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DR9302-MN 910101 American Public Works Association 1313 East 60th Street Chicago, IL 60637-2881 312 667-2200 Financing Stormwater Facilities A Utility Approach Institute for Water Resources Executive Council 19904991 President Robert W.J. Moore, P. Eng Project Manager, Regional Building Expansion Regional Municipality of Halton Oakville, Ontario, Canada Vice President Kyle E. Schilling, P.E. Director, Institute for Water Resources U.S. Army Corps of Engineers Fort Belvoir, Virginia Past President Donald Berman, P.E. Director, Division of Waste Management Pittsburgh, Pennsylvania Secretary Ray E. Beurket, P.E. Director of Federal Programs American Public Works Association Washington, D.C. Treasurer Richard H. Sullivan Executive Director American Public Works Association Chicago, Illinois Memben Edward F. Watson, P.E. Deputy Commissioner of Environmetltal Rochester, New York Christine F. Andersen, P.E. Director of Public Works Eugene, Oregon Gordon R/Garner, P.E. Executive Director Louisville/Jefferson County Metropolitan Sewer District Louisville, Kentucky Douglas A. Jamieson, P. Eng Production Engineer Water Works Division, Calgary, Alberta, Canada Kenneth W. Martin Manager, Water Department Jackson Utility Division Jackson, Tennessee Carl R. Nelson, P.E. Vice President of Public Works The Keither Companies Newport Beach, California Daniel C. Raby, P.E. Superintendent Water & Wastewater Planffmg and Engineering Department Phoenix, Arizona Published by the Institute for Water Resources A dy/s/on of the American Public Works Association Financing Stormwater Facilities: A Utility Approach Special Acknowledgements to Greg Lindsey for his two publications, "Financing Stormwa~r Management: The Utility Approach," and "A Survey of Stonmwater Utilities," both published by Sediment and Stormwater Adminis~ation. Maryland Department of the Environment, Annapolis, Maryland, March 1988. All charts and tables, unless otherwise noted, are based on information in these publications. © 1991, American Public Works Association SECTION 1 INTRODUCTION Urban stormwater runoff heavily pol- lutes many receiving waters. Often, pol- lution from nonpoim sources exceeds that from direct discharges. However, most people don't think of this runoff as a pol- lutant. They assume it occurs naturally and nothing we do affects it. To achieve targeted reductions in nutrient loadings, the water quality of stormwater must be improved. Because laws mandating stormwater management are relatively new, most local governments have not yet developed comprehensive programs. Few stormwater programs are well financed, and one third or more of all stJormwater management facilities are inadequately maintained. Often there are jurisdictional constraints that preclude comprehensive watershed solutions. It is clear that expen- ditures for stormwater management must increase if water quality goals are to be achieved. Stormwater management historically has been financed with general revenues from property taxes. Most local officials have considered stormwater management a low priority, at least relative to other local programs. As a result, reliance on property taxes to fmance stormwater management has proven inadequate. The best alternative to property taxes appears to be stormwater utility charges, which are "user" charges paid by owners of prop- erties in proportion to some estimate of the amount of rtmoff from their properties. Taxpayers usually consider stormwater runoff to be a natural occurence, and do not know about drainage infrastructures in their communities. So, in order to introduce a utility, people must be in- formed. This approach involves a re- definition of runoff and stormwater man- agement, involving maintenance and re- sponsibility. There is a cQnsensus among public works officials that the utility approach is the best way to finance stormwater man- agement. The main reason for their pref- erence is obvious: utilities are a stable, secure source of funds. Another important factor is that many officials believe that the utility approach is more equitable. Many people think that user charges based on one's contribution to the problem are more fair than property taxes. The American Public Works Association (APWA) concludedin UrbanStormwater Management: The user charge and the utility concept are the most dependable and equitable approaches available to local governments for financing stormwater management. Planning for a stormwater utility in- volves determining the best way to apply the concepts discussed above in aparticular locale. Various steps in the planning pro- cess are discussed in the next section. Local officials need information and guidelines to make informed decisions about creating utilities. This brochure answers questions of local officials about revenue-generation, legalities, adminis- tration, and management. Stormwater utilities are defined, and their potential for revenue-generation is summarized. Sub- sequent sections concern the rationale behind the utility approach, general con- siderations in planning utilities, and de- tails of establishing rate structures and estimating user charges. This guide is based on the results of a survey of utilities by the Sediment and Stormwater Administration (SSA) of the Maryland Department of the Environment, on articles published by officials and con- sultants involved with stormwater utili- ties, and on various technical reports. The survey, A Survey of Stormwater Utilities, as well as many of the references, also may be of interest to individuals. Ques- tions concerning the material should be addressed to the Sediment and Stomawater Administration, Maryland Department of the Environment, 2500 Broening High- way, Dundalk, Maryland 21222. SECTION 2 STORMWATER UTILITIES AND REVENUE GENERATION A public utility is an enterprise oper- ated or regulated by the government. Government involvement in the enterptise is considered necessmy because the service