Exh 8CAGENDA ITENI #8C
TEBRUARY 28, 2005
CITY OF ATLANTIC BEACH
• • CITY COMMISSION MEETING
• STAFF REPORT
AGENDA ITEM: Policy Options to Encourage Septic Tank Owners to Convert to the
Public Sewer System
SUBMITTED BY: Jim Hanson,
' ' DATE: February 17, 2005
BACKGROUND: A staff report was recently submitted to the City Commission outlining
' • various options to amend the current policy to further encourage septic
• . tank owners to convert to the public sewer system in a timely fashion. At
that time, the Commission expressed an interest in several of the proposed
' ' policy options including guidance to amend those options before fmal
• - approval. The Commission's direction was discussed with the city staff
and this report is to present revised options that hopefully will meet the
• Commission's desires.
Raise the cap of the loan amount; The Commission agreed that the present
$3,000 cap for loans should be increased to $5,000. Staff recommends
that the cap be increased to $7,000 to allow for the increase in costs from
• contractors making the sewer conversions.
Lower the interest rate; The City Commission agreed that the old 7%
• interest rate is too high for the current market and should be lowered. A
discussion followed about an interest rate that would float based upon the
market conditions. However, after review with staff it became apparent
that we do not have the sophisticated capability to calculate floating
interest rates on our accounts receivable system and would recommend
' ~ instead that a basic rate be set at 4%. The current prime rate is 5.25% and
. the current federal funds rate is 2.25%. The 4% rate should cover the
city's administrative cost in handling these loans and recover lost interest.
.. Utility Cut Offs for Non-Payment; The Commission expressed an interest
in separating the loans from the utility billing system so that customers
' ~ would not be cut off for non-payment. To do this would require that
.. separate bills be sent out to each customer increasing our administrative
cost. Staff recommends giving the customer a choice of two loan options.
' ' The first would be a loan based on their utility bill with a 4% interest rate.
These would be cut off for non-payment of either the loan amount or the
regular utility charges. A lien would be placed on the house, but there
would be no foreclosure for non-payment. The second option the
AGENDA ITEM #8C
FEBRUARY 28, 2005
customer would have would be loan secured only through a lien on their
house with a 5% interest rate on a separate bill.
Maximum Penalty; The subject of establishing an enforcement mechanism
through the Code Enforcement Board with a fine that would be slightly
above the estimated monthly cost a customer would have to install a septic
tank and pay the sewer bill was recommended. Using a hypothetical
customer with a $5,000 loan and a 5% interest for 10 years, the loan
repayment would be $53.30 per month. Assuming the same customer
would use an average of 7,000 gallons of water, their sewer bill would be
' ~ $29.40 per month. The total of the two would be $82.70. If the
Commission chose to establish a maximum fine that could be levied by the
Code Enforcement Board of $150 per month, then it could accomplish the
' ' purpose of the discussion on January 24`''.
Maximum on Compounding; Concerning the compounding issue, the
' maximum amount due for a loan for the same customer for $5,000 at a 4%
.. interest rate would total to $7,454 over 10 years if no payments were made
at all. If the value of the customer's house began at $150,000 and
' ' compounded at only 3% over the same 10-year period, then it would
.. escalate in price to $201,587. While the loan would increase by $2,454
($7,4541ess the original loan amount of $5,000) the house would increase
by $51,587. Given the 4% interest rate, there does not appear to be a need
. to cap the amount to be compounded because the value of the house will
go up faster than the loan.
- Other incentives; CDBG funds are budgeted in the current year in the
amount of $40,000 for assistance for income eligible families. A
substantial portion of the CDBG funds for FY OS-06 will also be allocated
to septic to sewer conversions, although there is some question about how
much money will be available after the federal budget is adopted: Once
the final financing and enforcement incentives are adopted by the City
Commission, staff will attempt to contact each of the homeowners that
will be up for replacement this year under the current schedule by phone
or in person.
A strikethrough and underlined version of the policies as proposed above
is attached for your review.
BUDGET: Budget implications of the various scenarios were outlined in the staff
report presented at the January 24, 2005 meeting (copy attached).
RECOMMENDATION: The Mayor and Commission should consider if any further amendments to
the proposed financing plan should be made. When a final plan is
acceptable, then the City Commission should adopt the amendments by
AGENDA ITEM #8C
FEBRUARY 28, 2005
ATTACHMENTS:
resolution. Placing a cap on the maximum fines by the Code Enforcement
Board will require an ordinance.
