905R90114
United States
Environmental Protection
Agency
Watershed Management Unit
Water Division, Region V
Chicago, IL
December 1990
x>EPA
Financing Mechanisms for
BMPs
est Management Practices (BMPs) are those practices used to
alleviate problems associated with stormwater quality and/or quantity.
Implementing BMPs in the form of a coordinated stormwater
management plan requires evaluation and selection of financing
mechanisms.
Six alternative financing mechanisms are as follows:
1. General funds,
2. Long-term borrowing,
3. Pro-rata share fees for new development projects,
4. Stormwater utility,
5. Special districts, and
6. A combination of the above.
General Funds
he first option is to fund stormwater
projects from the general fund. This
approach distributes the costs
among all county taxpayers, rather
than allocating it among the urban
development projects that contribute
to the drainage problems. General
fund revenue may be appropriate for
supporting some of the front-end costs required to
construct the regional detention basins (followed
by reimbursement by the new development
projects on a pro-rata basis). Likewise, general
fund revenues are often used to support annual
operation and maintenance activities carried out
by the local government (e.g., maintenance of
regional detention basins).
Long-Term Borrowing
ong-term borrowing, in the form of
general obligation bonds or, less
commonly, revenue bonds, is one of
the most popular mechanisms for
financing stormwater management
projects. Revenue bonds have not
been widely used for stormwater management, in
part because of the higher interest rates in
comparison with general obligation bonds and, in
part, because of the lack of a significant revenue
base. Long-term borrowing distributes costs to all
taxpayers, if it is approved by the voters.
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Pro-rata Share
ffsite pro-rata share contributions are
used by many jurisdictions to finance
regional stormwater management
facilities for new urban development.
Rather than require each land
developer to construct a stormwater
management facility on his own site,
each development project is assessed a fee that
covers a pro-rata share of the capital costs for the
regional detention basins. The pro-rata share
assigned to each developer can be based upon a
number of factors, including: cost per impervious
acre; cost per acre for different land use
categories; and cost per development site based
upon each site's contribution to the peak flow or
nonpoint source runoff that must be controlled by
the offsite facility. Use of the offsite pro-rata charge
approach in Virginia is covered by section
15.1 -466 of the Code of Virginia, which requires
that a general improvement program (i.e., master
plan that identifies offsite controls) be developed in
advance and that the charges only be applied to
the construction cost of the offsite facility, not to
annual maintenance costs. Three important
features of this financing approach are discussed
below.
First, for the management plan to be
successful, local governments must finance the
construction of the offsite control facilities in
advance of urban development and the receipt of
all pro-rata share contributions. Typically,
long-term borrowing mechanisms and general
fund revenues are used to finance these front-end
construction costs. Second, the charges may only
be assigned to new urban development, even
though it may be desirable to strategically locate
some offsite facilities that control the runoff
impacts of existing development as well. This
funding mechanism does not provide for the
recovery of any costs from existing development in
the watershed. Third, the land development fees
can only cover construction costs, meaning that
maintenance costs must be assumed by the local
government.
Stormwater Utility
he creation of a stormwater utility is
currently being considered in several
urban areas around the U.S. as a
preferable alternative to the land
development fee approach. It
involves creating a continuing
funding source by designating
stormwater management as a utility,
much like sanitary sewers, gas, and electricity are
considered as public utilities. Under the
stormwater utility concept, property owners within
a jurisdiction are assessed a monthly fee that
covers both capital and operation and
maintenance costs for stormwater management.
The financing of capital projects is accomplished
with a combination of bonds and revenue from the
utility fees. With the broad revenue base that is
available under the stormwater utility approach,
the use of revenue bonds to fund the construction
of stormwater management controls becomes a
more viable option. Thus, the stormwater utility
provides a continuing funding source for both
capital and operating costs without affecting a
local government's general fund. The end result is
that the local government will have an adequate
revenue source to construct more cost-effective
regional facilities and to carry out maintenance
activities.
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Special Assessment District
nder existing Virginia enabling
legislation, the most relevant special
assessment district for stormwater
management activities is a
watershed improvement district
(WID). Designation of a WID by the
Virginia Soil and Water Conservation
Commission must be preceded by
special petition, hearings, and a referendum vote
by the property owners within the watershed, with
two-thirds approval required. WIDs can issue
bonds and assess property owners within the
watershed to finance the construction of
stormwater management projects. One of the
elements of the WID that may make it politically
difficult for local stormwater management activities
is that it is governed by an independently elected
board of directors, thereby delegating to an
independent governing board some of the powers
that can influence local land use decisions.
Another factor that may limit its feasibility for
regionwide implementation is that separate
referendums would have to be approved by
two-thirds of the property owners in each
watershed.
Selection
s is evident from the preceding
descriptions, each financing
mechanism has advantages and
disadvantages depending upon a
number of factors. State and local
legislation can define which
mechanisms are allowed in given
locations. A stormwater management
plan itself is an important factor in evaluating
financing mechanisms. The BMPs specified in a
plan have associated capital and operation and
maintenance costs. Any financing plan developed
should ensure that both types of costs will be
covered. The magnitude and distribution of these
costs can be a determining factor in selecting the
proper method of financing.
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TERRENE
INSTITUTE
This project was funded by the U.S. Environmental Protection Agency Office of Water Enforcement
and Permits-Water Permits Division and managed by Region V Watershed Management Unit-
Water Division. Prepared by Dynamac Corporation, GKY & Associates, Inc., and JT&A, Inc. For
copies of this publication, contact The Terrene Institute, 1000 Connecticut Avenue, NW, Suite 300,
Washington, DC 20036, (202) 833-3380.
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