AGENDA CITY OF DENTON CITY COUNCIL January 11, 2011

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1 AGENDA CITY OF DENTON CITY COUNCIL January 11, 2011 After determining that a quorum is present, the City Council of the City of Denton, Texas will convene in Special Called Session on Tuesday, January 11, 2011 at 4:00 p.m. in the City Council Chambers at City Hall, 215 E. McKinney Street, Denton, Texas. 1. Proclamation for Guyer High School football team 2. Proclamation for Ryan High School football team Following the completion of the Special Called Session, the City Council of the City of Denton, Texas will convene in 2 nd Tuesday Session in the City Council Work Session Room at which the following items will be considered: NOTE: A 2 nd Tuesday Session is used to explore matters of interest to one or more City Council Members or the City Manager for the purpose of giving staff direction into whether or not such matters should be placed on a future regular or special meeting of the Council for citizen input, City Council deliberation and formal City action. At a 2 nd Tuesday Session, the City Council generally receives informal and preliminary reports and information from City staff, officials, members of City committees, and the individual or organization proposing council action, if invited by City Council or City Manager to participate in the session. Participation by individuals and members of organizations invited to speak ceases when the Mayor announces the session is being closed to public input. Although 2 nd Tuesday Sessions are public meetings, and citizens have a legal right to attend, they are not public hearings, so citizens are not allowed to participate in the session unless invited to do so by the Mayor. Any citizen may supply to the City Council, prior to the beginning of the session, a written report regarding the citizen s opinion on the matter being explored. Should the Council direct the matter be placed on a regular meeting agenda, the staff will generally prepare a final report defining the proposed action, which will be made available to all citizens prior to the regular meeting at which citizen input is sought. The purpose of this procedure is to allow citizens attending the regular meeting the opportunity to hear the views of their fellow citizens without having to attend two meetings. 1. Receive a briefing and hold a discussion regarding the annexation procedures in accordance with Texas Local Government Code. The briefing and discussion will including: (1) the requirements of a 3-year Annexation Plan; (2) the provision of municipal services; and (3) the provision of non-annexation development agreement for property appraised for ad valorem tax purposes as land for agricultural, timber land or wildlife management. The proposed annexation consists of three (3) distinct areas under multiple ownerships and of an approximate total of 1,595 acres. The 3 areas are identified and generally located as follows: 1. DH-7: 143 acres, located east and north of Teasley Lane, south of Teasley Harbor Subdivision and west of Southlake Drive; 2. DH-9: 298 acres, located north of Pockrus Page Road, north, south and northeast of Edwards Road; and 3. DH-12: 1,154 acres, located south of E. University Drive, east of N. Mayhill Road, north and south of Blagg Road, north and south of Mills Road, east and west of S. Trinity Road.

2 City of Denton City Council Agenda January 11, 2011 Page 2 2. Receive a report, hold a discussion and give staff direction regarding a proposed lease of property located on the Denton Municipal Airport, specifically the area northeast of the Airport Terminal parking lot and the lease of said property to NE Interests, Ltd. for the construction and operation of a restaurant. Following the completion of the 2 nd Tuesday Session, the City Council will convene in a Closed Meeting to consider specific items when these items are listed below under the Closed Meeting section of this agenda. The City Council reserves the right to adjourn into a Closed Meeting on any item on its Open Meeting agenda consistent with Chapter 551 of the TEXAS GOVERNMENT CODE, as amended, as set forth below. CLOSED MEETING 1. Closed Meeting: A. Consultation with Attorney Under Texas Government Code Section Consult with City s attorneys regarding legal issues associated with the proposed annexation of three areas previously identified in the City s most recent Growth Management Plan as areas DH-7, DH-9, and DH-12, generally described and located as follows: 1. DH-7: 143 acres, located east and north of Teasley Lane, south of Teasley Harbor Subdivision and west of Southlake Drive; 2. DH-9: 298 acres, located north of Pockrus Page Road, north, south and northeast of Edwards Road; and 3. DH-12: 1,154 acres, located south of E. University Drive, east of N. Mayhill Road, north and south of Blagg Road, north and south of Mills Road, east and west of S. Trinity Road. 2. Consult with City s attorneys regarding legal issues associated with the referendum petition to repeal Ordinance No B. Deliberations Regarding Real Property Under Texas Government Code Section ; Deliberations regarding Economic Development Negotiations Under Texas Government Code Section , and Consultation with Attorney Under Texas Government Code Section Receive a report, hold a discussion and give staff direction regarding the value of real property located on the Denton Municipal Airport, specifically the area northeast of the Airport Terminal parking lot and the lease of said real property to NE Interests, Ltd. for the construction and operation of a restaurant where deliberation in an open meeting would have a detrimental effect on the position of the City of Denton in negotiations with a third person. Following the completion of the Closed Meeting, the Council will convene in a Special Called Session to consider the following:

3 City of Denton City Council Agenda January 11, 2011 Page 3 1. Consider adoption of an ordinance approving a Commercial Operator Airport Lease Agreement between the City of Denton, Texas and NE Development and Construction at the Denton Municipal Airport for lease of property on which to build and operate a restaurant; and providing an effective date. The Airport Advisory Board recommends approval (5-0). 2. Consider adoption of an ordinance establishing an economic development program under Chapter 380 of the Local Government Code for making grants of public money to promote economic development and to stimulate business activity in the City of Denton; approving an economic development program grant agreement with NE Interests, Ltd. regarding the construction of a restaurant at the Denton Municipal Airport in the City of Denton, Texas; authorizing the expenditure of funds therefor; and providing an effective date. The Airport Advisory Board recommends approval (5-0). C E R T I F I C A T E I certify that the above notice of meeting was posted on the bulletin board at the City Hall of the City of Denton, Texas, on the day of, 2011 at o'clock (a.m.) (p.m.) CITY SECRETARY NOTE: THE CITY OF DENTON CITY COUNCIL WORK SESSION ROOM IS ACCESSIBLE IN ACCORDANCE WITH THE AMERICANS WITH DISABILITIES ACT. THE CITY WILL PROVIDE SIGN LANGUAGE INTERPRETERS FOR THE HEARING IMPAIRED IF REQUESTED AT LEAST 48 HOURS IN ADVANCE OF THE SCHEDULED MEETING. PLEASE CALL THE CITY SECRETARY'S OFFICE AT OR USE TELECOMMUNICATIONS DEVICES FOR THE DEAF (TDD) BY CALLING RELAY-TX SO THAT A SIGN LANGUAGE INTERPRETER CAN BE SCHEDULED THROUGH THE CITY SECRETARY S OFFICE.

4 AGENDA DATE: January 11, 2011 AGENDA INFORMATION SHEET DEPARTMENT: ACM: Planning and Development Fred Greene SUBJECT Municipal Annexation Plan Three-Year Annexation Plan Receive a briefing and hold a discussion regarding the annexation procedures in accordance with Texas Local Government Code. The briefing and discussion will include: (1) the requirements of a 3-year Annexation Plan; (2) the provision of municipal services; and (3) the provision of non-annexation development agreements for properties appraised for ad valorem tax purposes as land for agricultural, timber land or wildlife management. The proposed annexation consists of three (3) distinct areas under multiple ownerships and of an approximate total of 1,595 acres. The 3 areas are identified and generally located as follows: 1. DH-7: 143 acres, located east and north of Teasley Lane, south of Teasley Harbor Subdivision and west of Southlake Drive; 2. DH-9: 298 acres, located north of Pockrus Page Road, north, south and northeast of Edwards Road; and 3. DH-12: 1,154 acres, located south of E. University Drive, east of N. Mayhill Road, north and south of Blagg Road, north and south of Mills Road, east and west of S. Trinity Road. BACKGROUND In 2009, via several City Council work sessions, staff recommended the annexation of eighteen (18) areas totaling approximately 9,035 acres of land within the City of Denton s Extra Territorial Jurisdiction (ETJ). Of the 18 areas identified, all but three (3) areas were exempted from the 3-year annexation plan requirement under Section of the Texas Local Government Code (Tx. LGC). The fifteen (15) areas that were exempted from the requirement of the 3-year annexation plan were annexed on May 4, 2010, save and except all properties that qualified for Non-Annexation Agreements (NAA) due to them being appraised for ad valorem tax purposes as land for agricultural use, timber land or wildlife management. Owners of these qualified properties were offered, and most accepted a 5-Year NAA. These NAAs are governed under Section of the Tx. LGC. The properties that were identified for annexation and are not exempted from the 3-year annexation plan requirement under Section of the Tx. LGC are located within three (3) distinct areas of the City s ETJ, are under multiple ownerships and are of an approximate total of 1,595 acres. The 3 areas are identified in Exhibits 1-4, and are generally located as follows:

5 1. DH-7: 143 acres, located east and north of Teasley Lane, south of Teasley Harbor Subdivision and west of Southlake Drive; 2. DH-9: 298 acres, located north of Pockrus Page Road, north, south and northeast of Edwards Road; and 3. DH-12: 1,154 acres, located south of E. University Drive, east of N. Mayhill Road, north and south of Blagg Road, north and south of Mills Road, east and west of S. Trinity Road. ANNEXATION PROCEDURE UNDER TEXAS LOCAL GOVERNMENT CODE Tx.LGC establishes the standards by which municipalities must abide with regards to annexation. The following is a description of the steps that must be followed during the annexation procedure. Adoption of an Annexation Plan: Per Tx.LGC , a home-rule municipality such as the City of Denton (the City) must adopt an Annexation Plan. The Annexation Plan must identify all areas proposed for annexation and annexation of the area may not occur prior to the 3 rd anniversary of the date the plan is adopted or amended. Id. at (c). The "three-year waiting period" is a misnomer, because the City must begin notice, hearing and negotiation procedures almost immediately after placing an area in the Annexation Plan. Amendments to the Annexation Plan: The City may add an area or areas to the Annexation Plan at any time. However, the area(s) may not be annexed until on or after the third (3 rd ) anniversary of the date the Annexation Plan was amended. Id. at Tx.LGC (c). The City may also amend the Annexation Plan to remove an area proposed for annexation; however, if the area is removed before the 18 th month after the month the area is included in the Annexation Plan, the City may not amend the Annexation Plan to include the affected area until one (1) year has passed since the area was removed from the Annexation Plan. Additionally, if the area is removed from the Annexation Plan during or after the 18 th month after the month the area is included in the Annexation Plan, the City may not amend the Annexation Plan again to include the area until the second (2 nd ) anniversary of the date the City amended the Annexation Plan to remove the area. Id at Tx.LGC (e). Annexation Completion Deadlines and Restrictions: The annexation of the areas identified in the Annexation Plan must be completed before the 31 st day after the third (3 rd ) anniversary of the date the area was included in the annexation plan. If the annexation is not completed within the prescribed period, the City may not annex the areas proposed for annexation before the fifth (5 th ) anniversary of the last day for completing the annexation. Written Notice and Internet Posting Requirement: Written Notice Requirement: Prior to the 90 th day after the date the City adopts or amends the Annexation Plan, the City shall give written notice to (1) each property owner in the affected area, as indicated by the appraisal Page - 2

