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Some Texas Cities Turn to Higher Water Impact Fees

As cities across Texas continue to spread out, water suppliers and local governments are faced with the question of who should pay for building the infrastructure needed to handle the growth.

Real estate developers building new homes are facing higher water impact fees in Austin, San Antonio and other Texas jurisdictions.

*Correction appended

As cities across Texas continue to spread out, water suppliers and local governments are faced with the question of who should pay for building the infrastructure needed to handle the growth.

Within the past year, several cities have started to rely on a strategy of raising one-time fees charged to developers to pay for new homes to be connected to water and wastewater lines, which have skyrocketed in some cities.

The municipalities and water utilities say the higher charges are needed to avoid passing the costs onto existing ratepayers and force developers to pay for the added burden their projects place on public water systems, many of which are already stretched thin.

But the real estate industry has pushed back, arguing that the higher water impact fees force developers to shift the added costs to home buyers, or to take their business elsewhere.

“The consumers are going to pay for it, or the projects won’t get built,” said Cynthia Stevens, vice president of government affairs at the Real Estate Council of San Antonio. “It’s about choices, and which consumer you impact.”

That debate drew significant attention recently in San Antonio, when the City Council raised several rates, including the water supply impact fee for each new home by about 116 percent — to $2,796 from $1,297 — by next June. 

Opponents said the increase would give San Antonio some of the state’s highest impact fees, hurting growth. By next year, the average total impact fees, including water and wastewater, in San Antonio will rise to $7,044 from $5,279 per house.

“We’re building in other parts of Texas, and that’s starting to look more desirable to us,” said Stevens, who is also senior vice president at the real estate firm Koontz McCombs. “We might get priced out of this market.”

Supporters said the city had to find a way to pay for the infrastructure costs needed to accommodate growth that is expected to add a quarter of a million people to San Antonio in the next decade. The revenue will help pay for projects like a desalination plant and an integration pipeline to bring that water to the city, said Greg Flores, a spokesman for the San Antonio Water System. “New growth had to pay its fair share of that water supply.”

The final decision was pitched as a compromise: The largest increases were delayed for a year to relieve projects that had already begun, and the council carved out an exemption for walking-friendly inner-city projects.

Though San Antonio’s fee increases received the most attention, some of the same tools and debates are underway elsewhere in Texas.

In Austin, water and wastewater impact fee increases went into effect Jan. 1, stripping away disparities that had incentivized development in certain areas. Downtown, the change meant that total water and wastewater impact fees rose to $7,600 from $1,100, said Brian Long, managing engineer at the Austin Water Utility.

Long said the utility had heard from other Texas cities also weighing increases. “We have had quite a few hits and inquiries.”

The Texas Commission on Environmental Quality, which is responsible for reviewing some impact fees, has received three applications to increase water impact fees in the past 10 months, compared with five in the previous six years, a spokesman, Terry Clawson, said in an email. The commission approved two — in Kendall and Collin counties — this summer, with a third in Denton County set for a hearing in December.

State law requires most jurisdictions and utilities to review their impact fees every five years, prompting many of the recent increases. In November, Texas voters approved $2 billion in loans for water infrastructure projects, but they are unlikely to affect consumers’ water bills.

Long said successful water conservation efforts have contributed to a need for higher impact fees, as lower water bills have reduced the amount of water revenue flowing into local coffers.

“You’ve got to look at how can we fairly get this revenue back, and one of the tools in the toolbox that’s out there is the impact fees,” he said.

*Editor's note: An earlier version of this story incorrectly referred to lower water bills reducing the amount of water revenue flowing into state coffers, instead of local accounts.

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