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Municipal Stormwater Permitting and Stormwater Authorities

February 16, 2016

by Timothy J. Horstmann and Teresa K. Schmittberger

Reprinted with permission from the February 16, 2016 issue of The Legal Intelligencer
© 2016 ALM Media Properties, LLC.
Further duplication without permission is prohibited. All rights reserved.

The Pennsylvania Department of Environmental Protection (“DEP”) is in the process of finalizing changes to individual and general permits for Municipal Separate Storm Sewer Systems (“MS4s”) that would result in stringent and costly requirements on municipalities throughout the Commonwealth. Coincidentally, the Municipality Authorities Act was recently amended to allow for creation of stormwater authorities. In light of the growing regulatory burden associated with municipal stormwater permitting, municipal officials increasingly are looking to form stormwater authorities as a vehicle to comply with these requirements.

Federal and state stormwater regulation is a relatively recent phenomenon for municipalities. Traditionally, the federal Environmental Protection Agency and DEP focused on improving the quality of water bodies through regulation and permitting of point sources, i.e., discharges of pollutants from discrete locations such as a pipe or conveyance, initially focusing solely on industrial and sewer discharges. Stormwater regulations were developed initially by municipalities in order to reduce flooding and protect public health and safety. The first statewide MS4 permit was issued in 1990 and only applied to medium and large MS4s, which included cities and counties with populations of greater than 100,000. In 1999 DEP expanded permitting to small MS4s, which implicated many more municipalities throughout the state. Small MS4s currently are eligible for a general permit (PAG-13), which was adopted in 2003, while medium and large MS4s must obtain individual stormwater permits.

At first, individual and general permits focused on development of programs to facilitate voluntary reductions in stormwater discharges, rather than the establishment of defined pollutant targets that municipalities are required to meet. In this way, stormwater regulation differed from point source regulation, which is largely focused on protecting water quality through the establishment of specific pollutant targets. MS4 permits require each municipality to develop a stormwater management program that includes six Minimum Control Measures (“MCMs”): public education and outreach; public involvement and participation; illicit discharge detection and elimination; construction site stormwater runoff control; post-construction stormwater management; and pollution prevention and good housekeeping. In other words, permitted Pennsylvania municipalities are required to adopt measures that would promote reductions in stormwater runoff, but not necessarily to install expensive stormwater infrastructure improvements to directly eliminate pollutants. Most municipalities therefore did not incur significant additional regulatory costs due to the nature of the permitting process.

Currently, MS4s are only required to meet specific pollutant discharge targets when the MS4 is located in a watershed that discharges to an impaired water body with a Total Maximum Daily Load (“TMDL”) designation. Although Pennsylvania has thousands of miles of impaired waterways, only a portion of these have been assigned TMDLs. MS4s in those impaired watersheds with TMDLs have been assigned Wasteload Allocations (“WLAs”), and pollutant discharges above WLA limits are not permissible. MS4s located in the Chesapeake Bay watershed are also required to develop pollutant reduction plans, although the plans do not include specific pollutant load reduction targets that must be met by municipalities. As a result, only MS4s subject to individual permits and/or located in TMDL watersheds are presently subject to defined pollutant reduction targets.

DEP’s proposed changes to the PAG-13 and MS4 individual permit modify major components of the permitting scheme. The PAG-13 will expand mandatory pollutant load reduction targets for nutrients and sediment to many more municipalities throughout the state. Under the draft permit, all MS4s located in watersheds that discharge to impaired water bodies for nutrients and sediment, even where no TMDL exists, must meet defined pollutant load reduction targets. In addition, municipalities within the Chesapeake Bay watershed will be required to submit pollutant reduction plans with specific nutrient and sediment reduction targets. Finally, municipalities must adopt separate permit appendices requiring pollutant control measures where they discharge to waters impaired based on other pollutants (i.e., acid mine drainage metals, pathogens, and priority organic compounds).

Because significantly more impaired waters exist than waters assigned TMDLs, many municipalities throughout the state will become subject to new pollutant reduction requirements. Of the 15,882 impaired miles of rivers and streams in the Commonwealth, 9,031 miles have not been assigned TMDLs. Similarly, 26,663 acres of lakes are considered impaired while only 11,096 have approved TMDLs. These impaired waters span across Pennsylvania. DEP’s new pollutant reduction targets therefore will impact municipalities throughout the state.

In order to meet these targets, municipalities will be required to upgrade their stormwater facilities and adopt additional best management practices (“BMPs”). For each upgrade and BMP, municipalities must quantify the level of expected nutrient and sediment reductions to demonstrate attainment of the reductions required by DEP. As compared to the current structure of MS4 permits, which are focused to a much greater extent on the MCMs and voluntary reductions in stormwater discharges, the new permits also rely heavily on mandatory reduction targets for many municipalities. This proposed change may impose significant additional compliance costs (i.e., engineering, financial, and legal) on municipalities.