it provides is in the public interest or because private sector competition in the provision of the service is unlikely or undesirable. Stormwater utilities are public utilities, much like conventional water and wastewater utilities, that have been established to provide the service of stomawater management. They are fi- nanced by dedicated user charges, not property taxes. Dedicated simply means that the charges can be used only for stormwater management. User charges for an individual property are based on the cunuibution of the property to the total volume of stormwater that must be man- aged. In practice, a variety of methods are used to estimate nmoff and determine charges. Stormwater utilities exist in more than 50 communities in the United States. They serve both small (e.g., Wooster, Ohio; 20,000 population) and large communi- ties (e.g., Denver, Colorado; more than 1,000,000). These utilities generate sub- stantial revenues. In the SSA survey, 19 utilities reported revenues ranging from $263,000 to more than $8 million (Table 2.1). Several rule-of-thumb measures of the revenue generating potential of stomawat~r 'utilities have been developed from the survey data: 2 · Per capita utility revanues just from user charges range from $7.33 to $27.27 annu- ally in 1988. (This role-of-thumb spreads all charges, including those paid by indus- lrial and commercial properties, etc., acros s the entire population. No utilities actually charge on a per-capita basis). · Revenues per developed acre (per .405 hectares) within the utility service area range from $50.45 to $122.06 annually. · Revenues per acre (both developed and undeveloped) range from $ 27.75 to $79.93 annually. · Charges for single family residences range from $1.25 to $4.40 per month ($15 to $52.80 per year). · Charges to single family residential us- ers account for between 24% and 62% of all revenues from user charges. An example of the use of these general measures follows. The population of Prince George's County, Maryland, is 665,071. Prince George's County occu- pies 288,496 acres (116,800 hectares) of which, in 1987, 178,188 acres (72,141 hectares) were improved or developed. In 1987, there were 147,834 residential par- cels in the county. Depending on the measure used, estimates of the revenue generating potential for a stormwater util- ity in Prince George's County range from $4.9 to $23 million (Table 2.2). In this example, both of the estimates of revenue per acre are higher than the per capita estimate. This result occurs because most of the data on which the estimates are based are for municipalities, not counties. By estimating the charges on a county- wide basis, the acreage to be charged increases more proportionately than docs the population. As a result, the estimated revenues per acre are greater than the oo oo oo ~ ~oo~oo~oo~ ~§~§~ §§ § Table 2.2 Hypothetical Estimates of Stormwater Utility Revenues In Prince George's County, Maryland. Per Capita Per Developed Acre/Hectare Per Acre/Hectare From Residences Range of Total Annual Revenues $4.9 - 18.1 Million $9.0 - 21.7 Million $8.0 - 23.0 Million $2.2 - 7.8 Million estimated revenues per capita. Like any governmental entity, the abil- ity of a stormwater utility to generate revenues is governed ultimately by the willingness ofpepple to pay for stormwater management. Revenues generated by existing utilities elsewhere are indicative of people's willingness to pay, but these amounts should not be regarded as abso- lute bounds. In any given situation, resi- dents may be willing to pay more or less than the amounts cited here. A method for preparing more accurate estimates of the revenue gnnemfing potential of a utility, including typical user charges, is de- scribed in Section 5. SECTION 3 THE RATIONALE FOR THE UTILITY APPROACH Many people find it strange to be asked to pay user fees to a utility for the stormwater that runs off their property. This is because they are used to thinking about runoff, if they think about it at all, as something that occurs naturally, not something that is at least partially the result of people's decisions. They are generally unaware of the storm drainage infrastructure that exists in their commu- nity. The utility approach thus involves a redefinition of the way in which people think about runoff and stormwater man- agement. 'The basic perspective is that runoff is a man-made problem, and that owners of property are responsible for it. Stormwatar management historically has been provided by government and financed by property taxes. The rationale for public involvement is that there is a public benefit to managing rnnoff. The rationale for the financing mechanism, taxes, is either (1) that higher-valued properties benefit more, or (2) that owners of higher-valued properties are able to pay more for a public good, the benefits of which are available to everyone and can- not be quantified. With the utility approach, the benefits of stormwater management are deemphasized, and emphasis is placed on the cause of the problem. Individual prop- erty owners are viewed as generators, and the role of government is to control the discharges. To finance the government's activities, property owners pay user charges in amounts proportionate to their discharges. The rationale for the utility approach, therefore, is the "polluter pays" principle. Property values, ability to pay, perceived benefits, and willingness to pay generally are not considered, although political considerations such as these must be evaluated by any entity implementing a drainage utility. Three definitions can be assumed to follow from this discussion: · Users are people or properties that add nmoff to a system. · Beneficiaries are people or properties that gain from stonnwater management (e.g., are protected fiom flood damage or benefit from improved water quality). · User charges are dedicated fees paid by generators of 8tomawamr based on the amount of runoff that leaves their prop- erty. The utility