To: Honorable Mayor and Members of Town Council
Through: David L. Corliss, Town Manager
From: Mark Marlowe, P.E., director of Castle Rock Water
Nichol Bussey, Business Solutions Manager
Title
Ordinance Amending Sections 4.04.150 and 13.12.080 of the Castle Rock Municipal Code by Adopting a Revised Methodology for Calculating Renewable Water Resource Fees and Water and Wastewater System Development Fees for the Construction of New Single-Family Residential Homes (Second Reading - Approved on First Reading on April 21, 2026, by a vote 6-0) [Entire Castle Rock Water Service Area]
Body
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Executive Summary
Staff is requesting Town Council approval of an Ordinance on first reading (Attachment A) modifying the methodology for assessing System Development Fees (SDFs) for new single-family residential development. The proposed approach aligns Water, Water Resources, and Wastewater SDFs with observed system demand based on total home size.
Under this proposal, Castle Rock Water would implement a tiered System Development Fee structure for single-family residential homes based on total square footage, including both finished living space and any unfinished basement area that could reasonably be converted to habitable space in the future. This ensures that fees reflect the full potential long-term demand a home may place on the water and wastewater systems.
The proposed methodology is based on an analysis of water use from 750 homes constructed between 2023 and 2025, which demonstrates a clear relationship between home size and water demand. However, the data also shows that this relationship is not strictly linear. Water use increases more rapidly at smaller home sizes, stabilizes through the mid-range, and increases again for larger homes. Because a single regression formula would not accurately represent this pattern and could result in over- or under-charging across different home sizes, staff determined that a tiered structure provides a more accurate and defensible method for aligning fees with actual system demand.
Staff proposes a tiered System Development Fee structure based on total home square footage, as shown in Table 1 below. The tiers are generally organized in 500-square-foot increments, reflecting observed differences in average daily water use associated with home size. Under this structure, Water, Water Resources, and Wastewater System Development Fees are scaled proportionally, with smaller homes paying lower fees and larger homes paying higher fees based on their relative system impact.
To establish a consistent baseline for fee calculation, one Single Family Equivalent (SFE) is defined as the 75th percentile of home size constructed since 2023. This benchmark reflects a representative upper-range home within the Town’s current development pattern and aligns the standard SDF with the level of service required to support commonly constructed larger homes. Homes smaller than this benchmark pay proportionally less, while larger homes pay proportionally more based on their relative demand.
Table 1
|
Total SF including unfinished basement |
3-year average GPD |
% of SDF |
Water System |
Renewable Water aka Water Resources |
Wastewater System |
Total |
|
Less than 500 |
45 |
27% |
$ 2,676.02 |
$ 9,654.52 |
$ 1,651.80 |
$ 13,982.34 |
|
500-999 |
55 |
33% |
$ 3,270.69 |
$ 11,799.97 |
$ 2,018.86 |
$ 17,089.52 |
|
1000-1499 |
65 |
39% |
$ 3,865.36 |
$ 13,945.42 |
$ 2,385.93 |
$ 20,196.71 |
|
1500-1999 |
70 |
42% |
$ 4,162.69 |
$ 15,018.14 |
$ 2,569.46 |
$ 21,750.30 |
|
2000-2499 |
109 |
65% |
$ 6,481.91 |
$ 23,385.40 |
$ 4,001.02 |
$ 33,868.32 |
|
2500-2999 |
136 |
81% |
$ 8,087.52 |
$ 29,178.11 |
$ 4,992.10 |
$ 42,257.72 |
|
3000-3499 |
137 |
82% |
$ 8,146.99 |
$ 29,392.65 |
$ 5,028.80 |
$ 42,568.44 |
|
3500-3999 |
138 |
83% |
$ 8,206.46 |
$ 29,607.20 |
$ 5,065.51 |
$ 42,879.16 |
|
4000-4499 |
142 |
85% |
$ 8,444.32 |
$ 30,465.38 |
$ 5,212.34 |
$ 44,122.04 |
|
4500-4999 |
146 |
87% |
$ 8,682.19 |
$ 31,323.56 |
$ 5,359.16 |
$ 45,364.91 |
|
5000-5499 |
155 |
93% |
$ 9,217.40 |
$ 33,254.46 |
$ 5,689.52 |
$ 48,161.38 |
|
5500-5999 |
167 |
100% |
$ 9,931.00 |
$ 35,829.00 |
$ 6,130.00 |
$ 51,890.00 |
|
6000-6499 |
175 |
105% |
$ 10,406.74 |
$ 37,545.36 |
$ 6,423.65 |
$ 54,375.75 |
|
6500-6999 |
177 |
106% |
$ 10,525.67 |
$ 37,974.45 |
$ 6,497.07 |
$ 54,997.19 |
|
7000-7499 |
185 |
111% |
$ 11,001.41 |
$ 39,690.81 |
$ 6,790.72 |
$ 57,482.93 |
|
7500-7999 |
192 |
115% |
$ 11,417.68 |
$ 41,192.62 |
$ 7,047.66 |
$ 59,657.96 |
|
8000-8499 |
200 |
120% |
$ 11,893.41 |
$ 42,908.98 |
$ 7,341.32 |
$ 62,143.71 |
|
8500-8999 |
207 |
124% |
$ 12,309.68 |
$ 44,410.80 |
$ 7,598.26 |
$ 64,318.74 |
|
9000-9499 |
215 |
129% |
$ 12,785.42 |
$ 46,127.16 |
$ 7,891.92 |
$ 66,804.49 |
|
9500-9999 |
223 |
134% |
$ 13,261.16 |
$ 47,843.51 |
$ 8,185.57 |
$ 69,290.24 |
|
Over 10,000 |
230 |
138% |
$ 13,677.43 |
$ 49,345.33 |
$ 8,442.51 |
$ 71,465.27 |
