Daily photo by John Godbey|
Dennis Shipp watches a sewer line being filled at the Target building site in Decatur.
Cost of installation scares off Decatur developers; in booming Huntsville, Madison, city foots bill
By Eric Fleischauer
Subdivisions, sprouting like weeds in Madison and Huntsville, are struggling to take root in Decatur.
Enjoying rapid population growth, Madison and Huntsville can afford to shoot sewer lines in all directions. They also know that those sewer lines are likely to produce the revenue that comes from new residential development.
Their extensive sewer development attracts developers, increasing population growth even more.
Decatur’s population, though, is not growing significantly. That means it lacks the confidence that subdivisions will sprout in areas where it extends sewer.
In a classic Catch-22, the absence of low-cost sewer chases developers away from Decatur, and that hurts population growth.
“Sewer is the key,” said Decatur developer H.M. Nowlin. “The major difference between Decatur and Huntsville is that Huntsville will bring sewer to you. Sewer is the critical factor that can make or break a development.”
Nowlin is starting developments in Huntsville. He said the sewer costs in Decatur are enough to chase developers elsewhere.
The given in North Alabama is that Huntsville is the center of job growth. The variable is where Huntsville workers choose to live. As developer David Peek sees it, Decatur was remiss in its past attention to residential development.
“Decatur tends to promote or patronize commercial more than residential,” said Peek, developer of The Farm subdivision. “People are beginning to realize that a residential development provides a tremendous tax base. They tend to spend their money where they live.”
Huntsville courts developers not with roses but with sewer. While not a conventional love offering, sewer has made for many long-term relationships and a boom in residential development.
Decatur Utilities offers no such gifts. Developers generally must pay both to extend the sewer line to the subdivision and to run sewer mains within the subdivision, said DU Interim Manager Stan Keenum.
Extending sewer to a subdivision costs at least $40 per linear foot, sometimes up to $70 depending on the geography. That means a Decatur developer who wants to locate a subdivision one mile from an existing trunk line is looking at spending more than $200,000 just to get sewer to the property. Installing sewer lines within the subdivision can be even more.
Unlike Madison and Huntsville, DU almost never uses sewer to encourage growth in undeveloped areas.
Huntsville is at the other extreme. It aggressively runs sewer lines, even to areas with no immediate prospect for residential growth.
“Huntsville uses sewer as a tool for annexation and development,” said former Decatur City Engineer Richard Grace, now a project manager at Huntsville-based Civil Solutions. “Decatur does not.”
Developers tell Huntsville where they want to locate their subdivision and, if sewer access is not available, the city will extend sewer to it, at no charge to the developer.
“By extending sewer at no charge, Huntsville is taking agricultural land and making property taxes and sales taxes out of it,” Grace said.
Like Huntsville, Madison will run lines to planned subdivisions. Unlike DU, it charges an impact fee for the developer to hook the subdivision to the city’s system. That fee, however, is a fraction of the cost of the sewer extension. Madison also offers cut-rate sewer installation within subdivisions.
The end result is that sewer is a huge hurdle for Decatur developers, especially for those developing away from areas that already have sewer. It is a minor issue for developers in Madison and Huntsville.
The difference between Huntsville and Decatur on the sewer issue is in part structural. Huntsville’s sewer department is a part of the city government and relies on the tax-funded city budget. In Decatur, sewer is controlled by DU, which is funded not by taxes but by ratepayers.
The difference has major ramifications. The main economic benefit of sewer-driven residential growth comes from taxes. In Decatur, the city benefits from those taxes. DU does not. For Huntsville’s city-run sewer department, sewers are a compelling investment. Not so for DU.
Structurally, Madison and Decatur are similar. Both have sewer departments that exist without tax funding.
Ricky Pounders, general manager of Madison Water and Wastewater Board and formerly DU administration manager, said Madison generally will pay the cost of extending sewer to a subdivision that does not already abut a trunk line. It recoups that cost through impact fees charged to the developer of that subdivision and others who later connect to the trunk line.
A city’s willingness to front the cost is a huge benefit for the developer, according to Nowlin. The developer is already fronting the cost of the land, and he has no prospect of recouping his investment until he sells a house.
As Decatur developer Ralph Hurst put it, “We’re holding the bag, and that bag is sometimes running short on money.”
Madison is responsive to the developers’ problem.
“It makes it a lot easier for the developer to go out and buy property that’s already got (sewer) mains to the property,” Pounders said. “We are fairly aggressive in putting those lines in place, and we don’t charge for that. If they tell us where they want the subdivision to go, we’ll get to them.”
That willingness, Pounders said, is driven by the knowledge that new residents are also new sewer customers. The long-term revenue will make up for the short-term loss.
“Overall we’re a little more future-thinking (than Decatur),” Pounders said. “That sounds negative, but we will spend some money to get the system out there so the developer can focus just on his development. We try to partner with developers.”
Huntsville, mindful of the tax revenue that comes with residential development, can afford to be even more aggressive in extending sewers.
The city of Decatur has the ability to duplicate Huntsville’s aggressive sewer-extension policy through a mechanism adopted by DU’s board several years ago.
The mechanism permits the city (and developers) to recoup the cost of extending sewer as homeowners tie in. That means that, if the city is convinced an area a mile from the nearest sewer line is ripe for development, it can pay for DU to extend sewer to that area. If the city gambles right, it would recoup the cost of the sewer extension and benefit from the resulting tax revenue.
Like any gamble, though, it can go wrong. One of the city’s few ventures in the sewer-extension business was to push DU to extend a $2.5 million line to the Chapel Hill area. The political cost of the decision was almost as great as the financial cost. Five years later, few homes have tied in.
DU made a similar gamble, although aimed at commercial development, when it extended sewer along Alabama 20 north of the Tennessee River. That $2.2 million gamble also has yet to pay off.
Pounders stressed that Madison can afford to focus on future growth because it has every reason to expect it. Its population is growing rapidly; Decatur’s is not. Madison can finance this year’s sewer extensions with last year’s subdivision-generated impact fees, a luxury not available to DU.
“In Decatur’s defense, we couldn’t be as aggressive (in Madison) if we didn’t have a growing area,” Pounders said. “It makes sense for us to try to continue to grow.”
The question no one can answer, of course, is whether Decatur could increase residential growth with a more aggressive sewer policy.
Peek spent a fortune running sewer to his subdivision, a cost he wishes DU or the city would have handled. But like Pounders, he points out that Decatur’s growth rate makes for a different financial gamble.
“If I was DU, because of the growth rate, I’d be a little scared to run sewer unless I was sure it would be developed,” Peek said. “It would be bad business to run a sewer that’s a shot in the dark.”
Save $84.50 a year off our newsstand price:
Subscribe today for only 38 cents a day!