Expanding domestic water supplies to meet growing demands is an increasingly expensive proposition to many southwestern municipalities. To confront the problem, communities are adopting policies and enacting ordinances requiring developers, residents of areas requesting annexation, and other new water customers to pay some or all of the costs of expanding the water supply, rather than recouping costs from the entire customer base.

Various policy options are available to these municipalities, including: demand water rights; demand money to buy water rights; demand water rights or money in lieu of rights; and require new customers to join a water or replenishment district to supply water to the municipality and levy charges on the customers' property taxes. Municipalities without cost recovery mechanisms must recoup the costs of expanding the water supply from the entire customer base, through such means as pay-as-you-go, financing through the sale of long-term bonds, and additional local property taxes.

General Policy Findings

The Water Resources Research Center conducted an informal telephone survey of policies of municipalities throughout the Southwest. The survey found that states with the most such mechanisms for recouping the costs of enhanced water supplies are Colorado, New Mexico and Utah. Arizona and Colorado have been rapidly adopting such requirements, while during short periods of time several municipalities enacted similar ordinances in New Mexico and Utah.

Sometimes requirements are imposed on all new water customers; sometimes new customers located within corporate limits are excused, or owners of vacant land are excused until they seek a building permit. In other cases, only developments exceeding a certain threshold size are targeted. In still other instances, only land owners with appurtenant water rights are required to dedicate them to the municipality. Occasionally, the land owner is required to offer the appurtenant water rights to the municipality at fair market value.

Mechanisms for calculating the quantity of water rights to be dedicated range from very simplistic (e.g., 3 af. per acre of land) to highly complex formulas that take into account fixtures and landscaping type. Similarly, methods of converting acre-feet to dollars for in lieu payments range from using simple, fixed prices to employing sophisticated calculations.

As expected, areas with scarce water supplies and rapid growth are more likely to enact measures to recoup water supply costs. Beyond that, trends are hard to find, with no apparent relationship between population and likelihood to enact such measures. Nor is average income of residents an apparent factor.

Arizona

Some Arizona rural water providers have required for more than a decade dedication of water supplies and/or in lieu water development fees as a condition to annexation or water service. In the last several years, the larger urban water providers have begun to enact water development fees. Some fees were triggered by the need to pay off "water farms" purchased in the mid- to late-1980s. Prior to that time, the ability to overdraft high-quality groundwater aquifers and the promise of the Central Arizona Project obviated the need for purchasing additional water rights.

The 1980 Arizona Groundwater Management Act, with its 100-year assured supply requirements, and more recent groundwater replenishment legislation have encouraged municipalities to investigate or enact water supply development fees and water dedication requirements.

Phoenix passed an ordinance in August 1990 enacting a Water Resources Acquisition Fee for acquiring new water supplies and incorporating them into the distribution system. The ordinance specified the fee must be collected prerequisite to the issuing of a building permit and water meter connection. A landowner with some water rights may exchange them in lieu of some or all of the fee. Also, the fee may be reduced if the new development makes extensive use of water conserving plumbing fixtures.

The fee is based on meter size and varies across three distinct areas in Phoenix: Salt River Project lands; non-SRP areas with a CAP allocation, and non-SRP areas with no water rights. For example, in non-SRP areas with no water rights fees ranged from $316 for a 5/8" and 3/4" meter to $19,782 for a 6" turbine last year. An increase in the fee took effect in January, 1996.

Since 1987, Scottsdale has charged a Water Resources Development Fee to new customers to be used primarily for water development, acquisition, and reclamation. The fee is $1,000 per new single-family dwelling, $600 per multiply-family dwelling unit, and $2,000 per af. of projected annual use for non-residential purposes.

Scottsdale has been involved in an ongoing court battle with the Central Arizona Home Builders Association over the legality of charging this fee resulting in a threat of a development moratorium by Scottsdale this past summer. The two parties agreed the city could spend fees collected up through July 11, 1995 for water development. The fees collected subsequent to July 11, however, are not protected under the agreement.