The Pagosa Area Water and Sanitation District (PAWSD) Board of Directors voted to award a partial waiver of capital investment fees (CIFs) to the Trails at Pagosa Springs affordable housing project at 116 Alpha Drive following an extensive debate at its May 23 meeting.
The board also approved increasing the affordable housing surcharges for the district at the meeting.
Chris Applequist, principal for Generation Housing Partners, presented the Trails at Pagosa Springs housing project and the associated waiver request to the board.
He explained that the project is located near U.S. 160 and Walmart and was awarded Low-Income Housing Tax Credit (LIHTC) funds by the Colorado Housing and Finance Authority (CHFA) on its second application in 2023.
He indicated that the project is partnered with the Archuleta County Housing Authority.
Applequist indicated that the project will be restricted to being affordable housing for 40 years and that Generation Housing Partners intends to retain ownership of the property.
He stated that construction would likely start in July and take approximately 19 months.
In response to a question from PAWSD board member Paul Hansen, District Engineer/Manager Justin Ramsey explained that the district will need to undertake work to reduce inflow and infiltration (I and I) of runoff and other water into the system to create sufficient capacity for the project.
He added that the district is negotiating with the developer on its contribution to solving this issue and is “close” to coming to an arrangement.
Applequist explained that his company is willing to commit to $125,000 in spending to reduce I and I and would assist in the oversight of this work.
He explained that the project will attempt to address the need for the “deeper scaling of [area median income (AMI)] units” and provide housing for people such as PAWSD staff, teachers and “the folks that make your community actually work.”
According to the developer’s presentation, the project will include five units targeted for 30 percent of AMI, 11 units targeted for 50 percent, 14 units targeted for 60 percent, 14 units targeted for 70 percent and six units targeted for 80 percent.
Applequist indicated that, since receiving the LIHTC funds in 2023, the company has had to go back to CHFA and request additional loans due to increased construction costs in addition to contributing a $1.4 million deferred developer fee, which he stated is “the only way to get it to work.”
He stated that the project would meet the standards of a “Class A conventional development” with a green design, a fitness center, electric car charging stations and granite countertops, among other amenities.
Ramsey then discussed the issues with I and I, explaining that the high I and I occurring on the sewer line that the development would connect to means that the district cannot accommodate additional sewer flow in the pipes without reducing the amount of I and I.
He stated that the district is working on this issue, as mandated by the Colorado Department of Public Health and Environment (CDPHE) following a sewer overflow in the spring of 2023, but that developers will have to help address the problem to accelerate I and I reduction and accommodate their developments.
He indicated that, according to the framework PAWSD developed, the Trails project would need to repair 15 “high-priority” issues with the pipeline system to accommodate the increased sewer flow created by the development.
Ramsey stated that the developer wishes to cap the cost of these repairs at $125,000, but that the district would prefer to not do this since it needs to justify that the I and I is reduced sufficiently to allow the development to be added and a certain amount of money being invested would not be a strong enough justification.
He added that he expects the cost of the repairs to be approximately $90,000.
Ramsey added that he wants to ensure that the district cannot be accused of negligence caused by allowing in the development while making insufficient efforts to reduce I and I, thus causing another sewer overflow.
The board, Ramsey and PAWSD Programs Manager Renee Lewis then discussed the proper approach to this issue, with the discussion including questions of whether the CDPHE cares more about spending or practical I and I reduction and the long-term ramifications of these fees.
PAWSD board member Gene Tautges then asked several questions of Applequist, including if the project would be composed of apartments and if it will be a “master meter community.”
Tautges added that Generation Housing Partners appears to be a “class act.”
Applequist confirmed that the project would be composed of apartments for rent, and Generation Housing Partners Development Associate Travis Barber indicated that it would be a master meter community, with the internal water infrastructure being maintained by the development.
Tautges asked how the project would interact with the plans for a master plan community in the area, to which Applequist explained that the community plan is external to the development and has changed several times.
The group then discussed the issue of I and I further prior to PAWSD board member Bill Hudson raising the issue of if the project would include “non-functional turf” and asking if the developer would be willing to pursue less-water-intensive alternatives.
Applequist and Barber stated that the project is willing to pursue xeriscape or other approaches and is looking into ways to plant native and less-water-intensive species.
Tautges then asked to “cut to the chase a little bit” and stated that the development is requesting approximately $900,000 in fee waivers, including the waiver of the water and wastewater CIFs.
