................................................... 2-1
2.5 Overview of the System Development Charge Methodology ................................. 2-3
2.6 Summary ................................................................................................................ 2-4
Section 3 Legal Considerations in Establishing System Development Charges........ 3-1
3.1 Introduction ............................................................................................................. 3-1
3.2 Requirements under Florida Law ........................................................................... 3-1
3.3 Notice Requirements and System Development Charges ..................................... 3-2
3.4 Summary ................................................................................................................ 3-2
Section 4 Determination of the City's Water System Development Charges ..............4-1
4.1 Introduction ............................................................................................................. 4-1
4.2 Overview of the City's Water System .....................................................................4-1
4.3 Present Water System Development Charge ........................................................4-1
4.4 Calculation of the City's Water System Development Charges .............................4-2
4.4.1 System Planning Criteria .............................................................................4-2
4.4.2 Residential Units .........................................................................................4-3
4.4.3 Calculation of the Water System Development Charge for the Major
System Components .................................................................................. .4-3
4.4.4 Debt Service Credits .................................................................................. .4-4
4.5 Net Allowable Water System Development Charges .............................................4-5
4.6 Key Assumptions ................................................................................................... .4-6
4.7 Implementation of the System Development Charges .......................................... .4-6
4.8 Consultant Recommendations .............................................................................. .4-6
Table of Contents 1
~ Clty of Atlantic Beach- Syslem Development Charge Study
AGENDA ITEM # 8C
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4.9 Summary ................................................................................................................4-7
Section 5 Determination of the City's Sewer System Development Charges ............. 5-1
5.1 Introduction ............................................................................................................. 5-1
5.2 Overview of the City's Sewer System ..................................................................... 5-1
5.3 Present Sewer System Development Charges ...................................................... 5-1
5.4 Calculation of the City's Sewer System Development Charges ............................. 5-2
5.4.1 System Planning Criteria ............................................................................. 5-3
5.4.2 Calculation of Equivalent Residential Units ................................................. 5-3
5.4.3 Calculation of the Sewer System Development Charge for the Major
System Components ...................................................................................5-3
5.4.4 Debt Service Credits ...................................................................................5-4
5.5 Net Allowable Sewer System Development Charge ..............................................5-4
5.6 Key Assumptions ....................................................................................................5-5
5.7 Implementation of the System Development Charges ...........................................5-6
5.8 Consultant Recommendations ...............................................................................5-6
5.9 Summary ............................................................................................................... .5-6
Section 6 Determination of the City's System Development Charge Analysis ...........6-1
6.1 Introduction ............................................................................................................. 6-1
6.2 System Development Charges and New Developments ........................................6-1
6.3 System Development Charges in Annexation Areas .............................................6-1
6.4 National Comparison of System Development Charges ........................................6-1
Table of Contents it
~ City of Ath-~Ic Beach- system Development Charge Study
AGENDA ITEM # 8C
JULY 14, 2008
Introduction
I-IDR Engineering, Inc. (HDR) was retained by the City of Atlantic Beach (City) to develop cost
based water and sewer system development charges. The purpose of SDCs is to bring equity
between existing and new customers to the system. By establishing cost-based SDCs, the City
will assure that "growth pays for growth" and existing utility customers will, for the most part,
be sheltered from the financial impacts of growth.
The City currently has SDCs in place. General industry recommendations are to adjust these
charges annually for inflationary cost changes in construction and to perform a complete review
of the charges every three to five years, or whenever comprehensive planning documents for the
systems have been updated. With the recent increases in construction costs, the completion of
the City's sewer master plan in 2006, and the extent of capital improvements anticipated, the
City has undertaken this study to bring parity between existing and new utility customers.
Summary and Conclusions
The SDCs are calculated in conformance with regulatory requirements and are based on system
planning and design criteria. Acomponent-by-component approach is taken in developing the
charges, as each component can have different planning and design criteria. The calculations
also take into account the financing mechanisms of capital improvements. SDCs must be
implemented according to the capacity requirement or impact each new connection has on the
system, thus, relating the system development charge to the impact the customer has on the
system and the benefit they derive from the service provided.
The results of the analyses are presented in this report. The existing charges and the calculated
charges for a new single-family residential connection are presented in Table ES-l. Anew
single-family residential connection is considered to be a 3/4" meter. Charges for meters larger
than 3/4" increase as the demand increases. The calculation for this is explained in the report.
Water $325 $1,140
Sewer $1,250 $4,050
[1] T'he calculated SDC is based on a 3/4" meter.
~~ Executive Summary ES-1
City of Atlantic Beach- System Development Charge Study
utility Existing Charge Proposed System Development Charge
AGENDA ITEM # 8C
NLY 14, 2008
I-IDR Engineering, Inc. (HDR) was retained by the City of Atlantic Beach (City) to develop cost
based water and sewer SDCs. The objective of this study is to calculate cost-based charges for
new customers connecting to the City's systems. SDCs
provide a means of balancing the cost requirements for "By establishing cost-based
new utility infrastructure between existing customers and system development charges,
new customers. The portion of existing plant and future the City will assure that `growth
capital improvements that will provide service (capacity) pays jor growth' and the City's
to new customers is included in the SDCs. In contrast to existing utility customers will
this, the City has future capital improvement projects that be, for the most part, sheltered
are related to renewal and replacement of existing plant in from the fueancial impacts of
service. These infrastructure costs are typically included growth."
within the rates charged to the City's customers, and,
therefore, are not included within the SDCs. By establishing cost-based SDCs, the City will
assure that "growth pays for growth" and existing utility customers will, for the most part, be
sheltered from the financial impacts of growth.
