Over a period of three decades, stormwater management has evolved from localized flood control to an integrated and comprehensive natural resource management and sustainable development approach. With such a paradigm shift in stormwater management vision and mission, the need for dedicated and reliable financing has become more urgent.
Is your community in need of a viable user fee–funded stormwater utility? Are you wondering where to begin and which of the myriad of issues you need to address first? Are you looking for some kind of a roadmap to follow? If you answered yes to any of these questions, you are not alone—you are indeed part of a growing community of utility managers who are proactively examining alternative sources of funding for sustainable stormwater management.
Background
The Natural Resources Defense Council examined 100 case studies and found that the use of dedicated funding sources, such as stormwater user fees or dedicated environmental fees, “help ensure that stormwater programs are stable over time and help gain public support” (NRDC 1999). The number of municipal utilities implementing a stormwater user fee has steadily increased from around 300 utilities in 1996 to more than 600 at the present time. Recognizing the benefits of a user fee–funded stormwater enterprise, in some states such agencies as the Department of Environmental Protection offer grants to municipalities to conduct utility-development feasibility studies.
With user fee–funded stormwater utilities gradually increasing in number nationwide, so too is the need for well-defined business policies and processes increasing. With the availability of sophisticated technology and skilled resources, customers and decision makers now expect greater “due diligence” in the planning and implementation of stormwater-user-fee programs. Utility managers tasked with the challenge of establishing user fee–funded stormwater programs often find the task of navigating the complex maze of policy issues rather daunting.
To help mitigate this policy development challenge, this article provides insights into key policy issues that need to be identified and adequately brainstormed before finalizing and implementing a stormwater-user-fee program. In emphasizing the key policy issues, this article also references, where appropriate, the latest findings from the Black & Veatch 2007 Stormwater Utility Survey. This seventh national survey provides information on nine key areas based on data gathered from a survey of 71 utilities that have implemented stormwater user fees.
Why Dwell on Policy Issues?
It is important to first understand why it is worthwhile to invest the time and effort in identifying and addressing policy issues. The key principles that guide the design of a stormwater user fee are that the fee should bear a reasonable nexus, or relationship, to the demand a property places on the community’s stormwater system and that it should provide for equitable recovery of costs. The demand a property places on the system is usually attributed to some measure of development that has occurred on the property—often referred to as a parcel’s impervious area. As there is no direct way to measure the volume of runoff that occurs from a property, surrogate measures, such as impervious area, are used as a basis for assessing stormwater user fees.
In such a situation, numerous questions may arise, such as the following:
- How should the impervious area be determined—through actual measurement or some other method of estimation?
- Should a charge be assessed from parcels that remain as vacant land?
- Who should pay for the streets, medians, and other rights of way in a community?
The inherent challenge lies not in addressing the questions but in anticipating the issues and questions that may be unique to the community. Each community has unique situations and needs, and therefore a one-size-fits-all approach cannot be used when developing policies. For example, the policies needed for allocating impervious area in a highly urbanized skyscraper environment will be significantly different from those for a suburban community with vast swaths of agricultural land.
Therefore, policy development should focus on identifying the challenges specific to the community and on developing defensible policies to address these various issues. However, because many utilities have successfully developed the required policies for stormwater-user-fee implementation, it is not necessary to reinvent the wheel. Utility managers can leverage lessons learned and develop their own tailored policies in an efficient manner. The time spent up front in defining well-thought-out policies and in obtaining consensus for the policies will ultimately determine the success in implementing a stormwater user fee.
Policy Issues in Stormwater-User-Fee Implementation
Utility managers who have successfully implemented a stormwater user fee will readily agree that such an undertaking can be an arduous process—especially if it is handled without a well-thought-out business plan. Understanding what the key policy issues are, and defining those policy issues, will provide utility managers with a solid foundation for implementing their utility’s stormwater user fee. The key policy issues that need to be addressed span the following areas:
- User-fee methodology
- Customer classification
- Stormwater exemptions
- Stormwater credits
- Payment responsibility
- Enforcement
- Billing system selection
- Ongoing maintenance
User-Fee Methodology
The fundamental policy decision a utility needs to make is what basis will be used for assessing a stormwater user fee. Some of the common user-fee options include the following:
- Total gross area
- Impervious area
- Average impervious area for single-family residences
- Effective impervious area for single-family residences
- Gross area with level of development
- Billable hydraulic area
In evaluating the best-fit option or combination of options, factors such as data availability, ease of understanding, ability to recognize runoff from pervious and impervious areas, equity, and database maintenance requirements have to be considered. For example, the use of gross parcel area may be an attractive option as it ranks high with respect to ease of understanding and the data are relatively easy to obtain from tax-assessment systems. However, this method ranks low when it comes to equity because it does not distinguish between a parcel that is fully developed with an impervious structure, consequently contributing a high volume of runoff, and a parcel that has very little impervious structure and contributes a relatively low volume of runoff. On the other hand, when compared with the total-gross-area method, the impervious area method ranks higher in terms of equity, is on par in terms of ease of understanding, but is more complex with respect to database maintenance requirements.
