What Is A Stormwater Utility Enterprise Fund? Part Two of an Ongoing Series

Read Part One: Be Prepared With Your Funding of Expanded Stormwater Services

In late December of 2019, the U.S. Environmental Protection agency released the proposed settlement agreements for Massachusetts and New Hampshire Small Municipal Separate Storm Sewer System (MS4) permits to public comment. This event marks the beginning of regulatory requirements that will require communities to spend a great deal of time and money to upgrade and expand their stormwater collection and detention system. Up to now most communities use their general revenue funds to pay for the occasional repair and maintenance of their municipal drainage system.  In light of greater regulatory requirements, aging drainage systems, and tighter municipal budgets, over 1,000 communities have moved to a fee-for-service system, or enterprise fund, to pay for their stormwater needs.  Currently, there are approximately 21 communities in Massachusetts that have set up stormwater enterprise funds.

What Is A Stormwater Utility Enterprise Fund?

An enterprise fund is no different from the way other utilities are paid for, like water, sewer, gas and electric. It collects a fee that is exclusively dedicated to recover the cost from each property to safely collect, convey, detain, treat and dispose of stormwater coming off their land.  Fees charged for stormwater are more fairly and equitably calculated to represent the demand that a property requires for services. This is generally seen as more equitable than a system based on property value, since the overall value has no impact on amount or quality of stormwater.

What Are The Legal Requirements?

There are three legal requirements that courts reference when considering legal challenges to stormwater fees. 

• First, it must be voluntary.  Rate payers must be offered an opportunity to reduce their fee by managing stormwater on their own property. 
• Second, the fee must serve a regulatory purpose. Stormwater has any number of regulations that satisfy this requirement: public safety, NPDES MS4/TMDL, source water protection, floodplain management, and wetland protection, just to name a few.  
• Third, fees must be proportional to the services received. Put another way, are customers “getting their money’s worth”. This requirement is satisfied by the methodology used to compute the fee and by what services the fee is paying for.

How Are Fees Determined?

Most commonly, stormwater fees are based on the amount of impervious area on each property. The base unit is the Equivalent Runoff Unit (ERU).  Similar to gallons in a water utility or kilowatt hours in an electric utility, the ERU represents the cost of services provided to single family customers.  Single family customers are usually the largest customer class in a utility and typically have similar runoff characteristics. All other customers are then charged based on the ERU and how their impervious area compares to the impervious area of single-family customers. 

There are many variations to this basic model that communities apply in an effort to make the system for calculating fees fairer and more equitable.  Some of these modifications include the use of flat or uniform fees, a system of tiers where higher tiers pay for higher number of base units (ERU), equivalent hydrologic area where properties are charged based on a calculation of the volume or rate that runoff leaves their property and multipliers on charges based on the intensity of development (percent imperviousness).

Next Steps

The next steps to investigate the formation of a user fee system and enterprise fund for stormwater management is the preparation of a Feasibility Study to “get your ducks in a row”.  The Feasibility Study compiles information that decision makers and the electorate need to make an informed decision that an enterprise fund is in the best interest of the community.  The Study looks into detail 1) what services, activities and projects the funds will be used for, 2) what is the most fair and equitable method for allocating program costs to customer, and 3) what needs to be completed to begin to collect fees.  If there is uncertainty if an enterprise fund is a good fit, an inexpensive first step is to complete a “Does It Make Sense” or DIMS workshop that involves select decision makers that are guided though general discussions about the elements that will be covered by the Feasibility Study.

The second step is the Implementation Phase that includes 1) adoption of legislation authorizing the formation of the enterprise fund, identification of how it will be operated and explain how charges will be calculated, 2) adoption of legislation or policy for providing credits and other adjustments to charges due to specific on-site management practices or conditions, 3) compilation of a customer billing file that contains supporting information needed to prepare stormwater bills, 4) modifications/adjustments to the existing billing software to accommodate the addition of the stormwater fee, 5) modifications/adjustments to the organizational responsibilities of departments within the community, and 6) development of a public education and outreach campaign.  Successful communities begin public education and outreach as soon as the Feasibility Study.  From the beginning the campaign disseminates information to build a consensus of support from elected officials and key stakeholders (rate payers) and builds to gain support from the entire community.  

Read Part Three: Fair, Equitable, and Legally Defensible Stormwater Enterprise Funds