Bentonville’s Proposed Wastewater Development Fee: Ensuring Growth Pays for Growth

Growth is a strength for Bentonville, but it also brings responsibility. Our wastewater system has reached its limits in several areas, and expanding capacity is now unavoidable. These improvements are essential for housing, for economic development, and for the continued health of our community.

The question before us is not whether to expand the system, but how to pay for the expansion in a way that is fair and financially responsible. Large wastewater projects are typically financed using structures that rely on utility revenues for repayment unless a separate, dedicated funding source is available. Without a funding mechanism tied directly to growth, the cost of new capacity would ultimately be paid by current residents through wastewater rates. Preliminary modeling shows that relying on rates alone could require increases to current rates approaching 90 percent.

A wastewater development fee provides a better path. It assigns the cost of new capacity to the new development that creates the demand for it, a principle often described as growth paying for growth. This protects current residents from large, across-the-board rate increases and ensures that Bentonville can continue to grow without placing an undue burden on families and businesses already here.

Among the region’s major cities, Bentonville is the only one without a wastewater impact or capacity fee. Reinstating this tool aligns us with established best practices and provides a dedicated way to fund the growth-related improvements our system now requires.

This document explains why the fee is being considered, how it would work, and why it represents the most responsible approach for Bentonville’s long-term future.

How We Got Here

Bentonville’s discussion about wastewater development fees is not new. In fact, we are reinstating a tool the City adopted more than two decades ago when rapid growth first began to strain our wastewater system and challenge our ability to approve new development responsibly.

The First Era of Development Fees (2002 to 2008)

In the late 1990s and early 2000s, Bentonville was growing faster than its wastewater system could support. By 1995, the City’s treatment facility was already nearing capacity, and staff warned that a development moratorium might be necessary if infrastructure was not expanded. Traditional funding tools such as sales taxes, bonds, and rate increases were not sufficient to meet the scale of need.

To address this, the City hired Tischler and Associates, one of the nation’s leading impact fee consultants, to conduct a full analysis. After extensive interviews, capital plan reviews, and public meetings, the City adopted water, sewer, and fire/EMS impact and capacity fees in 2002.

These fees followed nationally recognized methods and met the legal standards of nexus and proportionality. This ensured that new development contributed to the infrastructure it required rather than placing the entire cost on existing residents. This allowed Bentonville to manage growth in a financially responsible way by assigning costs where they originate.

Organized Opposition and a National Strategy

Opposition to the fees emerged immediately. Local homebuilding groups used several of the same strategies described in the National Association of Home Builders’ Impact Fee Handbook, which outlines ways local builders often respond to fee proposals and participate in public decision making. These approaches typically focus on concerns related to housing costs or the economic climate. In communities where these approaches have influenced policy decisions, fee reductions or fee removals have sometimes occurred. When that happens, the outcome is well documented. The costs of growth do not disappear; they are absorbed by existing residents through higher rates, deferred capital improvements, or both.

Local Litigation and Its Resolution

In 2003, a lawsuit was filed in the United States District Court for the Western District of Arkansas challenging Bentonville’s impact and capacity fee ordinances (case #04CV-03-898). The suit alleged the fees were an unlawful tax and required the City to dedicate staff time, legal resources, and outside consultants to defend the program.

The lawsuit remained active for several years. In 2008, the suit was withdrawn. The withdrawal of the lawsuit and the City’s decision to reconsider the fee program occurred in the same moment. As soon as the five-year legal challenge ended, City leadership began discussing whether to continue the impact and capacity fees that had been in place since 2002. The two developments unfolded together, marking a single turning point in how Bentonville approached funding growth.

City leadership maintained throughout this period that the fee structure was consistent with Arkansas law and with the principle that development should contribute toward the infrastructure needed to support it.

2008–2009: Fees Are Reduced as Funding Responsibility Shifts

Following the resolution of litigation and amid broader economic uncertainty, City leadership began reevaluating Bentonville’s impact and capacity fee structure. In 2008 and 2009, impact fees were reduced, reflecting concerns about economic conditions and development activity rather than fully eliminated at that time.

