United States Environmental
Protection Agency and the
EPA Region III states of
Pennsylvania, Maryland,
Delaware, District of Columbia,
Virginia and West Virginia
EPA833-F-07-012
Funding Stormwater
Programs
January 2008
The construction, operation and maintenance of a municipal
separate storm sewer system (MS4) can involve significant
expense, especially when regulatory requirements (stormwater
Phase I or Phase II), flooding concerns, water quality issues
(including total maximum daily loads, or TMDLs) and population
growth are factored in.
This document is intended to assist local stormwater managers
understand the alternatives available to fund their stormwater
program. The most stable source of funding is generally the
stormwater utility, so this document briefly lists the various
funding alternatives then describes in more detail the three
different types of stormwater utility rate structures and the basic
steps involved in creating a stormwater utility.
There are many different mechanisms that municipalities can
use to fund their stormwater programs. The two most common
funding options, Property Taxes/General Fund and Stormwater
Service Fees, are discussed below along with several other
funding alternatives.
Service Fees (including stormwater utilities)
Some communities include stormwater management costs as
line items within their water or sanitary sewer enterprise system
budgets. Water and sanitary sewer utilities charge customers
fees for services rendered. Many of these base their customer
fees on metered water flow. This is often not equitable because
a property's metered water flow usually bears no relationship
to the stormwater runoff it generates. For example, a shopping
center typically generates a significant amount of stormwater
runoff from the impervious area of its buildings and parking lots,
but it usually uses a relatively small amount of metered water.
Many communities are now adopting stormwater service
fees by means of a stormwater utility. A stormwater utility is
a sustainable funding mechanism dedicated to recover the
costs of stormwater infrastructure regulatory compliance,
planning, maintenance, capital improvements, and repair and
replacement. Stormwater fees are charged to taxpaying and
tax-exempt properties and are typically based on property
area. Stormwater utilities address the shortcomings and
inequities of funding stormwater management by property
taxes or water/sanitary service fees. There are more than 500
stormwater utilities in operation across the country. The average
quarterly fee for a single family home is $11, which usually
covers regulatory and operation and maintenance costs. Some
What is a stormwater utility?
A stormwater utility (called a stormwater authority m Pennsylvania)
is a mechanism to fund the cost of municipal services directly related
to the control and treatment of stormwater. A stormwater utility
will operate similarly as an electric or water utility. The utility will
be administered and funded separately from the revenues in the
general fund, ensuring a dedicated revenue source for the expense
of stormwater management.
communities charge as little as $2 per quarter, while others
charge more than $40 per quarter to a single family home.
Property Taxes/General Fund
Many communities have funded stormwater management from
property taxes paid into their general funds. However, there
is great competition for municipal general fund dollars from
other worthy municipal programs. Stormwater management
improvements typically have a low priority, unless the
municipality is reacting to a recent major storm or regulatory
action. The total cost of stormwater management is not readily
apparent when these costs are sprinkled among general fund
departmental budgets. As stormwater management costs
increase, general fund budgets are often not increased to
meet those needs. In addition, tax-exempt properties do not
support any of the cost, even though it can be shown that many
of them, such as governmental properties, schools, colleges,
and universities are major contributors of stormwater runoff.
Finally, property taxes are based on assessed property value.
The cost of stormwater service to individual properties bears no
relationship to the assessed value of the property. Therefore, this
method of recovering stormwater management costs might not
be equitable.
Special Assessment Districts
If a stormwater construction project benefits only a portion of
a municipality, it can be funded by fees assessed only to those
properties within that area, which is called a special assessment
district.
System Development Charges (SDCs)
SDCs (also known as connection fees or tie-in charges) are one-
time fees commonly charged to new customers connecting to
a water or sanitary sewer system to buy into the infrastructure
that has already been built for them, to pay their fair share of
the infrastructure expansion necessary to serve them, or a
combination of both. The amount of the new customer's SDC is
typically calculated on the basis of the potential water demand
that the new customer will place on the system. Stormwater
SDCs can also be developed. However, the amount of a
customer's stormwater SDC is typically tied to the area of the
customer's property.
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EPA833-F-07-012
Funding Stormwater Programs
Grants and Low-Interest Loans
Stormwater management grants might be available for various
types of projects on a state-by-state basis.
