Title
Referral Item #020017 - Utility Connection Charges for Affordable Housing (B)
Explanation
In 1982, the City of Gainesville adopted connection charges to recover the capital impacts of new customers as they connect to the water or wastewater system. While these connection charges cover the capital impact of new customers, they do add to the cost of constructing new homes. Since connection charges are uniform, connection charges are a larger portion of the cost of affordable housing than of higher priced housing. The City Commission referred the issue of Utility Connection Charges for Affordable Housing to the Regional Utilities Committee on May 28, 2002.
In an effort to determine how other municipal utilities deal with connection charges or impact fees for affordable housing, GRU conducted a telephone survey of fourteen comparable municipal utilities. Results of the survey are presented in Table 1 (provided in backup). The Survey can be summarized as follows: 1) 5 of 14 utilities offer full or partial waiver of connection charges or impact fees; 2) Of these 5 utilities, 2 are fully reimbursed from the City's General Fund, 1 is partially reimbursed, and 2 are unreimbursed and thus are a service provided by the utility with no associated revenue; and 3) 9 of the 14 utilities do not offer any waiver or fee reduction for affordable housing.
In addition to the waiver or reduction of connection charges, another important consideration is the cost of connection charges or impact fees assessed by individual utilities. GRU charges $660 for a water connection charge and meter charge and $926 for total wastewater connection charges. Total charges to connect to GRU's water and wastewater system are $1,586. GRUs connection charges represent approximately 2.2 percent of the cost of a $70,000 home. So while connection charges add to the cost to construct affordable housing, these charges are a relatively small part of the overall cost.
GRU has connection charges in the lowest quartile of the comparable utilities included in the survey as shown in Table 2 (provided in backup). The average connection charge for the utilities surveyed is $3,019, and GRU is approximately half of that amount. A comparison of combined water and wastewater system charges is shown in Figure 1(provided in backup). Most utilities that provide a fee waiver or reduction have connection charges significantly higher than GRU's connection charges.
Fee reductions or waivers can be funded from the utility, but are often funded from grants available to the City (SHIP funding) or from the City's General Fund. In cases where utility systems waive or reduce connection charges without reimbursement from a City's General Fund or grant funding, the revenue losses must be replaced by revenues from other customers. Revenues from other customers take the form of higher connection charges or increased base rates. GRU's bond resolutions stipulates that GRU cannot provide free service (waive connection charges), and also prohibits connection fee reductions that are not cost based. Since GRU levies connection charges for new service, and since there is no cost based reason for waiving or reducing connection charges for affordable housing, connection charges must be charged to all customers.
The City of Gainesville does have housing assistance grant funding available (CDBG funds), some of which has been used to pay for water and wastewater connection charges. In the future, the City could specifically target a portion of CDBG funding towards utility service. It should be noted that there is a limited pool of CDBG funding available and the use of these funds to pay connection charges for affordable housing will reduce the amount available for other uses, including other uses that are applied to affordable housing.
Fee reductions or waivers could also be funded from the City's General Fund. Since October 1, 2001, GRU has levied a 25% surcharge on water and wastewater connection charges to serve new customers outside the City. Half of connection charge surcharge revenues have been earmarked for providing water and wastewater service within the City. A portion of the earmarked funds could be used to pay for connection charges associated with affordable housing.
The findings of this review can be summarized as follows: 1) The City adopted connection charges in 1982 to recover the capital impact of service to new customers; 2) Most comparable utilities surveyed do not waive or reduce connection charges for affordable housing; 3) Of those utilities that waive or reduce charges for affordable housing, most have higher charges than GRU; and 4) GRU's Bond Resolution prohibits GRU from waiving or reducing connection charges to similarly situated customers. However, connection charges for affordable housing could be paid from another source such as grant funding or the City's General Fund.
Recommendations
The City Commission: 1) Hear a presentation from Staff; 2) Remove referral from the RUC; and 3) Consider whether to refer this issue to another committee, other than the existing referral to the Audit and Finance Committee, to continue consideration of source of funding to waive or reduce connection charges for affordable housing.
Drafter
Prepared by: David Richardson, Interim System Support Manager
Submitted by: Michael L. Kurtz, General Manager