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HomeMy WebLinkAboutApproved Minutes - 2010-11-30 SpecialCITY COUNCIL SPECIAL MEETING MINUTES NOVEMBER 30, 2010 Mayor Jack D Hoffman called the special City Council meeting to order at 6:40 p.m. on November 30, 2010, in the City Council Chambers, 380 A Avenue. Present: Mayor Hoffman, Councilors Hennagin, Olson, Moncrieff, Jordan, Tierney, and Vizzini. Staff Present: Alex McIntyre, City Manager; David Powell, City Attorney; Robyn Christie, City Recorder; Laura Weigel, Associate Planner; Jessica Numanoglu, Associate Planner; Denise Frisbee, Director of Planning; Jonna Papaefthimiou, Natural Resource Planner; Morgan Holen, Assistant Natural Resources Planner; Joel Komarek, P.E., Project Director Others: Janet Buck, Lake Grove Board; Bill Ward, Chair, Lake Grove Board; Daniel Work, Overlay Committee, Lake Grove Board; Angie Sanchez Virnoche, Principle, FCS Group; Sergay Tarasov, Project Consultant, FCS Group 3. STUDY SESSION 3.1 Lake Grove R -7.5/R-10 Overlay District Study Session — Ordinance 2558 (LU -10-0040) Laura Weigel, Associate Planner, reviewed the Community and Development Code changes needed for the neighborhood to implement their adopted 1998 Neighborhood Plan. The overlay would apply in the R-7.5 and R-10 zones. Janet Buck, Secretary, Lake Grove Neighborhood Association Board, stated the Lake Grove Neighborhood Association was proposing a neighborhood zone to protect the character of the neighborhood. The character was defined by dense vegetation and large trees with houses being nestled within the landscape. Typically the vegetation has diminished the scale of the buildings. She reviewed the background of the Lake Grove Neighborhood Plan, adopted by the City Council in 1998. Ms. Buck became involved with the plan in October 2007 with the formation of a committee to implement Goal 5, which was to preserve Lake Grove's neighborhood natural resources and wooded character. In 2008, two open houses were held and all property owners and renters were invited. Approximately 35 people attended the first open house where the original 14 concepts were presented and discussed between the residents, Lake Grove Board and committee members. A survey was then developed, the responses to which were studied and eventually resulted in a Board vote to remove seven of the original 14 concepts. The survey results yielded 110 responses, a good percentage. In 2010, at the second open house, the remaining seven concepts were presented to and voted on by the 36 neighbors in attendance, and these concepts were taken forward to the Planning Commission. Daniel Work, Lake Grove Board Overlay Committee, reviewed the challenging process of choosing only two of the overlay concepts. Ms. Buck stated that the Planning Commission voted to recommend two of the seven provisions, side yard setbacks and driveway turnarounds. Based upon feedback from Staff, comments from City Council Special Meeting Minutes Page 1 of 12 November 30, 2010 the Planning Commission and further discussion on the Lake Grove Neighborhood Board, the overlay has been narrowed to two proposed Code provisions. Bill Ward, Chair, Lake Grove Board, presented details of the two proposals, citing his own experience with setback issues on his construction job sites. The first proposal requested a change in the Development Code to require a 10 -foot minimum side yard setback in the R-7.5 Zone regardless of house height. The second proposal requested a change in the Development Code that would limit hardscape to a 50 percent maximum of the lot area; the more hardscape, the less landscape. He used his own drawing to illustrate this idea. Maintaining space to retain existing plant material and allow room for new landscaping is was desirable goal. Lake Grove had no storm sewers, so ideally, runoff from city street surfaces, driveways and roofs would soak into the ground and into the natural water table. Mr. Work noted for the record that Ms. Weigel was outstanding to work with. He reiterated these two concepts were important measures to insure that the neighborhood preserved its existing green character. Ms. Weigel responded to Councilor Moncrieff that one difference between the hardscape proposal and the Glenmorrie Code was Lake Grove's inclusion of gravel in computing the percentage of hardscaping. Mr. Work stated that after touring different neighborhoods, the Committee agreed that large graveled areas did not fit the character of the Lake Grove Neighborhood, which had a true "green natural feel." A huge graveled space did not fit the neighborhood's character. Ms. Weigel added that the Planning Commission would like to see a citywide hardscape definition adopted for every neighborhood in Lake Oswego. Since it might be awhile before a citywide definition was adopted, the Board wanted to move forward with their definition, but was open to reflecting Glenmorrie's definition if Council preferred. Mr. Ward responded to Councilor Jordan's concerns about limiting property owners' rights by explaining that based on his research and drawings, one would rarely reach the 50 percent hardscape limit because the home took the majority of the lot. Ms. Weigel had looked at the homes already built and calculated the majority had not hit the 50 percent hardscape limit. Other driveway surface options would be explored if the limit were breached. Mr. Work clarified that pervious decks were not counted as part of the hardscape. Mr. Ward stated they encouraged as much greenscape as possible as it was an integral part of the character of the neighborhood and not just because of water runoff, so subsurface storm water infiltration systems were not the only solution necessary. Councilor Jordan asked if any maneuverability existed with the 10 -foot setback, like to avoid removing a tree for example. David Powell, City Attorney explained that flag driveways had to be 10 feet away from the lot line; he was not sure of the other dimensions. Ms. Weigel responded to Councilor Hennagin that the maximum lot coverage for improvement in an R-7.5 Zone was based on a sliding scale and probably up to 35 percent of the lot. A deck more than 30 inches off the ground