Federal water quality standards have resulted in an increasing emphasis on the way communities deal with stormwater. More and more every day, municipalities are faced with revenue requirements for stormwater that are becoming similar to water or wastewater utilities – administrative expenses, operation and maintenance expenses, debt service obligations, and contributions to reserves. Acquiring traditional grant, loan, and tax funding for stormwater treatment infrastructure can be difficult. As a result, some utilities have developed non-traditional strategies for covering stormwater costs. Regardless of the method, public education targeted to generate support is important.
As communities develop stormwater management programs, the financing mechanisms and revenue sources for implementation of a successful program are major considerations. The capital investment required to start-up and build-out stormwater infrastructure is significant, and often must include a combination of fees from developers and additional financing. This article outlines multiple financing mechanisms and revenue-generating mechanisms in the Funding Toolbox.
Typically, stormwater utility fee structures generate revenue through a monthly, quarterly, or annual maintenance charge intended to cover operation and maintenance, reserves, and debt payments. In addition, system development charges, special assessments, and other fees are directed toward capital and debt repayment associated with the system or reserves designated for system expansion or replacement. These topics are presented in terms of the “Funding Toolbox.”
The Funding Toolbox
When talking about funding the utility, it is important to recognize the distinction between debt financing and ongoing revenue streams. Debt financing mechanisms such as State Revolving Loan Funds, other State capital finance programs, and traditional bond funding (General Obligation Bonds, Revenue Bonds, etc.) enable the utility to access funds needed immediately and repay debt over time. Ongoing operating and non-operating revenue streams are comprised of revenue-generating tools that can be used to repay any debt as well as fund ongoing maintenance and capital requirements of the utility.
Links to State Financing Contacts:
- Minnesota Public Facilities Authority
- Montana Water Pollution Control State Revolving Fund
- North Dakota Public Finance Authority
- South Dakota Clean Water State Revolving Fund
- Wisconsin Environmental Improvement Fund (EIF) Loans
- Wyoming Clean Water State Revolving Fund
Revenue-Generating Tools
A variety of mechanisms are currently utilized by stormwater utilities throughout the region to generate revenue. When a stormwater utility is established, it is critical that policy related to the use of revenue-generating mechanisms is established to form the basis for consistency and fairness as the community and utility continues to develop. A list of common revenue sources is shown below. The benefits of one over the other depend on policy and the desired accomplishment.
- Taxes
- Sales Tax are often voter-enacted for a specific purpose.
- Property Tax funded stormwater systems. Although originally utilized, it is not considered as the best or fairest way to generate revenue based on system usage.
- User Fees
- Rate Revenue
- Grants
- Growth-Related Revenues
- Tapping/Impact/Latecomer Fees can be used to capture prior public investment in trunk infrastructure related to growth.
- System Development or Impact Charges have rules that vary by State.
- Developer-Funded Infrastructure.
- Special Assessment Revenues
- Municipal Assessment District may only be spread to incorporated parcels.
- Initial Districts
- Future Districts – i.e. assessments held in abeyance
- Water Resource/Watershed Districts – often allow benefitted districts to cross traditional jurisdictional boundaries.
- Municipal Assessment District may only be spread to incorporated parcels.
Stormwater Utility fees and associated funding mechanisms are continuously evolving as regulations develop and precedents are established throughout the industry. If you are considering establishment or refinement of a user funded stormwater utility, it is in your best interest to thoroughly understand the current state of industry and ongoing developments regarding policies and the tools available in your “Funding Toolbox.”