Guidance For Municipal Stormwater Funding by Scott Tucker 8 th Annual EPA Region 6 MS4 Stormwater Conference

Guidance For Municipal Stormwater Funding

Guidance For Municipal Stormwater Funding

by Scott Tucker

8th Annual EPA Region 6 MS4Stormwater Conference

Background and Introduction

Project funded by grant from EPA to NAFSMA under EPA’s Federal Water Quality Cooperative Agreements Program in the Office of Water

Purpose of guidance is to assist local governments in developing funding mechanisms for SW programs

Project Consultants: David Burchmore, Hector Cyre, Doug Harrison, Andrew Reese, and Scott Tucker

Guidance focuses on SW utilities/fees and legal considerations

National Association of Flood & Stormwater Management

Agencies (NAFSMA)

is an organization of public agencies whose function is the protection of lives, property and economic activity from the adverse impacts of storm and flood waters. The mission of

the Association is to advocate public policy, encourage technologies and conduct education programs which

facilitate and enhance the achievement of the public service functions of its members.

(State and Local Governments,as well as Special Districts are members)

NAFSMA

Focus on Legislative, Regulatory & Legal Activities

at the Federal Level

Founded in 1978

NAFSMA 2006 Annual Meeting

San Antonio, TexasSeptember 6-8, 2006

La Mansion Del Rio Hotel

For information contactwww.nafsma.org

Guidance Includes Four Chapters and Appendix

Chapter 1 – Background and Introduction Chapter 2 – Sources of Funding Chapter 3 – Legal Considerations Chapter 4 – Implementing User-Fee Based

Funding Appendix – Example Stormwater Utility Programs

Chapter 1 - Background

Municipal SW has evolved over time From urban drainage and flood control To include water resource management functions To include environmental protection and regulatory

functions Has forced changes in how SW systems are

planned, designed, constructed, operated and financed


SW function has gone from construction and maintenance activities supported by local taxes to programs of integrated water resources management, environmental enhancement, and recreation services requiring more complex financing mechanisms


Legislative action had great influence Laws, regulations and court decisions 1972 CWA signaled beginning of national effort to

improve quality of nation’s waters CWA resulted in requiring most local governments

to adopt SWQ programs SW management evolved from discretionary

drainage and flood control projects to mandatory SWQ programs


SW as a service This evolution has resulted in SW becoming a

required service similar to water supply and wastewater management

As SW infrastructure is added, either by mandate or by discretion, long term obligations are created

These ever increasing obligations require development of supporting institutional and funding frameworks

Chapter 2 – Funding Sources

Money, Revenue, and Resources provide the range and amount of financial support required

Money – Range of sources & types of funds such as General fund revenues Bond sales Special purpose taxes Transfers from other accounts Fees


Revenue - Local government cash flow generated from user fees of various sorts that provide a relatively consistent revenue stream

Resources – Other support of SW programs ranging from developer contributed facilities, to federal and state grants and loans, to land and easement dedications


Two principal categories of funding -Expensed and Debt funding

Expensed – Pay as you go in which expenses are supported by a concurrent revenue stream

Debt – Typified by bond sales and other mechanisms. Most commonly associated with capital improvements


Funding methods most commonly used General revenue appropriations SW user (service) fees Plan review, development inspection, and

special user fees Special assessments Bonding for capital improvements In-lieu of construction fees


Funding methods – Continued Capitalization recovery fees Impact fees Developer extension/latecomer fees Federal and state funding sources such as

grants, loans, and cooperative programs


Service Fee and Assessment Design Considerations Legality – Withstand legal challenge Equity – Fees have substantial relationship to

cost of providing services to each customer Technical Foundations – Rate structures

based on understanding of hydrology and stormwater runoff from individual properties


Design Considerations – Continued Origin of Costs – Cost based on providing

benefits to the subject properties Revenue Sufficiency – Must generate sufficient

revenue Flexibility – Latitude in designing a rate

structure


Design Considerations – Continued Balance rates with level of service – Fair and

reasonable Data requirements – Can differ significantly for various

rate structures Compatibility with Data Processing Systems – Degree

of compatibility with existing databases and data processing systems influences cost

