Fiscal Note

Each piece of legislation that appropriates funds, creates position authority, or will create a financial impact through policy direction or otherwise, requires a fiscal note.  The fiscal note should be drafted by department staff and should include all relevant financial information.  After preparation by departmental staff, the Department of Finance will review and make necessary revisions before transmittal to Council. 

Department:	Contact Person/Phone:	DOF Analyst/Phone:
Seattle Department of Transportation	Fred White/684-5269	Jeff Davis/684-8071

Legislation Title:

AN ORDINANCE granting Seattle Steam Limited Partnership permission to lay down, replace, renew, maintain and operate pipes, conduits and other necessary appurtenances in and along certain streets, avenues, alleys and public places in the City of Seattle and by means thereof to transmit, sell and deliver steam for heating purposes and for steam power, and to charge and collect reasonable rates, tolls and compensation; specifying the conditions under which this permission is granted; and, providing for acceptance of the permission and conditions.

Summary of the Legislation:

Seattle Steam Limited Partnership, its successors and assigns, are granted the right, privilege and authority to lay down, replace, renew, maintain and operate steam pipes, conduits and other necessary appurtenances in and along the streets, avenues, alleys and other public places in the area bounded more or less by Elliott Bay, Mercer Street, 23^rd Avenue, and on the south by following S Norman Street from 23^rd Avenue S to Bush Place S, thence westerly along Bush Place S to Rainier Avenue S, thence northerly along Rainier Avenue S to S Dearborn Street, thence west along S Dearborn Street to Airport Way S, thence northerly along Airport Way South to 4^th Avenue S, thence south along 4^th Avenue S to S Royal Brougham Way; and thence west along S Royal Brougham Way to Elliott Bay.  The permission will be for fifty years, commencing March 15, 2002, and ending March 14, 2052.  Seattle Steam is to pay to the City of Seattle an annual fee of Ten Thousand Dollars ($10,000.00) for the privileges granted by this legislation. All payments to be made to the City Finance Director for credit to the General Fund.

Appropriations (in $1,000’s):

Fund Name and Number	Department	Budget Control Level*	2002 Appropriation	2003 Anticipated Appropriation
N/A
TOTAL			0.00	0.00

* This is line of business for operating budgets, and program or project for capital improvements

Notes:

Expenditures (in $1,000’s):

Fund Name and Number	Department	Budget Control Level*	2002 Expenditures	2003 Anticipated Expenditures
N/A			0	0
TOTAL

* This is line of business for operating budgets, and program or project for capital improvements

Notes:

Anticipated Revenue/Reimbursement (in $1,000’s):

Fund Name and Number	Department	Revenue Source	2002 Revenue	2003 Revenue
General Fund			$10,000	$10,000
TOTAL

Notes: 

Total Permanent Positions Created Or Abrogated Through Legislation, Including FTE Impact; Estimated FTE Impact for Temporary Positions:

Fund Name and Number	Department	Position Title*	2002 FTE	2003 FTE
N/A			0	0
TOTAL

* List each position separately

Do positions sunset in the future?  (If yes, identify sunset date):

N/A

Background

In 1952, Ordinance 81038 was approved, granting a 50-year franchise to Seattle Steam Corporation to lay down, replace, renew, maintain and operate steam pipes, conduits and other necessary appurtenances in and along certain streets, avenues, alleys and public places in the City of Seattle until 12 o'clock midnight March 14, 2002.  The franchise area more or less covered the area bounded by S King Street, Elliott Bay, Virginia Street, and on the east by following 8^th Avenue from Virginia Street to Madison Street, thence west along Madison Street to 5^th Avenue, thence south along 5^th Avenue S to Yesler Way, thence east along Yesler Way to 6^th Avenue S, thence south along 6^th Avenue S to S King Street.

