FUNDING AND GAINING SUPPORT FOR STORMWATER PROGRAMS

The best-designed stormwater pollution management plan will flounder without sufficient community support and funding. Community support is often necessary for official government support, although in many of the cases studies the government took the lead and the broader support followed. A major aim of many public education programs (and a critical task for local community and environmental organizations) is to build this political support. An equal emphasis is needed to establish a stable source of funding to keep a program moving forward, once implemented. While the two often go hand-in-hand -- adequate funding almost always requires political support and, conversely, a healthy community consensus on the need for runoff pollution control will generally lead to sufficient funds -- the traditional funding mechanisms available to local governments demand continuous political support, which can be difficult at times. Nonetheless, there are several approaches a municipality can take to establish a dedicated funding source. This chapter describes one of these approaches -- stormwater utilities -- and discusses the authority of local governments to implement them.

Traditional government funding sources may prove problematic for stormwater pollution program. Grants for water pollution from the federal government are far smaller than in earlier years. Low interest loans from the federal/state revolving loan fund many not be attractive, especially for the non-capital elements of a stormwater pollution program. Allocations from local taxes may be an unreliable means of generating revenue: though essential for ecological and public health reasons, community leaders are hard-pressed to divert adequate funds from general municipal budgets for stormwater pollution control, because the money comes from the same pool as more politically popular uses.

In light of these difficulties of traditional grant, loan, and tax funding, many local governments have successfully turned to alternative funding strategies. Local governments have funded stormwater pollution measures through charging inspection and permit fees, collecting dedicated contributions from land developers, taxing new development at an increased rate, forming regional stormwater management districts, and creating stormwater utilities. NRDC's research collecting these case studies, as well as work with specific municipalities on water pollution issues, suggests that one of the most effective and equitable funding mechanisms, and yet one of the least well-known, is the use of stormwater pollution utilities that operate stormwater measures entirely through self-funding entities.

The Utility Structure

Stormwater utilities are a well-established, efficient, and feasible financing option that provides a dedicated revenue source for stormwater management.¹ A stormwater utility operates similarly to water, sewer, or fire districts, which are funded through service fees and administered separately from the general tax fund, ensuring stable and adequate funding for these public services. An EPA study identified three major advantages of stormwater utilities over funds generated through property tax revenues: (1) increased stability and predictability, (2) greater equity, and (3) the opportunity for incorporating incentives for implementation of on-site stormwater management.² As of 1996 almost 300 stormwater utilities were in operation in at least 20 states. (By contrast, there are thousands of water, sewer, and irrigation districts in the country that work under a similar framework.) Experts now estimate that there are more than 500 stormwater utilities in communities through the country. These stormwater utilities serve cities with populations ranging from under 5,000 to over 3.5 million.³ NRDC's survey found stormwater pollution utilities in localities of all sizes and types; however, utilities appear more prevalent in growing communities in metropolitan or suburban areas, where changes to the landscape and hydrology are occurring.

Stormwater pollution utilities differ from most other utilities such as power or drinking water utilities because consumers often do not see an immediate benefit from paying their fee. Since most consumers want, for example, electricity, they are willing to pay in advance to receive it on demand. On the other hand, stormwater ratepayers are being asked to pay to prevent something they don't want, water pollution. If residents have never thought about stormwater, they probably will not recognize or appreciate the benefits of preventing stormwater pollution, and therefore will not want it in the same way as a power utility. This will likely affect their willingness to pay. Moreover, there is less an individual can do to change the magnitude of the fee. Improving the public's knowledge and understanding of the benefits of stormwater pollution prevention can go a long way to increasing their acceptance of a stormwater utility. Nonetheless, these problems are even greater with respect to taxes, and can be minimized (and explained) by linking the fee to a property's contribution to stormwater pollution and by quantifying to the extent possible the benefit that the ratepayer derives from the improved stormwater management.

Creating a Stormwater Pollution Utility

Generally a municipality enacts two ordinances to create a stormwater utility, one to establish the various components of the utility and the other to determine the rate structure. Forming the utility through two separate ordinances allows the flexibility to alter the rate structure at a later date without having to revise the ordinance governing the basic structure of the utility. The components of a stormwater utility will often include administrative, planning, and programmatic elements:

1. An administrative structure to collect fees and implement stormwater pollution prevention measures.
2. Development of a stormwater pollution prevention plan and related ordinances.
3. Erosion and sediment control requirements and related inspections or enforcement programs.
4. Detection of illicit connections to storm sewers.
5. Water quality monitoring and/or treatment.
6. Maintenance of stormwater drainage systems.
7. Public education.
8. Flood protection.