1.2 Organization of Report
This report documents the approach that was used to analyze and develop the City's SDCs. This
report is divided into six sections. Section 1 provides a brief introduction and overview of the
study. Given this brief introduction, Section 2 provides an overview of SDCs and the criteria
and general methodology that should be used to calculate and establish cost-based SDCs. Next,
Section 3 provides an overview of the requirements under Florida law for determining SDCs.
Sections 4 and 5 present the City-specific calculations of the cost-based SDCs for water and
sewer respectively.
1.3 Disclaimer
In the calculation of SDCs presented in this report, I-IDR has used "generally accepted"
engineering and rate-making principles. This should not be construed as a legal opinion with
respect to Florida State law. HDR recommends that the City have its legal counsel review the
SDCs set forth in this report to ensure compliance with Florida State law.
Introduction 1-1
~ City of Atlantic Beach- System Development Charge Study
1.1 Introduction
AGENDA ITEM # 8C
JULY 14, 2008
An important starting point in establishing system development chazges (SDCs) is to have a
basic understanding of the purpose of these charges, along with the criteria and general
methodology that are used to establish cost-based SDCs. This section of the report presents an
overview of the SDC methodology that was used to develop cost-based chazges for the City.
2.2 Defining System Development Charges
The first step in establishing cost-based SDCs is to gain a better understanding of the defmition
of SDCs. One definition for SDCs is as follows:
"System development charges are one-time charges paid by new development to
finance construction of public facilities needed to serve them. "'
Simply stated, SDCs aze a contribution of capital to either reimburse existing customers for the
available system development in the existing system, or to help finance planned future growth-
related capacity improvements, or some blend of both. SDCs may be referred to as capacity
charges, impact chazges, connection charges, plant investment fees, etc. Regazdless of the label
used to identify them, their objective is the same. That is, these chazges aze intended to provide
funds to the utility to finance a part of the capital improvements needed to serve new customers.
2.3 Economic Theory and System Development Charges
SDCs aze generally imposed as a condition of service. The objective
of SDCs is not merely to generate money for a utility, but to assure
that all customers seeking to connect to the utility's system beaz an
equitable shaze of the cost of capacity that is invested in both the
existing and any future growth-related expansions. Through the
implementation of fair and equitable SDCs, existing customers will
not be unduly burdened with the cost of new development.
"Through the
implementation of fair and
equitable SDCs, existing
customers will not be
unduly burdened with the
cost of new developmeni+ "
By updating its cost-based SDCs, the City takes an important step in assuring adequate
infrastructure to meet growth-related needs while providing this infrastructure to new customers
in acost-based, fair, and equitable manner.
2.4 System Development Charge Criteria
In determining SDCs, a number of different criteria are often used. These criteria include:
1 Arthur C. Nelson, System Development Charges for Water, Sewer, and Stormwater Facilities, Lewis
Publishers, New York, 1995, p. 1.
Overview of System Dewlopment Charges 2-1
~ City d Atlantic Beach- System Development Charge Study
2.1 Introduction
AGENDA TTEM # 8C
JULY 14, 2008
^ State and local laws
^ System planning criteria
^ Financing criteria
^ Customer understanding
Many states and local communities have enacted laws that govern the calculation, imposition
and management of SDCs. These laws must be followed in developing SDCs. Most statutes
require a "reasonable relationship" between the charge and the cost associated with providing
service (capacity) to the customer. The charges do not need to be mathematically exact, but
must bear a reasonable relationship to the cost burden imposed. The utilization of the planning
criteria, the actual costs of construction and the planned costs of construction provide the nexus
for the reasonable relationship requirement.
"The use of system planning
criteria is one of the more
important aspects in the
determination of SDC~ System
planning criteria provide the
"rational nexus" between the
amount of infrastructure
necessary to provide service and
the charge to the customer."
The use of system planning criteria is one of the more
important aspects in the determination of SDCs. System
planning criteria provide the "rational nexus" between the
amount of infrastructure necessary to provide service and
the charge to the customer. The rational nexus test
requires:
(a) establishing a connection (nexus) between new
development and the existing or expanded facilities
required for accommodating new development, and
(b) apportioning appropriate cost to the new development
in relation to benefits reasonably received.
An example using system planning criteria is the determination that asingle-family residential
customer requires 161 gallons per day of water distribution storage. The system development
charge methodology then charges the customer for 161 gallons per day of water distribution
storage at the average cost per gallon of storage.
One of the driving forces behind establishing cost-based SDCs is that "growth pays for growth."
Therefore, SDCs are typically established as a means of having new customers pay an equitable
share of the cost of their required capacity (infrastructure). The financing criteria for
establishing SDCs relates to the method used to finance infrastructure on the system and assures
that customers are not paying twice for infrastructure -once through SDCs and again through
rates. This type of double payment can occur through the imposition of SDCs and then the
requirement to pay debt service within a customer's rates. The fmancing criteria also reviews
the basis under which main line and collection line extensions were provided and assures that the
customer is not charged for infrastructure that was provided (contributed) by developers.
The component of customer understanding implies that the charge be easy to understand. This
criterion has implications for the way that the charge is implemented and assessed to the
customer. For a water system, the charge is generally based on the size (capacity) of the meter.
This makes it easy for the customer to understand that the level of charge is based on the size of
a meter required to provide service; the larger the meter (and capacity) the larger the charge. In
Overview of System Development Charges 2-2
~~ City of Atlantic Beach- System Development Charge Study
AGENDA ITEM # 8C
JULY 14, 2008
some instances, lazger meter sizes are calculated based on actual usage. While this is more
complicated, it applies to very few customers and they are generally more sophisticated
industrial customers. The other implication of this criterion is that the methodology is clear and
concise in its calculation of the amount of infrastructure necessary to provide service to future
customers.