approach consists of the practical application of these definitions. Care must be taken in the formation of utilities, particularly their rate stmctores, because utilities frequently are subject to controversy. Four of 19 utilities surveyed by the Administration reported legal chal- lenges; in each case, the rate stmctore was questioned. Courts, however, have upheld creation of stormwater utilities and user fee systems. Cyre (1986) has summarized the legal standard that has evolved: Charges must be fair and reasonable and bear a sub- stantial relationship to the cost of services and facilities. This standard is important. It says that local jurisdictions must have a rational basis for making estimates of runoff and determining charges, but the runoff from parcels need not be measured precisely. Reasonably accurate estimates will suf- fice. Equaily important, the standard does not mention benefits or beneficiaries. Utility rate systems may be based on cost, not benefits. In fact, the user charges imposed by most utilities are cost-based and do not take benefits into consider- ation. Planning for a stormwater utility in- volves detemining the best way to apply the concepts discussed above in a particu- lar locale. Various steps in the planning process are discussed in the next section. SECTION 4 PLANNING STORMWATER UTILITIES The formation of a stormwater utility involves systematic consideration of a se- ries of political, managerial, financial, and technical issues. Planners must: · Determine the best administrative structure for $tormwater management. · Estimate revenue requirements. · Identify potential sources of revenues and allocation of revenue requirements · Develop a billing system. · Adopt a stormwater utility ordinance. · Implement a public information pro- Each of these issues is addressed briefly in this section. The financial aspects of utility planning, including a general ap- proach to estimating user charges are dis- cussed in more detail. 4.1 Administrative and Managerial Considerations Stormwater management has been in- adequate in most communities, especially as cities grow and jurisdictional bound- aries become more complex. Responsi- bility for various activities has not been defined clearly when several jurisdictions share the same drainage system. Planning for a utility often begins with what is sometimes referred to as a "functional requirements study." Such a stody involves determining the scope of activities neces- sary to manage stormwater and identify- 4 5 lng the administrative entities or depart- ments best suited to perform each activity. Functions typically performed by utilities include administration, planning, design and engineering, opemtioas and mainte- nance, regnlation and enforcement, con- sh'uedon, and sometimes, water quality management Clearly defined msponsiblides for these activities will help solve man- agement problems caused by fragmenta- tion. It will also help a utility meet re- quirements for fiscal accountability and resolve jurisdictional issues. Information on institutional sh-uctares for 19 utilities is included in the SSA publication, A Survey of Stormwater Utilities. Utilities are often operated by or within departments of public works, al- though this is not always the case. In some communities, a variety of Departments are involved, including the Departments of Finance, Utilities, Environmental Regulation, and Planning and Zoning. A common arrangement is for an agency such as the Department of Public Works to have responsibility for planning, design and engineering, and operations and maintenance, and for the Department of Finance to have responsibility for billing. Many wastewater utilities also have drainage responsibilities. In wastem states, water management districts am common. An issue that merits special consider- ation in a functional analysis is whether stormwater management facilities should be maintained by the public or private sector. A strong argument in favor of private maintenance is that maintenance by the private sector limits the direct pub- lic costs of stormwater management. However, recent surveys indicate that pri- vate stormwater management facilities are not being maintained as well as public facilities. Often, the failure of private facilities has consequences on other prop- etty. Maintenance activities appear to be best carried out by the entities with the 6 "greatest interest in the specific benefits associated with each maintenance opera- tion.'' Urban Stormwater Management also identified factors to be considered in deciding whether detention facilities are to be privately or publicly owned, and notes that: "There appears to be a pref- erence for and a trend toward public ownership. Generally, unless basins are maintained by public agencies, long term adequate maintenance can- not be assured.*' The Sediment and Stormwater Admin- istration of the Maryland Deparmaant of the Environment generally agrees with this conclusion. 4.2 Estimating Revenue Requirements Determining revenue requirements, or the total costs of stormwater management, is an important step in utility planning and is the first step in preparing the utility fmanciai plan. Cyre (1987) has published ball-park estimates of cost for stormwater management. He reports that in most cities, basic stormwater adminish'atiun, engineering, and reactive maintenance cost $15 to $25 per gross acre (per .405 hect- are). He also projects that comprehensive management, including drainage master plans, preventive maintenance, and major capital improvements may cost $100 or more per goss developed acre. Accurate estimation of the costs of comprehensive stormwater management is complicated and time-consuming. Esti- mates of costs (i.e., revenue requirements) should be developed for all the functions of the utility. In practice, the range of activities financed by utilities varies greatly. Some utilities (e.g., Fort Collins, Colorado) fund both O & M and capital projects with utility