Managing and Funding Local Government Stormwater Enterprises: Fee Options and Calculation Procedures S. Wayne Miles, PE, DEE Course sponsored by the UNC School of Government Environmental Finance Center & NC League of Municipalities June 22-23, 2005
Identification of the level of service and benefits that a stormwater program provides is critical to successful implementation of an accepted and appropriate program funding mechanism.
There is Often a Disconnect Between Stormwater Program Expectations and Reality Citizens Expect Clean water & healthy streams No flooding or erosion problems High level of service at low individual cost Citizens Believe City/County prevents or mitigates development impact City/County maintains the entire stormwater system City/County will correct past wrongs City/County takes lead role in assisting private sector with regulatory requirements
The Community Should Be Engaged to Select Their Desired Level of Service Level of Service Operation and Maintenance Program Management and Compliance Capital Improvement Projects A Fully Preventative/ 100% Routine Comprehensive Planning, NPDES Compliance, Full Implementation 15-year Program B Mixture of Routine and Inspection Based Pro-Active Planning, NPDES Compliance, Systematic Implementation 25-year Program C Inspection Based Only Priority Planning, NPDES Compliance, Partial Implementation 33-year Program D Responsive Only Some Planning, Partial Compliance, Partial Implementation 50-year Program F Non-Responsive No Planning, Noncompliance, Limited Implementation 75-year Program
Annual Costs Can Be Developed to Consider Different Levels of Service Level of Service Operation and Maintenance Program Management and Compliance Capital Improvement Projects Annual Program Cost Estimated User Fee ($/SFU/month) Equivalent Tax Rate ($/$100) A $6 million $5 million $6 million/year (16-year program) $17 million $5.76 $0.067 B $4.8 million $3 million $4 million/year (25-year program) $11.8 million $4.00 $0.046 C $3 million $2.5 million $3 million/year (33-year program) $8.5 million $2.88 $0.033 D $2 million n/a $2 million/year (50-year program) $6.5 million $2.20 $0.026
Alternative Funding Systems Should be Considered To Pay For The Selected Level Of Service Funding Option Program Management Operation & Maintenance Capital Improvements Growth Ad Valorem Municipal Service Districts Special Assessments Local Government Sales Tax Enterprise (User) Fees Licenses/Permits Penalties/Fines Grants Bonds
Funding Mechanism Comparisons Advantages/Disadvantages Funding Option Authority Equity Revenue Capacity Ease of Implementation Initial Costs System Costs Ad Valorem Tax Yes Low Sufficient? Easy Low Low Muncipal Service Districts Tax Vote Low Sufficient Difficult Moderate Moderate Special Assessments Ordinance High Sufficient Difficult High Moderate Local Government Sales Tax Vote Moderate Insufficient Difficult Low Low Enterprise Fees Ordinance High Sufficient Easy-Moderate Low-Moderate Low-Moderate Licenses/Permits Yes High Insufficient Moderate Low Moderate Penalties/Fines Yes Moderate Insufficient Moderate Low Moderate Grants Yes Moderate Insufficient Moderate Low Low Bonds Yes n/a Insufficient Moderate Low Moderate
Summary Ad Valorem Versus User Fee Ad Valorem Advantages In Place Already Easy to Collect and Administer (Tax Collector) Can Be Sufficient for All Services Disadvantages Not Dedicated Competition Not Equitable User Fee Advantages Equitable (i.e., Fee Related to Service Provided) Stable & Dedicated Funding Encourages Good Behavior Sufficient for All Services Disadvantages Startup Costs * Administrative Costs *
Utility/Public Service or Enterprise Fees Authorized by State Laws Public Enterprise includes Stormwater management programs designed to protect water quality by controlling the level of pollutants in, and the quantity and flow of, stormwater and structural and natural stormwater and drainage systems of all types. [NC G.S. 160A-311(10)] Cities Authorized To: Acquire, Construct, Establish, Enlarge, Improve, Maintain, Own, Operate and Contract For the Operation of Public Enterprises Authorized to Borrow Money [NC G.S. 160A- 313]
Benefits = Charge Management of Runoff Benefits Owners and Tenants Benefit Relates to Property s Contribution to the Problem (Runoff Burden) Fee Relates to Runoff Common Proxy for Runoff is Impervious Area Customer receives services from the utility in direct measure to the runoff burden
Impervious Area As A Proxy Benefit = Fair Share = Runoff Runoff = Function of Impervious/Pervious Areas Soils Vegetative Cover Antecedent Moisture Connectivity Topography Rainfall
How is the Fee Calculated? Residential Customers Single Family Units Multi-Family Units Condos/Town Homes Mobile Homes Each is assigned 1 or less ERU depending on type and number of dwelling units. Fee = ERU x Rate ($ per ERU per month) ERU = Equivalent Runoff Unit
How is the Fee Calculated? Non-Residential Customers Building ERU Parking ERU ERU Commercial Impervious Area Residential Average Impervious Area In this example, the commercial customer pays three times the amount as the residential customer.
