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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                                                                                                           EPA833-F-07-012
                                                                                   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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