UPDATE ON WATER UTILITY AUTHORITY TO CHARGE IMPACT FEES AND OTHER

UPFRONT CHARGES

Jeff Hughes, Director, Environmental Finance Center

Kara Millonzi, Professor of Public Law and Government

October 11, 2016

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Welcome!

Presenters

Jeff Hughes Kara Millonzi

How you pay for it matters

Supporting the fair, effective, and financially sustainable delivery of environmental programs through:

• Applied Research

• Teaching and Outreach

• Program Design and Evaluation

A member of the US Environmental Protection Agency Supported Environmental Finance Center Network

Topics

Overview of current practices

The Case

Recommendations• Green (Do’s)

• Red (Don’ts)

• Yellow

Discussion/Questions

Poll Question 1

Given recent developments, how would you rate your understanding of utility authority to establish up-front fees (impact fees, capacity fees, tap fees etc.)?

A. 1 -- low understandingB. 2 C. 3 D. 4E. 5 -- high understanding

Poll Question 2

What best describes your role?

A. Utility managementB. Professional advisorC. General government managementD. Other

Poll Question 3

If you work for or with a utility, what best describes your utility?

A. City-ownedB. County as a county department or county

utilityC. County structured as county water and sewer

districtsD. Water and Sewer AuthorityE. Sanitary districtF. Other (for profit utility, nonprofit water

corporation, home owner association)

Utility Services

Treated water

Treatment of wastewater

Guaranteed capacity (required by State)

Public health

Economic development

Environmental protection

“Upfront” Water Fees in North Carolina

Diverse terms and labels

Variety of methods for determining cost of fee

Variety of methods for allocating costs between different customers (meter size, square footage, anticipated use)

Variety of combinations

Adapted to local conditions and circumstances

Developed “in house” or with help from outside advisors

Key Aspects of Fees to Consider

1. Establishing the need or justification for the fee and what the fee is “buying”

2. Wording in ordinances

3. Calculation methodology

4. How fees are communicated to public

5. What you label it

Fees in North Carolina

http://www.efc.sog.unc.edu/reslib/item/how-much-does-it-cost-connect-water-and-wastewater-utility-north-carolina-residential

Fee Distribution in North Carolina

Legal Analysis

Government Water / Sewer

Services

Municipalities

Counties

Joint Agencies (City/County

Utility Commission)

County Water and Sewer

Districts

Water and Sewer

AuthoritiesSanitary Districts

Metropolitan Water Districts

Metropolitan Sewerage Districts

Metropolitan Water and Sewerage Districts

Fayetteville PWC /

Greenville Utilities

Commission

Town of Carthage

Water Impact Fee• Assessed on new development (triggered off final plat approval)

• Amount based water meter size

• Revenue “used to cover the cost of expanding the water system. The costs of expansion are water treatment plant expansion, elevated storage expansion, and transmission mains.”

Sewer Impact Fee• Assessed on new development (triggered off final plat approval)

• Amount based on meter size

• Revenue “used to cover the cost of expanding the sewer system. . . . includ[ing] gravity mains, force mains, and lift stations.”

Tap Fee

To Be or Not To Be “Furnished”

“may establish and revise from time to time schedules of rents, rates, fees, charges, and penalties for the use of or the services furnished by any public enterprise.”

G.S. 160A-314; G.S. 153A-277

“may establish, revise and collect rates, fees or other charges and penalties for the use of or the services furnished or to be furnished by any sanitary sewer system, water system or sanitary sewer and water system of the district . . . .”

G.S. 162A-88

Municipalities & Counties

County Water and Sewer

District

“for the use of”

“services furnished by”

Atlantic Construction Co. v. City of Raleigh, 230 N.C. 365 (1949) (city had authority to charge reasonable connection fees and to otherwise “fix the terms upon which the service may be rendered and its facilities used.”).

Town of Spring Hope v. Bissette, 53 N.C. App. 210 (1981), aff’d 305 N.C. 248 (1982) (holding that the setting of water rates pursuant to G.S. 160A-314 is “a matter for the judgment and discretion of municipal authorities, not to be invalidated by the court absent some showing of arbitrary or discriminatory action.”).

Town of Spring Hope v. Bissette, 305 N.C. 248 (1982) (holding that town may charge current sewer customer reasonable user fees that are calculated to include “capital cost associated with actual or anticipated growth or improvement of the facilities required for the furnishing of such services.”).

McNeil v. Harnett County, 327 N.C. 552 (1990) (noting that local government may use connection charges and monthly user fees to finance the debt associated with a capital project).

Ricks v. Town of Selma, 99 N.C. App. 82 (1990) (holding that ability to charge fees for the use of or services furnished by the town includes the ability to charge an availability fee when sewer services are available to property but property is not connected).

Davis v. Town of Southern Pines, 1010 N.C. App. 570 (1991) (upholding town’s sewer tap fee as valid charge “for using the facilities involved.”).