6 records furnished by the appraisal district for each county in which the affected area is located: (2) each public entity, as defined by Tx.LGC , or private entity that provides services in the area proposed for annexation; and (3) each railroad company that serves the municipality and is on the municipality's tax roll if the company's right-of-way is in the area proposed for annexation. The notice shall state that the area has been included in or removed from the municipality's annexation plan. A "public entity" includes a municipality, county, fire protection service provider, including a volunteer fire department, emergency medical services provider, including a volunteer emergency medical services provider, or a special district, as that term is defined by Tx.LGC Id. at Tx.LGC (a). The City must also provide the written notice to all school districts located in an area to be annexed within the period prescribed for publishing of the first public hearing. The notice must include any financial impact on the district that may result from the annexation and the city's proposal to limit the effects of that financial impact. (Id. at Tx.LGC ) Internet Posting Requirement: In addition to the above written notice requirement, since the City has an internet website, the City is required to: (1) post and maintain the posting of the Annexation Plan on the city s Internet website; (2) post and maintain the posting of any amendments to include all areas in the Annexation Plan until the date the areas are annexed; and (3) post and maintain the posting of any amendments to remove any areas from the Annexation Plan until the date the City may again include the area in the Annexation Plan. Inventory of Services and Facilities - Tx.LGC : Prepare an Inventory of Services and Facilities: Per Tx.LGC , the City of Denton must compile a comprehensive Inventory of Services and Facilities (ISF) provided by public and private entities, directly or by contract, in each area proposed for annexation, after adopting or amending the Annexation Plan. The ISF must include all services and facilities the City is required to provide or maintain following the annexation. This ISF must be completed, and made available for public inspection, on or before the 60 th day after the date the City receives the required information from service providers in the area. Id. at Tx.LGC (g). To accomplish this task, the City is required to request, in the notice required under Tx.LGC (1), the information necessary to complete the inventory from all public and private providers. Additionally, the public and private providers are required to provide the information requested by the City within 90 days of receipt of the request; however, the service provider and the City may agree to extend the period for providing the information. Should a provider fail to provide the necessary information within the 90 day period, the City is not required to include the information in the inventory. Id. at Tx.LGC (c). The City may monitor the services provided and verify the information provided. Id. at Tx.LGC (h). Page - 3

7 Information required to be Included in the Inventory of Services: The information required in the ISF shall be based on the services and facilities provided during the year preceding the date the City adopts the Annexation Plan or amended the Annexation Plan to include additional areas. Per Tx.LGC (e), the information required to be provided by service providers, and included in the ISF must include the type of service provided, the method of service delivery, and the following information: (e) (f) For utility facilities, roads, drainage structures and other infrastructure provided or maintained by public or private entities, the inventory must include: (1) an engineer's report that describes the physical condition of all infrastructure elements in the area; and (2) a summary of capital, operational and maintenance expenditures for that infrastructure. For police, fire and emergency medical services provided by public or private entities, the inventory must include: (1) the average dispatch and delivery time; (2) a schedule of equipment including vehicles; (3) a staffing schedule that discloses the certification and training levels of personnel; and (4) a summary of operating and capital expenditures. Tx.LGC (c),(e) and (f). Prepare a Service Plan: Tx.LGC sets forth the requirements relative to scheduling for the provision of municipal services. The City must complete a Service Plan for the areas included in the Annexation Plan before the first (1 st ) day of the 10 th month after the month in which the ISF is completed. Id. at (a). Tx.LGC (c) defines "full municipal services" as "services provided by the annexing municipality within its full-purpose boundaries, including water and wastewater services and excluding gas or electrical service." Immediate Services: The City is required to provide the following services on the effective date of the annexation: (1) police protection; (2) fire protection; (3) emergency medical services; (4) solid waste collection, except as provided by subsection (o). Subsection (o) provides that a municipality is not required to provide collection service to a person who continues to use the collection services of a privately owned collection service; Page - 4

8 (5) operation and maintenance of water and wastewater facilities in the annexed area that are not within the service area of another water or wastewater utility; (6) operation and maintenance of roads and streets, including road and street lighting; (7) operation and maintenance of parks; and (8) operation and maintenance of any other publicly owned facility, building or service. Level of Services: The Service Plan may not provide for services in the annexed area that would reduce the level of fire, police and emergency medical services within the city. Id. at Tx.LGC (t)(3). Second, the service plan must provide the area with a level of services comparable to or superior to the level of services available in other parts of the City with land-uses and population densities similar to those reasonably contemplated or projected in the area; however, if the area had a level of services equal to the services provided within the corporate boundaries of the City the Service Plan must maintain that same level of services. Finally, if the annexed area had a level of services for maintaining the infrastructure of the area superior to the level of services provided within the City, the Service Plan must maintain the infrastructure of the annexed area at a level of services that is equal or superior to the level of services previously enjoyed in the annexed area. Id. at Tx.LGC (g). Timing of Extending Utilities: Tx.LGC does not require that the City provide a "uniform level of full municipal services" to each area of the municipality if different characteristics of topography, land use and population density constitute a sufficient basis for providing different levels of service. Id. at (m). The analogous subsection in the prior law was the basis of a Texas Attorney General's Opinion, which stated that differences in the levels of services provided in annexed areas and existing areas of the city must be based on differences in topography, land use, and population density. Please see Exhibit 5. It is apparent that a city is not required to extend its services to a newly annexed territory prior to the extension of services to like areas within the City; however, to the extent that services in the annexed area are equal to or superior to those provided in the City boundaries (Id. at (g)) applies and the City must maintain that level of services. Length of Validity of Service Plan: A Service Plan is effective for ten (10) years. A person residing or owning land in an annexed area in a municipality with a population of less than 1.6 million such as the City of Denton, may enforce the Service Plan by applying for a writ of mandamus no later than the second (2 nd ) anniversary of the date the person knew or should have known the municipality was not complying with the Service Plan. Upon application for a writ of mandamus, the City has the burden of proving the services have been provided in accordance with the Service Plan. Id. at Tx.LGC (1). Page - 5

9 Negotiations for Services: After conducting the public hearings required by Section , the City and the property owners of the area proposed for annexation shall negotiate for the provision of services to the area after annexation or for the provision of services to the area in lieu of annexation. For purposes of these negotiations, the Commissioner s Court of Denton County shall select five (5) representatives to negotiate with the City. Id. at Tx.LGC (a)(1) & (b). Arbitration: Per Tx.LGC , if the City and the representatives of the area proposed for annexation cannot reach an agreement for the provision of services, either party by majority decision of the party's representatives may request the appointment of an arbitrator to resolve the service plan issues in dispute. The request must be made in writing to the other party before the 60 th day after the date the service plan is completed. The municipality may not annex the area during the pendency of the arbitration proceeding or an appeal from the arbitrator's decision. If the parties cannot agree on the appointment of an arbitrator before the 11 th business day after the date arbitration is requested, the Mayor of the City of Denton shall immediately request a list of seven (7) neutral arbitrators from the American Arbitration Association or the Federal Mediation and Conciliation Service. If the parties cannot agree on the appointment of an arbitrator from this list before the 11 th business day after the date the list is provided to the parties, each party or the party's designee may alternately strike a name from the list. The remaining person on the list shall be appointed as the arbitrator. The arbitrator shall set a hearing to be held not later than the 10 th day after the date he or she is appointed, and shall notify the parties to the arbitration in writing of the time and place of the hearing not later than the 8 th day before the date of the hearing. The authority of the arbitrator is limited to issuing a decision relating only to the service plan issues in dispute. The arbitrator may: (1) receive in evidence any documentary evidence or other information the arbitrator considers relevant; (2) administer oaths; and (3) issue subpoenas to require: 1. the attendance and testimony of witnesses; and 2. the production of books, records, and other evidence relevant to an issue presented to the arbitrator for determination. Unless the parties to the dispute agree otherwise, the arbitrator shall complete the hearing within two (2) consecutive days. The arbitrator shall permit each party one (1) day to present evidence and other information. The arbitrator, for good cause shown, may schedule an additional hearing to be held not later than the seventh day after the date of the first hearing. Unless otherwise agreed to by the parties, the arbitrator must issue a decision in writing and deliver a copy of the decision to the parties not later than the 14 th day after the date of the final hearing. If the City does not agree with the terms of the arbitrator's decision, the City may not annex the area proposed for annexation before the fifth (5 th ) anniversary of the date of the arbitrator's decision. Page - 6

10 Except as provided by the Tx.LGC, the City shall pay the cost of arbitration. If the arbitrator finds that the request for arbitration submitted by the representatives of the area proposed for annexation was groundless or requested in bad faith or for the purposes of harassment, the arbitrator may require the area proposed for annexation to pay all or part of the cost of arbitration. Annexation of Area Qualified for Agricultural Use: Per Tx.LGC , a municipality is prohibited from annexing land that is appraised for ad valorem tax purposes as land for agricultural use under Chapter 23 of the Texas Tax Code unless the municipality offers to make a fifteen (15) year development agreement with the landowner under Tx.LGC of the Texas Local Government Code and the landowner refuses. The proffered development agreement may not exceed forty-five (45) years, and must guarantee the continuation of the ETJ status of the qualifying area and authorize the enforcement of all regulations and planning authority of the municipality that do not interfere with the use of the area for agriculture. Id. at (b). The development agreement restricting the municipality's right to annex all or part of the property is void if the landowner files any type of subdivision plat or related development document for the area regardless of how the area is appraised for ad valorem tax purposes, and that such a development agreement is not a permit under the Vested Rights Act. Id. at (d) and (3). Prepared by: Mark A. Cunningham, AICP Director, Planning and Development Division Respectfully submitted: Fred Greene Assistant City Manager Page - 7

11 ATTACHMENTS: 1. Exhibit 1 Comprehensive Map of Annexation Areas; 2. Exhibit 2 Map of Annexation Area DH-7; 3. Exhibit 3 Map of Annexation Area DH-9; 4. Exhibit 4 Map of Annexation Area DH-12; 5. Exhibit 5 Texas Attorney General s Opinion; 6. Exhibit 6 Matrix of 3-Year Annexation Process Summary; 7. Exhibit 7 3-Year Annexation Schedule; and 8. Exhibit 8 - Service Plan 9. Appendix 1 Tx.LGC Development Agreement for Agricultural Uses; 10. Appendix 2 Tx.LGC Development Agreement; 11. Appendix 3 Tx.LGC Annexation Plan; 12. Appendix 4 Tx.LGC Inventory of Services and Facilities; 13. Appendix 5 Tx.LGC Provision of Services (Service Plan); 14. Appendix 6 Tx.LGC Negotiations; and, 15. Appendix 7 Tx.LGC Arbitration Regarding Negotiation for Services; Page - 8

12 EXHIBIT 1 Comprehensive Annexation Area Map 1,595 Total Acres Page - 9

13 EXHIBIT 2 Proposed Annexation Area DH-7 DH-7 encompasses approximately 143 acres and is bounded on the north, west and south by current city limits. It is located on the east and north sides of Teasley Lane, south of Teasley Harbor Subdivision and west of Southlake Drive. This area is outlined in yellow on the aerial map below. Page - 10

14 EXHIBIT 3 Proposed Annexation Area DH-9 DH-9 encompasses approximately 298 acres of land and is bounded by current city limits on all sides; north, south, east and west. DH-9 is located north of Pockrus Page Road, north, south and northeast of Edwards Road. This area is outlined in yellow on the aerial map below. Page - 11

15 EXHIBIT 4 Proposed Annexation Area DH-12 DH-12 encompasses approximately 1,154 acres of land and is bounded by current city limits on all sides; north, south, east and west. DH-12 is located south of E. University Drive, east of N. Mayhill Road, north and south of Blagg Road, north and south of Mills Road, and east and west of S. Trinity Road. This area is outlined in yellow on the aerial map below. Page - 12

16 Exhibit 5 Texas Attorney General s Opinion Provision of sewer service by a municipality to newly annexed territory (RQ-1380) Office of the Attorney General State of Texas August 23, 1988 Honorable Mark W. Stiles Chairman County Affairs Committee Texas House of Representatives P. O. Box 2910 Austin, Texas Opinion No. JM-944 Re: Provision of sewer service by a municipality to newly annexed territory (RQ-1380) Dear Representative Stiles: You ask three questions with regard to the proposed annexation of the Commanche Hills Utility District [CHUD] by the City of Harker Heights. The first we address is: Can a city annex in one year an amount of area under thirty percent (30%) of its incorporated area as of January 1 of that year and then in the same year also annex a municipal utility district which encompasses an area equal to sixty percent of the city's incorporated area as of January 1 of that year? We assume that by 'municipal utility district' you mean to refer to the Commanche Hills Utility District [CHUD]. We do not find, however, that the CHUD is a municipal utility district. The law creating the district referred to it as a 'conservation and reclamation district.' Acts 1967, 60th Leg., ch. 624, s 1. Section 5 of that act provides that CHUD shall have the rights, powers, etc., applicable to a 'water control and improvement district' to the extent such rights, powers, etc., are not inconsistent with the provisions of the act. Page - 13

