A drain on the budget

The long-awaited EPA National Pollutant Discharge Elimination System (NPDES) Phase II stormwater regulations become a reality this month. Permits outlining best practices that meet the minimum measures for managing stormwater locally, plus a schedule for their implementation, must be filed by March 10.

Phase II regulations apply to small Municipal Separate Storm Sewer Systems, or MS4s, which serve communities of less than 100,000 residents. Larger MS4s already have had to comply with Phase I regulations.

Faced with the new federal edicts, small MS4s are striving to develop programs that bring them into compliance. For many, the answer is to establish a stormwater utility (SWU). However, creating a utility can place an additional burden on already strained municipal budgets. An SWU that manages and pays for a stormwater management program is easier to sell to the public than it was when the EPA released Phase II requirements in the mid 1990s.

“Another level of government, even one that generates revenue and relieves our general fund of these financial responsibilities, would have been a tougher sell a few years ago because times were better [from a budgetary perspective],” says Fred Royal, stormwater management engineer for Chapel Hill, N.C.

Older cities are likely to use SWU revenues to upgrade and overhaul existing stormwater systems while newer communities face having to develop a storm sewer network to keep up with growth. Regardless of the application, to keep the regulations from sapping the general fund, the SWU must pay for itself and be seen as a good investment.

Creating an SWU, though in many cases intimidating, is being undertaken by a number of communities facing the new Phase II regulations. Unlike larger Phase I cities, few Phase II communities have the financial and/or staff resources to address SWU responsibilities, which can be divided into two basic categories: managing stormwater quantity (often an infrastructure issue) and managing stormwater quality (dealing primarily with pollution concerns). Many Phase II municipalities are forced to establish which responsibility is a priority, then gradually address the other over time. Others try to address both simultaneously.

Stephenville, Texas

Stephenville, Texas, is a community of about 15,000 residents located 100 miles southwest of the Dallas/Fort Worth area. The city began investigating methods for stormwater management and funding in the late 1980s.

The idea of developing an SWU can be credited to Betty Chew, director of community development for the city. “It was informally discussed more than once,” Chew says. “But it took two events before the idea [was taken] seriously.” Knowing that the regulations would drive up costs, Chew says the city “began a pretty ambitious city-wide capital improvement program in the mid-1990s, followed shortly by news of Phase II NPDES.”

Coincidentally, Stephenville adopted an ordinance to create a SWU in the summer, when the city received about a third of its annual rainfall in a few days, causing a moderate amount of localized flooding. The ordinance created a SWU funded through user fees rather than taxes. “It’s kind of hard to sell the concept of better stormwater management during a Texas summer when all the creeks are dry,” Chew says. “But in this case, [the rain] did the trick of convincing our elected officials that we had to do something about controlling localized flooding.”

Stephenville has taken the quantity approach in its initial objectives for a SWU. The capital improvements program directs the majority of the projected stormwater utility revenues to the infrastructure upgrade, which will take several years. As the system approaches build-out, more funds will address stormwater quality.

Following the approval of its SWU, Stephenville developed an updated drainage master plan, reevaluated previous solutions to address flooding and established the capacity of existing channels before taking inventory of the property affected by potential stormwater flooding. By the time the inventory began, Stephenville had incorporated a refined GIS mapping system and new accounting and billing software to help manage its SWU.

The city expects its SWU will generate about a half million dollars in revenue this year. Having more available cash means a better bond rating and more lenders who will want to help with capital improvements.

The maintenance projects have begun, Chew says. “Last fall we worked with the Texas Department of Transportation to clear out an open storm channel along a state road within the city,” she says. “The state basically paid for the digging and we paid our street department for the trucks to haul the silt and debris off.

“So the fruits of what the utility is supposed to accomplish are becoming quickly apparent,” Chew adds. “We can point to these projects and say, ‘This is what that utility fee is helping to pay for.’ This channel needs to be cleared out every few years. Last time, the money came from the general fund; this time, utility revenues.”

About $30,000 is budgeted for similar channel renewal projects in 2003.

Chapel Hill, N.C.