revanuns. Others(e.g., Austin, Texas) use utility revenues only for planning and O & M while capital improvements are financed by issuing general obligation bonds that are repaid with property tax revenues. Sources of the information necessary to estimate total costs include historic records, old drainage and watershed plans, public works personnel, and unit costs for spe- cific activities that are published in the literature. For example, Grigg, in Urban Waterlnfrastructare (1986),reports costs for mowing, debris removal, and other routine activities. An up-to-date master drainage plan is asscntial for pro jeering costs of stormwater management, particularly costs of capital improvements. Master plans are helpful for another reason: contested utilities are more likely to be upheld if charges are based on a master plan that specifies costs associated with a comprehensive stormwater program. Frequanfly, maintenance costs are pro- jected as a percentage of debt for capital improvements. King County, Washing- ton, estimates that costs for maintenance of all facilities is 0.43% of total debt. Schueler (1987) estimates that mainte- nance costs for best management prac- rices range from 3% to 10%, although he notes that few reliable data for estimating costs exist. 4.3 Identification and Alloca-tion of Revenue Sources Identification of potential sources of revenues and allocation of revenue re- quiremeuts among sources comprises the remainder of the utility £manciai plan. Financing methods for each of the utility's functions and the amount to be raised should be specified. Table 4.1, Financing Methods for Stormwater Management, in which f'mancing options are grouped ac- con:ling to the purpose for which the funds typically are used, provides a general framework for this process. As is shown, taxes and user charges are the only options for financing capital improvements and operations and maintenance, which are the most costly aspects of stormwater management. While other methods of f'mancing exist (e.g., development fees), these am used primarily for financing stormwater management activities asan- ciated with new development. Based on survey results, these sources usually ac- count for less than 10% of a ufility's rev- enues. Given the inadequacy of property taxes as a revenue source, it is clear that the major task in this part of the planning process is selection of a utility rate struc- ture and estimation of user charges. When implementing a utility, planners must decide who will be charged, how they will be charged, and whether there will be any exemptions. Generally, in planning studies, estimates of user charges are developed from has~c land use ~nfor- marion. It is not necessary to have detailed data concerning the amount of impervious area on individual properties. For imple- mentation, however, most utilities need this information. To obtain the data, it usually is necessary to digitize aerial pho- tos or tax maps. The task of measuring parcels, ff undertaken, is done during de- velopment of the billing system. It is one of the most rime-consuming and expen- sive tasks in the creation of a utility. An appeals process for property owners to contest the measurement of impervious area is also needed. 4.4 Billing Considerations Options for billing systems include: 1. Adding stormwater charges to other utility bills (e.g., water and sewer bills). 2. Adding stonnwater charges to property XX x X X X X X XXXXXXX XXX XXXX XX tax bills. 3. Creating a new, separate billing sys- In practice, most utilities modify exist- ing billing systems, adding new compe- nents as necessary to accommodate infor- mation needs or lo include users not al- ready on existing systems. See Table 4.2, Options for Developing a Stormwater Utility Billing System. Only four of 19 utilities surveyed by the Maryland Sediment mad Stonnwater Ad- ministration created entirely new billing systems. Two of these were u~lities who used information from tax files and water accounts to cunstmct billing systems. Less than half of those surveyed digitized pho- tos during implementation. Most utilities bill users monthly; some bill classes of users (e.g., commercial, industrial) with different frequencies. A useful document for understanding aspects of creating a billing system is the publication by the URS Corporation, Surface Water Management, The Utility Approach: Drainage Utility Service Charge, Customer Account Development Process. (URS - Executive Cove Center 5606B Virginia Beach Blvd., Virginia Beach, Virginia 23462. 804/499-4224). The development of a billing system consists of the preparation of a master account file (MAF), a billing file, and, in some cases, a transactions file. The MAF is a complete list of all properties (users) to be charged and includes information necessary to calculate the charge (e.g., parcel address, land use code, exemption code impervious area, relevant map num- bers). The billing file contains data used to prepare bills, including owner name, address, account number, billing dates, and current balance. Programs may be written so that certain information needed in the billing file is "looked up" in the MAF. Cyre (1987) repotrs that the costs to develop and implement the MAF, billing file, and support systems can range fiom $50,000 to $150,000 for professional ser- vices plus $3 to $10 per account. His estimates are somewhat higher than data collected by the SSA indicate. SSA utili- ties reported costs to develop billing sys- tems ranging from $0.05 to $7.82 per account. The 19 stormwater utilities sur- veyed report annual billing costs per ac- count anywhere from 1.4% to 16.3% of total revenues from charges. The cost of billing apparently accounts for more than 5% of total revenues for seven of the 11 utilities for which these data am available. Estimates of the percentage of delin- quent aecmmts range from approximately 0.2% to 10%. Nine of the 10 utilifes reporting this information have delin- quency rates less than 5%. 