Department of Finance
Reference: 2027 Rate & Fee Proposal
To: Mayor Gregory Mills and Members of City Council
Through: Michael P. Martinez, City Manager
Prepared By: Catrina Asher, Finance Director
Date Prepared: September 8, 2026
PURPOSE
To provide Council with information regarding proposed utility rate and impact fee updates to be included in the proposed 2027 Fee Resolution.
BACKGROUND
Staff reviews utility fees and impact fees annually and partners with consultants for rate and fee studies periodically to ensure rates and fees reasonably reflect the cost of service provided. All fees are included in the annual fee resolution proposed to City Council as part of the budget adoption process. This report will provide information on various types of fees, how they are set, and what the proposed rates are for 2027.
Impact Fees
Impact fees are charged on new development at the time of permit issuance and are used to expand City infrastructure to be able to serve that new development. Impact fees are very restricted and must be used on capital projects that expand service. They may not be used on operations, repairs & maintenance, or staffing.
Impact fees are set through rate studies that are conducted every 5-10 years, or sooner if there are significant changes to financial models. When proposing rates, staff uses the following philosophy:
• Residential - Development pays its own way though impact fees. Therefore, impact fees are set at or near full cost recovery while also considering affordability.
• Nonresidential - Development pays its own way through job creation and sales tax generation. Therefore, impact fees are set to incentivize development and may not be set with cost recovery as the goal.
Inflationary Impacts
Many impact fees are set to increase with inflation. This ensures that the fees continue to track similarly to the costs they are intended to cover and reduces the risk of large rate changes when a new rate study is completed in the future.
The City uses the Denver-Aurora-Lakewood CPI for June when indexing rates to inflation. For 2026, that inflation number is 3.9% which is 0.5% higher than the national average. Applying inflation at this rate would allow for a closer approximation of cost recovery. However, staff recognizes that impact fees for residential development are often passed along to the homebuyer and therefore can be a direct impact on housing affordability.
Because of this, staff is applying a reduced inflationary adjustment of 2.5% rather than the full inflation amount of 3.9%. This results in savings of $459 per single family home, but also reduces estimated revenue to the City by more than $260 thousand in 2027.
Methodology and Recommendations
• Parks Impact Fees - These fees are charges on residential development and may be used for expanding parks and recreation facilities. They are often rebated back to developers for parks they construct when building neighborhoods.
o 2027 Recommendation - Inflationary increase
• Transportation Impact Fees - These fees are charges on all new development and used for expansion of street and transit infrastructure. Most recently, these fees were used to fund a portion of the Bridge Street Widening project.
o 2027 Recommendation - Inflationary increase
• General Services - These fees are charged on residential development and used to fund service expansion not covered by other impact fees.
o 2027 Recommendation - Inflationary increase
• Water and Water Resources Fees - These fees are charged on all new development and are used for the purchase of raw water to serve customers or the expansion of water treatment capacity, including the new water treatment plant.
o 2027 Recommendation - Inflationary increase
• Storm Drainage - These fees are charged on all new development and used for the construction of new storm drainage outfalls and related infrastructure. The 2025 rate study recommended a phased approach to commercial rate adjustments to bring parity between residential and commercial development.
o 2027 Recommendations
§ Residential - Inflationary increase
§ Nonresidential - Rate study recommendation of $0.22/sq ft including inflation.
Impact on development costs
The impact of these proposed rate adjustments on residential development would be $1,039 per single family home. This is at the 2.5% inflation adjustment level.
The impact of these proposals on commercial development would be an additional $0.26 per square foot for retail, industrial and warehouse space and an additional $0.27 per square foot for office space.
These impacts are outlined in detail in the attached presentation along with examples for various types of development.
Other Development Fees
When a developer or Metro District requires special review by the City, the City will collect a deposit from that entity and use those funds to pay the legal or other consulting costs on behalf of the entity. This is common practice for the establishment of new Metro Districts or amendments to their plans.
