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Worksheet Grade 12 Social Studies & Civics

Who Pays for Growth in Brimsgate: Setting a Water Charge

A grade 12 worksheet in which students calculate a fictional city's system development charge two ways and trace who covers the gap when the charge is set too low.

Objectives

  1. Students will calculate a system development charge using both a buy-in method and an incremental cost method.
  2. Students will quantify how much of a growth cost falls on existing ratepayers when the charge is set below cost.
  3. Students will evaluate the trade-off between a higher connection charge and the price of a new home.

Vocabulary

System development charge
A one-time fee a builder pays when a new home or business connects to the water system. It helps pay for the bigger pipes and plants that growth requires.

Also: equivalent dwelling unit, buy-in method, incremental cost, capacity, waiver

Teacher overview

When a house is built, someone has to pay for the share of reservoir, plant, and transmission capacity that the new connection will occupy. Most cities collect that money once, at the time of connection, through a system development charge, and the level of that charge is one of the most contested numbers in local water policy. Setting it too low quietly moves the cost onto existing customers' monthly bills, while setting it high adds to the price of a new home. This worksheet has students compute the charge two accepted ways for the fictional city of Brimsgate and then follow the money the current charge leaves uncollected.

Who Pays for Growth in Brimsgate: Setting a Water Charge — Grade 12 Social Studies & Civics
Name: ____________________________ Date: ______________

Student Worksheet

The fictional city of Brimsgate owns a water system worth $96,000,000 after subtracting wear on its pipes and plant. That system can serve 12,000 equivalent dwelling units, written EDUs, and all 12,000 are in use by existing households. Brimsgate is also planning a new reservoir and transmission main that will cost $30,000,000 and add capacity for 3,000 more EDUs.

There are two accepted ways to set the charge. The buy-in method divides the value of the existing system by the capacity it serves, so a new home pays the same average price per EDU that earlier customers paid. The incremental method divides the cost of the next expansion by the capacity that expansion adds, so a new home pays what the next unit of capacity actually costs.

Brimsgate now charges $4,500 for each new home, and about 300 new homes connect each year. A typical new home in Brimsgate sells for $320,000. Use these figures for all items.

  1. Calculate the buy-in charge per EDU. Divide $96,000,000 by 12,000 EDUs.
  2. Calculate the incremental charge per EDU. Divide $30,000,000 by 3,000 EDUs.
  3. At the current charge of $4,500 and 300 new homes a year, how much does Brimsgate collect each year?
  4. If the city charged the incremental amount you found in item 2, how much would it collect from those same 300 homes?
  5. Subtract your answer to item 3 from your answer to item 4. How much growth cost goes uncollected each year?
  6. That uncollected amount is recovered from the 12,000 existing households through their monthly bills. How much is that per existing household per year?
  7. If the charge rose from $4,500 to the incremental amount, how much more would a builder pay for each new home?
  8. Express your answer to item 7 as a share of the $320,000 sale price of a new home, rounded to the nearest tenth of a percent.
  9. The council wants to waive the charge for 40 affordable housing units each year. At the incremental charge, how much revenue does that waiver give up each year?
  10. Explain the principle behind a system development charge in your own words, then name one limit of that principle.
  11. Brimsgate keeps its charge at $4,500. Name one group that gains from that choice and one group that loses, and explain each.
  12. Recommend a charge for Brimsgate. Support your recommendation with two figures you calculated.

From Water for Schools (waterforschools.org). This material is in the public domain (CC0) and may be copied, edited, and shared freely.

Answer Key
  1. Answer: $8,000 per EDU. In the fictional city of Brimsgate, $96,000,000 divided by 12,000 EDUs equals $8,000.
  2. Answer: $10,000 per EDU. $30,000,000 divided by 3,000 EDUs equals $10,000.
  3. Answer: $1,350,000 per year. $4,500 times 300 homes equals $1,350,000.
  4. Answer: $3,000,000 per year. $10,000 times 300 homes equals $3,000,000.
  5. Answer: $1,650,000 per year. $3,000,000 minus $1,350,000 equals $1,650,000 left uncollected.
  6. Answer: $137.50 per household per year. $1,650,000 divided by 12,000 households equals $137.50.
  7. Answer: $5,500 more per home. $10,000 minus $4,500 equals $5,500.
  8. Answer: About 1.7 percent. $5,500 divided by $320,000 is 0.0171875, which rounds to 1.7 percent of the sale price.
  9. Answer: $400,000 per year. 40 units times $10,000 equals $400,000 of revenue the city chooses not to collect.
  10. Answer: The principle is that growth should pay for the capacity growth uses, so existing customers are not asked to fund plant and pipe capacity built for someone else. Accept any reasonable limit, such as the difficulty of pricing capacity that serves both old and new customers, the fact that a charge cannot recover the cost of repairing pipes that already exist, or the effect on housing supply when the charge is high.
  11. Answer: Builders and buyers of new homes gain, because each new house carries $5,500 less in charges than the incremental cost. Existing households lose, because they cover the $1,650,000 shortfall through their monthly bills at $137.50 per household per year. Accept any pairing that names a group and ties it to a computed figure.
  12. Answer: Answers vary; accept any recommendation supported by two computed figures. A student choosing $10,000 can cite the $1,650,000 annual shortfall and the $137.50 per household charge it creates, and can note that the added $5,500 is only about 1.7 percent of a home's price. A student choosing $8,000 can cite the $1,650,000 shortfall at the current charge and the $8,000 buy-in figure from item 1, arguing that the buy-in method treats new and existing customers alike.

Differentiation

Support

Provide a two-column worksheet frame for the fictional city of Brimsgate that labels one column "buy-in" and the other "incremental," with the two division problems already set up. Complete items 1 and 2 with students before they continue, and supply a calculator for item 8.

Extension

Ask students to design a phase-in that raises the fictional Brimsgate charge to the incremental level over four years. They must state the charge in each year, calculate what existing households still cover in each of those years, and explain which group the phase-in protects.

ELL supports

Pre-teach "capacity," "connection," "waiver," and "existing customer" with a simple diagram showing a reservoir, a main, and a row of houses, with three new houses drawn at the end of the row. Provide the frame "___ gains because ___, and ___ loses because ___." for item 11.

Extensions

Have students compare the fictional Brimsgate charge with the connection or capacity fee published by a real water utility, then write a short memo explaining which of the two methods the real utility appears to have used and what evidence in the published schedule supports that reading.