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Northern Colorado Governments Differ on Accepting Cash Over Water for New Development

January 10, 2019
Arnold Armandariz cuts molding last month at a home under construction in the barefoot Lakes devleopment in Firestone.

Policies dictating how real estate developers must satisfy water dedication requirements for erecting new buildings vary between northern Colorado municipalities, and recent rule changes in some reflect priorities shifting from raw water acquisitions to building capital for future water storage projects.

While Longmont has allowed developers to make cash payments in lieu of dedicating water rights to the city since the 1960s, it was just 2014 when Dacono gave developers a way around finding shares of water to buy on the open market to then hand over to the city.

That policy allowed developers to fund construction of enhanced amenities for Dacono in exchange for water rights the city already owned, which were credited by the city at below-market rates. The rule led to the assembly of both the Carbon Valley Veterans Memorial on the corner of Colo. 52 and Colorado Boulevard, and Dave Osborne Park next to Dacono City Hall, among other public facilities.

‘They want to write a check’

Dacono added further flexibility for developers in December by making 350 Colorado-Big Thompson water units already in its portfolio available to developers at market prices, which have risen so rapidly in recent years developers have been frazzled when trying to bring new water shares to cities to move their construction projects forward.

“That’s what developers want, they want to write you a check for water. They don’t want to go out on the market, or participate in an auction, or find a water broker. That’s just one headache they don’t want to deal with,” Dacono City Manager AJ Euckert said.

Over the past six years, Colorado-Big Thompson water units have nearly quadrupled in price.

In January 2013, a C-BT unit — which most years guarantees its owner just more than a half-acre-foot of raw water, about enough to supply a Colorado home for a year — sold for around $9,700, according to Brian Werner, spokesman for Northern Water, the government agency that manages the Colorado-Big Thompson project that diverts water from the Western Slope to the Front Range.

By the end of 2013, it was $16,500, and today the price is around $36,000, according to data provided by Werner.

“The availability of C-BT units has decreased substantially over the last several years, and the city has determined the present availability of C-BT units is a significant impediment to new development, and is therefore negatively impacting the economic vitality and future prosperity of the city,” said the cash in lieu ordinance Dacono passed.

Nearby Firestone, on the other hand, still requires passing real water units onto the town in almost all cases of new development, accepting cash in lieu only if the proposed project is commercial or industrial and requires less than 1.8 acre-feet of water — the more structures a developer proposes to build, the greater the water dedication requirement.

But Firestone in early 2018 also temporarily allowed developers to purchase water credits, portioning 300 acre-feet that became available from a long-term lease to Loveland, and all have since been absorbed, according to Firestone spokeswoman Katie Hansen.

“Finding water is more difficult these days for anybody, whether you’re a developer or whoever,” Werner said.

Age matters

Some public entities, though, like the Little Thompson Water District, are unable to convert to cash in lieu of water policies because of their recent formations compared to the cities that were first settled in the area.

“If you look at our neighboring cities, Longmont, Loveland, they have water rights going back to the 1800s, when the towns started going. Our district was formed in 1961. We’ve been keeping up, (but) we don’t have the excess these cities have,” Little Thompson Water Resources Manager Nancy Koch said.

Little Thompson allows cash in lieu only for projects that include new building on one or two parcels, and any developer proposing more construction than that is required to bring water rights to the district for its service.

“If we allowed them to pay cash, then the district is facing the market. And that’s something we don’t want to do, because it could impact our tap holders. (If developers) give me some money, and I can’t go out and find water rights, then we’ve already given a commitment to serve with no new water but new demand,” Koch said.

It was a big pledge for the developer of the Barefoot Lakes neighborhood, which has been annexed into Firestone since striking a service agreement with Little Thompson that remains in place today: the subdivision required a dedication of 1,200 acre-feet to the district, Koch said.

Money for reservoirs, pipelines

Markets for development in municipalities are impacted by each’s dedication policy — with developers favoring cash in lieu systems to dedicating real water rights.

But Dacono’s move also represents a change in the broader market for water, which has a greater need now for expanding municipal water storage capacities than growing raw water stock, especially for the area’s smaller towns.

“All of the cities are balancing this. It’s a matter of getting enough water to serve the citizens of new developments, as well as paying for infrastructure improvements, whether it be reservoirs or pipelines,” Reagan Waskom, director of the Colorado Water Institute at Colorado State University, said.

And cash in lieu methods allow municipalities to convert their C-BT ownership into capital that can be put toward new those kind of projects, like Windy Gap Firming Project for Longmont and Nothern Integrated Supply Project for Dacono, both of which involve multimillion-dollar price tags for each of their participants funding the proposed flooding of major reservoirs.

“It’s better for us to get cash in lieu because it’s that much less money that we have to come up with when we participate in the Windy Gap Firming Project,” Longmont Water Resources Manager Ken Huson said. “It’s real good for us because we have a project sitting in front of us. If we didn’t have water supplies out there (for which) we could convert that cash into wet water, it wouldn’t be as good of a program. ... Over the years we’ve always had projects out there that we were able to spend that cash in lieu on to get new water supply in Longmont.”

How should municipalities set prices?

Longmont has bumped up its price for cash in lieu payments for water credits from the city as the C-BT market has skyrocketed, pushing the per-acre-foot price to $15,324 this year from $10,800 in September 2015, according to data shared by Huson.

That means developers are getting a substantial discount compared to the C-BT market when paying cash in lieu to the city.

The highest per-acre-foot rate for water credits set by Longmont’s cash in lieu system was $17,763 in 2000.

“These (municipalities) are not for-profit businesses,” Waskom said. “They’re trying to get the right number to where they’re covering what their costs are for expansion and all that. They’re trying to get it right in the midst of a certain amount of chaos ... so we don’t price development to where it can’t be affordable.”

Overall, the city has collected nearly $10.5 million in cash in lieu of water rights since its program began in 1965, with much more rapid accumulation in the past five years as the supply of water on the market has dwindled, with the explosion of development on the northern Front Range being the main driving force.

Longmont collected $3.5 million through cash in lieu of water from 2013 to 2017, an amount it previously took 12 years for the city to accumulate, and before that, 35 years.

“The developer can’t go out and build a reservoir. It’s a lot easier for the municipality to assemble that money over time and do a large project to get the water,” Huson said.

Sam Lounsberry: 303-473-1322, slounsberry@prairiemountainmedia.com and twitter.com/samlounz .

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