Watewater System Capacity Charge Proposal

The City of Sioux Falls needs to modernize the way we charge for wastewater infrastructure capacity and expansion to responsibly manage the community’s growth and stabilize future utility rates for customers. The City is proposing to do that by transitioning from a Cost Recovery Fee (CRF), which is a one-time fee collected by the City at platting, to a Wastewater System Capacity Charge (SCC), which would replace the CRF and be a one-time fee collected by the City when a water meter is purchased for a residence or business. Neither of the fees, CRFs or the proposed SCC, are charged to utility customers’ monthly bills. The recommended change would occur over a 10-year transition period. The proposal will be presented to the Sioux Falls City Council for their consideration and approval in March and April 2025.

What is a Wastewater System Capacity Charge? 

A Wastewater System Capacity Charge (SCC) is a one-time fee charged to new properties or existing properties that increase their potential use of the City's wastewater (sanitary sewer) system and is based on the property’s use of the wastewater system. The charge helps fund the cost of expanding wastewater infrastructure to ensure the system can handle future growth, either from expansion or redevelopment.

The Wastewater SCC is a “pay for what you use” model and is based on the size of water meter a property requires. The amount of water a property needs equates to the property’s use of the wastewater system, since water that flows out of faucets or other fixtures also flows down the drains.

The Wastewater SCC would be collected when a water meter is purchased from the City of Sioux Falls, either for new construction or a change in use that requires a larger meter. Typically, this is one of the last steps prior to occupancy of a home or business. In most cases, the Wastewater SCC would be paid for by the developer, builder or plumber of the property.

What do we use now? 

Currently, the City of Sioux Falls collects a Cost Recovery Fee (CRF) to help fund wastewater infrastructure expansion. A CRF is based on a defined area in acres, called a “cost recovery area” and the cost of the wastewater infrastructure necessary to serve that defined area. For example, if it costs the City $5 million to install wastewater infrastructure, to serve a cost recovery area of 1,000 acres the cost recovery fee is $5,000 per acre. Customers pay this one-time fee based on the number of acres being platted, at the time of platting, which usually occurs in early development of a project. The City has more than 30 public CRFs across Sioux Falls, and they vary in size and price. CRFs occur early in the development process, so they do not always accurately reflect the capacity that is ultimately used, and they are not able to be changed once they are established.

Why Change? 

There are three key reasons driving this proposed change:

Stabilize customer rates well into the future.

Above all, it is the City of Sioux Falls’ responsibility to provide safe and reliable utilities at the lowest possible rate for our customers. The City’s wastewater system is an enterprise utility, meaning its revenue needs to cover its expenses. Revenue is generated from customer rates (monthly utility bills) and the Cost Recovery Fee (CRF), which the City is proposing to change to a Wastewater System Capacity Charge (SCC).

With the Wastewater SCC, more of the cost to build new wastewater infrastructure will be shifted to those expanding the system, rather than existing utility customers.

Pay based on capacity.

The City needs a simple, consistent, and fair approach to charging for wastewater infrastructure that reflects the true value of the wastewater system’s infrastructure and treatment. A Wastewater SCC model, which would be the same across Sioux Falls and based on a customer’s use of the system, rather than the current CRF model, is a fair, consistent, and “pay for what you use” approach.

Scale for growth.

Sioux Falls has grown by about 80,000 residents in the past two decades and is projected to reach 300,000 residents by 2045. As the population grows, so will the city’s physical footprint – incrementally and strategically (read more about that from Future Planning) – into new wastewater basins surrounding the city. Thanks to evolving technology in the utility industry, the City can now develop master plans for its utilities that look 100 years out. While the Cost Recovery Fee has served Sioux Falls well as a funding mechanism up to this point, the City needs a new tool that better captures the true cost and value of the wastewater system. After an extensive study by the City and its consultant partner, the Wastewater SCC was determined to be the best tool to meet the utility’s needs and balance the City’s need to stabilize existing customer rates and keep Sioux Falls investible.

How much will it cost? 

The Wastewater System Capacity Charge (SCC) is based on the size of the water meter a customer purchases. Water meter size is based on the amount of water the property needs, which is determined by the number of fixtures, water pressure, and other plumbing standards. Most single-family homes use a 5/8 inch or ¾ inch water meter. Multi-family housing like apartments use a 1.5-inch or 2-inch water meter, depending on the number of units the property has. Commercial or industrial properties typically use a 1.5-inch or 2-inch water meter, depending on the type of business and their water usage.

See examples on pages 18-23 in the SCC presentation.

Frequently Asked Questions

When would the wastewater system capacity charge take effect?  

If the Sioux Falls City Council approves the proposed change, the wastewater system capacity charge would go into effect on July 1, 2025. However, the City of Sioux Falls will follow a 10-year phase-in period to introduce the wastewater SCC and eliminate the cost recovery fee. See the chart below for details.

Will the Wastewater System Capacity Charge change?

The wastewater SCC will be evaluated with customer utility rates, which are done every four years and subject to approval by the Sioux Falls City Council. Utility rates are currently set through 2027.

Is the Wastewater System Capacity Charge applied if a property is redeveloped?

When redevelopment occurs that requires a water meter size larger than what was previously at the property, a Wastewater SCC will be collected. However, the customer will receive credit for the water meter size previously on the property and will only pay the difference.

Are system capacity charges commonly used within the utility industry?

Yes. System capacity charges, otherwise known as “development” or “impact” charges, are widely accepted and utilized. Most utilities, similar in size and complexity to Sioux Falls, have some form of system capacity charges. This is particularly true in areas with moderate to high growth and need system expansion to accommodate current and future anticipated customer needs. Other communities that use capacity charges include:

• Omaha and Papillion, Nebraska
• Brandon, Tea, Mitchell, Spearfish, South Dakota 
• Branson, MO 
• Twin Cities, MN Metro Area – Serving over 2 million residents in 111 communities.