March-April 2001

Buddy Can You Spare A Dime? What's Stormwater Funding?

What are the options when it comes to paying for a stormwater management program? There may be more than you think.

When I'm asked about funding sources for stormwater management programs, I think back to 1992, when I first started thinking about flooding. As our program in Griffin, GA, evolved from dealing with flooding issues to becoming a stormwater management program, it was important to remember that stormwater is a nontraditional issue and will be for some years to come. Understanding stormwater management problems and their solutions requires professionals to do some out-of-the-box thinking. Even now, in our own professional world, we still have a difficult time defining the roles and responsibilities. How can we expect local government officials and our citizens to accept the challenges of funding such programs if we are still coming to resolution?

In a world of re-engineering, downsizing, and tax-reduction legislation, we must do a better job of educating all the actors to what these programs are and how they will operate within our watersheds. The key is having a "program." It's hard to sell anything to anyone without an agenda, a plan, and a schedule. A well-organized plan and strategy will impress the financial world, instrumental as it is to obtaining appropriate funding.

Stormwater has primarily been a flooding issue for years. People can see roads under water and damage done to homes only while it is raining. Unfortunately, it does not rain most of the time, and citizens and commissioners soon forget about the problems. How can we expect these same folks to understand the financial needs for water-quality issues as well as flooding? You can't even see it! The following information will give you a place to start looking for traditional and nontraditional funding sources for our stormwater programs. I've included some examples from Griffin to illustrate how we've made use of many of these resources.

Stormwater Utilities (Service Charges)

Stormwater utilities are developing over time, as did water and wastewater user fees. Historically, stormwater management has been financed with revenues from property taxes. However, because runoff puts significant demand on our stormwater management systems and because it is quantifiable in measurable runoff units, the stormwater utility or user fee system provides a dependable, equitable, and stable funding source necessary for the financing of our service delivery system. It ensures equitable distribution of costs while providing a management tool to guide the program. A stormwater utility is tailored for the specific stormwater management needs of the community as directed in the feasibility studies conducted before establishment of the utility. Water quantity and quality have been and will be necessary to address continual maintenance and the replacement of system segments, which wear out and require regular maintenance.

Through the utility, a program will be developed and the ratepayer will only pay for the demand that his or her property places on the system. A community establishing a utility generally must address the following components: institutional considerations, rate analysis, exploration of all potential additional revenues and their uses and allocations, the actual creation of the utility, and public information programs to support the program.

Example: In 1992 the City of Griffin faced the challenges of undersized infrastructure, the lack of storm drainage systems, and a system in bad repair. Furthermore, Griffin had been identified as a National Pollutant Discharge Elimination System (NPDES) Phase II candidate, and the city was identified as a contributing source to a listed stream segment under EPA 303(d). Griffin began to investigate options for funding of the nonpoint-source program. After due diligence and several years of program review, the City of Griffin concluded that the best way to establish a permanent program was to create an enterprise fund and establish a utility in 1998—Georgia's first.

The stormwater utility has paved the way for geographic information system, or GIS, inventory and mapping, hydrologic and hydraulic modeling, watershed assessments, and capital improvement planning, not to mention the daily operation and maintenance of the storm sewer system. This proactive approach to dedicated funding enabled Griffin to pursue other support funding sources and revenues.

The utility produces an annual revenue stream of $1.3 million. Its user fee is set at $2.95 per equivalent residential unit (ERU), and each ERU is 2,200 ft.² The system has approximately 35,000 ERUs. The utility has no exemptions. It has credit mechanisms for detention, education, and—coming soon—water quality. The utility is supplemented with many of the revenues sources identified in this article.

Stormwater Revenue Bonds

Generally these bonds provide the funding for building infrastructure, the assets of a stormwater system. In most cases, a stormwater utility is the identified dedicated revenue stream cited to demonstrate ability to pay back the bonds. Revenue bond investors, such as Moody's or Standard & Poor's, review the utility's ability and willingness to repay the debt.

Revenue bonds are reviewed according to four guidelines: (1) current and future debt position, (2) experience of financial performance, (3) economic strength of the service area, and (4) management's abilities to operate the system and conduct payback of the debt. In most cases, the local government has established an enterprise fund financed through stormwater utility fees. To successfully secure stormwater revenue bonds, the utility should have developed a stormwater master plan, a capital improvement plan, and a history of collection. These three factors will demonstrate the calculated need and identify the net revenues required to pay back the acquired debt. This debt service usually is structured to be paid back over a period of 10-20 years.

Example: The City of Griffin has $5 million of projects assembled for the issuance of revenue bonds.

319(h) Nonpoint-Source Implementation Grants

These are formulated grants provided to the states to implement nonpoint-source mitigation projects and programs in accordance with Section 319 of the Clean Water Act. Examples of projects that 319(h) grants cover are implementation of best management practices (BMPs) in agricultural settings; implementation of BMP systems for lake, estuary, or stream watersheds; and basinwide education programs. These grants are funded federally for 60% of the cost of the project, with a local match of 40%.

Example: The City of Griffin constructed wetlands in an urbanized area using 319(h) funding. Griffin acquired 5.5 ac. for a regional detention pond and water-quality treatment chain. The facility holds 1 million gal. of water, and the pond has constructed wetlands on the interior and natural wetlands outside the outlet structure. The stormwater management facility treats more than 180 ac. of urban runoff.

Special Purpose Local Option Sales Tax

This funding option is available in several states. The Special Purpose Local Option Sales Tax (SPLOST) is established in a county election to collect a 1% sales tax for designated projects. The tax is levied for a period not to exceed five years. A designated list of projects is developed, marketed, and presented on the ballot. The revenue from this sales tax must go to those items listed on the referendum.

