Point O' Woods

1/21/2008

Dear Fellow Association Member,

The WPCA has communicated throughout the summer and fall through its monthly newsletter. I am writing to share with you, in more detail, the progress we have made on the sewer and water project to date. In addition, I would like to review with you the proposed method of benefit assessment.

Progress to date:

The summer and fall was a productive time period for our project. A summary of progress includes:

• The engineering design is complete and on target for water and sewers.  Our estimates are unchanged from those previously communicated.
• The cost, estimated by RFP (our engineering firm), has been validated through an independent value engineering process by the firm of Camp, Dresser and McKee and a review by Jack Harney (engineer and member of the WPCA).
• The DEP has confirmed that our loan estimate of $10.6 million has been reserved for POW for construction beginning in June or July.
• We have significantly improved our position in the ranks of communities in line for DOH (Department of Health)/DWSRF (Drinking Water State Revolving Fund) loans and are now in the “fundable” range for the water portion of the project. These funds will allow us to access a 20 year, 2.1% interest loan for the water project.
• We have separately received proposals for private bridge funding and contingency long term funding of the water portion of the project in case the DWSRF loan is delayed or unavailable.
• The East Lyme agreement has one remaining item to be resolved.  We are confident that the agreement will be concluded to our satisfaction.
• We have honored our commitment to improve communications with our Association members through a monthly newsletter and a WPCA website.
• We reached decisions on grinder pump funding and a proposed benefit assessment method, detailed below.
• We hired an appraisal firm and an attorney, both experienced in water and sewer projects, to determine the expected value improvement to our individual properties resulting from this project and to provide us with a firm legal opinion regarding the benefit assessment method proposed by the WPCA.

In summary, the accomplishments listed above required significant attention and diligence on the part of the WPCA and our consultants. We have an equally busy schedule ahead of us prior to ground breaking in 2008. We are committed to continued communication and to following a process that results in the successful implementation of the project, with the least cost and liability to our Association and its members.

Benefit Assessment:

The WPCA met throughout the Spring, Summer and Fall in an effort to determine the most equitable method by which Association members would be assessed for the cost for design and construction of the Water and Sewer System. Many of you attended Benefit Assessment Meetings during these months and provided a great deal of input.  I would like to thank you for your participation.

In December, the WPCA reached a unanimous decision on a proposed method of benefit assessment which, based upon all the information and input received from the community and consultants, we believe is most equitable for assessing the benefit derived from the sewer and water project by all property owners. Before the final decision is made, you will have the opportunity to voice your opinion regarding this proposal at a public hearing in May. We are providing you now the basis for the decision so that you will have ample time to review and prepare for this public forum. The time, date and location of the meeting will be provided well in advance.

Information Considered:

The WPCA reviewed and considered the following information during the review process:

• The input and discussion of Association members at the four open meetings held during the summer and at the regular, monthly meetings of the WPCA.
• The information conveyed to our Association members regarding the cost of the project since its inception.
• The survey distributed to the Association members by the Board of Governors in the late fall.
• The report of the appraiser hired by the WPCA to review the expected financial benefit of the project to our Association members.
• The advice and opinion of our legal counsels.
• Common benefit assessment methods.
• Benefit assessment methods used by similar communities.
• The financial impact on our Association members of two methods, one based on flat rate, the other based on property assessment and a combination of both.

As we have discussed at numerous meetings and in written communications, our goal was twofold: to propose a method that was equitable for our community and one that was defensible in court.

 After considerable deliberation the WPCA voted to propose that the cost of the project be divided equally among all property owners. 

The rationale for the proposal is discussed below.

