- Bruce Elliott
- Ratepayers will pay an estimated $1.1 billion to subsidize new developments in addition to paying billions of dollars to upgrade existing utility infrastructure, such as this power plant.
Standing alongside Highway 94 about a mile and a half east of Marksheffel Road, it's hard to picture the dramatic transformation that's in store for the surrounding landscape.
Hills roll off in every direction, covered by yellow and pale-green grasses and dotted with yuccas. Herds of antelope graze nearby. The existing City of Colorado Springs, more than a mile to the west, is entirely out of sight, hidden behind the hills.
Except for a handful of tiny Eastern Plains towns, there really isn't much of anything between here and Kansas.
All that will change.
This land is slated to be part of a gigantic, sprawling development known as Banning-Lewis Ranch -- a 23,000-acre swath of prairie along the far eastern edge of Colorado Springs that was annexed into the city in 1988. Over the course of the next 40 years, the yuccas and antelope will be replaced by houses and humans. Ultimately, city planners expect that the development will comprise more than 50,000 homes.
In fact, Banning-Lewis is so big that when it was annexed into Colorado Springs, the city's land mass grew by about 25 percent. The area alone is roughly the size of Miami, more than one and a half times the size of Manhattan. It will eventually be home to some 140,000 people -- more than the entire current population of Fort Collins.
These future residents will require water, sewers, wastewater treatment facilities, and gas and electric lines. It will cost billions of dollars. But they won't finance all of this themselves. If you're a Colorado Springs Utilities ratepayer, you will help them pay for this developers' dream.
Between now and 2013, the average residential utility bill in the Springs will rise from about $158 per month to $252, according to projections. Of that, an estimated $43 -- or 17 percent -- will go toward subsidizing the utility expansions made necessary by new development, predominantly at Banning-Lewis.
Faced with the prospect of these large rate increases, members of the Colorado Springs City Council are now asking themselves whether developers and builders should pay a higher share of the cost of utility expansions -- or in other words, whether growth should "pay for itself."
In the next couple of weeks the Council, acting as the governing board of the city-owned Colorado Springs Utilities, will hear recommendations from the all-volunteer Utility Policy Advisory Committee, which has been charged with trying to answer that question.
But what the committee is about to recommend will barely make a dent in people's utility bills.
Though the panel will, according to Utilities staff, propose that developers and builders pay somewhat more in fees to the company when building new houses, it will also recommend that existing and future ratepayers continue to share much of the cost. The net impact, according to Utilities staff, might amount to a difference in the average monthly residential bill of perhaps just a few dollars.
That's not likely to satisfy ratepayer advocates, who complain that the portion of residents' utility bills subsidizing new development is in effect a hidden "growth tax."
Nor will it satisfy everyone on the City Council, whose members are facing a tide of wrath from ratepayers over the escalating bills. Although council members are divided on the issue, Vice Mayor Richard Skorman says he'd like development fees to be raised more substantially.
"I've heard more anger around this issue than practically any other since I've been on Council," said Skorman. "I think the increase [in developer fees] needs to be significant enough to give the ratepayer the message that we are trying to have growth pay for itself."
Some council members point out that what's really riled utility customers is a 36-percent increase in gas rates that went into effect last October. That increase had little to do with new growth and much to do with rising gas prices on the worldwide market.
"A lot of this is a reaction to a portion of the utility bill that we really have no control over," said Councilman Scott Hente.
But not long after the gas-rate increase, Utilities also presented projections showing that the average Colorado Springs resident should expect their average water bill to double in just five years, from $34 in 2003 to $70 in 2008.
A major factor driving this increase is the Southern Delivery System, a plan to increase Colorado Springs' water supply. The pipeline will pump water here from the Pueblo Reservoir and will cost about $500 million in the next decade and as much as $2 billion over the next 40 years, including interest on the money borrowed to pay for it.
Similarly, expansion of Springs Utilities' wastewater treatment capacity was projected to result in a near-doubling of average monthly residential wastewater charges, from $15 to $29 over the five-year period.
For some council members, the sticker shock conjured up visions of retirees and other people on fixed incomes being forced out of their homes, unable to pay their utility bills. It prompted them to finally ask the same question that local growth-control advocates have asked for years: Are developers and builders paying their own way?
The answer, it turns out, is that they're not.
Each time a new customer is added to Colorado Springs Utilities, the utility company estimates it costs an average of roughly $25,000 to extend services to that customer. The estimate includes extending service lines, as well as a portion of the cost to expand Utilities' overall capacity.
Of these costs, developers and builders pay an average of only about $11,000 in fees, leaving existing ratepayers to pick up the rest.
This isn't the only reason why utility rates will rise. Springs Utilities also needs an infusion of money to repair and maintain aging power plants, old sewer lines and other infrastructure serving existing ratepayers. Some expansion is also necessary simply because ratepayers are using more electricity, thanks in part to the growing popularity of air conditioning, hot tubs and home electronics.
