16851_Authority_Aug_2023

16 The Authority | AUGUST 2023 Tapping Fees Q What is a tapping fee? A A charge reflecting capital costs to a property owner connecting to an authority’s water or sewer system. Q What is the theory behind a tap- ping fee charge? A A new water or sewer customer should “buy in” to the system before obtaining service. The tapping fee is a payment for facility costs not funded by user rates. Q What law governs tapping fees? A The Municipality Authorities Act of 1945 (Title 53 Chapter 56) Section 5607 (d) (24). Q Is there any restriction on what monies collected through tapping fees can be used for? A No, except as otherwise limited under the Municipality Authorities Act (MAA) for using authority revenues. Care should be taken when dealing with the capacity portion of tapping fee revenue that is related to future facility construction (since this money must be accounted for separately and may need to be refunded in the future if those facilities are not constructed). Q To what extent can construction contingency be included in the engi- neering estimate for future facilities? A The engineer’s estimate of contin- gency costs can be included. Q When determining the “historic cost” or “replacement cost” of the fa- cilities in question, aside from actual construction costs, what other (legal, engineering, etc.) costs should be included? Can operation and main- tenance (O&M) costs be included? Should “depreciation” be included? A Although this is not defined in the MAA, the normal additional technical, legal and administrative “out of pocket” costs associated with such construction can be in- cluded (taking care to remove any grants or contributions). O&M costs are not considered part of a facilities construction cost. Also, depreciation should not be included. Grants/Contributions Q In terms of deducting grants and contributions from historical costs, what is included under the term “contribution” ? A Typically, this would relate to the cost of facilities built by a developer at his expense, or money which the developer contributes to the authority to cover such construction cost. Q Would interest earned during construction, assessments, or tap- ping fees previously collected also be considered a “contribution”? A No. However, costs included in the assessments cannot be included in the basis of a tapping fee. Reservation of Capacity Fee Option Q When can a Reservation of Capac- ity (ROC) fee be collected? A The purpose of a ROC fee is to es- sentially hold your place in line, and it should be assessed prior to collection of a tapping fee. Q Can an authority charge both a reservation of capacity fee and a tapping fee? A Yes, but no tapping fee can be charged until the applicable building permit fee is due. Q Under what circumstances should the reservation of capacity fee option be used? A There are no specific circumstanc- es; however, this is an option available to assist an authority in recapturing costs associated with tying up avail- able capacity prior to the need to use that capacity. The ROC fee then becomes a source of revenue prior to subsequently charging tapping fees for new connections to the system. Q The reservation of capacity otional fee can be used for both water and sewer system situations, but the MAA says it cannot exceed 60% of the aver- age residential sanitary sewer bill. Can we use 60% of the drinking water as a limit in water system reservation of capacity situations?