The Potential Advantages of a Stormwater Utility for Financing Your Stormwater Management Needs
Two years after the passage of Act 68, many municipalities still have legitimate concerns about whether a stormwater authority would be right for their community. In a previous article, HRG addressed concerns about public opposition, up-front costs, and a loss of control over the infrastructure covered under the MS4 permit. In today’s article, we discuss the potential advantages of stormwater authorities to municipalities searching for ways to finance their stormwater management programs.
Advantage #1: Stormwater authorities enable you to collect money from tax-exempt users.
Churches and non-profit organizations like hospitals contribute a lot of stormwater runoff to the local watershed, but a tax would never collect any revenue from them because they are tax-exempt. By using the stormwater authority structure, you can charge fees to these users and collect their fair share contribution to stormwater management efforts.
Advantage #2: Stormwater authorities can collect fees from multiple municipalities who may be contributing runoff to their watershed; municipalities cannot charge anyone outside their own borders.
Political boundaries and watersheds seldom coincide. Stormwater is not neatly contained by political boundaries, and watersheds often cross through more than one municipality. But townships and cities cannot charge other local governments for stormwater management under state law. A multi-municipal (or joint) stormwater authority, however, can be set up to serve an area that extends beyond the boundaries of a single municipality, which enables everyone within a particular watershed to contribute to the stormwater management services it requires.
Advantage #3: Stormwater authority fees are more equitable than a property tax.
As stated in #1 and #2, stormwater utility fees ensure that everyone who contributes to a community’s stormwater pays for the services they use (even tax-exempt organizations, particularly if a utility is set up on a watershed-wide basis).
But stormwater fees are also much more flexible and responsive to the true nature of stormwater than a straight property tax would be. The value of someone’s land has little to do with how much stormwater it creates, so a property tax is inherently unfair for this purpose. A property could be appraised at a high value and contribute very little to stormwater, but an experienced financial consultant can help set up an authority’s rate structure based on the quantity and/or quality of runoff a property creates (rather than charging a flat fee or basing it on acreage).
A municipality can also offer credits to property owners who install best management practices for controlling runoff. (This has the added bonus of encouraging good behavior: inspiring people to install stormwater control measures like rain gardens, buffers, etc. on their property.)
Thus, a well-designed stormwater utility ensures everyone pays according to how much he or she uses the service.
Advantage #4: Stormwater authorities provide a dedicated revenue stream for stormwater improvements.
Relying on general tax revenue for stormwater improvements isn’t practical for some communities. There simply isn’t enough money to cover all of the needs the municipality must address, and stormwater often falls to the bottom of the list because money is allocated to more high profile projects such as a bridge replacement or pavement rehabilitation. Unless there is major flooding, stormwater is often forgotten and doesn’t receive the financial attention it needs.
With a dedicated stormwater fee, the money is there to maintain, repair and replace stormwater infrastructure on a proactive basis, rather than waiting till flooding causes expensive damage or impacts public safety.
Advantage #5: A dedicated revenue stream for stormwater can improve the finances of a municipality.
It can do so in several ways. First, now that the municipality no longer directs tax revenue to stormwater management, it has more tax dollars available for its other priorities.
Second, debt associated with stormwater improvements is no longer considered direct municipal debt because it can be self-liquidated by the authority’s revenue stream. Therefore, the stormwater debt doesn’t count towards the municipality’s borrowing limit, and its impact on the municipality’s bond rating is reduced. (Since municipal authorities are not subject to the same restrictions on borrowing and bond rating concerns as municipalities, they are often able to implement larger projects or make improvements in a timelier manner than a municipality could.)
Third, many agencies that offer grants and loans expect the municipality to put up matching funds, which is hard to do when you don’t have a dedicated stormwater revenue stream. Even if matching funds are not an official requirement of the grant or loan, most funding agencies place a higher preference on recipients who have money available for the infrastructure because they have a greater confidence in their ability to complete the project if there are issues and to maintain it after it’s done.
Advantage #6: Stormwater authorities are better positioned to raise rates than municipalities are to raise taxes if stormwater obligations increase.
Tax increases are not popular politically, and they are hard to pass. As stormwater infrastructure needs change, municipalities may need a revenue source that is flexible enough to meet those changing demands.
Every municipality’s financial situation and stormwater needs are different, so it’s wise to seek the counsel of a consultant with dual expertise in engineering and financial consulting to determine if a stormwater utility is right for your community. If it is, your consultant can help you organize a program that maximizes an authority’s potential advantages: providing a dedicated revenue stream for stormwater management that is more equitable than other funding sources and freeing up the municipality’s tax dollars for other priorities without adding to its direct debt or negatively impacting its bond rating.
Adrienne Vicari, P.E., is the financial services practice area leader at HRG. In this role, she has helped the firm provide strategic financial planning and grant administration services to numerous municipal and municipal authority clients. She is also serving as project manager for several projects involving the creation of stormwater authorities or the addition of stormwater to the charter of existing authorities throughout Pennsylvania. Contact Adrienne about stormwater authorities.