Be consistent with Other Local Funding and Rate Policies


Chapter 2 includes detailed discussion of service fee rate and assessment methodologies Example stormwater rate methodologies also

included based on: Impervious area Combination of impervious area and gross area Impervious area and percentage of impervious area Gross property area and intensity of development

Chapter 3 – Legal Issues

Focus is on SW fees Legality of fees primarily a question of state

law Guidance does not analyze legal approaches

in all 50 states, but highlights issues that have arisen

Research will be needed to determine appropriate fee structure in each jurisdiction


SW mgt fees have been litigated and opinions reported from at least 17 states, in many cases final decisions by the state’s highest court: Montana-1966; Colorado-1986 & 1993; Kentucky-

1989 & 1996; Ohio-1990; Oregon-1992 & 1993; Kansas-1994; Florida-1995, 1998 & 2003; Washington-1997; Virginia-1998; Tennessee-1998; Michigan-1998 & 2001; NC-1998 & 1999; SC-1999; Alabama-2001; California-2002; Georgia-2004; and Illinois-2005


Tax vs. Fee – Most commonly litigated issue. Is a municipal SW service charge a valid user

“fee” or an impermissible “tax” Issue has been frequently brought by tax exempt

organizations, i.e., churches, schools, and state agencies such as DOTs


Tax vs. Fee - Continued SW fees have been upheld as valid user fees in

Kentucky, Colorado, Florida, Washington, Tennessee, So Carolina, Georgia, and Illinois

SW fees have been struck down as invalid taxes requiring explicit voter approval under specific state laws or constitutional amendments in California and Michigan (Also rejected in two lower courts in Oregon, before later decision reversed by Oregon Supreme Court)


Tax vs. Fee – Continued Does the user have a choice to accept or decline

the service – cases in Oregon, Illinois, Missouri, W. Virginia, Ohio, and Georgia

Is the SW service charge a “user fee” or a “special assessment”, with different procedural requirements – cases In Florida and Colorado


Tax vs Fee - Continued Is the fee “reasonable” and directly related

to the cost of providing the services – cases in Kentucky, Colorado, Virginia, No Carolina, and Georgia

Are properties burdened by fees receiving a proportionate benefit - an issue in Florida, Kentucky, and Alabama


Tax vs Fee - Continued Whether or not fees must be confined to cost of

providing service alone, or whether any surplus can be collected and applied to system expansion or capital improvements has been litigated in Ohio, Tennessee, Colorado, and No Carolina


Federal Facilities The imposition of SW fees on federal facilities

involves special consideration of the tax vs. fee issue

In general federal government has sovereign immunity against the imposition of fees and taxes by state and local authorities

However, CWA contains an express waiver of sovereign immunity for certain pollution control related fees


Federal Facilities - Continued

Importantly, this waiver applies only to fees or service charges, and not to taxes.

This distinction often hard to make in practice


The US Supreme Court has established a three-pronged test for determining whether fees imposed are “reasonable service charges” or taxes Is the fee or service charge non-discriminatory? Is it a fair approximation of the cost of the benefits

received? Is it structured to produce revenues that will not

exceed the regulator’s total cost of providing the benefits?


Important case now being litigated involving a federal facility

City of Cincinnati vs. US Dept of Health and Human Services NIOSH/HHS) refused to pay SW fees due City brought suit in Federal Court of Claims

based on implied contract for services


City of Cincinnati vs. US Dept of Health and Human Services Claim was dismissed; City appealed;

dismissal upheld; in 2003 City re-filed its claim in US District Court; and in May 2004 City filed an amended complaint based on its local ordinance and the waiver of sovereign immunity in CWA Sect 313

Important that federal facilities be required to pay a legal and properly established SW fee


