LELAND — Brunswick Regional Water and Sewer H2GO passed multiple rate increases during a four-hour meeting Tuesday, including a $3,400 combined bump in system development fees and a 10% base sewer rate increase.
With the possibility of system development fees swelling 124% to $11,200 ($4,700 for water and $6,500 for sewer), the utility’s SDF analysis attracted the attention of northern Brunswick County Realtors and developers. In general, increases in development fees tend to have the effect of slowing development, and realtors and developers often pay close attention to potential fee hikes.
Related: H2GO system development fees could be on the rise
After sharing an initial fee hike included in its SDF analysis, H2GO received technical notes and feedback from Business Alliance for a Sound Economy (BASE) — a non-profit advocacy group for business and industry in New Hanover, Brunswick, Pender and Onslow counties — and Cape Fear REALTORS® (CFR). In response, H2GO adjusted its analysis and lowered the overall increase by $2,800 to a combined water ($3,200) and sewer ($5,200) fee of $8,400.
The new look at the utility’s system development fees (SDFs) comes as it prepares to finance a $42 million reverse osmosis water treatment plant and bear 47% of the cost of expanding the county’s Northeast Wastewater Treatment Plant, a $52 million project that’s already underway.
Base sewer rates for all residential customers will increase 10%, from $12 to $15, effective Jan. 1, 2021. H2GO previously attempted to negotiate a lower overall cost in expanding the NEWWTP, but Brunswick County informed the utility the cost couldn’t be further reduced. Bids for the project came in at $12.8 million over initial estimates.
System development fees (SDFs) are a recently approved fee utilities can charge new developments to cover the cost of improvements or expansions necessary to serve the new projects. Residential customers will likely never see an SDF on any bill; the cost is folded into the final lot or home price.
SDFs are different from “tap fees,” which cover the actual cost of physically connecting to the system. Developers are keenly aware of SDFs, one of the largest costs that has to be tackled before a new project is complete.
Before SDFs, government utilities illegally charged developers “impact fees,” as outlined in the 2016 N.C. Supreme Court case Quality Built Homes vs. Town of Carthage. In that case, the town was charging builders impact fees to cover the cost of expanding its utility system, even though plans to expand it weren’t in place.
The lawsuit triggered House Bill 436 the following year, which essentially legalized and created SDFs under specific and reined in purposes. It meant SDFs couldn’t be charged arbitrarily and required a professional analysis to determine the cost billed to developers.
Attorney Jim DeMay, who represented the Town of Carthage in the precedent-setting case, represented BASE in its efforts to urge H2GO to revisit its SDF analysis.
One of DeMay’s and BASE’s major technical points incorporated into downsizing H2GO’s fee assessment was pointing out new developers shouldn’t be overcharged for the cost of a new water treatment plant that will serve existing customers too.
H2GO’s contentious and now legally pemitted reverse osmosis water treatment plant will cost an estimated $42 million, compared to 2017 estimates at $35 million.
Tyler Newman, BASE’s president and CEO, said he was overall satisfied with Tuesday’s outcome. “Candidly, I think H2GO made the best decision that they could for them with all the cards on the table,” he said. “The commissioners were sensitive to the concerns and I appreciate them being considerate because it’s a delicate situation.”
H2GO shaved off $700 from consultant The Wooten Company’s revised recommendation. Both H2GO and The Wooten Company arrived at reduced fees and increased overall projected revenues by accounting for a higher growth rate (5%) than originally planned (3.5%).
Should H2GO’s service growth rate dip below 5%, it could mean trouble for the utility, triggering multiple years of water and sewer customer rate increases. Between the fiscal years 2019 and 2020, the utility’s growth rate was 9%, according to H2GO’s spokesperson Tyler Wittkofsky.
Wittkofsky said the community’s feedback helped the utility correct and fine-tune its assessments.
“It’s a balancing act is what it comes down to — making sure we have low rates for current customers and affordable housing for future customers,” he said Wednesday.
The increase will take place incrementally, taking full effect by July 1, 2021. This approach was incorporated after hearing feedback from the development community that new rates implemented immediately would alter projects and quotes already underway in H2GO’s service area.
Though still not ideal, the more mild increase appeased the development community compared to the more drastic alternative previously presented.
Under the higher fees presented initially, BASE told the utility it would cause developers to not carry out planned projects and therefore shift the cost burden onto existing customers. CFR shared concerns about housing affordability and asserted the increased fees would stunt growth in the region.
Cape Fear Realtors President Tony Harrington acknowledged both the traditional impact of fee increases — namely, development slowdowns — and the region’s need to expand its utility system.
“Cape Fear REALTORS® appreciates the H2GO Board of Commissioner’s diligence in the decision and consideration of our public comment on the matter. Generally, drastic increases in fees associated with development create an inherent risk in slowing growth. However, we understand the need for capital improvements to keep up with growing regions, especially Northern Brunswick County, and acknowledge a phased-in approach to SDF increases provide predictability for the development planning process and time for the market to adjust. We are optimistic that Northern Brunswick County will continue to be a leading area for growth in our region,” Harrington said in a statement Thursday.
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