Greeley to allow developers to pay cash-in-lieu of water

Greeley in 1870 via Denver Public Library

From The Greeley Tribune (Tyler Silvy):

In Greeley, developers have historically been required to bring water to the table for any proposed development.

Often, that water is associated with whatever piece of land the developer bought, so it’s an easy transfer.

But when the land has already been dried up, developers are forced to hit the open market, competing with other developers to buy water at increasingly higher prices.

“The way it is now, it’s kind of driving water prices up,” said Martin Lind, a major Front Range developer. “You’ve got 50 developers looking for small (portions) of water here and there.”

In Greeley, there are fewer pieces of land with water rights still attached than ever before, and if Greeley wants to continue to grow — and city leaders say it must — officials say they’ve got to do something.

Greeley’s solution, in the works since at least 2003, exchanges buckets of water for buckets of cash, as city leaders contemplate a transition to a system that allows developers to pay cash-in-lieu of water, a system officials say would be less burdensome on developers.

That plan, based both on a dwindling supply of water and upon Greeley’s ability to potentially strike better deals, likely wouldn’t be approved until August.

For Harold Evans, chairman of the Greeley Water and Sewer Board and a man who has experience in Colorado real estate, the plan would be good for everyone.

“It gives (developers more options),” Evans said. “I think it will be a positive for the development community.”

SMART WATER

Greeley’s water planning goes out to 2065, and the city has been engaged in an aggressive, multi-phase water buying plan during the past several years.

The city owns most of the water in its projected growth area — the areas not yet within city limits but expected to be one day, areas like the ones between Weld County roads 17 and 13, north of U.S. 34.

With that in mind, it’s easy to see why there are fewer water resources available for developers.

Take Journey Homes, which is building a 400-home development at the southwest corner of 83rd Avenue and 10th Street in west Greeley.

Journey Homes Principal Larry Buckendorf said water comes first in almost everything Journey does.

“For Journey, it’s water,” Buckendorf said. “That is the first consideration that we look into — what are the municipalities’ raw water requirements and what kind of water is attached to the land? It’s item No. 1.”

Journey followed probably the simplest process available. It bought the land and the water that came with the land and deeded it to the city.

But what happens when there’s no water attached to the land? That’s literally a growing problem as agriculture users sell their water rights to growing municipalities across the Front Range.

The answer, for Greeley, is to let developers pay cash for water they don’t have. Buckendorf said it’s always good to have more options, and he said he has always enjoyed working with Greeley.

Today, Greeley allows developers to pay cash-in-lieu of water for just 8 acre-feet of water.

To give some perspective, Journey Homes’ development sits on 166 acres. Greeley requires 3 acre-feet of water for every acre of land. That means the city required 498 acre-feet of water from Journey, and Journey could bring cash to the table for just 8 of those.

Switching fully to cash-in-lieu wouldn’t necessarily reduce developers’ costs, as Greeley will factor in not just the cost of water but the relative costs of storage expansion projects and system upkeep. But it would reduce the headache of buying water on the open market.

“We see that we need to start to do a transition to support development,” Water and Sewer Director Burt Knight said. “If I don’t do a transition, and you don’t have water tied to the property, I’m forcing you into the market to buy C-BT (Colorado-Big Thompson). That’s a very difficult market, and it’s expensive.”

A nice, round, roughly accurate number is $30,000 per acre-foot. If Journey paid cash, it would be out $14.9 million just in water — before selling a single home.

To recoup those costs, Journey would need to take out about $40,000 from each of the 400 homes it’s building in west Greeley. That helps explain why housing affordability is so difficult to attain, officials say.

“Before you’ve moved any dirt, before you’ve bought the land, before you’ve done anything, you have to calculate about $100,000 per each acre just for the water,” Greeley Community Development Director Brad Mueller said.

It’s possible more housing stock would help drive prices lower, and Greeley does have room to grow. Today, Mueller said the city has more jobs than houses, and that’s an imbalance — although not the worst version of such an imbalance — city officials hope to fix at least in part by switching to the cash-in-lieu system.