Still, Utilities projects it will spend $1.6 billion in the next decade on system expansions and improvements made necessary exclusively by new development. Of this, builders and developers will pay only about $500 million, meaning ratepayers will have to cough up $1.1 billion.
Because these improvements are expected to serve the city's needs for the next four decades, much of the money will be borrowed and repaid over a 40-year period. By 2013, Utilities estimates the average ratepayer will pay $43 per month just to cover the costs of growth.
Local growth-control advocates say these figures blow a huge hole in the myth that unlimited growth benefits the community as a whole.
"People are just not being told the true cost" of development, charged Walter Lawson, a longtime civic activist and Utilities critic. "We're just being had."
Passing on the costs
In deciding who should pay how much for utility expansions, City Council members might find themselves torn between the two major interest groups that determine their chances of being re-elected.
On one side are ratepayers, a group that includes virtually every single voter in the city. On the other side are developers and builders, who fund the council members' election campaigns.
According to an analysis by the Independent, developers and builders gave more than $120,000 in campaign contributions to winning Council candidates during the 2003 city elections -- more than half of all the money collected by those candidates. One of the biggest contributors was the company that owns most of Banning-Lewis, California-based Capital Pacific Holdings, which contributed more than $18,000 to candidates (see "The Best Council Money Can Buy," Nov. 13, 2003, at www.csindy.com).
These same developers and builders have mounted a campaign against placing the full burden of utility expansion costs on their backs, arguing it could have a number of undesirable consequences.
Their chief argument is that it would drive up the cost of housing in the Springs, preventing many people from being able to buy new homes.
"The developer and the builder do nothing more than to pass on these costs to the new homebuyer," said Kevin Walker, president-elect of the Colorado Springs Housing and Building Association.
Developers can't just take the fees out of their profits, Walker contends; among the top homebuilders in America, the average profit margin is only 7 percent to 8 percent after taxes -- relatively low compared with many other industries.
Passing higher development fees on to new homebuyers amounts to "a regressive form of taxation," Walker maintains, because such fees will be a higher burden on lower-income people than on higher-income people.
Making the same argument is Rocky Scott, director of the Greater Colorado Springs Economic Development Corp., who is urging the Utilities Policy Advisory Committee not to increase development fees substantially. While fees are regressive, utility rates are progressive, Scott argues -- because high-income people with bigger, more expensive homes also tend to pay higher utility bills.
Both Scott and Walker point out that the new homebuyers who get stuck paying development fees aren't just newcomers from California or Texas. Currently, the majority of population growth in Colorado Springs is natural -- meaning that the city is growing simply because existing residents are having children.
"Growth is an easy bogeyman," Walker said. But the reality is, "our population is growing simply by the people who are living here."
Councilman Hente, who also happens to be a homebuilder, says residents who want to make development more expensive are in effect saying, "I want to make it higher-priced for my kids."
Hente argues that utility improvements such as the Southern Delivery System will be necessary even without growth. But if new homes become too expensive due to increased development fees, fewer people will buy them, he says -- which in turn means fewer homes will be built. And if fewer homes are built, Utilities won't collect any additional money from fees despite having raised them. In the end, Utilities would still have to turn to ratepayers to cover the difference, Hente asserts.
- Bruce Elliott
- As the east side of the Springs sprawls onto the prairie, Utilities must provide services those developments. The current debate continues over who will pay for the growth.
Walker, meanwhile, predicts that higher development fees in the city would motivate the housing industry to increasingly build in unincorporated areas of the county. That could lead to increased sprawl, higher transportation costs for residents, and less tax revenue for the city.
Besides, it's only fair for existing ratepayers to share the costs of future development, developers argue. Those same existing ratepayers were able to buy affordable homes thanks to their predecessors, who paid for past utility upgrades through their rates -- so why shouldn't today's ratepayers do the same for their successors?
"What bothers me most," said Hente, "is people who live in town and got a good deal [and] all of a sudden they want to raise the rates on everyone else."
Scott and Walker both say they support a "balance" between development fees and utility rates to cover the costs of development. The existing balance, they argue, is fair and has worked well; according to a recent survey, Colorado Springs Utilities still charges some of the lowest overall rates among similar-sized cities throughout the West.
"The system has worked pretty darn well for a long time," Scott asserted.
How you package them
But ratepayer and growth-control advocates say the bottom line is simple: if growth doesn't pay for the community, why offer people incentives to come here?
"You shouldn't be giving a subsidy to something unless it creates benefits for the whole society," argued Daphne Greenwood, an economist at the University of Colorado at Colorado Springs.
Greenwood, a former state legislator, last year conducted a study that concluded there is no clear relationship between population growth in Colorado Springs and income growth for the community as a whole. In fact, according to Greenwood, income growth was slower during the community's big development boom in the 1990s than it had been in the 1980s.
Lawson predicts that if development fees rise, homebuilders will find ways to make up the difference by building and selling new homes that are smaller, cheaper or both.
"There's going to be the same demand for the same number of units," Lawson said. "It's just how you package them. There might be more town homes, more condominiums."
