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4.1 Rate Structure Fundamentals - What is a Stormwater Utility Rate Structure? The application of the concept of "utility" to stormwater management is a relatively new one. In 1976, the City of Bellevue, Washington created what has become a national prototype for a new approach to resolving stormwater management problems. Building on the sewer, water and electric enterprise concept, Bellevue created a stand-alone utility whose sole mission was to build, operate and maintain stormwater facilities. More fundamentally, its funding was generated from the "customers" of the stormwater service in reasonable proportion to their actual contribution of stormwater to public facilities. Since then, hundreds of cities, towns and counties across the country (including Denver, Cincinnati, Seattle/King County and many others of similar size) have adapted the idea to their jurisdiction. The first governmental entity to institute a stormwater utility in Florida was the City of Tallahassee that put a utility in place in 1986. Nearly 85 other Florida cities, counties and special districts have since followed suit and implemented a stormwater utility. 4.1.1 The Concept of "Utility" It is important to note that, unlike sewer, water, electric, telephone and other more common Florida utilities, the term "stormwater utility" is not a precisely defined term in Florida law as of this writing. (One statute does address stormwater utilities, but is strictly permissive in nature, allowing home rule authority to supplant statutory authority within home rule constraints - See Chapter 2 for discussion of Florida statute and case law bearing on stormwater utilities and user charges). Rather, the meaning of the term "stormwater utility" is largely inferential (derived from characteristics of other types of utilities) and, in practice, tends to vary somewhat from jurisdiction to jurisdiction. Indeed, it is quite possible to create user-based charges for stormwater services (stormwater fee or stormwater assessment) without the creation of a stormwater "utility" at all. For purposes of this chapter the following basic attributes of a utility are postulated:
Of these attributes, arguably the most important for rate structure purposes is the incorporation of a user charge basis for recovering costs. This concept is discussed in detail below. 4.1.2 Two Fundamental Organizational Characteristics Like all utilities, a stormwater utility has two fundamental structural characteristics:
Organizational Entity As an organizational entity, a stormwater utility has a defined mission or purpose - to provide a defined level of stormwater management service to the community. It is provided financial resources and charged with the management of human resources and the support equipment necessary for those personnel to accomplish the mission effectively and efficiently. As organizational entities, stormwater utilities can pursue one of two general courses in providing services; it can contract with other units within the jurisdiction's organizational structure (such as Public Works' road maintenance personnel) to provide services, or it can acquire its own staff and provide services directly. In either event, the fundamental objective of the organizational aspect of a utility is the clear assignment of accountability. All final responsibility for performance in achieving the stormwater program objectives lies with the utility structure. As discussed more fully in Chapters 1 and 2, a full range of stormwater management services provided by a full service utility could include:
Which of these services are actually produced and which are to be recovered through a user-based charge are key decisions in the design of a rate structure. This process is detailed below. Accounting Entity The second fundamental characteristic of a utility is its stand-alone accounting entity status. Consistent with Generally Accepted Accounting Practices (GAAP), the stormwater utility must be structured as either a special revenue fund or as an enterprise fund. Such a fund designation requires that revenues generated by or transferred to the utility must be spent solely for legitimate stormwater management functions. Special revenue fund designation provides for the isolation of revenues and expenditures appropriate to the utility concept. Its accounting set up and reporting requirements are simple, hence its appeal as a funding mechanism. Enterprise fund designation brings additional obligations of asset valuation and the use of full accrual techniques not required of a special revenue fund. However, such designation also clearly establishes the organizational integrity of the utility. 