During this same discussion, the mayor and the finance director explained that water and sewer capacity costs could be recovered through utility rates paid by existing customers instead of through development fees. This clarification made the practical effect of removal clear. By shifting capacity funding to utility rates, the cost of growth would move from new development to current residents. Several experts warned at the time that this would create long-term consequences for Bentonville, because it required existing ratepayers to subsidize the wastewater capacity needed to support new growth.

• · Economist Jeff Collins cautioned: “Eventually you have got to pay, one way or another. You can get rid of impact fees, but you are going to have to find another way to pay for infrastructure.” He also noted that when growth returned, “the same reasons impact fees were put in place will return.”
• · Former Public Works Director Britt Vance explained: “When new developments come on board and the old residents’ rates go up in order to subsidize this new development, that is just the very thing that impact fees are trying to mitigate.” He also pointed out that sewer impact fees were a tool that could help support regional treatment capacity, such as the North Arkansas Conservation Authority (NACA) facility.

A key lesson from this period is that temporary reductions made during economic downturns require a clear review and reset mechanism. Without a defined process for reevaluating fees as conditions change, interim decisions can persist long after growth pressures return.

In Bentonville’s case, impact and capacity fees were ultimately suspended by ordinance in 2016, formalizing a shift that had been discussed years earlier. The warnings raised during the earlier debate closely mirror the challenges the City faces today as growth has accelerated and infrastructure capacity constraints have reemerged.

What the Past Seventeen Years Have Shown

As impact and capacity fees were reduced beginning in 2009 and later suspended in 2016, new homes and businesses continued to connect to the wastewater system without contributing proportionally to the cost of the additional capacity they required. Over time, this funding approach shifted the responsibility for growth-related infrastructure away from new development and onto existing residents.

As growth accelerated, residents increasingly absorbed these costs through utility rates, reduced timing flexibility for infrastructure delivery, and mounting pressure on a system that was not expanding at the same pace as development.

The outcome is now clear and measurable. Growth-related infrastructure costs were largely borne by existing residents. Wastewater capacity did not keep pace with development. Multiple sewer basins reached or neared capacity. The City now faces hundreds of millions of dollars in required wastewater improvements.

Simply stated, the prolonged reduction and eventual suspension of development fees shifted the cost of growth onto existing residents. Today’s wastewater capacity challenges reflect the cumulative impact of that policy choice.

The Case for a Different Approach Today

Bentonville has a responsibility to make decisions that support the long-term health of our city. How we fund growth shapes everything from affordability and competitiveness to the stability of our utility system. When the development fees were removed in 2016, the cost of expanding wastewater capacity shifted from new development to current residents. Over time, that created an imbalance in both the utility system and the broader local economy, because families and businesses were funding growth that was not their own.

We have now seen the second- and third-order effects of that shift. Monthly bills carried infrastructure costs that should have been tied to new demand. Growth outpaced system

capacity in several sewer basins. Large capital needs accumulated without a dedicated revenue source shaped specifically for growth. These pressures built slowly, but the outcome is clear: removing development fees placed long-term strain on both residents and the system that serves them.

Bentonville cannot return to that model. A well-designed development fee is not just about fairness to current residents. It is a core tool for economic balance, affordability, and sustainable growth. It ensures that the infrastructure needed for tomorrow’s homes and businesses is funded in a way that keeps our entire community strong. Reinstating the wastewater development fee positions Bentonville for healthy, responsible growth in the decades ahead.

THE NEED FOR A WASTEWATER DEVELOPMENT FEE

Bentonville must expand its wastewater system to keep pace with the city’s rapid growth. Several sewer basins are already at or near capacity, and continued residential and commercial development requires additional investment in the system. These improvements are not optional. They are necessary to maintain reliable service, meet regulatory requirements, and avoid a situation where new development can no longer be approved.