would count as lot coverage but not as hardscape if it was pervious. Improvements that counted towards lot coverage were included in the 50 percent maximum. The provision to include driveway turnarounds was no longer being proposed. The Planning Commission recommended the side yard setbacks and driveway turnarounds because they did not recommend the hardscape proposal. The Lake Grove Neighborhood Association preferred to see the hardscape proposal implemented over the driveway turnaround because it had more impact. Mr. Ward stated one could benefit from the use of a Turf Block type product to construct a driveway turnaround in order to diminish the hardscape on a site. Councilor Hennagin expressed concerns that the 110 survey responses would translate into 1,000 residences, imposing their will on the whole neighborhood. Mr. Work replied that only those 110 chose to participate. Ms. Weigel responded to Councilor Olson that R-10 already had a 10 -foot setback on both sides depending on the height of the building. The sentence about larger front yard setbacks should have been removed as they decided not to include it in the final proposal. There were a few houses in the neighborhood that exceeded the 50 percent ratio by a maximum of 5 percent; however, this was probably calculated when decks were included in the hardscape maximums. City Council Special Meeting Minutes Page 2 of 12 November 30, 2010 Councilor Olson agreed with Councilor Hennagin that driveway turnaround should be defined more clearly before the public hearing. She noted that Glenmorrie was R-15, and 50 percent of R- 15 was very different than 50 percent of R-7.5. Glenmorrie had widespread support, but she did not sense that support here. Mr. Ward responded to Councilor Vizzini that in new construction, on site water needed to be handled on site in the form of a subsurface storm water infiltration system. The building or planning division was allowing for rain gardens to be established in an area where it worked topographically which was much less expensive than the subsurface systems and a good alternative solution. There could be other alternatives to pervious pavement that would achieve the same end if the concern was just surface water or storm water runoff management; however, there was also the concern of greenscape and landscape space and the retention of plants and trees. Mr. Ward stated that they had considered a tiered approach with different percentage standards for different sized lots; however, they did not have the expertise and information to dissect it that far down, but would support a fine tuning of the principles and goals. Ms. Weigel stated they had also discussed the R-6 which had a 60 percent pervious limitation on their lots and concluded that 50 percent would be doable in the R-7.5. Mr. Work stated the majority of people would be comfortable with the middle ground they had come up with for the hardscape percentage. Ms. Weigel stated artificial rocks had been removed from the original definition, and that the current proposal did not include artificially placed rocks. Again, the hardscape definition basically mimicked Glenmorrie with the exception of gravel. Mr. Powell explained that the prior discussion regarded how the prescribed setbacks would be affected by the flag lot driveway requirements. The side yard setback requirements were not affected by the access ways for flag lots, but rather the front yard setbacks, which regarded the house on the flag lot. A flag lot driveway should not be affected by this change in the setback. He clarified that side yard setbacks are measured from the property line, not the flag driveway's edge. Councilor Jordan clarified that her question was whether flexibility was available to reduce the other side yard setback to better set a house on a lot bordered by a flag driveway on one side, or would an expensive RID process be required to get that adjustment. Mr. Powell replied that was not addressed in the flag lot ordinance. Ms. Weigel stated that Staff could return with information about whether flexibility would be needed at the December 14 public hearing. Councilor Jordan noted it was a city wide issue, especially as more infill occurred, resulting in more flag driveways. Mr. Ward responded to Councilor Hennagin that no discussion had occurred about the possibility of identifying any portions of the Lake Grove neighborhood that may be open to denser housing in the future. 3.2 Proposed Economic Hardship Extension for the 2007-2009 Land Use Approvals (LU 10-0048) Jessica Numanoglu, Associate Planner, presented an overview of the proposed ordinance to extend completion deadlines for land use applications that were approved during the economic recession and filed between 2007 and 2009. This is similar to what other jurisdictions have done both in Oregon and other states throughout the country. The tightening of the credit market caused many applicants to be unable to obtain financing to complete their projects by their completion deadlines. The Planning Commission held a hearing on the proposal on November 8, 2010. She briefly reviewed their findings as background for the hearing on December 14, 2010; this has been a significant effort. The Planning Commission recommendations included: the allowance of a one time, two-year extension to completion deadlines for applications filed between January 1, 2007 to December 31, 2009; the completion deadline should not extend beyond December 31, 2012; the application needed to demonstrate that their project was delayed as a result of a legitimate economic hardship due to the recession; the extension needed to be filed no later than March 1, 2012; it needed to be processed as a minor development, so it would be subject to public review and comment. This would be a simpler application to put together for Staff to review; the fee to City Council Special Meeting Minutes Page 3 of 12 November 30, 2010 cover the cost would be between $400 and $500 versus the present fee of $1,500. There were potentially 52 cases that could be eligible for this relief; however, as this would be done a case-by- case basis, not all 52 would receive the extension, as it needed to be applied