He then proposed an alternative approach, suggesting that the district waive the equity buy-in fee for the project, which is intended to cover expansion of the number of equivalent units (EUs) for a property in the district and represent the property buying into the infrastructure that the rest of district customers are already paying for.
Tautges commented that, since the Trails project is already assisting with improving the PAWSD system through reducing I and I, this fee should potentially be waived instead of the CIFs, which are needed to fund the district’s regulatorily mandated capital improvement projects.
He explained that waiving the equity buy-in fees for the project would total about $231,000.
Tautges stated that he understood that this would be “significantly less and I know that affects your bottom line” and indicated his support for apartments, but stated that he would be “more in favor” of waiving the equity buy-in fee due to the developer’s contributions.
PAWSD board member Glenn Walsh asked for additional information on this proposal, which he noted was not included in the board packet.
Ramsey and Lewis explained that the property is within the district and would pay equity buy-in fees
Walsh questioned if the equity buy-in fees are being consistently applied.
The group then discussed how the district has applied equity buy-in fees in the past before Hudson interrupted, noting that the discussion of buy-in fees was “a distraction I didn’t expect” and redirecting the board’s attention to the affordable housing waivers policy that it passed at its last meeting, which would award full CIF waivers to projects providing housing at or below 80 percent AMI.
Hudson added that a similar policy existed in 2020 and that Generation Housing Partners was given a letter by PAWSD indicating that the district would support the Trails development through this policy.
He stated that he would like to discuss if PAWSD intended to follow its own policy by granting the waivers, adding that, although the recently approved policy gives the PAWSD board the option to refuse to waive fees if economic conditions have changed, the economic conditions have not changed since the policy was enacted in April and he would support waiving CIFs as required by the policy.
PAWSD board chairman Jim Smith and Walsh then entered into a discussion about how the waivers would be paid for, with Smith stating that the board agreed to “pay as we go” and Walsh indicating that the board did not agree to this and that the cost of waivers would need to be paid off over a 10-year period.
Smith commented that the funds available for affordable housing waivers in 2024 have already been expended by PAWSD granting waivers for Pagosa Springs Community Development Corporation and Habitat for Humanity affordable housing projects earlier in the year and that the district cannot provide more waivers until it has collected more funds.
He added that the money for the waivers is “real money,” which Walsh disputed, commenting that this money would not be earned by PAWSD if the waivers were not granted since the project would not move forward.
Walsh added that the costs of the waivers need to be considered over the 10-year period of the district’s recent rate study and that the district would have the funds to provide the waivers when considered in this framework.
“Even with all these rates comin’ down and with this $44 million plant, you think we can just give away a million dollars because he’s gonna build some affordable housing, which is a private enterprise for him to make money?” Smith said.
Walsh commented that this development likely has an extremely narrow profit margin and that the board was confusing “real development,” which could pay the CIFs, with affordable housing projects like Trails that could not.
Smith stated that he would be more willing to waive the CIFs if the project contributed $1 million to the district’s wastewater plant improvements.
Walsh stated that the fees PAWSD currently has in place will likely make any affordable housing impossible without waivers and that he would be willing to support the board pausing on granting fees waivers after the waivers for the Trails project are approved to ensure that PAWSD does not overrun the amounts collected to fund CIF waivers.
Hansen pointed out that PAWSD has a potential $141 million in costs “that we have to do now,” including the Snowball water treatment plant expansion, I and I reduction, regulatory improvements to the Vista wastewater treatment plant and a potential new wastewater treatment plant, the costs of which would be shared with the Pagosa Springs Sanitation General Improvement District (PSSGID).
“That’s a lot of frickin’ money,” Hansen said. “We are right on the cusp of really gettin’ into a lot of trouble.”
Walsh commented that these costs are why the district just significantly increased its rates and that all these costs, with the exception of a potential wastewater treatment plant with the PSSGID, were incorporated into the current rate study.
He added that the district’s rate study has issues, particularly in terms of a potential under-calculation of the amount of availability fee revenues that the district will earn over the 10-year period of the rate study.
Walsh stated that the potential excess amount that availability fees would generate would be a “drop in the bucket” compared to the costs, although he added that costs of providing the waivers would also be small compared to the district’s costs and that this cost would likely be zero since the development would not move forward without the waivers.
He pointed out that the development is in an ideal location as its residents would pay full PAWSD rates, adding that he would be unwilling to approve the waivers if the development were located within the PSSGID where PAWSD would only be paid for the direct costs incurred in treating the waste at the Vista plant — approximately $3 per month per EU, according to Walsh.