(1) Proposed amendments to the fmancing incentives resolution adopted
June 12, 2000
(2) Staff Report on Septic to Sewer Conversion Options presented at the
January 24, 2005 Commission Meeting
AGENDA ITEM #8C
FEBRUARY 28, 2005
City of Atlantic Beach, Florida
Septic Tank Conversion Assistance Policy Revised
Mandatory Conversion from Private Septic Systems to the Public Sewer System
The following information is provided as an outline of the City's policies to accommodate those
property owners that are required to convert from a private septic system to the City's public
sewer system. These policies may be amended or modified by the City Manager as needed.
Property Owners affected will be informed by certified letter, from the City Manager, of the
requirement to connect to the public sewer system. If assistance is requested, Property Owners
will be advised to contact the Public Works Department, during regular working hours (7:30am
to 4:30pm, Monday thru Friday). The Public Works Department can assist in determining what
needs to be done including cost estimates and permits needed.
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Fin~rei-ng~A~s~is~ee:-For those Property Owners who for any reason would like financial
assistance with the conversion, the City is prepared to enter into
voluntary assessment agreements to finance the cost of the
conversion. The City will also consider the applicant's eligibility
for Community Development Block Grant funds for their particular
situation. (SEE FINANCING)
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AGENDA ITEM #8C
FEBRUARY 28, 200
Conversion from Private Septic System to Public Sewer System
~''n„+.•n n+i„b public Assistance Policy
The following policies .=r;,~.l=~e- are adopted in conjunction with the City Commission's adoption ,
of Ordinance 80-00-61.
1. All Property Owners required to convert from a private septic system to the City's public
• sewer system will be notified by certified letter of the program and of its availability open
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conversion. The City will also make an attempt to contact the property owner directly to
• discuss the options available to them in an effort to encoura>;e the property owner to
~oceed with the elimination of their septic system.
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€r4. No contracting work may proceed without approved permits and no work is to be
performed without the payment of all fees.
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AGENDA ITEM #8C
FEBRUARY 28, 2005
~5. The Public Works Inspector will be available to answer any questions for homeowners I
before, during and after construction, provide key inspections, and arrange inspection by
the Building Department.
s3:6. The Building Department will be responsible for the final inspection.
-1-8:7. For Property Owners who are not on City water, a City water meter is to be installed on
the private well and the Property Owner must agree to grant access for reading this meter
as a basis for billing sewer services.
x-1-8. The Property Owner will pay $85 for the water meter installation. The meter will remain
City property.
-1?-9. The Building Department will be responsible for retaining all documents related to the
conversion in the permanent building files as a matter of public record.
~:l 0. The final inspection report will be copied to the Finance Department for entry into the
Utility Billing system and the Miscellaneous Receivable system as needed..
-1~-:11. The Property Owner or Tenant will be charged for sewer service beginning in the
following month.
AGENDA ITEbL #8C
FEBRUARY 28, 2005
Conversion from Private Septic System to Public Sewer System
Financing Policy
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For those property owners that want financial assistance, the City will loan the funds to the
property owners in the form of a voluntary assessment for those that are required to convert from
' ~ a private septic system that meet the eligibility criteria.
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-~~nea-The eli i~ble properly owner will possess the following qualifications:
1. The Property Owner must currently be on a private septic system with
public sewer available.
2. The Property Owner must either: 1) be an existing City water customer,
or, 2) allow a City meter to be installed on the Property Owner's private
well as a basis for billing sewer volume at the property owner's expense.
3. The applicant must be the Property Owner.
4. The Property Owner and the tenant must be current on all outstanding
amounts owed the City.
For those ~roperty owners that qualify, the City offers the following_
' 4.1. Application for Assistance: The City will enter into a Voluntary Assessment Agreement
with the Property Owner on the basis of an application process. This process is intended to
assure that the Properly Owner is fully educated on the process and that they agree to the terms
and conditions of the assessment.
~2. Amount: All expenses related to the conversion from a private septic tank to the
public sewer system are eligible to be included in the assessment up to $7,OOO.ar
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AGENDA ITEM #8C
FEBRUARY 28, 2005
~3. The City will agree to the Voluntary Assessments with the following terms and
conditions:
~1-1. The Property Owner has the option of choosing any length term in C
me~6-month increments up to 10 years.
2. Interest Rate: The total voluntaryassessment will include 5% simple
interest compounded monthly. The interest rate will be 4% simple interest
compounded monthly if the property owner agrees to have the assessment
attached to the utility bill.
