The Cottonwood City Council gave a first reading Tuesday of an ordinance that creates impact fees for water and wastewater connections associated with new development.
The second and final reading is set for the July 17 meeting.
According to the study by the city's consultant firm Coe and Van Loo and economist.com, impact fees are defined as a "One time charge paid by new developments to finance the construction of public facilities needed to serve it. By implementing impact fees, cities ensure that existing ratepayers are not funding the cost of new development."
City Manager Brian Mickelsen identifies pros and cons of establishing impact fees in a staff report that was prepared for the July 3 meeting.
He notes that they provide "a source of revenue for the required infrastructure upgrades necessary to serve new development" and they reduce the "impact of new development on the existing rate payers." However, impact fees increase "the cost of new development, which is typically passed on to the home-buyer or customer."
The impact fee schedule follows a year's worth of study, review and Council direction regarding allowable amounts of water and wastewater impact fees to charge new construction.
A typical home uses a 5/8" - 3/4" meter size. With the proposed impact fees, any new developer/installer would have to pay a total of $5,843 to connect to the city's water and wastewater utility.
For a 1" meter, the impact fee total is $14,609.
However, according to the proposed ordinance, "A customer required to install a 1" meter solely to service a mandated residential sprinkler system will be charged the 5/8" - 3/4" meter size impact fee."
Larger meters are used predominantly by commercial developments and cost the installer $29,218 for a 1 1/2" meter to $146,089 for a 4" meter.
Currently, the city charges a flat rate of $1,500 for new residential units to connect to the sewer system. Current sewer connection rates vary for commercial developments. This is the only impact-fee-type charge the city collects for new development.
Resident Bob Oliphant raised concerns for the ordinance and offered suggested amendments particularly with its regard to offsets, credits and kickbacks to developers.
According to the ordinance, offsets against the impact fee amount shall be provided to a developer if the new development "creates increased water supply, enhances water pumping facilities, increases wastewater downstream collection system capacity, or increases downstream collection system capacity."
One of Oliphant's suggested amendments included adding that, if the city participated in costs related to the improved water system, the city's contribution (labor costs etc.) should be subtracted from the total offset given to the developer.
Oliphant's suggestions were addressed; however, the City Council went forward with the ordinance as it was proposed.
The issue of implementing impact fees really came to light when the city looked at future capital improvement projects and their relation to growth.
For the water system, the city is expecting to put $25.6 million into capital improvements over the next 10 years, according to the capital improvement plan.
Of that, $18 million is growth related. It is a very similar story when looking at wastewater -- $26.4 million is going to be needed for capital improvements, with $24.7 million of that related to growth.
Utilities Director Dan Lueder earlier told the Verde Independent proposed impact fees, with interest, are expected to cover growth. Impact fees are placed into an account and can only be used for growth related projects.
Impact fees would be used to pay for collection systems, a new wastewater treatment facility, federally required arsenic remediation and other projects, Lueder said.
The proposed $5,843 water and wastewater impact fee for a 5/8" meter on a residential unit falls in the middle as far as surrounding municipalities' total fees.
One thing to keep in mind, other municipalities' impact fees include police, transportation and other impacts, while at the same time, some don't include water, such as Sedona. Cottonwood's fees are only for impacts to water and wastewater.