for and approved. The Planning Commission also concluded that applicants should not be required to comply with new standards adopted since the original land use application was filed. Ms. Numanoglu responded to Councilor Olson that although the recession officially began in December 2007, the proposal goes back to January 1, 2007 because many applicants, not anticipating the recession, put in a good faith application, making the investment and intending to move forward with it, when the recession hit. There were different ways people could prove economic hardship, such as a letter from the bank pulling their financing or losing their job. They kept the definition loose as this was an appealable part of the process. Councilor Vizzini offered one might need an extension for a lot line adjustment in the case of a development that may not be moving forward due to financing, but the development is dependent upon the lot line adjustment, so the lot line adjustment was a precondition for the project. Ms. Numanoglu knows of at least ten applicants who had talked with her or other planners about an extension. Before the hearing, she would put together a list with more information on the projects such as addresses, location, type and if the applicants had expressed interest in extending. Ms. Numanoglu responded to Councilor Hennagin that the application had to be filed before December 31, 2009 because technically they said a slow recovery had begun in 2009. Councilor Hennagin expressed reservations about the vague wording of the extension ordinance. Councilor Jordan was concerned about the additional burden placed upon applicants by the fee structure which was higher than in other places. If this was to be an extension for economic reasons, a blanket extension makes sense with the only limitation being that the original applicant had to continue with the project. If the applicant did change, there could be a case by case review with a fee. A blanket extension with no additional work by Staff and no fee would make sense. Ms. Numanoglu responded to Councilor Tierney that longer deadlines could be approved as was the case with the school district where they asked for and were granted a longer time period. Flexibility did exist, but not for lot line adjustments or land divisions. The Planning Commission believed it was important that the extension only be granted to those who could demonstrate a true economic hardship. They did not want to grant a blanket extension to everyone. The minutes of the Planning Commission meeting would be provided. Councilor Moncrieff concurred with Councilors Hennagin, Jordan and Tierney that it was in the City's best interest to allow development to occur in as timely a manner as possible. Otherwise, she was comfortable with the Planning Commission's recommendation and the draft ordinance. Councilor Olson commented they were trying to give people an extension beyond the normal deadline. She did not mind reducing the fee. Only two other districts applied blanket extensions. She agreed with the Planning Commission that extensions should be approved on a case-by-case basis and feared that otherwise it would become a bureaucratic mess. 3.3 Recommendations for Sensitive Lands Map Correction Process Denise Frisbee, Director of Planning, stated tonight's objective was to address the Council's request regarding Section B of the resolution, which asked that Staff return with an outline of a map correction process and also a review of the possibility of removing small isolated tree groves from the overlay zones. Section E of the resolution would also be discussed, which asked for a Staff recommendation for an appeal process and asked Staff to share the timeline for addressing the 1 B sites. A Sensitive Lands Map adopted in 1998 had approximately 1,800 properties, 1,100 of which were single-family residential properties. There have been no significant additions to the map since 1998. An additional 247 properties are queued up for inclusion on the maps, referred to as the 1 B sites. Before being included on the map, these sites would have to be subjected to an Economic City Council Special Meeting Minutes Page 4 of 12 November 30, 2010 Social Environmental and Energy (ESEE) analysis. Property owners would be given appropriate notice and hearings opportunities. The three categories of map updates included: corrections where property owners and the City agreed that a boundary was incorrectly marked; challenges to existing mapping where the property owner disagreed that their property should have been mapped in the first place; and finally, challenges to prospective mapping, which involved the 1 B sites. Owners of 1 B sites were automatically given the opportunity to challenge in a hearing before a review body. Staff's recommendation for the optimal transparent approach was outlined in detail on pages 5 and 6 of the Staff report, pages 157 and 158 of the packet. The process accounted for the City's challenge of not knowing how many tax lot owners would respond to the opportunity to challenge that lot's inclusion on the map. Limited Staff resources and processing costs were also a challenge. Staff proposed putting all three categories into a map update process that would divide the City into geographic units based on watersheds and neighborhoods, somewhere between four to six large units. The process would involve the City communicating in 2011 with all Sensitive Lands property owners and owners of properties that were prospectively to be included on the atlas to inform them about program changes, services offered and the map update process. The ESEE analysis would need to be completed for the 247 1 B sites queued up to be included. Communication resources needed to be better developed; the website would need to be improved to make property -by -property information available. In each quadrant, property owners would be informed about what action the City was planning to take with regard to the status of their property, either including or removing it from the atlas; offer relevant information like the HAS scoring and the option for re -review by Staff; identify the method of contesting, and before the free challenge