4.5 Stormwat®r Utilily Ordinances Prior to implementation of a utility, local government must adopt 16gislation (ordinances of resolutions) that specifies the scope of the utility's activities, its rote structure, details of biffing, and other items. This usually involves modification of ex- isting ordinances. As the ordinance pro- vides the legal basis for operations of the utility, the utility ordinance should be very carefully done. 4.6 Public Information Programs Sixteen of the 19 utilities surveyed re- ported that public information programs were undertaken prior to implementation. Most local officials stated that public in- formafiun programs were helpful and, in some cases, critical to successful imple- mentation, although some utilities appar- ently have been established without infur- mational programs. Public information programs typically include public meet- 9 tO ings, slide shows, and mailing of informa- tionnl brochures to residents. Some gov- ernments enlist the suppoi~ of established citizen's organizations, create advisory committees, and mail sample bills to resi- dents. Details concerning the public in- formation programs conducted by various utilities are included in A Survey of Stormwater Utiliffes. 4.7 General Considerations Most utilities have been formed to fund operations and maintenance and flood control programs. Funding of water qual- ity programs has not been as important. Nearly one-third of the utilities surveyed were formed in response to severe flood- lng. Only two cited concern over poor water quality. Creation of a utility typically requires a substantial amount of tlme. Utility repre- sentatives ~port planning periods prior to authorization ranging from seven to 12 months to more than two and one-haft years. The planning period reported most frequently was one and one-half to two years. Implementation generally proceeds rapidly. Most (75%) of the utilities sur- veyed were implemented within six months after authorization; one required between two and two and one-half years. Eleven utilities report that consultants were retained to assist in the development of the utility. Most retained engineering firms; some used management or finan- cial consultants. Consultants typically performed tasks such as the development of billing systems and the preparation of master plans. SECTION 5 ESTIMATING USER CHARGES This section presents a methodology for estimating typical stormwater user charges based on data, generally readily available. The approach suggested here, which involves estimating charges based on general land use data, should provide accurate enough information about poten- tinl revenues for local officials to deter- mine whether a utility should he created. However, because the approach does not involve estimation of the actual amount of impervious area on individual parcels, it is not sufficient for implementation. 5.1 Data Needed to Estimate Charges Information needed to determine typi- cal charges includes: 1. Land use data. 2. Rate factors derived from runoff coefficients for all land uses. 3. Revenue requirements for stormwafer management. fi.la. Land Use Data The land use data needed to estimate charges include land use categories (not zoning information), total acreage in each category, the total number of parcels in each category, and parcel area data (aver- age parcel area is sufficient for initial planning studies). Land use categories that may be re- ported in the files may not be entirely suitable for determining charges. The "exempt" category in the files may in- clude parcels that are exempt from prop- erty tax, but these parcels may or may not he exempt from a utility charge. For example, a non-profit, tax-exempt hospi- tal most likely would he liable for a stormwater utility charge, while other tax- exempt uses might not he (e.g., a state forest or park). Generally, storm drainage fees are inclusive rather than exclusive, i.e., all properties are charged unless they have a legal right to he excluded. In practice, the actual size of all parcels to be charged must he determined. Most utilities use the exact size of parcels (e.g., 12 Table 5.2 Acreage Estimates for Residential Land Use Residential Acreage/Hectarage Total Total Average Category Parcels Acres/Hectarage Acreage 0 - 0.5 > 0.5 - 1.0 > 1.0 acres or square feet) in the billing algo- rithms. Others (e.g., Cincinnati, Ohio) assign parcels A}ea Range Numbers (ARNs) which represent categories that include all parcels with areas in a certain range. The Cincinnati algorithm assigns an ARN of 1 to pamels with areas of 1 to 2,000 sq ft (.093 ca - 185.88 ca), and an ARN of 2 to parcels with areas of 2,001 to 4,000 sq ft (185.88 ca- 371.75 ca), and so on, in 2,000 square foot increments. 5.1b Rate Factors Rate factors are numbers based on stan- dard runoffcoefficients which are assigned to parcels so that charges reflect actual runoff and the respective burden each property places on the stormwater system. Theoretically, to reflect runoff precisely, rate factors should include total area, percentage of impervious area, soil type, slope, and other factors. However, since the calculations necessary to incorporate all relevant factors are not warranted eco- nomically, impervious area is the only factor that usually is used. For planning studies, rate factors gener- ally are simply based on land use catego- ries. Land use categories typically vary by jurisdiction; therefore, matching land use categories with rate factors requires some judgment. Rate factors generally are de- rived from runoff coefficients in the Ra- tional Method. In practice, the specific rate factors used by utilities vary greatly. Because of the potential for variability, rate factors must be chosen carefully. Analyses indicate that estimated charges to users in a given land use category could vary by as much as 60% depending on the rate factors and stxucture that are used. Using the utility concept, every parcel should pay to the extent it generates mn- off. In practice it is