Commercial and residential developers seeking to build in East Palo Alto will have to pay a water-capacity fee for new projects, the City Council voted unanimously on Tuesday night.
The fee would help the city repay $5 million in loans the city received to purchase water allotments from the city of Mountain View in 2017 and to rebuild and upgrade the city's aging water-delivery infrastructure.
The ordinance became effective immediately and applies to all new development projects requiring a water connection to the city's water system. Existing projects with active or valid building permits and projects with vested development rights (which are guaranteed and cannot be taken away) are exempt.
The fee approval comes after the July 19 expiration of the city's moratorium on new water hookups. The moratorium had put a freeze on new development since July 2016. The city enacted the moratorium after reaching its capacity to provide water.
East Palo Alto received the short straw of a multicity and county deal between the Bay Area Water Supply & Conservation Agency and the San Francisco Public Utilities Commission dating back to 1984. The water allotments from Hetchy Hetchy reservoir occurred when East Palo Alto was barely a city, which was incorporated in 1983. Since then, the tech boom has created demands for housing and office space that are now making East Palo Alto a desirable place for development.
The city's general plan envisions a population increase of more than 7,000 new residents, with 2,500 new residential units by 2040. More than 4,500 new jobs would potentially be created through 2.5 million square feet of new office, research and development, retail and industrial space.
Water-share transfers from Mountain View (1 million gallons per day) and Palo Alto (a half-million gallons per day) have opened the flood gates to development opportunities again. Palo Alto transferred its rights in May at no cost to the city; Mountain View was reimbursed $5 million in its June 2017 deal.
That funding must now be paid back. The city must repay a $2.5 million loan borrowed from a gift from the Chan Zuckerberg Initiative that is earmarked for affordable housing and $470,000 borrowed from the general fund. The city doesn't have sufficient money or an adequate fee structure in place to repay the water-supply transfer payment.
The city also faces considerable costs to upgrade its aging water infrastructure. Some of the water mains are 50 years old or more and are currently inadequate for new development. Replacing the mains -- and adding additional water infrastructure needed for new development -- would cost an estimated $72 million, adjusted to 2018 construction costs, according to the staff report.
The water-capacity fees will fund these deficits. All of the fees are one-time charges made before the building permit is issued.
Under the approved resolution, developers building a new single-family residence or townhouse would pay an $8,147 fee. Each multifamily or apartment unit fee would be $5,014. Commercial developments with smaller meters of up to 2 inches would pay based on the size of the meter connection: fees would range from $11,907 to $63,505.
Developers of larger projects would have to submit a report before obtaining a building permit that estimates how many gallons per day they expect the building will use once the facility is up and running. The fee would be $31.33 per gallon. While the water usage is an estimate, the city could require additional payment toward the one-time fee if its water meters later show the usage is actually considerably higher than the estimate, however.
The city manager could also raise the water-fee rates for unapproved projects later as needed without prior council approval, according to the final resolution.