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Guidance For Municipal Stormwater Funding. by Scott Tucker. 8 th Annual EPA Region 6 MS4 Stormwater 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
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Guidance For Municipal Stormwater Funding by Scott Tucker 8th Annual EPA Region 6 MS4 Stormwater 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)
Focus on Legislative, Regulatory & Legal Activities at the Federal Level Founded in 1978 NAFSMA
NAFSMA 2006 Annual Meeting San Antonio, Texas September 6-8, 2006 La Mansion Del Rio Hotel For information contact www.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
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