could be processed, requiring the property owner to fill out a standard form, meet with Staff for a review of that property and allow a site visit. Staff proposed presenting the contested challenges to a hearings officer for an independent, experienced review. Currently, the Code requires that appeals to hearings officer decisions are to be forwarded to the Planning Commission as a recommendation, then appealable to City Council. These steps would be repeated with each additional quadrant. Staff liked this approach because it grouped the reviews in manageable limits and cleared up misconceptions along with a neutral, third party review. This allowed a more efficient, consolidated approach that was less confusing for the public. Budget impacts would be the costs of consultant review for re -review of HAS analysis for contested cases and the hearings officer review. Hearings officer charges ranged from $90 to $130 per hour. Ms. Frisbee explained to Mayor Hoffman that map error corrections where the property owner and Staff agreed were not a significant Staff undertaking. The 1998 challenges of being on the existing map were more difficult. A resource could cover more than one property with some property owners wanting the designation removed and others wanting to keep the designation. A natural resource expert would need to do a second evaluation to see if the resource still had the value as originally evaluated and also to verify that the property was on the Metro map. There would be a considerable amount of Staff review. Ms. Frisbee explained to Councilor Tierney that Code provisions allowed for the removal of a designation. Those criteria were outlined on page 156 of the Staff report and included completing an ESEE analysis showing new factors that lead the City to remove protections, essentially challenging the City's ESEE analysis. Any contested situation would battle HAS and ESEE analyses, which was why resource experts would probably be needed. Ms. Frisbee further explained to Mayor Hoffman that the charge for a zone change or map amendment was currently $7,000 to $9,000. The City would not charge that fee for these situations. The fees were intended to reflect Staff's time, but planning processes were subsidized because they were prohibitively expensive for people to participate in. Not every zone change would take $7,000 worth of Staff time, but many would take $15,000 worth of Staff time. She City Council Special Meeting Minutes Page 5 of 12 November 30, 2010 agreed the three costs would involve outside consultants for the HAS or ESEE analysis, outside hearings officers and the use of Staff time. Ms. Frisbee responded to Councilor Jordan that if someone wanted to develop in a different geographic zone than the one being addressed at that time, Staff could fold in the map correction or challenge and the fee could be adjusted. It could be removed from the group and become a quasi-judicial proceeding addressing just that one property. Ms. Frisbee responded to Councilor Hennagin that the mapping in 1998 was subsequent to the enactment of the Sensitive Lands Ordinance in 1997. The quadrants would be defined on a watershed basis. Properties would be grouped on a resource basis. Councilor Hennagin stated the Storm Water Plan, Clean Streams Plan and Sensitive Lands Plan should all be coordinated as one seamless whole. Ms. Frisbee stated Staff was asked as part of Resolution 10-51A to talk to the Council in February about a watershed based approach. She did not know of any jurisdiction who had been able accomplish developing one single Code. It was too difficult when different regulatory purposes were involved. They could be complementary and administered in a coordinated fashion with more communication internally and better communication externally to the citizens. Staff had been working on it quite a bit in the last few months and would be back to discuss it. Ultimately, the result would be more streamlined communication. Ms. Frisbee clarified for Councilor Olson that the ESEEs were contracted out. She was not aware of philosophically incorporating the impact of having a restraint placed on individual properties, but the economic impact is part of the balancing act and something that could be challenged. Jonna Papaefthimiou, Natural Resource Planner, explained that the analysis would identify the economic impacts of the overlay, but it was up to the Council or the reviewing body to make a recommendation. This was done generically and not at an individual property appraisal level; it just noted the economic impact. Ms. Frisbee explained to Councilor Olson that the analysis would be available to the property owners. More of this information needed to get online and be accessible. In Resolution 10-51A, Council asked for an outline of how the City would proceed with 1 Bs, and 40 1 B sites translated into 247 tax lots. The Sensitive Lands data summary that Staff provided last spring included these breakdowns. The Second Look Task Force looked at the Distinctive Natural Areas Map from 1978, aerial photographs and published topo maps and worked with Metro, who was developing its maps. Everything was vetted through a review process by the resource expert who went out and did the HAS reviews of the properties. The goal was to line up with existing Metro maps. Ms. Frisbee confirmed for Councilor Vizzini that in those circumstances where the City and property owner agreed, notice and public process were still required to provide the community an opportunity to hear the case. Some resource areas could also be double designated as an open space tract and protected as such through a subdivision or planned development condition of approval, which would not be removed by a map correction or the removal of a designation. She agreed it was essential to create a process for those attempting to develop to skip the quadrant schedule to have their properties reviewed; incorporating that review in their development review would make a lot of sense. The ESEE process was in Oregon State Administrative Rule. Councilor Vizzini stated when he joined the Planning Commission, every second or third meeting was spent in hearings on the mapping