Trends in Stormwater Utility Implementation

By Laurens van der Tak, Keith Bishton, Bruce Taylor, and Mike Matichich

Stormwater utilities that are funded by user fees based on impervious area have been in existence for decades. However, recent trends are driving the creation of new stormwater utilities and the evolution of existing ones. This article highlights three recent trends: Significant new regulatory drivers are creating higher revenue needs and requirements to treat impervious area, improved technologies such as better impervious area mapping data are creating more pressure to use actual impervious area data or more billing rate tiers, and Web portals are facilitating outreach and evaluation of credit options.

Stormwater utilities are generally considered a dedicated funding source for municipal stormwater programs. Funding or revenue is based on a fee for service tied to some measure for the amount of impervious area on each property in the utility service area. Although variants on the concept include dedicated property taxes and one-time fee programs assessed to developers, the approach that ties fees to impervious area is the most common.

The concept of the stormwater utility has been in existence in the US since the early 1970s, when utilities were used largely to fund flood control programs. In the 1990s, there was flurry of implementation of stormwater utilities driven by new Phase 1 National Pollutant Discharge Elimination System (NPDES) stormwater permits, and again in the mid-2000s with Phase II stormwater rules affecting smaller communities. The first stormwater utilities were in the Pacific Northwest. Several surveys of stormwater utilities conducted over the years suggest there are at least 400 stormwater utilities (NAFSMA 2006). Some studies have indicated that as many as 2,000 stormwater utilities are expected to be in operation by 2014 (New England Environmental Finance Center 2005).

Recent trends have shown a renewed interest in stormwater utilities, either in jurisdictions seeking to implement utilities for the first time, or existing utilities seeking to refine their programs to increase revenues and to incentivize ratepayers to implement onsite stormwater facilities. This article reviews three of those trends, including significant increases in program revenue needs, use of the Internet to support incentive programs, and significantly improved GIS impervious area data.

Some examples of new utilities implemented in the past three years include those in Richmond, VA; Washington DC; Philadelphia, PA; Mt. Lebanon, PA; and the Southeast Metro Stormwater Authority in the city of Centennial and Arapahoe County, CO. Other jurisdictions actively working on implementing utilities include Lancaster, PA; and Bangor, ME.

The popularity of stormwater utilities among stormwater managers can be attributed to the following characteristics.

Utilities provide a stable, dedicated, and adequate funding source for stormwater programs, which tend to lose out due to political pressures when competing for general fund monies with other priorities, such as education, health, and public safety programs. Periodic downturns in property assessments mean that even dedicated property taxes, such as those in Prince George’s County, MD; Arlington County, VA; Fairfax County, VA; and Alexandria, VA, can make it difficult for stormwater managers to plan for long-term capital programs. This volatility in the assessment tax base can provide the impetus for a municipality to consider a stormwater utility. For example, the city of Takoma Park, MD, switched from a dedicated tax to an impervious area-based fee in 1997 (Figure 1) next page.

Figure 1. Stormwater fund revenues for Takoma Park, MD

Figure 2. Relationship between number of accounts and impervious area in Richmond, VA

The example tiers use an ERU basis of 2,000 square feet. The number of ERUs for a particular tier is based on the median for the tier range.

Figure 3. Breakdown of Montgomery County, MD, CIP

Stormwater utility fees are more equitable systems for raising revenues for stormwater management–basing fees on actual runoff impact, rather than property value. Under an impervious area-based fee system, tax-exempt entities (e.g., nonprofits, faith-based organizations) that contribute to stormwater runoff are generally charged just like other properties. In general, user fees have the effect of shifting some of the burden of managing stormwater from residential to other properties (Figure 2). Recently, due to Senate Bill 3481, enacted in January 2011, that equity was further increased by requiring the federal government to pay stormwater utility fees. In some jurisdictions, impervious area from federal properties represents a significant portion of total impervious area. For example, in Montgomery County, MD; Portsmouth, VA; and Washington DC, the impervious area of the federal government properties is 1%, 16%, and 20% of the total, respectively.

Stormwater utilities can positively affect behaviors and assist with NPDES permit compliance, especially when fees are based on impervious surfaces or when a system of credits is put into the system. At the very least, utilities raise awareness about the connection between human development activities and polluted runoff. Driven in part by the Chesapeake Bay total maximum daily loads (TMDLs), Montgomery County’s recent NPDES permit requires the retrofit of 20% of all impervious surfaces with stormwater controls. The county has determined that to meet that goal, a significant fraction of all retrofits will need to be implemented on private property.

New Funding Pressures and Approaches

The rate of implementation of storm-water utilities and the growth rate of stormwater user fees have roughly correlated with three periods of regulatory pressure. The first was in the 1970s, with implementation of the Clean Water Act and with increased focus on local floodplain management regulations. The second was in the early 1990s with the issuance of Phase I NPDES stormwater permits for large cities and counties with over 100,000 people served by municipal separate storm sewer systems (MS4s). And the third historical wave of development of stormwater utilities was in the early 2000s when NPDES MS4 permits were issued for the smallest regulated size class, the so-called Phase II jurisdictions, with populations over 50,000 in urban areas. 

Communities with combined sewer overflow (CSO) systems also have turned to using impervious area-based fee mechanisms to fund some portions of their programs, such as the nonstructural nine minimum control requirements, and increasing use of low-impact development (LID) or green infrastructure. However, CSO systems still predominantly use wastewater fees to leverage bonds to fund their large capital (grey) projects. 

In addition to regulatory pressure to comply with NDPES MS4 and CSO permit programs, another driver for the creation of stormwater utilities is aging infrastructure. Stormwater infrastructure has about a 50-year lifespan or less, and much of the infrastructure that was installed during the 50s, 60s, and 70s now requires significant rehabilitation or replacement, which is outpacing current funding levels. 

