The Tooele City Council has raised the cost for a water credit ? equal to one acre foot of water ? 50 percent to $15,000. And that price may go even higher after a formal appraisal of the fair market value of water rights in Tooele valley is completed in June.

Last year, the Tooele City Council approved a program allowing single-lot homebuilders to purchase up to 10 water credits, depending on the size of the lot, from the city instead of conveying water rights to the city. The program was patterned after an existing city program for non-residential developers.

Initially the price for a water credit was set at $10,000.

?We must keep up with the market value for water rights,? said Tooele City Mayor Patrick Dunlavy. ?The funds we receive from the sales of credits is in turn used to buy more water rights for the program to sell.? The program was designed to help the small builder or single-lot owner that may find it hard to find water rights for sale in small quantities. Water rights are often sold in bulk lots of 10 acre feet or more.

The resolution to increase the water credit charge, presented by Tooele City Attorney Roger Baker, states that the city administration has become aware of a 2007 transaction in which 34 acre feet of agricultural water rights in the Erda area sold for $12,000 an acre foot.

One agricultural acre foot of water, according to the state engineer, converts to .55 acre feet of municipal water. At this conversion rate, the agricultural water sold in Erda would be worth $21,000, if converted to municipal water.

The Erda deal caused city officials to begin investigating the fair market value of water.

?We are in the process of having a formal appraisal of water rights in Tooele Valley completed,? Baker said. ?When the appraisal is completed, we may come back to the council and recommend an additional increase to keep up with the fair market price.?

Baker anticipated the appraisal to be completed in 45 days.

Steve Griffith, associate broker with Prudential Utah Real Estate?s Tooele office, said $15,000 an acre foot for water is still below market rates.

?The going rate in the Erda area for agricultural water is $10,000 to $15,000, and with the conversion rate that puts municipal water at around $20,000 to $30,000 an acre foot,? Griffith said.

High demand for water by builders, low supply due to the closure of the valley to new water rights, and the recent proposed restriction on moving points of diversion have combined to force water prices up, Griffith said. That increase translates into homes that are more expensive to build.

Griffith is concerned that the price increase and restrictions on water rights will significantly curtail new development in the county and slow economic growth as well.

?Commercial development follows rooftops,? Griffith said. ?Stop residential growth and commercial development will stop ? and it is commercial development that employs people and builds your tax base for local government.?

Jack Walters, sales associate with Coldwell Banker Real Estate, shares that concern.

?People come to Tooele because of the price of homes,? Walters said. ?As we push up the price of homes, we will eventually reach the point where we lose our advantage.?

Still, Griffith acknowledges the rising cost of water is simply the free market system at work.

?Eventually, after building slows down and reduces the demand on water, and water rights become more available, the price will go down,? Griffith said. ?How long will that take and how high will prices go? I don?t know.?

tgillie@tooeletranscript.com