Given that the shell understands tilde (sigil) notation:
Is there any utility which will condense an absolute pathname down to using a tilde if possible? ie: /home/username/dev would be reduced down to ~/dev?

I know I can do this through sed(1):
...but is there some utility which already accomplishes the same functionality?

Thanks.

I think you'll find that that 'translation' ie '~' to $HOME of the current user is specific to the cd cmd, not the shell as a whole.
OTOH, I could be wrong....

No, the shell, bash anyway, understands the tilde in most situations -depends on which bash builtin feature you are using and how you are quoting.
As to the OP's question, I don't know of any existing utility which does what you want. Usually when you write a script it's better to use $HOME instead of the tilde so you don't have to worry or wonder about compatibility with sh or ash and you can follow consistent rules regarding shell variable expansion.
It kinda sounds like you need to do some conversion of scripts to make them non-user-specific. In that case, I'd suggest you use a bit of code which checks the first part of the dir listing to see if it matches the home directory of the current user and translate that to '$HOME'(unexpanded) and not to '~'.