User-Fee-Funded Stormwater Programs
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A must-read for agencies and public works departments interested in developing charge systems for stormwater programs based on fee structures. User-Fee-Funded Stormwater Programs will specify the drivers for stormwater user-fee formation and explore the responsibilities, costs, and entire implementation process.
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User-Fee-Funded Stormwater Programs - Water Environment Federation
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Preface
This publication is intended to provide an update to the 1994 Water Environment Federation (WEF) special publication, User-Fee-Funded Stormwater Utilities. The purpose of this update is to provide significant additional case history and lessons learned to assist local or regional agencies interested in developing charge systems for stormwater programs based on fee structures rather than relying on community General Funds, property taxes, or other sources of revenue. This document was developed by a multidisciplinary team of practitioners for fellow practitioners, including engineers, planners, economists, and attorneys; for example, the section on rate structures was written by a practicing stormwater rate economist and the section on legal context was written by an attorney who has researched the context for implementing stormwater programs in multiple states.
Authors’ and reviewers’ efforts were supported by the following organizations:
AECOM, Kitchener, Ontario, Canada, and Middleton, Wisconsin
ARCADIS U.S., Inc., Highlands Ranch, Colorado Birchline Planning LLC
Black & Veatch, Los Angeles, California, and Philadelphia, Pennsylvania
Brown and Caldwell, Maitland, Florida
Carollo Engineers, Walnut Creek, California
CDM Smith Inc., Cambridge, Massachusetts
CH2M HILL, Denver, Colorado
City of Kitchener, Ontario, Canada
City of Portland, Oregon
City of Raleigh, North Carolina
City of Stuart, Florida
Conestoga-Rovers & Associates (CRA), Plymouth, Michigan
DC Water and Sewer Authority, Washington, D.C.
Dewberry, Fairfax, Virginia
Gresham, Smith and Partners, Cincinnati, Ohio
Hazen and Sawyer, P.C., Boca Raton, Florida
HDR Engineering, Inc., Omaha, Nebraska
HF&H Consultants, LLC, Walnut Creek, California
Northeast Ohio Regional Sewer District, Cleveland, Ohio
Raftelis Financial Consultants, Inc., Cary, North Carolina, and Kansas City, Missouri
Richmond Department of Public Utilities, Richmond, Virginia
Tetra Tech, Ann Arbor, Michigan, and Cleveland, Ohio
University of North Carolina, Chapel Hill, North Carolina
Vanasse Hangen & Brustlin, Inc., North Ferrisburg, Vermont, and Watertown, Massachusetts
Woodcock & Associates, Inc., Northborough, Massachusetts
Chapter 1
Introduction
Michael Matichich and Laurens D. van der Tak, P.E., D.WRE
1.0 THE NEED FOR AN UPDATE
2.0 WHAT IS EXCLUDED
3.0 AUDIENCE
4.0 GOVERNANCE NOMENCLATURE
5.0 A WORK IN PROGRESS
6.0 REFERENCES
1.0 THE NEED FOR AN UPDATE
In 1994, the Water Environment Federation (WEF) issued a special publication, User-Fee-Funded Stormwater Utilities, to assist local or regional agencies in developing charge systems for stormwater programs based on fee structures rather than relying on community general funds, property taxes, or other sources of revenue. In this publication, the term, user fee, means any charge system in which a customer’s bill is determined based on the demands that the customer imposes on the system and the related benefits and services enjoyed by the customer, with the revenues that are raised dedicated to addressing the needs of the stormwater program. There are varying degrees of detail in user fee programs for stormwater; for example, some programs charge all residential properties at the same level, while others take advantage of greater impervious area data precision to divide residential properties into size classes or other groupings. However, a key distinguishing characteristic of a user fee is that it reflects a reasonable estimate of the need for service caused by specific customers of the system.
Because of a significant focus on stormwater programs as a result of both regulatory drivers and local environmental stakeholder group interest, many communities during the 1990s were interested in developing a more reliable, dedicated source of revenues for stormwater programs. The concept that stormwater management programs should be viewed as a utility attracted increased attention and interest, both to support funding programs and to achieve greater equity in how the costs of implementing and maintaining stormwater programs are allocated to customers. Along with this came increased support for charging customers a fee for service relative to their use of the system and related programs. At the time WEF issued its 1994 publication, a relatively small number of agencies used a fee structure based on impervious surface of properties or other methods of estimating contribution to stormwater runoff as a way to charge customers for their share of stormwater program costs; in addition, a number of the programs were relatively new. Structural format and fee program options were starting to evolve at that time in light of improved data management technologies and shared experiences about how to organize fee programs. Since then, quite a few additional stormwater utilities funded through fee programs have been formed, and most of the programs that existed in 1994 continue to use a user fee basis for funding.