Environmental Tax Shifting
Environmental Tax Shifting is a concept that has been proposed
by the Friends of the Earth and other environmental groups to
redirect tax code incentives in a direction that would support
energy conservation and sustain the environment. In 2001 the
Environmental League of Massachusetts published a report
prepared by the Tellus Institute titled, Environmental Tax Shifting
in Massachusetts. This report discussed two creative proposals
to change state tax policy to enhance Stormwater management.
One was a pay to pave tax that would be levied "on newly-
paved surfaces on a per-square foot basis." The second was to
eliminate the Massachusetts pesticide and fertilizer sales and
use tax exemption. This would generate $1.1 million in annual
revenue in Massachusetts. The report stated that 28 other
states also exempt pesticides and fertilizers from sales and use
taxes.
o-f
U'tflf'tfes
There are three basic methods that Stormwater utilities use to
calculate service fees. These are sometimes modified slightly
to meet unique billing requirements. Impervious area is the
most important factor influencing Stormwater runoff and is
therefore a major element in each method (source: Establishing
a Stormwater Utility in Florida, Florida Association of Stormwater
Utilities, Chapter 4, Rate Structure Fundamentals).
Equivalent Residential Unit (ERU) (Also known as the Equivalent
Service Unit (ESU) method): More than 80 percent of all
Stormwater utilities use the ERU method. Parcels are billed
on the basis of how much impervious area is on the parcel,
regardless of the total area of the parcel. This method is
based on the impact of a typical single family residential (SFR)
home's impervious area footprint. A representative sample of
SFR parcels is reviewed to determine the impervious area of
a typical SFR parcel. This amount is called one ERU. In most
cases, all SFRs up to a defined maximum total area are billed
a flat rate for one ERU. In some cases several tiers of SFR flat
rates are established on the basis of an analysis of SFR parcels
within defined total area groups. Having such a tiered-SFR,
flat-rate approach improves the equitability of the bills sent to
homeowners. The impervious areas of non-SFR parcels are
usually individually measured. Each non-SFR impervious area
is divided by the impervious area of the typical SFR parcel to
determine the number of ERUs to be billed to the parcel.
Advantages
The relationship (or nexus) between impervious area and
Stormwater impact is relatively easy to explain to the public
on the basis of you pave, you pay. The number of billable
ERUs can be determined by limiting the parcel area review to
impervious area only. Because pervious area analysis is not
required, this approach requires the least amount of time to
determine the total number of billing units.
Disadvantages
Because the potential impact of Stormwater runoff from
the pervious area of a parcel is not reviewed, this method
is sometimes considered to be less equitable than the
Intensity of Development (ID) or Equivalent Hydraulic
Area (EHA) methods because runoff-related expenses are
recovered from a smaller area base. This method could still
be used to charge a fee to all parcels, pervious as well as
impervious, to cover expenses not related to area, such as
administration and regulatory compliance.
Intensity of Development (ID): This Stormwater cost allocation
system is based on the percentage of impervious area relative to
an entire parcel's size. All parcels (including vacant/undeveloped)
are charged a fee on the basis of their intensity of development,
which is defined as the percentage of impervious area of the
parcel. Rates are calculated for several ID categories. These ID
categories are billed at a sliding scale, as shown in the table
below. For example, an SFR parcel, which is categorized as
moderate development, would pay $0.16/month/l,000 ft2 (or
$1.60 for a 10,000 ft2 lot).
Category
(impervious percentage range)
Vacant/Undeveloped (0%)
Light development (1 % to 20%)
Moderate development (21 % to 40%)
Heavy development (41 % to 70%)
Very heavy development (71 % to 1 00%)
Rate per month per
1,000 square feet of
total served area
(Impervious plus
pervious)
$0.08
$0.12
$0.16
$0.24
$0.32
Advantages
The ID method accounts for Stormwater from the pervious
portion of parcels. Therefore, it can be more equitable than
the ERU method. It accounts for completely pervious parcels
and therefore can allow vacant/undeveloped parcels to
be billed. If a parcel's impervious area is increased slightly
because of minor construction modification, it probably
would not be bounced up into the next higher ID category.
This reduces the time required for staff to maintain the
billable unit master file.