New homes have grown bigger and bigger in recent years, Lawson notes. According to El Paso County Assessor John Bass, the median new home in 1991 was 1,800 square feet. In 2001, it was 2,100 square feet -- or 16 percent larger.
Growth critics also question the assertion that higher development fees would hurt lower-income people more than increasing utility rates would.
Greenwood says a lot of people looking for affordable homes tend to buy existing houses rather than new ones, and so they wouldn't have to pay the increased development fees.
And, according to Bass, higher utility rates could have a greater impact on many low-income people who live in older homes, because older homes tend to be far less energy-efficient than newer homes. Higher rates could also drive down the market value for older homes, since people are increasingly looking at utility costs when considering home purchases, Bass said.
Moreover, Vice Mayor Skorman notes that under the current system, every single ratepayer is subsidizing every single new home. In other words, "little old ladies" on fixed incomes are helping pay for new homes that cost $300,000, $400,000 or more.
"We're subsidizing all housing, at all levels," Skorman said. "It's just a blanket subsidy."
Cyndy Kulp, director of the Housing Advocacy Coalition, a nonprofit organization that lobbies for affordable housing, says that for subsidies to be effective, they have to be targeted. One simple solution, she says, would be to raise overall development fees but grant exemptions for low-cost homes.
Kulp calls developers' warnings about affordable housing a "bogus argument."
"There's no housing being built out there right now that I would consider affordable," so the impact of increased development fees on the availability of such housing would likely be nil, Kulp said. "These guys don't even care about affordable housing. They use it [as an argument] when it's convenient for them."
A few more condos
Instead of subsidizing growth, some say Colorado Springs should face up to the fact that the city is running out of resources.
"We're running into our limits on water, and so, do we really want to keep offering people discounts to move in?" asks Dave Gardner, director of Save the Springs, a local growth-control group.
El Paso County officials also don't agree with Walker's assertion that higher development fees would simply drive new development out into the unincorporated areas of the county.
"It's not that simple," said County Administrator Terry Harris.
Both Harris, a former developer, and Bass, the assessor, say it's not necessarily cheaper to build in the county. Without access to city utilities, "you're going to spend maybe $15,000 to put in a well, another $5,000 to $10,000 on a septic system," Bass estimated.
Moreover, price is far from the only factor that determines where people want to live, Harris says. Many new homebuyers are willing to pay more to live in the city because they want reliable utilities, good fire and police protection, and a school district with capacity for new students.
"There are so many factors involved," Harris said.
Developers and builders, for their part, concede that if development fees increase substantially, they might construct a greater number of small homes.
"Yeah, we'll build a few more condos," Walker said.
But consumer demands aren't going to change overnight, and so people will still want larger homes, even if that means building them outside the city, Walker maintains. "Almost everybody aspires to have more space, not less space. These things are consumer-driven."
Forcing a reduction in the size of new homes is "essentially a reduction in quality of life," argues Scott.
Turn on the lights
The volunteer members of the Utility Policy Advisory Committee have heard all of the above arguments, and more, during public meetings and workshops over the past several months.
Advocates on both sides of the issue say they've received a fair hearing. But in the end, the committee's recommendation, which is near completion, won't contain any major changes to the status quo.
"It's not dramatic," said Bob Steinke, one of the committee's members.
In a nutshell, the committee will recommend that development fees be increased by between $2,175 and $3,675 for the average new home, according to Charlie Morgan, Colorado Springs Utilities' project manager for the review process.
While that might sound significant, the projected end result is that instead of paying $252 a month by the year 2013, the average utility customer would pay between $248 and $249 -- or between $3 and $4 less.
Steinke says most committee members felt existing ratepayers should continue to share the cost of expanding and improving the utility system. Expansions benefit not only new utility customers but also new ratepayers, he says, because they make the utility system more flexible and reliable.
For example, by building the Southern Delivery System, the city will be less dependent on existing water delivery systems, and therefore less vulnerable in the event of, for instance, a pumping station breaking down. Or, if the city builds new electric power plants, those plants will produce cheaper and cleaner energy for everyone, Steinke argues.
"These benefits have to be considered," he said.
Since utility rates in the Springs are still comparatively low, raising the rates isn't "pushing the envelope too much," said T. A. Arnold, the committee's chairman.
Sticking new homebuyers with the entire cost of new development might also be divisive, Arnold says. "A strong concern was that there be a feeling of community."
In the end, committee members felt it's the City Council's job to regulate development through planning, zoning and annexation decisions, Arnold said. "We don't see Utilities as being the mechanism for controlling growth."
Though the committee's forthcoming recommendation was arrived at by consensus, committee members will likely express some internal disagreements during the presentation, Arnold predicted. He declined, however, to elaborate on his personal opinions about the recommendation before it's given to the Council.
Council members Skorman and Hente, though far apart on the issue, both said they would withhold judgment on the recommendation until they've seen it.
"I'm willing to look at this with an open mind," Hente said.