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A look at some of the options for municipal programs. By Lynn Merrill With all the demands on municipal governments to fund a variety of services from public safety to after-school recreation, finding the money for stormwater management programs can be a challenge. In the hierarchy of public needs, elected officials can be hard pressed to put a priority on cleaning catch basins and installing trash racks when their constituents are calling for more gang-intervention programs and fixing potholes. For the stormwater manager, trying to secure a bigger piece of the shrinking general fund pie might not be the most promising option. Other funding opportunities are out there, but it takes creativity, a lot of public education, and strategic alliances to make them happen. The traditional source of funding for stormwater programs is the general fund of the local municipality. These funds are usually generated from a variety of sources, including property taxes and sales taxes. General funds are usually unrestricted, but because they are derived from taxes, in recent years the tax revolution has placed significant restrictions on the amounts and uses of taxes, limiting the growth of the tax rates and restricting the types of uses. In addition, increased demand for public safety and homeland security has put an added pressure on the general fund demands. If you examine the budget of the typical city, you'll find that 60% or more of the general fund is committed to police and fire services. Public works and infrastructure maintenance, where stormwater programs traditionally are found, often receive 5% to 7% of the total of the typical jurisdiction's general fund. As more efforts are placed on National Pollutant Discharge Elimination System (NPDES) program development, and as the effects of various total maximum daily load (TMDL) measures on watersheds are further realized, funding sources that can address these more aggressive needs have to be developed. A variety of funding mechanisms is available but must be tailored to the political and socio-economic demographics of each jurisdiction, whether it's a city, county, or regional agency. The purpose of this article is to provide a mid-altitude look at some of the various funding tools that local stormwater managers may have in their shopping bag. These tools have various benefits and limitations, so thoroughly researching the options is critical to determining their applicability. In addition, various local legislation or philosophies might make certain tools that are usable in one state useless or impractical in another. One tool doesn't necessarily fit all, and even the same funding tool may have local variations and restrictions that have to be considered before use. Enterprise Funds Because most enterprise funds are embedded into a municipal government structure, various indirect expenses are usually allocated to the enterprise funds and typically include costs associated with overhead and administration, such as human resources, financial, and legal services, as well as fleet maintenance, facilities, and other costs. These indirect expenses are allocated to the enterprise fund on a cost-allocation basis, usually through a comprehensive study that determines the "fair share" of these overhead costs to the enterprise fund. Revenues are derived from fees that are established by the governing body, usually a city council, board, or commission. These fees are based on the delivery of a measurable service unit, whether it's the cost of picking up the trash at the location or the cost of processing the quantity of sewage or stormwater estimated to be generated by the location. Although in some cases the fees are a mandatory charge resulting from health and safety needs—for example, weekly refuse collection—other portions of the fee may be based on the desired services that the location voluntarily elects to receive. Water and wastewater services are well suited for enterprise funds because there is a unit of measurable service resulting from the service usage by the property owner. Stormwater services are increasingly being considered for enterprise funds as well, but because the services are not always as apparent to residents and businesses, establishing a stormwater enterprise fund or utility is often controversial. (See, for example, the article The Price of a Utility" in the July/August issue of Stormwater , www.stormh20.com/sw_0507_price.html. ) Ongoing services such as street sweeping and catch basin cleaning might be good candidates for inclusion in an enterprise approach and might be integrated into the cost of such existing enterprise funds as refuse collection. Water services fees usually include fixed capital costs, also known as standby costs, in their rates. In other words, there is a cost of having the infrastructure system available and standing by, just in case you would like to use it. Stormwater programs can use similar approaches based on the needed infrastructure. However, the challenge facing the stormwater manager in establishing the fixed system's costs is in establishing an allocation approach that would be equitable for all users. Various strategies using impermeable surface area as a factor for calculating potential runoffs are good, but actual use of the system depends on the quantity of actual runoff. Detailed engineering and feasibility studies would need to be undertaken in order to develop appropriate—and, more importantly, legally defensible—fee structures under an enterprise fund approach. Because the cost of performing such studies for every parcel of land is prohibitive, some programs choose to charge a flat rate for properties with similar land uses, or to charge a flat rate for residential parcels and perhaps calculate the rate separately for commercial and industrial parcels. Special Districts Such efforts as annual catch basin cleaning, operation and maintenance of oil or grease interceptors, maintenance of trash racks in storm channels, and other annual costs could be included in the service package for the