Each method has certain advantages and constraints, and hence it is often valuable to review the pros and cons of each method and develop a user-fee option matrix that can facilitate effective decision making. The user-fee method evaluation matrix in Figure 1 shows a ranking of the methods with respect to the five evaluation factors.
Sometimes, a single method may not adequately address distinctive characteristics among customer classes and data availability limitations. Therefore, many utilities that have implemented a stormwater user fee employ a combination of one or more methods to define the basis of their stormwater user fees. The 2007 Black & Veatch Survey indicates that 65% of the respondents base their charges directly on impervious area determinations, while 12% base their charges on gross area in conjunction with a runoff or intensity-of-development factor. Nine percent of respondents use a combination of impervious area and gross area as the basis for their user fees, with the remaining 14% using such other factors as the number of rooms, water usage, or a fixed flat fee.
Customer Classification
Customer classification provides an effective mechanism to recognize the relative differences in land-use characteristics. The potential runoff that can occur from a single-family residential parcel differs significantly from the runoff from a parcel that has an industrial or commercial use. The number and type of customer classes that need to be defined are dictated largely by selected user-fee methodologies and data availability.
If actual impervious area is to be selected as the user-fee basis, and if these data are consistently available for all the parcels in a municipality, one could argue that there is no need for any customer classification—in effect, each individual parcel becomes a customer class in its own right. However, if impervious area is estimated based on gross parcel area multiplied by a land-use-type-based runoff coefficient, customer classes are important. Defining customer classes—such as single-family residential, commercial, industrial, institutional, and vacant land—based on land-use types enables the utility to assign a reasonable runoff coefficient value to each customer class to develop estimates of impervious area.
Although there is no rule of thumb as to what the customer classifications should be, the 2007 Black & Veatch Survey indicates that the most commonly recognized customer classes include residential (89% of respondents), commercial (57% of respondents), industrial (23% of respondents), or a combination of the above classes (26% of respondents). Only 10% of respondents reported having no customer classifications.
Stormwater Exemptions
Should certain classes of parcels be exempted from stormwater fees or be given a discount? This is a policy issue that is often debated during user-fee development, especially with respect to government-owned properties, such rights of way as streets and roads, unoccupied dwellings, vacant land without any structures, and the properties of such tax-exempt organizations as churches and schools.
The issue of exemptions relates to fairness and equity. When strictly viewed from an equity standpoint, all owners of properties that contribute to runoff should pay their fair share of the stormwater management costs. In fact, one of the distinguishing characteristics of a fee is that it “should apply on the basis of contribution to the problem regardless of other factors” (FSA 2003). With this perspective, a utility should avoid exempting any property that contributes runoff to the municipal system.
Some utilities exempt undeveloped vacant lands from stormwater fees. If you are considering a similar exemption in your stormwater user fee, it is important to remember that runoff can occur on undeveloped land during periods of high-intensity rainfall. It is also important to note that undeveloped lands also facilitate some level of infiltration and recharge.
Rights of way are often exempted from impervious area estimations as they can be viewed as part of the stormwater conveyance system that carries runoff. The State of Florida’s stormwater manual clarifies right-of-way runoff: “State and interstate transportation systems are also constructed with a high drainage and stormwater quality level of service, and in some cases, accept runoff from municipal stormwater systems. Therefore, most if not all stormwater utilities adopted in Florida do not include public roads (ROW) as impervious areas to be included in the stormwater utility calculation” (FSA 2003).
Figure 2, from the 2007 Black & Veatch Survey, shows the types of properties that the respondents indicated are exempt from user fees.
When deciding whether to exempt any class of properties from stormwater user fees, it is worthwhile to remember two key facts: (1) Providing arbitrary exemptions to a class of properties without any defensible rationale could pave the way for potential litigation, and (2) if exemptions are to be provided, the utility needs to make sure that such exemptions do not violate any specific local or state stormwater statutes.
Stormwater Credits
Similar to exemptions, credits also relate to the issues of equity and fairness. However, credits are quite different from exemptions. Credit can be defined as a reduction in fee provided to a property in recognition of some reduction in stormwater burden that the property imposes on the municipal system. An example of this is a property that has implemented a stormwater best management practice (BMP) in the form of a green roof, porous pavement, or a retention/detention pond. In such instances, credits can be provided, as such practices reduce the property’s stormwater impact on the system. Forty-six percent of the 2007 Black & Veatch Survey respondents indicated that they had adopted procedures for granting credits against user charges for qualifying stormwater retention/detention facilities.