17 CHUD under its creating act, appears to be a 'water or sewer district' within the meaning of section of the Local Government Code. Section , provides in part: (a) In this section, 'water or sewer or district' means a district or authority created under Article III, Section 52, Subsections (b)(1) and (2), or under Article XVI, Section 59, of the Texas Constitution that provides or proposes to provide, as its principal function, water services or sewer services or both to household users. The term does not include a district or authority the primary function of which is the whole-sale distribution of water. (b) A municipality may not annex area in a water or sewer district unless it annexes the entire part of the district that is outside the municipality's boundaries. This restriction does not apply to the annexation of area in a water or sewer district if the district is wholly or partly in the extraterritorial jurisdiction of more than one municipality. (c) An annexation subject to Subsection (b) is exempt from the provisions of this chapter that limit annexation authority to a municipality's extraterritorial jurisdiction if: (1) immediately before the annexation, at least one-half of the area of the water or sewer district is in the municipality or its extraterritorial jurisdiction; and (2) the municipality does not annex in the annexation proceeding any area outside its extraterritorial jurisdiction except the part of the district that is outside its extraterritorial jurisdiction. (d) Area annexed under Subsection (b) is included in computing the amount of area that a municipality may annex under Section in a calendar year. If the area to be annexed exceeds the amount of area the municipality would otherwise be able to annex, the municipality may annex the area but may not annex additional area during the remainder of that calendar year, except area subject to Subsection (b) and area that is excluded from the computation under Section (Emphasis added.) Section (d) refers to the limitations on amount of territory which may be annexed in a year under section Section reads: (a) In a calendar year, a municipality may not annex a total area greater than 10 percent of the incorporated area of the municipality as of January 1 of that year, plus any amount of area carried over to that year under Subsection (b). In determining the total area annexed in a calendar year, an annexed area is not included if it is: (1) annexed at the request of a majority of the qualified voters of the area and the owners of at least 50 percent of the land in the area; (2) owned by the municipality, a county, the state, or the federal government and used for a public purpose; (3) annexed at the request of at least a majority of the qualified voters of the area; or Page - 14

18 (4) annexed at the request of the owners of the area. (b) If a municipality fails to annex in a calendar year the entire 10 percent amount permitted under Subsection (a), the municipality may carry over the unused allocation for use in subsequent calendar years. (c) A municipality carrying over an allocation may not annex in a calendar year a total area greater than 30 percent of the incorporated area of the municipality as of January 1 of that year. [FN1] (Emphasis added.) Because your question is based on the city's having annexed 'under thirty percent of its incorporated area,' we assume that the City of Harker Heights has carried over allocations from previous years pursuant to subsections (b) and (c) of section In the circumstances you describe, the city has authority, under section (d), to annex the territory involved. Your other two question are: (1) If a city provides sewer service and has previously extended sewer lines within its existing city limits and such city annexes an area that has no sewer service, is the city required to extend lines to those newly annexed areas with land uses and population densities similar to the ones in the previous city limits? (2) If a city provides sewer service but has not previously extended sewer lines within its existing city limits and such city annexes an area that has no sewer service, is the city required to extend lines to those newly annexed areas with land uses and population densities similar to the ones in the previous city limits? (Emphasis added.) We note first that we find no requirement in the pertinent statutory provisions that a higher level of services be provided in any area to be annexed than are provided in an area of the city having similar characteristics of topography, land utilization, and population density. Section of the Local Government Code speaks only of maintenance of existing services, in subsection (b)(4), and uniform levels of services in subsection (d). Therefore, in answer to question number 2, we conclude that no extension of sewer services to annexed areas is required, either in fact or under a 'service plan,' where such services are not provided in equivalent areas within the existing city limits. Moreover, turning to question number 1, we further conclude that a city may in no case literally be required to provide any given services to annexed areas. Section of the Local Government Code requires an annexing city to develop a 'service plan' for provision of services to the annexed area: (a) Before the publication of the notice of the first hearing required under Section , the governing body of the municipality proposing the annexation shall direct its planning department or other appropriate municipal department to prepare a service plan that provides for the extension of municipal services to the area to be annexed. The municipality shall provide the services by any of the methods by which it extends Page - 15

19 the services to any other area of the municipality. (b) The service plan must include a program under which the municipality will provide the following services in the area within 60 days after the effective date of the annexation of the area: (1) police protection; (2) fire protection; (3) solid waste collection; (4) maintenance of water and wastewater facilities; (5) maintenance of roads and streets, including road and street lighting; (6) maintenance of parks, playgrounds, and swimming pools; and (7) maintenance of any other publicly owned facility, building, or service. (c) The service plan must also include a program under which the municipality will initiate the acquisition or construction of capital improvements necessary for providing municipal services for the area. The construction shall begin within 2 1/2 years after the effective date of the annexation of the area. The acquisition or construction of the facilities shall be accomplished by purchase, lease, or other contract or by the municipality succeeding to the powers, duties, assets, and obligations of a conservation and reclamation district as authorized or required by law. Money received from the sale of bonds or evidenced by other instruments of indebtedness may not be allocated to the area for a period of 180 days. (d) A service plan may not provide fewer services or a lower level of services in the area than were in existence in the area immediately preceding the date of the annexation. This section does the require that a uniform level of services be provided to each area of the municipality if different characteristics of topography, land use, and population density are considered a sufficient basis for providing different levels of service. (e) If only a part of the area to be annexed is actually annexed, the governing body shall direct the department to prepare a revised service plan for that part. (f) The proposed service plan must be made available for public inspection and explained to the inhabitants of the area at the public hearings held under Section The plan may be amended through negotiation at the hearings, but the provision of any service may not be deleted. On completion of the public hearings, the service plan shall be attached to the ordinance annexing the area and approved as part of the ordinance. (g) On approval by the governing body, the service plan is a contractual obligation that is not subject to amendment or repeal except that if the governing body determines at Page - 16

20 the public hearings required by this subsection that changed conditions or subsequent occurrences make the service plan unworkable or obsolete, the governing body may amend the service plan to conform to the changed conditions or subsequent occurrences. An amended service plan must provide for services that are comparable to or better than those established in the service plan before amendment. Before any amendment is adopted, the governing body must provide an opportunity for interested persons to be heard at public hearings called and held in the manner provided by Section (h) A service plan is valid for 10 years. Renewal of the service plan is at the discretion of the municipality. (i) A municipality that annexes an area shall provide the area or cause the area to be provided with services in accordance with the service plan for the area. [FN2] (Emphasis added.) In Larkins v. City of Denison, 683 S.W.2d 754 (Tex. App.--Dallas 1984, no writ), landowners of an area which was the subject of a city annexation ordinance sought injunctive relief from the ordinance on the grounds that the city 'did not have the resources necessary to implement the services which art. 970a (Vernon's 1963 and Vernon Supp. 1984) requires it to provide for newly annexed areas.' Id. at 755. See Local Gov't Code s (present codification of article 970a). The court overruled the appellant landowners' contention in this regard and affirmed the trial court's denial of injunctive relief, holding that section 10(F) of article 970a (currently codified as section of the Local Government Code), provided disannexation as the exclusive remedy for the city's failure to meet the service plan if and when such failure occurs. The court also ruled with respect to the appellants' contentions that the annexation was fraudulent and/or improperly motivated as follows: It is well-settled that the determination of municipal boundaries is a question for political rather than judicial resolution. [Citation omitted.] Under article 970a, the legislature delegated its powers in this regard to the cities, subject to certain limitations. Because those limitations apply to the location of the annexed area rather than to the purposes for which annexation is sought, appellants may not judicially challenge the validity of the annexation ordinance on the basis that it was improperly motivated. Id. at 756. Thus, despite the language of, for example, subsections (a) and (i) of section , to the effect that the municipality 'shall' provide services, it would appear in light of Larkins that the exclusive remedy for the city's not providing such services in accordance with the service plan is disannexation under current section of the Local Government Code. We construe your question then as asking whether a city proposing to annex an area is required to provide in the service plan required by section for the sewer service extensions about which you inquire. [FN3] Differences in levels of service provided annexed areas and existing areas of the city must be based on differences, or reasonably contemplated differences in topography, land use, and population density. Section , subsection (d). It is the prerogative of Page - 17

21 the city, in the first instance, to make determinations in the service plan about levels of service in annexed areas. [FN4] If the service plan adopted were itself legally defective to the extent of being void or voidable--for example, if it were not adopted in compliance with the hearings requirements of section , or if it did not reflect any consideration by the city of differences in topography, land use, and population density factors--we believe an aggrieved party might obtain relief by way of an injunction action, or by way of a quo warranto proceeding brought by the state. SUMMARY If all other legal requirements are met, the City of Harker Heights may annex the Commanche Hills Utility District, even though the city has annexed, in the same year, other territory equaling up to thirty percent of the city's territory. A city may not literally be required to provide services to an annexed area. If the city does not provide services in accordance with the service plan developed pursuant to Local Government Code section , disannexation under section is the exclusive remedy available to aggrieved persons. The determination of the city governing body whether the topography, land use, and population density factors are a sufficient basis for providing a given level of services under section , subsection (d), is in the first instance the prerogative of the annexing city. However, a service plan which is itself legally defective might be subject to relief other than disannexation. Very truly yours, Jim Mattox Attorney General of Texas Mary Keller First Assistant Attorney General Lou McCreary Executive Assistant Attorney General Judge Zollie Steakley Special Assistant Attorney General Rick Gilpin Chairman Opinion Committee Prepared by Page - 18

22 William Walker Assistant Attorney General Footnotes FN1. Acts 1987, 70th Leg., ch added language to these provisions, which takes effect as part of the Local Government Code pursuant to V.T.C.A. Government Code and section None of the provisions of the amendatory act, however, alter the conclusions we reach here with respect to the issues presented. FN2. See footnote 4. FN3. The City of Austin in its brief in this matter suggested that sewer extensions may not be among the services contemplated by section The only specific reference to sewer services in section is found in subsection (b)(4) of that section, which requires provision in the service plan for 'maintenance of water and wastewater facilities' within 60 days of the date of annexation (emphasis added). Subsection (a) of section , however, provides in part: [T]he governing body of the municipality proposing the annexation shall direct its planning department or other appropriate municipal department to prepare a service plan that provides for the extension of municipal services to the area to be annexed. The municipality shall provide the services by any of the methods by which it extends the services to any other area of the municipality. (Emphasis added.) Subsection (c) of that section provides in part: The service plan must also include a program under which the municipality will initiate the acquisition or construction of capital improvements necessary for providing municipal services for the area. The construction shall begin within 2 1/2 years after the effective date of the annexation of the area. We believe that the restriction of wastewater services to 'maintenance' of existing services applies only to the requirement of subsection (b) that maintenance of such services be provided within 60 days of annexation, but that subsections (a) and (c) clearly contemplate extension, i.e., improvement of such services. Therefore, sewer extensions are, we believe, 'municipal services' within the meaning of section FN4. Acts 1987, 70th Leg., ch amended section 10 of article 970a, now codified in the Local Government Code, by, inter alia, adding the following underlined language to the provision now codified as the first sentence of section , subsection (d) of the Local Government Code. In no event shall a service plan provide fewer services or a lower level of services in the area to be annexed than were in existence in that area at the time immediately preceding the annexation or which are otherwise available in other areas of the city with land uses and population densities similar to those reasonably contemplated or Page - 19

23 projected in the newly annexed area. Pursuant to Government Code section (c) the amendment takes effect as part of the Local Government Code. However, a reading of this amendment does not alter our conclusion that the determination of whether topography, land use, and population density factors warrants provision of a given level of services is a political matter subject to the consideration given the relevant factors by the city. Note that this amendatory act also amended other provisions now codified under section , but again we do not find that such amendments affect the conclusions we reach here. Texas OAG home page Opinions & Open Government Page - 20