common for certain categories of parcels to be exempt by edict rather than because they generate no mn- off. Land uses sometimes considered for exemptions include public parcels such as government office complexes and street right-of-way, tax-exempt parcels such as hospitals and churches, and agricultural and undeveloped land. A useful planning exercise is to determine the effect of re- moving various land use categories from the rate base. Properties should only be excluded if there is a legal basis for doing SO. During implementation, when the data used to determine charges must be re- freed, there are no hard and fast roles for selecting rate factors and choosing the rate base. To derive rate factors, many utilities measure the amount of impervious area on all nonresidential parcels and on a statisti- cally significant sample of residential par- cels. Rate bases frequently are deter- mined for political as much as technical reasons. For example, public office com- plexes and institutional, tax-exempt users frequently are large generators of Table 5.3 Example - Rate Factors for Stormwater Utility Planning Studies. Average Percent Land Use Catego~/ Impervious Agriculture Commemial 0.85 Commemial Residential 0,?0 Exempt Parks 0,07 Playgrounds 0.13 Schools 0,50 Industrial 0.72 Apartments 0.65 Not Percolated Residential Acreage _< 1/8 0.65 (townhouses) 1/8 < A <1/4 0.38 1/4 < A<_ 1/3 0.30 1/3 < A_< 1/2 0,25 1/2 <A<_I 0.20 1 < Acreage 0.12 Residential Agricultural Residential Community Condominium Condo Community Marshland Rate Factor 0.10 0.82 0.68 0.26 0.11 0.17 0.50 0.70 0.64 0.00 0.40 (.40 is average for Acreage < 1/2) 0.23 0.16 0.16 0.64 0.64 0.68 0.00 Other Nonstandard Cate.eries Cooperative 0.64 Mobile 0.64 Group Quar 0.64 Motel 0.82 Other 0.50 Note: Estimates of the average percentage of impervious area are from SCS TR-55 or the Rational Method. The estimate of 0.65 for apartments was taken from the TR-55 estimate for townhouses. A "-" in the average impervious column means that no estimate corre- sponded directly with the land use catego~. The rate factors were determined by selecting figures for a comparable use (e.g., Residen- tial Agricultural was assigned the same rate factor as Residential [1 < Acreage]). Soume: ,Maryland Sediment and Stormwater Administration t4 stormwator. The utility approach is attrac- tive in part because these types of users, which do not generate revenues under a propany tax system, often pay stormwater charges. Charging these uses can be very controversial, however. Hospitals and chumhes have been in- velvet in suits against utilities, arguing that they should be exempt from any pay- reents to local government. Property owners have argued that charging public properties makes them pay twice: prop- arty taxes for the public parcel, and smrmwatar charges for their own proper- ties. Stormwatar user fees have been upheld when applied equitably to tax- exempt properties (e.g., Louisville, Tulsa). Similarly, although some utilities charge agricultural and undeveloped land have argued successfully in court that they should not be charged since they have not altered natural conditions. The issue of the rate base must be resolved by the appropriate legislature body through a public forum. Exemptions to uniform charges based on runoff should be care- fully documented and justified. 5.1c Revenue Requlremonls Section 4 describes considerations in estimating costs or revenue requirements for stormwater management. In practice, the scope of activities funded with utility revenues varies. The rate stmctore should be designed so that the sum of charges for all parcels is equal to the revenue require- No two jurisdictions will have the same revenue requirements. Costs will have to be estimated from a variety of sources. 5.2 General Approach for Planning Studies A general approach to developing a utility rate structure involves two steps: Estimation of a charge per "equivalent nmoff unit." Determination of the charge per indi- vidual parcel. Equivalent runoff unirs (ERUs) are used to ~present rtmoff from a pareel. Thay are the units for which stormwater charges are levied, and they are calculated by multi- plying a rate factor times a parcel area. 5.2a Estimation of Charge per Equivalent Runoff Unit The charge per equivalent runoff unit (ERU) is determined by: 1. Assigning a rate factor to each gan- end land use category. 2. Determining the to,al area in each category. 3. Multiplying the rote factors by the total area in each category to obtain the number of ERUs per category. 4. Selecting categories to be included in the rate base. 5. Summing the ERUs for all catego- ries in the rate base. 6. Dividing the revenue requirereents by the total ERUs. A general equation for computing the charge per ERU is: C/ERU = R / [ (F x A) ] (a) where: C/ERU = the charge per ERU R = revenue requirements for the utility stormwater progxams. F = the rate factor for each land use category. 15 A -- the total area for each land use category in the rate base. F x A = the ERUs for a given land use category. 5.2.b Estimation of Parcel User Charges The user charges for a "typical" parcel can be estimated after a charge per ERU has been determined. To obtain the charge per parcel, the individual parcel area is multiplied by its rate factor and the charge per ERU. Some utilities also add sur- charges or provide credits depending on the particular features of the parcel. A general equation for calculating stormwater user charges is: PC = [ PA x F )C/ERU) ] + CR;SC (b) where: PC = the charge for a parcel PA = the area of the parcel F = the rate factor for the parcel land use C/ERU = the charge per equivalent runoff CR;SC = a credit or surcharge (e.g., for on-site retention or location in a_ floodplain). These equations are frequently re- fenced to as billing algorithms. In practice, the algorithms used in different communi- ties vary. 5.3 Worksheet The SSA has developed the worksheet presented in Figure 5.1 to assist Maryland counties and cities in evaluating options for stormwater utilities. Use of the worksheet essentially involves applica- tion of the two equations presented above. Steps in using the worksheet are explained below. The data needed to complete the worksheet are an estimate of revenue re- quirements, land use categories for all parcels, and total area (acreage), average parcel size, and rate factors for each cat- egory. The SSA recommends that the 16 worksheet be completed using a spread- sheet software program for a personal computer. Use of a spreadsheet permits planners to analyze the effects of exclud- ing different land use categories from the rote base very efficiently. The example presented below includes this type of sensitivity analysis. To complete the worksheet, one must: 1. ObtainRevenueRequirements. Data should be from a system needs survey. 