Is Municipal Financing of Storm Water Projects Failing?

INTRODUCTION: THE FINANCING DILEMMA
The cost of constructing, operating, and maintaining municipal storm water facilities continues to increase. Coupled with budget cuts, property tax limits, the enactment of the Clean Water Act, and National Pollutant Discharge Elimination System (NPDES) Phase II requirements, municipal storm water related costs are forecast to continue growing. Come budget time, the cost of funding storm water activities, such as storm water drainage improvements, water quality management, proper ordinance development, and wetland protection may create a volatile financial situation.

SELECTING THE BEST OPTION FOR FINANCING STORM WATER RELATED ACTIVITIES
Many communities utilize municipal property taxes and special assessments to finance storm water improvements. Increasingly, however, communities are exploring the use of user charges, which are traditionally used to finance municipal sanitary sewer and water systems, to finance storm water management activities. Implemented through the creation of a �storm water utility,� this approach is gaining recognition as the most equitable way to finance storm water management activities while allowing for development and growth in the municipality. The storm water utility is:

• Fair � charges are based on the quantity of runoff that a parcel of land contributes to the overall storm water problem rather than property values as is the case with general taxes.
• Dependable � the storm water utility is self financing. It does not compete with other governmental services for general revenues and it provides consistent funding which is kept in separate dedicated funds and can be used for debt services. This provides more responsible government in that the municipality must use funds to pay for the outlined storm water projects for which they were collected.
• Acceptable � a regular small service charge is typically more acceptable to residents than a large one-time assessment or increased property taxes.
• Simple and flexible � storm water utility charges are similar to water and sewer charges.

HOW DOES A STORM WATER UTILITY WORK?
The storm water utility collects a service charge or fee based upon �use� just like sanitary or drinking water fees. The fee is typically charged against all developed parcels within a municipality based on the premise of �contributors pay.� The rate structure is based on land use type, density, parcel size, and the amount of runoff contributed by a particular parcel. Where land is in a natural state (pre-development), most rain soaks into the ground. Where development has occurred, rooftops, driveways, buildings, and parking lots (called impervious surfaces) prevent rainfall from soaking into the ground. The rain runs off into streets, ditches, ponds, and lakes, creating the need for drainage systems that protect the quality of our water resources and serve as flood control measures. Therefore, the fee is based on how much water runoff is contributed by a particular parcel.

A consistent, dependable revenue source provides a dedicated fund to manage the drainage system and water quality improvements without increasing property taxes or using special assessments. A storm water utility also provides the means to handle increasing costs through small adjustments in the fee. Acceptance is based upon education of this process; it is imperative that the municipality undertaking such a project have an understanding of what the storm water utility is prior to the actual establishment of the utility. Studies, multiple internal/external meetings, and planning should be done to determine what projects need to be accomplished and why. The overall goal of the storm water utility is to reduce the quantity and increase the quality of the storm water that reaches the municipal system.

HOW WILL THE UTILITY BENEFIT THE MUNICIPALITY?
The development and implementation of a storm water utility requires a considerable amount of time and resources. Yet, from the perspective of elected representatives and municipal staff responsible for funding municipal storm water management programs, the benefits of storm water utilities include:

• New funding source � revenues generated by storm water utilities can be used as a new source of funds to supplement the municipality�s current storm water management funding.

• Sustainable revenues � revenues generated by storm water utilities are constant, tend to increase with the municipality�s growth, and can be gradually increased through rate hikes or special user fees.

• Bondable revenue stream � the municipality is no longer tied to using only general obligation debt to pay for storm water improvements. Bonds for capital improvements can be issued to facilitate constructing storm water management facilities and the revenues generated by storm water utilities can be used to pay back revenue bonds.