Is your utility charging system development charges (SDCs) to new users connecting to the system? SDCs, sometimes referred to as availability fees or capacity charges, have been used by sewer and water utilities for many years to provide a source of funding for future capacity-related improvement projects. New customers pay the SDC when they connect to the utility system. The funds are then held in a separate account to reduce the amount of debt needed for upcoming improvement projects. This scenario allows “growth to pay for growth.” Many times, utilities are faced with the need to expand treatment facilities because of a growing customer base. An SDC paid by new development provides funding for the expansion with minimal impact to existing customers.
Generally, there are three different methods of calculating an SDC. The appropriate method for your utility is fact-specific and depends upon the utility’s goals and the status and timing of planning for future improvements. It takes time for SDC revenues to build up to fund future improvements, so the earlier you get them enacted the more effective.
Utilities have lots of needs and in many cases limited revenues to pay for increasing costs to run a utility. Implementing SDCs as an additional funding use with your utility source for capital projects is one way to limit the burden on ratepayers
For more information on this topic, or to learn how Baker Tilly municipal specialists can help, contact our team.
Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and wholly-owned subsidiary of Baker Tilly Virchow Krause, LLP, an accounting firm.