July 17, 2014 posted in Development and Financing, Location Consulting
Last month, we discussed the concept of impact fees and the steps that expanding firms can take to avoid them. This month, we will focus on the significant cost implications that water and wastewater (sanitary sewer) impact fees can have on new industrial operations, especially those using a significant amount of water and discharging a significant amount of wastewater.
These one-time, up-front impact fees may also be called ‘connection fees’, ‘capacity fees’, or ‘meter fees’, among others. In many instances, these are simply a reasonable way to cover the material and labor costs associated with setting the meter or making this specific utility connection. Yet, the name given to a particular fee cannot be taken at face value.
Others communities calculate their ‘meter fee’ or ‘connection fee’ as a function of anticipated water and sewer usage. A more accurate description here would be ‘capacity fees’. These one-time fees, collected prior to service connection, are designed to offset the capital cost of a customer’s share of the entire treatment and distribution system. As previously discussed, these fees, usually $300 – $6,000 per residential unit, can be rolled into the builder’s costs, passed on to the buyer, and funded by the lender in the mortgage.
Following this methodology, if a typical household uses 350 gallons of water per day, then a non-residential (industrial) user who uses 35,000 gallons per day should be assessed a one-time ‘capacity fee’ at a rate 100 times that of a typical household. If one new home is charged $2,000 for such fees, then this new industrial operation should pay $200,000 for the ‘honor’ of turning on the faucet or flushing the toilet.
Many Austin Consulting clients have required much larger volumes than the example shown above. In these instances, a particular site or community must have a significant competitive advantage to overcome a seven-figure water and sewer impact fee.
During a multi-region site search, it is not uncommon to find a community charging 10-50 times the one-time (impact) fees than those of other prospective communities in the search. Too often these fee schedules, especially those with this multiplier effect, are not prominently advertised, but rather buried in dozens of pages of water and sewer ordinances. Many companies are not aware of them until their contractor is pulling the building permit.
A careful review by the company or company’s representative is necessary to “flush” out these type of hidden fees before a significant amount of time, energy, attention and resources are invested in a prospective industrial site. By knowing these costs at the onset of field investigation, the site selector can make the appropriate decision to negotiate these hidden costs down or to move on to a more business-friendly community.