Brookings City Council is trying to attract new businesses to the area by reducing its wastewater System Development Charges (SDCs) that have been blamed for turning many away.
“I think you might be the brass ring for the highest SDC charges in any municipality in the state,” analyst Shaun Pigott told council members at a work session earlier this week. “You’re up there.”
Until the early 1990s, cities used a variety of methods in which to interpret state law regarding SDCs. SDCs are charged to new development to offset the cost that development will have on the treatment facilities.
“In 1989 and 1990, cities were going every which way,” Pigott said. “Homebuilders were saying, ‘Enough! Enough!’ The governor said, ‘You’ve got to come together on this.’ Even within the (current) statute, there’s disparity.”
Calculating wastewater treatment costs isn’t easy, he said.
“Your existing method relies on replacement costs minus depreciation,” Pigott said. “That’s very aggressive. Other cities rely on the original costs less depreciation.”
Also, “the loans and related debt service used to fund wastewater facilities have changed, which affects the SDC,” said City Manager Gary Milliman. “At the time of the 2009 SDC study, the calculations included a provision for future principal and interest expense — debt service — that significantly increased the SDC amount.”
It has also been determined that study included costs now paid via the city’s general obligation bond in 2003, which is assessed through property taxes, and is not eligible for SDC funding, he wrote in a report.
Wastewater SDCs in Brookings currently run $9,381 per equivalent dwelling unit (EDU), which is supposed to pay the costs new development places on the wastewater treatment plant. A typical house is considered to be one EDU, but uses other than residential — a car wash, restaurant or pet grooming facility, for example — require much more treatment and subsequently, cost more.
For instance, it can easily cost more than $100,000 to open a restaurant in a building that’s never been used as such — on top of the cost of buying the building.
“The number one complaint I get from citizens is that Brookings’ water and sewer rates are too high,” said Councilman Kelly McClain. “A restaurant needs to pay $130,000 in SDCs in a town where it’s hard to be a restaurant.”
The high costs are primarily due to the fact the city is still paying off the bond associated with the new wastewater treatment plant, Milliman said. It is made much more complex by the fact the city has 62 identified development types — each with its own SDC designation and cost — with which to contend.
“You’ve got things like trip generations, golf course holes (calculated in SDC fees),” Pigott said. “These things don’t typically align with water use. It’s a head scratcher for me.”
City officials also based current rates in 2009 based on an anticipated 3 percent growth rate in the city; Milliman said that rate is actually less than 1 percent.
The city is doing nothing illegal in its methodology to figure the fees, Pigott said. But by changing it, costs to consumers could be reduced by 29 percent.
Legal precedence in the courts, Pigott said, tests proportionality.
“If you’re charging restaurants seven times more than a (residence), you’ve lost that proportionality,” Pigott said. “If you have a 1-inch meter and you don’t change the meter, there is no basis for additional SDCs. This doesn’t meet the test.”
The city, he noted, doesn’t measure its wastewater based on meter sizes, as many municipalities do. If it did — and charged additional fees to businesses that discharge effluent that needs more intense treatment — costs could be dramatically reduced.
“Uses like restaurants, a fish processing plant, they discharge waste that is more expensive to treat,” Milliman said. “Restaurant sewage typically contains more solids, detergents and grease than other commercial establishments, and it costs more to build and maintain wastewater facilities to accommodate this higher loading.”
That additional loading is based on oxygen demand and total suspended solids.
The analysis is timely, Milliman said, because city officials in the past year have refinanced loans at lower rates and changing the entire landscape of SDCs.
The city has been relying on SDCs as its primary source to pay the debt on the treatment plant and, with little growth in the city, has passed much of that burden to ratepayers, Milliman said.
“It’s not a situation where the city has somehow been applying too high of a rate for the SDCs for debt service,” Milliman said. “It was a conscious decision of the city to shift it to the ratepayers. The city council raised rates primarily because of the shortfall in SDCs. SDCs were too high, in part, because we were using it for debt service, and now we’re not.”
When the wastewater treatment plant was built, the city council said that, to secure approval to issue the bonds, the burden for paying them off had to be on new development.
“That works fine when you have an annual growth rate of 3 percent,” Milliman said. “We have not had much in the way of new development. The view of (this) city council is that rates we have now are having a negative effect on attracting business.”
City officials will examine the figures and methodologies Pigott outlined at the meeting and analyze other alternatives in an attempt to lower the SDCs. They should have more definitive answers by late next spring when the wastewater master plan is expected to be complete, Milliman said.
“If the housing market recovers, we want the ability to shift back (ratepayers to new development),” he added. “I think we’re heading toward a reduction.”