Water prices create woes for affordable development

Deviations in the way water prices are determined by area water districts could keep affordable real estate development out of some of Colorado’s fastest-growing areas.

Many water districts in Colorado, including East Larimer County Water District and Fort Collins Utilities, charge for raw water based on a tiered system that takes into account the size of the residential lot where the water will be used.

Using this approach, these districts are able to keep costs down on smaller lots, something real estate professionals believe will help keep development moving. For instance, raw water can be obtained through Fort Collins Utilities for a 3,000-square-foot lot for a one-time fee of $5,319.

But at the Fort Collins-Loveland Water District, a flat fee of $18,500 for raw water is applied to all lots, regardless of the size of the lot in question. A similar amount of money will buy water for a 23,000-square-foot lot within the East Larimer County Water District. Officials at Fort Collins-Loveland Water District did not return requests for comment.

In Boulder County, fees fall in the middle of the pack. In Longs Peak Water District, for example, a water for a new residential lot can be purchased for between $8,300 and $13,400, depending on where in the district the property is located.

The city of Fort Collins is able to keep its water prices lower because its water comes from a variety of sources, including Horsetooth Reservoir and the Cache la Poudre River, while other water districts in the area get their water only from the Colorado-Big Thompson, which in 2013 saw prices four times higher than in 2010.

Several new subdivisions in the area are within the pricier Fort Collins-Loveland Water District, including McClelland Creek, Mail Creek and Ketcher Farms, all on the southern edge of Fort Collins, a booming area for residential development.

But the more expensive water prices haven’t impacted these developments because of the price point of the homes there, according to Mike Sollenberger, who is developing Ketcher Farms with his business partner Tom Dougherty.

Ketcher Farms is awaiting platting and annexation with Fort Collins but eventually will include more than 400 homes beginning at a price point of about $350,000, Sollenberger said.

Homes in the other subdivisions in the area are priced similarly, Sollenberger said, which means they are able to withstand higher water prices.

“Developers have to be building a house at a price point that can absorb a higher water fee,” Sollenberger said. Homes that are considered “affordable,” or in the $250,000 range, will not be feasible in the area, he said.

The median price for a home in Fort Collins was $248,000 in January.

Tiered systems are important for keeping costs down, said Russell Baker, land broker at Cassidy Turley, but water companies can go a step further by determining how much water will be used on a given property and using that to determine the amount of water that needs to be purchased for a given lot.

North Weld County Water District uses such a system to determine how much customers must pay, basing pricing on the size of tap and subsequently the volume of water a property will use. Water tends to be more expensive in Weld County than in Larimer County because water – in this case Colorado-Big Thompson – has to travel farther from the source to get to customers.

Rather than setting prices by lot size, North Weld County Water District uses tap size to determine how much should be paid to get water to a lot. The district also imposes a “distance fee” of $300 per mile from the water tank to the lot location.

For a full-size tap six miles from the tank, for example, a customer would owe $26,300, while providing about 228,000 gallons of water to a lot per year, according to Rick Pickard, district manager for North Weld County Water District, while a 75-percent tap at the same distance would cost $19,725, providing about 171,000 gallons per year.

It is important for customers to choose the right tap size, said Pickard, because if they exceed their water use for the year they must pay a surcharge of $1.50 per 1,000 gallons used.

North Weld Water District offers an option for customers who will use only a very small amount of water. Conservation taps are available for qualifying customers, Pickard said, and those customers do not pay either a plant investment fee or a distance fee, saving thousands of dollars.

A conservation tap comes at a rate of $17,000, according to North Weld’s rate schedule.

This method is preferred by real estate professionals trying to get the best prices in order to avoid passing on higher costs to homeowners.

“We want to try and get all the districts to figure out how much water is being consumed so raw water costs don’t stop development,” Baker said.

Lance Smith, strategic financial planning manager for Fort Collins Utilities, and Mike Schied, general manager of East Larimer County Water District, say their tiered systems based on lot size were chosen because they keep things equitable.

At East Larimer, the system came into place as the district crept closer to the city, said Scheid.

Years ago, when the district’s customers were all similar users in rural parts of Larimer County, a flat fee made sense, he said. The decision to switch to a tiered system is one that pre-dates Scheid at East Larimer.

“When they started getting closer to city development, they decided that a flat fee was inequitable,” he said. “This schedule matches raw water requirements to lot size.”

Molly Armbrister can be reached at 970-232-3139 or marmbrister@ncbr.com. Follow her on Twitter at @MArmbristerNCBR.

Molly Armbrister covers real estate, banking and health care for the Northern Colorado Business Report. She can be reached at 970-232-3139, marmbrister@ncbr.com or twitter.com/MArmbristerNCBR
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