Appraised Value:

The WPCA hired the firm of Kerin and Fazio to review the expected appreciation in value to our properties resulting from the water and sewer project.  In order to proceed, we first sought the opinion of Attorney Church on the feasibility of year round use resulting from the installation of a sewer system and a new year round water system.  Attorney Church reviewed zoning regulations and health codes within the Town of Old Lyme and concluded in an opinion letter to the WPCA that, as a result of the completed sewer and water project, it is “reasonably probable”, a legal term, that our properties will be able to be converted to year round use if they are improved to meet all aspects of the current health and housing codes. The Appraiser reviewed our properties in relation to those in Giant’s Neck, Black Point, and other, similar communities, which had installed sanitary sewer collection systems and year round water systems.  Based on the increase in values realized within those communities he concluded that each property owner will gain an appreciation in value of $70,000, on average, from the project. This appreciation is based on an “as is” condition of the properties.  The value is gained, prior to any renovations, from the installation of the sanitary sewer collection system and the new, year round water system and the potential for a cottage to be used year round.

Benefit Assessment Methods considered:

• Flat Rate: equal division among properties, most common method for residential communities
• Assessment: never used alone and not recommended by our counsel and appraiser since it is “a moving target” over the 20 year repayment period, difficult to defend and potentially unfair.
• Front footage and acreage: although POW has some unique lots where exceptions would be made; the vast majority are fairly uniform resulting in an assessment similar to flat rate.
• Usage: this would require a historical record of individual use provided by a metered water service or similar verification method prior to project completion.
• Number of bedrooms: long term nature of payment and the potential to change bedrooms in the future makes this option difficult to administer and potentially unfair.
• Combination of methods: considered as described in the analysis below.

In a survey of property owners conducted by the BOG, over 60% of respondents favored assessing benefit by the sole method of property value and approximately 40% favored flat rate.  Unfortunately most who completed the survey were unaware of the appraisers’ report, the legal opinion that it would be reasonably probable that year round use would be possible, and that if we selected a method that resulted in inappropriate assessments we could lose costly court battles, a liability POW Association would have to absorb.  Nonetheless, when the WPCA made its decision on the proposed method of benefit assessment, the results of the survey were taken into account.

After considering all possible methods of benefit assessment the WPCA determined that all, except the property value and flat rate methods were inappropriate for POW.

 Benefit Assessment Methodologies Used by Similar Towns and Communities:

Groton/Groton Long Point

• Method:1/3 land value,1/3 property value and 1/3 front footage.
• Grinder pumps: Town paid
• Individual gravity lines and house laterals included in cost

East Lyme/Giant’s Neck, Giant’s Neck Heights, Black Point, Old Black Point, Pine Grove.

• Method: Flat Rate unless multi family use or 400+acres and/or 400+ft of sewered frontage. If latter: land value 21%, area 21% and flat rate 37%
• Grinder pumps: Town paid
• Laterals: Unknown
• Very similar geology, topography and location advantages of POW.

Stonington/ Lord’s Point

• Method: 50% from General Fund, 50% from benefit assessment. Of latter: 20% land value, 20% area, 20% front footage and 40% flat rate.  Recommends100% flat rate for POW.
• Laterals: Many times the average cost of the laterals…was added to each property’s assessment.

Combination Methods Considered:

The WPCA reviewed the advantages and disadvantages of full assessment, equal division and a combination of the two.  The findings were that many property owners would be unfairly disadvantaged from a benefit assessment based on property value alone. The findings revealed the following:

Flat Rate

• Advantages:
• Meets property owner expected cost of approximately $24,000.
• Method used by most of communities researched.
• Recommended by counsel and appraiser.
• Meets the legal test that no property owner be assessed more than the value derived from the project.
• Method that can be most effectively managed by a volunteer staff in a volunteer community like POW.

100% Assessment

• Overview
• 59% or approximately 254 properties would have a cost of between $10,000 and $20,000.
• 10% or approximately 42 properties would have a cost within the originally expected range of $20,000 to $25,000.
• 30% or approximately 128 properties would have a cost in excess of the expected range, with 43 properties bearing a cost in excess of $40,000, an increase of $15,000 from the originally expected range.
• 3% or approximately13 properties would bear a cost in excess of $50,000, double the originally expected range.