At the time of application, the applicant will have an option of including
the payments due on the utility bill. Selecting this option allows the city to
• bill and collect in the same manner as the current utilitybill. This will
mean that monthly_deadlines are imposed for each payment and late
charges and cut-offs for non-payment will be enforced. As stated above,
the City will charge a reduced interest rate of 4% for those that select this
. option. Payments will be due on the location's water and sewer utilitybill,
whether or not the property owner is the occupant meaning that landlords
and tenants need to address this issue between themselves.
For those property owners not willing to agree to monthly~ayments on the
utility bill, the city will send monthly statements separately with interest
accruing at 5% on the monthly outstanding balance.
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~3. The City will place a lien on the property for the full amount of the
char~,es with interest for duration of the outstanding balance. The lien will be
required to be paid in full if the properly is sold. The cost of filing the lien will be
included in the lien and payable to the City
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AGENDA ITEM #8C
FEBRUARY 28, 2005
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~ :-4. The City Manager, or his designee will be authorized to
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AGENDA ITEM #8C
FEBRUARY 28, 2005
• ~ CITY OF ATLANTIC BEACH
CITY COMMISSION MEETING
STAFF REPORT
• AGENDA ITEM: Policy Options for Requiring Septic Tank Owners to Convert to
. , the Public Sewer System ~~
• SUBMITTED BY: Jim Hanso
„ .
DATE: January 14, 2005 ~ .
BACKGROUND: A short report was made at the January 10~' commission meeting that the
five-year timetable for delayed enforcement of the State requirement to
connect to the City's sewer system was to expire in May of 2005. You
asked to see a list of options to further encourage those owners to convert
to the city system. This report is to provide those options and seek
guidance from the Commission as to which if any should be prepared for
adoption.
~.
First? a brief history of the city's septic to sewer policies is in order
because any policy decisions made must consider not only the group of 53
. septic tank owners for which the timetable is expiring this year as well as
many others that will be in similar situations in future years. Florida State
'Law requires septic tank owners to connect to a publicly owned sewer
~~ system within one year after the availability of that system. In 1999, there
were 279 septic tank owners with public sewer accessibility in Atlantic
Beach. Septic tanks can often create serious environmental concerns,
particularly if they aze located in close proximity to shallow wells~used
. .either for irrigation or drinking water. However, the cost to convert from
a septic tank to the City sewer system is usually several thousand dollars
and can often impose a major financial impact on property owners. With
these factors in mind, and after considerable public discussion, the Mayor
and Commission adopted an ordinance in May 2000 delaying the City's
.enforcement of the state law. Septic tank owners were separated into two
groups; those with assessments for installation of water and sewer lines
that they were currently paying and those without assessments. For those
with assessments, the timetable for the delay of enforcement was to be one
year after the expiration of their assessment. There were three groups with
assessments which expire between December 2006 and November 2011.
The second group was those septic tank owners with no assessments.
These were given five years to connect (until May 2005).
The City Commission also adopted by resolution a set of financial
incentives to encourage the septic tank owners to convert to the City's
sewer system as soon as possible. These included loans at 7% simple
interest with a 10 year ma.~cimum term. For the first year of the program, .
AGENDA ITEM #8C
FEBRUARY 28, 2005
~• the maximum amount of the loan was not Gaped, although thereafter there
was to $3,000 limit. City staff also offered various assistance to the
owners in finding plumbers, getting quotes and otherwise managing the
process of conversion.
After adoption of the ordinance and resolution, letters were sent to each of
the septic tank owners to explain the City's new policies. Follow-up letters
have recently been sent to those who are on the five-year timetable. The
program has been very successful so~ far in reducing the number of septic
` ' tanks in use from 27Q to 169..Only 53 of the remaining 169 are on the
. five-year schedule, There will be an additional 116 septic tank customers
required to convert to City sewer system in future years.
There are seven options identified for the financing incentives as well as ..
one recommendation on how to go about enforcing the state law as
follows;
1) Do nothinb more than the current program which allows for a
loan up to $3,000 with a rate of 7%. The average cost for the septic
• • Zo sewer conversion, including the City's tap and impact fees, is
. .usually over $4,000 per household. For this reason, and because
'•..'•the 7% rate is higher than one could currently get on a second
mortgage, very few of these loans have been made in the Iast
. , - :.''couple of years. ~ Unless interest rates increase so that the 7% rate
. ~ becomes more attractive, we could anticipate that not very many
' ' people would take this program in the future except those who may
have credit problems and cannot obtain other funding. There would
be relatively little impact on the City's budget.
