Encouraging Property Investments with Stormwater Fee Credit Programs

Storm_DrainGreentown, USA wants to join some of its large older city peers such as Washington and Philadelphia that are rebranding themselves as Green Environmental Cities. Greentown wants to become the greenest small town in the country and would like to encourage property owners across their town to plant more trees, convert their rain shedding roofs into rain absorbing green space, and dig up their pavement and replace it with rain gardens and other stormwater systems that reduce run-off. They have started a media blitz promoting this green transformation, yet progress has been painfully slow. Older shopping centers, like the Southside Shopping Center, continue to produce torrents of rainwater runoff laden with oil and trash that pollutes the area’s waterways. Retrofitting existing space is costly and property owners have other competing needs for their scarce renovation dollars, and education alone only goes so far in promoting transformation. The city council is deadlocked between a contingent that wants to enact regulation that requires older properties to “Greenify” and a contingent that thinks the city should just use public grants to incentivize the transformation. Greentown, like many communities across the country, is stuck. What’s the solution?

A few years ago, Greentown decided on a stormwater finance strategy that includes a stormwater fee to cover a part of their overall stormwater management costs, but the revenue is limited. Neither option is that appealing, but the city is stuck until an economist from a local university is elected to the board. At the first meeting says the answer is simple — all the city has to do to encourage the green revolution is modify their existing stormwater fee structure so that property owners who make renovations  pay a reduced fee. As soon as property owners hear about this credit, they will voluntarily start ripping up those parking lots to reap the big savings. Will it work? Maybe, but this is extremely challenging for a number of reasons.

To begin with, the level of fees charged in Greentown, as is the case with most cities that have these fees, is likely relatively modest compared to the cost of green roofs, extensive rain gardens and impermeable payment.  For example, the average stormwater fee in Georgia is approximately $3.50 per 2,000 square feet of impervious space. At this rate and assuming Greentown’s Southside Shopping Center has 200,000 square feet of impervious space, the shopping center would pay $350/month or $4,200 per year in stormwater fees. Even if the town provides a 75% credit, which is generous as far as typical credits go, that leaves the shopping center with about $3,300 per year to devote to green projects – much less than what it would need to make significant improvements or service a sizable loan if it wanted to borrow money to make improvements. Ironically, Greentown’s Stormwater Manager has been telling the council that their fees are much too low to cover even the Town’s basic requirements. By keeping the fees artificially low, the Town has inadvertently reduced the impact a fee credit program would have on property owners. Areas where stormwater fees are sized to cover more of the cost of stormwater management have the opportunity to provide much great incentives with fee credit programs.

This is just one of the many challenges of establishing fee credit programs. Fee credit programs can bring up complicated fairness issues. Consider the case with the new Northside Shopping Center that is under construction in Greentown and is the same size as the older Southside Shopping Center. Stormwater management rules have become much stricter since Southside Shopping Center was built, and Northside will be required to install many of the green installations that Southside is considering as voluntary. Should Northside be given a credit for following existing regulations and reducing impact even though they don’t really have a choice? If Northside is not given a credit, should Southside be given a credit for renovating just so it can get up to the level of existing requirements? This is the type of question that needs to be considered when developing credit programs. Many stormwater credit programs only provide credits to existing properties when their renovations exceed existing regulations. This might make sense from a fairness perspective, but it does dilute the financial incentive older buildings have for bringing their properties up to current standards. As a result of these types of issues, very few credit programs have reported significant uptake. One urban program in North Carolina that collects fees from thousands of properties reports having only two properties under their credit program.

Credit programs alone are unlikely to solve Greentown’s problems, but they can be combined with other incentives to create an overall strategy that encourages retrofits. As stormwater programs mature accross the country, more and more of them are creating more integrated incentive programs that combine multiple incentives including low interest loans, development bonuses, and grants. These types of integrated programs are becoming established throughout the country to adapt to local circumstances. For more information on establishing credit programs and other environmental finance approaches visit www.efc.sog.unc.edu

Jeff Hughes is the Director of the Environmental Finance Center at UNC Chapel Hill.

1 Comment

  1. Doug Gabbard

    Stormwater credits should be equal to the amount of cost that the stormwater utility gets to avoid because of a customer’s efforts. Credits that are set in this manner will generally be quite low, and it will usually not be cost-effective to retrofit. But is this really a bad thing? Is it bad that handling stormwater centrally is more cost-effective than having each property handle its own? Perhaps we can find a good analogy in water utilities. If more storage is needed, we usually make plans to build a reservoir rather than asking each customer to install a tank.