With development at its lowest point in at least 35 years and sewage flowing at a 30-year low, the Metropolitan Council is moving toward a controversial shake-up in how it pays for sewage capacity already built in anticipation of future development.

The proposal, scheduled for action by the council on Wednesday, would shift about $15 million in annual charges for reserve capacity to existing homes and businesses. Until now, reserve capacity has been financed by hookup fees imposed on new homes and new or redeveloping businesses.

The shift would occur over three years and is projected to increase the typical residential user's bill by 0.7 percent the first year, 3.1 percent the second year, and 3.9 percent the third year. For typical Minneapolis homeowners, the change would add $25 a year to their sewer bills when fully phased in by 2012, assuming usage remained constant.

Cities have complained that the shift will further stress city and household budgets and shift part of the cost of unused reserve capacity away from the future homeowners and businesses that will use it.

But Met Council staff say the move is necessary because the pace of development is at one-third of what it was in 2003, measured by the number of hookup units charged. The current fee of $2,000 per new housing unit would rise to $2,100 for 2010 under the proposal awaiting council action. But to cover the projected deficit, it would need to rise by 50 to 100 percent, depending on how fast the economy recovers, according to Jason Willett, finance director for the council's sewage utility.

Such a jump could choke off growth, council officials argue. "It might make it worse if we raise our rates too much" for new users, Willett said.

The alternative of shifting more of the cost to utility bills has nevertheless met resistance from the 105 metro cities contributing sewage to Met Council facilities.

Metro Cities, an advocacy group representing many of the region's cities, said the proposal would worsen financial challenges already facing its members while changing a financing system that has worked well for decades.

Bloomington said the shift could raise the amount it charges residents to send to the Met Council by 10 percent, or $600,000 annually when fully phased in.

Cities typically collect sewage fees from homes and businesses through utility bills and send them to the council. The municipal fees cover the cost of treating sewage at seven metro-area plants and part of the cost of maintaining, rehabbing or building 610 miles of metro sewer pipes. These pipes, known as interceptors, range from about a foot in diameter to 12 feet or more across, and handle the flow from local sewer pipes.

The hookup charge is designed to cover the current costs of financing the portion of the plant and pipe capacity that's not yet used but reserved for future growth. Such an approach means the council builds for long-term growth rather than expanding its facilities too frequently.

But that system works only when there's sustained growth over time. Measured in equivalents of home hookups, growth has tumbled from more than 21,000 units in 2003 to an expected 6,000 to 7,500 units this year.

The resulting loss of income means the balance in the fund to pay for reserve capacity has plummeted from nearly $100 million in 2001 to about $30 million now. The reserve fund could be in the red as soon as 2011, depending on how fast the economy recovers. Willett said the council wants to avoid that in part because of the potential impact on its AAA bond rating; a downgrade would result in added borrowing costs.

The council is delaying several major construction projects, including interceptor extensions to northwest and northeast suburbs and in Anoka County, as well as an expansion of its Blue Lake plant in Shakopee. But that will only provide financial relief down the road -- the $90 million it's paying in interest this year is for projects already built or under construction.

The recommended change the council will consider would essentially allocate more of the capacity of interceptors and plants to current users instead of financing that reserve capacity through hookup charges. Sewer user charges would rise by 3.8 percent in 2010, compared to an increase of 3.1 percent expected before the shift. But the shift will help push up metro sewer rates by a projected 6.1 percent and 6.9 percent in subsequent years.

The recommended phase-in, and a task force to be formed with local officials to discuss the issue further, "go a long ways" toward meeting concerns raised by local officials when the policy shift appeared to be on a fast track through the council, said Patricia Nauman, executive director from Metro Cities.

Steve Brandt • 612-673-4438