Current Situation and Issues

Handout 13: Impervious and Gross Area Charges The purpose of this handout is to frame the issues around the gross and impervious parcel area based charges. Current Situation and Issues Current Structure The original CAC looked at a number of bases for charging for stormwater service provided by the Department. They reasoned that all properties contributed stormwater runoff that must be managed by PWD and concluded that gross parcel area (GA) was the best indicator of the base level of such runoff. They also reasoned that land use was a key factor driving stormwater runoff and concluded that impervious area (IA) was the best indicator of stormwater impact based upon the use of the land by the owner. In view of the foregoing, the CAC recommended both gross parcel area and impervious area be utilized (on a weighted basis) in the determination of stormwater fees. The 80:20 formulation in charges came about by considering the relative peak runoff from a natural area versus a paved one using a runoff method called the Rational Method. The Rational Method assigned a runoff factor in the range of 0.24 for grass and 0.95 for pavement. Translated, that means that pavement generates about four times the peak flow of grass and the 80% IA portion is therefore four times the 20% GA portion. This formulation was expressed in a slightly different way in the final CAC report and resulted in 20% of the total non customer program cost (20% of $111 million) being allocated to the gross area of the City and the other 80% of the non customer cost being allocated to the impervious area of the City each on a per 500 square foot, or part thereof basis. The GA Rate is derived by dividing the GA cost over the applicable gross area of the City resulting in a system wide GA Rate of $0.528 per 500 square feet of total parcel area. The IA Rate is similarly set at $4.169 per 500 square feet of parcel impervious area. The monthly billing and collection charge is set at $2.65. Some parcel owners have indicated that they experienced high GA charges for what seemed to be conservative use of open space. To recognize large parcel areas that may be contributing lower runoff either due to natural soil characteristics, ground cover, and/or due to onsite management PWD developed the Gross Area Credit, Option 1. This option reads as follows: the property owner must demonstrate a Natural Resource Conservation Service Curve Number (NRCS CN) of 86 or less for the entire area within the property boundaries. The Curve Number (CN) represents the runoff characteristics for a particular soil and ground cover. PWD will apply a 7% reduction from the GA Charge for every whole number below 87; a CN of 72 may yield a maximum of 100% GA Credit In simple terms, based on this NRCS CN approach, properties whose runoff behaves more like runoff from a lightly developed or undeveloped property, with soils that have moderate to high infiltration potential under the NRCS CN hydrologic modeling approach, are eligible for a credit (they can get below 87). However, properties with soils August 11, 2011 PWD CAC Handout 13 IAGA 5AUG11 V7.docx 1

that have poor infiltration potential cannot obtain significant GA credit no matter what actions property owners take to manage stormwater runoff. Under the current system there are 240 properties that have applied for and obtained some GA credit (partial or full credit). The total annual amount credited is $1.67 million. One concern is the revenue loss from any proposed GA credit option. For the purposes of calculating the potential revenue loss, residential properties have been omitted, since they are excluded from the credits program. The total potential revenue loss can be capped at the theoretical high end as the revenue from non residential GA that is not impervious, or about $7.4 million annually. However, a major portion of GA would not qualify for credit as good quality open space. A more realistic and reasonable estimate might be a revenue impact of $1 3 million annually. Issues with the Gross Area Charge The gross area component of the fee was intended to enhance the equity of the rate structure in a relatively simple way. However, in its application several issues have emerged that are problematic for some parcel owners and PWD and should be addressed, as discussed below. Issue #1 The charge seems unfairly high for some large properties and minimum charge for others For example, the property shown in Figure 1, was paying $0 under the meter size based fees. Under the parcelarea based system, this property s monthly gross area charge alone is $8,581.58. It has 8,126,500 square feet of gross area and 134,500 square feet of impervious area. It is clear from the figure that much of the parcel contributes little runoff above the natural state and that it preserves large tracts of natural forest. Hence, under the existing GA Charge approach, this property is unfairly impacted. Figure 1: Parcel Based Loser Due to Gross Area August 11, 2011 PWD CAC Handout 13 IAGA 5AUG11 V7.docx 2