2.5 Overview of the System Development Charge
Methodology
There are "generally accepted" methodologies that aze used to establish SDCs. Within the
"generally accepted" SDC methodology, there aze a number of different steps. These steps are
as follows:
^ Determination of system planning criteria
^ Determination of equivalent residential units (ERUs)
^ Calculation of system component costs
^ Determination of any credits
The first step in establishing SDCs is the determination of the system planning criteria. This
implies calculating the amount of water required to serve asingle-family residential customer.
For example, in developing SDCs for a water system, two main criteria are generally determined
due to differences in their application and implication on the water system and eventual SDC
calculation. The first planning criterion is the peak day water usage per ERU and the second is a
water storage requirement per ERU. These two different planning criteria aze developed since a
majority of the water system infrastructure is sized to meet the peak day demand, and water
storage is sized to meet equalizing, emergency, and fire flow requirements.
Once the system planning criteria is determined, the number of equivalent residential units
(ERUs) can be determined. For the water system, this is determined by utilizing the existing
peak day water system demand and dividing it by the number of existing ERUs to determine
peak day water usage per ERU. This is a very important calculation since it provides the linkage
between the amounts of infrastructure necessary to provide service to a set number of customers.
For example, the City's system is designed to provide service for demands up to the year 2025;
therefore the infrastructure costs are divided by the ERUs in 2025 to determine the cost per
ERU.
Once the number of ERUs has been determined, acomponent-by-component (e.g., source of
supply, treatment, storage, etc.) analysis is undertaken to determine the component system
development charge in cost ($) per ERU. Individual plant components are analyzed separately
for the water and sewer systems given that the planning criteria differ for the development of the
various system components.
The calculation of each SDC component includes both historical assets and planned future
assets. Historical and future asset costs typically include IO interest charged on the financed
portions of projects. This calculation is done to reflect the fact that existing customers have
Overview of System Development Charges 2-3
~ City of Atlantis Beach- System Development Charge Study
AGENDA Tf EM # 8C
NLY 14, 2008
provided for excess capacity in the system and hence need to be reimbursed for not only their
initial investment, but also the "carrying cost" on that investment which they have been paying
in their regular user rates. The reimbursement to existing customers is accomplished by the fact
that without SDCs, rates would otherwise be higher than they would be with SDCs. Inclusion of
interest in future capital costs reflects the method used to finance the plant and hence the "true
cost" to construct future infrastructure. Once the total cost of the capital infrastructure is
determined, it is then divided by the appropriate number of ERUs the infrastructure will support
to develop the cost per ERU for each specific plant component.
After each plant component is analyzed and a cost per ERU is determined, the cost per ERU for
each of the plant components is added together to determine the "gross system development
charge". This gross SDC is calculated before any credits for debt service are applied.
The last step in the calculation of the system development charge is the determination of any
credits. As stated earlier, this calculation assures that customers are not paying twice, once
through SDCs and again through debt service included within the water and sewer rates. A
crediting mechanism is also used if general obligation or tax revenue has been used to finance
the infrastructure.
"The final SDC is
determined by taking the
"gross system development
charge" and subtracting any
credits This results in a "net
system development charge"
stated in dollars per ERU."
The final SDC is determined by taking the gross SDC and
subtracting any applicable credits. This results in a "net
system development charge" stated in dollars per ERU. The
general basis of this calculation for a water system is the
assumption that an ERU is equivalent to a 3/4-inch meter.
Larger meter sizes are then imposed based on the number of
ERUs for a given meter size. The number of ERUs per meter
size is generally based on the safe operating capacity of the
meter. For the sewer system, an ERU can be defined using
the same theory as the water utility, that is, based on water meter size and then weighted in the
same manner as the water system. Alternatively, it can be defined as asingle-family residential
unit. In the latter case, other types of dwellings or businesses are then assigned ERUs based on
flow from design manuals or actual flows.
2.6 Summary
This section of the report discussed the criteria typically used in determining SDCs. In addition,
an overview was provided of the "generally accepted" methodology used in calculating SDCs.
Given this background, the next section of the report discusses any specific legal criteria that
must be used by the City in establishing its SDCs.
Overview of System Development Charges 2-d
~~ City of Atla~rtic Beach- System Development Charge Study
AGENDA ITEM # 8C
JULY 14, 2008
3.1 Introduction
Legal requirements at the state and local levels are important considerations in establishing
SDCs. The legal requirements often establish the methodology azourid which the SDCs must be
calculated or how the funds must be used. It is therefore important for the City to understand
these legal requirements. This section of the report provides an overview of the legal
requirements for establishing SDCs under Florida law.
The discussion contained within this section of the report is intended to be a summary of our
understanding of the relevant Florida law as it relates to establishing SDCs. It in no way
constitutes a legal interpretation of Florida law by HDR Engineering, Inc.
3.2 Requirements under Florida Law
In establishing SDCs, an important requirement is that they be developed and implemented in
conformance with local laws. Many states have established
"The laws for the specific laws regazding the establishment, calculation and
enactment of SDCs in implementation of SDCs. The main objective of most state
Florida are found in the laws is to assure that these chazges aze established in such a
"Florida Impact Fee Act ", manner that they aze fair, equitable and cost-based. In other
which is codified as cases, state legislation may have been needed to provide
Florida Statute Title XI, legislative powers to the utility to establish the chazges.
Chapter 163.31801. "
The laws for the enactment of SDCs in Florida aze found in the
"Florida Impact Fee Act", which is codified as Florida Statute Title XI, Chapter 163.31801. The
Florida Impact Fee Act is comprehensive legislation dealing with the various requirements for
imposition of SDCs in Florida. The statutes deal with the requirements for the calculation of the
fees and the accounting and reporting requirements.
A summary of the requirements under Florida law is as follows:
"163.31801 (3) An impact fee adopted by ordinance of a county or
municipality or by resolution of a special district must, at a minimum:
(a) Require that the calculation of the impact fee be based on
the most recent and localized data.