This proposal reflects the Town’s ongoing evaluation of water use patterns in new residential development constructed under the 2022 landscape standards, as well as Town Council’s interest in housing attainability and fee proportionality. Castle Rock Water ensures the alignment of measurable water demand and the cost of service for new development by completing an annual rates and fees study. This evaluation was undertaken in between these studies to focus on the impact of the relatively new 2022 landscape standards for which Castle Rock Water finally had adequate data to evaluate impact. By ensuring alignment of System Development Fees with measurable water demand and observed development impacts, the revised methodology improves proportionality, supports housing attainability by reducing fees for smaller homes, and maintains full cost recovery under the Town’s “growth pays for growth” framework.
Castle Rock Water worked closely with Stantec, our expert consultant on rates and fees in developing this revised approach. Stantec’s review of the revised methodology is provided as Attachment B.
Budget Impact
The proposed methodology is expected to result in lower System Development Fee revenues for the Water, Water Resources, and Wastewater SDFs for new single-family residential development. Based on observed building patterns from 2023 and 2024, and assuming similar trends in both the number and size distribution of new homes, overall SDF revenues are projected to decrease by approximately 10 percent under the proposed tiered structure.
Within the study sample of 750 homes, 67 homes would experience no change in System Development Fees, 554 homes would see a reduction in fees, and 129 homes would see an increase. These outcomes reflect the distribution of home sizes within the community, where the majority of homes fall below the proposed Single Family Equivalent (SFE) benchmark and therefore benefit from lower, more proportionate fees, while larger homes pay increased fees consistent with their higher system demand.
While these changes are expected to reduce overall SDF revenues, the analysis demonstrates a clear relationship between total home size and water demand, supporting the proposed tiered structure. The revised methodology aligns fees more closely with observed system usage and long-term demand characteristics, ensuring that SDFs remain consistent with cost-of-service principles. By tying fees directly to total square footage, the approach strengthens the nexus between development impacts and fee assessment while maintaining the Town’s commitment that growth funds the infrastructure necessary to support growth.
Staff will continue to monitor building trends, home size distribution, and water use data to ensure ongoing alignment between SDF revenues and infrastructure funding needs and to evaluate whether adjustments to the tier structure or additional customer classes may be warranted in the futu
Staff Recommendation
Staff recommends Town Council approval of an Ordinance modifying the System Development Fee methodology for single-family residential development as follows:
Single-Family Residential SDF Methodology
• System Development Fees for Water, Water Resources, and Wastewater shall be based on total square footage of the home, including both finished living space and any unfinished basement square footage that could reasonably be converted to habitable space.
• Fees shall be determined using a tiered structure based on total square footage, organized in 500-square-foot increments from 0 to 10,000 square feet, as outlined in Table 1. Each tier reflects the average water demand associated with that home size.
• One Single Family Equivalent (SFE) shall be defined as the 75th percentile of home size constructed since 2023, establishing the baseline fee level for a representative upper-range home.
• Homes smaller than the SFE benchmark shall pay proportionally lower System Development Fees, while homes larger than the SFE benchmark shall pay proportionally higher fees based on their relative demand.
Applicability
• This methodology shall apply to single-family residential homes served by a standard ¾-inch water meter.
• Plumbing fixture counts shall continue to be required at the time of plan review for the purpose of determining appropriate meter sizing. Plumbing fixture counts shall include all plumbing fixtures and water-using features associated with the home, including any optional or future features available at the time of permit submittal, consistent with current submittal requirements.
• All other customer classes and meter sizes shall continue to pay System Development Fees in accordance with the schedule implemented on January 1, 2026.
Proposed Motion
“I move to approve the Ordinance as introduced by title.”
Alternative Motions
“I move to approve the Ordinance as introduced by title, with the following conditions: (list conditions).
“I move to continue this item to the Town Council meeting on _____ date to allow additional time to (list information needed).”
Attachments
Staff Report
Attachment A: Ordinance
Attachment B: Stantec Consulting Services Letter of Support