4.1.3 Why Even Have A Stormwater Utility? Basically, there are two reasons for creating a stormwater utility: program focus and equity of cost. Program Focus The program focus aspect, as we have addressed above, recognizes the management principle that an organization tends to focus its attention on those programs it is clearly organized to deliver. An organization accountable for and organized to deliver stormwater management services will tend to deliver the stormwater management services better than one charged primarily with other objectives under which the stormwater function is a secondary objective. Equity of Cost - The Concept of User Charge A fundamental concept of any utility is the capacity of the service delivered by that utility to be bought in measurable, discrete units of service. Hence, electricity is purchased in kilowatt-hours, phone service in minutes of service connect time, water in thousands of gallons, and so forth. In each case, buyers pay only for what they consume. This concept is founded on the intuitively appealing notion that one pays proportionate to the cost or burden one puts on the system. Typically, stormwater programs are funded from gas tax dollars or general fund dollars (made up in Florida primarily of sales tax and property tax dollars). Here, in effect, one's share of stormwater program costs is related to how much gas one pumps, how much one spends at the mall or the value of one's property rather than how much stormwater runoff a parcel generates. How much one pays for stormwater services might better be related to the amount of "stormwater management" services consumed. Since, like water or electricity, the amount of services consumed can be reasonably accurately estimated, it follows that billing by consumption rather than by value of property could be the basis of a more equitable charge philosophy. 4.1.4 The "Burden Theory" And the Role of "Hydrologic Connection" What exactly constitutes a "user" of stormwater management services? The answering of this question is fundamental to building a legally sound rate structure. The key to determining just exactly who benefits from a community's stormwater management is the concept of "burden." Virtually all property has the potential for generating stormwater runoff. Because almost all property generates stormwater runoff, the accumulated or aggregate runoff from all parcels must be managed in an organized and systematic manner if owners are to enjoy the use of their property with some degree of reliability. The burden of the management of this cumulating stormwater falls to the community. Stormwater systems and facilities must be constructed and maintained to reduce the undesired impacts of accumulated runoff. These systems and facilities are expensive. Each parcel that is tied to this system benefits from this investment. In practice, most communities split the responsibility of managing the burden of runoff between the parcel owner and the community. Current Water Management District regulations dictate that every community in the state require the installation of on-site stormwater facilities at the time land is developed. These privately financed facilities are designed to be the "first line of defense" in the stormwater system and are typically designed to handle the runoff from small to moderate storms. Once full, these systems are typically designed to "pop off" or pass stormwater into a larger system - the community system. Many communities require the landowner maintain these on-site facilities, while others require that they be dedicated to the community upon completion. However, responsibility for managing stormwater runoff that exceeds these on-site design.
However, responsibility for managing stormwater runoff that exceeds these on-site design requirements is clearly the responsibility of the community. Graphic 4-1 depicts an example of the division of responsibilities between public and private in the attenuation of runoff volume. The amount of runoff generated by a parcel and sent to a stormwater system represents its proportionate share of the burden of creating and maintaining the stormwater system. The costs, then, of the stormwater management program are a tangible, aggregate measure of the management of the burden of runoff generated by each parcel. A community based stormwater management program benefits parcels in one of two ways:
The test of hydrologic connection -- sometimes called the "rubber ducky" test -- is conceptually rather simple: will a float (the "rubber duck") placed on a given parcel during a substantial rainstorm eventually find its way into a jurisdictional stormwater system? The benefit to a given parcel varies proportionately with the burden passed to the jurisdiction; parcels differently situated with respect to runoff benefit differently. On the other hand, stormwater runoff that does not (eventually) flow to a jurisdictionally maintained system or does not otherwise constitute a burden of runoff to the jurisdiction, is no more chargeable than electricity not consumed or telephone calls not made. Hydrologic connection to the jurisdiction's stormwater system is directly equivalent to a connection to a meter box for water/sewer service or the power grid for electrical service. Just as buildings with septic tank systems cannot be charged for sewer services and buildings not hooked to the power grid cannot be charged for electricity from the power company, parcels, which receive no specific stormwater management service from the community, cannot be charged for services. Some communities allude to the general benefit which can accrue to all properties due to the comprehensive management of stormwater runoff as a basis for charging every parcel, whether they are hydrologically connected or not. Two different perspectives pertain to this line of thought. To some, such logic is troublesome, as it appears to attempt to introduce general benefit concepts associated with taxes into the user charge premise of the utility. Such confusion, if pushed too far, it is felt, might seriously undermine the legal integrity of the utility. (Opponents to this approach feel it is comparable to a jurisdiction attempting to pay for general street lighting through the standard monthly bill sent to all electric customers based on kilowatt-hour consumption. Most jurisdictions recognize that such an approach is not likely to be perceived as equitable by the rate payer, especially since better options exist to the jurisdiction - paying for such general services out of general revenues or out of street lighting special assessments.) To others, a less rigorous definition of hydrologic connection better embraces the benefit virtually all parcels derive from the capacity to move through public streets during major storm events and the peace of mind provided through the implementation of an integrated, community-wide stormwater management system. 