Speaker: Ray Quay, Assistant Director in charge of the Development Planning Branch of the Water Services Department City of Phoenix and Can Xiao, Camelback Infrastructure Development Manager

Subject: An Update on this Major Water Infrastructure Improvement for Camelback Core and Adjacent Area

History of the Project

This project started about 8 years ago, when the Water Services Department realized that we were experiencing issues in terms of water pressure and water volume with in both the Camelback core area as well as the water zone that is just south of Camelback core. We divide our city up into water zones. Basically they are based on elevation. The reason for that is to try and maintain pressure within acceptable levels. We have to limit each zone to a certain height. The pressure at the top of the zone is low and high at the bottom and we try to maintain those at acceptable pressures. We handle each zone independently. The water zone for the Camelback core actually ends at about Highland and all of the houses in the area south of that are in a different water zone. It was in those zones we managed pressure by moving water back and forth between zones. We recognized that we were experiencing some problems within those water zones because of the way those zones were created and the development going on. So we had a consultant develop a project to help alleviate that. They did that and the price tag for it was roughly about 70 million dollars. We were trying to fund that within our Capital Improvement Program for a number of years and we were not able to do that. We just didn't have the money to do that.

About 5 years ago after a residential project was completed in the area, we were looking at how the system was operating in the area and we came to the realization that the pump that services the Camelback Core area, which is actually located up 24th street right near the entrance to the Biltmore area-there is a pump station behind those Oleanders. That pump station was running at max capacity-the pumps were on constantly 24/7. We were having a difficult time managing it. We became concerned about the fire pumps for the high rise buildings in the core. We did some modeling and determined that if those fire pumps came on during a peak time there was a possibility that those pumps would shut down and we would not be able to deliver water into the Camelback core area. That concerned us and we knew that this project would have to be fulfilled in order to try to alleviate that problem. We were really having a difficult time funding it. We approached developers in the core area and said we really cannot approve of any more buildings that use pumps to manage the fire systems with in the buildings, and we need you to partner with us, the City, to try and find a way to fund the project so we can continue to develop the core and we can put in an additional pump station. It took a number of years to work with them, but we were actually able to put together a partnership. The three partners were eventually the Hines Group, Westcor Group and Ellman Companies. Those three formed a partnership with the City - worked jointly funding the development of a pump station, which is located south of here down near Indian School Rd, and some water lines that connect that pumping station up to the Camelback core as well as to over to 32nd St. where we have another pump station. The initial project was estimated to run anywhere between 25 to 30 million dollars. The City is contributing some funds for the project. We are putting in up front to reimburse the developers for their costs for the project up to 9 million dollars straight from our CIP and then we have also agreed to pay them some of the sales tax that has been collected on high rise developments over a certain period of time. As we collect sales tax on high rise projects, we well then funnel that money to them and we pay them up to 3 million more dollars for the project. For total project cost, the city is contributing about 12 million dollars and the developers are contributing the remainder. We were fortunate that the economy sort of went down hill as the cost of things was mulch less than we originally estimated. So we are still contributing are full share of 12 million dollars and the developers costs are going to be much less than we originally anticipated.

We still have in place right now a sort of a ban on high rise buildings in the core. The only people that can build a high rise development would be one of the three partners that are participating in the project. They would not actually be able to get a certificate of occupancy on the project until the water lines and water pump station are complete. To be honest with you, we have not had anyone ask to build anything since we started the project. Hines built their project under this agreement.

We do have some stipulations regarding sales tax on future projects and those will extend beyond the life of the project and the reason for this is our agreement with the developers is that for a certain period of time, even after the project is finished, we will continue to apply sales tax to high rise buildings and reimburse them for the costs. It could take up to 10 years for them to get those funds from the sales tax. Right now the only sales tax we are really collecting is on the Hines building. This project has a long history and we have known about the need for it for less than a decade. We have been trying to form a partnership for almost 5 years. The partnership itself has been in place for almost 2 years and maybe longer.

When the city developed 100 years ago and they began putting in their water system, we created one large zone in the basin of the valley. When they did this design, they kind of underestimated how big that zone should be and what those pressures should be. 50 or 60 years ago they did not realize how much development there was going to be there and what water pressure they were going to have to maintain. So the solution was to take the area that was in the upper end of zone one which includes Camelback core area, and make it a new zone. The bottom part of the zone, instead of being down by the river will now be down by the canal and the top of the zone remains the same. This will enable us to better manage the pressures within that zone. So the water pressure for all that zone will greatly improve when this project is complete. In order to do this, we had to provide a source of water to deliver it to that zone; it required the construction of two pump stations, some storage tanks, and a lot of water lines. The developers are building the western portion of that project-the pump stations and some of the lines and the City will be building the eastern portion. The City project is a little bit further behind than the developer's project. At some point in time an all new zone will be created in this area but it will take several years to do that, but that is the intent. As far as our original plan that I talked about (8 years ago) to provide Camelback core with an additional pump station as well as creating a new zone. One of the reasons why this is an important link to the Camelback core project is that one of the ways that we have been trying to manage this area in terms of the pressures in that area is that we feed water from these upper zones into this. It puts stress on the Camelback core area, so when the project is done it will alleviate that problem.

The Technical aspects of the Project

We are creating a new water zone. The developer's portion is about 1/3 of the entire project. The developer's portion has about 3.5 miles water mains and one pump station which is located at 20th Street and Indian School, and it is on the Northwest corner. The water main will be along 22nd Street all the way up to 32nd Street. This will not only help homeowners, but developers as well. The City has certain obligations to reimburse the developers up to 12 million dollars-9 million is going to come from our water funds and 3 million is going to come from the reimbursement of the construction sales tax. Because of that it is kind of like a repayment program.

We have some water stipulations, so when you are planning to develop a property or project, in the area we are talking about, you might be subject to those water stipulations. One is that before the area (including the Camelback core area) is completed, we will not be issuing any building permits to any commercial development that requires a pump. So if you have a project coming that might be more than 70 ft. high, it is very likely that you would need a pump to maintain your domestic flow or fire flow. If your project falls into that category then you will not be able to get a permit until the Camelback core are portion is completed. Question: When? We are expecting the project to be completed in the first quarter of next year. It could vary, but that is our projection and we think by April of next year it should be completed. If you have something in the planning stages you can still move forward as it all takes awhile. If you have a project that requires a pump, you are also required to have your contractor get a Privilege License Tax through our Finance Department. They will just report their construction sales tax paid to the city under that particular PLT number to our finance department. We will reimburse a portion of that to the participating developers. That was caped up to 3 million dollars. So the city has an obligation to track those developments for up to 10 years after the section is completed. So if in April 2011 it is completed the city would require all developments coming into that areas that require pumps that they will be required to do this. This does not mean you are paying any extra tax, it just means your contractor has to report his construction sales tax specifically related to that building under this number. Because a lot of the time contractors will have multiple projects going on, but he will be required to get a separate PLT number for the sales tax he paid to the city for projects done in the Camelback core area.

Question: Technically, if a project is under two stories there is enough pressure? Yes

Question: Is it a sur tax? No, it is the same tax; they just record the tax specifically under these numbers. So it is a percentage of the city's revenue that is going to go back? Yes, the developer is not paying any extra money. What percentage are you paying? It is 50% of the general fund portion and that is usually 7%. So far we only have two projects eligible for this. One is the Hines phase 2 which is a high rise at 24th and Camelback and the other is the water line construction project. So far based on my tracking numbers, we are talking about $110,000 so far. This is the reimbursement amount and it is only construction tax.