How Carrboro’s creation of a Stormwater Management Utility exemplifies the increasing need for stormwater finance options.

Effective July 1, 2017, the Town of Carrboro followed in the footsteps of local governments across North Carolina, such as the City of Hendersonville, by creating its first Stormwater Management Utility. According to the Staff Report, Carrboro has experienced an increase in severe storms affecting its area, as well as an increase in state and federal requirements for better and more intensive stormwater management, creating an increasing finance conundrum. Both the Town’s current National Pollution Discharge Elimination System (NPDES), Phase II permit, and North Carolina’s Jordan Lake rules require that the Town meet certain water quality criteria. Based on recent studies conducted by the Town, it is estimated that it will cost Carrboro, a town with a population of just over 21,000 residents, roughly $4 million over the next decade to comply with the requirements of the Jordan Lake rules.

Up to this point, funds for stormwater activities have come from Carrboro’s general fund, which means that stormwater management has had to compete with other potentially more compelling needs. But to address the increasing regulatory demands and speculated financial burden, the Town now, through the creation of this new utility, has created a dedicated source of revenue to be used primarily for stormwater management.

With the funds generated by the Stormwater Management Utility, the Town anticipates that it can provide myriad services including public education and outreach; technical services or support including stream restoration, water sampling, illicit discharge detection, etc.; public infrastructure upkeep and repair; town planning support to keep development in line with stormwater management requirements and goals; and general management and administration related to the NPDES permit and Jordan Lake rules requirements for Carrboro.

The Nature of Stormwater

 The experience of increasingly needing dedicated funds to manage stormwater is not unique to Carrboro. Communities across the country are being driven by state and federal regulations, consent decrees, interlocal agreements, increasing environmental consciousness, and water supply concerns to better manage stormwater. Everybody seems to be asking the same questions: How can we make stormwater management cost-effective? What funds are available to help support stormwater projects? How do we incentivize investment in stormwater projects in our community?

The unique nature of stormwater contributes to the complexity of answering such questions. Unlike dedicating rate-payer funds to building a reservoir to provide a guaranteed amount of water supply to a community, stormwater management requires getting people to pay for negative externalities associated with development. It requires confidence that changes to designs in development will result in a lesser negative impact on community waters. It requires an understanding of the nature of runoff and how it affects drinking water, recreational uses, and the biological integrity of water bodies. It entails modeling, speculation, prediction, maintenance, and an ever-increasing need depending on changes out of the control of ratepayers.

How is Carrboro’s experience consistent with the increasing needs for stormwater management across North Carolina and beyond?

 This month, the EFC at UNC launched a North Carolina Stormwater Rates Dashboard, based on data collected from 82 different fee structures across the state. The stormwater rates data represents a wide spectrum of examples of stormwater fees that are presently in use, and is intended to serve as an educational tool for local governments. Based on the data collected, the 57 municipalities and 4 counties that reported revenue to the Local Government Commission reported a total of at least $209.3 million in stormwater revenue collected in the 2016-17 fiscal year (utilities self-report their revenue and not all utilities reported revenue for this fiscal year). Carrboro will soon be adding to that revenue total, and while that number is a significant start toward addressing community needs, there is still a considerable gap between revenue collected and what it will cost to effectively manage stormwater going forward.

In 2016, we began working on the Nutrient Study commissioned by the North Carolina legislature. The Nutrient Study is looking at a variety of questions related to how best to manage nutrients in the Jordan and Falls Lake watersheds. During the first year of the study, the EFC at UNC began the finance component by communicating with jurisdictions in the Jordan Lake watershed to get a sense for what they have been spending—on wastewater, stormwater, or otherwise—to manage nutrients in Jordan Lake. Concerns related to stormwater management costs were by far the greatest concerns we heard. Like Carrboro, many jurisdictions have done studies already to anticipate what retrofits would cost, and what it would take to meet anticipated reductions under the Jordan Lake rules, and the numbers have been troubling, even for communities which already have Stormwater Management Utilities in place.

Additionally, many communities have already funded retrofits, or other Stormwater Control Measures (SCMs) either to comply with regulatory requirements, or in anticipation of upcoming enforcement of the Jordan or Falls Lake rules. Strictly looking at the costs associated with those SCMs and the anticipated nutrient reductions gained does not paint a picture of cost-effectiveness, and therefore contributes to making it much harder to sell.

What funding mechanisms beyond stormwater fees can help communities cover stormwater management costs?

As local governments and utilities struggle with the complicated nature of stormwater finance, there are other financing options, beyond creation of stormwater management utilities, to investigate.

Even when local governments have to fund the bulk of a stormwater project or initiative, there are pools of funds that can help to supplement such costs. Local governments can look for state or federal grants, such as State Revolving Funds, or federal Clean Water Act 319 grant funds. Additionally, local governments can share costs with private property owners to implement distributed stormwater projects within the local government jurisdiction.

Because of the risk entailed with directly funding projects that are predicted to produce certain stormwater reduction outcomes, some local governments instead seek private investment to help fund stormwater needs. Using “Pay for Success” models, local governments can shift the risk to investors, and more successfully guarantee needed stormwater reductions.

Finally, local governments can consider debt financing stormwater projects and initiatives, in the same manner that water and wastewater utilities bond finance capital projects.

Whatever the mechanism a local government chooses to investigate, the same message rings true: how you pay for it matters.

 What financing structure have you crafted in your local government to comply with stormwater management needs and requirements?

Erin Riggs is a Project Director to the EFC at UNC. She is a graduate of the University of Florida’s Levin College of Law where she pursued a law degree with a specialization in Environmental and Land Use issues.