Developers: Water fee hikes will stymie residential growth in Wellington

WELLINGTON — Wellington town leaders adopted an aggressive new water fee schedule last week that effectively triples the price developers must pay to tap new homes into the water system. 

The decision to hike these fees — known as cash-in-lieu payments — has left local residential real estate developers questioning whether they can still profitably build homes in Wellington. 

“If this stands, we certainly won’t be developing residential in Wellington anymore,” FR Properties Ltd. president Devin Ferrey told BizWest. “… This for sure would finish us off for residential development in the town — 100%.”

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Developers in Wellington have two choices when connecting a new home to the water system: purchase North Poudre Irrigation Co. shares and dedicate them to the town, or pay the cash-in-lieu fee. If the developer selects the latter option, the town would secure the water rights on behalf of the builder. 

North Poudre shares “have increased from roughly $100,000 per share in 2018 to $135,000 per share in 2019 to $200,000 per share in 2020 (more than 40% per year),” according to a Wellington town memo. 

Hartford Homes president Landon Hoover estimates that under the previous fee schedule, developers paid about $19,000 in cash-in-lieu fees for a single-family home. That jumps to more than $60,000 under the new schedule — far more costly than in surrounding communities such as Fort Collins and Windsor. 

“Our ability to continue selling houses up there is shut down until something changes or until the market appreciates to where we can absorb these costs,” Hoover told BizWest. “… It’s not that we’ll sell fewer houses — I don’t know how we’ll continue to sell any houses at all.”

The new fees create an additional $40,000 cost on a home that otherwise would have been marketed for about $350,000 , creating an overall increase of more than 10% for the buyer. 

This destroys the affordability advantage Wellington enjoyed over nearby cities such as Fort Collins, builders said.

“Wellington has historically been an affordable market,” Hoover said. “It’s a place where you could go and get more house for the same price you’d pay for something smaller in other places. This will really pump the brakes on that.”

Town officials argue the rate hikes are not only necessary but also fair. 

First, the town is also in the process of developing a new rate schedule for residents’ monthly water bills that would increase the cost by roughly three times the current rate, the same increase put forth to developers. 

“We are in the process of looking at a near 300% increase that’s going to be potentially levied on the residents in this town,” Wellington trustee Jon Gaiter said during a hearing on the new fees held last week. “I think we need to be applying the same measure across the board.”

Second, the town argues that it is basing the cash-in-lieu fees on projected market rates for water rights.

“Share prices for water have grown exponentially,” Wellington planning director Cody Byrd said last week. Water is a “scarce resource that’s only going to grow scarcer.”

Charging anything less than market rates for water would be asking taxpayers to subsidize development costs.

“We all have a fiduciary responsibility to make the proper decisions to keep this town running,” Wellington trustee Tim Whitehouse said. “If we say we’re not going to charge the full rate, we’re neglecting our fiduciary responsibilities, and I don’t think that’s a good idea.”

Hoover claims that the town is not actually using market rates to develop it’s fee schedule. Rather, it is tacking on an additional 40%.

Town officials acknowledge this 40% premium and argue it’s necessary because it often takes as long as a year for Wellington to secure water rights after a cash-in-lieu payment is made. So by the time those rights are secured, next year’s price could very well be 40% higher than when the developer made it’s payment.

To avoid paying rising cash-in-lieu fees, developers could opt to secure their own water rights, town officials said during last week’s hearing.

“We would frankly prefer dedicated shares,” Wellington public works director Bob Gowing said. “It’s by far the most cost effective [approach] for the developer as well.” 

Hoover said a slowdown — or worse, a shutdown — of residential building could lead to challenges attracting new businesses. Without the rooftops to support retail and other commercial activities, businesses may opt not to open up in Wellington. 

“There are a lot of stakeholders in town that depend on and want growth,” he said. “That’s going to get stifled significantly.”

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