SW management fees upheld in majority of states where challenged

Legality of financing mechanism depends on close analysis of state law

However, certain general principles emerge Overall cost of program is reasonably related

to value of service being provided, and funds are not used for general revenue purposes


Principles General - Continued Structure fee so amount charged to particular

properties is proportional to those properties’ contribution to sw runoff

Provide provision so that participation can be characterized as “voluntary” such as “opt-out” provision for properties with own sw facilities or credits or offsets based on volume actually contributed to public sw system


Principles General – Continued May be wise to seek voter approval in states

such as California and Michigan with special constitutional provisions governing the imposition of any new tax

Chapter 4 – Implementing User-Fee Based Funding

A SW utility is an umbrella under which individual communities address their needs in a manner consistent with local problems, priorities and practices


A SW utility provides a vehicle for: Consolidating responsibilities that were

previously dispersed Generating funding that is adequate, stable,

equitable, and dedicated to the SW function Developing programs that are comprehensive,

cohesive and consistent from year to year


No two utilities are alike just as no two cities are alike

Not wise to follow a pre-fabricated “one size fits all” approach


“Due Diligence” important: Consists of formulation and execution of a plan

which includes: Investigation Establishment of facts Estimation of future prospects Defining assumptions and risks

SW utility failures usually due to lack of due diligence


Due diligence pursued along four tracks or major areas of concern Program – make sense, compelling,

willingness to pay, meet perceptions Finance – legal, simple, equitable Public – stakeholder involvement, general

public informed, media involved, political and staff leadership involved

Database – Accurate, appeals process, maintainable, good customer service


Framework for development of an utility funding mechanism Quick Concept Study Feasibility Study Utility Implementation


Quick Concept Study Answers the question: “does this make sense”,

and if yes the work goes forward Feasibility Study

Creates information & momentum for implementation, and is used if success not fairly certain

Utility Implementation Process of working through the four tracks of

due diligence


Typical SW utility development follows four tracks shown in next slide

Crucial that these four tracks are coordinated and timed as shown

There are almost infinite variations of this process, but the key activities are important and should not be skipped


FUNDINGPOLICY ISSUES

RATE STRUCTUREANALYSIS

RATE STUDY &CASH FLOW

ANALYSIS

RATEORDINANCE

UTILITY IMPLEMENTATION & CUSTOMER SERVICE

PROBLEMS, NEEDSAND GOALS

ORGANIZATIONALISSUES

COST OF SERVICEANALYSIS

UTILITYIMPLEMENTATION

STEPS

PROGRAMPRIORITIES &OBJECTIVES

DATABASEPOLICY ISSUES

MASTERACCOUNT FILE &

BILLING DATA

BILLING SYSTEMDEVELOPMENT

INQUIRY ANDCOMPLAINTRESPONSE

DATA, MATERIALS& INFORMATION

DEFINE PUBLICINFO & ED PLAN

STAKEHOLDERS& GEN EDUCATION

IMPLEMENTATIONCAMPAIGN

FUNDINGLEGAL ISSUES

Public Program Finance Database

Appendix-Example Stormwater Utility Programs

Five example stormwater programs are discussed. Information provided includes Community profile Formation process Service area Role and program Governance structure Organization and staffing Funding Inter-governmental cooperation Public participation

Appendix-Example Stormwater Utility Programs

The five example utility programs: Bellevue, Washington Charlotte/Mecklenburg County, NC Tulsa, Oklahoma Louisville/Jefferson County Metropolitan

Service District, Kentucky Sarasota County Stormwater Environmental

Utility, Florida

Summary

NAFSMA developed Guidance for Municipal Stormwater Funding under a grant from USEPA

Guidance focuses on SW utilities/fees and legal considerations

Report available on NAFSMA web site: www.nafsma.org

For information contact Susan Gilson, Executive Director, NAFSMA, Phone: 202-218-4133 or email: [email protected]

Documents

Guidance For Municipal Stormwater Funding by Scott Tucker 8 th Annual EPA Region 6 MS4 Stormwater Conference