Stormwater utilities: A path to affordable flood resilience

Uncontrolled stormwater runoff is directly linked to urban flooding, water quality impairments and erosion. These negative impacts make communities less safe, ecosystems less healthy and property less economically attractive. In many areas, flooding is becoming more frequent for a couple of reasons.

As development continues to replace natural ground cover with concrete and asphalt, the amount of runoff from precipitation increases because the water cannot permeate the soil. More frequent extreme weather events, such as intense and heavy rainfall, also increase runoff that can physically exceed the capacity of our drainage networks and, in combined sewer systems, overwhelm our treatment plants.

Yet despite public awareness of devastating flooding and increasing demands for better stormwater management, this type of infrastructure improvement isn't typically prioritized in municipal budgets. Unlike potholes in roadways, stormwater management efforts are noticeable only when flooding occurs or a drainage system's tolerance is tested. This infrequent attention makes funding stormwater management projects challenging when forced to compete for general fund dollars with other public safety demands.

According to the Western Kentucky University Stormwater Utility Survey 2025, taxpayers often see stormwater spending as a regulatory obligation rather than a vital community investment in public health, resilience and quality of life. People usually won't support a tax increase for something they don't think they need, so municipal drainage system maintenance, renewal and repair projects are often underfunded.

Federal and state funding has also recently become uncertain. In many cases, stormwater is the forgotten utility with limited funds for large-scale projects, the survey found. Projects identified in stormwater master plans and capital improvement projects remain unconstructed and become outdated, despite studies that show $1 of stormwater mitigation spending can save from $6 to $13 in recovery expense.

Prioritize stormwater infrastructure resiliency

One strategy for many communities across the U.S. and Canada to provide greater flood risk reduction and organizational resiliency is to establish a stormwater utility. The Western Kentucky University survey identified 2,147 stormwater utilities in the U.S. and 82 in Canada in 2025.

U.S. stormwater utilities 2025

The aim of a stormwater utility is to provide a greater level of service for their customers. A well-developed stormwater utility provides communities:

• Effective local day-to-day management of stormwater.
• Administration, planning, maintenance, rehabilitation, repair, monitoring, and reporting for a comprehensive, cohesive and consistent stormwater program.
• Coordination of responsibilities previously dispersed among several departments or divisions such as public works, parks and engineering.
• Funds to provide operating expenses and long-term capital improvements that cannot be redirected to uses other than those associated with providing stormwater services.

It is important when establishing a stormwater utility to consider all these objectives. If the only reason a municipality has for establishing a stormwater utility is to generate revenue and free up general funds for other uses, the stormwater utility is likely to face legal challenges. When customers see a new line item on a bill for stormwater services but are not aware of the increased level of service provided, they may feel they are being unfairly charged.

A durable stormwater utility that can withstand legal challenges and garner public support must effectively communicate its value, equity and adequacy to customers and policymakers.

The value of an enterprise fund

To secure cash flow to adequately respond to costs associated with current development conditions and climate events, aging drainage systems, regulatory requirements and shrinking municipal, state and federal budgets, communities in 43 U.S. states have moved to a fee-for-service system, or enterprise fund. Commonly used by water, sewer, gas and electric utilities, an enterprise fund consists of fees collected exclusively for the costs to provide services to each property. In other words, utilities charge, collect and administer user fees.

Key advantages of an enterprise fund are:

• Stability. Funds are not subject to changes in the annual budget process as general fund priorities, property values or revenues from sales change.
• Transparency. The utility's financial position documenting operating expenses, depreciation, capital outlays and revenue are made public.
• Sufficiency. The stormwater fee is based on a program for which costs have been determined.
• Flexibility. Fees can be structured in multiple ways, and the program can be managed to fund activities based on changing priorities and needs.
• Equity. Depending on how fees are structured, costs can be assessed based on user demand placed on the stormwater system.

An enterprise fund also provides the stormwater utility with better access to public funding programs such as state revolving funds and federal Water Infrastructure Financing and Innovation Act loans. Local matching funds for grants may also be available to a stormwater utility enterprise fund if capital reserves are not sufficient to pay for immediate needs.

Fee structure drives equity

Generally, enterprise funds are seen as more equitable than taxes based on overall property value or local sales. Like other utilities, a proportional charge or fee is levied based on the demand a property owner places on the system. In the case of stormwater, when a natural area is paved or covered in impervious materials, it contributes a greater volume of runoff and demand to the drainage system.

Stormwater is generated at larger volumes with quicker runoff rates from larger properties that have greater impervious surfaces. Infrastructure improvements must be assessed, planned, designed and constructed to prevent flooding and reduce the environmental harm caused by pollutants discharged into groundwater and waterways in communities with greater impervious surfaces.

How stormwater utility rates are structured will determine its equity. We believe the best way to guide policy and rate decisions when developing a stormwater utility is to start with the end in mind. Creating a new rate structure provides an opportunity to reassess current customer conditions, affordability thresholds and related customer assistance programs. HDR collaborates with its water sector and municipal clients to establish rate structures that emphasize several key principles and best practices including:

• Tiered residential rates to allow properties with less impervious areas to pay less toward the stormwater utility. The goal of this policy is to provide some relief to lower-income residents.
• Rate structures with caps to limit the amount owed by industries with larger areas of impervious cover. Industrial owner acceptance can be critical to the success of a stormwater utility. A rate structure with a maximum limit allows the industry to predict costs and support the utility while still generating revenue necessary to fully fund the stormwater program.
• Rate structures that can be billed easily through the existing utility billing system.
• Processes for residents to earn stormwater credits by participating in source runoff reduction programs. These credits can range from providing green infrastructure and onsite detention to items as small as using rainfall runoff to irrigate onsite landscaping.
• Processes for billing within local taxing districts by creating files necessary to bill stormwater utility clients seamlessly.

SWU success cases

With the goal of providing greater customer equity, a county agency in Washington state asked HDR to evaluate its flat-rate residential stormwater fee structure. We collaborated with county staff to develop six conceptual rate structures for review and discussion. Three alternative rate structures were then calculated based on impervious area data for each parcel, ranges of impervious area, and other similar structures. By categorizing rates based on the degree of stormwater impact to individual properties, the county provided a more equitable fee structure for its customers.

HDR also developed a comprehensive stormwater rate study for a municipal utility in California. We worked with the city to analyze required revenue, cost of service and rate design. The revenue requirement analysis informed proposed rate adjustments to adequately fund the annual operating and capital needs of the city's stormwater utility for five years. The cost-of-service analysis provided the basis for establishing the proposed stormwater rate on a per equivalent unit basis. The proposed rates validated the current rate structure and required adjustment of only the rate levels.

In part two of this series, available on Stormwater Solutions on Monday, April 20, we'll detail the importance of leveraging public support for stormwater utility funding through public information campaigns that communicate what customers are getting for their money, especially when the sun is shining and waters aren't rising.