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water from an outside system . The water plant expansion project would need to be completed at the same time as the Phase 2 reservoir expansion. Changes in policy , growth patterns , and the economy are likely to change the precise time when these expansions will need to occur. Capital Facility Fees — Water The purpose of Capital Facility Fees are to make sure that new water customers pay their " fair share" of the capacity they will be using (e . g . , water plant and reservoir) . The purpose of this portion of the study is to help ensure that the Town ' s Water Capital Facility Fees are reasonably congruent with the long-term costs of providing water service to new development . More specifically, the costs associated with the Water Plant and Reservoir expansions , that are needed to accommodate new growth, - must equal the amount of money that new development is likely to pay in Capital Facility Fees . Since there has been no recent documented correlation of costs verses income regarding Capital Facility Fees , the staff felt it was crucial that this issue be analyzed immediately. The worksheets contained in the Analysis show that the cost of providing new customers with ity is $8. 17. Therefore, the Town should base its Water one (1) gallon per day of water capac Capital Facility Fee on this rate, whether its residential , commercial, or industrial development . ailable to customers is the same , regardless of the type The cost of making one gallon of water av of development . To. fail in charging new water customers the $ 8 . 17 gpd Capital Facility Fee means having to use water sales revenues (from all customers) to make debt service payments on the Water Plant expansion and Reservoir projects . In simple terms , this would mean the Town failed in making new development pay for itself. Giving breaks to a4v future customer is simply transferring the long-term cost of these projects to all Hillsborough water customers . This essentially provides a subsidy to the project, development, house, apartment, school, business , or industry requesting a "relaxation" of capital facility fees for their project. Using a standard residential unit (that averages 200 gpd of water) , the Capital Facility Fee should be $ 1 , 634 . The Town currently charges $ 1 , 000 for its in-Town rate and $ 2 , 000 for out-of--Town. The staff is developing a new Capital Facility Fee rate schedule for the Board to consider as part of the budget process . The fees will unquestionably have to go up if "new development" is to pay its fair share and to ensure the fiscal well-being of the Water/Sewer Fund . Key Observations & Recommendations • The Town needs to fund a rate study in late FY01 to ensure that rates and capital facility fees for the water and sewer systems are fair. The study cannot be done until the wastewater plant study is completed. The study is necessary to ensure the Town is neither overcharging customers nor under funding its operations . While the analysis started by this study on Water Capital Facility Fees will help the staff to make solid recommendations to the Board as part of the upcoming budget, a complete analysis is necessary to protect the Water/Sewer Fund ' s long-term operations and fiscal health. • The Town ' s Capital Facility Fees for Water are low when compared to the projected cost of providing water to new development . The fees need to be adjusted to make sure that new development pays for itself, thus not placing an unfair burden on current customers . Page 3