Insights from the 2024 System Development Fee Survey in North Carolina
Credit: Village at Mint Spring
By Alicea Easthope-Frazer, Senior Project Director, SOG Environmental Finance Center
Since their inception in 2017, water and wastewater utilities across North Carolina are increasingly levying System Development Fees (SDFs). SDFs help ensure that new growth of the utility’s customer base pays for the infrastructure necessary to maintain reliable water and sewer services, rather than placing the entire financial burden on existing customers. In the context of SDFs, new growth includes more substantial improvements (e.g., land subdivision and increases in the number of units). By contrast, other fees for new customers, such as tap or connection fees, are meant to just cover the cost of connecting customers to existing infrastructure. Local government units may impose SDFs on new development, the amount of which is calculated based on the number of units in the development through a third-party analysis. (A new blog post from Kara Millonzi on Coates’ Cannon should be coming in the next month. This will include more details on legal requirements and procedures for implementing SDFs.)
Between July and November 2024, the SOG EFC conducted a survey regarding SDFs with water and wastewater utilities across the state of North Carolina. We received responses from 78 unique utilities. A similar survey was conducted in 2018-2019, with 81 utilities responding, allowing for select comparisons. Given that SDF law is inherently complex and has been amended multiple times, some survey responses may reflect that local governments are still working through implementing updates based on recent amendments to the statutes. This complexity may also contribute to higher variation in survey responses, as respondents may interpret terms used in the survey differently from one another.
Adoption and Increases
Between 50% and 60% of the responding utilities reported that they had either adopted or increased their SDFs for both residential and non-residential water and wastewater customers. More utilities had at least one SDF for non-residential customers (70 utilities) than for residential customers (58 utilities). However, the adoption or increase of SDFs since August 2018 was slightly less common among non-residential accounts.
Increase in SDF or adoption of new SDF since August 2018 (n=78). Analysis by the SOG Environmental Finance Center at the University of North Carolina. Data Source: Survey data collected by the SOG Environmental Finance Center, 2024
Fee Basis Method
In 2021, the SDF law was updated to require that a local government calculate its SDF using the gallons per day (GPD) per service unit standard that it applies in its water and sewer system engineering or planning purposes. Prior to this change, local governments had more flexibility in determining SDF calculations. The most commonly used method for calculating SDFs remains water meter size, with 63% of residential SDFs and 72% of non-residential SDFs determined based on this factor. One notable shift from 2019 to 2024 is the decline in the use of customer-type usage schedules, which were used by 26% of local governments in 2019 but have dropped to only 4% in 2024. This may reflect a broader movement toward standardizing SDF calculations using engineering-based metrics, such as meter size and GPD per service unit, in alignment with the 2021 legislative changes.
Fee Basis for SDFs, 2024 (left) and 2019 (right). Analysis by the SOG Environmental Finance Center at the University of North Carolina. Data Source: Survey data collected by the SOG Environmental Finance Center, 2024
Calculating Methods
SDF law allows a utility to choose one of three methods to calculate the SDF fee schedule.
- Buy-In: Calculates the fee based on the value of existing facilities, charging new developments a fee to compensate the utility for existing capacity costs.
- Marginal/incremental cost: Calculates the fee based on the infrastructure costs of new or expanded facilities to meet future growth that are planned in a Capital Improvement Plan.
- Combined cost: Calculates the fee using the cost of both existing facilities and any planned new construction or expansion of facilities identified in a CIP.
Most utilities used either the combined method (46%) or the buy-in method (42%) to calculate their SDFs. Fewer utilities are using the buy-in method in 2024 than were using it in 2019.
Method Used to Calculate SDFs, 2024 (n=48, left) and 2019 (n=77, right). Analysis by the SOG Environmental Finance Center at the University of North Carolina. Data Source: Survey data collected by the SOG Environmental Finance Center, 2024
Maximum Justified Cost
Fifty-nine percent of utilities are charging the maximum cost justified by the SDF analysis for all types of customers (n=44). This result is similar to 2019, when sixty percent of utilities were charging the maximum fee (n=77).
For those utilities not charging the maximum SDFs, affordability and resistance from the board/staff were the most cited concerns for keeping the SDFs below the allowed maximum. Respondents could select as many answers were applicable.
Reasons utilities are not charging the maximum allowed SDFs, multiple selection allowed (n=18). Analysis by the SOG Environmental Finance Center at the University of North Carolina. Data Source: Survey data collected by the SOG Environmental Finance Center, 2024
Read More
The survey results provide a snapshot of how North Carolina local governments are approaching SDFs in 2024. The data reveals that while some jurisdictions have established clear implementation strategies, there remains variation in how SDFs are being applied. Some local governments are still working through the various legal changes, adapting to amendments, and refining their approaches, while others are in the process of determining if and how SDFs can best support their growth management efforts. This variation highlights the ongoing evolution of local government responses to a complex and changing legal landscape.
For more results from the 2024 System Development Fee Survey, access the full survey report here.