January 26, 1993SU' IE qR'r.. GEN. REA'
.LACK CRANAN, MAI
M0000113
DANIEL K. DE,i.IIAN. MAI
90000244
LINDA FIOTOMSS, SRA
90000313
L...OURL WILSON, JR., MAI
9000091)
P. S.. IIOCK'WEL.L, TREAS.
January 26, 1993
Mr. ohn Drago, City Administrator
City of Okeechobee
55 SE Third Avenue
Okeechobee, Florida 34974 -2932
RE: Appraisal of City's Utility System
year Mr. Drago:
Sincerely,
DEIGHAN APPRAISAL. ASSOCIATES, INC
Enclosed is a draft of the Scope of the Appraisal, giving more details regarding the specific steps
and methods we will follow when we appraise the utility system. A copy is also being sent to
Charles Harvey and the three utility consultants.
To minimize duplication of effort, we will review the studies previously made of The system. For
further clarification, we anticipate discussing these analyses with staff members of PMG Associates.
Reese -Macon Associates, and Knepper Willard, Inc. hi regard to compensation for their
[consultants] time, we expect the assignment to incur an additional expense of around $3,000.
As soon as we receive all comments on the attached draft of the Scope of the Appraisal., we wil
finalize the proposal for its submission to the full City Commission. If you have any questions,
please call. We appreciate the opportunity to be of service to you..
DEIGHAN APPRAISAL ASSOCIATES, INC.
Jack Crahan, MAI
cc: Mr. Charles W. Harvey, Chairman
Board of County Commissioners
Okeechobee County
304 NW 2nd Street, Suite 109
Okeechobee, Florida 34972
Mr. William D. Reese, P.E.
Reese -Macon Associates
9121 N Military Trail, Suite 207
Palm Beach Garden, Florida 33410
[407] 625 -6664 fax
[scope3.doc /Ibf /A:]
REAL ESTATE ANALYSTS' AND CONSULTANTS
2000 S.E PORT ST LUJCJL BOUT- EVARD, SUITEA
PORT ST. LUC.IE, FLORIDA 34952
(407) 335 -1405 FAX 1(407) 335 -1423
REPLY TO:
PORT ST LUCIE
Mr. Philip M. Gonot, Vice President
PMG Associates, Inc.
3880 NW 2nd Court
Deerfield Beach, Florida 33442
[305] 480 -8836 fax
Mr. Daniel S. Willard, P.E.
Knepper Willard, Inc.
3030 N. Rocky Point Dr., St. 570
Tampa, Florida 33607 -5905
[813] 281 -1156 fax
900 EAST OCEAN BOULEVARD
STUART, FLORIDA 34994
(407) 3351405
760 NORTR FEDERAL IRGHW \Y
THE HOYT CENTER SUITE 201 A
NORTH PALM BEACH, FL 33400
(407) 627-5957
VALUATION OF CITY OF OKEECHOBEE UTILITY SYSTEM
SCOPE OF THE ASSIGNMENT PROCEDURAL OUTLINE
SUBMITTED BY:
JACK CRAHAN, MAI
STATE -CERT. GEN APPR. #0000383
DEIGHAN APPRAISAL ASSOCIATES, INC.
2000 SE PORT ST. LUCIE BOULEVARD
PORT ST. LUCIE, FLORIDA 34952
SCOPE OF THE APPRAISAL
The scope of the appraisal is to estimate the Market Value of the Fee
Simple Estate interest in the City of Okeechobee utility system, as of a
given date. After concluding the market value of the fee simple estate,
the appraiser allocates this to other specific ownership interests which are
identified and discussed later in this text.
Property Description The subject property consists of a water and
sewer utility owned by the City of Okeechobee. The utility has about
4,100 water customers, 1,350 of whom are also served by sewage
treatment facilities. The system supplies water to the Okeechobee Beach
Water Association. However, the contract for this purpose expires in 1994.
Water for the system is supplied by a 3.12 -MGD capacity, surface water
plant. As a result of a DER consent order the City of Okeechobee is in the
process of developing, in two- phases, a groundwater, two -MGD plant. A
0.6 -MGD plant also provides sewage treatment.
Components of the system vary in age, ranging from about 65 years to
new. Thus some of the system's structures are reaching the end of their life
expectancy: e.g. 250,000 gallon water storage tanks. Some of the
system's components are new, under construction, or were recentl
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Definitions in valuing the utility, the appraiser must first identify and
define the type of value most appropriate to the subject system, then
base his valuation upon its stipulations. In this regard, based on the
subject utility and its characteristics, the appraiser seeks its MARKET VALUE,
which is defined as follows:
rehabilitated.