D/sadvantages
Parcels are grouped into broad ID categories. Parcels are
not billed in direct proportion to their relative Stormwater
discharges. This method can be more difficult to implement
than the ERU method because parcel pervious areas and
impervious areas need to be reviewed. It is also more
complicated to explain to customers than the ERU method.
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Funding Stormwater Programs
Equivalent Hydraulic Area (EHA): Parcels are billed on the basis
of the combined impact of their impervious and pervious areas in
generating stormwater runoff. The impervious area is charged at
a much higher rate than the pervious area.
Advantages
The EHA method accounts for flow from the pervious portion
of parcels. Therefore, it is often seen to be more equitable
than the ERU method. It accounts for undeveloped/ vacant
parcels and allows them to be billed. It is perceived to be
fairer than the ID method because parcels are billed on the
basis of direct measurements of pervious and impervious
areas to which hydraulic response factors are applied to
determine a unique EHA for such parcels.
D/sadvanteges
Because pervious area analysis is required in addition
to impervious area, this approach requires more time to
determine the total number of billing units. It is also more
complicated to explain to customers than the ERU method.
of A
The following are the typical steps involved in creating a
stormwater utility.
Development of a Feasibility Study
The first step is to develop a study that provides the community
with enough information to decide if it makes sense to proceed
to implementation. The feasibility study will typically address
preliminary revenue requirements (usually from current
stormwater budgets), a preliminary assessment of the billing
area to determine the SFR billing rate, the service fee method to
use and credits to provide, the preliminary rate charge for each
ERU, and the responsible party for billing. The feasibility study is
then presented to municipal staff and officials to decide whether
to proceed with development of the utility.
Create a Billing System
If the municipality decides after the feasibility study to continue
development of a stormwater utility, a billing system is then
created. This involves collecting user data, collecting parcel area
data (such as ownership and impervious area for each parcel),
and developing a system to bill users. The two most common
stormwater billing systems are (1) a stormwater user fee with
an existing water/sewer user fee bill and (2) non-ad valorem
assessments. Approximately 80 percent of stormwater utilities
use the first approach mainly because it is cost-effective due to
the fact that an existing water and sewer billing system is already
in place.
Roll Out a Public Information Program
Critical throughout the stormwater utility development process
is a strong public education program. Many people are unaware
of the increasing cost of stormwater management and the
options to fund it. A well-funded stormwater program can help
reduce flooding, improve drought conditions, create better
fishing and recreation, and improve water quality. An organized
public information and education effort, which typically involves
the following components, is essential to the success of a
stormwater utility:
» Identifying key users and groups. Two potential groups to
target include (1) universities schools, and shopping malls
that generate a significant amount of runoff and often receive
high stormwater bills; and (2) tax-exempt properties, such as
universities, schools and churches, that do not contribute
property taxes into the general fund, which traditionally have
funded stormwater management.
» Establishing an advisory committee. Include a cross-section
of the community including representation from the university,
business, nonprofits, churches, developers and shopping
center owners.
» Creating a stormwater utility Web site. The Web site should
post appropriate progress documents and develop a
frequently asked questions page.
» Preparing pamphlets and presentations. A brochure
describing the need for the stormwater utility, rate method,
and projected rates should be prepared as well as an
electronic presentation for use at public meetings.
» Meeting with key user groups and the media. Presentations
to civic groups and the media should be given. One-on-one
meetings with customers projected to receive the highest bills
should occur.
» Distributing information before initial billing. The stormwater
utility brochure should be sent to all customers before billing.
If possible, include the customer's actual projected bill.
Adopt an Ordinance
An ordinance will provide legal authority for establishment of
the utility. An example stormwater utility ordinance from Takoma
Park, Maryland, is atwww.takomaparkmd.gov/code/Takoma_
Park_Municipal_Code/index.htm (see Title 16 Stormwater
Management, Chapter 16.08 Stormwater Management Fee
System).
Provide Credits/Exemptions
Credits or exemptions are often built into the ordinance, and can
be used to provide incentives for certain practices or relief from
utility fees to certain types of land uses. Credits should be clearly
described and can include installation of approved retention/
detention best management practices (BMPs), installation of
approved BMPs such as rainspout disconnections or porous
pavers, and educational programs for employees. Exemptions
are often granted for undeveloped (100 percent pervious)
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EPA833-F-07-012
Funding Stormwater Programs
land because the impervious area is usually used to calculate
the rate. Other exemptions can include roads (because the
municipality typically owns the roads) and parcels on waterways
(which do not discharge to the municipality's storm drain system),
although not all programs allow these last two exemptions.
