Faced with an urgent need to rehydrate the area's ailing water system, State College Borough Water Authority members last night passed a fee that will likely raise the borough's cost of housing.

However, as the borough's growing demand for water edges closer to its supply, officials predict an imminent water shortage that could halt building and temporarily dry up funds collected through the fee to boost the system, officials say.

After months of measuring water levels, studying accounts and predicting the future, authority members voted to charge $660 to new homeowners to connect to the borough's depleted water supply. Developers must pay the fee for each apartment or "equivalent dwelling unit" added to the system.

"It perhaps will cause an increase in the cost of housing," said Authority Vice Chairman Robert Schmalz. "But we're inclined to think its not a significant increase."

At the borough's current rate of growth, the fee is expected to raise as much as $450,000 annually, which will be used to cover costs of adding new water sources to the system, said Authority Manager Paul Fisher.

Schmalz said the authority may halt connection permits during the last three months of the year, when development is usually slow.

"We wouldn't collect so much this year but we'd collect more on it next year," he said. "The cost of developing the water sources will be paid by the people who use it. It doesn't really matter when it comes."

Over the past year, while officials have negotiated with area land owners for new well sights, development has pushed demand on the authority's daily 4.9 million gallon supply to within about 200,000 gallons, Fisher said.

"I fully expect to have a moratorium on building sometime by the end of the year," Fisher said. "We can only work so fast to get either of those (new) systems into the water system."

The authority hopes to add up to 9.7 million gallons to the system over the next three years, Fisher said.

Wells on the Alexander Farm and Chestnut Ridge could be made operational within the next two years and produce as much as four million gallons a day, Fisher said. The Shingletown Gap Reservoir and the Harter Well field are expected to be operational after a $6.9 million filtration system is installed by 1993, he said.

Bob Poole, a representative of Heritage I developers, realtors and property owners, requested that the authority board approve a $500 connection fee. While Poole said he believed a fee was needed, he cautioned that the authority may be asking for too much money at once.

State College Borough Councilmembers Ruth Lavin and Bill Welsh said they were pleased with the measure.

"There seems to have been a very productive meeting of the minds and I believe the authority has taken a very rational approach," Welsh said.

Schmalz said that although the fee applies only to new connections, it is not necessarily unfair to newcomers.

"It does suggest that the newcomers that are paying for the privilege of joining the system," he said. "But they are going to pay about he same as the value of the system divided by its present subscribers. It's reassuring that we're not way out of line with that fee."

A tap-in fee of $335 has been in effect in the borough for single family homes and is paid at the time the property owner connects to the water system, Fisher said.

The authority serves the State College Borough and parts of College, Harris, Patton and Ferguson townships.