.. 2) Lower the interest rate; a lower interest rate would encourage
more people to use the City's financing program We currently
earn about 2% on the City's invested money, An initial 3°lo interest
rate would reasonably be estimated as the City's "cost". for the
loans anticipating that there is some administrative costs that should
• ~ be recovered. Market interest rates may go up and the City could
take on substantial risk by setting a flat rate of 3%. Setting an
indexed rate at either prime +1 % or the City's current rate on
investments +1 °lo would be a fair way to lower these rates for both
the City and our customers. The "worst case" budget impact to the
• City would be if all 169 of the remaining septic tank owners were .
to use the city's loan process and over $500,000 could be loaned
out and paid back in monthly installments over ten years. The
conversion cost includes'the City's sewer impact fee of $1,250 so
over $200,000 would immediately be returned for a net out-of-
pocket amount of about $300,000.
3) Raise the cap on the loans; If most of the septic tank conversions
' run in the $4,000 to $6,000 range, then raising the maximum loan
to accommodate these higher costs makes good sense. This would.
AGENDA ITEM #SC
FEBRUARY 28, 2005
.~
probably only be done if the previous option to lower the rate was
also implemented. The maximum financial impact~of this, using
the same 169 customers and a loan amount of $5,000 each would
amount to initial loans outstanding of approximately $845,000.
After the impact fees described in the Iast option, the net would be
$634,000. The most probable scenario for the number of loans
would be far less.
..
4) Raise the term .of the loan up from ten years. This is a possible
way to minimize the fmancial~ impact on the customers. By
spreading the~paymenfs out longer, the monthly payment would be
lower much the same as the difference between a 15 year and 30
year loan on a house. The financial impact to the City's budget
• ~ would be similar to the estimates in the previous two options, but
.the balance outstanding would run for a longer time.
• 5) Use CDBG Funds; The City has used block grant funds for eight
income eligible owners in the past. Realizing that the five-year
timetable for the first group was upcoming, and with many of these
' living in the CDBG eligible area, the budget~this year was set at
. $44,000 for assistance in this area. The budget impact is that we
~~•> .' ,''have $40,000 less to utilize in other CDBG eligible projects.
;.6~. 'Loan with Lien on Home; The current financing program.requires
~~loans to be paid on monthly installments on the customer's utility
bills. This allows for the City to cut offwater and sewer service if
the bills go unpaid. A different option would be to issue loans with -
separate payments. Liens could be placed on the homes and the
homeowners could be given the option of either making regular
payments or making no payments at all until the house is sold. The
homeowners could minimi~.e their cost by paying only the regular _.
monthly sewer bill and delaying the loan repayment until the house
is sold. The City would have to~ agree to wait for payment until the
property changes hands. In this scenario, the financial impact in
total dollars could be the same as listed in previous options, but the
amount of time that the loans would be outstanding could be much.
longer. To see that the City does not lose money in the process,
and because of the long-term nature of this option, it is suggested
that the interest rate be indexed as described in option n2 above.
7) Personal Contacts; Letters have recently been sent to the
remaining 53 customers whose timetables expire this May, City
staff has only had personal contact with 17 of those. Once the City
Commission has made decisions on the final policy changes and
enforcement, personal contacts with the remaining owners may be
beneficial.
Enforcement; Enforcement of City ordinances as set forth in the
Code is handled by the Code Enforcement Boazd which has the
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BUDGET:
R.ECOMIVIENDATION:
ATTACHMENT:
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AGENDA ITEM #8C
FEBRUARY 28, 2005
authority to impose fines of up to $250 per day as long as the
violation continues. One philosophy for setting the amount of the
fine for failure to convert would be to set fines that equal or slightly
exceed the amount that a customer would otherwise pay for the
loan from the City plus the cost of the regular sewer service. In this
.way their penalty for failure to convert would be as much or more
than it would cost to connect to the sewer system The Commission
could request cooperation from.the Board in writing or prepare
limits in the ~enaliling ordinance.
~. .
Budget implications of various scenarios have been outlined above.
., ~ ~ .
The Mayor and Commission should consider the various alternatives
suggested and instruct staffwhich ofthese, or others, you would
like to see adopted. Once those instructions have been given, then
amendments to the enabling ordinance and/or resolution will be
prepared.
1) Ordinance 80-00-61 dated May 22, 2000
.2) Resolution 00-09 adopted June 12, 2000
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