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New Funding Mechanisms for Municipal Stormwater Management

August 10, 2017

By Timothy J. Horstmann and Adeolu A. Bakare
For The Legal Intelligencer

Reprinted with permission from the August 10, 2017 edition of The Legal Intelligencer © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

For Pennsylvania municipalities facing a rising tide of costs from implementing stormwater management plans, the available funding options vary depending on where you are and what you are—but that could change as soon as later this year. The General Assembly has passed several laws that authorize certain municipalities and municipal authorities to impose “reasonable and uniform” fees to fund stormwater management plans—and several additional bills are pending that, if passed, would extend these funding mechanisms to municipal entities across most of Pennsylvania.

One of the first steps the Assembly took was to amend the Municipality Authorities Act, 53 Pa.C.S. Section 5601 et seq. (the Authorities Act), to authorize the formation of an authority for the purpose of “stormwater planning, management and implementation” and to permit the imposition of “reasonable and uniform” stormwater fees. These amendments, contained in acts 68 of 2013 and 123 of 2014, provided municipalities with a means to pay for stormwater management—although they did not provide much guidance on what is a “reasonable and uniform” fee, beyond stating that a fee may be based in whole or in part on property characteristics, and may take into account installation and maintenance of best-management practices that were approved by the authority.

More recently, the Assembly has sought to extend to municipalities themselves the new storm water powers that were granted to authorities. The Assembly started this process with the passage of Act 62 of 2016, which applies only to second class townships; companion bills covering other types of municipalities were also introduced in the Assembly during the 2015-2016 session, but failed to win passage before the expiration of the term.

Act 62 uses the same “reasonable and uniform” standard found in Act 123, but offers additional guidance as to what constitutes such a fee. With regard to uniformity, Act 62 provides that the fee may be assessed using one of the following three methods: on all properties in the township; on all properties benefited by a specific stormwater project; or on all property owners within a specially designated storm water management district.

For the “reasonable” component, Act 62 establishes several guidelines for stormwater fees. Act 62 specifies that stormwater fees may only be used to pay for storm water projects. Further, Act 62 mandates that second class townships offer exemptions or credits for properties which have installed stormwater facilities that meet the best management practices of township. Finally, Act 62 provides that the fee may not exceed the amount necessary to meet minimum federal standards.

Following the passage of Act 62 and the start of the 2017-2018 legislative session, a series of bills were introduced in the House which if enacted would grant to Pennsylvania first class townships, boroughs, towns and third class cities the power to impose stormwater fees. House Bills 913-916 are similar to Act 62, in that they require the fee to be “reasonable and uniform,” and adopt the same three methods of assessing the fee as set forth in Act 62.

Interestingly, House Bills 913-916 do not contain Act 62’s “minimum federal standards” requirement, although they do require that the stormwater management plan be consistent with the requirements of Pennsylvania’s Storm Water Management Act and the regulations of the Department of Environmental Protection. The omission of the reference to minimum federal standards suggests that under these bills a fee may be imposed that raises funds beyond the amount needed to meet the minimum federal standards.

Regardless of the amount of funds raised, the question of whether a particular fee structure is “reasonable and uniform” seems likely to be a question for the courts, with consideration of a variety of factors beyond those enumerated in Act 62 or House Bills 913-916. As Pennsylvania courts have not yet adjudicated a reasonableness challenge to storm water fees, a court considering whether a stormwater fee is “reasonable and uniform” would likely look to cases involving similar challenges to water and sewer rates set by authorities under the Authorities Act.

The Commonwealth Court has framed the reasonableness standard in the context of an authority’s water and sewer rates by asking whether the rate charged is “reasonably proportional to the value of the service rendered,” as in GSP Management v. Duncansville Municipal Authority, 126 A.3d 369, 373 (2015). Applying this standard to stormwater fees, a particular fee—even one that raised funds in excess of the amount needed to meet minimum federal standards—may be reasonable if the fee is reasonably proximate to the value derived by customers.

This begs a question: how is a stormwater management plan valued to its customers? Unlike traditional municipal utility services, stormwater services are consumed on a relatively passive basis. Stormwater refers to surface water accumulating during periods of rainfall or snow. Naturally, some stormwater will be absorbed into the soil, but the remaining stormwater runoff flows toward natural waterways. Importantly, impervious surfaces such as rooftops, driveways, streets and parking lots impede soil absorption and increase the flow of stormwater runoff. Increased stormwater flows caused by impervious ground surfaces can both flood local waterways and pollute them with sediment and chemicals picked up by the stormwater runoff.

The value of stormwater management plans comes from their effectiveness in combatting these adverse impacts of stormwater runoff, which are principally caused by impervious ground surfaces. Under this construct, the parcels of land in the subject jurisdiction “use” the stormwater services and the owners of such parcels are the customers served by the stormwater management plan and associated facilities. As a result, municipalities across the nation have generally considered the proportion of impervious area on each customer’s parcel as the primary measure of the value derived from the stormwater management plan.

While municipalities can utilize a variety of fee structures to recoup the costs of implementing stormwater management plans, the necessity to implement fees proximate to the value of stormwater services adds a degree of complexity to the rate setting process. For example, the least administratively burdensome fee structure would be a flat fee calculated by tallying the total annual costs of operating a stormwater management plan and dividing the costs on a per-customer basis. However, this methodology could expose the municipality to claims of unreasonable fees for failure to address parcel diversity. Under the flat fee structure, a residential property with comparatively minimal impact on storm water runoff would pay the same fee as an amusement park with acres of impervious land contributing to stormwater runoff.

To more accurately reflect the value of storm water services for each parcel owner, a municipality might utilize a dual-fee structure. Under a typical dual fee structure, residential customers typically pay a flat fee, as residential parcels exhibit relatively little surface area diversity. While some parcels will have larger or smaller yards, homes or driveways, the range of configurations does not vary to the degree of nonresidential parcels. However, in assessing the reasonableness of stormwater fees for nonresidential parcels, municipalities would be well-served to employ more targeted metrics to approximate the value of the service for diversely configured parcels. For example, the aforementioned amusement park should not be assessed the same stormwater fee as a golf course, due to the variance in the proportion of impervious area. Proactive consideration of parcel diversity in developing storm water fee structures will likely help municipalities meet the reasonableness requirement for fees under Act 62 or, if passed, House Bills 913-916, and secure funding to meet stormwater mandates.

For municipalities facing stormwater mandates but unsure how to pay for them, Act 62, and, if passed, House Bills 913-916, could be the life raft they’ve been hoping for. House Bills 913-916 were introduced in the House on March 22, and have already won approval by large bipartisan margins. The bills currently await action in the Senate, having been referred to the Local Government Committee on June 16. While it is unclear when the Senate will act on these bills, the strong support for these proposals suggests that the bills might receive a final vote in the Senate before the end of the year. First class townships, boroughs, towns and third class cities still may face important implementational decisions in setting appropriate fee structures, but recent developments suggest that House Bills 913-916 could soon secure reliable means for raising money to pay for stormwater management. •

Special to the Law Weekly Timothy J. Horstmann and Adeolu A. Bakare are attorneys with the law firm of McNees Wallace & Nurick and practice in the firm’s public sector group. Horstmann and Bakare regularly advise municipalities in the state on matters relating to stormwater management and regulation.