Section 10 of Ordinance 81038 specifies that the City of Seattle and Seattle Steam Corporation are to consummate negotiations by twelve o'clock midnight, March 14, 2003, for permission for Seattle Steam Corporation to continue to lay down, replace, renew, maintain and operate steam pipes, conduits and other necessary appurtenances in and along streets, avenues, alleys and public places in the City of Seattle.  Further, if Seattle Steam Corporation questions the reasonableness of the terms and conditions imposed by the City of Seattle, the terms and conditions are subject to a judicial review as to whether same are arbitrary or capricious.  If Seattle Steam Corporation refuses to accept the terms and conditions as determined by such judicial review, it is to either remove all of its pipes, conduits and appurtenances from the street and alley rights-of-way in the City of Seattle or leave said pipes, conduits and appurtenances in said rights-of-way and transfer all of its interest therein to the City of Seattle.  (The transfer does not include the steam generators or other facilities located on private property.)

Under the old franchise granted by Ordinance 81038, the method of establishing the annual fee for the steam facilities to use the street and alley rights-of-way was based upon the lineal feet of a given size pipe and a dollar amount to be charged per lineal foot for that particular size of pipe.  These rates varied from five cents (5¢) per foot for pipes less than six inches (6") in diameter to fifteen cents (15¢) per foot for pipes greater than twenty-four inches (24") in diameter.  ("Diameter" is the inside diameter of the casing or log surrounding the steam pipe.)  Using this method, over the last twenty-five (25) years the annual fee was in the range of $7,600.00 to $7,900.00 Dollars. (Under Ordinance 81038, the minimum fee to be paid each year was not to be less than $6,000.00 Dollars.) In the last ten years, the quantity of steam pipe in the streets and alleys of the City of Seattle has remained more or less static.

Seattle Steam's pipes deliver steam for heating, cooking and other purposes to Central Business District and First Hill area businesses, hotels, offices and hospitals.  Among the users are Harborview Hospital, Swedish Medical Center, Virginia Mason Medical Center, King County Jail, King County Courthouse, Seattle Community College, Washington State Convention Center, Four Seasons Olympic Hotel, Westin Hotel, West Coast Hotel, and Sheraton Hotel.  The steam is generated by natural gas boilers, which has resulted in Seattle Steam being Puget Sound Energy's largest single gas customer ($10,000,000.00 dollars of gas purchased in 2001).

In determining the annual fee to be paid by the Seattle Steam Limited Partnership, comparable were made of five other cities in the United States having steam pipeline systems in city streets.  These cities are Philadelphia, Baltimore, Minneapolis, Oklahoma, and San Francisco.

Philadelphia and Baltimore have no franchise fees, city taxes, or gross receipt taxes levied on the steam system operations.

Minneapolis has a single levy: city and state sales tax.  The rate is 6.5%.  No franchise fees are charged.  Only other charges are permit fees for opening city streets.

Oklahoma City has a franchise tax based on a sliding rate that varies from 2% to 5%, depending upon total revenue.  An example of the rate: revenue of $20,000,000 dollars annually would equate to a rate of 4.775%.  A state sales tax of 8.375% is charged on sales of energy with exemptions for governmental purchasers.

San Francisco has a fixed annual fee of $10,000 dollars; subject is called a possession tax.  In addition to the fixed annual fee, there are two taxes based upon revenue: a city tax of 7.5% and a street use tax of 2%.  (The street use tax is applied through a formula that allocates the revenue among steam generation and steam distribution assets, and taxes only the revenue allocated to the steam distribution assets or, in this case, approximately one-half of the revenue.  The city tax is reduced by applying a credit for city taxes paid on fuel purchases, which eliminates the double tax effect of levying an energy tax on energy consumed in producing a different form of energy.)  In total, the effective percentage of taxes levied would be approximately the total of the 7.5% tax on steam sales, the 2% street use tax on one-half of the revenue (equivalent to 1% of revenue), for a total of 8.5% of revenue.