done in 1998, and it went on for years. The only evidence in the hearings were the ESEE reports or HAS scores. The more it was evidence based, the more it begged to go to an administrative law judge or hearing officer as opposed to the Planning Commission. He encouraged moving the process toward the direction of using hearing officers. Individual property owners who want to lock their property up in a conservation easement should be able to be removed from the inventory. This could be a cost saving measure. Councilor Olson suggested having a process for people to voluntarily have Sensitive Lands designations placed on their private property. Councilor Vizzini was concerned that if it was not City Council Special Meeting Minutes Page 6 of 12 November 30, 2010 recorded as a permanent conservation easement, a future owner could question where the HAS or ESEE was to provide the basis for that designation. He agreed with the idea of a shortcut for people who wanted to preserve the resources. Ms. Frisbee responded to Councilor Tierney that at some point there needed to be closure as to Sensitive Lands designations, so time limits to appeals should be set. There was a process in the Code to remove a designation which would always be available. A perpetual free amnesty challenge option would be difficult. The appeal process was intended both for intended and existing designations; it was not intended as a repeal of delineations, as those were recorded with the County and permanent restrictions on the property. A hearings officer would be an effective participant in the process. Councilor Moncrieff agreed with Councilor Tierney that the hearings officer was a critical piece of the process. She liked the quadrant approach, but was interested in seeing a budget and time frame. Ms. Frisbee stated hiring the consultant to complete the ESEE analysis on the 40 resources which affected the 247 properties had been budgeted and would be done in the coming spring. Before the next budget year, the City would try to let the quadrant property owners know they could challenge the designations or prospective designations. They could not come up with a finite budget item yet, because they did not know how many property owners would challenge the designation. When 1,800 properties were added to the atlas in 1998, fewer than 50 people requested the right to a contested case hearing on the designation. After meeting with a Staff person and working through options, there were fewer than 15 that proceeded with an actual contested case. There would likely be more at this time. Staff would try to get this into the next budget cycle. There was no time frame yet as to creating the website. Ms. Papaefthimiou responded to Mayor Hoffman that when Metro published Title 13, they also published their own Title 13 maps and had to go through the ESEE process themselves. A voluminous ESEE report was published for the entire Metro area including a long chapter on methodology. It was part of the public record and available for review if they wanted to use it as a model. Ms. Frisbee responded that the website would be done internally. There was a cost to mailing out notices with postage and printing. The 2010-11 Budget was $45,000 for the 40 1 B resources. The Wilsonville contract for their tree grove analysis and ESEE work was $65,000. Mayor Hoffman noted that if it cost the City $5,000 for each appeal that would result in $500,000 over two, three or four years if 100 people appealed; overall this was very expensive. Ms. Frisbee stated Staff planned to take the most difficult quadrants with the most resources first to see what they were up against and move on accordingly. When the City and property owner agreed about a mismapped property, the City would process it with no charge to the property owner. With respect to reviews by the hearings officer, the options to appeal would be to City Council; to the Planning Commission then the City Council; or a direct appeal to the Land Use Board of Appeals (LUBA). Several of the options would require Code changes. Mayor Hoffman agreed there should be closure so as properties turn over new owners cannot continually challenge the designation. Theoretically, with a great website, any prospective buyer or realtor could pull up the properties. Ms. Frisbee stated that level of website development would not occur, but it would be better than what there is now. The City's goal was to communicate with Sensitive Land property owners every year, reminding them of the services offered, and communicate with other groups, such as realtors. Some builders have a checklist of items to consider when building in Lake Oswego, such as if the property was on Sensitive Lands, had steep slopes, etc. Those checklists could be put up on the website as well. Much could be done to improve e -government outreach. Ms. Frisbee clarified for Councilor Jordan that removing an isolated resource, such as a tree grove, from the Sensitive Lands designation did not provide any flexibility on open space requirements for development, which needed to be addressed separately. While no longer designated, the tree grove would still be protected as part the subdivision contract agreement. Tree groves, whether or not a Sensitive Lands tree grove, are often set aside in a planned development or subdivision as part of a developer's open space requirements. The City works with developers to set aside the tree grove so not to lose the development potential of the site. City Council Special Meeting Minutes Page 7 of 12 November 30, 2010 Mr. Frisbee continued by addressing Council's request about the possibility of removing small isolated tree groves from the overlay zones. Based on the initial analysis of the existing 400 or 600 RC isolated tree groves, not adjacent to or connected with riparian areas and not already designated or set aside as open space, three resources ranging in size from .4 to 3 acres were found that affected approximately 30 properties. An arborist would need to refine the analysis. If the Sensitive Lands designation were removed, and those tree groves were not already protected by an open space designation, the development restrictions could be