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Santa Rosa is set to sharply reduce the fees it charges new construction projects to hook up to the city’s water and sewer system after concluding that existing fees are no longer justifiable.

Slower-than-expected growth, the historic drought, and requirements for more efficient landscaping have all made the city rethink the way it collects money from developers and businesses trying to make new connections to the water and sewer system.

The proposed change to so-called “demand fees” is significant and has drawn grudging support from contractors, who have long contended the charges are too high. Under the plan heading to the City Council today, the wastewater demand fees would drop 15 to 58 percent while the water demand fees would plunge anywhere from 24 to 66 percent.

The sharp reduction is due to a combination of a drop in the number of major infrastructure projects on the immediate horizon and a change to a simpler, easier-to-justify methodology for calculating the fees, said David Guhin, director of the city’s utilities department.

“We’re trying to be as fair as possible on this,” Guhin said.

As the city looks out over the next five years, several projects that it previously assumed it would need to accommodate growth may no longer be necessary, Guhin said. This is due to a number of factors, including slower growth, the drought and improvements to the system that have increased its capacity over time, Guhin said.

“We’re in a situation where we have capacity in the system,” Guhin said.

For example, the city had a $100 million sewer trunk line expansion on the drawing board to handle peak flows from storm events.

But lower average volumes because of conservation measures combined with techniques to retain runoff in retention ponds for later treatment make that project unnecessary at this time, he said.

When the existing fees were set in 2007, the future infrastructure needs of the city looked very different than they do today, said Linda Reed, deputy director of the city’s utilities department.

“They just had an assumption that the city was going to grow a lot faster and the city was going to need a lot more infrastructure,” Reed said.

The city reviews the fees every five years, and when it initially reviewed them in 2012, a preliminary analysis proposed increasing them by 3 percent, Reed said.

But the Board of Public Utilities had a lot of questions about that conclusion and pushed for a more thorough analysis that took a hard look at the growth and infrastructure assumptions baked into the fees, Reed said.

That study combined with the change in methodology for how the fees are calculated resulted in the sharply lower fee structure now being proposed, Reed said.

“We were definitely surprised by the difference,” Reed said.

So was Tux Tuxhorn. The Santa Rosa-based developer has a 14-home subdivision off Hearn Avenue that he started in November, pulling permits for it through June. But if he had waited, he could have saved approximately $120,000 on the hook-up fees, or $8,500 per house, he said.

Now he’s steamed that no one told him a major change to the fees was in process.

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He nevertheless commends the city for make changes he called “long past due.” When the market imploded and housing prices were cut nearly in half, the city carried on for years with a demand fee structure that increased every year by the consumer price index, Tuxhorn said.

Those annual increases contributed to the demand fees getting “way out of hand,” Tuxhorn said.

Robert Cantu, president of general contractor Western Builders, said the new fees confirm what builders have long suspected.

“Basically, they’ve determined that over the past seven years they’ve been charging too much,” Cantu said.

He said he’s been trying for years to get the city to realize the impact that its fee structure has on the viability of local projects. In general the city has been responsive, he said. He called the new demand fee a “step in the right direction” but not enough to make a major change in the building climate.

Guhin disputed the idea that the city has been overcharging for years. He said those fees were based on conditions at the time, and the city is revising those facts based on conditions today.

“We’re doing the best we possibly can with the data we currently have,” he said.

The change in methodology has shifted from one that attempts to predict future growth needs to one that uses the “system buy-in” method where new customers pay their fair share of the value of the existing system, Guhin said.

The combined water and sewer demand fees for homes are going to drop 54 to 62 percent, depending on the size of the home; 34 percent for condos, apartments and mobile homes; and 21 percent for second units.

The reductions for commercial and industrial projects will vary by project, but are also expected to be significant.

Tuxhorn believes the decision by Amy’s Kitchen last year not to build a new plant in Santa Rosa after receiving a $34 million fee estimate from the city opened some eyes.

But officials say there is absolutely no connection between the two, noting that the studies preceded the city’s discussions with Amy’s.

In recent years, other cities in the county including Windsor have reduced their fees, as well.

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @citybeater.

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