17-87 FINANCIAL FRAMEWORK FOR METRO COOPERATION, Nay 15, 1987 1, TWO-THIRDS FACTOR a ‘The metro area is defined as Denver, Adams, Arapahoe, and Jefferson counties. Whether measured by population or by assessed valuation of real property, the three suburban counties represent almost exactly two-thirds of the people and tax base in the metro area (see Table One). 2, WATER VALUATION a b. ‘The Metro Water Authority is defined as a wholesaler of raw water only, taking over thE SHare OF plant, land, and water rights from the Denver Water Department which would be necessary to perform this function. DUD lists a replacement value of all its assets, including the anticipated Two Forks Dam, at $3.3 billion (see Jordan calculations). Netting off $1 billion for the retail distribution system that would not be transferred to NWA (line t from Jordan), those assets to be transferred might total $2.3 billion. But since the suburban counties will already have paid 80% of the cost of Two Forks (line h), or a payment of about $300 million, the asset that is to change hands cannot actually exceed $2.0 billion. Applying the two-thirds factor to determine what portion of the new MWA system would finally be "owned" by the people of the suburban counties, gives us a hypothetical "price" of about $1.4 billion. What about the argument that suburban customers, through the surcharge they have long been paying for water as compared with city customers, have already bought their share of DwD's plant? DWD reports that its total revenues from suburban customers during the years 1955-85 were $358 nillion, Even if the surcharge had been 100 percent throughout this period (which it was not), this would give the suburbs less than $200 million "credit on account" toward "purchase" of the transferred assets as estimated above. Adjustments for present value, inflation since 1955, and so forth do not materially change the imbalance. 3, SERVICES VALUATION a The Regional Service Authority is defined as the new owner and operator of those core-city health and cultural facilities (perhaps the eight shown in Table Two) which serve the whole metro area. RSA would take on a total operating cost of about $50 million per year. Applying the two-thirds factor, it appears that suburban taxpayers would relieve Denver taxpayers of about $33 million pet years TF nevessary to year. If necessary to show a higher annual payment in support of a “fair bargain" perception on the NWA-RSA tradeoff, some amount could be added to cover capital purchase of the Denver facilities as well as yearly operating subsidies.T | TABLE ONE | Current | Population - a Real_Propert; DWD Customers = ¢ to 1985-86 Persons = Billions z Accounts = | City and County | 510,000] 32 | $2.9 a |e 1875000) coe of Denver I I { T Adams, Arapahoe, | 1,078,000 | 68 1 $5.6 66 | 112,000 45 | and Jefferson | I | | Counties | | T T iE TOTALS |_ 1,588,000 _| 100 L $8.5 | 100 249,000 100 Sources: a - DRCOG Research Office b - Colorado Public Expenditure Council c - DMD Finance Director TABLE THO | Current Denver Facilities | to 1986-87 | for Transfer to Regional Service Authority \ ITEM | Annual Subsidy (Mil ions) | General Hospital $22.6 Library - d i 14.1 Zoo | 1.6 Botanic Gardens | 1.0 Art Museum 2.4 | Natural Histor, 5.4 | Hountain Parks - e 1.0 Convention Center - f 2.0 TOTAL $50.1 | Source: City Council library would go to RSA. e - Estimate; parks budget does not separate city and mountain facilities. f - Add at least $1 million for new center after 1990, Remarks: d= Figure is high if only the central SUBURBAN WATER SURCHARGE: DwD customer revenues 1955-85 totalled $822 million; city Maximum rate of suburban surcharge was 20% in 1955, rose gradually to 40% in 1980, and has been 100% customers paid $464 million (56%), suburbs paid $358 million (44%). for most customers since 1982.Estimate of Di2's current system's value = using reoragustion cost indices, and otner methods = strictly comoutes for the limited uses and purpose: Se es as Gefined in the '66 rate study Summary of estimated reo: ion value of DW's existing system: Million Dollars a- Land & land rights $250 Mil. b- Water rights 1,363 c- Reproduction value of DWO's plant 1,735 a Total $ 3,348 Mil. Derivation of estimate of the reproduction value of DWD's existing system: Source of supply (reproduction cost values excluding water rights): e- Land & land rights $ 114 Mil, 2 f- Plant 755 g Total $ 869 Mil. Unit value of next major increment of supply: Estimated cost, including $61 million in mitigation $ 398 Mil. Reproduction cost value of 2 portion of exiting i- plant facilities utilized in the next increment _108 Total $ 506 Mil. k- Total yield of next increment 98,000 A.F. 1- Unit cost per acre foot $ 5,163 Not Mil. Valuation of the existing system at next incremen This value effectively includes the value of existing water rights, land, and plant velue Existing system's yield 295,000 A. F. n= Velue $ 1,523 Mil. Described as "some preliminary calculations made by our 1987 / rate consultants regarding the evaluation of the Denver Water Department system... produced with rough assumptions | so that a figure could be generated in a timely fashion | without undue precision" ... in a letter from Charles G. Jordan, Denver Water Department, March 4, 1987.