It has been a decade since Tucson set up a system allowing owners of land far beyond city limits to receive city water service for new development if they agree to be annexed later.

Since then, nearly 100 agreements have been signed, but barely 20% of affected parcels have been annexed. The vast majority of agreements have resulted in dozens of small housing and other developments being scattered around unincorporated areas of Pima County, using city water on land whose future annexation prospects are uncertain at best.

Now, at its meeting Tuesday, the City Council will begin discussing two possible measures to tackle what some council members see as a problem:

  • One would impose $750 fees on landowners who sign such agreements, to cover what city officials say are administrative costs of setting them up.
  • Another would charge homeowners and businesses on those lands higher water rates than for city residents until they annex.

A City Manager’s Office memo did not recommend a specific rate increase. It noted that seven other Arizona cities, including Phoenix, Tempe and Yuma, charge anywhere from 10% to 50% more for water for all non-residents compared to city residents.

Tucson Mayor Regina Romero said it’s likely the council will ask city staff to come back later with specific proposals to face a vote.

Such proposals could face opposition from homebuilders and realtors, although spokesmen for groups representing them say they will wait to see specific proposals before taking a stand. The Southern Arizona Home Builders Association and the Tucson Association of Realtors are particularly skeptical of any measure charging different water rates for the suburban developments at issue here.

Researchers harvest and weigh basil at gardens outside Biosphere 2. The gardens are part of an experiment on new crops and growing techniques for hotter, drier desert conditions expected as a result of climate change. This includes looking at the differences between full exposure gardening, utilizing shade of solar panels and various ranges of watering. (Josh Galemore / Arizona Daily Star)

A conservation coalition and a separate conservation group support these ideas. The Community Water Coalition says it doesn’t think these agreements should even be drawn up except on parcels whose owners have agreed to annex immediately.

While the city’s limited and at times fragile water supply is a big point during these discussions, the real issue is the money the city gets when land is annexed into it.

β€œWith such a low number of annexations, benefits to the city have been very limited,” Romero said Friday. β€œThe city has been absorbing the administrative costs of these agreements for 10 years, with no benefits to the general fund.”

β€œA precious resource” and economic growth

Builders of homes on land inside city limits pay city construction sales taxes but not those who build homes outside the limits. The city collects additional state-shared tax revenues for each person inside city boundaries, but not for those living outside the city.

β€œI think that because our water is a precious resource, we have to look at what makes financial sense for the city of Tucson, what makes financial sense for our water utility, what is a good return on investment for residents of Tucson,” Romero said.

Landowners are skeptical of whether the city really loses money on these parcels that don’t annex. The Southern Arizona Home Builders Association agrees that some measures may be justified for parcels that clearly won’t be annexed but is wary of others.

Since this is as much an issue about annexation as water, it would seem the city should focus on an incentive program β€œthat offers some carrots and not sticks,” said David Godlewski, association president.

β€œWhile we would want to take a closer look at the specific proposals, it’s important that the city not do anything that would discourage economic development,” he added.

β€œThese agreements encourage economic development. You have to have water to be able to grow and to stimulate and continue economic progress,” Godlewski said.

City pays to maintain water lines

Many of the parcels that got the existing pre-annexation agreements, and many others eligible for future ones, lie closest to Ward 2 Councilman Paul Cunningham’s district.

Cunningham has been pushing for a look at the possible new proposals, to see whether the city is getting an adequate recovery of its costs for serving these new developments.

While such landowners must pay for extending water lines to their properties, the city must pay to maintain the lines and related infrastructure, once built.

β€œAre we really getting cost recovery out of this?” Cunningham asked. β€œThe majority of them are happening north and east of Ward 2. Because the elevation increases to them, as a result we’re lifting all that water and paying for power to lift that water.”

Annexations pushed to bring in state revenue

The entire issue is a result of unintended consequences.

The system of pre-annexation agreements in return for water started as part of a major 2010 city overhaul of how water service is provided outside the city limits.

As part of the overhaul, many unincorporated parcels could get water service if they adjoined the boundaries of the city’s existing water service area. They would also have to meet other criteria, such as being surrounded on three sides by parcels getting water service or to which the city had agreed to provide service.

