Tapping fees charged by an Authority provide a stream of revenue to retire debt and finance new capital. Twenty-five years ago, Governor Casey signed Act 203 of 1990 into law amending the Municipality Authorities Act of 1945 and creating tapping fees as we presently know them. The components of a tapping fee were previously undefined, but proponents of Act 203 sought to delineate and define the components so that new development would pay only its direct, proportionate share of costs for including new residents in a sewer or water system.
Thanks to Act 203, a tapping fee is now comprised of four parts: (1) the capacity part for existing facilities and planned facilities if they increase design capacity, (2) the distribution/collection part for existing facilities, (3) the special purpose part, and (4) the reimbursement part. The total charge is determined by the sum of the component parts. While the basic formula for calculation of a tapping fee appears easy, collecting the data for each of these components is more difficult.
Act 57 of 2003 amended Act 203 to clarify some misunderstandings and expand definitions. It also required all water and sewer tapping fees across Pennsylvania to be recalculated in accordance with new requirements and guidelines. The effective date for Act 57 was June 30, 2005. By that date, Authorities were required to have a resolution setting the maximum fees allowable for each part of the tapping fee and the manner in which the fees were determined.
Ten years has passed since the effective date of Act 57. If you are an Authority that has not updated your tapping fees since June 2005, it is advisable to look at your current fee structure to determine whether you are adequately collecting funds to recoup the costs of extensions or to cover future costs. You may be undercharging new customers and missing out on lost revenue.
In an ongoing effort to maximize revenue to retire debt and finance new capital, it is advisable to perform periodic re-examinations of tapping fees, and to examine the fee structure when major facility changes occur.