(b) Provide for accounting and reporting of the impact fee
collections and expenditures. If a local governmental
entity imposes an impact fee to address its infrastructure
needs, the entity shall account for the revenues and
Legal Considerations in Establishing System Development Charges 3-1
~ City of Atlantic Beach- System Devebpment Charge Study
AGENDA ITEM # 8C
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expenditures of such impact fee in a separate accounting
~~
(c) Limit administrative charges for the collection of impact
fees to actual costs.
(d) Require that notice be provided no less than 90 days before
the effective date of an ordinance or resolution imposing a
new or amended impact fee. "
The use of the methodology discussed in Section 2, should assure that not only is the reasonable
relationship standard met, but that the SDC is based upon the "most recent and localized data" in
compliance with Florida law.
3.3 Notice Requirements and System Development Charges
Florida law requires a minimum of 90 days notice for any new or amended impact fee. This
means that the City will need to provide the public with information regarding any proposed
changes to the existing SDC in a public manner so as to allow for comments on the proposal.
This notification period can be greater than 90 days but cannot be less than 90 days. The law,
however, does not stipulate what form the notice would need to take.
3.4 Summary
This section of the report has reviewed the legal basis for establishing SDCs in Florida. HDR
concludes that the City has the authority to establish cost-based SDCs and the methodology
described in Section 2 should assure compliance with Florida law.
Legal Considerations in Establishing System Development Charges 3-2
~ City of Atlantic Beach- System Development Charge Study
AGENDA 1TEM # 8C
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4.1 Introduction
This section of the report presents the key assumptions and details used in calculating the City's
water SDC. The calculation of the City's water SDC is based upon City-specific accounting and
planning information. Specifically, the SDCs are based upon the City's fixed asset records,
Capital Improvement Plan (CIP), and planning data from the City's water master plan entitled
City of Atlantic Beach Water Master Plan, September 2001 (Master Plan). The City provided
other fmancial and accounting information that was used within this analysis.
To the extent that the cost and timing of future capital improvements change, then the SDCs
presented in this section of the report should be updated to reflect the changes.
4.2 Overview of the City's Water system
The City currently has 12,723 customer connections. The City's drinking water supply comes
from wells drawing from the Floridan Aquifer. The water is treated at one of the City's four
treatment plants which are capable of treating up to 8 million gallons of water per day. The
water system is comprised of two primary zones -the Atlantic Beach and Buccaneer zones. The
City's Treatment Plants #1 and #2 are in the City's Atlantic Beach Zone and Treatment Plants #3
and #4 are in the City's Buccaneer Zone. The City also has over 1.4 million gallons of storage
capacity.
The City's Master Plan identifies a number of system improvements that will be needed to serve
growth over the planning horizon. The SDC calculation presented in this section addresses these
improvements.
4.3 Present Water System Development Charge
The City currently charges a "capital improvement charge" of $325 per 3/a" meter for a standard
residential connection. The City presently calls the equivalent fee for the sewer utility an
"impact fee". For the purposes of this analysis, the City's water capital improvement fee and the
sewer impact fee are considered to be the same as a system development charge. The water SDC
increases based upon meter size. The fee for the water utility is shown in Table 4-1.
Determinatbn of the Water System Developnwnt Charges 41
City of Atlantic Beach- System Devsbpment Charge Study
AGENDA ITEM # 8C
JULY 14, 2008
3l4" $ 325
1" 550
1 %s" 1,075
2" 1,725
3" 3,250
4" 5,425
6" 10,800
8" 15,000
4.4 Calculation of the City's Water System Development
Charges
As discussed in Section 2, the process of calculating SDCs is based upon afour-step process. In
summary form, these steps are as follows:
^ Determination of system planning criteria
^ Determination of equivalent residential units (ERUs)
^ Calculation of the SDC for system component costs
^ Determination of any SDC credits
Each of these steps is discussed in more detail below.
4.4.1 System Planning Criteria
System planning criteria are used to establish the capacity needs of an equivalent residential unit
(ERU). Based upon the City's Master Plan, a value of 287 gals/day/ERU was used for average
day flow. The peaking factor of a residential unit is 1.48 times average day. The storage
requirement per ERU is based on the City's Master Plan of 161 gallons per ERU. Table 4-2
provides a summary of the planning criteria used to establish the City's water SDCs.
Determination of the Water System Development Charges 42
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AGENDA ITEM # 8C
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As previously discussed, certain facilities may be planned and sized around different planning
criteria. Therefore, the system planning criteria shown above were used for different plant
components to determine the cost per ERU for that specific plant component.
4.4.2 Residential Units
The planning horizon of this analysis was 2008 to 2025. As a part of this study, a projection of
the number of new, additional ERUs per year must be determined, along with the total number of
ERUs at 2025. The City is expected to reach "build out" of its water system by 2024, meaning
that the maximum number of ERUs will be connected to the City's water system based upon
current land use and planned infrastructure. This accounts for a total of 1,262 additional ERUs.
The calculation of ERUs was developed by taking the City's anticipated total peak day flow and
dividing it by the peak day flow per ERU. This growth in ERUs equates to a 0.59% annual
growth rate.
A summary of the ERUs for 2008 and 2025 are presented below in Table 4-3. Details of the
determination of ERUs are provided in Exhibit A-1 of Appendix A.
Equivalent Residential Units - 2008 12,723 ERUs
Equivalent Residential Units - 2025 13,985 ERUs
Given the development of the total water ERUs for each year of the planning period, the focus
can shift to the calculation of the SDC for each plant component. This aspect of the analysis is
discussed below.
