The Cost of Business – Water and Sewer Connection Fees in Dublin
An often overlooked (and substantial) cost of opening a new business in Dublin – or anywhere in the Tri-Valley – is the water and sewer connection fee. What is this? This is the fee charged by the Zone 7 Water Agency (our water wholesaler) and Dublin San Ramon Services District (DSRSD) to connect water and sewer pipes from newly built establishments to a main set of pipes.
To get a feel for the significance of this fee, let’s take a look at the average hookup cost for new restaurants opening in Dublin (maybe like Fuzio or On the Border at Hacienda Crossings). For a 4,000 sq. ft. newly-built restaurant in Dublin, the costs would be:
- Sewer Connection – $159K
- Water Connection – $54K
- Total Connection Fee – $213K
How much does it cost smaller restaurants like Wok’s Up or Bagel Street Cafe? About $106K in water and sewer hookup fees. This is a great example of why it can be difficult to open a new restaurant in the midst of a challenging economic climate (or any business with significant water and sewer requirements).
It is important to note that the water and sewer connection fees in Dublin are comparable to other nearby cities. For instance, the hookup fees for the Dougherty Valley area of unincorporated San Ramon are nearly equal with Dublin (actually, they are a bit higher for the Dougherty Valley).
I’d like to thank the wonderfully helpful team at the DSRSD and DSRSD Board of Directors candidate Dwight L. “Pat” Howard for helping to gather much of this information.
11:52 AM on October 31st, 2008
QUESTION — If a restaurant changes ownership, or is replaced by a different restaurant in the same space, does the fee have to be paid again, or is it a one-time hookup fee? I assume it’s the latter, in which case although I agree it is a huge entry barrier for the original proprietor, it seems to me that it can be partially or fully recovered from the next owner when the establishment changes hands. Also, who pays the fee — the owner of the building or the restaurant that leases the space? I would think the owner of the building would typically pay if it’s a one-time fee because it adds value to the building. Then again, I know NOTHING about any of this. I’m just curious!
Tim Hall
Dublin, CA
12:22 PM on October 31st, 2008
GOOD QUESTIONS TIM.. IVE BROUGHT THIS SEWER THING UP NUMEROUS TIMES… THANKS JOHN AND JIMMY FOR LOOKING IT UP.. BUT WOW.. THAT SEEMS RIDICOULOUS.. HOW DOES ANYONE AFFORD TO OPEN AN RESTURANT…HOW DOES ANYONE MAKE MONEY.. IT SEEMS TO ME BY THE TIME YOU PAY TAXES, WATER AND SEWER AND EMPLOYMENT.. OMG.. HOW DOES ANY ONE EVEN THINK ABOUT THIS.. BUT IM GLAD THE PEOPLE DO…..THANKS
1:03 PM on October 31st, 2008
To add to Tim’s question.
For Example Ulferts which is dominated by restuarants, do each restaurant pay this fee individually or does the developer pay it and then charge it back with higher lease rates?
How about Elephant Bar which opened at the site of a former restaurant, were they subject to this same fee?
Is this sewer fee for all of Dublin or just the new Eastern Portion. If only in new portions than wouldn’t it affect Dublin more that it affects Danville or Pleasanton where there aren’t as many brand new constructions?
Like did Cheesecake Factory and P.F. Chang’s, although they are new building it was built within an existing shopping center, did this help reduce this hookup fee? If this is the case it would be hard for The Promenade, Grafton Station, The Green at Park Place to recruit restaurants if they had to compete with Stoneridge Mall.
Just curious too.
2:50 PM on October 31st, 2008
It does seem prohibitively expensive for new restaurants to come into East Dublin, especially an independently owned establishment like Wok’s Up. If we don’t do something to make these fees more reasonable, we may end up with nothing but national chains like MacDonald’s and Hooters at Grafton Station. I am definitely not in favor of that.
7:10 PM on October 31st, 2008
Hello – the water/sewer hookup fee is a one-time expense – unless the building owner wishes to expand the water meter size and/or increase the estimated volume of sewage (the “average” restaurant example in the article assumed a 1″ meter and 2,420 gallons of sewage/day).