Sales-tax revenues can be used either to fund capital projects directly or to provide debt service for bonded improvements over short retirement schedules. SPLOST cannot used to pay for traditional operating expenses.

Example: The City of Griffin received $1 million in SPLOST funding to construct a regional detention facility.

Hazardous Mitigation Grant Program

The purpose of this funding source is to provide financial assistance to state and local governments for projects that reduce or eliminate the long-term risk to human life and property from the effects of natural hazards. The grant program has 75% federal and 25% local contribution. The nonfederal share may be met with local cash contributions, in-kind services, or certain other grants such as Community Development Block Grants. The Federal Emergency Management Agency makes the final decisions on project eligibility, but the state agencies administer the program. Eligible projects include acquisition of property, retrofitting of buildings, development of standards with implementation as an essential component, and structural hazard control or protection measures such as dams and sea walls.

Example: Griffin had a road, classified as a major collector, with a traffic count of more than 75,000 vehicles a day. During significant storm events, this road would flood and cut off emergency vehicle access for extended periods. Furthermore, the water was backing up into the upper basin and flooding homes and businesses. Griffin demonstrated the need to mitigate one business and review other mitigations in the future.

Clean Water State Revolving Loan Fund

The City of Griffin constructed wetlands in an urbanized area using 319(h) funding.

The city received $1 million in SPLOST funding to construct a regional detention facility.

Initially funded with federal and state money and continued by repayment of earlier loans, State Revolving Funds (SRFs) provide low-interest loans for stormwater programs—usually a small fixed interest rate of 3-4% and the closing cost. Nonpoint-source funds may be utilized for major capital equipment, capital projects, and associated engineering costs related to the projects. The Clean Water Act of 1987, Section 606, requires each state to prepare annually an Intended Land Use Plan identifying the use of funds in the Clean Water SRF.

Example: Griffin was awarded a $2.67 million loan for five capital construction projects and a major piece of stormwater equipment.

System Development Charges

Sometimes referred to as capital recovery charges, system development charges are designed for utilities or local governments to recover their fair share of public monies previously spent in excess of the infrastructure capacities. The system development charge provides for deferral of participation in the capital costs until a particular piece of property associated with the system is developed and utilizes the system's capacity. This capacity was calculated and built into the system for future use.

These costs can be calculated growth-related projections, system buy-ins, marginal incremental cost, or value-of-service derived. Operating expenses usually are not part of the formula, only capital costs.

Impact Fees

This financial tool involves charging a fee to developers, for example, based on the impact new development will have on the stormwater system. Although available to some, it is a highly litigated issue across the nation. Communities applying impact fees must develop a sound and rational model, quantifiable by proven numbers, before implementing such a fee. Justification and due diligence are definitely key for successful implementation.

Stream Restoration Mitigation Bank

Hazardous Mitigation Grants provide financial assistance to state and local governments for projects that reduce or eliminate the long-term risk to human life and property from the effects of natural hazards.

Griffin was awarded a $2.67 million loan for five capital construction projects.

This relatively new financial tool will gain wider acceptance as watershed management and development continue to occur. It can be a public or public/private relationship tool. Communities assess their streams for restoration, preservation, and enhancement, then submit a plan to the Army Corps of engineers for approval and the establishment of the bank. If local governments develop the bank on their own, they can sell the credits for the restoration of the stream segments. If a partnership is established, a bank is created and credits sold for development of the streambank program. There are also other sundry ways to develop this type of program funding tool.

Example: The Griffin bank was established through a public/private relationship. A private contractor is developing the bank administration and will sell the credits. The City of Griffin will be the recipient to receive, over a 15-year period, $6.6 million of restoration, preservation, and enhancement of 84,129 ft. of stream segments, along with 10% of the credits for use in future projects.

Surface Transportation Program

This federally funded program, known as TEA-21, can be used by local governments for any roads not functionally classified as local or rural minor collectors. Each state sets aside funds for transportation enhancements, which can include but are not limited to such activities as wetland mitigation and implementation of control technologies to prevent polluted highway runoff from reaching surface water bodies. This program also funds other enhancements not linked to watershed-related projects. Local governments, profit and nonprofit entities, and colleges and universities may be eligible for this funding, which is usually 80% federal funding and 20% local match.

Example: In Griffin, TEA-21 funding was used for evaluating pollutant removal systems along a state highway system. The two-year project is designed to establish baseline data on a stream segment that is on the 303(d) list. The project will construct BMPs and test for pollutant removal efficiency of the systems either as stand-alone systems or in a treatment train.

Conclusion

Numerous other funding mechanisms are available for stormwater management programs, such as review fees and inspection fees. There are various publications on public/private relationships assisting with either financial or in-kind programs. Two important documents that can start your program in the right direction in the search for supplemental funding are the 1997 Catalog of Federal Funding Sources for Watershed Protection—EPA 841-B-97-008, available through www.epa.gov/—and Directory of Funding Sources for Grassroots River and Watershed Conservation Groups from the River Network, www.rivernetwork.org.

Traditional funding approaches are a thing of the past. The key to acquiring funding, either traditionally or creatively, will be your ability to educate and to promote a nontraditional program.

As professionals, we will get better at promoting our programs. This will make competition keen and monies less readily available as more programs compete. Staying on the edge will allow for innovative thinking. Keep looking daily for your options and innovative ways to meet the funding of this atypical creature called stormwater.