assessment district. As with enterprise fees, the challenge is the allocation of cost back to the property owner and the nexus between the service delivered and the cost paid. However, unlike enterprise funds, the cost of the service is based on property ownership in the district, not the actual use of a service. A vacant piece of property might be assessed the same unit cost as an adjacent house; this might raise equity issues that should be considered and addressed during the formation of the assessment district. In many cases, assessment districts are formed at the time large parcels are subdivided and developed. In California, for example, in order to form an assessment district to provide landscape maintenance, all the property owners in the proposed district must vote. Obviously, if a single owner controls the entire parcel, such a vote would be relatively straightforward. But in the event that a district is proposed for an existing tract of developed property, a majority of property owners must vote positively for the assessment district, with various limitations. Politically, the challenge in establishing an assessment district is that the elected official is asking each property owner to pay a fee for a service that directly benefits the affected property owners. Such fees are usually included on the tax bill as a separate assessment, and there is no ability for the property owner to opt out of the district once it is established. Development Fees Many jurisdictions have adopted fees that deal with the cost of designing, implementing, operating, and inspecting onsite stormwater runoff prevention programs. But such fees can also be used for funding infrastructure improvements to stormwater management programs. Although traditionally fees are added for a stormwater drainage system, the cost of installing offsite infrastructure to handle oil-saturated runoff from the additional vehicles that will now travel along public streets to get to a new development should also be considered. The limitation on the use of development fees is that they represent a one-time payment and therefore cannot be used for ongoing system maintenance and expansion of the various programs and projects to meet increasingly stringent regulatory mandates, such as TMDL adoption for a waterway. In addition, there must also be a reasonableness test" between the fee charged and the use of the funds. Jurisdictions that expect to use development fees as a method for funding the infrastructure improvements needed for stormwater should develop and adopt comprehensive plans that establish the basis for the fee. Bond Financing Recently, the City of Los Angeles adopted a bond measure that provided $500 million for stormwater programs. Unlike our wastewater funding, which comes as a charge on the water bill, we have a stormwater program that was funded about $25 million a year," says Christopher Westhoff, assistant city attorney and public works general counsel for the city. It was totally inadequate to really do all the things that needed to be done for all of the regulatory TMDLs. Our stormwater protection division together with our chief legislative analyst office and our chief administrative office decided that a bond measure to provide capital money for projects that would have a positive impact on water quality would be a good way of providing some of the funding." According to Westhoff, getting passage of a bond measure can be a challenge. "As everybody knows, it's not easy to get a bond measure passed, because in essence the voters are voting to tax themselves. You'd better have a pretty strong argument on your side. We formed a fairly broad-based coalition with the environmental activist community, the regulatory community, and the city in an effort to go out and speak with one voice as to the need for the funding." Critical to the success of the bond measure was the fact that the city had spent the last decade educating the public about the issue of water quality. "The whole process started a lot sooner," Westhoff says." We have been attempting to educate the public in Los Angeles as to the need for water quality and the cost that the projects would amount to as you proceed down the TMDL path trying to accomplish the protection of the water quality. When it was decided that we would try and put a ballot measure on to raise the funds, we in essence used our 10 years of prior education as the foundation upon which to go out to the public and point out to them the need for the bond measure." Bond financing is an extremely viable tool, says Westhoff, if you've done your homework. "There are obviously some foundational requirements that you want to look at," he suggests. "First of all, you better have a good bond rating so that you can get a low interest rate. If you have a fiscally sound city, certainly bond financing is an appropriate way to go about financing long-term infrastructure needs. I think the other prerequisite is that you have had a public education program out there so that the issue isn't hitting your voters cold, so that they understand the needs for water quality and the importance of the funding that is required to meet water-quality standards. Then—and this is probably the key—you have to have a strong coalition of your regulated community. In this case the city is the regulated community, your regulators, and then your environmental activists' community. In this particular instance we had a very strong coalition of all three groups and everybody was rowing together in the same boat in the same direction. And it was only because of that, and because of the strong public education program that we had engaged in over the last decade, that we feel we were able to be successful because the public understood the importance of trying to fund the infrastructure necessary for water-quality improvements." Grants Grant programs are not necessarily looking to fund cutting-edge or innovative programs, says Denise Landstedt, a senior project manager with Psomas in San Diego, CA. Landstedt's firm provides a variety of grant-support services to jurisdictions, ranging