He added that, if the district charges LIHTC projects CIF and equity buy-in fees, the next LIHTC project will potentially be built in the PSSGID, where PAWSD will treat the waste at a highly decreased cost.
Walsh also commented that, if PAWSD wants to combine with the PSSGID — whose board is also the Pagosa Springs Town Council and which covers much of the Town of Pagosa Springs, which he added has a significant number of residents with low incomes — “do you think they’re going to merge their sewer district with us if we’re a sewer district that hits every affordable unit with $35,000 or $40,000 in fees? I don’t know; that seems very doubtful to me.”
Hudson noted the difficulties that the school district is having with securing teachers due to the cost of housing before commenting, “We’re not going to be able to build houses here anymore, of any kind, if we don’t have places for people to live. And, if we tell developers, ‘We will support you with a waiver’ and then we say, ‘Nah, actually not, — if that’s our attitude, to lure them in and make a promise to them that ,‘Follow this policy and we will support you,’ and when … they come to us asking for it and we say, ‘No, I don’t think so,’ I don’t see very many developers wanting to come to our community and do what is being proposed.”
Walsh added that CHFA or the Colorado Department of Local Affairs would also likely look upon this behavior unfavorably.
Hudson then moved to waive the water and sewer CIFs for the project, adding that his motion was based on “me wanting a community where a diverse group of people can live and make a living, and it’s not about where that million dollars is going to come from, it’s about this community falling apart and ending up, the whole community, in the sewer.”
Tautges seconded the motion “for the sake of discussion.”
Hansen asked how the district would pay for this, asking if it would raise rates.
Walsh stated that the district was planning to raise the affordable housing surcharge later in the meeting.
“This isn’t about how I’m going to pay for it, Paul,” Hudson said. “This is about we approved a policy, we encouraged this developer to believe that we were gonna honor our policy, and this is about being an honorable person.”
Hudson added that the developer is not being paid by PAWSD and that the waiver would only constitute the project not having to pay certain fees.
He concluded by commenting that he feels the waiver is “so worth it” and he is focused on how to create enough housing “so this community can survive.”
Walsh stated that he would support this motion, with his reasoning based upon the fact that the district would not receive this money even if no waivers are granted and that the district has enough funding to support these waivers over the period of the rate study.
Walsh also emphasized the importance of implementing an increase in CIFs to help support CIF waivers on affordable housing projects.
Smith then raised the issue of if PAWSD has ever provided an indication of if it would grant a waiver for the project, with Hudson and Walsh suggesting that a letter that Ramsey wrote to the developers presenting the district’s affordable housing waiver policy and indicating that the district would honor it constituted an assurance that the district would provide a waiver.
Smith contested this idea.
Walsh commented that it would be difficult to make a moral case for disregarding the assurances provided in the letter, and Smith questioned if the letter stated that PAWSD would provide the amount of waivers being considered.
Tautges asked Applequist if the project would move forward without any waivers, with Applequist indicating it would not.
The group then debated if it should follow the previous waiver policy, which provided a full CIF waiver for units at or below 60 percent AMI and a 50 percent waiver for units between 60 percent and 80 percent AMI, or the current policy in addition to a discussion of what AMI levels the project would hit.
Tautges noted that he had heard concerns from district customers who support affordable housing but question why they should pay the surcharges and that these increased costs could have a negative impact on poorer district residents.
He also expressed a desire for other entities to contribute more to paying for affordable housing.
“It seems like the water and sanitation district is always the one taking the hardest dip,” Tautges said.
Applequist noted that the Town of Pagosa Springs has waived all fees.
“To the tune of what, $20,000?” Tautges countered.
“It’s not a big number,” Applequist acknowledged.
“This, this is a huge number,” Tautges said.
Applequist added that the PAWSD fees are “very high,” that the developer could not pay them and that, without waivers, the district would not be losing revenue, but that it would be losing a project.
Smith asked what the rental costs would be, with Applequist replying that it would vary and would be based on 30 percent of the AMI that the unit is targeted for.
He added that these units are audited yearly by CHFA to ensure compliance with these rules.
Smith then asked Ramsey and Business Manager Aaron Burns for their input on the project.
Burns stated that he feels that the fee structure supporting the waivers is secure, but that he has concerns about how much the district would spend on waivers before stopping to ensure that the policy pays for itself.
Walsh noted that the district could potentially pause providing waivers after approving this project and wait to accumulate funds to grant further waivers.
Burns stated that such an approach could be prudent, but he sees the need for waivers.