This updated publication provides the opportunity to share insights based on the much richer history of experience in user fee funding for these programs. There has been limited focus in the literature on taking advantage of the considerable additional experience that exists in this field. Based on experience during the past 20 years, there is a greater understanding today of how to successfully establish a new stormwater utility funded through user fees and to efficiently accomplish initial program goals. There is also more experience on how utilities can mature and take on more functions and be increasingly efficient in accomplishing their missions.
The case studies in this publication include utilities such as Portland, Oregon, and Prince William County, Virginia, that have been in existence for nearly 20 years and that offer useful maturity models for how utilities can evolve in ways that provide greater and increasingly more efficient service to their customers. Also included are examples of some recently formed utilities, such as Richmond, Virginia, that serve as a guide for communities that are considering implementation of a user-fee-funded program.
There have been considerable advances in technology since WEF’s 1994 publication was issued. Advances in the efficiency and availability of geographic information systems (GIS) and data, billing systems, and spreadsheet models for the development of rate and financial plans provide the basis for more efficient consideration of options; likewise, Web-based communication and social media provide new ways for utilities to communicate with stakeholders. This updated publication provides guidance on how to form and maintain funding programs for the stormwater function based on current applications and communication environments.
The changing focus of stormwater programs has affected the driving force behind user fees. Before the 1990s, the primary driver for most stormwater fee programs was to enable communities to implement significant capital projects to address flood-control issues. Since then, the demand for user fees has shifted to many more communities seeking funding for a much broader range of stormwater services, with significant operating programs and capital projects that address water quality, erosion and stream restoration, and environmental enhancements.
Finally, there have been changes in the legal context that defines parameters for user-fee-funded programs during the past 20 years, including an evolving landscape of enabling legislation at the state and provincial level and case law as a result of litigation on a number of fronts, as detailed in Section 6.0 in Chapter 3.
2.0 WHAT IS EXCLUDED
This publication, by design, focuses on the development and implementation of user-fee-funded stormwater programs, although there are methods other than user fees that local and regional agencies can use to pay for some or all of their stormwater-related program elements. For example, Rogers et al. (1999) identified 50 ways to fund watershed management programs, including such varied mechanisms as connection charges (also called impact fees, system development charges, and availability fees, in some locations), sales taxes, property taxes, and public–private partnerships. Unlike user fees, the basis for determining sales and property tax rates is not related to a customer’s demands for service imposed on the stormwater program, and revenues raised by such mechanisms are typically not dedicated to addressing stormwater program needs. Most of these municipal finance and charge mechanisms are well covered in traditional public finance literature, including guidance documents, publications, and conference proceedings. For example, there is an annual conference devoted strictly to impact fees, capital planning, and public finance sponsored by the Growth and Infrastructure Consortium. At the same time, only a handful of publications have addressed the topic of user-fee-funded stormwater programs. By focusing on this topic in detail, this publication addresses this significant gap in the literature. For readers interested in considering other forms of funding, the following resources should be reviewed:
• Environmental Finance Advisory Board Web site (http://www2.epa.gov/envirofinance/efab) and
• University-based centers of the Environmental Finance Center Network, such as the Environmental Finance Center of the University of North Carolina Web site (http://www.efc.unc.edu/).
Also excluded from this publication is the overall methodology for wastewater system cost allocation, even though some communities continue to use wastewater user charges to fund a portion of their stormwater programs. Readers interested in reviewing details of recommended approaches for wastewater cost allocation are referred to WEF’s manual of practice, Financing and Charges for Wastewater Systems (WEF, 2004).
3.0 AUDIENCE
The implementation and ongoing maintenance of a user-fee-funded stormwater program requires input from a diverse group of technical specialists and the engagement and support of management and decision makers within local and regional agencies. The intended audience for this publication includes public works directors and staff, public utility staff members, stakeholder outreach groups, finance departments, information technology and GIS professionals, and consultants who support the development of data and systems that enable the implementation of user-fee-funded programs. The approaches and tools defined in this publication can be used to establish stormwater fee programs by communities throughout North America. It is intended for agencies that are considering developing a user-fee-funded program and agencies that already have such programs but are looking for opportunities to enhance and refine their programs based on the experience of mature programs.
