HomeMy WebLinkAbout6.q. SAC Deferral Program
EXECUTIVE SUMMARY
City Council Meeting: June 16, 2015
AGENDA ITEM: SAC Deferral Program AGENDA SECTION:
Consent
PREPARED BY: Kim Lindquist, Community Development
Director AGENDA NO. 6.q.
ATTACHMENTS: Met Council Deferral Program Information APPROVED BY: ddj
RECOMMENDED ACTION: Approval to enroll in the Met Council’s SAC deferral program
SUMMARY
Recently, staff has been approached about City assistance in paying for SAC charges associated with new
development. The SAC charge, or Sewer Availability Charge is required by the Metropolitan Council upon
new development but payment is obtained by the City when issuing building permits. The 2015 fee is
$2485 which is coupled with a $1200 city fee. The Metropolitan Council has a policy in place that
determines the amount of SAC units for each use based upon the activity at the site and the size of the
building. The formula is weighted toward higher water users. Therefore restaurants have typically
experienced higher than anticipated SAC charges.
The Metropolitan Council has a SAC deferral program which requires the City to enroll in the program.
The application is a simple document which states that the City will administer the deferral program and
sets the amount that can be deferred and the payback time period. As mentioned, the Met Council will
allow some portion of the SAC to be deferred but the onus is on the City to obtain payment from the local
business, or property owner and pay the Met Council. Staff anticipates that any business that would
participate in the program would sign an agreement which requires payment or allows the City to assess
the cost to the property. That means the property owner and business owner would both need to sign off
on the agreement.
The application to the Met Council would list the percent of the charges that can be deferred. The upper
limit is 80%, which means 20% would be paid with the building permit. The variable is the payback period.
Staff is recommending a 5-year payback period. The application which would list an 80% deferral and a 5
year payback would serve as the upper limits of the program and the city could require a shorter payback
or more upfront payment. The application amounts just set the upper terms and the City could not go
longer on the payback or defer more than 80%. Staff would recommend that the City ultimately adopt a
policy to address program eligibility and implementation. Other Met Council requirements are that the
deferral is for smaller businesses, under 25 SAC units.
CONCLUSION
At this time staff is recommending applying to the Met Council to enroll in the SAC deferral program.
Enrollment does not mean the City has to use the deferral but there is currently one home-based business
that is looking to expand into a commercial retail space and would like to participate in the deferral
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program. This situation seems to be consistent with the intent of the program and complements the City’s
goals to assist homegrown businesses. Should the business determine they would like to participate in the
program; staff would bring an agreement between the City, property owner, and business owner for
Council approval which would outline the perimeters of the charges, payback period, and the ability to
assess the property should payments not be made in a timely manner.
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SAC Deferral Program
Description and Application
To promote business development, Metropolitan Council Environmental Services (MCES) provides
communities the option to participate in the SAC Deferral Program to defer some SAC payment obligations.
This option allows deferral of up to 80% of SAC due for the wastewater demand created by businesses
(communities are required to pass on the benefits of deferred SAC payments to the participating
businesses). Businesses allowed to participate are those within an eligible city and where a new SAC
determination of 25 or fewer SAC units occurs (total charge before credits). To obtain these deferments,
communities must first complete and submit to MCES a signed master SAC Deferral Agreement
(Agreement). This Agreement will be sent to interested communities for signature after the information in
the following is completed and returned to MCES.
1. Community:
2. Community Address:
3. Contact (Finance Director or CFO):
4. Community-Wide Maximum Percent of SAC that can be Deferred (80% maximum):
5. Community-Wide SAC Deferment Period (years):
6. Payment Month(s):
For 4, 5 and 6 above, each participating community has additional implementation options that will apply
to all its deferrals:
4. For qualifying SAC liabilities (businesses with total determinations of 25 units or fewer), MCES
allows the community to defer up to 80% of SAC due; however, a community can set a maximum
that is lower than this (fill in the percentage on line 4 above). Once this community maximum is
set, the percentage deferred for each individual site deferral can be lower than this maximum but
cannot be higher (e.g., a community chooses a 75% maximum, but a business chooses to pay 50%
up front). For each individual deferment, this site-specific percentage must be noted on the MCES
SAC-E Form, available at: http://www.metrocouncil.org/Wastewater-Water/Funding-
Finance/Rates-Charges/Sewer-Availability-Charge/SAC-Forms.aspx#Activity
5. Deferment period (term): Choose any whole number up to a maximum of 10 years. This term will
apply to all individual deferments from the community. However, note that the Agreement allows
any individual deferment to prepay the remaining principal (and interest up to the payoff date) at
any time.
6. Timing of payments: MCES prefers annual payments due each year on the anniversary the
Agreement was signed, but Communities may request a different payment schedule, as long as it
applies to all deferments in the community. Semi-annual payments are also allowed, on any
month-end during the year - such a schedule may be preferred that corresponds with local SAC
collections, assessments, or other payments from businesses.