4.1.5 If It Is A Utility, What Services Does A Stormwater Utility Sell? Just what are the stormwater services that the Utility would sell? Stormwater can be viewed as having two components: quantity and quality. Quantity related services include planning, designing, constructing and inspecting stormwater management devices and facilities. These include retention ponds, detention ponds, canals, ditches, pipelines and other conveyance systems. All of these devices require constant maintenance, repair and replacement. Significant study and analysis is required to integrate the system so as to coax the maximum performance from the fewest dollars. Quality related services include planning, designing, constructing and inspecting such devices and facilities as sediment traps, filtration devices, and treatment systems. Stormwater treatment systems include manmade wetlands, alum injection, street sweeping, retention basins and detention basins. These services can also benefit the receiving waters (lakes, streams and lagoons) by providing such enhancement techniques as shoreline re-vegetation, chemical treatment, physical manipulation of water levels and biological controls. Can one rate structure adequately address both the quantitative and qualitative aspects of stormwater? The answer is yes. The burden concept discussed earlier is the key to this question. While the quantity of runoff is indeed distinctly different in nature from quality, the two aspects have a fundamental common link: runoff from the first inch of rainfall is generally recognized as containing over 80% of the contaminant load from any given parcel. This initial runoff is termed the "first flush." Current stormwater facility design criteria across the state generally require the capture of the first flush. While the different aspects of stormwater runoff call for different but complimentary engineering solutions, the burden of each aspect for rate structure purposes can be reasonably viewed as inextricably interrelated and derived from the same vehicle - runoff passing from a parcel. 4.1.6 Legal Parameters All rate structures are ultimately constrained by the legal context within which they must operate. While Chapter 2 deals in detail with the many legal issues surrounding stormwater user-based charges, several of the most fundamental points that directly impact the design of a rate structure are highlighted here. Those points include:
4.1.7 Collection Options Utility billing can be viewed as comprised of three distinct steps:
No matter how brilliant the structure, if the revenues cannot be collected, the structure is virtually irrelevant. As developed in detail in Chapter 6, two basic collections mechanics are available to Florida jurisdictions which assure reasonable collection of utility revenues: user fees piggybacked on existing water and sewer bills (or other utility bills) and special assessments collected on the annual property tax bill. Because each of the two options has significant legal requirements and different administrative support ramifications, any consideration of a rate structure must include a determination early on as to which collection mechanic will be incorporated into the structure. User fees piggybacked on a water/sewer bill are targeted to the resident, unless specific adjustments to the billing file are made to bill the owner. Stormwater charges collected through a special assessment are, by law, billed to the owner. Much of the data available on which to build a billing system is parcel oriented. Fee based systems will likely need to cross link parcel data to billing accounts to take full advantage of parcel based information sources. In addition, apportioning billing units derived at the parcel level to multiple occupants on the parcel, especially where master meters are employed (commercial, industrial and office accounts) will need to be addressed in the work plan. (Data issues are discussed in detail in Chapter 5.) The latest survey of members of the Florida Association of Stormwater Utilities (1997) indicates that 82% of the respondents piggyback a utility fee, while 14% use the assessment approach. Because no counties in the State have sewer and water utilities which cover every parcel in the county, counties tend to use assessments as the collection vehicle far more than cities. Among municipalities, newer utilities are favoring assessments more than their older counterparts, perhaps because of the substantial recent general improvements in appraisal and tax collection computer technologies and data management. 4.1.8 Summary Stormwater utility rate structures are the product of a careful design process. This process must:
Within this context, a large number of rate structure options exist to address specific design needs of a community. Section 2 will explore the basic design mechanics available to the rate structure designer.
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