'The most probable price which a property should bring in a
competitive and open market, under all conditions requisite to
a fair sale, the buyer and seller each acting prudently and
knowledgeably, and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of
a sale as of a specified date and the passing of title from seller
to buyer; under conditions whereby:
a) buyer and seller are typically motivated;
bJ each party is well informed or well advised, and acting in
what he considers his own best interests;
c) a reasonable time is allowed for exposure in the open
market;
d) payment is made in terms of cash in United States dollars, or
in terms of financial arrangements comparable thereto; and
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e) the price represents the normal consideration for the
property sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale."
(Source: Uniform Standards of Professional Appraisal Practice, 1
1990, The Appraisal Foundation.)
Note: This definition of "Market Value" reflects terminology currently in use
by leading professional appraisal organizations and, consistent with the
collateral requirements of the lending industry, the need to obtain the
most probable selling price should the property be placed on the market
under the conditions herein specified.
Likewise, the interest appraised must also be defined. For this assignment
the interest appraised is the FEE SIMPLE ESTATE:
"which is absolute ownership unencumbered by any other
interest or estate; subject only to the limitations of eminent
domain, escheat, police power and taxation."
(Source: The Dictionary of Real Estate Appraisal (1984)
Once the fee simple estate value is concluded, it will be allocated
among specified ownership interests.
The Date of Appraised Value is identified as the last date upon which the
subject utility will have been physically inspected by the appraiser valuing
the system.
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PROCEDURAL OUTLINE
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Data Collection This includes a general study of the Okeechobee
environs as a whole, identification of the specific area which the system
now serves, and would likely serve, and forecasts of population growth
and analysis of trends impacting the utility system. Projected utility
connections to the subject would also be based on establishment of
existing capacity, volumetric usage and other evidence from the existing
reports on the system, and input from experts familiar with utilities.
Data specific to the subject utility will a!so be analyzed, including City
Atlas drawings, construction diagrams, operation and maintenance
reports, inspection reports on system conditions, repair and rehabilitation
studies, agency permit applications /approvals, expansion /improvement
plans and historical cost summcries. The engineer will also develop
quantity estimates of existing facilities, including current and proposed
projects. City and County officials are to agree to a listing of assets,
compiled from the foregoing analysis, which are contained in or are part
of the subject system.
The appraiser and engineer will physically inspect the subject property,
assessing the condition of the components (with some supplemental
representative sampling conducted by City staff), identifying needed
repairs or deficiencies, reviewing current treatment qualities and
evaluating the system for compliance with current municipal /agency
standards.
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The Valuation The appraiser is required to consider all available and
accepted appraisal methodologies, which include the Cost, Sales
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Comparison and Income Approaches to Value.
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t
1. The Cost Approach is based on the premise that the value of a
property can be derived by adding the estimated value of the land to
the current cost of constructing a replacement for the improvements and
then subtracting the amount of depreciation (i.e. deterioration and
obsolescence) due to all causes.
a) Vacant Land: The appraiser uses the Direct Sales Comparison
Approach to value the and pertinent to the physical components
(plants, etc.) of the utility. With this method, sales of similar or
comparable parcels are analyzed, compared, and adjusted to
provide a value indication for the land being appraised. This
approach best reflects market behavior and is the most common
technique for valuing land.
b) Improvements: A replacement cost of the system's
components, including the proposed water treatment facility, will
be developed. The replacement cost estimate will include "soft
costs such as engineering, management and overhead.
To conclude depreciation, the engineer will estimate the remaining
economic life of the components. For example, if a 20- year -old pump
has a typical life of 25 years and the engineer estimates a remaining
economic life of 10 years, then the pump is estimated to have an
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effective age of 15 years. It would thus be considered to have
depreciated 60
[15 years effective age
0.60
25 years economic life]
In the above procedure, a component may be considered to be at the
end of its economic life, but is not penalized for outlasting its typical life
expectancy. The engineer will also develop cost estimates for
repairs /rehabilitation work of identified components of the system.
The replacement cost estimate, less depreciation, will be added to the
value of the land as vacant, to value the system by the Cost Approach.
