City Council’s Decision on Tap Fees for Accessory Dwelling Units

Prompted by a new Colorado State law, City Council recently adopted an ordinance permitting the construction of accessory dwelling units throughout Louisville. Accessory dwelling units—typically abbreviated ADUs and commonly called granny flats, in-law suites, or backyard cottages—are exactly that: structures in which persons may live either attached to or detached from a primary dwelling unit. More recently, City Council adopted an ordinance setting water and wastewater taps fees for accessory dwelling units. While I was quite satisfied with the ordinance permitting ADUs, I was rather dissatisfied with the ordinance setting water and wastewater tap fees for ADUs. I wish to explain my dissatisfaction.

The City charges water and wastewater tap fees for any new construction with water and wastewater connections aside from sufficiently small additions, and the City issues a fee schedule specifying these tap fees for various types of new construction. The City collects tap fees to offset the impacts of these new developments on the City’s water and wastewater infrastructure and demand. Consider the case of ADUs as an example. If a few ADUs were built in your neighborhood, then the City’s water and wastewater infrastructure—in this case, principally water and sewer lines—may well have the capacity to handle any additional flows to and from these ADUs. But, if many ADUs were built in your neighborhood, then the City might need to augment its water and wastewater infrastructure to handle the additional flows to and from these ADUs, and the City might need to purchase more water rights to supply water to these ADUs. Tap fees provide the City with funds to pay for such augmentations of infrastructure and demand.

Of course, water and wastewater tap fees add costs to development. These costs are considerable by certain measures: for instance, the City’s current water tap fee for a single family unit is $53,500, and the City’s current wastewater tap fee for a single family unit is $6,800. The City sets its tap fees so that the City will have sufficient funds in the future to pay for necessary augmentations of infrastructure and demand. Still, such considerable tap fees might dissuade new development. For instance, in the case of an ADU, being a relatively small structure, tap fees could represent a significant fraction of its total construction cost. And, new development might offer public benefits. For instance, ADUs are often put forth as playing a role in solving the crisis of housing unaffordability—albeit a small role—so tap fees could represent an impediment to construction of ADUs as affordable housing units. Some would argue that development should pay entirely for its impacts or, at least, the fair share of its impacts; according to such a view, the City should charge water and wastewater tap fees for an ADU commensurate with its design. Others would argue that development should pay for its impacts offset by some measure of the public benefits provided; according to this view, the City should charge appropriately reduced water and wastewater taps fees for an ADU, partially socializing the impacts of development. At City Council’s discussion of tap fees for ADUs, Councilor Dickinson usefully framed the discussion as setting tap fees to strike a balance between development impacts and public benefits.

ADUs are used in many different ways—as entire homes, extra living spaces, home offices, art studios, et cetera—accommodating many different numbers of inhabitants, and an ADU’s use might change over time. The City must be conservative in its assessment of tap fees so that the City does not run short of funds for future infrastructure upgrades or water rights purchases. Since any ADU could be used as an entire home with the associated water and wastewater flows, the City should conservatively assess fees based on the ADU’s potential, not its current or planned use. (In principle, the City could assess fees based on the current or planned use and reassess fees when that use changes.)

Accounting for these considerations, City staff proposed not to charge water tap fees for an ADU but to charge 80% of the single-family-unit wastewater tap fees for an ADU. Regarding the proposed water tap fees, City staff reasoned that, with many ADUs likely displacing irrigated turf, there would be essentially no additional water flows, so the City would not expect to need funds for water infrastructure upgrades or water rights purchases owing to construction of ADUs. Regarding the proposed wastewater tap fees, City staff reasoned that, with all ADUs presenting the possibility of additional residents, there would be additional wastewater flows, so the City would expect to need funds for wastewater infrastructure upgrades owing to construction of ADUs. Given the allowed sizes of ADUs, the City would expect impacts comparable to 80% of that of one single-family unit. At City Council’s discussion of tap fees for ADUs, an attempt to reduce the wastewater tap fee from 80% to 50% of the single-family-unit wastewater tap fee failed, and City Council ended up approving City staff’s recommendation in a split 4-3 vote. (I voted somewhat reluctantly in the majority.)

Prior to this vote, I raised the possibility of a more nuanced fee structure, but my fellow City Councilors did not seem interested in pursuing this possibility. What did I have in mind? City Council has pledged to view all of its work through two lenses: environmental sustainability and diversity, equity, and inclusion. City Council could have modified City staff’s proposed tap fees to be more equitable. Regarding water tap fees, as I explained above, City staff based its proposal of not charging water tap fees on the expectation that ADUs will not result in increased water demand and flows on average. But, only an ADU constructed over irrigated turf has the potential not to result in increased water demand and flows, so a more equitable fee schedule would include a smaller water tap fee for an ADU constructed over irrigated turf and a larger water tap fee for an ADU not constructed over irrigated turf. Regarding water and wastewater tap fees, consistency with the City’s past and current practices—essentially, equitable treatment over time—would dictate that the City assess tap fees consistent with those assessed for residential additions. The above represent just two considerations of equity with which City Council could have engaged. If City Council had taken up these considerations, then City Council would have sought to balance a relatively simple tap fee structure, like City staff presented, with a more nuanced tap fee structure, like I have suggested. I hope that we would not have sacrificed equity too much in pursuit of simplicity.

I hope that many residents choose to build ADUs, and I do not wish to drive up their costs excessively, but City Council must make responsible and equitable decisions regarding potential future expenses for the City. I particularly hope that residents choose to build ADUs as affordable housing units for everyone from small young families to single working professionals to downsizing seniors. City Council could have modified City staff’s proposed tap fees to be more inclusive of such potential ADU inhabitants. In particular, City staff did not bring forward—and City Council did not request—consideration of reduced tap fees to incentivize designation of affordable ADUs. (I realize that I have not offered a definition for ‘affordable’.) I wish that City Council had engaged in such a consideration as part of setting water and wastewater tap fees for ADUs. Affordable ADUs would be of particular public benefit to Louisville, justifying further socialization of their development impacts.

Although the City refers development fees for water and wastewater as taps fees, these fees are instances of the impact fees that the City assesses more generally for new development. City Council plans to reassess the City’s development impact fees next year, and I hope that City council will seize the opportunity to engage in a more general discussion about such fees. Prior to this discussion, City Council should probably not use the case of water and wastewater tap fees for ADUs to strike out on a notably different path for assessment of development impact fees.