Transcript Guidance on Funding Mechanisms for Local Stormwater …

Guidance For Municipal
Stormwater Funding
8th Annual EPA Region 6 MS4
Stormwater Conference
by
Scott Tucker
Background and Introduction
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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, Texas
September 6-8, 2006
La Mansion Del Rio Hotel
For information contact
www.nafsma.org
Guidance Includes
Four Chapters and Appendix
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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
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Municipal SW has evolved over time
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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
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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
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Legislative action had great influence
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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
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SW as a service
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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
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Money, Revenue, and Resources
provide the range and amount of
financial support required
Money – Range of sources & types of
funds such as
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General fund revenues
Bond sales
Special purpose taxes
Transfers from other accounts
Fees
Chapter 2 – Funding Sources
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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
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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.
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Most commonly associated with capital improvements
Chapter 2 – Funding Sources
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Funding methods most commonly used
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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
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Funding methods – Continued
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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
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Service Fee and Assessment Design
Considerations
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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
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Design Considerations – Continued
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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
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Design Considerations – Continued
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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
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Chapter 2 includes detailed discussion of
service fee rate and assessment
methodologies
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Example stormwater rate methodologies also
included based on:
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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
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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
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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:
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Montana-1966; Colorado-1986 & 1993; Kentucky1989 & 1996; Ohio-1990; Oregon-1992 & 1993;
Kansas-1994; Florida-1995, 1998 & 2003;
Washington-1997; Virginia-1998; Tennessee1998; Michigan-1998 & 2001; NC-1998 & 1999;
SC-1999; Alabama-2001; California-2002;
Georgia-2004; and Illinois-2005
Chapter 3 – Legal Issues
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Tax vs. Fee – Most commonly litigated issue.
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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
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Tax vs. Fee - Continued
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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
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Tax vs. Fee – Continued
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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
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Tax vs Fee - Continued
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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
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Tax vs Fee - Continued
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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
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Federal Facilities
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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
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Federal Facilities - Continued
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Importantly, this waiver applies only to fees or
service charges, and not to taxes.
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This distinction often hard to make in practice
Chapter 3 – Legal Issues
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The US Supreme Court has established a
three-pronged test for determining whether fees
imposed are “reasonable service charges” or
taxes
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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
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Important case now being litigated involving
a federal facility
City of Cincinnati vs. US Dept of Health and
Human Services
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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
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City of Cincinnati vs. US Dept of Health
and Human Services
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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
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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
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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
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Principles General - Continued
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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
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Principles General – Continued
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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 UserFee Based Funding
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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 UserFee Based Funding
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A SW utility provides a vehicle for:
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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 UserFee Based Funding
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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 UserFee Based Funding
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“Due Diligence” important:
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Consists of formulation and execution of a plan
which includes:
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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 UserFee Based Funding
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Due diligence pursued along four tracks or
major areas of concern
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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 UserFee Based Funding
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Framework for development of an utility
funding mechanism
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Quick Concept Study
Feasibility Study
Utility Implementation
Chapter 4 – Implementing UserFee Based Funding
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Quick Concept Study
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Feasibility Study
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Answers the question: “does this make sense”,
and if yes the work goes forward
Creates information & momentum for
implementation, and is used if success not
fairly certain
Utility Implementation
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Process of working through the four tracks of
due diligence
Chapter 4 – Implementing UserFee Based Funding
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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 UserFee Based Funding
Public
Program
Finance
Database
DEFINE PUBLIC
INFO & ED PLAN
PROBLEMS, NEEDS
AND GOALS
FUNDING
LEGAL ISSUES
DATABASE
POLICY ISSUES
STAKEHOLDERS
& GEN EDUCATION
PROGRAM
PRIORITIES &
OBJECTIVES
FUNDING
POLICY ISSUES
DATA, MATERIALS
& INFORMATION
IMPLEMENTATION
CAMPAIGN
COST OF SERVICE
ANALYSIS
RATE STRUCTURE
ANALYSIS
MASTER
ACCOUNT FILE &
BILLING DATA
ORGANIZATIONAL
ISSUES
RATE STUDY &
CASH FLOW
ANALYSIS
BILLING SYSTEM
DEVELOPMENT
UTILITY
IMPLEMENTATION
STEPS
RATE
ORDINANCE
INQUIRY AND
COMPLAINT
RESPONSE
UTILITY IMPLEMENTATION & CUSTOMER SERVICE
Appendix-Example Stormwater
Utility Programs
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Five example stormwater programs are
discussed. Information provided includes
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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
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The five example utility programs:
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Bellevue, Washington
Charlotte/Mecklenburg County, NC
Tulsa, Oklahoma
Louisville/Jefferson County Metropolitan
Service District, Kentucky
Sarasota County Stormwater Environmental
Utility, Florida
Summary
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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:
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www.nafsma.org
For information contact Susan Gilson, Executive
Director, NAFSMA, Phone: 202-218-4133 or
email: [email protected]