24 EXHIBIT 6 Three-Year Annexation Process Summary The following is a summary of the 3-year annexation process in the state of Texas. The summary identifies activities, deadlines, and provides notes relevant to each required activity. For your convenience, also included are relative Texas Local Government Code (Tx.LGC) references and Texas Attorney General s opinions. Activity Due By Notes Tx.LGC 1. Prepare 3-year Annexation Plan. Prior to conducting the Inventory of Services and Facilities. The Plan covers DH 7, 9 and 12; and must be posted on the city s internet until the areas are annexed (j) Provide written Notice of Intent to Annex. Prior to the 90 th day after the city adopts the annexation plan. Send notices to property owners, DISD, railroad companies, and public and private service providers (f) Notice to service providers must include information necessary to compile Inventory of Services and Facilities (c) The City must also provide the written notice to DISD within the period prescribed for publishing of the 1 st public hearing. The notice must include any financial impact on the district that may result from the annexation and the city's proposal to limit the effects of that financial impact Conduct Inventory of Services and Facilities. After adopting the Annexation Plan. The information provided must include the type of services provided, the method of service delivery, and all information prescribed by Subsections (e) and (f) Must be completed within 5 months after adopting the Annexation Plan. (Service Page - 21

25 providers are given 90 days to provide information to the city, and the city has 60 days to complete the inventory and make it available to the public) (c) and (g) 4. Prepare Service Plan for the extension of full municipal services. Must be completed within 9 months after completing the Inventory of Services and Facilities. It is very important to read this entire section to determine (1) the timing of service delivery, (2) the level of service delivery, and (3) the required services to be delivered. The Service Plan may not provide for services in the annexed area that would reduce the level of fire, police and emergency medical services within the city. Second, the service plan must provide the area with a level of services comparable to or superior to the level of services available in other parts of the city with land uses and population densities similar to those reasonably contemplated or projected in the area; however, if the area had a level of services equal to the services provided within the city, the Service Plan must maintain that same level of services. Finally, if the annexed area had a level of services for maintaining the infrastructure of the area superior to the level of services provided within the city, the Service Plan must maintain the infrastructure of the annexed area at a level of services that is equal or superior to the level of services previously enjoyed Also see Texas Attorney General s opinions GA Page - 22

26 in the annexed area. 5. City Council conducts two (2) public hearings. Not later than the 90 th day after the date the inventory is available to the public (a) Note: At least one (1) of the hearings must be held in the area proposed for annexation if a suitable site is reasonably available and more than twenty (20) adults who are permanent residents of the area file a written protest of the annexation with the City Secretary within ten (10) days after the date of the publication of the annexation notice. If a suitable site is not reasonably available in the area proposed for annexation, the hearing may be held outside the area proposed for annexation if the hearing is held in the nearest suitable public facility. 6. Post notices of the public hearings. Must be published at least once on or after the 20 th day but before the 10 th day before the date of the hearing. Notice of the hearings must be published in the Denton Record-Chronicle and posted on the City's internet website (c) Must give additional notice by certified mail to each public entity, utility service provider that provides services in the area proposed for annexation; and each railroad company that serves the city and is on the city's tax roll if the company's right-of-way is in the area proposed for annexation. Page - 23

27 7. Conduct negotiation for services for the provision of services. After the 2 nd public hearing, but before adoption of the Annexation Ordinance. Denton County commissioner s court shall select 5 representatives to negotiate with the city for the provision of services Arbitration, if required The request must be made in writing to the other party before the 60 th day after the date the service plan is completed If the city and the representatives of the area proposed for annexation cannot reach an agreement for the provision of services, either party by majority decision of the party's representatives may request the appointment of an arbitrator to resolve the service plan issues in dispute. If the city does not agree with the terms of the arbitrator's decision, the city may not annex the area before the 5 th anniversary of the date of the arbitrator's decision The City Council passes the Annexation Ordinance. Must be completed before the 31 st day after the 3 rd anniversary of the date the area was included in the annexation plan (adoption of the annexation plan). If the annexation is not completed by the deadline, the city may not annex the area before the fifth 5 th anniversary of the last day for completing the annexation. This means 8 years from the adoption of the Annexation Plan (g) 10. Proper post-annexation preclearance and notice is completed Page - 24

28 EXHIBIT 7 Three-Year Plan Annexation Schedule DH-7, DH-9, DH12 Action Action Timeline Action Date Status 1 Adopt Annexation Plan and post plan on website (Tx.LGC ) 2 Notice of Intent to all property owners, public/private entities, railroad companies and post on website (Tx.LGC f) 3 Request Inventory of Services and Facilities provided by public/private entities (Tx.LGC c) 4 Receive information provided by public and private service providers (Tx.LGC c) 5 Complete Inventory of Services and Facilities and make available for public inspection (Tx.LGC g and Tx.LGC j) 6 Notice of 1 st Public Hearing (Tx.LGC c) 7 Notice of 2 nd Public Hearing (Tx.LGC c) Prior to the 90 th day after the CC adopts the plan Shall be requested at the time of the Notice of Intent 4/6/2010 Completed 6/30/2010 Completed 6/30/2010 Completed 90 days after request is made 9/27/2010 Completed On or before the 60 th day after the information is received On or after the 20 th day, but before the 10 th day before the date of the hearing On or after the 20 th day, but before the date of the hearing 11/24/2010 Completed 1/26/2011 1/26/ Proposed Service Plan must be made available for public inspection and explained at the public hearings (Tx.LGC j) Prior to public hearings 1/25/ st Public Hearing (Tx.LGC a & Tx.LGC c) 10 2 nd Public Hearing (Tx.LGC a & Tx.LGC c) Not later than the 90 th day after the Inventory is made available to the public Not later than the 90 th day after the Inventory is made available to the public. 2/1/2011 2/15/2011 Must also consider that public hearings must take place on or Page - 25

29 11 Negotiations for Provision of Services after annexation or in lieu of annexation (Tx.LGC ) before the 20 th day, but after the 10 th day after the date of the notice of public hearing in accordance with C. Therefore, both hearings must take place by 2/15/20, which is 20 days after 1/26/2011 public hearing notice date. After the 2 nd public hearing, but before adoption of the Annexation Ordinance 3/8/ Final Service Plan (Tx.LGC a) 13 Request arbitration regarding negotiations (if required) (Tx.LGC ) Before the 1 st day of the 10 th month after the month in which the inventory is prepared. Before the 60 th day after the date the service plan is completed. 8/26/ /10/ st Reading of the Ordinance 1/10/ Non-Annexation Agreements offered to property owners with Ag. exemptions (Tx.LGC ) 16 Ordinance Publication The ordinance or any amendment thereof shall not be acted upon until at least 30 days after newspaper publication date. (Charter) October, /6/ nd Reading of the Annexation Ordinance Approve on 2 nd Reading before 3 years + 31 days TBD 5/7/2013 Page - 26

30 EXHIBIT 8 Service Plan I. AREA ANNEXED The areas to be annexed include approximately 1,595 acres of land contained in three (3) distinct areas as shown on the attached maps. The 3 areas are unincorporated pockets located within City of Denton s Extraterritorial Jurisdiction (ETJ), Division 1, and are identified as DH-7, DH-9 and DH-12. The proposed annexation contains multiple owners. A general description of each area is also attached. II. INTRODUCTION This service plan has been prepared in accordance with the Texas Local Government Code, Sections ; ; and (b)-(o) (Vernon 2008, as amended). Municipal facilities and services to the annexed areas described above will be provided or made available on behalf of the City of Denton in accordance with the following plan. The City of Denton shall provide the annexed tract the levels of service, infrastructure, and infrastructure maintenance that are comparable to the levels of service, infrastructure, and infrastructure maintenance available in other parts of the City of Denton with similar topography, land use, and population density. III. AD VALOREM (PROPERTY OWNER) TAX SERVICES A. Police Protection Police protection from the City of Denton Police Department shall be provided to the areas annexed at a level consistent with current methods and procedures presently provided to similar areas on the effective date of the ordinance. Some of these services include: Normal patrols and responses; Handling of complaints and incident reports; Special units, such as traffic enforcement, investigations and special weapons; and Coordination with other public safety support agencies. As development commences in these areas, sufficient police protection, including personnel and equipment will be provided to furnish these areas with the level of police services consistent with the characteristics of topography, land utilization and population density of the areas. Upon ultimate development, police protection will be provided at a level consistent with other similarly situated areas within the city limits. B. Fire Protection The Denton Fire Department (DFD) will provide emergency and fire prevention services to the annexation areas. These services include: 1. Fire suppression and rescue; Page - 27

31 2. Pre-hospital medical services including triage, treatment and transport by Advanced Life Support (ALS) fire engines, trucks and ambulances; 3. Hazardous materials response and mitigation; 4. Emergency prevention and public education efforts; 5. Technical rescue response; and 6. Construction Plan Review and required inspections. Fire protection from the City of Denton shall be provided to the areas annexed at a level consistent with current methods and procedures presently provided to similar areas of the City of Denton on the effective date of the ordinance. As development commences in these areas, sufficient fire protection, including personnel and equipment will be provided to furnish these areas with the level of services consistent with the characteristics of topography, land utilization and population density of the areas. It is anticipated that fire stations planned to serve areas currently within the City of Denton will be sufficient to serve areas now being considered for annexation. Upon ultimate development, fire protection will be provided at a level consistent with other similarly situated areas within the city limits. C. Emergency Medical Service The Denton Fire Department (DFD) will provide the following emergency and safety services to the annexation areas. These services include: 1. Emergency medical dispatch and pre-arrival First Aid instructions; 2. Pre-hospital emergency Advanced Life Support (ALS) response; and transport; 3. Medical rescue services. Emergency Medical Services (EMS) from the City of Denton shall be provided to the areas annexed at a level consistent with current methods and procedures presently provided to similar areas of the City of Denton on the effective date of the ordinance. As development commences in these areas, sufficient EMS, including personnel and equipment will be provided to furnish these areas with the level of services consistent with the characteristics of topography, land utilization and population density of the areas. Upon ultimate development, EMS will be provided at a level consistent with other similarly situated areas within the city limits. D. Solid Waste Solid Waste and Recycling Collection Services will be provided to the newly annexed property immediately upon the effective date of the annexation at a level Page - 28

32 consistent with current methods and procedures presently provided to similar areas within the city. Private solid waste collection service providers operating in the affected area immediately prior to annexation and currently providing customers with service may continue to provide their existing service for up to 2 years in accordance with Texas Local Government Code. E. Wastewater Facilities The proposed annexation areas are within the City of Denton Sewer Service Area as defined by Certificate of Convenience and Necessity (CCN) Number as issued by the Texas Commission on Environmental Quality (TCEQ). As development commences in these areas, sanitary sewer mains will be extended in accordance with the provisions of the City s codes, ordinances and regulations. City participation in the costs of these extensions shall be in accordance with applicable City ordinances and regulations. Capacity shall be provided consistent with the characteristics of topography, land utilization, and population density of the areas. Sanitary sewer mains and lift stations installed or improved to City standards within the annexed areas which are located within dedicated easement, rights-ofway, or any other acceptable location approved by the City Engineer, shall be maintained by the City on the effective date of this ordinance. Operation and maintenance of wastewater facilities in the annexed areas that are within the service area of another water utility will be the responsibility of that utility. Operation and maintenance of private wastewater facilities in the annexed area will be the responsibility of the owner. F. Water Facilities The proposed annexation areas are within the City of Denton Water Service Area as defined by Certificate of Convenience and Necessity (CCN) Number as issued by the Texas Commission on Environmental Quality (TCEQ). Connections to existing City of Denton water distribution mains for water service will be provided in accordance with existing City ordinances and policies. Upon connection to existing distribution mains, water service will be provided at rates established by city ordinance. As new development occurs within these areas, water distribution mains will be extended in accordance with Denton s Codes, ordinances and utility service policies. City participation in the costs of these extensions shall be in accordance with Denton s codes and ordinances. Water service capacity shall be provided consistent with the characteristics of topography, land use and population density of the area. Page - 29