General Textile Printing and Processing Corp. v. City of Rocky Mount, 908 F.Supp. 1295 (E.D.N.C. 1995) (noting that local governments authorized to set water and sewer fees so as to generate a profit).

Fee Framework

Who can you charge?

When can you charge it?

What can you charge?

(and sometimes) How can you spend the money?

What’s in a Name?

Impact Fees Contractual Charges

Capacity Fees

System Development

Fees

Tap / Connection

Fees

User Fees

Capital Fees

Capital Facility Fees

System Buy-in Charges

Capital Investment

Fees

Capital Recovery Fees

Capital Reserve Fees

Capacity Use Fees

Development and Technology

Fees

Acreage Fees

Privilege Fees

Initial Hook-up Fees

Monthly Fees

System Capacity Charge

???

Fees “for the use of or services furnished by”Not Allowed Allowed

IMPACT FEE*:

• Assessed on developer as condition of development;

• Calculated to fund future capital maintenance / expansion

CONTRACTUAL CHARGE:

• Assessed on Developer or Property Owner Pursuant to Contractual Agreement;

• Calculated to Cover Costs of Expanding Infrastructure to Serve Property(ies)

TAP/CONNECTION FEE:

• Assessed on developer or property owner when property connects to water/sewer system;

• Calculated to cover costs of connecting property to system

* Unless unit has local act authority USER FEE:

• Assessed on water/sewer customer; • Calculated to cover past, current, and future

costs necessary to serve property; • May include profit component

Fees “for the use of or services furnished by”Not Allowed ??? Allowed

IMPACT FEE:*

• Assessed on developer as condition of development;

• Calculated to fund future capital maintenance / expansion

CAPACITY FEE: CONTRACTUAL CHARGE:

• Assessed on Developer or Property Owner Pursuant to Contractual Agreement;

• Calculated to Cover Costs of Expanding Infrastructure to Serve Property(ies)

TAP/CONNECTION FEE:

• Assessed on developer or property owner when property connects to water/sewer system;

• Calculated to cover costs of making connection between property and system

*Unless unit has local act authority USER FEE:

• Assessed on water/sewer customer; • Calculated to cover past, current, and

future costs necessary to serve property;

• May include profit component

Fees “for the use of or services furnished by”Not Allowed Capacity Fee Allowed

IMPACT FEE:*

• Assessed on developer as condition of development;

• Calculated to fund future capital maintenance / expansion

• Assessed when propertyconnects (or contracts to connect) to water/sewer system

• Calculated to solely to cover future expansion costs

• Assessed when propertyconnects (or contracts to connect) to water/sewer system

• Calculated to cover some measure of reserved capacity in system (combined or hybrid approach—includes both existing and planned capacity)

• Calculated to cover unknown future maintenance / upgrade costs of system

• Assessed when property connects (or contracts to connect) to water/sewer system

• Calculated by equity or system buy-in method as reimburse-ment for past investments in system

• Calculated to cover known or predictable future maintenance / upgrade costs necessary to provide service to property

CONTRACTUAL CHARGE

• Assessed on Developer or Property Owner Pursuant to Contractual Agreement;

• Calculated to Cover Costs of Expanding Infrastructure to Serve Property(ies)

TAP/CONNECTION FEE

• Assessed on developer or property owner when property connects to water/sewer system;

• Calculated to cover costs of making connection between property and system

*Unless unit has local act authority

USER FEE

• Assessed on water/sewer customer;

• Calculated to cover past, current, and future costs necessary to serve property;

• May include profit component

Other Funding Sources for Water/Sewer Capital

General fund revenue (capital and operating)

Availability fee (capital and operating)

Special assessment (capital only)

Special taxing district (capital and operating)

Availability Fee

Municipalities G.S. 160A-317

CountiesG.S. 153A-284

• Assessed on developed property that is located within a reasonable distance from municipal water/sewer lines

• Assessed as a charge in lieu of mandated connection to municipal water or sewer system; may not be assessed on property that is exempt from mandated connection

• May not exceed the minimum periodic service charge assessed on utility customers (fixed component of user fee)

• Assessed on improved property that is located within a reasonable distance from county’s water/sewer lines

• May not exceed the minimum periodic service charge assessed on utility customers (fixed component of user fee)

Poll Question 4

How would you rate your understanding of utility authority to establish up-front fees (impact fees, capacity fees, tap fees etc.)?

A. 1 – low understandingB. 2 C. 3 D. 4E. 5 -- high understanding

Continue the Discussion

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Poll Question 5

Would you like to receive blog posts (2 to 4 per month) on current environmental finance issues and trends?

A. Yes

B. No

Questions?

Jeff Hughes

Lecturer and Director of Environmental Finance Center

School of Government

jhughes@sog.unc.edu

919.843.4956

www.efc.sog.unc.edu

Kara Millonzi

Associate Professor of Public Law

School of Government

millonzi@sog.unc.edu

919.962.0051

www.sog.unc.edu