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Communities are strongly encouraged to:
- Consider which staff will be responsible for authorizing SAC deferrals and what the process will be
to implement site specific deferral arrangements as are allowed under the Agreement with MCES;
- Consider the need for policies or ordinances around your agreements or arrangements with
business and property owners (in some cases those parties may have different interests);
- Consider in advance how to react if a business fails to pay, which will not relieve the community of
its deferral payment obligation to MCES, unless the business closes and as described below; and
- Review the Agreement with involved community staff and legal advisors before signing. Please
note that this program is offered only as described in the Agreement; MCES does not anticipate
changing it.
Once the Agreement is executed, SAC reporting staff in your community must also attach the MCES SAC-E
form with monthly SAC reporting for each qualified business for which the community is allowing the
deferred SAC payment. Each deferment liability will be effective the first day of the subsequent month
(e.g., for an April building permit that is due and typically reported in May, interest will begin accruing June
1).
Principal on the deferred amount will be amortized monthly at a fixed interest rate based on MCES’ average
cost of debt (per statute). MCES’ average cost of debt, computed on December 31 each year, will be used
as the interest rate for all new deferrals entered into the following calendar year. For example, the average
rate was 2.28% on 12/31/12, so all deferrals originating in 2013 uses that rate, and the rate was fixed for
the duration of each individual deferral started in 2013. For 2014 the rate for new deferrals is 2.26%. Near
the end of January each year, MCES will provide the new interest rate (for deferrals started in the new
calendar year) to participating communities.
If a participating business completely closes, the community has an option to discontinue making deferral
payments to MCES. If this option is chosen, it requires a notification to MCES with a certification of the
business closing. In this situation, the site will not be credited with the unpaid wastewater capacity (for
future SAC determinations), but will get credit for each SAC unit paid. No payments will be refunded and
no net credits will be transferrable off the site (unless and until a redevelopment requires less wastewater
capacity, as on any site). Alternatively, for each such business closure, the community has the option of
simply finishing the payments to MCES, which will result in full SAC credit for the next use of the site.
Late payments on deferrals will incur an additional administrative charge of 2% per month plus the
maximum interest allowed by law.
SAC Deferral Example #1:
1. Community signs SAC Deferral Agreement in October 2013, establishing basic deferral terms
including maximum amount deferred (e.g., 80%), standard community deferral length (e.g., 5
years), and the payment timing requested (e.g., billing only on anniversary of Agreement).
2. An 8-SAC unit business is permitted February 2014. On the SAC Activity Report for February, the
community chooses a deferral and:
a) Pays 20% of the SAC for the site = 8 X 20% = 1.60 X $2485/unit [2014 SAC rate] = $3976
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b) Attaches SAC-E form that details the information for this individual deferral:
i. Property Address = 123 45th Street, City of XYZ
ii. Business Name = Acme Genetics, Ltd.
iii. Permit Issued Date = 2/15/14
iv. Start of Loan Date = 4/1/14 (1st day of month after SAC report is due)
v. Deferred amount= 8 SAC units X 80% = 6.40 X $2485/unit = $15,904
3. MCES sends an invoice detailing the amount due on the SAC deferral(s) in October 2014. In this
single deferral example:
a) $15,904 was spread over 5 years with monthly amortization at 2.26% interest (the 2014 interest
rate) = $280.57/month.
b) Payment on this loan in year 1 = $280.57 X 7 months [April through October] = $1,963.99
c) Invoice is sent out annually (aggregating all community deferrals).
d) Payment is due in 30 days.
In this example, unless the deferral is prepaid, the community will pay for 12 months in 2015, 2016, 2017
and 2018, and only 5 months on the last year’s invoice (2019). At that point the full 8 SAC is paid and
creditable to future use.
SAC Deferral Example #2:
Same circumstances as above but the business closes in 2016 after community made 2 payments (for 7
months in 2014 and 12 months in 2015).
In June 2016, community notifies MCES that the business closed. Community has an option:
1. Continue remitting the remainder of the SAC deferral payments as scheduled. The full 8 SAC units
will be credited to future use on the site as all units are paid for. Of course, if the new use is
different, a new SAC determination must be made, and the community will owe SAC for any
incremental capacity demand. –OR-
2. Discontinue accruing liability. The community still needs to pay for the 5 months that wastewater
demand was needed in 2016, but has no obligation for the rest of the scheduled payments. Only
what was paid is creditable for future use (24 months of 60 is paid = 40% X 6.4 SAC units = 2.56
credits available for the site, in addition to 1.60 units from the original down payment).
If you wish to participate in the deferral program and are ready for the master SAC Deferral Agreement, fill
out the boxes at the top of this application and return it to Dan Schueller, MCES, 390 North Robert Street,
St. Paul, MN 55101 or dan.schueller@metc.state.mn.us. If you have additional question you can call him at
651.602.1624. For questions about the SAC program in general, please call Jessica Nye at 651.602.1378.
For SAC determinations, please call Karon Cappaert at 651.602.1118.
Last Updated: 1/23/14