33 Operation and maintenance of water facilities in the annexed area that are within the service area of another water utility will be the responsibility of that utility. Existing developments, businesses or homes that are on individual water wells or private water systems will be allowed to continue to remain on these systems until a request for water service is made to the City. These requests for service will be handled in accordance with the applicable utility service line extension and connection policies currently in place at the time the request for service is received. G. Roads and Streets Emergency street maintenance shall be provided within the annexation areas on the effective date of the applicable ordinance of acceptance. Routine maintenance will be provided within the annexation areas and will be scheduled as part of the City s annual program and in accordance with the current policies and procedures defined by the ordinance and/or as established by the City Council. Any construction or reconstruction will be considered within the annexation areas on a City wide basis and within the context of the City s CIP and/or yearly fiscal budgetary allotments by the City Council. Roadway signage and associated posts will be replaced in priority of importance starting with regulatory signs, then warning signs, then informational signs and in conformance with fiscal allotments by the City Council. If a sign remains, it will be reviewed and placed on the City s inventory listing for routine replacement. All exiting signs will be reviewed for applicability and based upon an engineering study. New signs will be installed when necessary and based upon an engineering study. Routine maintenance of road/street markings will be placed on a priority listing and scheduled within the yearly budgetary allotments by the City Council. H. Parks, Playgrounds, Swimming Pools Residents within the areas annexed may utilize all existing park and recreation facilities, on the effective date of this ordinance. Fees for such usage shall be in accordance with current fees established by ordinance. As development commences in these areas, additional park and recreation facilities shall be constructed based on park policies defined in the Park Master Plan and as specified in the Park Dedication and Development Ordinance. The general planned locations and classifications of parks will ultimately serve residents from the current City limits and residents from areas being considered for annexation. I. Publicly Owned Facilities Any publicly owned facility, building, or service located within the annexed area, and not otherwise owned or maintained by another governmental entity, shall be Page - 30

34 maintained by the City of Denton on the effective date of the annexation ordinance. J. Other Services Other services that may be provided by the City of Denton, such as municipal and general administration will be made available on the effective date of the annexation. The City of Denton shall provide level of services, infrastructure, and infrastructure maintenance that is comparable to the level of services, infrastructure, and infrastructure maintenance available in other parts of the City of Denton with topography, land use, and population density similar to those reasonably contemplated or projected in the area. III. UNIFORM LEVEL OF SERVICES IS NOT REQUIRED Nothing in this plan shall require the City of Denton to provide a uniform level of full municipal services to each area of the City, including the annexed area, if different characteristics of topography, land use, and population density are considered a sufficient basis for providing different levels of service. IV. TERM This service plan shall be valid for a term of ten (10) years. Renewal of the service plan shall be at the discretion of City Council. V. AMENDMENTS The service plan may be amended if the City Council determines at a public hearing that changed conditions or subsequent occurrences make this service plan unworkable or obsolete. The City Council may amend the service plan to conform to the changed conditions or subsequent occurrences pursuant to Texas Local Government Code, Section Page - 31

35 EXHIBIT 1 Proposed Annexation Area DH-7 DH-7 encompasses approximately 143 acres and is bounded on the north, west and south by current city limits. It is located on the east and north sides of Teasley Lane, south of Teasley Harbor Subdivision and west of Southlake Drive. This area is outlined in yellow on the aerial map below. Page - 32

36 EXHIBIT 2 Proposed Annexation Area DH-9 DH-9 encompasses approximately 298 acres of land and is bounded by current city limits on all sides; north, south, east and west. DH-9 is located north of Pockrus Page Road, north, south and northeast of Edwards Road. This area is outlined in yellow on the aerial map below. Page - 33

37 EXHIBIT 3 Proposed Annexation Area DH-12 DH-12 encompasses approximately 1,154 acres of land and is bounded by current city limits on all sides; north, south, east and west. DH-12 is located south of E. University Drive, east of N. Mayhill Road, north and south of Blagg Road, north and south of Mills Road, and east and west of S. Trinity Road. This area is outlined in yellow on the aerial map below. Page - 34

38 APPENDIX 1 Tx.LGC Section Areas with Agricultural, Wildlife management and Timber Land Uses Authority of Municipality to Annex Area Qualified for Agricultural or Wildlife Management Use or as Timber Land (a) (b) (c) (d) (e) This section applies only to an area: (1) eligible to be the subject of a development agreement under Subchapter G, Chapter 212; and (2) appraised for ad valorem tax purposes as land for agricultural or wildlife management use under Subchapter C or D, Chapter 23, Tax Code, or as timber land under Subchapter E of that chapter. A municipality may not annex an area to which this section applies unless: (1) the municipality offers to make a development agreement with the landowner under Section that would: A. guarantee the continuation of the extraterritorial status of the area; and B. authorize the enforcement of all regulations and planning authority of the municipality that do not interfere with the use of the area for agriculture, wildlife management, or timber; and (2) the landowner declines to make the agreement described by Subdivision (1). For purposes of Section or another law, including a municipal charter or ordinance, relating to municipal authority to annex an area adjacent to the municipality, an area adjacent or contiguous to an area that is the subject of a development agreement described by Subsection (b)(1) is considered adjacent or contiguous to the municipality. A provision of a development agreement described by Subsection (b)(1) that restricts or otherwise limits the annexation of all or part of the area that is the subject of the agreement is void if the landowner files any type of subdivision plat or related development document for the area with a governmental entity that has jurisdiction over the area, regardless of how the area is appraised for ad valorem tax purposes. A development agreement described by Subsection (b)(1) is not a permit for purposes of Chapter 245. Page - 35

39 APPENDIX 2 Tx.LGC Section Development Agreement Development Agreement. (a) (b) (c) In this subchapter, "extraterritorial jurisdiction" means a municipality's extraterritorial jurisdiction as determined under Chapter 42. The governing body of a municipality may make a written contract with an owner of land that is located in the extraterritorial jurisdiction of the municipality to: (1) guarantee the continuation of the extraterritorial status of the land and its immunity from annexation by the municipality for a period not to exceed 15 years; (2) extend the municipality's planning authority over the land by providing for a development plan to be prepared by the landowner and approved by the municipality under which certain general uses and development of the land are authorized; (3) authorize enforcement by the municipality of certain municipal land-use and development regulations in the same manner the regulations are enforced within the municipality's boundaries; (4) authorize enforcement by the municipality of land-use and development regulations other than those that apply within the municipality's boundaries, as may be agreed to by the landowner and the municipality; (5) provide for infrastructure for the land, including: (A) (B) (C) (D) streets and roads; street and road drainage; land drainage; and water, wastewater, and other utility systems; (6) authorize enforcement of environmental regulations; (7) provide for the annexation of the land as a whole or in parts and to provide for the terms of annexation, if annexation is agreed to by the parties; (8) specify the uses and development of the land before and after annexation, if annexation is agreed to by the parties; or (9) include other lawful terms and considerations the parties consider appropriate. An agreement under this subchapter must: (1) be in writing; (2) contain an adequate legal description of the land; (3) be approved by the governing body of the municipality and the landowner; and Page - 36

40 (4) be recorded in the real property records of each county in which any part of the land that is subject to the agreement is located. (d) The parties to a contract may renew or extend it for successive periods not to exceed 15 years each. The total duration of the original contract and any successive renewals or extensions may not exceed 45 years. (e) (f) A municipality in an affected county, as defined by Section , Water Code, may not enter into an agreement under this subchapter that is inconsistent with the model rules adopted under Section , Water Code. The agreement between the governing body of the municipality and the landowner is binding on the municipality and the landowner and on their respective successors and assigns for the term of the agreement. The agreement is not binding on, and does not create any encumbrance to title as to, any end-buyer of a fully developed and improved lot within the development, except for land use and development regulations that may apply to a specific lot. (g) An agreement under this subchapter constitutes a permit under Chapter 245. (h) An agreement between a municipality and a landowner entered into prior to the effective date of this section and that complies with this section is validated. Page - 37

41 APPENDIX 3 Tx.LGC Section Municipal Annexation Plan Required MUNICIPAL ANNEXATION PLAN REQUIRED (a) (b) (c) (d) (e) (f) In this section, "special district" means a municipal utility district, water control and improvement district, or other district created under Section 52, Article III, or Section 59, Article XVI, Texas Constitution. A municipality may annex an area identified in the annexation plan only as provided by this section. A municipality shall prepare an annexation plan that specifically identifies annexations that may occur beginning on the third anniversary of the date the annexation plan is adopted. The municipality may amend the plan to specifically identify annexations that may occur beginning on the third anniversary of the date the plan is amended. At any time during which an area is included in a municipality's annexation plan, a municipal utility district or other special district that will be abolished as a result of the annexation, excluding an emergency services district, in which the area is located may not without consent of the municipality: (1) reduce the tax rate applicable to the area if the amount that would remain in the debt service fund after the reduction and after subtracting the amount due for debt service in the following year is less than 25 percent of the debt service requirements for the following year; (2) voluntarily transfer an asset without consideration; or (3) enter into a contract for services that extends beyond the three-year annexation plan period other than a contract with another political subdivision for the operation of water, wastewater, and drainage facilities. A municipality may amend its annexation plan at any time to remove an area proposed for annexation. If, before the end of the 18th month after the month an area is included in the three-year annexation cycle, a municipality amends its annexation plan to remove the area, the municipality may not amend the plan to again include the area in its annexation plan until the first anniversary of the date the municipality amended the plan to remove the area. If, during or after the 18 months after the month an area is included in the threeyear annexation cycle, a municipality amends its annexation plan to remove the area, the municipality may not amend the plan to again include the area in its annexation plan until the second anniversary of the date the municipality amended the plan to remove the area. Before the 90th day after the date a municipality adopts or amends an annexation plan under this section, the municipality shall give written notice to: (1) each property owner in the affected area, as indicated by the appraisal records furnished by the appraisal district for each county in which the affected area is located, that the area has been included in or removed from the municipality's annexation plan; Page - 38

42 (g) (h) (2) each public entity, as defined by Section , or private entity that provides services in the area proposed for annexation; and (3) each railroad company that serves the municipality and is on the municipality's tax roll if the company's right-of-way is in the area proposed for annexation. If an area is not removed from the municipality's annexation plan, the annexation of the area under the plan must be completed before the 31st day after the third anniversary of the date the area was included in the annexation plan. If the annexation is not completed within the period prescribed by this subsection, the municipality may not annex the area proposed for annexation before the fifth anniversary of the last day for completing an annexation under this subsection. This section does not apply to an area proposed for annexation if: (1) the area contains fewer than 100 separate tracts of land on which one or more residential dwellings are located on each tract; (2) the area will be annexed by petition of more than 50 percent of the real property owners in the area proposed for annexation or by vote or petition of the qualified voters or real property owners as provided by Subchapter B; (3) the area is or was the subject of: A. an industrial district contract under Section ; or B. strategic partnership agreement under Section ; (4) the area is located in a colonia, as that term is defined by Section , Government Code; (5) the area is annexed under Section , , , or ; (6) the area is located completely within the boundaries of a closed military installation; or (7) the municipality determines that the annexation of the area is necessary to protect the area proposed for annexation or the municipality from: A. imminent destruction of property or injury to persons; or B. a condition or use that constitutes a public or private nuisance as defined by background principles of nuisance and property law of this state. i. A municipality may not circumvent the requirements of this section by proposing to separately annex two or more areas described by Subsection (h)(1) if no reason exists under generally accepted municipal planning principles and practices for separately annexing the areas. If a municipality proposes to separately annex areas in violation of this section, a person residing or owning land in the area may petition the municipality to include the area in the municipality's annexation plan. If the municipality fails to take action on the petition, the petitioner may request arbitration of the dispute. The petitioner must request the appointment of an arbitrator in writing to the municipality. Sections (b), (c), Page - 39