DIFFERENT STROKES

Brian Werner is the spokesman for the Northern Colorado Water Conservancy District, which manages a number of projects, including the Colorado-Big Thompson project.

That project diverts water across the continental divide to the Front Range. Talk to anyone who knows water and they’ll say it’s the best water. Why? Well, first, it comes from high in the Rocky Mountains, fed by snowmelt.

Second, unlike almost any other water source in Colorado, it can be used for anything in the South Platte River Basin, all the way to Julesberg and Nebraska, without a decade-long water court battle to change its use. To clarify, if a city buys water that has historically been used to water crops, it must go to court and get approval to use the water for residential development.

Because there are no such requirements for CBT water, though, it’s costly. Werner said an auction earlier this year featured $30,000-per-unit prices.

In 1957, the first year the CBT project was in operation, units sold for $1.50 apiece, Werner said. If CBT water shares simply followed inflation, they would cost $13.47 per share today, according to the Bureau of Labor Statistics inflation calculator.

And back then, 85 percent of the units were owned by agriculture producers. Today, that’s 30 percent.

Werner said that won’t get much lower, as there are a few large farming operations that might not ever sell.

All of that, combined with developers needing the water to help Front Range cities grow, leads to price increases.

It’s another reason Greeley is looking to switch to a cash-based system.

But the same problem leads to different solutions.

Many smaller water districts and municipalities are actually taking an opposite approach to the problem, forcing developers to bring water to the table so those water districts don’t have to deal with the open market.

Werner said there’s no way to say either system represents a smarter approach to water policy, as a variety of factors affect any given water district. And he certainly wouldn’t criticize Greeley, a city he uses as an example of proper water planning.

“They’ve done one of the best jobs in northern Colorado of building a water portfolio,” Werner said. “They’ve been doing it for 150 years, so they’ve got a better starting position than some of these newer communities.”

GROWING PROBLEM

Knight said without the impending change to the way Greeley manages water, it would be difficult if not impossible for new development to move forward.

It begs a question, though: Is there pressure to grow at the expense of smart water policy?

Even if Knight and Mueller said they’ve never felt that pressure, there’s enough at stake that Greeley regularly studies its neighbor municipalities when it comes to water and development policy.

Every five years, the city looks at prices and trends and compares itself with others. The most recent study, completed in July 2015 by BBC Research and Consulting, cost $41,876.27, and the study looked at the 21 fastest-growing municipalities across the Front Range.

That study showed Greeley’s costs, including the amount of water required to be deeded to the city, impact fees and tap fees, were above average among those municipalities, and called the high cost of water significant for developers and new homebuyers.

The prices have only gone up since July 2015, but even then, Greeley’s costs were $36,271 per home — $8,000 higher than average. With CBT shares going for $5,000 more today than before, the costs are closer to $40,000 per home today.

Some of the other municipalities were similar, including Johnstown, which was higher in 2015 at $35,000 per home, and Windsor ($28,500 per home).

Others were far lower, including $11,375 in Evans and $10,000 for the Central Weld Water District, which covers a vast swath of rural Weld County from Evans and Kersey down to Firestone. Longmont and Lafayette were below $10,000.

“There are some communities that we kind of shake our head,” Knight said, refusing to name names. “It looks either low or high. The ones that are low make us wonder, ‘Are they making themselves vulnerable in the future?’ ”

So how does Greeley compete for new development with costs like that?

Buckendorf said the costs tend to shake out in the end.

“Land sellers are very astute,” Buckendorf said. “They know if the raw water requirement is less, they’ll ask for more for their land.”

Knight said Greeley sets its rates in such a way as to ensure the city recoups the necessary costs, and typically that leaves Greeley somewhere in the middle of the city’s Front Range neighbors.

“It’s important for Greeley residents to appreciate that we have a current water board and history of water board members who have been very serious stewards of the water for the community,” Mueller said.

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