from assistance in preparing the grant application to full grant management. "There are a lot of projects and programs that improve the quality of water, or benefit disadvantaged communities, that they couldn't otherwise do without the grant funding," she notes. "Funding can benefit disadvantaged communities and get them the quality of water or ecological or environmental benefit that they otherwise couldn't get. A lot of the projects and programs capture urban stormwater runoff and clean it up, especially where there's a lot of coastal pollution. Some of them are innovative; some of them are just standard projects that are required by certain new regulations. However, if there is an innovative project out there, you have to show what the benefits are going to be from that and how it can be transferred. There has to be an element of transferability to other agencies." Grant programs are not a substitute for operation and maintenance funds, and jurisdictions should not look to grants to supplant their general funds. The grant program typically will request that you identify the source of funding for ongoing O&M after the project is built and the ongoing commitment to the project," says Landstedt. The more you can demonstrate that, the more competitive you will be." She notes that many projects are completed in phases. "If you're going after grant funds for phase one, which many projects do just to get the initial phase up and running, [the funding agency] will also request that you demonstrate how you're going to fund those future phases. A funding agency is going to put money into that first phase but isn't really going to get the benefit back on their investment; they want to see that you're committed to the other phases and how you're going to fund those," she explains. "The legislature, whether it be federal or state, wants to know the benefit for the money they're giving out. They want projects being built for the money. Sometimes agencies will get awarded the funds and nothing will happen and projects don't get built. They don't want to do that anymore—they want the absolute commitment that they're going to get built." Grant programs are highly competitive, and Landstedt suggests several steps that will improve the competitive advantage of a grant application. "First and foremost is to be absolutely ready to proceed. Make sure your project is ready to go upon grant funding, or really almost ready to go at the time that you write the grant proposal. When a funding agency grants money, it wants to see you're going to get on the ground and make that project happen," she says. "Working closely with the funding agency is also critical. Communication with the funding agency is key to making your project and your organization almost a partnership with the funding agency. Through this communication, you can identify the true intent of the funding source, and therefore you can write your grant proposal and tweak your project and your proposal creatively to fit the intent of the funding." Landstedt suggests learning the history of the agency's previous award selections. "If it's a cyclical program, an ongoing or continuous program, find out what the funding agency likes to fund, how many projects they've funded through certain funding sources, and see if you can't have a project fit that." Other Programs "We looked at a program to actually fund two things," states Richard Napier, executive director of the City/County Association of Governments of San Mateo County. "It was to fund [traffic] congestion relief and stormwater programs as they relate to the automobile. To a large extent, the automobile does not really pay its way relative to the impact that it has. In our stormwater program, a great deal of time is spent on source control, street sweeping, and keeping things from running into the [San Francisco] bay. A large portion of that is tires when they wear, brake pads, oil, gasoline, anti-freeze, all sorts of things; when it rains it just washes right into the bay. There really is an extremely strong nexus to the automobile." Napier emphasizes that the vehicle license fee is different from a personal property tax. "It's a fixed dollar amount, and the way we did the legislation, we asked the state to authorize my board to assess up to a $4 motor vehicle fee. Half of that, or $2, would be used for the stormwater program." "When the new program goes into effect, it is expected to add an additional $2.5 million to the program's approximately $1.3 million of current funding. These things don't raise a huge amount of revenue," says Napier. "We're probably a medium-size county, so it almost doubles the size of the program. It can be reasonably effective. A lot of the day-to-day stuff comes out of the individual cities' and the county's budget, and there is a lot more money needed. When you think of trying to fully fund the stormwater programs, we're still a long way from it. This is a source that won't be able to get us there, but it does help." "The program required action by the state legislature and a signature by the governor, no small feat given the politics of California. One of the reasons that I think that we were successful is that we had huge support from business, labor, environmental groups, chamber of commerce, cities, county—everybody was supporting it," recalls Napier. "And, secondly, I think one of the key things in getting the governor's signature was that it was a self-help-type deal. It was a tool for the locals to address their own problem. We were successful in spite of the fact that when the new governor came in, he immediately reduced the vehicle license fee." While having to get the state legislature to adopt a local funding mechanism for stormwater may seem extreme, picking elements from the various funding tools and combining them into structures that can obtain broad, cross-sectional support will be key to meeting the demands for more stormwater-quality programs. Frequent contributor Lynn Merrill is a consultant based in southern California.
SW September/October 2005 |
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