Some utilities offer credits to properties that are developed in compliance with local, regional, or state stormwater regulations. The main justification for such credits is that properties with BMPs either provide a reduction in runoff quantity or improve the quality of runoff when compared with properties that do not have any BMPs.
owever, when policy issues are developed for stormwater credits, in addition to stipulating the purpose of credits, the levels of credit, and eligibility criteria, the policies should also clearly stipulate the term of the credits (for example, one or three years), the maintenance requirements of the BMPs, and the certification requirements for the renewal of credits.
Payment Responsibility
When stormwater user fees are billed through a utility billing system, payment responsibility becomes an issue because the utility bill could be rendered either to a tenant or to the owner, depending on utility policies. In such a situation, who should be responsible for the stormwater user fee?
If the tenant receives the water bill, it may be preferable also to assess the stormwater fee from the tenant, as all the charges can be included in one utility bill. In addition, if the tenant fails to pay the stormwater charge, the normal utility billing enforcement mechanism of shutting off water service can be applied. However, if stormwater fees are billed to tenants, provision should be made to bill property owners when the property is unoccupied, because the property will continue to contribute runoff during those periods.
In the case of properties that do not have any utility accounts, the stormwater bill should be rendered to the owner, even if the property is leased to a tenant. With this approach, if the owner of the property fails to pay the stormwater user fee, a lien can be placed on the property as an effective enforcement option.
I Irrespective of whether the stormwater bill is rendered to the owner or the tenant, it is a prudent policy to include in the stormwater regulations language that ultimately holds the owner of the property liable for any delinquency. In the 2007 Black & Veatch Survey, 67% of the respondents indicated that the property owner is responsible for payment of stormwater fees, 20% indicated that the resident of the property is responsible for the fees, and the remaining 13% held someone else responsible, such as the water or other utility bill recipient.
Enforcement
Developing appropriate policies for enforcement is critical to mitigate a high rate of delinquency in stormwater-user-fee payments. Discontinuation of service is a common enforcement mechanism in utility billing. However, this mechanism can be effective only if the stormwater user fee is billed through a utility bill. Further, termination of service can be enforced only for those properties that have utility accounts. To address such cases as a property—for example, a parking lot—that has no water, sewer, or electric service and has only stormwater service, alternative enforcement policies need to be developed.
A common enforcement policy that utilities use for properties that do not have an existing utility account is to place a lien on the property. To utilize this enforcement mechanism, the utility should include in the ordinance a stipulation that the stormwater bill be rendered to the owner in the case of properties that do not have any existing utility accounts. As the State of Florida’s manual indicates, “Liens can be used as a second wall of defense when discontinuation of service is unsuccessful or not practical (as in the case of Vacant Undeveloped properties)” (FSA 2003). Although liens are available as an enforcement mechanism, it is important to note that it is usually a costly and time-consuming process.
The 2007 Black & Veatch Survey results show that utilities employ various methods to enforce payment of stormwater user fees. Nearly half, 47%, of the survey’s respondents indicated they can shut off water service for nonpayment of overdue stormwater user fees. An additional 33% said that they can attach liens to property to enforce payments. Other means used by some utilities include the ability to shut off electric or other utility service, the use of lawsuits, and referrals to collection agencies.
Billing System Selection
Which billing system should be used for generating stormwater-user-fee bills and recording receipt of payments? This question is easy to ask but challenging to address. The common options available with respect to billing systems include:
- Utility billing (water/sewer billing) system
- Property-tax billing system
- Separate stormwater billing system
Each method has its own advantages and disadvantages, and hence this issue requires careful consideration of multiple concerns, including cost of system procurement and startup, programming changes required, enforceability, customer perception, and cash flow.
For example, billing stormwater user fees through the utility billing system may be cost-effective due to the existence of a reliable billing system. Further, this option reinforces the principle that a stormwater fee is another legitimate utility fee similar to water and sewer fees. However, using a utility billing system for stormwater billing poses its own set of challenges:
- Extensive manual investigation may be needed to identify all the accounts that belong to a parcel and develop a cross-reference between the parcel and its corresponding water accounts.
- Further, a parcel could typically have more than one water account, as may be the case in an individually metered, multifamily apartmentbuilding or condominium. In such a scenario, policies have to be developed for equitable allocation of impervious area to each account. Either the impervious area can be equally divided among all of the accounts that belong to that parcel, or the impervious area can be assigned to one of the accounts.
Allocating the impervious area equally across all the accounts may pose potential equity issues if one unit has a larger impervious area than the other units. Assigning the impervious area in entirety to one account can also create billing issues if each account belongs to a different owner, which is often the case in an individually metered condominium. To resolve this complexity, the utility can consider creating a “stormwater only” account for that parcel, assigning the stormwater fees to that account and billing the account directly to the parcel owner.