Other very large properties that, for example, have turf grass coverage and a resulting runoff that is greatly different from forest cover, but happen to be located on fairly well draining soils can easily obtain 100% of the GA credit and pay only the minimum charge. Issue #2 The charge penalizes those with poor draining soils something they had no part in creating An aspect of the credit that has frustrated some applicants is that the NRCS CN credit methodology is greatly influenced by the permeability of a site s existing soils. The NRCS CN calculation requires two input variables, the land cover and the underlying soils on the site. Soils are classified according to their permeability into four groups: A through D, where the most permeable soils are classified as A. Some applicants have been unable to obtain credit because their underlying soils are not listed as permeable and even though they have good land cover for stormwater management (a highly forested parcel, for example), their pre existing soil type precludes them from getting a credit. This is made worse by the fact that urban soils are notoriously varied due to construction and compacting by human and vehicular traffic so that soils maps are often highly inaccurate. For example, a property with 40% impervious area on an A soil can obtain 100% of the GA credit, changing nothing. The maximum credit a B soil property can attain is 45%, C soil 7%, and D soil cannot attain any credit no matter how good its open space. Issue #3 The GA credit reflects an intrinsic characteristic of the parcel, yet parcel owners must apply for it Under Option 1 of the GA credit, the property s characteristics either make it eligible or not. It is a measurable and intrinsic part of the parcel. A common question from owners of these parcels is why doesn t PWD simply make my credit automatic? In other words, they do not understand why the rate structure itself does not account for the reduced impact their properties (in relation to other properties) already have upon stormwater management costs. The current approach seems counterintuitive to these customers. Issue #4 There is little incentive to make better use of open space One primary purpose of the GA credit was to incentivize better use of open space from a rainfall volume reduction perspective. This is increasingly true under the current PWD stormwater program where green controls and volume reduction are mandated. The GA charge does not distinguish between different types of open space. Yet from an annual volume of runoff basis, forest cover produces one tenth the volume of runoff as turf grass with disturbed soils underneath. Yet the GA credit barely distinguishes between the two types of cover when calculating the GA credit potential the factor is only about four percent lower for forest cover than for managed grass. The existing GA credit does not incentivize owners to retain/deploy effective soil cover. For example, in Figure 2 on the next page, 60% of the parcel comprises tree covered land. If the property were awarded a gross area credit for its forest covered area, there would be incentive to preserve it, or to plant it in the first place. It has 150,500 square feet of gross area and 19,500 square feet of impervious area and monthly charges for gross area and impervious area of $158.93 and $162.59, respectively. Issue Summary To summarize, the issues that PWD wishes to address are: August 11, 2011 PWD CAC Handout 13 IAGA 5AUG11 V7.docx 3

1. Concerns over highly impacted large GA properties or, on the other hand, those large properties with turf grass who have obtained GA credit and pay no GA charge; 2. Perceived unfairness in the current GA credit approach that limits credit for properties with poor underlying soils 3. Perceived need for the rate structure or an automatic mechanism to account for GA with beneficial stormwater characteristics (such as forest); and 4. Concerns that greater incentives are appropriate to encourage better use of open space especially maintenance of tree cover. Figure 2: Parcel with Significant Unrecognized Tree Cover Options for Change Based on the issues identified above that PWD wishes to address through a change, we can define our objective as: Ensure a reasonable GA charge basis whose structure automatically recognizes basic differences in open space land use and also provides an incentive to improve land use from a runoff volume reduction perspective. August 11, 2011 PWD CAC Handout 13 IAGA 5AUG11 V7.docx 4

To address these issues, we have defined three possible options that are valid within the framework. If we think of these options as three knobs we can possibly turn, then one or a hybrid of these three options can offer a best alternative: 1. We can simply improve the credit approach so that underlying soils are not a component of it and different land uses are recognized. 2. We could use land use recognition processes to compute a new kind of GA charge that automatically differentiates trees and other land uses, granting a lower rate to tree covered areas. 3. We could change the 80:20 ratio to a lower cost allocation to GA to reduce the overall GA charge impact on a property. The consultant/staff team met in a brainstorming session and attempted to define several types of options for your consideration though you may think of other options too. Details of these options, along with advantages and disadvantages of each are described below. Figure 3 is a brief overview of how the three knobs can be considered against the four key issues PWD feels might need to be addressed. Figure 3: Brief Analysis of the Options Option 1: Change the GA Credit The simplest option of all would be to improve the current GA credit criteria, available under Option 1, so that instead of depending on soils and land cover, the credit would depend on land cover only. This would mean that parcels with open space and tree cover would be able to obtain a credit, despite soil condition. August 11, 2011 PWD CAC Handout 13 IAGA 5AUG11 V7.docx 5