4.0 GOVERNANCE NOMENCLATURE
The user fee programs described in this publication can be adopted by either local or regional agencies based on enabling legislation at the state level and local preferences. The phrase, local and regional agencies, is used throughout this publication to refer to the variety of public entities that may have responsibility for implementing stormwater programs and that, therefore, also have responsibility for raising funds needed to implement these programs. In some instances, it is a city, town, parish, or county department that is part of a larger municipal government with oversight by a city, town, parish, or county council. In other instances, it may be a single-purpose regional authority governed by a board of directors or supervisors.
For the most part, the agencies cited in this publication are public entities and do not include investor-owned utilities, although there may be situations in which public–private partnerships are used to provide the stormwater function in some jurisdictions. In addition, there are some limited situations in which the provision of stormwater service may have been privatized in conjunction with other public services such as wastewater treatment and the public water supply.
5.0 A WORK IN PROGRESS
The legal framework, available technology, and policies related to stormwater funding programs continue to evolve. At the time WEF’s 1994 publication, User-Fee-Funded Stormwater Utilities, was developed, no one could have anticipated the crucial role of the Internet and social media sites as methods of communicating information. Sharing experiences on development and upgrade of user-fee-funded utilities will continue to be important as utilities continue to face expanding regulatory programs and expanding customer expectations in times of tight financial resources. While almost every stormwater fee program has some unique elements, there is much common ground and ability to share success stories (for example, how to reach out to customers more efficiently through social media or how to provide incentives for green solutions at the property level in a cost-efficient manner). Case law and legislative actions by local, state, and federal agencies will continue to shape the legal context for the forms of charges and credits that are allowable. Stakeholder interests will also continue to evolve, as will technology in such areas as mapping and billing system software. As a result, fee programs will need to evolve as well. Readers are encouraged to share their thoughts and experiences in funding stormwater programs with their peers within local agencies, with WEF through such mechanisms as WEF publications and conferences such as the Water Environment Federation Technical Exhibition and Conference, and dedicated stormwater symposia. In addition, readers are encouraged to continue to look for opportunities to provide stakeholder value through efficiently run stormwater utilities that are aligned with stakeholder values and that use funding programs in which cost responsibility is aligned with cost causation.
6.0 REFERENCES
Rogers, J.; Matichich, M.; Pasquel, F. (1999) Fifty Ways to Fund Complex Agendas in Watershed Management. Proceedings of the AWWA-WEF Joint Management Conference; San Antonio, Texas; March 1; Water Environment Federation: Alexandria, Virginia.
Water Environment Federation (2004) Financing and Charges for Wastewater Systems; WEF Manual of Practice No. 27; Water Environment Federation: Alexandria, Virginia.
Chapter 2
Overview
James A. Bachhuber P.H.
1.0 DRIVERS FOR STORMWATER USER FEE FORMATION
1.1 Economic Pressures on Local or Regional Agencies
1.1.1 Competition for General Fund Revenue
1.1.2 Decreased State Revenue and Property Tax Revenue
1.2 Increased Stormwater Program Needs
1.2.1 Regulatory Compliance
1.2.1.1 Municipal Separate Storm Sewer System Permitting
1.2.1.2 Total Maximum Daily Load Requirements
1.2.2 Aging Infrastructure
1.2.3 Flood Frequency and Climate Pattern Changes
1.3 Summary of Drivers
2.0 OVERVIEW OF STORMWATER USER FEE FORMATION
2.1 Legal Considerations
2.1.1 State Enabling Legislation
2.1.2 Overview of Challenges and Court Decisions
2.1.3 Congressional Direction for Federal Properties
2.2 Defining a Stormwater Program—Responsibilities and Costs
2.2.1 Identifying Ongoing Programs
2.2.2 Identifying Institutional Structure Needs
2.2.3 Identifying Capital Needs
2.2.4 Predicting Costs of Future Regulatory Compliance
2.3 Equity Considerations
2.3.1 User Fee Systems— Nexus between User Fee and Service
2.3.2 Credit Systems and Approaches
2.3.3 Other Considerations
3.0 OVERVIEW OF THE PLANNING AND IMPLEMENTATION PROCESS
3.1 Feasibility Study
3.1.1 Defining the Local or Regional Agency Stormwater Management Program
3.1.2 Explaining the Stormwater Management Program to Key Stakeholders and Elected Officials
3.1.3 Exploring Funding Options
3.1.4 Determining a Funding Approach
3.1.5 Evaluating Stormwater User-Fee-Ordinance Language
3.2 Implementation Phase
3.2.1 Establishing a Billing System
3.2.2 Establishing a Credit Policy and Special Considerations
3.2.3 Adoption of Stormwater User Fee Ordinance
3.2.4 Initial Billing
3.2.5 Ongoing Program Considerations
4.0 PUBLIC INVOLVEMENT PROCESS
4.1 Identifying Key Public Representatives
4.2 Example Tools and Approaches
5.0 REFERENCES
6.0 SUGGESTED READINGS
1.0 DRIVERS FOR STORMWATER USER FEE FORMATION
1.1 Economic Pressures on Local or Regional Agencies
The stormwater user fee approach to generating revenue has become increasingly common among local and regional agencies. Western Kentucky University, Bowling Green, Kentucky, publishes an annual survey of national stormwater utilities (Campbell, 2007–2012). In the 2007 survey, 635 utilities were listed in the United States; in the 2012 survey, 1314 utilities were listed. The survey recognizes that part of this increase is likely the result of better survey methods. However, it is also clear that more user-fee-funded stormwater programs have been adopted in the United States during the last decade. The reasons for this increase in stormwater-user-fee development are discussed in the following subsections.