The first ordinance may also include a statement of the goals of the utility, discussing the benefits of stormwater pollution prevention. The second ordinance tries to structure the service charges to create a logical and equitable relationship between the amount, and perhaps quantity, of stormwater leaving a property, the benefits received by the stormwater system, and the amount assessed. Specific examples of service charges are in the rate assessment section below.

Integrating Utilities

Municipalities that already have wastewater or drainage utilities have often benefited by integrating stormwater components into their existing utilities as opposed to forming a stormwater utility as an independent entity. In those circumstances, integration generally proved more cost-effective because additional administrative costs are kept to a minimum. Moreover, integration appears to present less difficulty at the formation stage, for the modification of an existing utility is less likely to draw protest or legal challenge than the creation of a new one. Municipalities that do not have wastewater or drainage utilities may still be able to derive some of the savings of integration by making the stormwater fee a component of an already existing utility or tax bill. However, it must be noted that other municipalities described in the case studies found the culture of wastewater utilities very different from that required for a stormwater utility and thus integration of the two was not effective. This is clearly a locally dependent issue.

A response to one particular stormwater pollution problem -- failing septic systems -- may also be particularly well integrated with stormwater utilities. When properly selected, designed, sited, constructed and maintained, septic systems rarely contribute to water quality impairment. However, since individual property owners are generally responsible for their own septic system upkeep, poor septic system maintenance is a common problem. Many homeowners do not even know where their system is until a problem surfaces (literally). Pollutants generated by improperly maintained septic systems are often a significant source of pathogens in stormwater. A separate septic utility takes this upkeep responsibility from individuals and places it on accountable professional staff.⁴ Integrating a stormwater utility with a separate septic utility, or including septic system inspection, maintenance, and enforcement as part of a stormwater utility appears to provide important administrative, financial, environmental, and quality-of-life benefits at a very modest cost.

Other functions that the septic portion of stormwater utilities have provided include siting approval, system design, permitting, pump-outs, and maintenance such as flushing, removal, cleaning, and replacement of system components. The septic portion of the user fees is, in surveyed localities, determined according to the costs of maintenance, water meter readings, or water usage projections.

Daily Operations

In most cases, a public works department or a water pollution control agency administers the stormwater utility. This staff either is integrated with the rest of these agencies or is dedicated to stormwater pollution prevention measures. In many cases, certain operation and maintenance services are contracted to, or at a minimum coordinated with, other government agencies. For example, the sanitation department may handle the street sweeping, the transportation department may clean out the catchbasinss, and the planning department can develop appropriate site design ordinances. Municipalities have also contracted with private contractors or formed regional or watershed agreements so that services can be shared. A stormwater pollution utility structure has been used to fund all of these administrative and implementation organizations.

Accountability

Consolidating a municipality's stormwater pollution program under the auspices of a single, centralized entity offers important accountability that is lacking if stormwater pollution prevention responsibilities are diffused throughout the entire governmental community. The state, neighboring jurisdictions, and affected entities can address runoff water quality issues by working with a single entity. Without such a structure in place, it may be necessary to coordinate efforts involving thousands of independent landowners, an obstacle that will often prove insurmountable. Citizens seeking to work with or hold accountable those responsible for stormwater know where to turn. Thus, establishment of a quasi-independent entity is at times strongly encouraged by states and citizens.

Political Support and Public Education

Recent political trends indicate that enhanced environmental protection will often receive widespread political support even when the additional measures bear added costs for consumers. In the 1998 elections, many local and state governments featured open space initiatives on their ballots. Voters approved 87 percent of the measures and a total of $4 billion of spending by their governments to protect open space, in many cases increasing taxes.⁵ For example, New Jersey voters passed by a two-to-one margin a $1 billion open space reclamation program. Similarly in Michigan, voters approved a $675 million bond earmarked for brownfields redevelopment and water pollution control by roughly the same margin.⁶ The success that environmental referendums have had in other elections nationwide attest to the fact that local governments have been able to generate widespread public support for environmental projects, including creating stormwater utilities.⁷ A key factor in generating this political support is public education. Several municipalities have developed and implemented a broad public education campaign before establishing the other stormwater pollution prevention measures;⁸ this early start appears to give the program critical momentum. Where citizens are informed about the projected goals, costs, and benefits of the stormwater utility, its chances for passage and implementation become greatly increased.