Implementation
The first bill is the most important—many customers do not focus
on the new stormwater fee until they actually receive their first
bill. Customers should be notified several months in advance of
the date of billing initiation and their estimated fee. A telephone
hot line, e-mail service and website should be created to address
questions and concerns. In addition, the municipality should be
prepared to address legal challenges to its stormwater fee. The
municipality should also be prepared to maintain the master
account file, including developing a process for updating the
billing unit data for an existing customer and for entering the
data for a new customer.
rriers "to
U'titi'ti
There are typically two barriers to creating a stormwater utility:
legal and political.
Legal Barriers
In EPA Region 3, all states have legal authority to establish
stormwater utilities (Pennsylvania has a bill to clarify its legal
authority). A summary of the current or proposed legal authority
within EPA Region 3 states is presented below (cities within that
state with stormwater utilities are indicated in parenthesis):
• Delaware (Wilmington): Chapter 40, Title 7 of the Delaware
Code authorized the creation of stormwater utility districts.
• Maryland (Montgomery County, Takoma Park): Section
4-204(d), Environmental Article, of the Annotated Code of
Maryland, authorizes municipalities to create stormwater
utilities.
• Pennsylvania (Philadelphia—bills water customers for
stormwater management according to water meter size):
Pennsylvania HB88—The Comprehensive Watershed
Stormwater Act is expected to be introduced in the fall
of 2007. It requires counties to develop Comprehensive
Watershed Stormwater Plans; requires municipalities to
implement infrastructure improvements and recover costs
from counties; authorizes counties to charge annual fees and
assessments to pay for the program.
• Virginia (Chesapeake, Hampton, James City, Newport News,
Norfolk, Portsmouth, Prince William County, Richmond,
Suffolk, Virginia Beach): Section 15.1-2114 of the Virginia
Code is the enabling legislation that gives local communities
the authority to establish stormwater utilities.
• West Virginia (Fairmont, Beckley, Morgantown): The West
Virginia Legislature amended sections 8-20-1 etseq. and
16-13-1 et seq. of the West Virginia Code in 2001 so as
to authorize municipalities to include the operation and
management of stormwater systems as part of a municipal
combined waterworks and sewerage system.
• District of Columbia (D.C.: Flat monthly fee for residences;
others are billed on the basis of metered water flow):
The District of Columbia Storm Water Permit Compliance
Enterprise fund was established in 2000 by the D.C. City
Council. The legislation was titled, Storm Water Permit
Compliance Amendment Act of 2000.
Political Barriers
It usually takes at least one champion to help create a
stormwater utility, especially in the face of local political
opposition. A public information program that visually presents
the inadequacies of the community's current stormwater
management program, coupled with the benefits that have
occurred at communities with stormwater utilities would help
garner public support to offset opposition to the fee. A senior
manager (city manager or county administrator, for example),
or a senior elected official, such as the mayor, usually provides
that steadfast leadership. It is important to explain the benefit
of implementing a stormwater utility to opinion makers.
Opposition from local news outlets has sometimes been able to
stop the implementation of stormwater utilities (often by using
inaccurate terms such as a rain tax). Educational materials and
public meetings are necessary to show the financial benefit of
stormwater utilities. When the public is clearly informed of the
financial benefit to them—along with the many environmental
benefits such as improved flood control, fishing, and recreation-
support usually follows.
EPA
Wilmington, Delaware
Wilmington has a combined sewer system and used a three-
step approach to establish a stormwater utility to recover costs
related to stormwater management on a fair and equitable basis.
1. Determine stormwater revenue requirements: The city
maintained a single water/sewer enterprise fund. The city's
combined sewer costs were allocated to three buckets: a
wholesale sewer customer, city retail sewer customers, and
city stormwater customers. The annual stormwater cost came
to approximately $4.2 million— equal to approximately 43
percent of the city's total combined sewer costs.