1.1.1 Competition for General Fund Revenue
Local and regional agencies are responsible for funding a wide variety of public services. Programs that are commonly funded and managed by local agencies and governments include public works (water, sewer, and stormwater), police and safety, parks and recreation, social services, mass transit, community development, and education and schools. All of these programs are important to a community’s quality of life and economic vitality. While these services may be funded through various mechanisms (various taxes, fees, fines, and other sources), local residents generally are directly or indirectly the basic revenue source. This means that if local program costs increase, the effect on the local population often results in pressure to reduce services and/or revenue. Support for funding police, fire protection, schools, and other public services often takes precedence over stormwater management programs. Citizens have a basic understanding of the need for police protection, education, and reliable drinking water. Often, however, the public does not have a good understanding of the costs and benefits of effective stormwater management. This may lead to low public support for stormwater management compared to other government services. A 2005 survey conducted in and around Green Bay, Wisconsin (a separate storm sewer community), found that 32% of respondents believed that stormwater runoff enters a municipal water resource recovery facility (NEWSC, 2005). A lack of basic understanding of stormwater management by the public is a significant challenge when trying to build support for funding a stormwater program. This challenge increases the importance of public information and education programs (see Chapters 3 and 4).
1.1.2 Decreased State Revenue and Property Tax Revenue
Many state governments provide revenue sharing to local units of government. Under these programs, the local unit of government receives a state allocation to help support local program services. Over the past 20 years, state revenue sharing has greatly decreased or been eliminated. In addition, during the 2008 to 2009 recession, property values fell significantly in many areas, resulting in reduced property tax revenue for many communities. The effect on local or regional agencies has caused more strain on local funding sources to provide public services. For instance, local units of government are forced to reduce public services, increase existing revenue sources, or seek new revenue sources to maintain current programs.
1.2 Increased Stormwater Program Needs
Coupled with the decrease in revenue from historical sources to support local stormwater management programs, there are several factors that have caused an increase in stormwater management needs. Selected examples of increased stormwater program demands are discussed in the following subsections.
1.2.1 Regulatory Compliance
1.2.1.1 Municipal Separate Storm Sewer System Permitting
With passage of the 1987 Federal Clean Water Act Amendments, most urban stormwater conveyance systems in the United States legally became point sources
of pollution and were thus regulated under the Clean Water Act (CWA). With this change, the U.S. Environmental Protection Agency (U.S. EPA) and delegated state environmental agencies developed National Pollutant Discharge Elimination System and State Pollutant Discharge Elimination System permits for municipal separate storm sewer systems (MS4
permits). The permits establish stormwater pollution control requirements for the permit holder. Although costs to local and regional agencies vary, permit holders have experienced an increase in responsibilities, reporting requirements, and program costs to meet the regulations.
1.2.1.2 Total Maximum Daily Load Requirements
In addition to stormwater permitting requirements, more recent total maximum daily load (TMDL) implementation plans include assigning waste load allocations (WLAs) to urban stormwater systems (MS4s). For example, stormwater WLAs developed for Wisconsin municipalities require retrofit reductions of total suspended solids and total phosphorus from stormwater systems (WDNR, 2011, 2012). Compliance with TMDL requirements will add to current stormwater program costs.
1.2.2 Aging Infrastructure
Numerous studies have reported on the condition of the public works infrastructure in the United States. The general findings are that there is inadequate funding to maintain the public infrastructure. A 2009 report by the American Society of Civil Engineers summarized findings on a national scale for a range of infrastructure categories with a grade of D
(ASCE, 2009). The organization estimates a 5-year capital investment need of $2.2 trillion.
Stormwater conveyance systems often receive maintenance only after a failure has occurred. Proactive inspection and regular upkeep are not as high a priority with