[a]
[c]
Note: To properly complete the analysis by this
approach, the appraiser and engineer will need additional
information on the following:
detailed, itemized accounting of funds spent for the
proposed water treatment facility, as well as budgets
reflecting unfinished and incomplete work;
time line of costs for any other ongoing projects relative to or
within the system
approximate land area and location of the new water
treatment site; further, if any new well sites are to be located
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on -site, where fee simple title is to be retained by the City,
then language reflecting the leasehold interest or easement
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must be furnished
41116c
[d] decision about the consideration of the abandoned sewer
treatment plant in the valuation; either to include the
pumping station and required supporting land (size agreed
upon) only, or existing land site plus salvage value of the
abandoned plant components
[e] determination of the location and dimensions of the site area
included with the water towers
[f] decision regarding the inclusion of the operations center in
this valuation, with identification of the specific dimensions of
the site to be included
2. The Sales Comparison Approach will be considered; however, due
to dissimilarities from the subject among the utilities which have sold, the
transactions are not considered reliable indicators of value. The final
report will express the conclusion that this method of valuation was not
applicable to this assignment.
3. The Income Approach analyzes a property's capacity to generate
benefits and converts these benefits into an indication of value. The
appraiser will develop an estimate of the utility's revenues and expenses
to arrive at a net operating income.
Input for this pro forma will come from analysis of all available and
pertinent data, including City of Okeechobee budgets for operation and
maintenance, repair /rehabilitation cost estimates from the engineer, and
the documents listed in the Addenda. The analysis, plus interviews with
City officials, will assist in evaluating the impact on the pro forma of th
utility not being part of the City.
To test the reasonableness of the resulting rates, income, and expense
forecasts, the appraiser will verify them through a review of the same
items in surrounding and Tike -size utility systems, making modifications, if
necessary.
The appraiser will convert the ensuing cash flow stream to derive a value
of the subject system's debt and equity components. Discount rates will
be estimated from market analysis of current rates of return for both
municipal debt and equity. This procedure will yield a value of the utility
by the Income Approach.
Reconciliation The appraiser will examine the strengths and
weaknesses of each approach and conclude a value which is unbiased
04 ,7 and representative of the defined value sought. In this process both the
44 quality and quantity of information will be considered in concluding the
final value of the fee simple interest of the subject.
Allocation The fee simple interest value represents the value of all the
interests, which include rate payers [or customers of the utility], bond
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holders [debt], and the City per se. In the Allocation process, the debt
interest of the subject is derived by discounting the expected cash fl
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stream to the bond holders.
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The equity interest of the city is measured by discounting the difference
between the system's cash flow and the distribution to the bond holders.
The rate payers' interest is measured as the difference between the
depreciated cost approach value, less the bond holders' and city's equity
interests.
The following is a preliminary indication of the sources considered in the
appraisal of the Okeechobee utility system.
Preliminary Bibliography: To minimize duplication of expenses, the
appraisal process considers the following documents:
"Resolution #89 -5 (updated listing) Listing of Utility Rates"
"Comparison Analysis Water and Sewer Options Okeechobee area
Water and Sewer Task Force Final Report, 8/1991," PMG Associates, Inc.
"City of Okeechobee Utility Rate Study," dated 12/91, PMG Associates,
Inc.
Proposed $5,000,000 bond for the City of Okeechobee, "Water and Sewer
Refunding Revenue" Bond Series 1992A.
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Reese Macon Associates "Current Inventory of System Assets"
"Hydraulic Analysis of the Water System"
"Proposed Water Treatment Plant
Construction Plans"
"Capital Improvement Needs" report
4614.44\ "Upgrading the Existing Water Treatment
Plant" report
Knepper Willard, Inc. Existing wastewater maps and system inventory.
"PMG Financial Pre -1981 Financial Record Stud/'
Independent Auditors' Report Hill, Barth King, dated 2/10/92, "City of
Okeechobee Utility System Financial Analysis" prepared by PMG Assocs.
"Governance Alternatives to Provide Regional Water and Wastewater
Services and Facilities to the Urbanized Areas of Southern Okeechobee
County' Nabors, Giblin, et al, report dated July 8, 1992
1987, 1989, and 1992 Bond Documents
Miscellaneous inspection reports on the system conditions of the City of
Okeechobee Water and Sewer Utility
NOTE: Data from the identified documents will be relied upon.
However, the information will be checked for reasonableness.
Any Independent conclusions used will be based upon the
appraiser's Judgement and expertise.
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