Chapel Hill, N.C., also has experienced moderate localized flooding for several years, because of increased development, an aging stormwater infrastructure and the need to revitalize some of its channels. “The accumulated circumstances illustrate the need for better [stormwater] management,” Royal says. “So [the idea of] an SWU was broached a couple of years ago, shortly after the Phase II requirements were made public.”

Chapel Hill’s SWU will be fully functional by February 2004, Royal says. “Right now, we’re in property inventory mode, determining the percentage of impervious surfaces and developing our rate structure,” he says. “We’ve set priorities and established a pro-forma business plan which underscores the need to raise capital to pay for stormwater obligations.”

The community bills for water and sewer services through a regional authority. As a result, the city will submit the finished rate data to the authority, which will bill and collect the stormwater fees, then pay the city. When it comes to prioritizing stormwater quantity or quality issues, Royal is hoping to look at both equally. “We’re assertively approaching quality, and also managing runoff aggressively due to these flooding issues,” he says.

Royal is convinced that Phase II deadlines were a wake up call that water quality and quantity issues had to be addressed. “The objective of NPDES is to reduce sediment loads on the channel system,” he says. “Much of that loading comes from normal erosion. So the ultimate goal is to bioengineer these channels to abate it.”

Chapel Hill’s SWU primarily will be a management office. Maintenance and improvements will be assigned to the city’s Public Works or Parks and Recreation departments. Private consultants and contractors will handle other tasks, such as construction, design and engineering.

Royal says that the SWU is a financial godsend. “It generates revenues, which gives us more working capital as well as collateral for improvement bonds,” he says. “An SWU mitigates financial risk. But we’re hoping to avoid bonds and pay as we go, which is always the best way to fund capital improvement projects.”

Royal says that his city manager is “very excited about this revenue-generating utility. It reduces the strain on our general fund.” He also notes that current budgetary challenges make the city’s SWU quite appealing.

Dallas, Texas

Like many Phase II communities, Dallas was facing budget challenges at the time NPDES Phase I requirements were enacted in the early 1990s. However, the city viewed establishing an SWU as an opportunity to create a new funding source that would pay for traditional floodplain and drainage costs, thereby saving much of the expense from the general fund.

Though the proportions are different for Phase II communities, Dallas’s experience can serve as an example of how cities can successfully manage an SWU. The city’s formula for success includes the mandated primary categories of how an SWU successfully funds, transitions and manages conformity to NPDES requirements. The method identifies costs, develops a management organization, surveys and analyzes database assets, develops an equitable rate structure and educates the public.

With an annual stormwater management budget of approximately $26 million, the city devotes about half of that amount to floodplain and drainage management. Dallas’s SWU generated $19 million in 2002. Half of the city’s SWU income ($9.5 million) goes back to floodplain management in the general fund. So the actual cost to the city for stormwater management is about $3.5 million.

By defraying the duties typically expected of an SWU to other offices and private contractors, Dallas gets the most for its effort. “The SWU is primarily a management office. Various other departments perform most of the work surrounding stormwater management,” says Frances Verhalen, program manager for the city’s SWU.

Through a joint program with Dallas County, the city’s Public Works Department deals with ongoing hazardous waste issues and the Sanitation Department manages citizen drop-off locations for household chemicals and other potential stormwater pollutants.

The city’s Parks and Recreation Department addresses erosion control on municipal property. The Street Department removes sediments and pollutants that would end up in stormwater runoff. It also manages pump stations and levees that control stormwater flow. Public Works designs water retention ponds and other erosion control projects, and the city Water Department deals with billing and collections.

Dallas and other Phase I communities in North Texas are working together to help Phase II communities in the area through the Arlington, Texas-based North Central Texas Council of Governments. “One thing we’ve discovered is regional assistance for Phase II communities is available,” Verhalen says.

Verhalen offers the following general advice for Phase II communities in the throes of developing an SWU. “Aggressively publicize the overall goals of the program: to reduce and prevent pollution in stormwater drainages [and to minimize the] damage from flooding to structures.” She also says to develop a well-defined plan in which you can adequately control your stormwater.

“Setting up a utility that pays for itself is important,” she says. “Aggressively communicate that it’s a service-based fee rather than a drain on the general fund.” She also says to “understand that you will eventually get there so long as you set reasonable goals and work to that end.”

Gary N. Bowen is a Dallas-based freelance writer.