Most Important Questions
After a locality has defined the goals and scope of its stormwater utility program and has documented its existing costs, it is ready to consider how much additional revenue is needed to implement and administer the effort, to properly maintain its stormwater assets, and for future capital projects.
From a financial perspective, the key set of questions are outlined below.
Each community must grapple with the fundamental question of how much annual revenue is needed to support the desired level of service, and how urgent is its implementation, versus what is politically feasible.
The cost of stormwater management may be defined differently by various localities, as there as several programs that have a responsibility for operation, maintenance, and capital project implementation. For example, it is not unusual for a parks management operation to have responsibility for maintenance of stormwater detention basins within public lands; fleet management may have costs specific to unique equipment that is used for operation and maintenance of stormwater infrastructure; fire departments may be engaged in water quality site inspections for industrial activities in the community; or planning may oversee floodplain management and regulations. All activities should be documented in the costs of stormwater services; however, funding unique operations such as these may or may not be included in the revenue demand for the user fee. It is important to start tracking the cost of all these services and then evaluate for dedicated funding by the user fee.
The stormwater utility fee may be designed solely to support existing stormwater expenses or it could cover the full costs of an expanded program (i.e., higher level of service). This decision directly affects the size of the fee. If only the increased costs are covered, the fee will be lower and the funds that support existing costs will continue to be budgeted. If the full program cost is covered, the fee will be higher but existing budgeted resources may be reallocated to high priority programs, used to boost the local reserve fund, or returned to taxpayers through a tax cut. This decision would be made by the governing body based on recommendations from its key staff.
If the state-imposed two percent cap on annual growth in the property tax levy poses a budget problem, a stormwater utility might be a partial solution. Since stormwater-related operating costs count against the cap when funded by local property tax revenue, charging those expenses to a stormwater utility fee could free up resources.
See the Resources section for an example of how the two percent cap works or consult Local Finance Notice 2011-3R issued by the Department of Community Affairs.
The stormwater utility program may be phased in, addressing needs in a gradual manner, or a full program could be implemented upfront if current conditions (e.g., flooding, water quality) require immediate attention.
All residential properties may be charged the same rate regardless of their amount of impervious coverage (which offers greater simplicity) or a tiered fee structure or a fixed billing unit per square feet of impervious area could be considered (which offers greater equity).
New Jersey’s enabling statute mandates that property owners who install stormwater mitigation measures that meet or exceed regulatory standards or involve green infrastructure be offered partial credits that reduce their fee. A local credit policy should strike a balance in two respects:
1) between stormwater mitigation and total revenue reduction and;
2) The sheer number of different credit types and administrative complexity.
Each locality must determine how the credits should be structured (i.e., percent of the fee cost that is offset). That decision will impact projected fee revenue.
The primary cost for investigating the viability of a stormwater utility is a feasibility study which analyzes local circumstances and identifies a recommended course of action. Most localities contract with a consultant for this work, the cost of which varies across communities based on several factors, most prominently the availability and quality of parcel data, degree of public involvement, complexity of the service program, reconstructing the cost of the current level of service, and the level of detail in the study. There are very few funding sources to offset this cost, but one option is to front the expenses from the local budget with a subsequent reimbursement from stormwater fees when the utility is operational.
For a full list of other potential funding sources, see here.
Yes. Localities typically create a dedicated fund for this purpose. This helps explain the utility to the public and eases annual reporting to the Department of Community Affairs.
Certain ongoing services, such as street sweeping, are fairly stable and lend themselves to a pay-as-you-go approach. However, if there is a pressing need for a large capital investment, stormwater fees can be used to pay debt service expenses. While a balance must be struck, this “self liquidating” utility debt would not count against the local borrowing capacity.
If neighboring jurisdictions are open to the concept, a regional stormwater utility could realize savings in areas such as planning and feasibility studies, data collection, billing, and outreach, thus lowering the stormwater fee.
See our section on Regionalization: Pros and Cons for further information.