2. Select Rate Factors. See Example. 3. Obtain Land Use Information. Tables 5.1 and 5.2 present worksheet ouflinas for tabulating average parcel size and total acreage per category for all land use categories. 4. Determine rate base. Sensitivity analyses should be accomplished to evaluate effects of including various land use categories in the rate base. Initially, it can be assumed, (A) that all categories of land will be charged, including exempt, agricultural, other, and unimproved (i.e. undeveloped). Other scenarios which may be considered are (B) no charges to agri- culture or unimproved; (C) no charges to agriculture, unimproved, or exempt; and (D) no charges to agriculture, unimproved, exempt or other. 5. Compute ERUs and Charge Per ERU. The total number of ERUs for each land use category is determined by multi- plying each category's total acreage by it rate factor. The charge per ERU is deter- mined by dividing the revenue require- ment by the sum of the ERUs for all categories to be charged. If a spreadsheet is being used, all one need do is enter the land use data, rate factors and the appropriate equations as shown in Figure 5.1. 17 6. Determination of Typical Charges. Typical charges for an average parcel in each land use category can computed by multiplying the average parcel size by the rate factor by the charge per ERU. A spreadsheet, such as shown in Figure 5.1, does this quickly. 5.4 Considerations for Implementation A number of is sue s that must be consid- ered during the actual creation of a utility are reviewed briefly in this section. In genmaI, all the details of the rate struc- tm'es must be worked out in advance. 5.4a C~dlta and Suroha~les Many utilities issue credits or add sur- charges to utility bills depending on spe- cial charac~ristics of a parcel. There is un single, correct rationale for determining credits or surcharges. Some utilities (e.g. Fort Collins, Colorado or Louisville, Kentucky) provide credits for on-site re- tention ofstonnwater. Boulder, Colorado imposes surcharges on parcels located in floodplains because these parcels receive . additional benefits. On the other hand, the City of Portland, Oregon, exempts parcels from stormwater charges if the parcels drain directly to receiving waters. Portland's rationale is that these facilities make no use of storm drainage systems and therefore should not have to pay. As is evident from these examples, par- eels granted exemptions in Portland quite possibly would be surcharged in Boulder. Table 5.4 lists special features that have been included in rate structures of different utilities. Although consideration of credits of surcharges is not critical dur- ing initial planning studies, these must be determined during implementation. 18 5.4 b Considerations In Setting Charges Most sturmwater utilities establish a single charge per ERU that is applied regardless of land use. Denver, Colorado, however, has devised a progressive rate structure that charges properties that are intensively developed higher unit rates than properties that are less developed. The Denver rates correspond to ranges of impervious area: the greater the percent- age of impervious area, the higher the unit Many utilities assign a uniform charge or flat rate to all single family residential parcels below a ee~ain size. This elimi- nates the need to determine and use the actual acreage (and imperviousness) for most residential parcels (which typically account for 60% to 80% of all parcels). At least eight of the utilities surveyed have designed rate structures so that the equivalent rtmoff units are scaled to repre- sent single-family equivalents (SFEs). SFEs am computed in one of two ways: By adjusting all factors equally so that the product of the average residential area and the residential rate factor is one, or;, By dividing the amount of impervious area on all non-single family residential parcels by the average amount of impervi- ous area on single family residential par- In either case, the ratios between resi- dential rate factors and factors for other land uses remain the same, as do relative payments. SEEs have been used mainly because planners believe that people can under- stand the user charge concept easier when runoff is expressed in terms of the amount generated by a typical single family resi- Table 5.4 Special Features of Utility Ra~ Structures Separate charges for capital improvements and operations and maintenance. Credits for on-site management including detention, retention, storage. Surcharges for parcels in floodplains. Exemptions for parcels that drain directly to receiving waters. Rebates for elderly. In-kind payment by schools that provide education about stormwater management. Procedures for appealing charges. dence. Also, the use of SFEs rather than ERUs facilitates billing because the base charge is then the single family residence charge. Between 60% and 80% of all parcels are single family residences. 