Impact Fees are not a new thing for developers to navigate through during the development process. They are essentially a municipality or utility providers way of offsetting the cost of new development or growth within their service area or district. Typically, these fees are assessed just prior to construction of a new development, and therefore, developers tend to recoup these fees with their post-development performance measures to determine tenant lease rates, per lot costs, etc. Like recent years, it’s no surprise that such fees are trending higher due to the cost to build and support new infrastructure. Such is the case for San Antonio Water System (SAWS) as it sets to increase their impact fees in June of this year.

In the State of Texas, impact fees from municipalities or utility districts can be adopted and collected under the provisions of Chapter 395 of the State’s Local Government Code. Notably, Impact fees are a vehicle to finance capital improvement projects, specifically, in this case, to address growth and expansion of water and sewer infrastructure operated by SAWS. By rule, Chapter 395 requires that impact fees be reviewed and updated every five years, and in theory, can increase or decrease with demands and infrastructure needs.

A review committee, known as the Capital Improvements Advisory Committee (CAIC), was assembled to provide oversight in this process. Comprising of local community representatives and stakeholders, it should be noted that 40% of the CAIC members represented the real estate/building industry. Through its findings, the CAIC’s report to the SAWS Board of Trustees indicated a growth projection of $1.5 Billion in capital improvement projects over the next ten (10) years through 2033. SAWS has historically used the “rate credit” calculation for impact fees which is based on the amount of projected future rate revenues and future collections or taxes expected to be generated by new development within its service area. Current SAWS impact fees were last updated in June of 2019. This year, the expected impact fee increase was approved by the SAWS Board of Trustees on March 05, 2024 and presented to the San Antonio City Council on April 3, 2024.

For calculation purposes, impact fees for water and sewer services are based on an equivalency factor compared to a single dwelling unit. Known as an Equivalent Dwelling Unit (EDU), this equates to 290 gallons per day of water usage and 200 gallons per day of sewer output. For new developments, the EDU is then based on meter size required for the development while sewer impact fees are based on land usage and often the square footage and/or population of the specific land use. So, what does this mean for development in the greater San Antonio area? Development within the region has historically trended towards the far west side and the far north side of the City/County. Historically, SAWS has continued to expand its services to these areas amidst the growth trend and the increased movement of population to the south and central Texas region. In terms of geography, the areas expected to see the most increases in Bexar County centers around a band of area west of Interstate 35, along the city’s northside, and spanning to Potranco Road, mostly outside of 1604. In fact, below is a listing of the top five areas within the SAWS service area and their anticipated increases.

It only makes sense that these areas of growth are expected to have the highest increases in impact fees, especially if these areas take the lion’s share of future capital improvement projects. In terms of breaking down actual fees based on a specific location, SAWS has their water system divided into three service areas based on elevation, and their sewer system divided into five service areas based on treatment facilities. These areas can be found in their development guide as well as SAWS’s online developer resources. Knowing these areas can assist with determining actual fee increases. The percentage of impact fee increases, based on each SAWS service areas are below. Note, these are on a “per EDU” basis, or the equivalency of a single residential lot.

So, what happens now? The impact fees update is now in the hands of the City Council for final review and ultimate approval. A public hearing is scheduled for May 16, 2024 in which the plan and fee increases will be discussed, but the likelihood of approval is rather high. Once approved, the new impact fees will go into effect June 01, 2024. For developments currently underway, paying the impact fees upfront, such as during plat recordation (prior to June 01, 2024), may be beneficial if the subdivision plat is in progress and nearing approval. Otherwise, developers should start including these increases in their performance measures as they analyze their deals, since these fees will be part of their initial capital costs upfront. For example, if a development will require a new 2-inch water meter in the far north side along I-10 past Loop 1604, at 14 EDU’s, that water meter will now cost the developer $83,818 instead of $71,358 starting in June. New single-family developments should recalculate their “per lot” costs factoring in these fees, particularly in terms of sewer fees, which will have the highest percentage of increase in fees. Regardless, the common theme is that these fees will help with the growth that the city is experiencing, and of course, add to the cost of doing development in South Texas.