43 (j) and (e) apply to the appointment of an arbitrator and the conduct of an arbitration proceeding under this subsection. Except as provided by this subsection, the municipality shall pay the cost of arbitration. If the arbitrator finds that the petitioner's request for arbitration was groundless or requested in bad faith or for the purposes of harassment, the arbitrator shall require the petitioner to pay the costs of arbitration. If a municipality has an Internet website, the municipality shall: (1) post and maintain the posting of its annexation plan on its Internet website; (2) post and maintain the posting on its Internet website of any amendments to include an area in its annexation plan until the date the area is annexed; and (3) post and maintain the posting on its Internet website of any amendments to remove an area from its annexation plan until the date the municipality may again include the area in its annexation plan. Page - 40

44 APPENDIX Inventory of Services and facilities Required Inventory of Services and facilities Required (a) (b) (c) (d) (e) (f) In this section, "public entity" includes a municipality, county, fire protection service provider, including a volunteer fire department, emergency medical services provider, including a volunteer emergency medical services provider, or a special district, as that term is defined by Section After adopting an annexation plan or amending an annexation plan to include additional areas under Section , a municipality shall compile a comprehensive inventory of services and facilities provided by public and private entities, directly or by contract, in each area proposed for annexation. The inventory of services and facilities must include all services and facilities the municipality is required to provide or maintain following the annexation. The municipality shall request, in the notice provided under Section (f), the information necessary to compile the inventory from each public or private entity that provides services or facilities in each area proposed for annexation. The public or private entity shall provide to the municipality the information held by the entity that is necessary to compile the inventory not later than the 90 th day after the date the municipality requests the information unless the entity and the municipality agree to extend the period for providing the information. The information provided under this subsection must include the type of service provided, the method of service delivery, and all information prescribed by Subsections (e) and (f). If a service provider fails to provide the required information within the 90-day period, the municipality is not required to include the information in an inventory prepared under this section. The information required in the inventory shall be based on the services and facilities provided during the year preceding the date the municipality adopted the annexation plan or amended the annexation plan to include additional areas. For utility facilities, roads, drainage structures, and other infrastructure provided or maintained by public or private entities, the inventory must include: (1) an engineer's report that describes the physical condition of all infrastructure elements in the area; and (2) a summary of capital, operational, and maintenance expenditures for that infrastructure. For police, fire, and emergency medical services provided by public or private entities, the inventory must include for each service: (1) the average dispatch and delivery time; (2) a schedule of equipment, including vehicles; (3) a staffing schedule that discloses the certification and training levels of personnel; and Page - 41

45 (g) (h) (4) a summary of operating and capital expenditures. The municipality shall complete the inventory and make the inventory available for public inspection on or before the 60 th day after the date the municipality receives the required information from the service providers under Subsection (c). The municipality may monitor the services provided in an area proposed for annexation and verify the inventory information provided by the service provider. Page - 42

46 APPENDIX Provision of Services to Annexed Area Provision of Services to Annexed Area. (a) (b) (c) (d) Before the first (1 st ) day of the 10 th month after the month in which the inventory is prepared as provided by Section , the municipality proposing the annexation shall complete a service plan that provides for the extension of full municipal services to the area to be annexed. The municipality shall provide the services by any of the methods by which it extends the services to any other area of the municipality. The service plan must include a program under which the municipality will provide full municipal services in the annexed area no later than 2-1/2 years after the effective date of the annexation, in accordance with Subsection (e), unless certain services cannot reasonably be provided within that period and the municipality proposes a schedule for providing those services. If the municipality proposes a schedule to extend the period for providing certain services, the schedule must provide for the provision of full municipal services no later than 4-1/2 years after the effective date of the annexation. If the area was annexed after December 1, 1998, and before September 1, 1999, the municipality shall provide sewer services in the annexed area as provided by this subsection, except that, no later than five (5) years after the effective date of the annexation, the municipality may not provide sewer services in the annexed area by means of a package wastewater treatment plant. However, under the program if the municipality provides any of the following services within the corporate boundaries of the municipality before annexation, the municipality must provide those services in the area proposed for annexation on the effective date of the annexation of the area: (1) police protection; (2) fire protection; (3) emergency medical services; (4) solid waste collection, except as provided by Subsection (o); (5) operation and maintenance of water and wastewater facilities in the annexed area that are not within the service area of another water or wastewater utility; (6) operation and maintenance of roads and streets, including road and street lighting; (7) operation and maintenance of parks, playgrounds, and swimming pools; and (8) operation and maintenance of any other publicly owned facility, building, or service. For purposes of this section, "full municipal services" means services provided by the annexing municipality within its full-purpose boundaries, including water and wastewater services and excluding gas or electrical service. A municipality with a population of 1.5 million or more may provide all or part of the municipal services required under the service plan by contracting with service providers. If the municipality owns a water and wastewater utility, the municipality shall, subject to Page - 43

47 (e) (f) (g) this section, extend water and wastewater service to any annexed area not within the service area of another water or wastewater utility. If the municipality annexes territory included within the boundaries of a municipal utility district or a water control and improvement district, the municipality shall comply with applicable state law relating to annexation of territory within a municipal utility district or a water control and improvement district. The service plan shall summarize the service extension policies of the municipal water and wastewater utility. The service plan must also include a program under which the municipality will initiate after the effective date of the annexation the acquisition or construction of capital improvements necessary for providing municipal services adequate to serve the area. The construction shall be substantially completed within the period provided in the service plan. The service plan may be amended to extend the period for construction if the construction is proceeding with all deliberate speed. The acquisition or construction of the facilities shall be accomplished by purchase, lease, or other contract or by the municipality succeeding to the powers, duties, assets, and obligations of a conservation and reclamation district as authorized or required by law. The construction of the facilities shall be accomplished in a continuous process and shall be completed as soon as reasonably possible, consistent with generally accepted local engineering and architectural standards and practices. However, the municipality does not violate this subsection if the construction process is interrupted for any reason by circumstances beyond the direct control of the municipality. The requirement that construction of capital improvements must be substantially completed within the period provided in the service plan does not apply to a development project or proposed development project within an annexed area if the annexation of the area was initiated by petition or request of the owners of land in the annexed area and the municipality and the landowners have subsequently agreed in writing that the development project within that area, because of its size or projected manner of development by the developer, is not reasonably expected to be completed within that period. A service plan may not: (1) require the creation of another political subdivision; (2) require a landowner in the area to fund the capital improvements necessary to provide municipal services in a manner inconsistent with Chapter 395 unless otherwise agreed to by the landowner; or (3) provide services in the area in a manner that would have the effect of reducing by more than a negligible amount the level of fire and police protection and emergency medical services provided within the corporate boundaries of the municipality before annexation. If the annexed area had a lower level of services, infrastructure, and infrastructure maintenance than the level of services, infrastructure, and infrastructure maintenance provided within the corporate boundaries of the municipality before annexation, a service plan must provide the annexed area with a level of services, infrastructure, and infrastructure maintenance that is comparable to the level of services, infrastructure, and infrastructure maintenance available in other parts of the municipality with topography, land use, and population density similar to those reasonably contemplated or projected in Page - 44

48 (h) (i) (j) (k) (l) the area. If the annexed area had a level of services, infrastructure, and infrastructure maintenance equal to the level of services, infrastructure, and infrastructure maintenance provided within the corporate boundaries of the municipality before annexation, a service plan must maintain that same level of services, infrastructure, and infrastructure maintenance. Except as provided by this subsection, if the annexed area had a level of services superior to the level of services provided within the corporate boundaries of the municipality before annexation, a service plan must provide the annexed area with a level of services that is comparable to the level of services available in other parts of the municipality with topography, land use, and population density similar to those reasonably contemplated or projected in the area. If the annexed area had a level of services for operating and maintaining the infrastructure of the area, including the facilities described by Subsections (b)(5)-(8), superior to the level of services provided within the corporate boundaries of the municipality before annexation, a service plan must provide for the operation and maintenance of the infrastructure of the annexed area at a level of services that is equal or superior to that level of services. A municipality with a population of 1.6 million or more may not impose a fee in the annexed area, over and above ad valorem taxes and fees imposed within the corporate boundaries of the municipality before annexation, to maintain the level of services that existed in the area before annexation. This subsection does not prohibit the municipality from imposing a fee for a service in the area annexed if the same fee is imposed within the corporate boundaries of the municipality before annexation. If only a part of the area to be annexed is actually annexed, the governing body shall direct the department to prepare a revised service plan for that part. The proposed service plan must be made available for public inspection and explained to the inhabitants of the area at the public hearings held under Section The plan may be amended through negotiation at the hearings, but the provision of any service may not be deleted. On completion of the public hearings, the service plan shall be attached to the ordinance annexing the area and approved as part of the ordinance. On approval by the governing body, the service plan is a contractual obligation that is not subject to amendment or repeal except that if the governing body determines at the public hearings required by this subsection that changed conditions or subsequent occurrences make the service plan unworkable or obsolete, the governing body may amend the service plan to conform to the changed conditions or subsequent occurrences. An amended service plan must provide for services that are comparable to or better than those established in the service plan before amendment. Before any amendment is adopted, the governing body must provide an opportunity for interested persons to be heard at public hearings called and held in the manner provided by Section A service plan is valid for 10 years. Renewal of the service plan is at the discretion of the municipality. A person residing or owning land in an annexed area in a municipality with a population of 1.6 million or more may enforce a service plan by petitioning the municipality for a change in policy or procedures to ensure compliance with the service plan. If the municipality fails to take action with regard to the petition, the petitioner may request arbitration of the dispute under Section A person residing or owning land in an annexed area in a municipality with a population of less than 1.6 million may Page - 45

49 (m) (n) (o) enforce a service plan by applying for a writ of mandamus not later than the second (2 nd ) anniversary of the date the person knew or should have known that the municipality was not complying with the service plan. If a writ of mandamus is applied for, the municipality has the burden of proving that the services have been provided in accordance with the service plan in question. If a court issues a writ under this subsection, the court: (1) must provide the municipality the option of disannexing the area within a reasonable period specified by the court; (2) may require the municipality to comply with the service plan in question before a reasonable date specified by the court if the municipality does not disannex the area within the period prescribed by the court under Subdivision (1); (3) may require the municipality to refund to the landowners of the annexed area money collected by the municipality from those landowners for services to the area that were not provided; (4) may assess a civil penalty against the municipality, to be paid to the state in an amount as justice may require, for the period in which the municipality is not in compliance with the service plan; (5) may require the parties to participate in mediation; and (6) may require the municipality to pay the person's costs and reasonable attorney's fees in bringing the action for the writ. This section does not require that a uniform level of full municipal services be provided to each area of the municipality if different characteristics of topography, land use, and population density constitute a sufficient basis for providing different levels of service. Any disputes regarding the level of services provided under this subsection are resolved in the same manner provided by Subsection (l). Nothing in this subsection modifies the requirement under Subsection (g) for a service plan to provide a level of services in an annexed area that is equal or superior to the level of services provided within the corporate boundaries of the municipality before annexation. To the extent of any conflict between this subsection and Subsection (g), Subsection (g) prevails. Before the second (2 nd ) anniversary of the date an area is included within the corporate boundaries of a municipality by annexation, the municipality may not: (1) prohibit the collection of solid waste in the area by a privately owned solid waste management service provider; or (2) impose a fee for solid waste management services on a person who continues to use the services of a privately owned solid waste management service provider. A municipality is not required to provide solid waste collection services under Subsection (b) to a person who continues to use the services of a privately owned solid waste management service provider as provided by Subsection (n). Page - 46