lifted. Some other properties were not reviewed because they were already restricted by the open space designation. Staff agreed the loss of that protection was a challenge; no process had been developed to address the issue. Ms. Frisbee responded to Councilor Hennagin that when determining whether an isolated tree grove was worthy of protection, Staff did not look at size but whether or not the grove was already addressed by an open space or other set aside designation, and those were excluded. Most were connected to riparian areas, and the initial review revealed three resources affected 30 properties. Councilor Hennagin understood the two primary objectives of Title 3 and Title 13 was the protection and purity of water resources and some protection of wildlife habitat. He had difficulty seeing how small isolated tree groves had any relationship to those protections. The forester who appeared before the Council two weeks ago stated that natural areas or parks had to be connected to provide good wildlife habitat. Pocket parks, neighborhood parks and small little parks did not really serve as wildlife habitat. He suggested looking at connecting the Sensitive Lands to the extent possible if the City was really interested in protecting wildlife habitat. Ms. Frisbee replied that when reviewed with the HAS approach, Sensitive Lands received additional points for being connected and having a larger area that could support wildlife. For this reason, they were looking at the isolated tree groves, those not linked to larger and/or riparian resources. Councilor Jordan reiterated her concern was that if designations were removed from properties delineated because of development, how could the City make the new developer delineate a developed property with a large tree growth when the City removed it from an earlier subdivision delineation. Ms. Frisbee explained that the approach regarded the quality of the resource. Staff was suggesting amending the criteria for designating the resource so that small isolated tree groves that did not provide connectivity or connect with riparian areas where no longer designated. The problem would take care of itself except when a conflict arose with those that had been delineated and recorded. Property owners would then have to take some kind of steps to undo that which would be a legal contractual property transaction challenge that could not be fixed by an ordinance amendment. She agreed with Councilor Vizzini that reviewing properties that were open space set asides was too complicated. Ms. Frisbee responded to Councilor Jordan that everyone would be given an opportunity to challenge. If the designation criteria were amended, certain properties would fall off while others would be retained. Ms. Frisbee confirmed for Councilor Olson that open space set asides were not necessarily Sensitive Lands. There was still an open space set aside as a condition of the development, whether or not they were designated as Sensitive Lands. Ms. Frisbee clarified for Councilor Jordan that they were changing the designation criteria that could result in the removal of a designation, depending on the evaluation. Whether or not it had been set aside as open space would not be addressed, as that was part of the development process addressed when the property owner came in to subdivide or set up a planned development. Many places where the Sensitive Lands resource was designated fell within setbacks, were already designated open spaces, houses existed there or were already a prior nonconforming use, so the huge level of impact people feared did not really exist. Morgan Holen, Assistant Natural Resources Planner, described for Councilor Olson that the map showed the currently mapped resource conservation areas and tree groves in green; the currently mapped resource protection areas, streams and wetlands in blue; and the initial analysis City Council Special Meeting Minutes Page 8 of 12 November 30, 2010 of potentially isolated tree groves in orange. Based on the preliminary analysis, three of the potentially isolated tree groves shown in orange had the potential for meeting the new criteria and possibly being removed. The others could possibly be removed after a site visit. Those shown in red were the potentially isolated 1 B sites. Tables were created listing those clearly meeting the criteria and those where a field visit was recommended. Other potential resource areas, all of the other 1 B sites within the UGB, were also included. Ms. Frisbee recommended that Council look at this as the roughest outline as much more work and refinement were needed before a proposal could be drafted. She understood that using the hearings officer and quadrant approach was the direction Council wanted to go. Staff would continue to work with the discussed approach regarding the smaller tree groves. Councilor Jordan added they also agreed with Councilor Vizzini's recommendation about incorporating Substantial Lands reviews as part of the development review; if development was desired in a quadrant scheduled down the road. Mayor Hoffman suggested putting a disclaimer on the maps such as, "Not to be used or relied upon" as Metro did. Mayor Hoffman called for a break at 9:13 p.m. and the meeting resumed at 9:24 p.m. He announced that the Update to the Master Fees and Charges would not be addressed at tonight's meeting. 