Loading...
February 19933TATZ -CERT. CTN. REAs JACK atmArgi, MM 0•0000303 DANCGL K. I EIGHAN, MAI /104410 t.44 LINDADOMINISS, sRA 000003'13 L PURL WILSON, JR., MAI 40040913 P. L ROC :WELL, TREAS. Mr. John Drago, City City of Okeechobee 55 SE 3rd Avenue Okeechobee, Florida DEIGHANAPPRAISAL, ASSOCIATES, INC. Administrator 34974 -2932 12.1E Appraisal of City's Utility System Dear Mr. Drago: REAL ESTATE ANALYST SAND CONSULTANTS 2000S.E PORT ST. LUCIE BOULEVARD, SUITEA PORT ST: LUCIE, FLORIDA 34952 (40 335 -1405 FAX '(407) 335 -1423 REPLY TO: PORT ST. LUCIE Enclosed is the finalized Scope of the Assignment. I have incorporated clarifications, etc. as detailed below in response to the comments received from Reese, Macon Associates, Inc., Knepper Willard, Inc., and PMG Associates, Inc. Responses to Reese Macon Associates, Inc., 1/29/93 Letter No action required, see responses to PMG Associates, Inc. Our letter of January 26, 1993, indicated that we estimated a $3,000 expense to compensate PMG Associates, Reese, Macon Associates, and Knepper Willard for their time spent with us, specifically to clarify information/analyses included in documents which had been previously prepared on this utility system. We included this procedure because it would reduce the time and expense needed to obtain the data we need to complete the assignment. However, the consultant's comments were about an entirely different procedure, namely a review of cur appraisal upon its completion. in our original Scope of the Assignment., we did not include this review process. If you wish to include it, we can add it to the Scope of services. We would submit to you and the County a draft document, make ourselves available to the City Council and County Conunission for clarification, and incorporate the continents into a final appraisal document. The engineer's fee for this additional task is $2,000, while the appraiser's fee is $2,400. It is my suggestion that the Mayor of the City and Chairman of the County Commission agree to the extent the review process should entail. At that 9« EAST OCEAN BOULEVARD STUART, FLORIDA 349/4 (407) 335-1405 740 NORTH FEDERAL HIGHWAY THE HOYT CENTER SUITE 291 A NORTH PALM BEACH, FL 33400 (407) 427 -5957 time, Reese, Macon Associates, Knepper Willard, and PMG Associates can estimate their cost for this additional review process. 3. We have corrected the Scope of the Assignment to read 3.2 MGD. 4. We have deleted the example from the Scope of the Assignment. 5. The Scope of the Assignment currently includes a determination by the engineer of "remaining economic life" that is based primarily upon a review and evaluation of the City's existing maintenance and repair records. Historical evidence of continuing maintenance for prolonging the life of system components will be identified. Professional judgements and experience will be used for comparisons against accepted municipal standards and practices for similar systems of age and type. If City records cannot be relied upon to contain the required detail and completeness, or if a more quantitative evaluation is desired, we suggest some supplemental field investigations. In conjunction with City maintenance staff selected representative samples of basic system components could be checked or tested (pump tests, pressure/flow tests, etc.). To accomplish this objective, we could provide a full time, experienced engineer to conduct/observe the investigations. Assuming two 50 -hour work weeks, plus per diem, we estimate a fee of $11,500 for this work. 6. SEE ABOVE COMMENT #5) 7. The cost estimates for repair /rehabilitation work are intended to account only for the restoration due to deterioration from deferred maintenance. 8. Reconciliation in an appraisal is the "analysis of alternative conclusions to arrive at a final value estimate As part of the process, the appraiser reviews the entire appraisal and examines the differences in the analysis and conclusions derived in the various approaches and then resolves any inconsistencies. This requires both a check of the mathematics, as well as the logic employed. Reconciliation is required because different value indications result from the use of more than one approach, or sometimes, within the application of a single approach. The value conclusion reached must be consistent with market thinking and the quantity of data used should correspond to the amount of data the market considers relevant to the problem. Without actually doing the appraisal, we will not know the full extent of the quantity and quality of data available. Theoretically, each valuation report, if 2 done perfectly, would lead to the same answer. Use of these theoretically perfect approaches would then be considered redundant and only one method would be sufficient. Any one of the methods would be equally apt. The reality is, however, that judgemental errors are made in forecasting, perfect market comparables do not exist, and remaining operating lives are not known as certainties until some time in the future. Therefore, as part of the appraisal assignment itself a determination of the quality and quantity of data will not occur until the end of the assignment, but this determination is a substantial requirement per the Scope of the Assignment. Changes to the Scope have been made to include the demonstration of this process to the report's reader. 9. The documents referenced may be more accurately described as: Utility Atlas Drawings Maps Res onses to Kne Capital Improvements Identified in the Master Plan or City Budget er Willard Inc 1/27/93 Memorandum 1. See Reese, Macon Associates response, Item 3. During the preparation of our proposal, we collected information about the City's system from numerous documents, and staff members. We verified that we had no record of a proposed expansion to the wastewater treatment plant. Subsequently, we discussed the subject with Dan Willard and understand a preliminary engineering report is being drafted. Some additional review and analysis time should be included in the Scope of the Assignment. The estimated cost for this work is $800 for the engineer's fee and $600 for the appraiser's fee. 2. See Reese, Macon Associates response, Item 2. 