Sisters Jen and Kate Lloyd have built their several-year-old, growing Rise Bagel business out of a kitchen incubator in south Minneapolis, thanks to farmers markets, events and the internet.

They ran out of space last year and took the plunge on their own space.

The Lloyds invested $100,000-plus, including a bank loan, to build out space in a renovated warehouse in the booming North Loop for their first retail bakery and cafe in 3,000 square feet at 530 N. Third St.

Kate quit a good day job in retail-furniture marketing to go all in; Jen still works days at another job and nights and weekends on bagels.

All went well except for an expensive stumble over the sewer line, you might say. Their architect last fall estimated that their “Sewer Availability Charge (SAC)” would be $12,000. Last month, the Metropolitan Council and city sent a tab for $25,000. The two women choked.

The SAC is the bane of the small independent restaurateurs who have opened new places over the last decade, often reviving once-dark corners of town. Restaurants run through a lot of water in the kitchen and bathrooms. And the SAC charge is designed to cover some of the costs for the city sewer lines and the Met Council, which runs the big regional interceptor lines that flow to Twin Cities-area sewage-treatment plants.

The Lloyd sisters plan to appeal the charge and get a refund. However, they paid the full amount in order to get the license to proceed with construction on the small bistro, including a kitchen, two new bathrooms and 40 chairs.

“It was either pay for it or wait for the appeal that could have taken weeks,” Jen Lloyd said. “It’s costly to delay.”

The Met Council assessment, as applied by city licensing, assumes they may fill some of the open space in the bistro with more tables and chairs. The Lloyds say they won’t.

“This ‘determination’ [by the city] was inconsistent,” said Kate Lloyd. “We want fairness, consistency and transparency. It’s hard enough to start and expand a small business.”

The Lloyds said they were informed by the city licensing department that the higher amount was assessed to charge for the likelihood that Rise Bagel, which is scheduled to open this spring, would add more seats in a walk-through area near the food counter. The city has seen a pattern of restaurants adding seating after a lower SAC assessment. The Lloyds don’t think they should have to pay for seats they don’t plan to use.

A city communications officer submitted the following response last week: “The City has been working with Jen Lloyd and proposed a seat count limitation to reduce the SAC fees. She paid the full SAC fees of $24,850 and will receive a refund when she submits a business license application identifying the seat count limitation.”

Regardless, SAC is confusing to small operators, and seemingly arbitrary at times.

For example, Tina Rexing, a bakery-café owner in southeast Minneapolis hit the roof last spring when she took over an abandoned restaurant space and was assessed $11,000, even though she planned no more seating than the owner who bailed.

The city and Met Council rescinded the assessment after her council member complained and a determination was made that a mistake was made over additional seating on the patio.

The Met Council is in the middle of a task force study and hearings ordered by the Legislature.

Officials admit that SAC can be confusing.

Ned Smith, director of finance and revenue for the Met Council’s Environmental Services Division, said the law charges the council with collecting enough revenue from existing and new customers to pay their share of the cost of maintaining the sewage lines and treatment facilities.

The city also charges users for clean water they use, and municipalities are free to tack on SAC charges to the Met Council bill to pay for their local sewer pipes that connect with the Met Council’s regional interceptor lines and sewage treatment plants.

“We raise $35 to $40 million a year from SAC revenue,” Smith said in January. “Our total waste water fees are about $200 million a year paid by water users and we bill that to cities in the seven-county Twin Cities area. They charge the users. If SAC went away, everybody’s [water and sewer bill] would go up 15 to 20 percent.

“The Met Council charge is the same. The difference is if the local community adds a SAC [water pipe] charge. St. Paul adds a one-time processing fee. Minneapolis typically doesn’t.”

Commissioner Wendy Wulff of the Met Council conceded that the SAC process can be complicated, particularly because each municipality handles it somewhat differently in making the assessments for the council. She noted that big developers and chain restaurants know and navigate the process.

“It’s the mom-and-pop enterprises that sometimes get surprised,” Wulff said. “We are always working on simplification. And I hope we can make progress on simplification.”

“It’s the misperceptions that people often get angry about. I led the effort in 2009. I was on the Lakeville City Council, and I saw businesses weren’t doing outdoor patios because the cost was too high. So Met Council staff recommended a 50 percent [discount] on outdoor seating. We settled on 75 percent. We saw a huge increase in outdoor patio seats.”

In the end, somebody must pay the price for additional sewer capacity and ­maintenance.

 

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.