4.4.3 Calculation of the Water System Development Charge for the
Major System Components
The next step of the analysis is to review each major functional component of plant in service
and determine the water SDC for that component. In calculating the water SDC, both existing
plant assets and planned future capital improvement projects (CIP) were included within the
calculation. The major components of the City's water system that were reviewed for purposes
of calculating the system development charge were as follows:
^ Source of Supply
Determinatbn of the Water System Development Charges 43
~ City of Atlantic Beach- System Development Charge Study
Average Day Flow 287 gallons/daylERU
Peak Day Flow 424 gallons/day/ERU
Storage Requirements 161 gallonslERU
Description Calculated ERUs
AGENDA ITEM # 8C
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^ Storage
^ Transmission/Distribution Mains
^ General Plant
A brief discussion of the SDC calculated for each of the functional water plant components is
provided below.
Sotrnc~ of SUPPLY -The future plant improvements that are attributable to growth were added
to the existing plant costs. This total cost was then divided by the total planned source of supply
capacity to determine a cost of $0.41 per gallon. The cost per gallon for source of supply was
then multiplied by the peak day planning criteria in gallons/day/ERU. This resulted in a system
development chazge for source of supply of $173 per ERU. Details of the calculation of the
source of supply plant are shown in Exhibit A-2 of Appendix A.
STORAGE - As noted in Table 4-2, the design criterion for the City in determining storage
requirements is equal to 161 gallons/ERU. The total storage plant value, which, like source of
supply, includes both existing and future plant, was divided by the total planned storage capacity
(2.25 million gallons) to result in a storage cost of $1.17 per gallon. The cost per gallon for
storage was then multiplied by the storage capacity per ERU based on the 161 gallon storage
planning criterion. This resulted in a SDC for storage reservoirs of $188 per ERU. Details of
the calculation aze provided in Exhibit A-3 of Appendix A.
TR.a-xsMissloN/DtsTtusuTTON MAnvs -Existing transmission and distribution plant is included
in the calculation of this component of the SDC. Normally, future transmission/distribution CIP
projects are also included; however, the City's CIP identifies projects that are all replacement or
renewal based, therefore they are not attributable specifically to growth. The total cost of the
existing transmission and distribution plant was divided by the 2025 projected ERUs of 13,985,
resulting in a SDC for distribution and transmission mains of $1,030 per ERU. Details of the
calculation of the transmission and distribution mains are provided in Exhibit A-4 of Appendix
A.
GENERAL Pt,ANT -The City currently has general plant items, such as trucks, communication
equipment, and telemetry which are used to provide service and develop the water system.
There aze also a few proposed general plant projects on the City's CIP. The existing general
plant was allocated to both existing and future customers equitably as all customers will benefit
from the existing general plant. This results in a SDC for existing general plant of $35 per ERU.
For future plant, the total cost of the future general plant CIP was allocated to growth only and
therefore the future general plant cost is $49 per ERU. The total SDC for general plant,
therefore, is $84. The details of the calculation for the general plant SDC are provided in Exhibit
A-5 of Appendix A.
4.4.4 Debt Service Credits
The final step in calculating the water system development charge was to determine if a credit
for payment on debt service is applicable for the City's outstanding and future planned loans and
bonds. The City currently has three outstanding debt obligations; however, no assumptions are
made regarding future debt issues.
Determinatlon of the Water System Development Charges 4.4
City of Atlantic Beach- System Developme~rt Charge Study
AGENDA ITEM # 8C
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Credits for debt service payments are associated with the payment of debt service through rates
for any outstanding debt issues. When debt service exists for a utility, total debt is compared to
projected annual SDC revenue. Whenever debt payments exceed projected SDC revenue, a
credit per ERU is derived. Since the City has three outstanding debt obligations, the debt service
credit per ERU was calculated at $339. Details of the calculations are provided in Exhibit A-6 in
Appendix A.
4.5 Net Allowable Water System Development Charges
Based on the sum of the component costs calculated above, the net allowable water SDC can be
determined. `inlet" refers to the "gross" system development charge, net of any debt service
credits. "Allowable" refers to the concept that the calculated SDC shown in Table 4-4 is the
City's cost-based SDC. The City, as a matter of policy, may charge any amount up to the
allowable SDC, but not over that amount. Charging an amount greater than the allowable SDC
would not meet the nexus test of a cost-based SDC. A summary of the calculated net allowable
water SDC for the City is shown in Table 4-4.
Calculated System
Plant Component Development Charge
(~ERtn
Source of Supply $173
Storage 188
TransmissionlDistribution Mains 1,030
General Plant 84
Debt Service Credit for Bonds (339)
Net Allowable Charge $1,136
'/." 1.00 $1,140
1" 1.67 1,904
1 %" 3.33 3,796
2" 5.33 6,076
3" 10.00 11,400
4" 16.67 19,004
6" 33.33 37,996
8" 53.33 60,796
(1) Based on American Water Works Assoctiation (AWWA) safe operating capacities
Determinatlon of the Water System Dwelapment Charges 43
~ Clty of Atlantic Beach- System Development Charge Study
For ease of administration, the net allowable charge per ERU is rounded to $1,140. This
compares to the City's current system development charge of $325 per ERU, or an increase of
$815/ERU. Exhibit A-7, of Appendix A, details the calculation of the net allowable system
development charge.
AGENDA ITEM # 8C
NLY 14, 2008
In Table 4-S, the SDCs for the larger meter sizes are determined by multiplying the system
development charge fora 3/4 inch meter by the meter capacity weighting factors. The weighting
factors are determined based on the American Water Works Association (AWWA) safe
operating capacities for the type and size of meter. The safe operating capacity of each meter is
divided by the safe operating capacity fora '/4 inch displacement-type meter to determine the
weighting factor for each meter. For example, the safe operating flow capacity of a 2-inch meter
is 5.33 times the safe operating flow capacity of a 3/a inch meter. Stated another way, the
capacity that a customer has with a 2-inch meter is equivalent to the capacity of over Ssingle-
family homes (i.e., a 3/+ inch customer).
