Paying for Kalispell's growth is a work in progress

At its most basic premise, the idea behind Kalispell’s impact fees is that growth should pay for growth and not be subsidized by other taxpayers and ratepayers.

“It gets very complex when you drill down into how you do that,” City Manager Jane Howington said.

And the city’s impact fees are a constant work in progress. By ordinance they must be reviewed and adjusted every two years.

A wastewater treatment plant expansion was completed in 2009 and represents perhaps the largest single use to date of revenue from city impact fees.

As part of the project, the plant’s treatment capacity was increased from 3.1 million to 5.4 million gallons — an abundance of which is going unused today with no new customers in sight.

Anticipating continued population growth and development, city officials pushed forward with not one, but two of five planned expansion phases, driving the project’s cost from $12 million to $18 million and finally $21 million.

Several million dollars of sewer treatment impact fees were used to help pay for the plant’s expansion.

Revenue from those impact fees — about $250,000 a year — is still being used to pay off about $14 million of debt that carries a 3.75 percent interest rate.

The total debt service for the plant is about $1.2 million a year.

The idea was that growth would pay for growth, and that sewer rates would not need to be raised to pay any of the treatment capacity expansion.

But Kalispell’s growth halted just as the project was completed and the new sewer customers and impact fees projected to pay off the debt slowed dramatically.

That, in conjunction with a host of other rising costs at the plant, forced the council to pass a series of sewer rate increases that go into effect over the next five years.

The math gets fuzzy, but some portion of those sewer rate increases were needed to pay off debt related to the construction of the additional plant capacity, and that runs contrary to the idea that impact fees pay for infrastructure expansion and user rates pay for maintenance and operation.

“That’s not all of it, but certainly a portion of it,” City Attorney Charles Harball said.

“The theory is to have growth pay for growth, but it doesn’t always happen that way ... It’s never perfect, it will always be a little behind or a little ahead. [But] you’re kind of at least following the train as best you can.”

KALISPELL HAS collected its water and sewer impact fees under one name or another for many years, imposing them on new construction and expansions and additions that put new demand on city infrastructure.

In more recent years, the council has added police, fire, stormwater and transportation impact fees, all of which raise dedicated revenues to pay for future capital improvements that are needed because of growth.

“These are big-ticket items,” Harball said of the projects that the city’s impact fees can be used to pay for.

“It’s not replacing a police car. It has to be a capital improvement with an amortization of 10 years or more.”

The impact fees are meant to take the cost of growth-fueled infrastructure needs off the backs of existing ratepayers and taxpayers.

Such potential projects are found in the city’s five-year capital improvements plan for the water, sewer and stormwater systems and the Kalispell Area Transportation Plan.

Depending on the amount of growth seen in future years, those projects could potentially total tens of millions of dollars.

As an example of impact fees in action, the wastewater treatment plant expansion didn’t work out quite as planned. But even more of the cost would have fallen on the backs of ratepayers without impact fees, Harball said.

“It’s tough to put [those kind of things] on the backs of the homeowners through property taxes or on the backs of the general ratepayers. You will price those people right out,” he said.

KALISPELL’S IMPACT fees now total $6,709 for a single-family home, adding to the cost of new construction.

That cost is in addition to into the costs to title, insure and finance a new home.

The city’s impact fees can total tens or even hundreds of thousands of dollars for larger developments.

“Of course [impact fees are] needed because we have to have a way to pay for extending the infrastructure,” said Merna Terry, vice president of Ron Terry Construction and a former member of the city’s impact fee committee.

“But I do think at this point in time they really do need to look at what we are going to do to encourage people to be able to build homes in our community, which brings jobs and not just while the home is being built,” she said.

With growth now slowed significantly, several candidates running for the City Council have said the city’s impact fees are too high and need to be adjusted to lower rates. One candidate said the fees should be thrown out altogether.

THAT DISCUSSION is expected to come up at some point as proposed amounts for the water, sewer, stormwater and transportation impact fees are presented to the council as part of a normal two-year readjustment cycle.

The impact fee committee — tasked with reviewing the way that fees are calculated, assessed and spent —  has reviewed the sewer, water and stormwater fees and passed its recommendations on to the council.

The committee is still reviewing the transportation impact fee, city officials said, declining to release its proposals.

The council has tried to keep a lid on some of the impact fees, particularly the transportation fee, the newest and perhaps most controversial.

In the last go-round, the committee proposed a transportation fee of $969 for a single family home. Council adopted a $352 fee.

Proposed transportation fees of $695 per apartment and $606 per condo or townhouse were cut down to $246 and $215, respectively.

Those transportation fees were on track to automatically rise to the full proposed amounts this spring, when the council voted to keep the fees where they are.

“[I think] they are trying to be sensitive and realistic,” Harball said. “They don’t want to be a drag to the economy. They don’t want to have impact fees to where nobody wants to move in here because they say they can’t afford it.”

Council member Bob Hafferman said he supports the idea of impact fees, because the city can’t throw the large costs of growth onto the existing residents.

But he said it’s important to keep the impact fees fair and based on factual information, which has been lacking in the past.

He also questions the actual need for some of the projects that are plugged into the formulas to develop the fees.

“I’ll certainly be looking at what is coming up for any changes that they may have in the fee structure ... Where I used to have some trust for what was being presented, my trust is pretty well shot. I’m very skeptical now,” he said.

Reporter Tom Lotshaw may be reached at 758-4481 or by email at tlotshaw@dailyinterlake.com