The draft PAG-13 and proposed MS4 individual permit also include other components expected to increase municipalities’ stormwater permitting costs. All MS4s discharging to water bodies with TMDLs for nutrients and sediment will be required to submit individual permit applications (which involve considerable more “paperwork” and design information) as opposed to applying for general permit coverage. Municipalities will be subject to annual reporting requirements, including submission of a notice of intent each year for coverage under the general permit (current permits last five years). Lastly, municipalities will face stricter public participation requirements and must present their proposed stormwater management strategy to the public for comment prior to submission to DEP.

DEP expects to finalize the changes to the PAG-13 and individual permit in late 2016, with applications for amended permits due in the fall of 2017. Although DEP may adopt minor modifications to its proposed permits, DEP is not expected to modify any of the overarching changes discussed above. In light of these major changes to MS4 permitting, municipalities with MS4s should be prepared to incur significant additional stormwater costs in the near future. One potential solution for addressing these complex permitting requirements and additional costs for municipalities is creation of a stormwater authority.

The Municipality Authorities Act was amended in 2013 to allow for establishment of stormwater authorities to support stormwater planning, implementation, and management. The creation of a stormwater authority to manage stormwater planning and improvements and collect stormwater fees from residents offers multiple advantages. Stormwater authorities may be established by a single municipality or by a group of municipalities in a single region. Because MS4 regulation is based on the watershed of the MS4, which could span across multiple municipalities, a joint authority may be a preferable option for municipalities. The Pennsylvania Stormwater Management Act requires counties to develop watershed-based stormwater management plans, which could provide the basis for a joint stormwater authority. A municipal authority is also uniquely designed to address the needs of multiple municipalities as it has the ability to operate and impose fees beyond municipal limits. York County, which is in the process of evaluating creation of an authority, provides a good example of a joint municipal approach to MS4 permitting compliance. York County’s pollutant reduction plan includes the cooperation of 44 municipalities to address stormwater requirements throughout the county.

In addition, the creation of a stormwater authority may provide the municipality an opportunity to monetize its existing stormwater assets to pay for costs associated with the new permitting requirements. A stormwater authority may be formed as either a financing or operating authority. The creating municipality could sell or lease the assets to the created stormwater authority in exchange for an upfront or annual payment (the authority would finance the acquisition through debt). The revenues generated in the transaction would be used by the municipality to finance necessary upgrades or equipment purchases required by DEP, and the authority would repay the debt incurred through fees generated from its management of the stormwater facilities on behalf of the municipality.

While the Municipality Authorities Act expressly authorizes stormwater authorities to assess fees for services performed, it is silent regarding the structure of the fees, providing only that “reasonable and uniform rates may be based in whole or in part on property characteristics, which may include installation and maintenance of best management practices approved and inspected by the authority.” The Pennsylvania General Assembly is currently considering legislation (House Bill 1325) that would provide additional guidelines for the structure of stormwater fees; however, this bill has not yet been enacted into law.

Certain Pennsylvania municipalities, such as the cities of Philadelphia and Lebanon, have already developed stormwater fees that may be consulted for guidance. By way of example, in Philadelphia, stormwater fees are based on the square footage of a property and the amount of impervious area at the property. Fees are higher for properties covered in asphalt than for properties covered in vegetation, because asphalt property generally causes more stormwater runoff and negative impacts to water quality. Residents may also receive credit against their assessed fee by taking certain actions to reduce runoff, e.g. by installing rain gardens, rain barrels, etc. A stormwater fee structured in this manner may facilitate goodwill among residents who observe that their fee is based on equitable factors.

By the end of 2016, DEP plans to finalize its new MS4 permits, and municipalities throughout the Commonwealth will have less than a year to develop methodologies for meeting new pollutant load reduction targets, upgrading their stormwater systems, and installing new BMPs, all while developing a strategy for addressing the costs of these changes. The stormwater authority offers an appealing and viable solution for municipalities to address these increasingly complex MS4 permitting requirements. Municipal officials should start their planning now to ensure compliance when the new permitting requirements become effective.

Teresa K. Schmittberger and Timothy J. Horstmann are attorneys with the law firm of McNees Wallace & Nurick LLC. Teresa practices in the firm’s Environmental Law and Toxic Tort Group and its Energy, Communications, and Utility Law Group.  Tim practices in the firm’s Financial Services and Public Finance Group and its Public Sector Group. They regularly advise municipal clients on issues related to water, wastewater and stormwater facilities.