4.6 Key Assumptions
In developing the SDCs for the City's water system, a number of key assumptions were
employed. These are as follows:
^ The City's asset records were used to determine the existing plant assets.
^ The City provided the Capital Improvement Plan (CIP) for future improvements.
^ The base year for the CIP was adjusted to be 2008.
^ The growth rate for ERUs was based on achieving full system build-out by 2025.
^ The interest rate used for calculating interest on existing investments was 4.S percent.
4.7 Implementation of the System Development Charges
The methodology used to calculate the SDCs takes into account the value of money, interest
charges, and inflation. Therefore, HDR recommends that the City adjust the SDCs each year by
an escalation factor to reflect the cost of interest and inflation. The most frequently used source
to escalate SDCs is the Engineering News-Record (ENR) Construction Cost Index, which tracks
changes in construction costs. This method of escalating the City's SDCs should be used for no
more than a 4 to S year period. After this time period, I-IDR recommends that the City update the
charges based on the actual cost of infrastructure and any new planned facilities that would be
contained in an updated Master Plan, Capital Improvement Plan or rate study.
4.8 Consultant Recommendations
Based on our review and analysis of the City's water system, I-IDR recommends the following:
^ The City should revise and update its net water SDCs for new connections to the water
system that are no greater than the net allowable SDCs as set forth in this report.
^ The City should update the actual calculations for the SDCs, based on the methodology
contained in this report at such time as a new capital improvement plan, master plan, or a
comparable plan is approved or updated by the City, or every five years.
^ The City should incorporate its growth assumptions and anticipated SDC revenue based upon
the revised net SDC into its overall revenue requirements analysis for the water utility so that
Determinatlon of the water System Development charges 46
~ City of Atlantic Beach- System Development Charge Study
AGENDA ITEM # 8C
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the appropriate balance between funding for capital improvements from rate revenue and
SDC revenue can be reached for the utility as a whole.
4.9 Summary
The water system development charge developed and presented in this section of the report is
based on the planning and engineering design criteria of the City's water system, the value of the
existing assets, future capital improvements, and "generally accepted" ratemaking principles.
Adoption of the proposed SDCs will provide multiple benefits to the City and create equitable
and cost-based charges for new customers connecting to the City's water system.
Determination of the Water System Development Charges 47
city of waanaa seaah-system Dewiopment charge study
AGENDA ITEM # 8C
JULY I4, 2008
5.1 Introduction
This section of the report presents the details and key assumptions used in calculating the City's
sewer SDCs. The calculation of the City's sewer SDC is based upon City-specific accounting
and planning information. Specifically, the SDCs are based upon the City's fixed asset records,
Capital Improvement Plan (CIP), and planning data from the City's master plan entitled 2006
Sewer Master Plan Update (Master Plan). The City provided other financial and accounting
information that was used within this analysis.
To the extent that the cost and timing of future capital improvements change, then the SDCs
presented in this section of the report should be updated to reflect the changes.
5.2 Overview of the City's Sewer System
The City owns and operates two regional wastewater treatment plants. The main plant is known
as the Atlantic Beach Wastewater Treatment Plant (WWTP) and the second plant is known as
the Buccaneer WWTP. The Atlantic Beach WWTP is an extended air, activated sludge plant
with a design capacity of 3.0 mgd average flow. The Buccaneer WWTP consists of a master wet
well and has a permitted capacity of 1.9 mgd average flow.
The City's master plan identifies a number of system improvements that will need to be
constructed to serve growth over the planning horizon. Those projects are included within the
analyses described below.
5.3 Present Sewer System Development Charges
The City provides water and sewer service. New residential connections to the City's sewer
system are charged an "Impact Fee" of $1,250 at the time of connection. The City also imposes
a SDC on new commercial connections based upon the type of business and specific criteria
related to that type of business, such as number of seats or number of restrooms. The City's
present sewer SDC is shown below in Table 5-l.
Determination of the Sewer System Development Charges 5..1
~ City of Atlantic Beach- System Devebpme~ Charge Study
AGENDA ITEM # 8C
JULY 14, 2008
Residential $1,250
Office Buildings Per 100 sq ft 40
Groceries Per 100 sq ft 20
Retail Shops Perrestroom 1,260
Theatres Per seat 16
Restaurants Per seat 160
Service Stations Per restroom 3,150
Car Wash, Self Service Per stall 1,850
Car Wash, Roll Over 11,850
Car Wash Tunnel 17,750
Beauty Shops/Barber Shops Per chair 630
Laundromats Per machine 790
HotelslMotels Per restroom 475
(1] Based on industry standarc/s for ERU
The City's current sewer SDC for residential connections remains the same regardless of size of
connection. The newly calculated fees are proposed to be implemented based on water meter
size, meaning as the size of the water meter increase, the fee increases commensurate to the
amount of additional capacity the larger sized meter is capable of supplying. The rationale of
using the water meter size as a surrogate is that sewer flows are tied indirectly to water usage.
Therefore, connections with larger meters likely produce flows higher than connections with
smaller meters. This recommendation includes commercial connections to reduce the
administrative burden of calculating the sewer SDC individually for each new business
connection.
5.4 Calculation of the City's Sewer System Development
Charges
The same four-step process of calculating SDCs as described in Section 2 is used in developing
the sewer SDC. In summary form, these steps are as follows:
^ Determination of system planning criteria
^ Determination of equivalent residential units (ERUs)
^ Calculation of the SDC for system component costs
^ Determination of any SDC credits
Each of these steps is discussed in more detail below.
Determinatbn of the Sower System Development Charges 5-2
~ CHy of AtlaMlc Beaah- System Development Charge Study
AGENDA ITEM # 8C
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5.4.1 System Planning Criteria
System planning criteria are used to establish the capacity needs of an equivalent residential unit
(ERU). The City's master plan provided the detail of the planning criteria for this portion of the
study.