Two additional factors are contributing to the current wave of renewed interest in stormwater utilities. The first is more stringent implementation of nutrient criteria and TMDLs, particularly in the Chesapeake Bay watershed, including the states of Virginia, Maryland, and Pennsylvania, as well as Washington DC. These nutrient criteria or nutrient TMDLs are creating new NPDES MS4 permit requirements, with perhaps the most stringent being that issued to Montgomery County on February 15, 2010. The permit requires, among other things, that the county retrofit 20% of impervious surfaces not already treated within the five-year permit cycle, which the county has determined is about 4,300 acres of impervious area. The county is also subject to wasteload allocations specified in approved TMDLs. TMDLs have been established for impaired stream segments across much of the county, with impairments including bacterial, biological, nutrient, sediment, toxics, and trash levels exceeding water-quality standards. In addition to MS4 permit and TMDL requirements, the county is a party to the 2006 Potomac Trash Treaty.

To achieve the goals set forth in its MS4 permit, the county has developed a comprehensive capital improvement program (CIP) of watershed restoration measures. That CIP is estimated to be $295 million, including a wide range of projects. Figure 3 illustrates the relative percent breakdown for CIP projects. The county will be funding that program through a combination of stormwater utility rates and debt financing. The county has been updating impervious area mapping, revising the utility rate structure, and conducting financial analyses supporting expected issuance of revenue bonds.

The second factor contributing to increasing pressure for new sources of funding is the current economic downturn that has resulted in most city and county governments decreasing budgets and seeking innovative funding solutions. As pressures on the general fund increase, stormwater utilities are funding more elements of the stormwater program, including quantity- and quality-control measures. In some cases this could be a comprehensive review of stormwater-related functions performed by many government departments and reorganizing budgets so that the stormwater utility covers more programs.

Coupled with economic considerations, stormwater programs must manage the increasing costs associated with regulatory requirements (MS4, TMDL, etc.) and infrastructure renewal. This is especially true of stormwater utilities that have historically funded operating budgets while the general fund covered capital improvement projects.

Figure 4. Green Up DC portal entry screen

Figure 5. Users can choose from a variety of stormwater mitigation projects based on their individual property characteristics.

Figure 6. Stormwater runoff results are calculated and presented with costs for each green infrastructure facility.

Figure 7. Registered green projects are tracked citywide.

Montgomery County implemented a stormwater utility in 2002 and started out by funding inspection and maintenance of its stormwater management facilities. Since 2002, the stormwater utility has evolved to fund more than just inspection and maintenance, including storm drains, water-quality monitoring, stream restoration, stormwater facility retrofits, and LID. The annual budget grew from approximately $1 million in 2003 to $12 million in 2012. The increase in the number of stormwater-related programs funded by Montgomery County’s stormwater charge has resulted in rates increasing from $12.75 per equivalent residential unit (ERU) in 2002 to $70.50 per ERU. 

Given the increasing costs of capital programs in response to federal and state stormwater regulations, many municipalities have started to leverage revenues from stormwater utilities and use long-term financing to support significant capital programs. Much of this is due to the fact that stormwater utilities are maturing and have track records for being stable and dedicated sources of revenues for stormwater management programs. As previously mentioned, Montgomery County is addressing its MS4 permit requirements through a $295 million CIP. As part of its planning process, the county is considering debt financing as part of its CIP. This will help leverage current revenues, minimize spikes in the stormwater charge, and spread the costs over the useful lives of the stormwater facilities. 

The city of Richmond, VA, implemented a stormwater utility in 2009, which funds inspection and maintenance for stormwater facilities, catch basin cleaning, pretreatment of stormwater runoff, flood protection, and capital projects to renew and repair the system. The city has annual budget of approximately $8 million and is anticipating the implementation and compliance costs for federal and state stormwater regulations. The stormwater charge of $45 per ERU has not increased since 2009, but escalating costs of regulations and capital improvements are being evaluated by the city to develop a financial plan.

As many stormwater utilities contemplate plans for addressing increasing costs associated with federal and state regulations, review of the utility’s rate structure and rates can help a stormwater utility develop a financial plan. For example, availability of and improvements to impervious area data enable stormwater utilities to review their rate structure and rates more efficiently.

Improved Impervious Area Data and Tiered Rate Structures
Impervious surface information, as interpreted from aerial orthophotography and stored in GIS, is being used increasingly by stormwater utilities such as the one in Clayton County, GA, to determine utility fees. As the costs for acquiring aerial photography and interpreting the impervious surfaces have decreased and the quality of the orthophotography (spatially adjusted aerial imagery) has increased, it is now feasible to accurately determine fees for individual properties and perform periodic updates. Over the past 10 to 15 years, the cost for acquiring high-quality color orthophotography has dropped to the point where many utilities can afford a new set and perform updates to the impervious surface layer every few years. In addition, most jurisdictions now have a GIS-based parcel layer, which can be used to automatically assign the impervious surface area to a property.

The orthophotography has high enough resolution to accurately distinguish pervious from impervious surfaces and to capture smaller features such as driveways, walkways, and patios. It is also spatially accurate so that impervious features can be properly correlated with GIS-based property boundaries and will properly align with orthophotography collected during previous flyovers for accurate updates to impervious surfaces.

As part of the development phase of a stormwater utility, the impervious area data are used to develop the rate structure and define the ERU basis, which is typically the average or median impervious area for a single-family detached property. The ERU basis is then used to determine the number of ERUs for non-residential and multifamily residential properties. The rate is then set and expressed as dollars per ERU.