Ramsey stated that the district has lost potential employees due to difficulties in finding housing, but that PAWSD would not face regulatory compliance issues if it does not provide low-income housing waivers, although it will if it does not meet state requirements.
Following a discussion about the impact of PAWSD’s fees on the housing market, Hudson asked Smith if the board could vote on his motion.
Smith agreed and the board then discussed an amendment proposed by Walsh to provide the waivers assuming that the developer and Ramsey could reach an agreement regarding I and I reduction.
Ramsey and Barber both indicated that they were “close” to an agreement on the issue and, following further discussion, the group agreed to include the developer completing up to 15 high-priority repairs to the system as a condition for the fee waivers proposed in the motion.
Smith then asked Lewis for her input.
She stated that staff has worked well with the developer and that she feels that the district is well-positioned to provide the waivers given the rate study and fee structure.
“I think this is a good move for the community,” Lewis concluded.
Tautges expressed hope “that we could find the number that would pencil out, other than this number” and asked if equity buy-in fees would apply.
Ramsey confirmed that they would, and Walsh stated that he would like to examine the district’s revenue estimates for equity buy-in fees in the future.
The board then rejected the motion, with Walsh and Hudson voting for it and Smith, Tautges and Hansen voting against it.
Hansen then proposed that the district could follow its previous policy that was cited in the letter from Ramsey to the developer, which Walsh indicated would reduce the fees waived by $200,000.
Hansen added that he would want awarding affordable housing waivers paused until May of 2025 when a new PAWSD board would be elected.
Walsh commented that he does not need to have this pause since he is “done” until the board can raise CIFs to accommodate more affordable housing waivers.
Hudson seconded the motion and Walsh commented, “It’s not what I want, but it’s a solid compromise.”
Hansen commented that the Trails project is an “awesome project,” but that PAWSD customers are opposed to additional fees.
Tautges asked Applequist if this proposal would “kill the project.”
“It very well may,” Applequist replied, adding that the project has already requested additional funds from CHFA and put “our fee back in.”
“Where does the $200,000 come from?” he asked.
Hansen proposed that the developer could hold a fundraiser, adding, “I’m not kidding.”
Applequist continued that funding projects at the AMI levels that Trails serves is difficult and interest rates for additional loans are high.
“Yes, we really kind of followed the policy and then sort of went above and beyond and offered to work on the district’s system, and normally we don’t do that, so we’re willing to do that,” Applequist said. “We put in time and that’s expensive, too, and the way we could try and save money is not just having our [general contractor] do it, who will charge 14 percent above and beyond that and so, to add another $200,000 on a 50-unit affordable housing project for low-income folks …”
“If you want to look at the chicken that’s being laid here very collegially, very professionally, but there’s a negotiation going on here … they may go back, huddle, decide, ‘We can bite this bullet and get an extra $250,000,” Walsh said. “If they don’t, then we haven’t lost any money because we’re not getting any money … these 15 repairs will not be made …”
“I may hate myself for saying this, but you’re also … kind of going back to a 2022 resolution but using 2025 CIFs,” Ramsey added.
Walsh noted that the resolutions are based on percentages and not specific fees and added that Ramsey was returning to Hudson’s argument about PAWSD making a promise.
Hansen then articulated his proposal as a motion with the assistance of Ramsey, moving that the CIF waivers be approved on the basis of the previous 2022 resolution and that the board would not consider further waivers until after the 2025 board election.
In response to a question from Walsh, Hansen added that PAWSD would take waiver applications starting Jan. 1, 2025, but would not approve any until after the 2025 election in May.
Tautges then seconded Hansen’s motion.
The board then voted on the resolution, with Walsh, Tautges, Smith and Hansen voting in support. Hudson abstained.
Walsh concluded the discussion by stating that he would want further consideration of how the district is managing equity buy-in fees at a future meeting.
Affordable housing
surcharge
Following this, the board considered and unanimously approved increases in the affordable housing surcharge, raising the water surcharge from $0.77 to $1.91 per month and the wastewater surcharge from $0.24 to $2.86.
Prior to the vote, Walsh noted that the board discussed the issue of the surcharges at its last meeting and decided that applying a CIF surcharge would be a “novel” approach.
He added that, in his mind, “this is about half of what we’re going to have to collect to really back us up on this policy and it’s a bit.”
Although he noted the cost, Walsh indicated that he feels the fee is “worth it,” especially since the district had just offered about $700,000 in waivers.
Hansen asked if the surcharges could be rounded up, with Walsh replying that the district is trying to be exact with the surcharge.
josh@pagosasun.com