3. The "supplemental representative sampling" was anticipating a small amount of pipeline samples or coupons being taken by City maintenance staff. This would supplement any existing information collected from previous sampling or repair work. 4. In addition to the proposal wastewater treatment plant expansion, we discussed some continuing sewer extension projects with Dan Willard. 5. The Scope has been changed to expand the term "operation center" to include "water maintenance barn 3 6. We already have extensive knowledge of over 300 transactions involving water and sewer utilities. As part of this assignment, we will be reviewing our records and updating our research on a statewide basis in an attempt to identify additional utility transactions, which might be considered similar. However, it is our opinion at this time that this approach will be found inapplicable for this assignment, due to the lack of similar transactions. The Scope has been reworded to reflect this research. 7. We are aware of and plan to use the review done in the PMG report. However, the Standards of Professional Appraisal Practice of the Appraisal Institute require that we consider the following: 1) The standards under which the reports were prepared; 2) The source and extent of the instructions given to the preparer of the report; 3) How the appraiser relied upon these reports in making decisions and preparing his/her report." See attached copy Guide Note 6, Standards of Professional Appraisal Practice of the Appraisal Institute. It will not be until we get into the appraisal assignment itself that we will note to what extent we would rely on the reports cited in the Scope. As part of our report, Standards require us to identify reports prepared by others, those specifics which were relied upon, and we must reveal and explain each apparent discrepancy between any two opinions which were relied upon. To remove this paragraph from the Scope would be unacceptable both to the Standards of Professional Appraisal Practice of the Appraisal Institute and to the Uniform Standards of Professional Appraisal Practice. 8. The documents referenced may more accurately be described as: Wastewater System Master Plan (prepared in 1992 based upon City information and existing drawings) Capital Improvements Identified in the Master Plan City Budget Response to PMG Associates, Inc., letter of 2/3/93 1. See Item #2, Reese, Macon Associates response. 2. Scope has been reworded to clarify this comment. 4 3. In general, methodology will be similar to that found in the bond documents. Any discrepancies found will require confirmation, verificaticn and explanation as part of the Appraisal Process. See prior comment regarding Appraisal Standards. 4. To conclude with the market value of the system, the system's current revenue and expenses would first have to be determined. Then each revenue or expense item would be examined relative to what a market purchaser would likely expect for that same item. If differences from the market norm are found, then the appropriate adjustment would be made to use an adjusted figure in the pro forma. Example: If the current enterprise fund does not allow a rental expense for the space used within City Hall, or the expense currently being recorded is only a token amount, then an adjustment must be made to this expense figure to bring it to a level that a market purchaser would expect to pay for rental of a similar area. 5. See previous Knepper Willard, Item #7. 6. As stated in the Scope, it is my opinion that three interests exist in the Okeechobee Utility System: a. Creditors (including bond holders) b. The city as owner of the system c. Customers or Rate Payers Without doing the appraisal, we are unable to specifically allocate each share. With respect to the customer, or rate payer, my opinion is based on the fact that customers have made contributions to the system; e.g., school system and developers. In return, rates to those customers and the remainder of the customers have not been increased because the utility was not required to make the capital improvements donated by the customer. Further, it is my opinion that any value and subsequent allocation would require that all interests remain economically indifferent, both before or after the sale. The economic relationship of all parties should stay the same; none should be economically better or worse after the transaction. For example, if the sale were to occur at such a high price that the customers' rates would have to increase to pay the purchase price, then the customer is no longer economically indifferent. Another example: if the sale price were to occur at an abnormally low level and the rates were to remain the same, then a potential cash windfall would 5 lbi/drago2.doc occur to the purchaser, or if the rates were reduced in this second example, then the customers again are not economically indifferent. In effect what has happened is that part of the interest of the creditors and/or the city has been transferred to the rate payer. One possibility is to not value the Fee Simple Title, or alter the Fee Simple to say we are valuing something less than the full bundle of rights. It was my understanding, however, that the function of the appraisal was to seek an impartial valuation of the utility, based upon which both the City and the County could negotiate their respective positions. John, we need to know how to proceed at this point. You suggested that we meet with the Mayor and the Chairman of the County Commission to finalize any points. Please call me so that we can coordinate a time when we can all get together to resolve these differences and decide which options and Scope changes you wish to pursue. Sincerely, DEIGHAN APPRAISAL ASSOCIATES, INC. Jack Crahan, MAI State -Cert. Gen. Appr. #0000383 cc: Mr. Charles W. Harvey, Chairman Board of County Commissioners Okeechobee County 304 NW 2nd Street, Suite 109 Okeechobee, FL 34972 [813] 763 -9529 Fax Linda B. Fairbanks Senior Appraiser Deighan Appraisal Associates, Inc. 6 Mr. Skip Harvey Williams, Hatfield Stoner, Inc. 1948 SE Port St. Lucie Boulevard Port St. Lucie, Florida 34952 [407] 335 -0301