Stormwater Utility Fee Calculation for Non-Residential Property Pavement 40,000 Sq. Ft. Office Building 10,000 Sq. Ft. 10,000 Sq. Ft. + 40,000 Sq. Ft. 2,200 Sq. Ft./ERU = 22.7 ERUs
Typical Residential Costs - Example Ad Valorem Tax Rate Needed for LOS C = $0.03 per $100 Assessed Value For Median Home: User Fee User Rate Needed for LOS C = $3.00 per month per ERU For Median Home: $156,000/$100 x 0.03 = $46.80/yr $3.00 x 12 = $36.00/yr
Auto Dealership 431,300 sq ft 191 ERUs University Campus 5,884,400 sq ft 2,604 ERUs Church 184,600 sq ft 82 ERUs
Downtown High Rise Building 41,500 sq ft 18 ERUs Shopping Mall 2,086,000 sq ft 923 ERUs
The User Fee May Cover One or More of the Program Elements PM PM PM Fee Basis O&M Fee Basis O&M O&M CIP CIP Fee Basis CIP Option 1 Option 2 Option 3
A Tiered Rate Structure May Be Appropriate in Some Communities Base Structure: Residential: 1 ERU per DU Alternatives (64,000 parcels): Variable Single Family Fees by Impervious Area Variable Single Family Fees by Tiered Structure Tier (sq ft) ERU Assignment 0 to 1,000 0.4 1,000 to 3,870 1.0 3,870 and beyond 1.7 Example
100 90 80 90th Percentile Number of SFU 70 60 50 40 30 50th Percentile Summary of Data N = 904 Median = 2,260 sq ft Stnd Deviation = 1,246 sq ft 10th Percentile = 1,004 sq ft 90th Percentile = 3,868 sq ft 20 10 10th Percentile 0 0 2,000 4,000 6,000 8,000 10,000 Impervious Area
Rate Structure Alternatives Residential Fees Other Residential Units Base Structure: Residential: 1 ERU per DU Alternatives: Variable Residential Fees by Impervious Area Variable Residential Fees by Type Type ERU Assignment Single Family Detached 1.0 Multifamily 0.5 Condos/Town Homes 0.6 Mobile Homes 1.1 Example Note: Some utilities treat multifamily as non-residential
Rate Structure Alternatives Non-Residential Fees Base Structure - Non-Residential: 1 ERU per Relative Impervious Area Alternatives: Actual Impervious Area (e.g, x per sq ft) Intensity of Development (Assign % Impervious by Type of Use) Fee per Acre of Land
Some Fee Adjustments May Be Needed to Maintain Equity No or Partial Discharge to Stormwater System Owned or Operated by City Undeveloped Lands Roadways Federal State Local Wetland Facility Off-site Drainage Pervious Area Impervious Areas
Rate Structure Alternatives Adjustments On-site Stormwater Facility Designed and Constructed Correctly Maintained Correctly Maintenance Owned by City but Maintained by Private Entity Incentives to Encourage Good Stormwater Practices Low Density Development Practices Water Quality Surcharge Complicated Parameter Specific
Fee Adjustments Can Give Incentives to Go Beyond Design Standards Operation & Maintenance of of Primary Drainage System Components No upstream drainage area Upstream drainage area < 1 square mile Upstream drainage area > 1 square mile 0 % 10 % 20 % Capital Improvements Beyond Minimum Requirements Control upstream drainage area No upstream drainage area Upstream drainage area < 1 square mile Upstream drainage area > 1 square mile Control onsite drainage area Control 2-yr storm event (required) Control 10-yr storm event Control 25-yr or greater storm event 0% 5% 10% 0% 10% 20%
Administrative Consequences Most Added Options To The Base Structure Add Administrative Costs Variable Residential +10 to 20 percent No/Partial Discharge +10 percent Stormwater Pond Credit +20 to 40 percent Existing Utility Billing System May Not Be Able To Implement Alternative Immediately
Applying for a Credit
Credit Renewal Credits Are Active For 1-year A Renewal Application Must Be Submitted Every Year To Continue Receiving The Credit The Renewal Application Includes: Engineering Inspection Report Routine Maintenance Log Dated Photographs Showing the Condition of the Facility
Comparison of NC Stormwater Utilities Municipality Charlotte / Mecklenburg County Annual Residential Non-Residential Population Year Revenue Monthly Monthly Served Established Generated User Fee User Fee Greensboro 205,000 1994 Winston Salem 185,776 1994 Fayetteville / Cumberland County 730,000 1994 $33 million Raleigh 320,000 2004 299,459 2001 Wilmington 92,000 1998 Wilson 45,000 2003 $6.6 million $11.0 million $3.6 million $1.7 million $4.2 million $2.0 million < 2000 sq. ft. = $4.38/ERU > 2000 sq. ft. = $5.62/ERU $2.44/ERU < 1000 sq. ft. = $1.60/ERU 1000 to 3860 = $4/ERU > 3860 sq. ft. = $6.80/ERU $3 flat fee $4.77 x ERU $2.70 x ERU $4.00 x ERU $264 / impervious acre $1/ERU $1 x ERU $4.75/ERU $4.75 x ERU $2.94/ERU $2.94 x ERU
Summary of Adjustments for NC Stormwater Utilities Municipality Charlotte / Mecklenburg Tiers for Residential? Are Single Family and Multi- Family Fees Different? Are Credits Offered? Credits Provided for Private Detention? Potential Range in Fee Reductions? Yes Yes Yes Yes 40-50% Greensboro Yes Yes 0-50% Raleigh Yes Yes Yes Yes 0-65% Winston Salem Yes n/a Fayetteville / Cumberland Yes Yes 0-50% Wilmington Yes Yes Yes 0-40% Wilson Yes Yes 10-30% Washington Yes Yes n/a
Summary and Conclusions The Level of Service Must Be Established to Determine the Program Cost The Community Should Be Engaged to Select Their Desired Level of Service A Stormwater Utility User Fee Offers an Equitable Way to Pay for Stormwater Programs to Meet the Desired Level of Service A User Fee Based Program Can Offer Incentives for Good Behavior