Finding Equitable Stormwater Funding

2015-11-24_Insider_01_lg (1)By Toby Fedder, PE, Woodard & Curran

Operational and capital costs associated with stormwater management seem to grow every year, driven higher by increasingly stringent permits, which mandate pollutant load reductions and require increased system resiliency. The costs of municipal separate storm sewer systems (MS4s) and combined system infrastructure can overwhelm even the most well prepared utilities. Unfortunately for today’s utility managers, the average utility ratepayer is unaware of the magnitude of these compliance costs and regularly pushes back against the rate increases that are needed to comply with the mandated improvements.

The prospect of funding these operations as well as combined sewer overflow (CSO) abatement purely through volumetric rates is leading some cities to conclude that a new financial model is needed to fund the increasing costs of stormwater management. Luckily, municipal administrators and utility managers have various funding solutions available to them for financing the necessary investments these systems require.

User fees and alternatives for capital investments

One way utilities have been tackling the issue of ensuring that their organizations have adequate funding is by instituting stormwater user fees. From the standpoint of gaining public buy-in for a new fee, it’s essential to develop a cost projection model that provides a clear picture of current and future operations costs and investment needs.  This allows utility managers to directly link the increasing regulatory burden to the idea of a new fee, tying the new costs directly to the fee.

The most common way to implement this user fee is to set rates based on a property’s amount of impervious area. This system distributes the cost of reducing MS4 & CSO pollution to users that contribute most to the problem; so a commercial property with a 15-space parking lot would pay more than a typical homeowner, using a formula that calculates rates according to square feet of impervious surface. Other systems use a flat rate for user fees, with residential properties being assigned one flat quarterly amount and all other properties being assigned a higher quarterly rate.

For communities where service fees for funding stormwater capital investments would be difficult to adopt, there are alternative strategies worth considering:

  • Many stormwater management programs have been funded through property taxes paid into a community’s general fund. For communities where stormwater management is considered a high priority, this could be a viable option. One downside to this strategy is that tax-exempt properties do not contribute to this fund, though many of them, like schools or governmental properties, could produce significant runoff.
  • Another strategy that circumvents the issue of business owners and residents shouldering costs for projects that don’t benefit them is creating a “special assessment district.” If only one geographic area is going to benefit from a specific stormwater investment, it can be funded by only charging a fee to properties within that area.
  • Grants or low-interest loans could also be possibilities for stormwater management in some states. The EPA Clean Water State Revolving Fundhas provided more than $4.5 billion to fund projects that include stormwater management efforts.

Implementing changes

The use of stormwater user fees is increasingly popular, but municipalities often have a poor understanding of the practical implications of the transition. In communities with enterprise-funded utilities, some of the costs (particularly CSO abatement costs) that will be covered by the new fee are currently covered in volumetric sewer rates, offering the possibility of sewer rate reductions.  Utilities should prioritize helping all customers understand that the goal is the equitable assignment of new costs to those receiving the benefits the utility provides.  A defensible financial model assists in this and can prevent homeowners and businesses from feeling that they’re carrying an undue financial burden for the investments needed to upgrade or maintain stormwater and combined sewer systems. Additionally, credits and exemptions can be offered to incentivize best management practices.

For systems that don’t adopt stormwater fees but still need to fund required upgrades, residents and businesses need to be informed about how their monthly bills will be changing. For instance, some cities have chosen to continue issuing a single bill for sewer services provided, but the bill includes two separate charges: a sewer charge—which pays for treating the sanitary sewage from the customer—and a stormwater service charge—which pays for managing runoff. These cities set up a website dedicated to explaining this new system, as well as distributing a fact sheet regarding the changes.

Whichever funding approach you decide to go with, a strong public outreach campaign is important in getting your plan approved by the necessary stakeholders. Property owners need to have a clear understanding of how better stormwater management is going to benefit them, and there are a number of ways municipal officials and utility managers can approach circulating that information. By assessing the practical implications of each decision, continually identifying beneficiaries of each investment, and allocating funds wisely, operators of MS4s and combined sewer systems alike can successfully finance the upgrades they need.

Article originally published on July 29, 2015, 

This entry was posted in Business, Member Articles. Bookmark the permalink.