5.4c Appeal Procedures Almost all utilities have. some proce- dace for appealing charges. Appeal proce- dures are necessary to provide users with opportunities to contest charges that they believe have been calculated inaccurately. In fact, errors in new billing systems are common. Sources of data (e.g., Tax Assessor's file) commonly used for con- struction of utility billing files often con- tain large numbers of errors, both in parcel size and land use classification. Even if parcels have been areasured specifically for the creation of the utility billing sys- tem, errors should be expected. The sheer volume of information that is processed is a factor in the introduction of error to the system. 5.5 Criteria for Evaluating Rate Structures This section contains a discussion of criteria for the evaluation of rate stmc- tums. Eight criteria are presented. The criteria were developed and used by Camp, Dresser, & McKoe, Inc., and Prinde Sedgwich, Inc., in an evaluation of alter- native rate structures fur the City of Tampa, Florida. Two criteria coneem sources of error that can affect the calculation of charges. These are: 1. The charge should be based on a seasonably accurate, technically defen- sible measure of runoff. 2. The data base used to determine charges and prepare the billing system should be accurate. The use of average rate factors for a land use category rather than measure- ments of the amount of impervious areaon a site ignores the variability that exists among parcels within a given classifica- tion. Use of average factors eliminates the need to measure impervious area of par- cels, but does so at the cost of a departure from the main principle of the utility, (i.e., that people should pay in relation to their 19 specific conh-ibution) and the associated loss of equity. Decision makers must evaluate this trade-off between equity and efficiency when planning for the utility. Errors in the data base include enors in the measurement of total parcel area and total impervious area; as well as in land use classification. Sampling of alternative data bases for use in the rate slructure can help planners and decision makers deter- mine whether the amount of error is too great and whether corrective measures (e.g., remeasurement of parcels with digi- tizing equipment) ere warranted. Quanti- tative standards for levels of accuracy can aid in the decisions whether certain data- bases should be used (e.g., 95% of all parcels in fries must be classified and measured correctly). Additional criteria concern equity: 3. Uses in different classes should pay in proportion to the runoff their classes generate relative to others; 4. Users witlfm a class should pay in proportion to theft contribution to the total runoff generated by the class. In general, calculation of a charge per ERU as described above will help ensure equity among classes of users. Use of a progressive rate sh-uctore like the one in Denver departs from this criterion. The use of average rate factors signifi- cantly affects equity among users within a given class. Camp, Dresser, & McKee suggests the use of a statistical test for evaluation criterion 4 (e.g., the coolribu- tion of the smallest and lergast parcels should be within two standard deviations ofthemean; 60% of the parcels should fall within one standard deviation of the mean). O~her criteria are: 5. The 'saucture should be legal and politically acceptable. 6. The structure should be flexible. 7. The structure should generate ad- equate revenues. 8. The initial costs of implementing the sh'ucture should not be exorbitant. The acceptability of a rate structure depends on the attitude of citizens toward additional charges and the size of the charge. Flexibility refers to whether it is easy to modify the sa'ucture to accommo- date changes in it (e.g., can the rate for a given class of users be modified without havIng to repmgram the entire structure). Revenue adequacy is assured if the charge per ERU has been computed in the manner described above. Greater equity can be achieved if the amount of impervious area on all parcels is measmed during imple- mentation. The costs for this may be excessive. 5.6 Concluding Comments On User Charges Criterion 5 in the preceding section states that the rate structure should be legal and politically acceptable. While this criterion seems intuitively obvious, the importance of it cannot be slrossed too much. The bottom line is that for any utility proposal to be successful, people must be willing to pay the charges. Though the professional journals carry many ex- amplas of utility success stories, there are enough examples of failed attempts that officials should not take the decision to create a utility lightly. The major factor that seems to influ- ence the response of people to a utility proposalis the size of the proposal charge. Proposals for utilities with fees in the range of $1 to $2 per month for single family residences seem to have been ac- cepted. In Tampa, Florida, for example, a proposal for utility monthly residential fees in excess of $4 was stopped by public opposition despite a concerted education Cyre (1986) suggests that users seem to be willing to pay from oan thftd to one half as much as they pay for water or sewer Wills, whichever is lower, and that there "seems to be a psychological ceiling on stormwater cherges of $3 par month for residences." The City of Bellevue, how- ever, which has increased fees graduatly over time, now charges single family resi- dences $4.40 per month. Eight of the 19 utilities surveyed by the SSA report that they have increased rates. Portland, Oregon, for example, has in- creased rates eight times. Thus, experi- ence suggests that the best approach to implementing a utility is to begin with relatively low charges and to Increase them over time as the drainage utility concept gains acceptance and credib'flity. SECTION 6 CONCLUSION The concept of a stormwater drainage utility is gaining widespread acceptance across the United States as a viable method of financing operations and maintenance and capital improvements of neglected drainage systems infrash-ucture. Over 50 cities in the United States use the utility approach.