Here s how it might work: Non impervious GA would be classified into major categories such as bare earth, turf, trees, and managed urban forest. These types of cover would be eligible for varying levels of credit with a true urban forest attaining the maximum available credit. Through this simplified credit, applicants would only have to demonstrate that their GA met certain thresholds (for example, a single tree on a lot or an ordinary curbed, grassed parking island may not meet criteria for credit). Advantages: This option requires only a small change in the credits regulations. Depending on the details and on a particular property s characteristics, this option may meet the concerns of highly impacted customers that are currently unable to obtain any credit despite their lower stormwater demand. The costs to initiate this option would be low at the beginning. The anticipated impact of this option on revenue and rates is relatively small. It would also address those properties that don t pay any GA charge (except the minimum charge). Disadvantages: This option will provide additional credit opportunities for only a small number of ratepayers. This option does not address ratepayers highly impacted by large GA charges and more broadly does not address the question of why is this credit not automatic? It would also be administratively burdensome to place all open space into the categories, and very hard for PWD to monitor. Option 2: Create an Automatic GA Credit for Good Open Space Under this option, PWD would create a credit similar to the credit envisioned in Option 1 above except it would be calculated automatically from remote sensing data. That is, non impervious GA land cover would be classified into buckets (likely trees/forest and non forest) and a credit would be automatically applied to trees/forest area meeting certain criteria (e.g. minimum size). The criteria would be designed so that only GA that is capable of reducing stormwater demand in a meaningful way would be automatically credited. Other parcels could apply for credit if they made significant credit worthy changes between database updates maybe every five years. The difference between options 1 and 2 is that the credit would be determined and applied automatically from land cover data obtained by PWD. Advantages: This option will provide the opportunity for recognition of tree cover versus turf cover and credit for many highly impacted ratepayers. This option does address large GA highly impacted ratepayers more broadly (assuming they have tree cover) and does address the question why is this not automatic? It would also address those credited properties now paying nothing though they have large turf areas. Disadvantages: This option requires a change to the credits policy, new data processing and data maintenance demands, and changes to PWD s billing database. This option would involve both ongoing costs for new land cover data and staff time to implement changes to stormwater accounts, update land cover data on an ongoing basis, respond to appeals and so forth. Initially it would change most persons stormwater bill potentially creating confusion and lots of PWD response time. The option could result in as much as a $3M automated decrease in revenue, which would have to be offset by a small increase in rates for non residential ratepayers. Option 3: Change the Ratio of Revenue recovered from GA versus IA Under this option, PWD would identify a scientifically defensible change in the ratio of revenue recovered from GA versus IA. The change would decrease the revenue recovered from GA, thus decreasing the GA rate and resultant GA fees. There is a good scientific basis for a change. As we discussed earlier, the current 80:20 ratio reflects a focus on peak runoff. In other words, the current ratio accounts for the relative contribution to peak demand for August 11, 2011 PWD CAC Handout 13 IAGA 5AUG11 V7.docx 6

stormwater infrastructure of impervious area versus gross area. Under commonly used runoff estimation models, non impervious gross area would be expected to generate about 20% of runoff from a site during the large storms that stormwater infrastructure is sized to handle. If the focus were instead shifted to impervious and gross area contributions to runoff volume, the ratio would shift further toward impervious area. The ratio would be more like 97% impervious area and 3% gross area. Impervious area generates the overwhelming majority of the volume of runoff from a site, since it absorbs practically no precipitation and produces runoff volume from most rainfall events. If the ratio took both peak and volume considerations into account, the ratio would be between 80:20 and 97:3. For analysis purposes, we have used the ratio 90:10. The implications of this change on our Dow Jones properties are discussed below. Advantages: This option will provide opportunity for rate relief for many highly impacted ratepayers. Disadvantages: This option requires a change to the rate structure, wholesale changes to all ratepayers bills and administrative costs to implement these changes in PWD s billing database and would require one time costs for changes. The change would result in a 13% increase in impervious area rates for all non residential ratepayers, though the GA rate would go down. Option 3 Implications The tables on the following pages below compares the rates at final parcel area based phase in for the Dow Jones properties (Table 1) and for all categories of ratepayers (Table 2). In Table 1, note the highlighted rows. These properties are highly impacted properties with large GA. While fees for highly impacted properties with a low percentage of IA (rows highlighted in green) decrease by 14%, fees for highly impacted properties with large GA and high percentage of IA (rows highlighted in orange) increase by an average of 5%. Looking at categories of rate payers (Table 2), no category changes its total fee by more than 5%. To calculate the change on an individual parcel, one would have to do the calculation using both sets of unit rates. An example is given below for the parcel in Figure 2. It has 150,500 square feet of gross area and 19,500 square feet of impervious area. The current unit charges are $4.169 per 500 square feet for IA and $0.528 per 500 square feet for GA. Under the 90:10 split the unit charges change to $4.729 per 500 square feet for IA and $0.256 per 500 square feet for GA. Impervious units = 19,500/500 = 39 Gross area units = 150,500/500 = 301 Current 80:20 split charge: $4.169*39 + $0.528*301 = $162.59 + $158.93 = $321.52/mo or $3,858.24/yr New 90:10 split charge: $4.729*39 + $0.256*301 = $184.43 + $77.06 = $261.49/mo or $3,137.88/yr As can be seen under this option the GA charge is cut approximately in half all properties with no impervious area will see their rate so reduced. Figure 4 on the next page compares the charges under the current 80:20 split and a 90:10 split for a one acre parcel. In order to show how the impact of this option varies based on the parcel characteristics, the graph shows, from left to right, charges for an undeveloped parcel (0% impervious) all the way to a completely paved parcel (100% impervious). Note that because several changes (for example reallocation) are being considered, and this change could be adopted along with others, the actual effects of the split might vary from the depiction below. August 11, 2011 PWD CAC Handout 13 IAGA 5AUG11 V7.docx 7

CAC Meeting 6 Figure 4: 80:20 vs. 90:10 Charge for One Acre Parcel In CAC meeting 6 we will briefly discuss the current situation and the contents of this handout. We will then take the rest of the time to discuss potential options, weigh pros and cons, and to poll you about your preferences concerning this issue. August 11, 2011 PWD CAC Handout 13 IAGA 5AUG11 V7.docx 8

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Notes: August 11, 2011 PWD CAC Handout 13 IAGA 5AUG11 V7.docx 11