Rate Assessment

Few citizens enjoy paying another fee and stormwater fees are no exception. However, there is legislation in most states indicating that reasonable stormwater utility fees will be upheld if legally challenged, and offering guidance as to what constitutes an appropriate fee structure.

The stormwater utility rate should be designed to defray the costs of the service provided by the municipality.⁹ While it is not necessary for there to be mathematical symmetry,¹⁰ an equitable relationship between the amount of stormwater generated by a given property, the benefit received by the rate-payer, and the corresponding fee is normally required. Generally, caselaw suggests that a rate will be deemed valid where (1) the revenue generated benefits for the payers, primarily even if not exclusively, (2) the revenue is only used for the projects for which it was generated, (3) the revenue generated does not exceed the costs of the projects, and (4) the rate is uniformly applied among similarly situated (from a runoff view point) residents.¹¹ Certain jurisdictions are more lenient and allow rates that generate surplus funds as long as the excess money is not diverted for other purposes.¹² Furthermore, benefits do not need to be either direct or quantifiable; intangible benefits such as an improved overall state of public health may be counted.¹³ Any property that is part of the watershed may be considered to have benefited from surface drainage improvement, through improvements of health, comfort, convenience and enhanced property values.¹⁴

Municipalities rely on a number of factors as the basis for the service charges. Most commonly, a municipality charges owners or residents in accordance with how much stormwater is estimated to leave their property. This will have the fee based on amount of impervious surface, and perhaps other factors such as slope. Additional criteria used are soil type, credits for stormwater structures such as detention ponds, or type of activity occurring, and possible exemptions for land uses such as public roads, undeveloped land, and public lands.

Fee vs. Tax

While most municipalities have the legal authority to assess fees for public services, a great many do not have the ability to assess taxes.²² Furthermore, the small percentage of municipalities that have the ability to levy taxes could benefit if they designed the service charges as fees as opposed to taxes, since the federal government, schools, and religious and charitable institutions are exempt from paying taxes, but would not be exempt from paying stormwater utility fees. Therefore, when creating a rate structure for a stormwater utility, it is important that the charges are assessed in such a way that they will be interpreted to be fees and not taxes.

While states often differ in how they distinguish between fees and taxes, NRDC's review of the law in the states found certain common factors. First, fees are intended to be and should be clearly described as a charge for a particular service provided, whereas most property taxes are intended for the general support of the government or schools.²³ Consequently, a service charge that is excessive and which generates funds put to purposes other than the service indicated will most likely be considered a tax. Second, fee payers should receive some benefit from the service, although indirect or immeasurable benefits may be counted,²⁴ whereas a taxpayer need not receive a particular benefit. Third, fees should apply on the basis of contribution to the problem regardless of other factors. Thus, fees that exempt, for example, religious organizations, may be invalidated.²⁵

As the distinctions that are drawn between taxes and fees differ from one state to another, it is important for municipalities to research the significant case law in their jurisdiction before creating the rate structure. Factors that may be considered insignificant in one jurisdiction may create the crucial distinction in another. For instance, a court in Oregon, in deciding that a storm drainage utility charge was not a tax, noted that the fees in question were not being levied exclusively against property owners.²⁶ In another example, a court in Ohio called attention to the fact that the rates did not fluctuate based on seasonal rainfall as evidence that the service charge was a tax.²⁷ Neither of these factors were commonly cited as significant by courts reviewing the question in other jurisdictions.

Legal Authority to Establish a Utility

Before addressing what stormwater pollution prevention measures a utility could perform, and before establishing a fair and effective rate structure, a local government needs to assure itself that it has the legal authority to establish the utility and implement the program. Where a stormwater utility or stormwater pollution prevention program already exists in the state, this determination will be fairly easy, although new program elements may raise novel questions. In other states more research may be needed.

To assist local governments in this first initial step, NRDC did a brief survey of the law of the 50 states on this topic. NRDC's survey found that in virtually all states, municipalities do have the legal authority to establish stormwater utilities. More than half the states have statutes that specifically delegate the power to municipalities to set up such utilities. In other states, the clearest statement of the authority to establish stormwater utilities comes from caselaw.* In instances when there are neither statutes nor case law on point, a key factor to be taken into consideration is whether there exists a strong home rule regime, where a state delegates a high degree of self-governing power to its local governments. In such a situation, a local government has considerable discretion to enact ordinances or take other necessary measures so long as none of its actions violate state laws.²⁸ When there is neither legislation or caselaw on point and a strong home rule authority does not exist, municipalities are often able to turn to the office of the Attorney General for a determination of whether they have the power to create stormwater utilities.

