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New schedule slashes city's commercial impact fees

Reacting to election-year criticism that the city's impact fees hinder economic development, the Hendersonville City Council on Thursday endorsed a dramatic rewrite of the schedule that shifts the burden of impact fees from new businesses to new homes.

A new fee schedule proposed in a consultant's report would raise more money overall than the current rate structure by shifting the cost from new commercial to new residential construction. It cuts the impact fee sharply for the large users — by 80 percent — while nearly tripling the impact fee for new residential hookups.
The impact fee, or system development charge, is intended to offset the cost of future water and sewer system improvements made necessary by new users. The fees do not affect current users; instead, they're intended to ensure that existing ratepayers don't pay an inordinate share of the cost of new capacity required by new users.
The City Council signaled its endorsement of the proposed rewrite but took no action. City manager John Connet said the staff would draft policy to support the proposed rates and meet with "stakeholders" before coming back to the council at its October meeting.
Because the city has more residential construction than commercial construction, the new fee schedule would double the revenue the city would get from impact fees annually — from $226,000 to $452,000.
The fees "are one-time charges imposed at the time of connection to the system" and "are designed to recover all or a portion of the capital investment made by the city" to upgrade capacity, the city's consultant said.
The impact fees became infamous when a developer received a quote from the city water department showing a system development charge of almost $280,000 for a new carwash, and the fees became a topic in the City Council campaign.
"The impact fees in place are having a pretty drastic effect on businesses coming here," Steve Dozier, a real estate agent who was speaking on behalf of the Henderson County Chamber of Commerce, told the City Council on Thursday. "I hope you will give serious consideration to these fees. Anything in that ratio is just an astronomical change and it's going to affect businesses coming to this area."
The council adopted the new schedule a year ago. Council members said Thursday night that the new proposal is closer to what the board replaced at that time.
The Martin McGill management-consulting firm of Asheville analyzed the city's rates, compared them to those in other cities and recommended new rate schedules based on the replacement cost of the utility system divided by the number of users. The report said 39 percent of water and 48 percent of sewer rate structures in the state charge system development fees. Financial analyst Steve Miller of Martin McGill said the firm chose a formula developed by the American Water Works Association "because it was defensible, relatively easy to explain to customers and easy to implement."
The system development charges build up the city's capital fund for utility system improvement — generating an average of $299,000 a year over the past five years and more than that before the recession of 2007. Without the new-user impact fees, the consultant said, the city's ratepayers would have seen a 2 percent increase in water bills.
"Regardless of the selected alternative, these fees should be viewed as important to ensure the equitable distribution of cost responsibilities between existing and future ratepayers," the report said.
Council members said they were leaning toward a new rate schedule that uses a 75 percent replacement cost value. The new structure would raise the combined water-sewer impact fee from $981 to $2,710. (Statewide, the average residential impact fee is $2,300, the consultant said.) The new schedule would cut business impact fees by 82 percent. A restaurant's impact fee would drop from $24,356 to $4,430, and a carwash's fee would drop from $82,4444 to $14,250.
"This would put him back to $15,000," Councilman Ron Stephens said, referring to the rate before the council's adopted the new schedule last year.
"Right, and that makes it doable," said Councilman Steve Caraker.
Caraker, a plumbing contractor, said the Martin McGill option based on 75 percent of the city utility system's value seemed to be the fairest approach.
"I think alternative 2 levels the playing field," Caraker said.