3.4 Update to Water Cost of Service Analysis Joel Komarek, P.E., Project Director, stated that some objectives of the Cost of Service (COS) analysis completed in 2008 were to ensure that enough revenue was generated to cover the operating capital needs, achieve certain utility financial policies, to reflect the cost to serve, to create a rate that reflected the value of the resource and that would send a message to consumers that this undervalued resource could not be wasted. Council had directed Staff to return in two years. There was new financial information and information on the tiered pricing structure's effect on current customer behaviors. The COS process primarily analyzed the utility's revenue requirement and reviewed the operating and maintenance (O&M) requirement, debt, capital funding and fiscal policies. They also looked at the various customer classes and tried to identify how and when customers used their water and how that affected their ability to serve economically. In the rate design, they also made sure to collect the target revenue requirement through the water rate either via the fixed portion, variable portion, or both. Key assumptions being used in the current analysis were operating reserves equivalent to about 37 days of O&M expenses, capital reserves of about 2 percent of plant -in-service, and a debt interest cost of 4.5 percent, a 25 -year term bond and a 3 -year interest only structure. Annual escalation figures included 3 percent for general and labor costs, as well as benefits and construction costs, and interest earnings and growth of .5 percent. Angie Sanchez Virnoche, Principle, FCS Group, stated more than 90 percent of revenue came from retail sales. October, November and December 2009 and then January to September of 2010 were used as the basis for revenue. Because of the wet and cool summer, typical irrigation had been down. Retail rate revenue was lower than budgeted by about $200,000. She confirmed that the $200,000 retail rate revenue shortfall was mostly attributed to weather. In terms of expenses, another key component of the COS process were O&M expenses for a ten year period at about $4.9 to $6.4 million, which was a little lower than expected in the past analysis. She clarified for Councilor Hennagin that the O&M expenses were a steady increase and not a fluctuation. The capital funding costs in the same period were $115 million which included $106 million related to the supply expansion for the partnership with Tigard, which was a 38 MGD Ozone system. There were additional costs included for system maintenance, repair and replacement. With $115 million in capital costs, $89 million were required in new debt proceeds over the ten year time period. Remaining funding came from existing cash reserves and System Development Charges (SDCs). She clarified for Councilor Jordan that the $9 million for maintenance, repair and replacement was in addition to the $4.9 to $6.4 million in O&M expenses. City Council Special Meeting Minutes Page 9 of 12 November 30, 2010 Mr. Komarek responded to Mayor Hoffman that they were only improving the backbone of the system. There were 10 miles of pipe being replaced and 200 miles of pipe in the entire system; 15 reservoirs and 13 pump stations needed to be maintained and kept operating and functioning. Ms. Sanchez Virnoche responded to Mayor Hoffman that the annual revenue from retail rates was about $6 million. The $89 million required in new debt proceeds was over and above the $6 million. They wanted a bond fund for the $115 million in capital as a one time expense. The ongoing expenses were $4.9 to $6.4 million. She confirmed for Councilor Olson that the difference between the $115 million and $89 million was coming from the existing cash reserves and SDCs. Ms. Sanchez Virnoche continued that the third component being reviewed was $2.9 to $6.5 million in new debt service. The existing debt service currently in place was the 2007 revenue bond of $957,000. With the two new anticipated debt issues, the debt service would be $7.5 million total. Councilor Olson confirmed that the debt service number was Lake Oswego's share alone. Ms. Sanchez Virnoche explained to Councilor Hennagin that the whole $115 million did not need to be bonded because of existing reserves. Ms. Sanchez Virnoche presented a comparison of revenues to expenses through 2020. Sergey Tarasov, Project Consultant, FCS Group, clarified for Councilor Olson that there were two different requirements, cash requirements and coverage requirements. If one was deficient on the coverage side, the City would need to over collect the revenue above the cash needs by a small proportion; so they were covering more revenue which could be attributed towards their capital projects. On an annual basis, they were potentially generating a small amount of cash that could be applied to help assist in capital projects. Councilor Vizzini noted the problem was that the $26 million was the total figure through 2020 and not an annual figure. Councilor Olson confirmed that the cash operating expenses listed for 2019-2020 were in 2019- 2020 dollars. Mr. Komarek stated that although the new facilities would be online in 2015-2016, there was not a big jump in O&M because a big portion of the O&M costs were being shared by Tigard. There would also be a relative savings in energy. Mr. Tarasov added that O&M costs included not just treatment costs, but also administrative general and operating costs that increase as well. Ms. Sanchez Virnoche responded to Councilor Tierney that the graph showed the revenue as a flat line because it depicted revenues at current rates and only reflected a .5 percent growth. The graph reflected how things would play out if rates were not increased. There would be a resolution for the rate increases. Ms. Sanchez Virnoche presented the summary results, noting that because of the low $200,000 rate revenue, the 25.5 percent discussed previously would be 27.1 percent for 2011-2012 and 2012-2013 and decreasing to 11.85 percent for the next three years, and then at more inflationary levels in 2016 and beyond. The numbers assumed a July 1 implementation. If the 25 percent figure was retained, earlier implementation would be necessary, beginning March 1, and the percentages would look slightly different in the following years. Ms. Sanchez Virnoche responded to Councilor Tierney that no new revenue levels were included. Over 90 percent of Lake Oswego's revenue was from retail rates. Wholesale revenue was not shown. Mr. Komarek added that in the revenue projections, they considered what the historic wholesale sales had been and escalated that in some degree to account for growth, but no assumptions were made about a new market for water. Councilor Olson stated that if revenue was down because consumption was down, the City should consider selling the excess water to make up for the revenue instead of raising rates. If they were conserving so much that revenue decreased, they should not punish customers for