Developing a matrix by which to bill people for water and sewer bills in Brookings is about as maze-like as the infrastructure itself.
In reevaluating its sewer and water rates this summer, the Brookings City Council learned it has the highest sewer system development charge (SDC) rates of any municipality in the state. It is now working to devise a better plan that will balance system development charges — those fees paid to the city for the impact a new use has on infrastructure — with user fees and still generate enough money to pay off the debt on the wastewater treatment plant, expand the system, entice new business and, all the while, charge fair price to consumers.
“There are a lot of moving parts,” said City Manager Gary Milliman.
The subject arose after people started complaining about exorbitant up-start fees, notably for restaurants. It can easily cost the developer of a new restaurant in town upwards of $100,000 for SDCs — and that’s before it pays for items needed in the restaurant itself.
The rules regarding SDCs are difficult enough to comprehend, without even considering all the loopholes change can create.
For instance, Councilor Brent Hodges wondered how fair it is that the owners of the Loring Museum on Spruce Street have paid the commercial rate for SDCs for that property, but that a new owner could develop the space as a restaurant — a use that has a much higher impact on the sewer system and for which the new owner would not have to pay.
Of primary debate, however, is how commercial use of water should be measured — and thus charged. For instance, some commercial uses such as restaurants, auto repair shops and dog washes are typically charged more in SDCs because of the strain those uses put on the system, while other commercial monthly billing rates are set at a flat rate regardless of the type of use.
Another idea the council will consider is to reduce the up-front SDC fees for commercial uses by revising the monthly billing, from a flat rate to one comparable to the impact their wastewater has on the system.
Milliman said other municipalities typically use one, or a mix, of four ways to assess wastewater rates: through strength, the square footage of the building, the number of fixtures in that structure or the size of the water meter.
Hodges also doesn’t believe basing rates on square footage is fair.
“You take my 5,000 square feet with one bathroom and Kelly’s (McClain, a realtor and council member) 1,000 square feet, who has a lot more bathroom use and a kitchen, and I pay more? How do you make it fair?”
Mayor Ron Hedenskog admitted the current methodology is more like a shotgun approach, where, if looked at from afar, appears to have hit the target. But when examined close-up, it’s easy to see that some pellets didn’t come close to the intended target.
Hedenskog himself has a problem with basing rates on the size of a water meter, which, while it can calculate rates of flow, doesn’t differentiate between commercial and say, residential uses.
There are different SDC rates for existing buildings — and different rates if that use is changed. New kinds of businesses — notably micro-breweries — are coming into vogue and must be addressed. Mixed-use buildings, such as one of businessman Tim Patterson’s, which houses a coffee house, a nano-brewery and a bistro, are a conundrum.
“We saw this coming when we raised rates,” noted Councilor Jake Pieper. “When I gave my yes vote to raise rates, it was with the understanding that when SDCs increase (when development ramps up again), user rates will go down. It is an important point.”
The council increased monthly billing rates last year due to a decrease in development and subsequent construction-related SDC revenue. Previously, SDC revenue was paying a larger portion of the debt service of the wastewater treatment plant, but as development slowed, the onus of paying the debt fell to users in monthly rate fees.
McClain said he’d rather see more emphasis on user fees and less on the up-front expenses charged to new business owners — who often pay everything before they even know if their business itself will be lucrative.
Other questions Milliman wanted answered from council before the city staff can start making any changes include whether user fees can be reduced as construction — and thus, SDCs — begins anew; if the group wants SDCs to be used for system expansion; and how existing agreements with yet-to-be-developed property, notably Lone Ranch north of town, is to be addressed.
There, the developers have paid in advance the SDC fees to bring services to the area. As homes and commercial properties are built, the developer is supposed to be reimbursed by the property owners who buy into the project for their percentage of the infrastructure costs.
But if SDCs are reduced say, by half, the developer will have to build twice as many homes in half the time to get reimbursed at the same rate they would today.
Milliman also wanted to know if the council would like to increase commercial user fees so the city can lower commercial SDCs.
It’s obvious, the council agreed, that many questions, likely to be addressed over many meetings, are necessary before any changes can be made to the rate structure.
“There doesn’t seem to be any end to the argument about this,” Hedenskog said of years of discussion about equity. “We’re going to have to have more workshops. There doesn’t seem to be any end to questions and ideas.”
“This is been a useful conversation,” Milliman noted at the end of the meeting. “I wrote down, ‘Increased use of user fees than SCDs’, ‘exempt existing commercial buildings that are occupied by a certain date,’ and ‘note that several factors are part of this mix.’ And I wrote, ‘Simplify.’”