On May 7, the El Paso City Council is expected to answer a complicated, fraught question: should developers – and, in essence, new homebuyers – pay for the cost of new growth?
As developments stretch out into the desert along the periphery of the city, El Paso Water ratepayers are increasingly shouldering the cost of extending water and sewer lines out to new neighborhoods.
Every home and business in the city already pays a couple of extra dollars on their monthly water bill to cover the cost of providing water and sewer service to new housing developments, such as Campo Del Sol in the far Northeast or Enchanted Hills in the Northwest.
Last week, the council by a margin of 4 to 3 advanced an increase in impact fees that would require homebuilders to pay the water utility thousands of dollars more per home they build to offset those costs. The council will cast a final vote next week.
The debate centers on whether homebuilders should pay more for the new infrastructure, a cost they may pass on to new homebuyers in some neighborhoods. Increasing developers’ fees may also reduce urban sprawl by encouraging them to build closer to the city’s urban core, some argue.
Others see the fees as a tool to keep down costs paid by El Paso Water customers – though utility officials say bills may still increase to renovate aging systems in existing neighborhoods. Spreading smaller increases among all customers and not only the developers could fuel expansion in El Paso, some argue.
“We get called all the time, and we get calls about ‘Why do my water rates keep going up? I can’t afford to pay for my water and wastewater services. Why am I paying for development in a new area and subsidizing that?’” Jeff Tepsick, El Paso Water’s assistant finance chief, said to a group of Northeast residents at a recent community meeting. “Every dollar that we raise in impact fees is one less dollar that we have to charge to our ratepayers.”
City Rep. Isabel Salcido was absent for the vote last week, so the likely outcome of the next vote is not clear. Mayor Oscar Leeser, who could cast the tie-breaking vote, has openly said he doesn’t want to increase the fees.
Leeser and other opponents of impact fees argue that doing so may prompt builders to increase new home prices and potentially price out first-time buyers. There’s also a risk that developers will build outside the city limits and El Paso Water’s service area and take with them the new property tax revenue, Leeser said.
“I’ve talked to some of the builders and they said, before they would pay (higher impact fees), they would build outside the city limits,” Leeser said.
Builders have shifted to the edges of the city because “it’s more affordable to build,” Ray Adauto, executive vice president of the El Paso Association of Builders, told the City Council.
“Are you going to have a tax base here, or not? One of the two,” Adauto said.
Where would the impact fees apply?
The fees have remained unchanged since 2009. But the costs El Paso Water must pay to build out water and sewer lines have increased by about 56% since 2009, according to the financial consulting firm Raftelis, which El Paso Water hired.
El Paso Water only charges impact fees to firms building homes in three high-growth areas: the Westside around Transmountain Road and Interstate 10; the Northeast, mostly north of U.S. Highway 54 around Painted Dunes Golf Course; and portions of the Far Eastside, east of Joe Battle Boulevard and south of Zaragoza Road.
Across those three areas, El Paso Water identified $1.25 billion in projects it has to fund and build over the next 10 years to meet water demand from new customers.
El Paso Water and the city are required by state law to re-evaluate impact fees every five years. The City Council declined to increase the fees in 2019.
On the Westside, homebuilders pay an impact fee of just under $1,600 per home. Based on the cost of El Paso Water’s construction in that area, they should be paying more than $3,250 per home, the consultants said.
In the Northeast, the fee should increase from under $1,500 to nearly $5,700 per home.
On the Eastside, El Paso Water is spending $600 million to complete a state-mandated expansion of the Roberto Bustamante Wastewater Treatment Plant on Pan American Drive.
The state’s environmental regulator required El Paso Water to boost treatment capacity at the plant to handle 51 million gallons of sewage per day – an increase from 39 million gallons per day currently – as the area expands. The water company is also building a $100 million water purification plant that will serve the Eastside with drinking water.
Because of those projects, homebuilders should be paying nearly $18,000 per home in that part of town, according to Raftelis’ calculation. That’s more than 11 times the $1,600 fee now in place.
To arrive at those figures, consultants considered how many new homes are projected to be built in those areas over the next decade and how much it would cost to provide services to them. That came to $1.25 billion. The cost for each area was determined and cut in half to credit home developers for the tax revenue their completed development is projected to produce.
In all, Rafetlis calculated that El Paso Water customers are paying about 88% of the cost of building out water and sewer service to new housing developments. The utility should be collecting $17.6 million annually in impact fees from homebuilders, according to Raftelis. Impact fee revenue is now at about $2 million per year.
“The less impact fee revenue that we get, the more debt the utility has to incur in order for us to finance and pay for those projects that are in these areas,” said Art Duran, El Paso Water’s chief financial officer. “So all the ratepayers of El Paso Water would pay for those improvements.”
Regardless of the upcoming vote, Duran said, El Paso Water will continue to raise rates to pay for renovating the city’s aging water and sewer systems and for projects that serve new neighborhoods. Between now and the end of 2026, the utility will spend nearly $2.3 billion on capital improvement projects, an increase from $1.3 billion in capital spending from 2021 through 2023.
The utility will spend $588 million on capital projects this year, over $805 million next year and $927 million the year after.
An increase in annual revenue of a few million dollars won’t make a huge dent in the utility’s capital expenses.
El Paso Water CEO John Balliew has previously said that the utility’s ratepayers pay $2 to $3 extra on their monthly bills to subsidize the cost of providing service to new developments. Duran said even if City Council raises impact fees to the highest allowable level, it would probably reduce customers’ bills on average by only about $1 per month in the years ahead.
