A state law passed in 2017 required the body to revisit the way it calculates such fees — then known as impact fees and now renamed system development fees. The result was a legally mandated fee ceiling that came in substantially lower than the rates currently in place.
“If we keep the ceilings at the highest, it looks like we’re going to generate in the neighborhood of 68 to 69 percent of historical (impact fee) revenues,” TWSA Executive Director Dan Harbaugh told the board during a June 19 meeting. “And that means keeping it to the ceiling and not differentiating between residential and commercial (customers).”
The impact fee issue
After hours of deliberation spread over three separate meetings, the board ultimately decided on a fee schedule that would use rates significantly lower than the ceiling. Under the new system, customers in the northern and southern ends of the county will pay the same fees — previously, the two systems had separate fee schedules — with ceilings calculated for the northern system controlling the conversation, as those ceilings were higher.
Commercial customers will pay system development fees of about 75 percent of the calculated ceiling, with residential customers paying slightly less, about 67.5 percent of the ceiling.
Under the new system, a 150-seat restaurant that would previously have been charged $44,900 in water and sewer impact fees would instead pay a total of $17,044. Likewise, a single-family home that would previously have carried an upfront charge of $3,600 for water and sewer will now pay $2,178.
“To me this is kind of a good compromise where we’re at right now,” Harbaugh told the board during its final budget meeting June 25. “Again, we’ll have to revisit the revenues that are generated once we have a history.”
TWSA’s impact fees, now renamed system development fees, have come under fire in recent years as being unreasonably high, thereby impeding economic development — the most public example was that of Sylva’s Creekside Oyster House & Grill, which was looking to expand into a new building but faced nearly $50,000 in upfront charges to do so.
Owner George Neslen told TWSA that he’d have to cancel the expansion or take the business elsewhere if such a high barrier remained. TWSA later identified a solution that allowed Neslen to move forward with the project without paying the $50,000, but the overall issue of high upfront fees remained.
Dollars collected through upfront fees go toward future system development to replace used-up water and sewer capacity. Every time a new customer uses 1 gallon of previously unused capacity, that gallon ceases to exist for the use of future customers. The upfront fees create a pool of money TWSA can use to eventually replace used-up capacity.
Proponents of the fees pointed out that, regardless of what happens to impact fees, somebody will have to pay for capacity replacement projects. It would be unfair, they said, for existing customers — especially those who already paid impact fees at some point in the past — to foot the bill for new businesses or homes in Jackson County.
The TWSA board has been wrangling the topic all year long, with some members advocating to get rid of upfront fees altogether and others pushing for them to stay as high as possible under the new law. But with the June 30 deadline to adopt a new budget looming, the board had to get down to the nitty-gritty details of developing a new fee system.
Simplicity versus specificity
Earlier in the month, the board was considering a range of options that would base the charge on the size of the customer’s meter. The approach presented some difficulties, as it would require condensing several existing fee categories into a single line — thus, customers on the low end of the category would wind up paying more per gallon and those on the high end would pay less.
During the final budget work session held June 19, however, Harbaugh presented another option — a table using the same categories as the current system, but with amounts adjusted to reflect the new ceiling.
“I like the table broken down,” said TWSA Chair Tracy Rodes, who is also the mayor of Webster. “I think it gets more specific. I think it gets closer to charging people for what they’re actually using.”
Board member David Nestler, a Sylva town commissioner, wasn’t so enthusiastic.
“So I can see a pretty big drawback in this, though,” he said. “I’d like these (fees) to go down and I would like them to be a lot more simple. I think that’s one of the big critiques of the system we have now.”
He held up a sheaf of papers, printouts showing what the upfront charge would be for various utilities in neighboring towns and counties, as well as for other water and sewer authorities in North Carolina.
“I got it in 16 minutes. Every single one of them is just your meter size and the fee, and it’s super simple,” he said of the eight systems he’d researched.
Meanwhile, TWSA’s more complicated fee schedule is hidden inside the PDF budget document on its website — figuring out what the fee would be for a particular project is “really complex,” Nestler said.
Nestler advocated for a fee schedule that would go by meter sizes but base charges on the calculated ceiling for the lowest use level of each band.
“The nice thing about just keeping the lowest price is you don’t hurt people who just use a little bit more and you make it really easy so they can tell what they’re going to pay, just like I was able to do with everybody else,” said Nestler. “It’s a simple, seconds-long process.”
Harbaugh, however, expressed concern that using that approach would “create more lost revenues” and said it would be hard to fully evaluate the effect in time to finalize the budget.
Board members Ron Mau and Mike Byers — a Jackson County commissioner and Western Carolina University’s vice chancellor for administration and finance, respectively — sided with Nestler in favoring the shorter version of the table, but the remaining board members gave majority backing to the longer table proposed by Harbaugh.
Setting the fees
The board next had to determine how to set fees for each category. The analysis completed to comply with state law laid out a legal maximum charge, but all along the board had discussed the possibility of setting the fees below the legal limit.
“This gives us a formula and we can decide how much to charge,” Byers said of the tiered chart.
The board decided to set fees at 75 percent of the legal ceiling — for commercial customers, that is. The members decided to differentiate fees for commercial and residential customers, ultimately voting on a budget that put residential fees at about 67.5 percent of the ceiling.
During an earlier iteration of the impact fee discussion, back in 2015, TWSA had created an allocation rental program that allowed existing users looking to increase their allocation to pay a monthly fee rather than a lump sum impact fee. While upfront fees will go down for future allocation requests, the changes will not affect those currently covered under the rental policy. Harbaugh told the board that the state law initiating the shift in impact fees applies only to upfront fees and doesn’t require any change in the rental policy. Those customers will actually see a slight increase, as TWSA’s other fees are set to rise 2 percent across the board.
“If the board wants to revisit that in the new year, we could certainly look at that,” said Harbaugh.
TWSA will almost certainly be revisiting the entire system development fee issue next year, as the 2018-19 budget represents a massive shift in the existing fee structure. In addition, upfront fees depend on payments from projects that don’t currently exist, so it’s impossible to predict exactly what revenues will total in any given year.
“It is a stab in the dark at this point,” said Harbaugh on June 25. “We should be tracking that through the year to see what we should be looking at for years coming in the future.”
Such statements made some board members nervous.
“It’s kind of scary not to know what we’re doing,” said Rodes on June 19.
“It doesn’t have to be scary,” replied Byers. “First of all, we’re going to have to lower revenues from impact fees no matter what. That’s what this thing is going to do. We’re very well positioned with reserves and capital that if we see we’re taking a hard hit, we have years to adjust if we’re having a real problem.”
According to the University of North Carolina School of Government’s Environmental Finance Center, TWSA has $10.7 million in reserves. If the new upfront fees prove too low to support the budget long-term, TWSA can simply raise the rates next year and cover this year from reserves.
TWSA’s $4.4 million operating budget, meanwhile, will be level from the current year, with the 2 percent fee increase going to ensure that debt service payments can come out of operating funds rather than requiring a transfer from reserves, as has been the case in the past seven years. The budget also includes a 2 percent cost-of-living increase for TWSA’s 31 employees, a roster budgeted at 1.4 positions more than the current year.
TWSA budgets are posted at www.twsanc.us/forms-documents. The new budget year begins July 1.