50 APPENDIX NEGOTIATIONS REQUIRED. (a) After holding the hearings as provided by Section : (1) if a municipality has a population of less than 1.6 million, the municipality and the property owners of the area proposed for annexation shall negotiate for the provision of services to the area after annexation or for the provision of services to the area in lieu of annexation under Section ; or (2) if a municipality proposes to annex a special district, as that term is defined by Section , the municipality and the governing body of the district shall negotiate for the provision of services to the area after annexation or for the provision of services to the area in lieu of annexation under Section (b) (c) For purposes of negotiations under Subsection (a)(1), the commissioners court of the county in which the area proposed for annexation is located shall select five representatives to negotiate with the municipality for the provision of services to the area after annexation. If the area proposed for annexation is located in more than one county, the commissioner s court of the county in which the greatest number of residents reside shall select three representatives to negotiate with the municipality, and the commissioners courts of the remaining counties jointly shall select two representatives to negotiate with the municipality. For purposes of negotiations under Subsection (a)(2), if more than one special district is located in the area proposed for annexation, the governing boards of the districts may jointly select five representatives to negotiate with the municipality on behalf of all the affected districts. Page - 47

51 APPENDIX 7 S ARBITRATION REGARDING NEGOTIATIONS FOR SERVICES. (a) (b) (c) (d) (e) If the municipality and the representatives of the area proposed for annexation cannot reach an agreement for the provision of services under Section or if the municipality and the property owner representatives cannot reach an agreement for the provision of services in lieu of annexation under Section , either party by majority decision of the party's representatives may request the appointment of an arbitrator to resolve the service plan issues in dispute. The request must be made in writing to the other party before the 60 th day after the date the service plan is completed under Section The municipality may not annex the area under another section of this chapter during the pendency of the arbitration proceeding or an appeal from the arbitrator's decision. The parties to the dispute may agree on the appointment of an arbitrator. If the parties cannot agree on the appointment of an arbitrator before the 11 th business day after the date arbitration is requested, the mayor of the municipality shall immediately request a list of seven (7) neutral arbitrators from the American Arbitration Association or the Federal Mediation and Conciliation Service or their successors in function. An arbitrator included in the list must be a resident of this state and may not be a resident of a county in which any part of the municipality or any part of the district proposed for annexation is located. The parties to the dispute may agree on the appointment of an arbitrator included in the list. If the parties cannot agree on the appointment of an arbitrator before the 11 th business day after the date the list is provided to the parties, each party or the party's designee may alternately strike a name from the list. The remaining person on the list shall be appointed as the arbitrator. In this subsection, "business day" means a day other than a Saturday, Sunday, or state or national holiday. The arbitrator shall: (1) set a hearing to be held not later than the 10 th day after the date the arbitrator is appointed; and (2) notify the parties to the arbitration in writing of the time and place of the hearing not later than the 8 th day before the date of the hearing. The authority of the arbitrator is limited to issuing a decision relating only to the service plan issues in dispute. The arbitrator may: (1) receive in evidence any documentary evidence or other information the arbitrator considers relevant; (2) administer oaths; and (3) issue subpoenas to require: (A). the attendance and testimony of witnesses; and Page - 48

52 (f) (g) (h) (i) (B). the production of books, records, and other evidence relevant to an issue presented to the arbitrator for determination. Unless the parties to the dispute agree otherwise, the arbitrator shall complete the hearing within two (2) consecutive days. The arbitrator shall permit each party one (1) day to present evidence and other information. The arbitrator, for good cause shown, may schedule an additional hearing to be held not later than the seventh day after the date of the first hearing. Unless otherwise agreed to by the parties, the arbitrator must issue a decision in writing and deliver a copy of the decision to the parties not later than the 14 th day after the date of the final hearing. Either party may appeal any provision of an arbitrator's decision that exceeds the authority granted under Subsection (d) to a district court in a county in which the area proposed for annexation is located. If the municipality does not agree with the terms of the arbitrator's decision, the municipality may not annex the area proposed for annexation before the fifth (5 th) anniversary of the date of the arbitrator's decision. Except as provided by this subsection, the municipality shall pay the cost of arbitration. If the arbitrator finds that the request for arbitration submitted by the representatives of the area proposed for annexation was groundless or requested in bad faith or for the purposes of harassment, the arbitrator may require the area proposed for annexation to pay all or part of the cost of arbitration. Page - 49

53 AGENDA INFORMATION SHEET AGENDA DATE: January 11, 2011 DEPARTMENT: ACM: Airport Jon Fortune SUBJECT Receive a report, hold a discussion and give staff direction regarding a proposed lease of property located on the Denton Municipal Airport, specifically the area northeast of the Airport Terminal parking lot and the lease of said property to NE Interests, Ltd for the construction and operation of a restaurant. BACKGROUND Airport staff was approached in September 2010 by Charles Nicholas, President of NE Development and Construction (NE Development), regarding his interest in developing a restaurant at the Denton Airport. Terms and conditions for the Airport restaurant ground lease were discussed with senior staff, the Airport Advisory Board, the City Council and an independent property management consultant. Following input from these stakeholders, Airport staff completed negotiation of the Airport Lease Agreement Commercial Operator (Agreement) which is presented as an Action Item on the City Council agenda for January 11, The basic terms of the Agreement include the following: 1. NE Development will construct a full service, stand-alone restaurant with a seating capacity of 150; 2. The restaurant will include a banquet/meeting room with a seating capacity of 75 which is one-half of the total seating capacity; 3. The location of the restaurant will be adjacent to the existing Airport Terminal parking lot on a lot one (1) acre in size; 4. The City will reimburse the developer for construction of on-site service roads, public parking, landscaping and other site development costs in an amount not-to-exceed $225,000. The total development cost is estimated to be at least $750,000; 5. The ground lease will be a 30-year initial term with two (2) options to renew for five (5) years each, for a total of forty (40) years; 6. The tenant will pay a base annual ground lease of $21,780, plus additional rent in the amount of three percent (3%) of the gross revenue over $1 million each year. The business pro forma projects a total annual lease revenue to the Airport of $51,780; 7. The reimbursement of developer construction cost for public infrastructure will be made under a Chapter 380 Economic Development Agreement between the City of Denton and NE Development.

54 Agenda Information Sheet January 11, 2011 Page 2 Typically, Chapter 380 agreements are discussed, reviewed, and recommended for approval by the Economic Development Partnership Board (EDPB) prior to any City Council consideration. However, since this particular Chapter 380 agreement does not involve property and sales tax revenue, this agreement was reviewed and recommended for approval by the Airport Advisory Board. During the process of negotiating the Agreement, staff was asked to provide additional information on a number of specific lease terms. While the identified concerns of various stakeholders have been included in the Agreement being proposed to the City Council for deliberation, some information regarding the proposed operation of the Airport restaurant are best addressed by the developer. NE Development will have representatives available at the City Council Work Session on January 11, 2011 to present their business plan for operation of the restaurant, which will be a sit-down, full service restaurant with a breakfast, lunch and dinner menu. The Agreement will allow the City architectural and construction specification control to assure a facility compatible with current and future development at Denton Airport. Representatives of NE Development will be available to address the planned construction and operation of the restaurant. FISCAL IMPACT The Chapter 380 reimbursement funding for this project will be provided primarily by Airport Gas Well funds. The proposed Airport restaurant Agreement will produce a minimum of $21,780 annually, adjusted by a Consumer Price Index factor throughout the lease term, plus an additional rent estimated to be $30,000 annually once the restaurant reaches full operation. The base lease amount would recover the reimbursement for public infrastructure construction in ten (10) years. The estimated total lease revenue will recover the reimbursement economic development incentive in four (4) years. The current ground lease rate for Airport tenants would produce approximately $5,880 annually as an alternative if a developer requested this type of agreement in order to build a restaurant independently. EXHIBITS 1. General information regarding NE Development and Construction 2. List of specific restaurants constructed and operated by NE Development Respectfully submitted: Quentin Hix Airport Manager

55 EXHIBIT 1

56 EXHIBIT 1

57 EXHIBIT 1

58 EXHIBIT 1

59 EXHIBIT 1

60 EXHIBIT 1

61 EXHIBIT 1

62 EXHIBIT 1

63 EXHIBIT 2 NE Development and Construction Restaurant Development References 1. ACHunting Ranches.com Located in the Austin Hill Country 2. RoughCreek.com This is a resort in Glen Rose with an award winning restaurant (Bon Apitite) and favorable reviews from culinary magazines. Charles Nicholas plans to make the Airport restaurant a four-star facility with steaks prepared from beef raised on the NE Development ranch in Texas. The restaurant will include a glass walled meat locker with steak selected by each patron and prepared to order. No imported beef or frozen meat; 3. The Villages development included five (5) restaurants. 4. Charles Nicholas participated with the development of Hot Skillet restaurants, which were sold and became Iron Skillet restaurants throughout the country.

64 AGENDA INFORMATION SHEET AGENDA DATE: January 11, 2011 DEPARTMENT: ACM: Airport Jon Fortune SUBJECT Consider adoption of an ordinance approving a Commercial Operator Airport Lease Agreement between the City of Denton, Texas and NE Development and Construction at the Denton Municipal Airport for lease of property on which to build and operate a restaurant; and providing an effective date. (Airport Advisory Board recommends approval 5-0) BACKGROUND Airport staff was approached in September 2010 by Charles Nicholas, President of NE Development and Construction (NE Development), regarding his interest in developing a restaurant at the Denton Airport. NE Development maintains a corporate flight headquarters at Denton Airport and was recommended to Airport staff by Damon Ward, President of Business Air Management, and a Denton Airport Fixed Base Operator contractor. Subsequent discussions with Mr. Nicholas resulted in identification of terms and conditions under which an Airport ground lease might be negotiated. Airport staff negotiated an initial ground lease that included certain site improvements to be constructed by the Airport to support the restaurant and a ground lease rate that is higher than the normal ground lease rate at the Airport. Terms and conditions for the Airport restaurant ground lease were discussed with senior staff, the Airport Advisory Board, the City Council and an independent property management consultant. Following input from these stakeholders, Airport staff completed negotiation of the Airport Lease Agreement Commercial Operator (Agreement) that is attached to and made a part of the ordinance. The basic terms of the Agreement include the following: 1. NE Development will construct a full service, stand-alone restaurant with a seating capacity of 150; 2. The restaurant will include a banquet/meeting room with a seating capacity of 75 which is one-half of the total seating capacity; 3. The location of the restaurant will be adjacent to the existing Airport Terminal parking lot on a lot one (1) acre in size; 4. The City will reimburse the developer for construction of on-site service roads, public parking, landscaping and other site development costs in an amount not-to-exceed $225,000. The total development cost is estimated to be at least $750,000; 5. The ground lease will be a 30-year initial term with two (2) options to renew for five (5) years each, for a total of forty (40) years; 6. The tenant will pay a base annual ground lease of $21,780, plus additional rent in the amount of three percent (3%) of the gross revenue over $1 million each year. The business pro forma projects a total annual lease revenue to the Airport of $51,780;

65 Agenda Information Sheet January 11, 2011 Page 2 7. The reimbursement of developer construction cost for public infrastructure will be made under a Chapter 380 Economic Development Agreement between the City of Denton and NE Development. Typically, Chapter 380 agreements are discussed, reviewed, and recommended for approval by the Economic Development Partnership Board (EDPB) prior to any City Council consideration. However, since this particular Chapter 380 agreement does not involve property and sales tax revenue, this agreement was reviewed and recommended for approval by the Airport Advisory Board. NE Development will have representatives available at the 2 nd Tuesday Session on January 11, 2011, to present their business plan for operation of the restaurant, which will be a sit-down, full service restaurant with a breakfast, lunch and dinner menu. The Agreement will allow the City architectural and construction specification control to assure a facility compatible with current and future development at Denton Airport. The Airport staff, in conjunction with other stakeholders, has prepared a risk mitigation strategy (Exhibit 2) to protect the public interest associated with the proposed economic development incentive of investing Airport Fund resources in this public/private partnership facility. In addition to the investment being made directly by NE Development, there are designed alternative uses for the facility should future circumstances require a change in the operation of the building to be constructed. OPTIONS 1. Approve the Airport Lease Agreement Commercial Operator with NE Development for construction and operation of an Airport restaurant; 2. Deny the Airport Lease Agreement Commercial Operator with NE Development for construction and operation of an Airport restaurant; 3. Modify the Airport Lease Agreement Commercial Operator with NE Development for construction and operation of an Airport restaurant based upon discussion with the developer and staff. PRIOR ACTION The Airport Advisory Board recommended approval of this item on January 5, FISCAL IMPACT The Chapter 380 reimbursement funding for this project will be provided primarily by Airport Gas Well funds. The proposed Airport Restaurant Agreement will produce a minimum of $21,780 annually, adjusted by a Consumer Price Index factor throughout the lease term, plus an additional rent estimated to be $30,000 annually once the restaurant reaches full operation.