conserving by raising their rates. The City raised rates to make people conserve which worked. City Council Special Meeting Minutes Page 10 of 12 November 30, 2010 They should be looking to sell before the new plant came online. Mr. Komarek said that Council could direct Staff to find new wholesale customers. Mr. Tarasov indicated to Mr. McIntyre that statistics regarding how much of the $200,000 was related to the weather versus the tiered rate structure would be addressed shortly. Ms. Sanchez Virnoche responded to Mayor Hoffman that the two scenarios presented on p. 9 for rate increases were the only choices unless new customers were available. They sought Council's feedback on those scenarios because revenue was needed for 2011 and 2012. Councilor Tierney commented that every revenue and cost assumption could be adjusted but with risk. Mayor Hoffman suggested doing an analysis with lower construction costs, for example, and a backup plan to raise rates later to accommodate actual costs, if needed. Mr. Komarek stated the assumptions were one topic on which they wanted feedback from Council. They needed to be aware that they were entering the bond market in 2013-2014. The rating agencies liked to see that the City was not living on the ragged edge, particularly with regard to revenue assumptions. The figures currently reflected a minimum debt service coverage of 1.25. The consultants had considered scenarios should the rating agency want a 2. Ms. Sanchez Virnoche reviewed the customer use statistics (p. 10), which were a very crucial part of the analysis. Customers were the foundation for what was being done in terms of designing rates and how much revenue was being generated. Improvements had been achieved in the billing statistics from the last time as they learned what data adjustments were needed to provide the best information and project revenues. Mr. Tarasov responded to Councilor Tierney that lost water percentage related to the reconciliation of water produced and water billed and trying to account for other sources of authorized but non -billed water, such as fire hydrant flushing and fire fighting. Based upon the latest period of analysis, they had gone from 9 percent to about 16 percent non -revenue water. A water audit had begun to determine whether it was real or apparent loss and then if it was real loss, where it was occurring in the system, and if apparent loss, where it was occurring in the processes. They were mapping the processes and working very closely with the billing department and consultant team. A meter replacement program replaced about 600 meters per year and with approximately 13,000 meters, it was about a 20- to 25 -year cycle. A leak detection program had been in place for years and leak detection tests had been completed on all the mains from the river intake to the Bonita Road pump station. Though very small in comparison to total production, one source of non -revenue water was from the chlorine station constructed at Marylhurst a few years back. He clarified the term non -revenue water was used because they did not know if it was authorized or unauthorized unmetered water. They expected that some of the non -revenue water would produce revenue. Mr. Komarek responded to Councilor Olson that the reservoirs and tanks were inspected for leaks this past year and the few that appeared to have leaks were identified and sealed. Another source of non -revenue water was inadvertent overflows. Sometimes pumps to reservoirs were started and stopped based upon a level sensor in the tank, and when they get out of calibration, too much water might be pumped, which overflows down into the storm drain. Mayor Hoffman stated that in the interest of time, Staff and the consultants should return on December 8. He asked Council about any information they wanted to be provided at the next meeting. Councilor Tierney requested having the numbers that supported the analysis as opposed to just the charts. Councilor Vizzini noted that the schedules in the November 8 work session packet were pretty extensive that provided the basis for the charts. It looked like they had been updated since that last work session, but those schedules were perfectly serviceable. He asked that the material be provided. City Council Special Meeting Minutes Page 11 of 12 November 30, 2010 Councilor Olson asked to see what was available on water usage related to the tiered water rates, adding new data would probably be needed since the November 8 material was provided for the Lake Oswego Tigard Project. Councilor Jordan asked that vacancy rates be provided and what impact empty homes and offices may have had on water usage this last year. Mr. Komarek agreed the general economy probably affected turning off lights and shortening showers. Councilor Hennagin asked if having a different set of figures with different assumptions would be useful, such as a 4 percent bond interest rate. Mr. Komarek responded that Chip Pierce had advised using 4.5 percent. Councilor Hennagin suggesting using figures that were a bit less conservative and then consider the possibility of future Councils having to reset rates annually. Mr. McIntyre stated he would work with the water team to show the rate sensitivities to some of the factors changing. He would also have them show the rates with and without the water project. The information would be in the packet on Thursday. He asked that any questions that arose after reviewing the information be brought to Staff early, so they could get a solid data response. Mayor Hoffman requested that all the Councilors be copied with the information to speed things along. Mr. Komarek verified that the meeting on December 8 was a study session, and the Council was still planning on approving Master Fees and Charges on the December 14. Mr. McIntyre stated that the Council would provide direction on what the rates needed to be. It would be a one-year Master Fees and Charge rate structure, not a ten-year structure. 4. ADJOURNMENT Mayor Hoffman adjourned the meeting at 10:08 p.m. Re�Ib Robyn C ristie City Recorder APPROVED BY THE CITY COUNCIL: Hoffman, City Council Special Meeting Minutes Page 12 of 12 November 30, 2010