While a stormwater utility is not the only means of financing stormwater measures, it appears to be available to most local governments, and it offers numerous advantages. Unless state or federal funding increases dramatically, utilities may provide one of the best financing options for local governments.

Notes

1. Doll, A., G. Lindsey, and R. Albani, "Stormwater Utilities: Key Components and Issues," Prepared for Advances in Urban Wet Weather Pollution Reduction Conference, sponsored by Water Environment Federation, June 28–July 1, 1998, Cleveland Ohio, 10 pp.

2. Doll, A., G. Lindsey, and R. Albani, "Stormwater Utilities: Key Components and Issues," Prepared for Advances in Urban Wet Weather Pollution Reduction Conference, sponsored by Water Environment Federation, June 28–July 1, 1998, Cleveland Ohio, 10 pp.

3. Black & Veatch Management Consulting, 1995–1996 Stormwater Utility Survey, pp. 2.

4. U. S. Environmental Protection Agency, Office of Water, State and Local Funding of Nonpoint Source Control Programs, September 1992, p. 13.

5. Land Trust Alliance, "Voters Invest in Open Space." Press release, November, 1998.

6. Greenwire, November 4, 1998.

7. Doll, A., G. Lindsey, and R. Albani, "Stormwater Utilities: Key Components and Issues," Prepared for Advances in Urban Wet Weather Pollution Reduction Conference, sponsored by Water Environment Federation, June 28–July 1, 1998, Cleveland Ohio, 10 pp.

8. Schumacher, J. W. and R. F. Grimes, "A Model Public Education Process for Stormwater Management." Public Works, September, 1992, pp. 55–58.

9. Bloom v. Ft. Collins, 784 P.2d 304, 308 (1989).

10. Sandy Springs Water Co. v. Department of Health and Envtl. Control, 324 S.C. 177, 181, 478 S. E.2d 60, 62 (1996).

11. C. R. Campbell Constr. Co. Inc. v. Charleston, 481 S. E.2d 437, 438 (1997).

12. City of Wooster v. Grains, 52 Ohio St.3d 180, 183, 556 N.E. 2d 1163, 1166 (1990).

13. Kentucky River Auth. v. City of Danville, 932 S.W.2d 374, 377 (Ky. App., 1996).

14. Ibid. at 377.

15. A Stormwater Utility for the City of Takoma Park, City of Takoma Park, Maryland (March 1997).

16. Benefits of Storm Water Management: Case Studies of Selected Communities, Apogee Research, Inc., (1994) pp. 60–70; Billing Department, Stormwater Utility, Boulder, Colorado, personal communication, March 2, 1999.

17. User-Fee-Funded Stormwater Utilities, Water Environment Federation, Alexandria, Vagina, (1994), pp. 44–47; Billing Department, Stormwater Utility, Bellevue, Washington, personal communication, March 1, 1999.

18. Benefits of Storm Water Management: Case Studies of Selected Communities, Apogee Research, Inc., (1994), pp.29–40; Billing Department, Stormwater Utility, Ann Arbor, Michigan , personal communication, February 26, 1999.

19. User-Fee-Funded Stormwater Utilities, Water Environment Federation, Alexandria, VA, (1994), pp. 51–54; Billing Department, Stormwater Utility, Cincinnati, Ohio, personal communication, February 24, 1999.

20. Benefits of Storm Water Management: Case Studies of Selected Communities, Apogee Research, Inc., (1994), pp.41–52; Billing Department, Stormwater Utility, Austin, Texas, personal communication, February 24, 1999.

21. User-Fee-Funded Stormwater Utilities, Water Environment Federation, Alexandria, VA, (1994), pp.54–60; Billing Department, Stormwater Utility, Louisville, Kentucky, personal communication, February 19, 1999.

22. Long Run Baptist Ass'n Inc. v. Louisville and Jefferson County Metro. Sewer Dist., 775 S.W.2d 520, 522 (1989).

23. Ibid. at 522

24. Ibid. at 523

25. Black & Veatch Management Consulting, 1995–1996 Stormwater Utility Survey, pp. 8.

26. Roseburg Sch. Dist. v. City of Roseburg, 316 Or. 374, 380, 851 P.2d 595, 598 (1993).

27. City of Cincinnati v. United States, 39 Fed. CI. 271, 276 (1997).

28. Hospitality Ass'n of S. C. Inc. v. County of Charleston, 320 S.C. 219, 226, 464 S.E.2d 113, 118 (1995).