Staff is proposing a similar deposit be required for water resource reviews. These reviews of water dedication requirements and proposals can cost the City thousands in legal and consulting fees that are specific to that one proposal or development. The deposit would only be used to pay legal or consulting costs for that specific review. Any unused funds would be returned to the originator when the review is complete.
o 2027 Recommendation - Collect a deposit of $10,000 for water resource reviews, with the Director of Utilities having authority to increase that amount for more complex reviews.
Utility Rates
Utility rates includes all fixed and variable charges related to the use of the City’s utilities, including water, wastewater (sewer) and storm drainage. The water and wastewater funds are considered Enterprise Funds under TABOR and therefore must fund all operations and capital needs through fees charged. Therefore, fees in these funds are set with the intention of recovery 100% of the cost of providing the service. The storm drainage fund is not a TABOR Enterprise, so projects related to the storm drainage infrastructure can be funded from other sources, including sales taxes. The storm drainage fund aims to finance large, regional projects that are not integral to other projects. For instance, if a road project requires storm drainage work, then the road project should also fund the storm drainage work.
Methodology and Recommendations
• Water Fund - Staff works with a consultant each year to review rates against financial models and determine rates necessary to fund the operational, capital and debt needs of the fund. Increases are applied to the fixed service charge and the usage charges. Other fixed charges, such as the contract water surcharge and the water treatment plant fee do not change from year to year.
o 2027 Rate Recommendation - 12%
The water fund has a separate rate for non-potable water. This water does not require treatment and therefore pays a discounted rate for usage. This usage does not incur certain fixed charges, including the contract water surcharge and the water treatment plant fee. Previously, the non-potable rate was set the same for all customer groups. Staff is proposing setting a rate for each customer group (residential, multi-unit, and nonresidential) that is a percentage of irrigation for that customer group.
o 2027 Rate Recommendation
§ Residential - 50% of Tier 2 Combined Usage (this is the tier in which irrigation use typically begins). Note that there are no residential accounts receiving non-potable service.
§ Multi-unit - 30% of Tier 2 Irrigation
§ Commercial - 30% of Irrigation (no tiers in commercial usage)
• Wastewater Fund - All wastewater flows are treated by third party processors, either Metro Water Recovery or the Town of Lochbuie. Therefore, rate changes charged by the City are based on the rate changes approved by each processors’ respective governing board. Rate increases are applied to the monthly fixed service charge and the usage charge. The WWTP Fee charged to Metro Water Recovery customers does not change from year to year.
o 2027 Rate Recommendation
§ Metro - 6.5% (approved by the Metro Water Recovery Board)
§ Lochbuie - The Lochbuie Sewer Board has not yet set rates for 2027. If the Board approves a rate change, staff will return to City Council with a related proposal.
• Storm Drainage - Storm drainage is charged at a flat rate per EQR, with a single family residential home being one EQR. Commercial accounts are charged a rate based on impervious area. In 2025, staff conducted a rate study for storm drainage and found that the City’s rates were well below average for the surrounding areas and also that the rates charged would not be sufficient to construct the storm drainage outfalls needed. Therefore, annual rate increases of $3.00 per EQR were recommended for 2026 - 2028 which would bring the charge per EQR to $14.50. This additional revenue is helping to support the construction of important drainage infrastructure around the City.
o 2027 Rate Recommendation - $3.00 per EQR
Impact on utility bills
As noted above, not all rates changes apply to all line items in a utility bill. Many billing items remain consistent from year to year. To better illustrate the impact of these proposed changes on a typically residential user, staff calculated sample bills that are included in the attached presentation. Note that sample bills are for illustrative purposes only.
The sample bills are for customers using 4,000 gallons of water per month, which is typical winter, indoor only usage. Based on these scenarios, a Metro Water Recovery customer would see a bill increase of $9.62 per month, or 10.0% while a Lochbuie customer would see an increase of $6.98 per month, or 8.4% (assuming no increases are approved by the Lochbuie Sewer Board).
Refer to the attached presentation for sample bill illustrations.
FINANCIAL IMPACT
Rate and fee recommendations are being made based on studies and with the intention of recovering the cost of providing services. Rates and fees are never set at levels that would exceed the actual cost of providing the services those fees are paying for. The rates and fees recommended by staff are set at levels that staff feel will support providing ongoing services to customers as the City grows.
Attachments:
Ø Presentation