66 Agenda Information Sheet January 11, 2011 Page 3 The base lease amount would recover the reimbursement for public infrastructure construction in ten (10) years. The estimated total lease revenue will recover the reimbursement economic development incentive in four (4) years. The current ground lease rate for Airport tenants would produce approximately $5,880 annually as an alternative if a developer requested this type of agreement in order to build a restaurant independently. EXHIBITS Ordinance Risk Mitigation Summary Airport Advisory Board Minutes (Excerpt) Respectfully submitted: Quentin Hix Airport Manager

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93 Exhibit 2 Denton Airport Restaurant Investment Risk Mitigation Any investment of public funds in a revenue generating facility will include some risk of the capital expenditure. The Denton Airport investment process includes an evaluation of the risk associated with the project and the potential return which generates revenue for a sinking fund plus annual operating and maintenance expense. The Airport Restaurant is projected to produce over $50,000 in annual revenue with minimal risk of loss due to failure of the tenant s primary business activity. Following is a summary of considerations to minimize risk for loss of public funds invested in the project: 1. The terms and conditions of the proposed ground lease for the Airport restaurant have been reviewed by an independent commercial real estate development consultant and the staff proposed terms and conditions have been confirmed as favorable to the City. Certain additional lease terms and operating procedures have been identified which help establish this lease as a precedent for future successful public/private Airport development ventures. 2. Prior to any expenditure of Airport Gas Well revenue for development or construction of the Airport Restaurant, a long term lease will be consummated with the tenant, NE Interests, Ltd. The financial pro forma for this investment shows a four point three (4.3) year payback of the initial $225,000 investment. The developer will invest a minimum of $500,000 in the restaurant building. 3. This investment is proposed for public infrastructure only. The parking and service road construction will remain in use to compliment other Airport development without the necessity of a restaurant operating at this location. The Airport entry improvements scheduled for construction at Denton Airport are supported by this expenditure regardless of the construction and viability of the privately funded restaurant. The risk to be considered is more directly the alternate use of the restaurant building and property should the restaurant fail to become and remain a successful private business venture. 4. The architectural design for the Airport restaurant will be compatible with the existing Airport Terminal and Tower. The same architect that presented a conceptual plan for a more extensive dormitory structure at the Airport entrance will engaged by the Airport to review architectural design and construction specifications for the restaurant.

94 Exhibit 2 5. The Airport restaurant design will include a banquet/meeting room to accommodate seventy-five (75) people. Even if the restaurant fails to be successful, this public meeting room with visual aids will continue to be of value to the Airport and the community. Whether an alternate food service facility continues to operate, or, outside catering is accessed for public meetings, the room would remain useful. 6. If the original, custom restaurant operation fails for any reason, the City could produce a Request for Proposals for a public competition to adjust the format and continue an alternate food service operation using the Airport facility. 7. The proposed ground lease provides architectural design approval by the City. The architect will be asked to provide a plan for conversion of the restaurant space for office and/or alternate uses should a restaurant business operation be abandoned in the future. 8. The minimum private investment of $500,000 in the restaurant building is being undertaken based upon independent market research which projects a successful business venture. In other words, the risk of experiencing a public investment loss is minimized by virtue of the greater risk being evaluated for the private investment. 9. Any unanticipated loss of capital due to default of the long-term lease of NE Interests, Ltd. would result in loss of Airport funds and not current or future taxpayer revenue.

95 DRAFT MINUTES (EXCERPT) AIRPORT ADVISORY BOARD JANUARY 5, 2011 After determining that a quorum was present, the Airport Advisory Board of the City of Denton, Texas convened in a Special Called Meeting on Wednesday January 5, 2011 at 5:30 p.m. in the Airport Terminal Building, Meeting Room at 5000 Airport Road, Denton, Texas, at which the following items were considered: BOARD MEMBERS PRESENT: Chairman Dr. Don Smith, Mr. Bob Pugh, Mr. Bill Schofield, Mr. Jim Clark and Mr. Jeremy Fykes. BOARD MEMBERS ABSENT: NONE STAFF MEMBERS PRESENT: Quentin Hix, Airport Manager, Julie Mullins, Administrative Assistant, Andrea Sumner, Operations Coordinator, Mark Nelson, Transportation Director, Bryan Langley, Chief Financial Officer. PUBLIC PRESENT: Jeff Soules, US Aviation Group; Mark Taylor, US Aviation Group; Rick Woolfolk; Damon Ward, Business Air Center; Robert Pastor, CHA; Paul Cristina, Kimerly-Horn and Associates, Inc. ITEMS FOR INDIVIDUAL CONSIDERATION IV. Receive a report, hold a discussion and make a recommendation regarding an ordinance to approve a lease of property between the City of Denton, Texas and NE Interests, Ltd for the construction and operation of a restaurant at the Denton Municipal Airport; Mr. Hix commented that on page 10 there is a lease that has been in negotiation since September 2010 and he has had some opportunity to discuss this with the Board. The lease has gone through a review process with City staff, the Airport Advisory Board, the City Council and an airport land development consultant as this is something new for the Airport. Charles Nicholas with NE Development has been involved with negotiating an initial ground lease that included certain site improvements to be constructed by the Airport to support the restaurant. The ground lease rate is higher than the normal ground lease rate at the Airport. The City will reimburse the developer in the amount of $225, for construction of on-site infrastructure after the development has its Certificate of Occupancy. The estimated development cost is approximately $750,000. The ground lease is for 30 years with two options to renew for five years each, for a total of forty years. The tenant will pay a base annual ground lease of $21,780, plus additional rent in the amount of three percent of the gross revenue over $1 million each year. The business pro forma projects the total annual lease revenue to the Airport of $51,780. The reimbursement of the developer s construction cost for public infrastructure will be made under a Chapter 380 Economic Development Page 1 of 3

96 Agreement between the City of Denton and NE Development. There are some changes to the existing lease and it has been signed by the tenant. There is a change to item VIII; regarding the default and there are some alternate uses. What is presented to you tonight is the ground lease, with the Lessor improvements, to build a restaurant at the Airport. Mr. Clark asked if this full service restaurant will serve alcoholic beverages. Mr. Hix said yes the operator intends to serve alcoholic beverages with the evening meal service. Mr. Pugh asked if additional parking would be provided. Mr. Hix said there will be more parking; the intent is to add additional parking east of the existing Airport terminal parking lot. The drawing that is attached to the packet does not show the parking. Dr. Smith asked if parking spaces for the restaurant will conform to the city codes for the designed capacity. Mr. Hix said yes. Mr. Pugh asked if the tenant would be in favor of aircraft catering in the future. Mr. Hix said he has not asked him about that. Mr. Smith asked Mr. Ward about what their intent is. Mr. Ward said he talked with Mr. Nicholas today and yes he would be interested in catering. Mr. Fykes asked if the Airport has seen a business plan that supports this lease. Mr. Hix said he has not asked for a business plan. Mr. Hix clarified what was said earlier and that NE Development will not be presenting a business plan to the Council. NE Development will be there to answer any questions the Council may have. Mr. Fykes had some other questions and Mr. Hix answered them. Mr. Fykes is going to write a letter to bring up some points that they need to be addressed to advise the City Council. Mr. Fykes brought up some points that they need to consider and address before making a final decision on the lease. Mr. Hix said that the City is not spending any money on infrastructure other than public improvements. With this lease we will recover the expense. Mr. Hix said he is not trying to debate the restaurant market environment at the Airport. Mr. Langley said that the city hired a consultant and gave Airport staff a real estate analysis on this lease. Mr. Fykes said that Airport staff is spending a lot of money. Mr. Langley said the money being spent is for infrastructure not for the restaurant. Mr. Langley said we have spent a lot of money for infrastructure. Mr. Hix asked Mr. Nelson if the City has ever spent $225,000 and Mr. Nelson said the City spent a million dollars putting in the apron/ramp for Jet Works coming in. Mr. Fykes said that if the lease defaults then we still recover our expense. Mr. Schofield made a motion to make a recommendation to the City Council for lease of property between the City of Denton and NE Interests, Ltd. Mr. Page 2 of 3

97 Fykes seconded the motion with his addition of a written letter to City Council. Motion carried 5-0 Page 3 of 3

98 AGENDA INFORMATION SHEET AGENDA DATE: January 11, 2011 DEPARTMENT: ACM: Airport Jon Fortune SUBJECT Consider adoption of an ordinance establishing an economic development program under Chapter 380 of the Local Government Code for making grants of public money to promote economic development and to stimulate business activity in the City of Denton; approving an economic development program grant agreement with NE Interests, Ltd. regarding the construction of a restaurant at the Denton Municipal Airport in the City of Denton, Texas; authorizing the expenditure of funds therefor; and providing an effective date. (Airport Advisory Board recommended approval 5-0) BACKGROUND A proposed Airport Lease Agreement Commercial Operator has been presented as a separate action item by Airport staff. The background information submitted with the lease agreement referenced an economic development incentive valued at $225,000 as a developer reimbursement for construction of public infrastructure on the site leased for development of an Airport restaurant. The facilities to be constructed which will be eligible for reimbursement of cost include perimeter service roads, public parking and other site improvements as shown on the preliminary site plan (Exhibit 1). The contractual document to accommodate reimbursement of specific construction cost is a Chapter 380 Economic Development Agreement (380 Agreement) which is attached to and made a part of the ordinance. The source of funds for the reimbursement will be the Airport Fund with revenue accumulated primarily from gas well royalty receipts. Typically, Chapter 380 agreements are discussed, reviewed, and recommended for approval by the Economic Development Partnership Board (EDPB) prior to any City Council consideration. However, since this particular Chapter 380 agreement does not involve property and sales tax revenue, this Agreement was reviewed and recommended for approval by the Airport Advisory Board. OPTIONS 1. Approve the Chapter 380 Economic Development Agreement for NE Interests, Ltd to construct an Airport restaurant; 2. Deny the Chapter 380 Economic Development Agreement for NE Interests, Ltd to construct an Airport restaurant;

99 Agenda Information Sheet January 11, 2011 Page 2 3. Modify the Chapter 380 Economic Development Agreement for NE Interests, Ltd to construct an Airport restaurant. PRIOR ACTION/ REVIEW The Airport Advisory Board recommended approval of this item on January 5, FISCAL INFORMATION The Chapter 380 reimbursement funding for this project will be provided primarily by Airport Gas Well funds. The proposed Airport restaurant Agreement will produce a minimum of $21,780 annually, adjusted by a Consumer Price Index factor throughout the lease term, plus an additional annual rent estimated to be $30,000 annually once the restaurant reaches full operation. Additional rent is a payment of three percent (3%) of annual gross revenue above $1 million each year. The base lease amount would recover the reimbursement for public infrastructure construction in ten (10) years. The estimated total lease revenue will recover the reimbursement economic development incentive in four (4) years. The current ground lease rate for Airport tenants would produce approximately $5,880 annually as an alternative if a developer requested this type of agreement in order to build a restaurant independently. EXHIBITS 1. Preliminary site plan for an Airport restaurant 2. Ordinance 3. Airport Advisory Board Minutes (Excerpt) Respectfully submitted: Quentin Hix Airport Manager

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