Designing Stormwater User Fees: Issues and Options

So your community has decided to implement a stormwater utility. Now what? How will you calculate your rates? Will you charge all your customers the same amount or base the charges on the stormwater infrastructure needs of each drainage basin? Will you offer credits or exemptions? Will your utility be independent or be part of an existing department? As you can see, your community’s decision to implement a stormwater utility is only the first of several important decisions to be made. It is important for your community to understand the array of choices available and the implications of each of those choices for the success of the proposed stormwater management program. The Center for Urban Policy and the Environment and the Watershed Management Institute recently published a Web page titled “An Internet Guide to Financing Stormwater Management” (http://stormwaterfinance.urbancenter.iupui.edu) that helps communities address these and other stormwater finance questions. The Web site includes a set of case studies that outlines the choices seven communities made in designing their stormwater utilities. These choices reflect each community’s unique situation but can serve as a guide for other communities making their own decisions about stormwater finance. The communities profiled on the Web site are Sarasota County, FL; Griffin, GA; Louisville-Jefferson County, KY; Valparaiso, IN; Union, OH; Fort Collins, CO; and Olympia, WA. As shown in the table, no programs are exactly alike, but they share a common result: new revenues for stormwater management that come from charges related directly or indirectly to impervious area.Basis for User ChargesOne of the first decisions a community has to make after it decides to implement a stormwater utility is what to use as the basis for the charges. Most stormwater user fees are based on impervious area. The amount of impervious area on a property has a direct impact on the amount of stormwater runoff that enters the storm sewer system, so impervious area is viewed as a fair measure of a property’s contribution to the stormwater problem. Griffin, Olympia, Valparaiso, and Louisville-Jefferson County base their stormwater utility rates on the average amount of impervious area on a single-family residential parcel. Sarasota County uses effective impervious area. These municipalities charge nonresidential parcels in units called single-family equivalents or equivalent runoff units, which are simply the multiple of the amount of impervious area on the average single-family parcel. Fort Collins uses impervious, pervious, and semipervious area to set its rates but does not base charges on a single-family equivalent. A few communities use zoning classifications to set flat rates for each property type. Charges based on zoning classifications are usually the least labor-intensive way to implement a stormwater user charge because the charges can be based on the approximate contributions of each property type to stormwater management costs. These types of charge systems must be carefully constructed and show a clear relationship between the charge amount and the property class’s contribution to stormwater problems in order to survive legal challenges. Charges Based on Property LocationMany communities contain several drainage basins with similar needs, so it is reasonable to impose the same charges on all residential parcels. In cases where there is a marked difference between the stormwater needs of one section of the community and the needs of another section of the community, it might make sense to charge different stormwater rates for each location. Two of the communities profiled in “An Internet Guide to Financing Stormwater Management” currently charge property owners a base rate that varies by drainage basin. Sarasota County differentiates between basins when calculating capital improvement charges. Each year, the county determines the cost of stormwater improvements in each basin and divides the cost among the property owners in the basin. Fort Collins uses the stormwater needs identified in each basin’s master plan to set base rates. People who own property in a drainage basin that has a lot of stormwater needs pay more than people in drainage basins with adequate stormwater systems. If your community chooses to differentiate between drainage basins, be prepared to address residents’ concerns about equity. Some residents might be upset by a decision that forces newly developed areas of the community to shoulder more of the infrastructure cost burden than residents of older areas do. Other residents will be concerned if the charge differentiation scheme places an additional burden on the residents of areas of the community with failing stormwater systems. People will argue against either charge scheme. Communities often decide to charge everyone equally to avoid this type of conflict. Flat RatesMost communities have flat rates for at least one rate class, meaning that all property owners of a certain class pay the same amount. Flat rates make billing easier because the stormwater utility staff does not have to calculate rates for each piece of property in the service area. When flat rates are used, they are often based on the characteristics of a group of sample properties. Griffin, Olympia, Sarasota County, and Louisville-Jefferson County use flat rates for residential customers only. Many communities choose this option because most residential properties have similar characteristics, but the characteristics of commercial and industrial properties vary considerably. Fort Collins has no flat rates in its stormwater rate structure. This option is often labor-intensive, and most communities do not favor it because of the amount of work involved in measuring each property and calculating an appropriate charge. Valparaiso and Union have flat rates for every rate class. This works well in smaller communities where most properties of a certain class have similar characteristics. Credits Communities often offer credits to property owners who install and maintain onsite stormwater management systems. The credit systems are usually designed to relieve some of the burden on the community stormwater system by providing an economic incentive for property owners to reduce the volume and/or pollutant load that enters the stormwater system from their property. Fort Collins, Griffin, Louisville-Jefferson County, Olympia, and Sarasota County offer