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Home My WebLink AboutIR 872511 INFORMAL REPORT TO CITY COUNCIL MEMBERS To f and Members of the City Council SUBJECT: Stormwater Management Funding toll 111SE121m to all lUdE11111140-kWA2146:10 City, county, and special-district stormwater management programs in Texas, and across the United States, employ a number of mechanisms as their primary source of funding. Stormwater service fees have been adopted in more than 400 communities nationally to wholly or partially pay for stormwater management programs. They are most commonly implemented under the auspices • a "utility." Several Texas cities, including Arlington, Austin, Dallas, Irving, and San Antonio, have established stormwater utilities. The attached report summarizes the Stormwater Service Fee funding mechanism available to the City of Fort Worth to support an enhanced stormwater management program. At the workshop, we will be proposing an enhanced Stormwater Program, rate methodology, fee structure, and capital improvement program for your consideration. We hope the information provided in the attached report will hefpI prepare you for this discussion. If you need additional information please contact Robert Goode, Transportation and Public Works Director, • 817 392-7913. RUV= Ll City Manager �111=1 ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS w� FORTWORTH f Stormwater Management Funding Transportation and Public Works Introduction This report summarizes the Stormwater Service Fee funding mechanism available to the City of Fort Worth to support its chosen stormwater management program City, county, and special- district stormwater management programs in Texas and across the United States employ a number of mechanisms as their primary source of funding. Common sources include property and other general taxes, service fees, franchise fees, sales taxes, income taxes, gas taxes, user fees, and capital recovery fees. Stormwater service fees have been adopted in more than 400 communities nationally to wholly or partially pay for stormwater management programs. They are most commonly implemented under the auspices of a "utility". Several Texas cities, including Arlington, Austin, Dallas, Irving, and San Antonio, have established stormwater utilities. Stormwater Service Fees Texas cities are empowered to establish stormwater utilities and adopt stormwater service fees under Section 402 of the Texas Codes, which specifically authorizes "municipal drainage utilities ", or NMUs. Over a dozen Texas cities have shifted to utility funding of some or all of their stormwater management costs in the past decade. For most, service fees are a primary funding mechanism for their stormwater management programs. Stormwater management utilities are treated as enterprise accounting units by most Texas jurisdictions. Service fees appropriately constituted and adopted to support such enterprise accounting units can be set and increased by locally elected officials without a ballot measure. Fees (service charges) are tied to the objectives and costs of a specific function or facility. They are not established simply to generate revenue. For example, utility service charges for water supply, wastewater treatment, stormwater management, and solid waste are structured to recover the cost of those programs, not to generate revenue that is then used for other purposes as well. The fee each customer is charged must be related to its use of or impact upon the facilities or services funded by the fees. Fees must have a substantial relationship to cost of providing the services and/or facilities. Equity of funding is a key consideration in designing and applying a service fee. Stormwater service fees may be applied to tax - exempt (public) properties as well as privately owned taxable properties, which broadens financial participation. As noted below, credits can be given against stormwater service fees to encourage and reward responsible stormwater management. Credits may also compensate for activities performed by property owners that are beneficial to the City's stormwater management program The stability of revenue from a Stormwater service fee ensures that long -range scheduling of capital improvements and operations can be dune with reasonable assurance that funding will be available.. City of Fat Worth Stormwater Management November, 2005 Fwding Page I of 3 Service fees for enterprise funds are considered dedicated funding that cannot be diverted to other uses. This encourages accountability and long -term stewardship of the financial resources. Monthly Fees Monthly residential stormwater service fees in Texas typically range between $2.00 and $6.00, although some programs charge $10 and even more. The revenue generated by a periodic stormwater service fee is a function of the design of the rate structure and the make up of the community. Rate Methodology The design of a stormwater service fee rate structure can be relatively simple or very complex. Rates may include regular periodic charges to recover on -going costs of services and facilities and also one -time or infrequent charges intended to recover the expense of specific services, such as plan review fees. The rate structures currently in use by Texas cities tend toward the simple end of spectrum, and most are based on impervious area and/or land use characteristics. The statute prohibits charging stormwater service fees to undeveloped properties, which may influence the preference toward an impervious area rate structure. A majority of stormwater rate methodologies are based solely on the amount of impervious area (roofs, paved areas, etc.). Impervious coverage increases both the proportion of rainfall that runs off the land and the peak rate of discharge. Service fee rate methodologies based solely or primarily on impervious area are used in more than two hundred other counties and cities, including several in Texas. Equivalent Residential Unit (ERU) City of Fort Worth stormwater Management November, 2005 Funding Page 2 o €3 11 i times as much impervious area as the house. Thus, in the example the commercial property would have forty ERUs. Under most stormwater service fee rate structures, such a commercial property would be charged about forty times the fee billed to a single - family residence. Credits The latitude allowed in service fee rate design decisions extends to the use of credits against the service fees and other modifications to the basic concept. Credits, relatively common in stormwater rate structures, are most often designed to account for the mitigative effect of on -site stormwater controls and activities, and provide an incentive for on -site control by reducing the service fees for properties where stormwater impacts are mitigated in some manner. Ongoing reductions in fees are usually predicated on a property owner's continuing compliance with an approved design and operating standards established by the city. Credits against service fees usually continue as long as the applicable standards are met or the activities or functions are provided, which implies that their functionality must be verified from time to time. Courts in several states have cited the existence of conditional credits as a characteristic of service fees (as distinguished from taxes and assessments). They view credits as evidence that a stormwater service fee is a properly designed service fee and is not a tax in disguise. Bonding for Capital Improvements The City of Fort Worth is authorized by state statute and its charter to use bonding to pay for capital „ry improvements to infrastructure, including stormwater systems. Bonds are not a revenue source, but simply a method of borrowing. Debt service is dependent on other revenue sources for funds to meet the debt obligations of the bonds. Bonding is most commonly used to pay for major capital expenditures, such as improvements and acquisition of land, easements, major equipment and other costly capital assets. Capital expenditures can also be funded through annual budget appropriations, but annual revenues appropriate to stormwater management are often insufficient to pay for major capital expenditures on a "pay -as- you -go" basis. The chief advantage of bonding is that it allows construction of major improvements or acquisition of other costly assets to be expedited in advance of what can be funded on a pay -as- you -go basis from annual budget resources. Bonding does so by spreading the costs over time. It is analogous to buying a house or car by borrowing money and paying it back, with interest, over time. The major disadvantage of bowling is the interest expense, which increases the cost of capital projects, land acquisition, etc. Even though bonding involves paying interest on the debt, it may be an efficient and conservative financial mechanism. The interest expenses may be offset partially by the avoided cost of inflation in the value of capital projects and assets such as land. In the case of stormwater management, expediting a capital project by several years through bonding may also result in significant public and private savings if flooding or other damaging impacts and costs are avoided. City of Foo wcqch Stormwater Management Nowiuber, zODs Funding Page 3 of 3