guidance for municipal stormwater funding by scott tucker 8 th annual epa region 6 ms4 stormwater...
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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
Chapter 1 - Background
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
Chapter 1 - Background
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
Chapter 1 - Background
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
Chapter 2 – Funding Sources
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
Chapter 2 – Funding Sources
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
Chapter 2 – Funding Sources
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
Chapter 2 – Funding Sources
Funding methods – Continued Capitalization recovery fees Impact fees Developer extension/latecomer fees Federal and state funding sources such as
grants, loans, and cooperative programs
Chapter 2 – Funding Sources
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
Chapter 2 – Funding Sources
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
Chapter 2 – Funding Sources
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 – Funding Sources
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
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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)
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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?
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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
Chapter 3 – Legal Issues
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
Chapter 4 – Implementing User-Fee Based Funding
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
Chapter 4 – Implementing User-Fee Based Funding
No two utilities are alike just as no two cities are alike
Not wise to follow a pre-fabricated “one size fits all” approach
Chapter 4 – Implementing User-Fee Based Funding
“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
Chapter 4 – Implementing User-Fee Based Funding
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
Chapter 4 – Implementing User-Fee Based Funding
Framework for development of an utility funding mechanism Quick Concept Study Feasibility Study Utility Implementation
Chapter 4 – Implementing User-Fee Based Funding
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
Chapter 4 – Implementing User-Fee Based Funding
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
Chapter 4 – Implementing User-Fee Based Funding
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: GilsonS@carmengrp.com
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