Mesa staff propose one‑time water and wastewater capacity fee to make growth pay for growth

Mesa City Council staff detailed a proposed water and wastewater capacity fee at a Sept. 11 study session, saying the one-time charge on new connections would make new development pay for the incremental infrastructure it requires. City staff said the fee would fund roughly $400 million in growth-only projects identified in the city's recent integrated master plan and could be introduced as an ordinance Nov. 17, with a council vote Dec. 1 and an effective date of Jan. 1 if adopted.

Why it matters: Staff said Mesa currently has no mechanism to require new development to pay for system expansion, so existing ratepayers now shoulder those costs. The city's presentations said that without a capacity fee, the utility rate base bears the expense and that growing demand forced the city to accelerate a $15 million Gilbert McKellops relief sewer project and defer other rehabilitation work.

City staff said the proposed capacity fee would be a one-time connection charge for new development or redevelopment that increases meter size. Water and wastewater staff cited national guidance and state law in crafting the proposal: the American Water Works Association manual M1, the incremental-cost method, and the statute staff referenced as ARS 9-5-11(o)(1). The fee is intended to pay capital costs only, not routine operations and maintenance, and staff said a separate fund would hold fee revenues and not increase the general-fund transfer.

How the fee would be set: Staff explained the fee uses an "incremental cost" approach: total capacity-related capital needs over a 10-year horizon are divided by the added capacity (gallons per day) those projects will provide to produce a unit cost per gallon per day. That unit cost is multiplied by a defined service unit (a 3/4-inch meter was used as the lowest‑common denominator) and scaled for larger meters. Staff showed an example estimate for a 3/4-inch meter around $9,500 that combines water and wastewater components and compared the result to other Arizona cities.

Numbers discussed: Staff said the integrated master plan identified about $400 million in growth projects over 10 years (about half for Signal Butte plant expansion), and cited that the city has deferred roughly $180 million in rehabilitation and life-cycle work in recent years. In staff's example calculation they used roughly $320 million of capacity cost divided by about 60 million gallons per day added capacity to derive a unit cost (about $20 per gallon per day in that example). Using development trends from the master plan, staff estimated the fee could generate roughly $18 million per year at current build-out pace.

Legal and technical guidance: Staff said the approach follows the AWWA Manual M1 methodology and that the city engaged Black & Veatch as a consultant to review methods and provide a letter of endorsement. Staff also said Maricopa County permitting requirements create a timing pressure because the county will not allow new development to be placed into service without a certification of capacity.

Council questions and staff clarifications: Council members asked how the fee treats different meter sizes and whether larger meters would pay proportionally more. Staff replied that the methodology charges the same cost per gallon, so a larger meter (able to deliver more gallons) pays more because it purchases more gallons of capacity. Staff also said the capacity fee pays capital costs only; operating costs and staffing associated with new facilities are recovered through rates. Several council members pressed for tables showing how many meters of each size exist; staff said those tables are in backup material for the rates discussion and that they would provide them again.

Timeline and next steps: Staff said the council's intent would be to post a notice of intent for rate and fee changes in late September, introduce a capacity-fee ordinance Nov. 17, possibly adopt it Dec. 1, and set an effective date of Jan. 1 if the ordinance is adopted. Staff told council they'd model the revenue and show side-by-side forecasts of utility-rate changes with and without a capacity fee to demonstrate the potential rate impact for existing customers.

A separate council discussion about utility rates followed the capacity-fee presentation. Staff emphasized the fee's purpose is to create a separate revenue source to pay growth-driven capital projects and to protect existing ratepayers from shouldering those capital costs indefinitely. "Growth paying for growth" was repeatedly cited as the guiding philosophy.

Ending: City staff said they will return with detailed fee tables, the draft ordinance, and updated rate projections; council members asked staff for additional modeling on how different fee levels and assumptions would affect developers, larger commercial customers and multiunit meters before the Nov.–Dec. decision window.