• Disadvantages:
• Difference between lowest cost and highest cost per owner is $35,000-45,000.
• 10% at or near $50,000.
• Large disparity between low and high cost. Since the value of the service to each property owner is similar, it does not appear to warrant a significant cost differential.
• Method is rarely used.
• Question of correlation between value and assessment, highest valued properties may not receive the highest value.
• Real possibility that we could assess a property higher than the value gained from the project subjecting the entire community to the risk and liability of losing a court challenge.
• Very difficult to administer

The WPCA also reviewed combination methods as outlined below. The advantages and disadvantages are similar with the addition of a combination method providing a compromise.

50% Assessment 50% Flat Rate

• 50% within expected range of $20,000-$25,000
• 22% below range
• 27% above range
• 7% potential to be above $50,000
• 271 owners with savings from expected cost, most in the $2-3,000 range.
• Difference between lowest cost and highest cost per owner is in the range of $20,000

30% Assessment 70% Flat Rate

• 76% within expected range of $20,000-$25,000
• 0% below range
• 8% above range by +/- 10%
• 0% above $50,000 with or without grinder pump
• 260 owners with savings from expected cost, most in the $1,500-2,000 range.
• Difference between lowest cost and highest cost per owner is in the range of $10,000

Summary:

Based on the analysis of all the information outlined above the WPCA determined that equal division will be the most equitable method for all of our Association members, and that this method effectively shields the Association from liability, can be effectively managed by our community and is sustainable over the twenty year project payment for the following reasons:

• The appraisal firm has opined that the average benefit derived from the project is $70,000, an amount well in excess of the cost per property to design and construct the system. While there may be some exceptions to this, they would be few if any and the exceptions would likely be for the properties that have been brought up to code with newly engineered wells and septic systems.  Should these properties be assessed at an amount greater than the benefit, the Association will be subject to legal challenge.  Equal division significantly reduces this risk. According to counsel, the only question that needs to be answered is, “Was the benefit received (value) equal or greater than the amount assessed?” We are confident that flat rate can be successfully defended if challenged.
• The benefit assessment will be fixed amount over a twenty year period. Since property values can fluctuate dramatically based on improvements or deterioration, what starts off as a fair assessment, could easily change if property value is used as all or part of the method.

Grinder Pumps:

There has been a great deal of discussion regarding grinder pumps and the question of who should bear the cost of both the pump and the lateral connection to the pump. It is important to remember that the use of grinder pumps in the project has reduced the overall cost of the project by millions of dollars, a savings which benefits all of us. Since the inception of this project, grinder pumps were part of the design philosophy and included in the system cost estimates and their installation and maintenance were intended to be a part of the construction process. The integrity of the system requires the pump selection, its installation and its maintenance be managed by the Association.

 It is an inconvenience to bear for each property which has been designated as one which will be required to have a grinder pump.  These properties will have to pay the annual costs to operate the pump and they will be required to provide an easement to the Association so the Association can have unrestricted access to the pump and its connection for maintenance purposes. However, we noted that in the BOG survey a majority of property owners felt every property owner should pay for their own connection to the street, including those with grinder pumps

It is for the reasons stated above; the use of grinder pumps saving the Association millions of dollars, the importance of their proper installation and maintenance by the association, the inconvenience borne by the property owners who are required to have them and the requirement that each of these property owners grant a lifetime easement to the association to access the pumps and their connections and the opinion of a majority of property owners that everyone should pay for their connection to the system that the WPCA voted unanimously: (1) that the association pay for the pumps and their installation, (2), the property owners would pay for their connection but any costs for the connection from the grinder pumps to the street which exceed $8000.00 would be paid for by the Association and, (3), in return for the above that each property owner would be required to provide the Association with an easement to their properties for the installation and maintenance of the pumps. 

As stated above, a public hearing will be held in May so that these proposals can be discussed and your input received. Should you have any questions in the interim please feel free to e-mail me or any WPCA member. We will continue to issue a monthly news letter.  This letter will serve as the January edition. The next issue will be published in  February.

Have a safe and healthy winter.  See you in the spring.

Sincerely,
Bill Lacourciere
Chairman, WPCA

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