credits for a reduction in stormwater runoff volume from a property. The amount of the credit normally depends on the size of the volume reduction. For example, Griffin stormwater utility customers can receive a 20% credit if they can demonstrate that the peak stormwater discharge rate for a 10-year storm from their onsite facility is no more than 10% greater than the peak discharge rate prior to development. A 30% credit is available when the onsite system reduces the peak discharge rate to between 0 and 10% less than the peak rate prior to development. A 50% credit is available to customers whose onsite systems reduce the peak discharge rate 10% below the predevelopment rate. Communities can also offer other types of credits. Olympia and Sarasota County offer credits to property owners who improve the quality of stormwater runoff from their property through onsite treatment systems. Griffin offers schools a stormwater credit if the school system teaches a water-quality education program. If your community wants to make credits available, be sure to assess the impact of the proposed credits on the stormwater management budget before the credits become reality. Can your community afford to grant credits and still generate enough money to operate the stormwater management program? A community must also be careful to design the credit system with achievable standards. If the credit standards are so high that customers would rather pay the utility fee than install the onsite controls they would need to be eligible for the credit, then the credit system is not providing any incentive for a utility customer to reduce inputs into the storm-drain system. ExemptionsMany communities exempt roads, railroad rights of way, and undeveloped properties from stormwater charges. The rationales for these exemptions differ. Communities exempt roads and rights of way because they are public property and the charges would be paid from tax revenues anyway. Undeveloped properties sometimes are exempted because runoff from them is considered “natural.” Fort Collins, Griffin, Union, and Valparaiso offer these three exemptions. Olympia charges roads and railroad rights of way 30% of the applicable charges and does not charge undeveloped properties. Many communities also grant exemptions to city, state, and federal government property. Louisville-Jefferson County offers exemptions to city properties when the city in question has donated property, facilities, equipment, or assets to the metropolitan sewerage agency with a value comparable to the applicable service charges. Sarasota County exempts schools and government property. As with credit opportunities, your community must examine the impact of the proposed exemptions on the stormwater utility budget. It might sound good to exempt all undeveloped property, churches, government property, roads, schools, senior citizens, and low-income families from your stormwater utility fee, but you will have to make up for the lost revenue somewhere. If you have the resources available, analyze your rate structure under several different assumptions by entering land-use data from your community into a spreadsheet program. Find out the impact that each of your proposed credits and exemptions has on the rest of the community and the stormwater utility’s expected revenue. Examine who bears the greatest burden under each scenario—residential, industrial, or commercial customers. Is this cost burden consistent with your community’s values? Examine how much revenue your community would stand to lose if an exemption for a certain type of land use was allowed. Can your community afford to lose this amount of money from its stormwater budget? Stormwater Utility StructureInstitutional or administrative arrangements for stormwater utilities can take a wide variety of forms, but three are common. One arrangement is a stormwater utility that exists as an enterprise fund or a restricted bank account for stormwater management. A second type of stormwater utility is one organized within an existing community department, such as the department of public works. A third type of stormwater utility is an independent department. Some communities create a stormwater utility on paper only. The stormwater utility itself has no paid staff; revenues from the utility funds are used to pay other agencies or departments to administer the billing and maintain the stormwater system. Union and Valparaiso use this approach. Small communities often choose this type of stormwater utility because what they lacked prior to the stormwater utility was money, not manpower. This approach provides money for stormwater management without complicating the bureaucratic structure or increasing the size of the city’s work force. Fort Collins, Olympia, and Louisville-Jefferson County chose to make their stormwater utilities part of another department. Fort Collins’ stormwater utility is part of the Utilities Department. Olympia’s stormwater management department is organized within its Department of Public Works. Louisville’s stormwater department is part of its Metropolitan Sewerage District, which itself is separate from the city government. This type of stormwater utility often shares some of its staff with other programs but maintains its own primary staff and budget. Griffin and Sarasota County created independent stormwater utilities. An independent stormwater department is often organized in communities that intend to have an extensive stormwater management program that requires more staff members than existing departments can provide.Utility Approach Offers Many OptionsDeciding to implement a stormwater utility is only the first of many important decisions your community will face. Such issues as utility structure, the basis for utility charges, unique charges for each drainage basin, credits, and exemptions are only a few of the issues you will need to resolve to make your stormwater utility a success. The issues are complicated, but it is helpful to look at what other communities have done and ask, “Will this work in my community?” Experts in the stormwater utility field often say there is no cookbook solution when designing a stormwater utility. Each community must make its own recipe from a list of possible ingredients, such as credits, exemptions, rate bases, and organizational structure. The challenge is to research the possible ingredients and determine whether or not they are palatable to the potential ratepayers in your community.