Expanding the wastewater system is a significant capital undertaking. Engineering and capital planning analyses show that the City will need to expand multiple components of the system over time, including constructing new large-diameter interceptor sewer lines, adding treatment capacity, and making other regional improvements. If all of these needs were funded solely through wastewater rates, the impact on residents would be substantial. A rate-only approach would mean:

• · A residential wastewater rate increase approaching or exceeding ninety percent
• · Existing ratepayers bearing the full cost of growth-related infrastructure
• · Reduced fairness, since new development would not contribute directly to the infrastructure required to serve it
• · A long-term financial burden placed on current customers rather than shared proportionately
• · Less alignment with the principle that growth should help pay for growth

The Mayor, City staff, and a majority of City Council sought a solution that would allow Bentonville to move forward with required improvements without placing this burden on existing ratepayers.

Arkansas law provides a path for growth-related improvements to be funded through development fees, so long as those fees are proportionate and tied to the infrastructure required to serve new development. As part of evaluating alternatives to a large rate increase, the City is considering a financing structure in which a wastewater development fee revenue bond would be issued and purchased by the Alice L. Walton Foundation. Rather than providing the full bond amount up front, the bond is structured so that the proceeds are delivered over time through a draw-down line of credit.

Under this structure:

• · The revenue bond establishes the legal obligation and is secured solely by wastewater development fee revenue
• · The Foundation serves as the bondholder and commits to provide funding up to a maximum amount
• · The City draws funds only as eligible interceptor sewer projects are constructed
• · Interest accrues only on the amounts actually drawn
• · No taxes or monthly utility rates are pledged
• · The City avoids borrowing more than is needed before projects move forward
• · Existing customers are protected from bearing the cost of growth-driven interceptor improvements

This financing structure is limited to large interceptor sewer lines twelve inches and larger, which are a critical part of the regional wastewater backbone and must often be built in advance of development. Other components of the wastewater system, such as treatment plant expansions and smaller collection lines, are funded through separate mechanisms and are not part of this draw-down financing structure.

With this option under consideration, the City commissioned a detailed analysis to determine whether a wastewater development fee could fairly allocate interceptor-related costs, meet statutory requirements, and provide a stable long-term funding source tied directly to new development.

The need is clear. Bentonville must continue expanding its wastewater system to support future growth. A wastewater development fee, paired with a carefully structured revenue bond that delivers funding through a draw-down line of credit, provides a responsible and fair way to ensure that growth contributes its proportionate share, while protecting the residents who live here today.

WHAT THE WASTEWATER DEVELOPMENT FEE IS

The Wastewater Development Fee is a one-time fee paid by new development. It is designed to fund the growth-related wastewater infrastructure needed to serve additional homes and businesses as Bentonville continues to grow. The fee is separate from monthly wastewater rates and does not apply to existing customers.READ MORE

Bentonville, AR…Bentonville Parks and Recreation is pleased to announce the start of construction on the Quilt of Parks – a project connecting six parks and public spaces in Downtown Bentonville. Town Branch Park renovations, the first of the Quilt of Parks components, are underway. Soon to follow is A Street Promenade, a designated four-block pedestrian zone. Construction of the pedestrian-only linear park will be implemented in four separate phases between Northeast Third Street and Southeast Second Street. The new downtown amenity will be transformational and have a meaningful impact on the downtown experience, economy, and improved pedestrian safety. Peppered throughout the park will be sculptures, gathering spaces, plazas, mini-stages, outdoor seating, integrated landscaping with flower baskets, trees, natural stone, pavers, and more. 

Design Workshop has been instrumental in creating the vision for Quilt of Parks. Flintco Construction is scheduled to begin the first phase of A Street Promenade construction adjacent to Lawrence Plaza – between Northeast 3^rd Street and Blake Street – shortly after Labor Day. Members of the Walton family are generously funding the project, in addition to a million-dollar donation from the Bentonville Advertising and Promotions Commission. With an estimated construction timeline of 18 – 24 months, the project will expand the footprint of the downtown square from that of a single park in historic downtown to that of a linear cascading park. Bentonville Parks and Recreation will work alongside Downtown Bentonville, Inc., to activate A Street with weekly entertainment, quality-of-life programming, and enhancing amenities for the enjoyment of Bentonville residents and visitors alike.

To learn more about Bentonville Parks and Recreation, please visit us online at www.playbentonville.com, or call 479.464.7275.