5.4.2 Calculation of Equivalent Residential Units
The planning horizon of this study was 2008 to 2025. According to the City's master plan, the
flow in gallons per day per ERU is 245 gallons. The system was designed to accommodate 4.9
million gallons per day (mgd); therefore, at build out, the system should be able to support over
20,000 ERUs. However, build out is not projected to occur by the end of the planning period,
therefore growth was calculated based upon the projected flows at each treatment plant during
the planning period. A summary of the ERUs for 2008 and 2025 is presented in Table 5-2.
Details of the ERU calculations are provided in Exhibit B-1 of Appendix B.
Equivalent Residential Units - 2007 12,725 ERUs
Equivalent Residential Units - 2030 13,987 ERUs
With the development of the total sewer ERUs for each year of the planning period shown
above, the focus shifts to the calculation of the sewer SDC for each plant component.
5.4.3 Calculation of the Sewer System Development Charge for the
Major System Components
Each major functional component of plant in service is reviewed to determine the SDC for that
component. In calculating the SDCs for the City, both existing sewer plant assets, along with
planned future sewer improvements were included. The major components of the City's sewer
system that were reviewed for purposes of calculating SDCs are as follows:
^ Sewer Treatment Plant (WWTP)
^ Collection Plant
^ General Plant
A brief discussion of the SDC calculated for each system component is included below
T1t>;ATMENT -The existing plant value is approximately $5.3 million. The City has developed a
capital improvement plan for adding capacity for future growth. The total cost of the future
treatment plant upgrades in 2008 dollars is approximately $15.5 million. This results in a total
charge for sewer treatment of $1,041 per ERU. Details of the calculation of the treatment plant
investment charge are shown in Exhibit B-2 of Appendix B.
Determination of the Sewer System Development Charges 5-3
~~ City of Atlantic Beach- System Development Charge Study
Descritltion Calculated ERUs
AGENDA ITEM # 8C
JULY I4, 2008
COLLECTION PANT - To determine the system development charge for collection plant, an
inventory of the existing system was reviewed. The City has approximately $32 million in
existing collection plant. This was allocated equally to all ERUs as of the end of the planning
period and results in a collection SDC for existing plant of $2,276. The City's CIP was also
reviewed to determine if any collection plant improvements are anticipated. In reviewing the
CIP, there are approximately $1.4 million of anticipated future upgrades to the sewer collection
system. This future collection plant results in a SDC for future plant of $1,079 and, therefore,
results in a total collection plant SDC of 3,355.
Details of the calculation of the collection plant SDCs are provided in Exhibit B-3 of Appendix
B.
GENERAL PLANT - As stated in the calculation of the water SDC, the City currently has general
plant items which are used to maintain, operate, and construct the sewer system. Again, as with
the water system, the general plant cost is allocated equally between existing and future
customers and therefore yields a SDC for general plant of $37. Details of the general plant
investment charge calculation are provided in Exhibit B-4 of Appendix B.
5.4.4 Debt Service Credits
The final step in calculating the City's sewer SDCs was to determine if a credit for payment on
debt service is applicable for the City's outstanding and any future planned bonds and loans.
The City cunrently has three outstanding debt obligations. No assumptions are made regarding
future debt issues.
Credits for debt service payments are associated with the payment of debt service through rates
for any outstanding debt issues. When debt service exists for a utility, total debt is compared to
projected annual SDC revenue. Whenever debt payments exceed projected SDC revenue, a
credit per ERU is derived. The City's debt service credit component of the sewer system SDC
is, therefore, $381 per ERU. Details of the calculations are provided in Exhibit B-5 of Appendix
B.
5.5 Net Allowable Sewer System Development Charge
Based on the sum of the component costs calculated as described above, the net allowable sewer
SDC can be determined. "Net" refers to the "gross" SDC, net of any debt service credits.
"Allowable" refers to the concept that the calculated SDC shown in Table 5-3 is the City's cost-
based sewer SDC. The City, as a matter of policy, may charge any amount up to the allowable
SDC, but not over that amount. Charging an amount greater than the allowable SDC would not
meet the nexus test of a cost-based sewer SDC.
Determination of tM Sewe- System Development Chargsa S-4
City of Atlantic Beach- System Development Charge Study
AGENDA ITEM # 8C
JULY 14, 2008
Treatment Plant $1,041
Collection Plant 3,355
General Plant 37
Debt Service Credit for Bonds (381)
Total $4,052
For ease of administration, the recommended chazge for 1 ERU is rounded to $4,050. This
compares to the City's current system development charge of $1,250 for the equivalent of a 1
ERU connection. Details of the net allowable system development charge for the City are shown
in Exhibit B-6 of Appendix B.
'~" 1.00 $4,050
1" 1.67 6,764
1 %z" 3.33 13,487
2" 5.33 21,587
3" 10.00 40,500
4" 16.670 67,514
6" 33.33 134,987
8" 53.33 215,987
(1 J ERU determination based on industry standards
In Table 5-4, the SDCs are determined by multiplying the total plant SDC by the appropriate
ERU weighting factor. The weighting factors are determined based on industry standards.
5.6 Key Assumptions
In developing the sewer SDCs for the City's system, a number of key assumptions were utilized.
These are as follows:
^ The City's asset records were used to determine the existing sewer plant assets.
^ The City provided the CIP for future improvements.
^ The interest rate used for calculating interest on existing investments was 4.5%.
^ CIP project costs were calculated in 2008 dollars
Determinatbn of the Sewer System Development Charges $y
City of Atlantic Beach- System Development Charge Study
Plant Component System Develop~rient Charge Calculation Results
The charges for the various sized meters results in the following SDCs, as shown in Table 5-4.
