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Local homebuilders are raising concerns over new city fees that would charge for utilities on empty lots in Bismarck.

Builders are willing to pay for increased costs sustained by the city as a result of new residential developments, if those costs exist, said Chad Moldenhauer, owner of K&L Homes and a board member of the Bismarck-Mandan Homebuilders Association, but they are worried the fees are being used as a way to pay for other infrastructure.

The association is asking the city commission to rethink implementation of the fees on undeveloped lots.

“We want to understand what we’re being asked to pay for and how it’s formulated,” Moldenhauer said.

The cost to developers and lot owners is $20 per month for an empty lot and $30.95 for a lot with a structure but no meter.

There’s also a stormwater fee increase — $300 per 1,000 square feet — meaning an average 15,000-square-foot lot went from $1,050 in fees to $4,500. And a new formula for evaluating property value is raising the cost of building permits.

City Director of Utility Operations Michelle Klose indicated the fees are a way to pay off debt on the city’s utility infrastructure.

“The base fees are an important aspect of a water budget to provide consistency over the long term to meet debt and life cycle costs that do not vary with the amount of water provided. The evaluation of the base fee found that the water base would cover less than half of the existing debt payment,” Klose wrote in a letter to city commissioners.

Klose estimated there were 4,000 parcels, including cold storage businesses, not sharing the costs of infrastructure and services. The recommended fee brought those parcels into the payment system and moved the water base fee closer to covering 75 percent of the existing debt payment — $6.2 million of the $7.2 million in debt owed.

“If there are bills that need to be paid, obviously there’s a need (for more funding),” Moldenhauer said. “But that doesn’t mean the means are justified … How much of that need can be attributed to new development and how much is rehabbing existing infrastructure?”

For example, Moldenhauer said the buildout of the water line to his Heritage Development is being paid for through special assessments. He paid to build the water lines within the subdivision. The pipe installed by builders is under warranty and therefore doesn’t add to maintenance costs.

“So where are these (utility) fees actually going?” he asked.

The increases, taken alone, may seem minimal, according to Moldenhauer, pointing out that, between new fees and other policy changes, the costs are adding up for builders and raising the cost of new homes without raising their value.

As a result of these cost increases, homebuilders are estimating that lots will be harder to sell. One developer estimates there are more than 600 empty residential lots in the city and these fees weren’t budgeted for by the land owners, Moldenhauer said.

“We can’t keep tacking on for what we were not aware of,” he said. “Every new fee and policy increases cost that we have to figure out how to absorb or justify.”

Moldenhauer has a lot of customers who like to buy lots and hold them for a number of years before building. But if they find out they have to pay utility fees during that time, it could be a deterrent. The result could be that fewer lots are developed and options for consumers will go down.

Residential building permits issued have dropped for a fourth straight year, from 1,199 in 2013, at the height of the oil boom, to 506 in 2017. Homes are taking longer to sell and developers are holding lots longer.

A discussion took place at Tuesday night's Bismarck City Commission meeting, but no action was taken by the board.

South Bay developer Kevin Turnbow was one of a handful who spoke in opposition of the fees.

"This creates hardship on me and it'll break me," he said. "How do you charge somebody when you don't give a service? I'm not going to go into a store and buy something, and I don't get what I'm buying...that's exactly what we're doing here."

Developer Chad Wachter, of Investcore and Wachter Development, is "in the middle" of starting a new 350-lot development and said it would've been nice to find out, in advance, what the new proposed fees were going to be.

"When I meet with city staff, I always try very hard to emphasize that we both need each other and that we are both partners in the growth business," he said. "But no matter how hard I try, the partnership of this business with the city seems little to nonexistent."

Alternative funding options are raising the fees only on lots that have an existing meter or increasing the city sales tax, Mayor Mike Seminary said.

"We're trying to find a fair way to do this and fair means paying a share," Klose said at the meeting.

Reach Jessica Holdman at 701-250-8261 or jessica.holdman@bismarcktribune.com

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Business Reporter