- In most cases, utility billing systems include only parcels that have water or sewer accounts. Many other parcels, such as surface parking lots, vacant land parcels, and parcels with abandoned properties, do not have any water or sewer accounts and hence may not exist in the utility billing system. To bill these parcels, numerous “stormwater only” accounts will have to be manually created in the utility billing system. In some cases, changes to the existing ordinances have to be made to facilitate the creation of such “stormwater only” accounts.
Using the property-tax billing system to bill the stormwater user fee can mitigate the need for any manual investigation of parcels. In addition, the fee can be incorporated in the tax bill with relatively minor system modifications. A disadvantage to this approach, however, is the potential for customers to perceive the stormwater fee as a tax and not as a user fee. In addition, property taxes are usually assessed only once or twice per year, and hence billing through property-tax assessment systems could have a negative impact on cash flow.
As the above example illustrates, a single policy decision, such as the selection of a billing system, can impact and necessitate other policy decisions. Of the 71 utilities that participated in the 2007 Black & Veatch Survey, 33% use a stormwater utility billing system to maintain and process customer parcel information, 28% use the water or wastewater utility billing system, 16% use a geographic information system (GIS), 13% use the property tax assessment system, and 9% use a standalone stormwater database.
Ongoing Maintenance
Establishing the initial master account file for stormwater-user-fee billing is a large undertaking. However, maintaining the parcel information and updating it periodically to reflect the changes that occur to each parcel is even more of a challenge. To ensure a successful user-fee implementation, the policies needed for ongoing parcel data maintenance need to be addressed early in the planning stage. Inadequate planning for ongoing maintenance of the system could negatively impact the overall project.
The key policy issues associated with the ongoing maintenance of parcel data include the frequency of data update, identification of data sources, and the systems needed for data updates and processing.
Data Update Frequency:The frequency for updating parcel data is largely determined by the frequency of stormwater billing. According to the 2007 Black & Veatch Survey, 62% of respondents bill on a monthly basis, 25% annually, 6% bimonthly, and 4% quarterly. A utility that uses a quarterly billing frequency for its water and sewer charges may decide to bill the stormwater user fee on a quarterly frequency as well. This approach is logical, especially if the utility uses its billing system to charge its water, sewer, and stormwater fees in a single utility bill.
If the stormwater billing is to be done quarterly, to facilitate this process the parcel data need to be updated either monthly or quarterly. While this is strictly a business practice decision, experience indicates that updating parcel information on a monthly basis is more beneficial. In any given month, there are relatively few parcel changes in the form of creating new parcels or expiring existing parcels. If stormwater is billed through the utility billing system, appropriate utility accounts need to be identified and mapped for parcels that were created, or, if necessary, new accounts need to be created. In the case of parcels that have expired, the corresponding utility accounts need to be delinked and mapped to other appropriate parcels. It is more efficient to perform such parcel account mapping updates in the utility billing system monthly rather than quarterly.
Data Processing System: Months before the actual implementation, the utility needs to finalize the systems that will be used for ongoing processing of parcel data and billing of the stormwater user fee. If the decision is made to use the utility billing system for stormwater billing, it is imperative to understand the full capabilities of that utility billing system. It is essential to know if the system can not only compute the stormwater charges and generate the invoice but also receive updated parcel data and process the parcel data to generate the defined stormwater billing parameters (such as equivalent stormwater units or square feet of impervious area).
If the utility billing system is not capable of processing parcel updates and generating stormwater billing parameters, the utility needs to examine alternative systems. Examples include GIS or standalone stormwater database applications that can receive the source parcel data from the tax-assessment systems, process the data to generate the updated stormwater billing parameters, and export the billing parameters to the utility billing system. The utility needs to finalize the systems needed at least six to 12 months ahead of implementation to ensure sufficient lead time for procuring, implementing, and testing the stormwater database application and the integration between the application and the billing system.
Alternatively, if the stormwater billing is to be done through either the property-tax system or a separate stormwater billing system, necessary programming modifications need to be performed to facilitate monthly update and processing of parcel data and to generate the stormwater bills. The changes need to be tested with trial bill runs prior to implementation.
Plan Your Way to Success
A stormwater user fee provides municipalities with a stable revenue source for managing a sustainable and eco-friendly stormwater program. Utility managers considering such a user fee–funded program should carefully plan and develop relevant policies before implementation. Carefully examining a community’s unique characteristics and needs enables utility managers to develop appropriate, equitable, and defensible policies for a stormwater-user-fee program. The policy issues discussed in this article have broad relevance for municipalities nationwide.
In summary, yes, it takes time and effort to develop well-thought-out, practical policies that effectively support a sustainable user-fee program. However, the investment will be well worth it, because diligent planning and policy development will pave the way for public acceptance and buy-in and will provide a solid foundation for a methodical and successful implementation.