AGENDA ITEM # 8C
JiJLY 14, 2008
^ The growth rate for ERUs was based on calculations of plant flow for each year during the
planning period, through 2025.
5.7 Implementation of the System Development Charges
The methodology used to calculate the SDCs takes into account the cost of money, interest
charges, and inflation. Therefore, as with the water utility, HDR recommends that the City
adjust the SDCs each year by an escalation factor to reflect the cost of interest and inflation. The
most frequently used source to escalate SDCs is the Engineering News-Record (ENR)
Construction Cost Index, which tracks changes in construction costs. This method of escalating
the City's SDCs should be used for no more than a 4 to 5-year period. After this time period,
HDR recommends that the City update the charges based on the actual cost of infrastructure and
any new planned facilities that would be contained in an updated Master Plan, Capital
Improvement Plan, or Facilities Plan.
5.8 Consultant Recommendations
Based on our review and analysis of the City's sewer SDCs, I-IDR recommends the following:
^ The City should revise and update its SDCs for new connections to the sewer system that are
no greater than the SDCs as set forth in this report.
^ The City should update the actual calculations for the SDCs, based on the methodology
contained in this report at such time as a new capital improvement plan, master plan, or a
comparable plan is approved or updated by the City, or every five years.
^ The City should incorporate its growth assumptions and anticipated SDC revenue based upon
the revised net SDC into its overall revenue requirements analysis for the water utility so that
the appropriate balance between funding for capital improvements from rate revenue and
SDC revenue can be reached for the utility as a whole.
5.9 Summary
The sewer SDC developed and presented in this section of the report is based on the engineering
design criteria of the City's sewer system, the value of the existing assets, future capital
improvements, and "generally accepted" ratemaking principles. Adoption of the proposed SDCs
will provide multiple benefits to the City and create equitable and cost-based charges for new
customers connecting to the City's sewer system.
Determination of the Sewer System Dwelopment Charges 5-6
~ City of Atlantic Beach- System Development Charge Study
AGENDA ITEM # 8C
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6.1 Introduction
The previous sections of this report presented the methodology used, legal implications, and
specific calculations of the City's water and sewer system development chazges (SDCs). This
section of the report will address a few of the more global issues surrounding SDCs and how this
impacts the City.
6.2 System Development Charges and New Developments
The calculation of the proposed SDCs is based upon known system-wide infrastructure
components. As such, the calculation does not anticipate extraordinary costs that may azise as a
result of the needs of a specific new development. Any such extraordinary costs are typically
addressed in a line extension or similar agreement between the City and the responsible party
representing the proposed development. Collection of an SDC based upon the City's currently
effective SDC schedule does not preclude the City from addressing extraordinary items in a
sepazate agreement.
6.3 System Development Charges in Annexation Areas
Occasionally, properties will be redeveloped and new uses of the property will ensue. This may
result in the necessity for a larger meter than the original installation. When such a situation
arises, the property should be granted a credit on the proposed SDC chazge for the amount
already paid at the time of original connection, or, in other words, the property should be
responsible for the difference between the amount paid at the time of original connection and the
amount of the currently effective SDC for the requested meter size. For areas annexed into the
City in the future where no records exist or can be produced indicating an historical amount paid
for an SDC, the City should treat any requests for new meters or lazger meters as new
connections since the City did not receive any value for the original connection. Where records
indicate that a value was received, then the City should treat these connections as they would had
these connections been part of the City all along.
6.4 National Comparison of System Development Charges
The City's current and proposed water and sewer SDCs for a typical residential connection are
presented in Table 6-1 below.
Summary of the City's System Development Charge Analysis 6-1
City of Atlantic Beach- System Development Charge Study
AGENDA ITEM # 8C
NLY 14, 2008
water System Development Charge
Present
'/." meter $325
Proposed
'/." meter $1,140
Sewer System Development Charge
Present
Residential Connection $1,250
~~
Residential Connection $4,050
The proposed SDC, while based on generally accepted ratemaking methodologies, represents a significant
increase in both water and sewer SDCs. This may be due to a variety of factors including the length of
time since the last SDC update, the methodology employed at that time to calculate the existing SDCs,
and the changes in the components of the SDCs such as new plant additions since the last update and
proposed capital improvements. In an effort to provide a cursory review of the comparability of the
proposed SDC level, Table 6-2 presents SDCs from selected jurisdictions both in Florida and across the
Nation. It is important to note, however, that there is no true comparability of SDCs, or any rate for that
matter, from one jurisdiction to another, since each utility is unique and structured in very different ways.
The comparative data is provided as an informational tool only.
Atlantic Beach Duval $1,140 $4,050 $5,190
Brevard County Brevazd 1,903 2,257 4,160
Melbourne Brevazd 1,340 1,900 3,240
Baldwin Duval 420 1,035 1,455
Neptune Beach Duval 455 455 910
Flagler Beach Flagler 1,745 2,144 3,889
Palm Coast Flagler 2,430 2,480 4,910
Eustis Lake 854 2,668 3,522
Apopka Orange 2,444 3,842 6,286
Maitland Orange 900 2,890 3,790
Palatka Putnam 570 1,690 2,260
Seminole County Seminole 1,010 2,163 3,173
Winter Springs Seminole 518 2,199 2,717
Deland Volusia 585 773 1,358
Edgewater Volusia 2,151 2,162 4,313
Volusia County Volusia 1,283 2,826 4,109
Florida Average $3,395 $1,354 $4,749
Nationwide Average 3.232 2 RR5 ~ i 17
As can be seen from Table 6-2, the combined proposed water and sewer SDC is in line with the
Florida average SDC and is well below the national average. Again, this data is for
informational purposes only and should not be used as a basis for setting the SDC levels for
either utility.
Summary of the City's System Dewlopment Charge Analysis g.2
City of Atlantic Beach- System DewlopmeM Charge Study