The Elephant Bar is a perfect example of a scenario where the new restaurant already had a water/sewer connection in place from the previous building owner (El Torito). Based on this, the Elephant Bar only needed to pay an incremental connection fee related to their increased usage. The Elephant Bar also saved quite a bit on other impact fees by renovating vs. buying new. You can see how there could be a huge advantage to purchasing an existing building and making renovations instead of starting from scratch.
Developers pays the connection fee upfront. However, the developer has a few options to recoup the fee – 1) charge the entire fee upfront to the first restaurant/tenant that moves in; 2) charge a portion to the first restaurant and then the rest to future tenants; or 3) charge higher lease rates. It all depends on the specific agreement that the developer/building owner works out with the restaurant owner.
The water and sewer connection fees are the same for all of Dublin. Additionally, other nearby cities face similarly high fees. However, east Dublin is impacted the most by the fees because of the abundance of new development. It is a tremendous hurdle for the Promenade, Grafton Station, and The Green on Park Place to overcome – especially in a challenging economic environment where many folks are cutting back on retail/restaurant purchases. For example, the Japanese restaurant that had planned to open at Grafton Station decided to hold off on signing a lease agreement because they couldn’t afford the connection fee.
Given that the connection fees are based on estimated usage rates and meter size, there is an intrinsic benefit for companies that have relatively low water/sewer needs to move to east Dublin (e.g., software companies and professional service firms). This is a silver lining given that these are some of the industries that we’d like attract to Dublin.
Thx, John Z.
7:40 PM on October 31st, 2008
Thanks John for the detailed explanation. Now I have a better understanding. Whether it is encouraging or discouraging depending on who we are trying to attract. Unfortunately in the East we want both, software companies and also high end one of a kind type restuarants.
It seems that with the fees so high, we will likely end up with only large national chains that can absorb such a high startup cost. Most others for example like Le Cheval “Walnut Creek”, Sushi Maru “Milpitas” or even Sozo “Pleasanton” wouldn’t be able to afford a location in East Dublin.
Although the fees are not charged by the City, but by the Water District, is there anything the City can do to ease other development related fees to soften the blow a bit for Restaurants wanting to open in the East? I know we are cutting needed income upfront but in the long run it will pay off when we have a vibrant retail center “The Promenade, Grafton Station, The Green at Park Place” that has a healthy mix of national chains and smaller family/independently owned restaurants that is unique and cannot be found in any town. Maybe a partnership with the developer to help absorb some of these fees for prospective restaurants.
It may be more complex than this but just an idea to throw around. I’d hate to see the 3 retails centers above become cookie cutter like any other that you can find in any other towns.
7:45 PM on October 31st, 2008
Maybe we can calculate for example giving up 15K – 30K upfront in development fees and see how long will it take for the City to recoup the same amount given that this restaurant adds to the vibrancy and success of a particular shopping center “directly and indirectly”. The indirect benefits would be hard to measure as a unique and popular eatery could spur others to come in to the same shopping center thus a ripple affect. We could end up with something like the Livery in Danville for Grafton Station and Promenade.
Maybe even tax breaks for the first year or two in operation?
8:36 PM on October 31st, 2008
Hello Anonymous – regarding the water and sewer connection fee, you may want to email our DSRSD Board of Directors to get more information regarding the fee. Here is their contact information – http://www.dsrsd.com/aboutDSRSD/bod.html.
With respect to other development fees, there are significant fees charged to mitigate traffic and other infrastructure related impacts. Additionally, many growth cities offer sales tax breaks for the first few years to lure in prime retailers and restaurants. It may be worth offering impact fee and temporary sales tax credits to desirable retailers/restaurants that are willing to commit to long-term agreements with Dublin. For example, Dublin could offer a 1/4% sales tax credit to desirable retailers for a 5-year period if they make a 20-year commitment to Dublin. While it would be great to get the full 1% of taxable purchases, it might make more sense to get 0.75% of something rather than 1% of nothing.
Thx, John Z.
9:17 PM on October 31st, 2008
I agree and like your progressive outside the box thinking. 75% is much better than 0% or even worst if we end up getting retailers that we don’t really want while losing the ones that we all covet.
Yes I also agree on the need for a long term agreement, the longer the better the incentives or breaks.