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Frederick looks to revise water, sewer impact fees

Friday - 3/2/2012, 6:00am  ET

Frederick is working out how to recoup the cost of new water and sewer lines without setting fees so high they drive away prospective water and sewer customers.

It is a balancing act, the Board of Aldermen and builders' representatives agreed recently. The city is considering a revised ordinance for impact fees, which are assessed before building permits are issued.

Impact fees are designed to cover the cost of improvements that serve new development. The city's engineering department has been revising the impact fee ordinance since the fall, when aldermen said they were concerned that the upfront fees drive away potential businesses.

The aldermen voted to amend the payment schedule so the fees could be paid in four installments. They suggested changing the ordinance to use a formula that bases fees on predicted use instead of the number of fixtures in a building.

Zack Kershner, city engineer, presented a draft ordinance Feb. 22.

The fixture-based combined fee per 250-gallon water and sewer allocation is now $10,931. Allocations are made in units of 250 gallons per day.

The proposed formula starts by factoring the $130 million cost of city water and sewer infrastructure projects, then dividing by the number of water and sewer units available. The result is a $13,899 impact fee per unit: $8,649 for water, and $5,250 for sewer.

A flow factor to determine allocations will be based on average use by existing businesses and industries in the city, Kershner said. That factor will be multiplied by the property's size or number of seats, "or whatever units the flow factor is in," Kershner said in an email.

Factors for residential allocations will not change: 250 gallons per day for a single-family house, 225 gallons per day for townhouses and 175 gallons per day for apartments.

After the city ran out of water and sewer capacity for new development, it entered into the Potomac River Water Supply Agreement with the county in 2006 to purchase up to 8 million gallons per day. The city paid about 39 percent of the project's $131 million cost.

That $51 million share is part of the city's estimated $130 million cost for ongoing expansion and factored into the impact fees, Kershner said. Some new and existing infrastructure costs should be paid for by new development and some by existing customers, he said.

"How we repay that is the balancing act," Mayor Randy McClement said.

The residential and commercial development served by new waterlines could bring jobs and other revenue that ought to be considered aside from impact fees, alderwomen Shelley Aloi, Carol Krimm and Karen Young said.

Krimm asked staff to provide information on how many tax-paying businesses and residents might have been lost when the city had no water available.

Bruce Dean and Jeremy Holder of the Frederick County Builders Association Land Use Council, supported the change to flow factor instead of fixture, but said the nonresidential fees could discourage business.

"You don't want to be driving people out," Dean said. "We fully support the (capital improvements) process ... and us paying you back, but we've got to be able to sell the taps."

"(T)hough this is a better approach, it's actually increasing impact fees, which are already exorbitant," Aloi said.

Young said the fees could take the city out of competition with surrounding jurisdictions, especially Montgomery County, where the comparable impact fee is $5,090.

Montgomery County has a much larger commercial tax base and did not have to build a pipeline to serve new customers, she and McClement said.

"Until we get to a larger assessable commercial base we're stuck with these kinds of dilemmas," Young said.

It might make sense to subsidize the water and sewer funds, she said, as the city does the airport fund. Water and sewer service could bring revenue that justifies a subsidy, she said.

Before the aldermen vote on the revisions, Kershner will provide sample calculations to show how the new ordinance would have affected fees on existing businesses, he wrote in an email.