2. Determine stormwater billing units: City staff reviewed several
stormwater billing approaches and selected the ESU method,
which would bill parcels solely on the basis of their impervious
area. The city had accurate impervious area data for all SFR
and multi-family residential (MFR) parcels. This SFR/MFR
category comprised 75 percent of all parcels. The median
impervious area of all SFR/MFR parcels was approximately
789 square feet, which was defined as one ESU. The SFR/
MFR parcels were divided into four tiers to be billed at four
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EPA833-F-07-012
Funding Stormwater Programs
separate flat rates. Condominium complex impervious areas
were calculated using geographic information system (GIS)
data. The remaining properties' impervious areas were
estimated by applying predefined stormwater coefficients
to the total property area. The impervious areas of these
properties were converted to ESUs. All parcels were to be
billed except for city-owned parcels. The estimated total
number of billable ESUs was 155,363.
3. Calculate stormwater fees: The annual stormwater cost
was increased to include bad debt and stormwater credits,
resulting in adjusted annual stormwater revenue of
approximately $5.1 million. The quarterly stormwater fee,
effective January 2007, was calculated to be $8.141 per
quarter per ESU. A four-tier rate schedule, with a fixed fee
for each impervious area tier, was established for all SFR/
MFR parcels. For all other parcels, the quarterly stormwater
charges were based on their individual ESUs. Therefore, a
parcel with 7,890 square feet of impervious area would be
billed for 10 ESUs, or $81.41 per quarter.
Takoma Park, Maryland
(www.takomaparkmd.gov/publicworks/stormwater.html)
Takoma Park established a stormwater utility in July 1996. It is
responsible for constructing and maintaining the stormwater
system, reviewing stormwater management plans, inspection
and enforcement activities, watershed planning, and water
quality monitoring.
User fees are based on the amount of impervious area on a
property. The annual fee for single family residences is $48.00
and became effective on July 1, 2003. Nonresidential and
multifamily parcels are charged a fee on the basis of their
measured impervious area as compared to the impervious area
of an average SFR parcel (i.e., the ERU method). One ERU is
equal to an impervious area of 1,228 square feet. Tax-exempt
parcels also pay the fee with the exception of property used for
public purposes and owned by the state, county, or city agency or
volunteer fire department.
Suffolk, Virginia
(www.suffolk.va.us/pub_wks/index.html)
In 2004 Suffolk spent approximately $1.5 million from its
taxpayer-supported general fund on stormwater management.
In 2006 it implemented a stormwater utility, using the ERU
method, at an initial rate of $3.95 per month per ERU. In Suffolk,
one ERU is equal to 3,200 square feet of impervious area and
is the weighted average for both SFR and MFR parcels. The
rate increased to $5.20 per month effective July 2007. The fee
is collected via property tax bills due in June and December.
Schools, state, and federal developed parcels pay the fee. They
are exempt only if they have a separate stormwater permit and
discharge directly to a body of water not maintained by the city.
National Association of Flood and Stormwater Management Agencies.
Guidance for Municipal Stormwater Funding.
www.nafsma.org/Guidance%20Manual%20Version%202X.pdf
University of Maryland, Environmental Finance Center.
www.efc.umd.edu
Indiana University-Purdue University Indianapolis. An Internet Guide to
Financing Stormwater Management.
http://stormwaterfinance.urbancenter.iupui.edu
Natural Resources Defense Council. Stormwater Strategies: Community
Responses to Runoff Pollution. Chapter 4: Funding and Gaining Support for
Stormwater Programs.
www.nrdc.org/water/pollution/storm/chap4.asp
Florida Stormwater Association, Establishing a Stormwater Utility in Florida.
www.florida-stormwater.org/manual.html
Kaspersen, J. 2000. The Stormwater Utility, Will It Work in Your Community?
Stormwater 1(1).
www. forester.net/sw_0011_utility. html
U.S. Environmental Protection Agency, Watershed Academy. Catalog of
Federal Funding Sources for Watershed Protection.
http://cfpub.epa.gov/fedfund
U.S. EPA-Paula Estornell
estornell.paula@epa.gov
Pennsylvania—Barry Newman
banewman@state.pa.us
NOTE: This document is not law or regulation; it provides
recommendations and explanations that MS4s may consider in
determining how to comply with requirements of the CWA and
NPDES permit requirements.
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