The pre-annexation agreements would be required in other areas known as expansion areas. Officials wanted to push more annexations as a way of bringing in more state revenue, Romero and Cunningham recalled.

Pima County never had much more than 60% or 65% of its population living in incorporated areas, while Maricopa County had a far greater incorporated population, percentage-wise, giving it a leg up on Pima County in getting state revenues.

β€œWe wanted to push the envelope in terms of annexations and how we bring unincorporated areas into the city,” Romero recalled. β€œMany of the property owners wanted just the water, not to annex. We were using our water resources to say β€˜you will get water but you need to sign an agreement that you will annex when we’re at a point when we can annex.’ ”

But in 2010, β€œwhen we are in the middle of a huge recession, timing couldn’t have been worse to start saying we are going to charge more for people living outside the city,” Cunningham said.

As a result, since then, pre-annexation agreements have been signed in widely scattered areas, many far from existing city limits.

A heavy concentration were signed for the Catalina Foothills. Others were signed for lands south of Davis-Monthan Air Force Base and on the far southeast side.

Many other parcels in these areas are now classified as β€œpotential expansion areas” and eligible for pre-annexation-water agreements, a city-made map shows.

But they are so far from the city limits, it’s also not clear when they will ever annex, Cunningham and Romero said. Also, the Catalina Foothills area had over the years fiercely resisted annexation into Tucson, making it unlikely areas with pre-annexation agreements will ever annex, they said.

β€œIn looking at 10 years of results,” Romero said, β€œwe have to review what practices we have, and we have to make sure that we take the best steps for the benefit of our water ratepayer.”

Realtors’ spokesman: Don’t discourage annexations

Steve Huffman of the Tucson Association of Realtors said he thinks these agreements are still good incentives for annexations.

Charging more fees and higher rates could discourage landowners from signing future agreements, he said.

β€œWhy the city would be doing anything to discourage annexation, I have no idea. It feels like they are losing dollars while tripping over pennies,” said Huffman, the association’s government affairs director.

β€œEspecially as we’re struggling to get through the financial impacts of COVID, annexation could be a real resource to bring the budget together,” he said.

Even in properties not immediately annexed, residents of a new subdivision may still eat at city restaurants or shop at city stores, generating city sales tax revenue, he added.

The Community Water Coalition supports the $750 processing fee and a 25% higher water rate for property owners in developments made possible by these agreements. The coalition represents 17 environmental and conservation groups, churches, social justice and social service groups, and businesses.

β€œWater is not free”

β€œThis is the least we can do to cover our operating and maintenance costs while encouraging use of a renewable resource, as opposed to further depleting our aquifer and exacerbating subsidence,” said a statement from the coalition. The renewable source it referred to is Colorado River water delivered to Tucson via the Central Arizona Project.

β€œWater is not free β€” the city plans to spend $30.7 million of our current city residents’ money for our 2021 allotment of CAP water,” it said.

The nonprofit Watershed Management Group said that if higher fees or rates are approved, the money should go to a special fund supporting β€œgreen infrastructure” such as tree planting or rainwater harvesting systems that promote sustainable water use and act as buffers against climate change and the urban heat island effect. The money could be added to a just-established green infrastructure program now supported by small fees on city ratepayers, the group said.

Stormwater management projects supported by these fees could carry out environmental justice goals by helping families in lower-income areas, and they could also promote recharge of depleted aquifers, the group said.

Councilman not sold on differential rates

But Councilman Steve Kozachik said that while he has no problem with charging a $750 fee to cover administrative costs, he is more dubious about the differential water rate increase. He said he does not believe that it now costs Tucson more to serve water to development outside city limits, since the city has built such a β€œrobust” system of water infrastructure in recent years.

β€œIt might be revenue missed but not a higher cost to us,” for lands not annexed, he said.

If higher rates discourage landowners from signing pre-annexation agreements, they might instead drill their own wells, which deplete the aquifer, he said.

β€œMany areas by Sabino Canyon we’ve got too many wildcat wells going on, where people just go out and drill,” Kozachik said. β€œWe have very little leverage to get guys off those wildcat wells.”

Photos: Oro Valley Water Utility to replace 500,000-gallon tank:

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Contact reporter Tony Davis at 349-0350

or tdavis@tucson.com. On Twitter:

@tonydavis987