In the year 2001, Seattle Steam Limited Partnership paid $1,054,731.00 dollars in utility taxes to the City of Seattle; an additional $270,000 dollars was paid in State B&O taxes.  Seattle Steam's purchase of natural gas is subject to a 6% city energy tax; also, Seattle Steam pays a 6% city energy tax on sales of steam.  The effective tax rate is about 9.6% (calculated by adding the two taxes paid by Seattle Steam and dividing the total by its gross revenue on steam sales).

Of the comparables, San Francisco tax rates (8.5%) are the closest to the tax rates (9.6%) levied by City of Seattle.  Hence, using San Francisco as the preferred comparable, $10,000 dollars was selected as the annual fee to be paid by the Seattle Steam Limited Partnership for its steam pipes in the City of Seattle streets and alleys.

The financial cost of not implementing the legislation  (Estimate the costs to the City of not implementing the legislation, including estimated costs to maintain or expand an existing facility or the cost avoidance due to replacement of an existing facility, potential conflicts with regulatory requirements, or other potential costs if the legislation is not implemented):

An annual fee of $10,000 dollars would not be paid by Seattle Steam into the General Fund.

Possible alternatives to the legislation which could achieve the same or similar objectives  (Include any potential alternatives to the proposed legislation, including using an existing facility to fulfill the uses envisioned by the proposed project, adding components to or subtracting components from the total proposed project, contracting with an outside organization to provide the services the proposed project would fill, or other alternatives):

Seattle Steam could operate under Title 15.32 of the Seattle Municipal Code; however, no annual fee would be collected.  Permit fees and payment of administrative and inspection costs for construction and maintenance of facilities in street right-of-way are collected under both the proposed legislation and the possible alternative.

Is the legislation subject to public hearing requirements (If yes, what public hearings have been held to date):

NO

Other Issues (including long-term implications of the legislation):

Sets annual fee to be paid into General Fund by Seattle Steam Limited Partnership for the fifty year period beginning March 15, 2002, and ends March 14, 2052.

FOR CAPITAL PROJECTS ONLY

Background  (Include brief description that states the purpose and context of legislation, the expected useful life, anticipated customers/users, assumed level of LEED or other sustainable design elements.  Also include record of previous legislation and funding history, if applicable):

Project Name:

Project Location:

Start Date:

End Date:

Spending Plan and Future Appropriations for Capital Projects (Estimate cost of legislation over time; list timing of anticipated appropriation authority requests and expected spending plan.  Please identify your cost estimate methodology including inflation assumptions and key assumptions related to the timing of appropriation requests and expected expenditures.  In addition, include the projected costs of meeting the LEED Silver standard in all facilities and buildings with over 5,000 gross square feet of occupied space.  Also, be sure to include percent for art and percent for design as appropriate):

Spending Plan and Budget	2002	2003	2004	2005	2006	2007	Total
Spending Plan
Current Year Appropriation
Future Appropriations

Key Assumptions:

Funding source   (Identify funding sources including revenue generated from the project and the expected level of funding from each source):

Funding Source	2002	2003	2004	2005	2006	2007	Total
TOTAL

Bond Financing Required  (If the project or program requires financing, please list type of financing, amount, interest rate, term and annual debt service or payment amount.  Please include issuance costs of 3% in listed amount):

Type	Amount	Assumed Interest Rate	Term	Timing	Expected Annual Debt Service/Payment
TOTAL

Uses and Sources for Operation and Maintenance Costs for the Project   (Estimate cost of one-time startup, operating and maintaining the project over a six year period and identify each fund source available.  Estimate the annual savings of implementing the LEED Silver standard.  Identify key assumptions such as staffing required, assumed utility usage and rates and other potential drivers of the facility’s cost):

O&M	2002	2003	2004	2005	2006	2007	Total
Uses
Start Up
On-going
Sources (itemize)

Key Assumptions:

Periodic Major Maintenance costs for the project  (Estimate capital cost of performing periodic maintenance over life of facility.  Please identify major work items, frequency):

Major Maintenance Item	Frequency	Cost	Likely Funding Source
TOTAL

Funding sources for replacement of project  (Identify possible and/or recommended method of financing the project replacement costs):