There’s a lot of uncertainty in that figure. The impact on household water bills would depend on growth actually taking place; on homebuilders paying impact fees to the utility everytime they receive a building permit.
“We’re going to have rate increases regardless of impact fees,” Duran told City Council.
Rather than increase impact fees, Eastside city Rep. Art Fierro tried to convince the council to reduce homebuilders’ fees to potentially make new homes more affordable.
City Reps. Joe Molinar, who represents the Northeast, and Brian Kennedy on the Westside sided with Fierro. The rest of the City Council shot that down.
“I’m so disappointed to hear members of council … advocate to pay more money from the ratepayers’ pocket versus development paying for its own development,” District 3 City Rep. Cassandra Hernandez said. “The El Paso ratepayer, for over 15 years, has subsidized almost 100% of the total costs of development – water development – at the fringes of the city.”
Reps. Chris Canales of District 8, Josh Acevedo of District 2 and Henry Rivera of District 7 joined Hernandez in voting in favor of increasing the fees.
“When (homebuilders) are choosing to build in those impact fee zones, that is creating a new demand for infrastructure. And that infrastructure has to be paid for,” Canales said. “I think it’s fair that people who are … choosing to move to those areas pay for the cost of the infrastructure that will serve them.”
Developers and industry advocates argue it’s better if everyone shares in the cost of new development, rather than piling new costs onto homebuilders, and ultimately, onto homebuyers in those areas.
“Right now, everyone is paying part of this, but it’s only a small” amount, Molinar said.
“So my decision is: Are we going to have everybody pay a smaller amount, a little bit bigger (bill), or are we going to incur that cost to the new homebuilder? And they’re going to get sacked with a lot of money,” Molinar said during the community meeting in the Northeast.
Salcido, who was absent from the April 23 vote, declined to comment.
The risk that Leeser emphasizes – that homebuilders will leave El Paso’s city limits if the city raises impact fees – is already taking place to some degree. El Paso’s current impact fees are lower than in other major Texas cities.
The addition of tens of thousands of new homes in the past decade has not brought additional people to El Paso. The number of people living in the city limits — about 677,000 in 2022, the most recent year available — is the same as in 2014. El Paso has spread a stagnant population over a larger area. Outlying communities such as Socorro and Horizon have seen relatively strong population growth in recent years.
Can PSB land sales cover the cost of growth?
Richard Dayoub, a business consultant and lobbyist who’s a former CEO of the El Paso Chamber, has said raising impact fees will stymie growth in El Paso and boost housing costs. Plus, El Paso Water has other means of financing growth, he said.
Opponents of impact fees, including Dayoub and Adauto, regularly argue El Paso Water should sell off some of its roughly 160,000 acres of land holdings – including around 21,000 acres within El Paso County – to cover the cost of building out infrastructure.
The Public Service Board, whose members are appointed by City Council to govern El Paso Water, purchased much of the land in the 1950s to gain access to water resources, and the PSB on rare occasions sells off land that’s deemed “inexpedient” to the city’s water systems.
“We have not had any discussions regarding our real estate holdings, which are significant,” Dayoub said. Other communities with impact fees in place don’t have big land holdings they can sell to cover the cost of new infrastructure, he said.
“We have not managed those resources equitably or judiciously, in my view, in order to maximize the financial value to the utility, or to use to pay for the infrastructure needed,” Dayoub said.
The bulk of the utility’s land holdings within El Paso County are in the Northeast and in the Upper Valley, Balliew, the utility’s CEO, said in an interview.
However, the PSB has placed land up for sale at market price, “and nobody has purchased it,” Balliew said. “What I think they really want is for us to just have a fire sale. And then somebody will buy (PSB-owned land) for pennies on the dollar.”
Urban sprawl’s environmental impact
There are climate and environmental factors at play in the impact fee decision, as well. The city of El Paso has been putting together a plan to counter climate change and improve air quality in the Borderland, with a goal of winning hundreds of millions of dollars from the Environmental Protection Agency to implement it.
One of the plan’s biggest elements is reducing the amount of time El Pasoans spend driving. The city’s climate chief, Nicole Ferrini, told El Paso Matters that the amount of vehicle miles traveled here “is a driving force behind our emissions” that contribute to high ground-level ozone levels and particulate matter, which are hazardous to breathe.
Some ways to counter that include making it easier to walk places, or lower the cost of developing lots closer to the center of the city. “If you’re living in the core and you’re working in the core, you drive less,” Ferrini said.
Lifting impact fees does “in some way promote in-fill development,” Duran said. “If I cannot afford a $260,000 house in the new area, but I can afford an existing house in Central El Paso, I have an option of, ‘Where do I move?’”
Balliew in late February told City Council it should adopt the lowest increase on the table – a 56% hike that matches inflation since 2009.
That would bring about $1 million extra per year for El Paso Water – an insignificant amount considering the utility’s $558 million in capital spending this year, Duran said. That would have essentially no effect on household water bills, at least not in the near-term, he added.
Balliew has acknowledged that the concept of growth paying for growth is controversial in El Paso – the PSB shot down a somewhat similar surcharge on new housing developments in late 2022. But a small impact fee increase to homebuilders is “relatively painless. And it helps getting us closer along to the point that we need to be,” Balliew said.
Because impact fees have remained unchanged since 2009 while the cost of construction has risen, “the average El Pasoan is subsidizing more and more the cost of growth,” Balliew said. “We need to make an adjustment.”
