Regional Stormwater Systems: How Should They Be Structured and Financed?
April 23, 2014
Regional Stormwater Systems: How Should They Be Structured and Financed?
By David Unkovic and J. Adam Matlawski
Reprinted with permission from the April 22, 2014 issue of The Legal Intelligencer.
© 2014 ALM Media Properties, LLC.
Further duplication without permission is prohibited. All rights reserved.
In the world of water and sewage, there are three general types of systems:
A “water system” is for drinking water. Raw water is taken from a collection point (for example, a river, a lake or an underground aquifer) and is transferred using aqueducts, covered tunnels or water pipes to a water purification facility where the raw water is treated. The treated water may be stored for a time in reservoirs, water tanks or water towers. The treated water is transported as needed through pipes to homes, businesses and fire hydrants.
A “sewer system” or “sanitary sewer system” takes wastewater from homes (such as water from sinks, toilets and washers) and from businesses and transports it through sewer pipes to a treatment plant where it is treated. The treated water is released into a river or other body of water.
A third type of system is a “stormwater system” which collects rainwater and snowmelt runoff from streets, roads, driveways, sidewalks, parking lots, farms and other properties. The stormwater travels through a drainage system, which can include public streets, gutters, catch basins, storm pipes, retention basins and channels, and is released into a river or other body of water.
The old method of dealing with stormwater was to direct it into the sewer system and have it run through the sewage treatment plant. This is obviously not the optimal way to deal with stormwater. The modern method is to create a separate stormwater system, and not just direct the stormwater into a river, but to try to get as much of the stormwater as possible to be absorbed into the ground. This decreases both the chances of flooding and the flushing of chemicals or other pollutants into the river. The key is to encourage the development of permeable surfaces, even in developed areas, so that most of the stormwater is absorbed into the soil.
Many water systems and sewer systems in Pennsylvania are operated by “municipal authorities” organized by municipalities under the Municipality Authorities Act, 53 Pa.Cons.Stat. ch. 56 (the “Authorities Act”). The Authorities Act and its predecessor statutes have been around for over 70 years. Because the language of the Authorities Act referred only to water systems and sewer systems, there was some confusion about whether stormwater systems could be operated by municipal authorities under the Authorities Act. As a result, the General Assembly enacted Act 68 of 2013 to specifically provide that municipal authorities may undertake projects involving “storm water planning management and implementation”.
Regulations under the federal Clean Water Act require municipalities operating regulated Municipal Separate Storm Sewer Systems (MS4s) to obtain permits and develop and implement a Stormwater Management Program (SWMP). The purpose of the program, administered by the Department of Environmental Protection (DEP), is to minimize the impacts of stormwater runoff. An MS4 is a conveyance or system owned by a state, city, town, village or other entity that discharges to waters of the Commonwealth, is designed to collect or convey stormwater, is not a combined sewer (sanitary and stormwater) and is not part of a publically owned sewage treatment plant. Regulated “small” MS4s are those located within “Urbanized Areas” (currently almost 1,000 statewide) or designated by DEP. Permits have fixed terms, include reporting requirements and must be renewed periodically.
The municipality must develop, implement and enforce a DEP-approved SWMP to reduce pollutants from regulated MS4s to meet water quality standards under the Clean Water Act and PA Clean Streams Law to the “Maximum Extent Practicable”. The SWMP must include use of Best Management Practices (BMPs) including plans for erosion and sedimentation control and post-construction stormwater management and treatment requirements, operating procedures and practices to control runoff, reduce pollution, recharge groundwater and reduce flooding. BMPs must meet each of six Minimum Control Measures, and an approved stormwater management ordinance must be adopted.
The Act 68 amendment to the Authorities Act and the ever increasing focus by the Federal government on stormwater management has caused local governments and municipal authorities in Pennsylvania to think anew about how stormwater can be approached, particularly on a regional basis.
There are many issues that arise related to the creation, operation and financing of a regional stormwater system.
Should a regional authority be created? In theory this makes sense. The flow of stormwater is driven by the topography not by municipal borders, so the solution should be a cooperative one for a region. But a few problems need to be addressed.
One is that different municipalities are impacted differently by stormwater. A municipality at a higher elevation has its stormwater flow down to municipalities at the lower elevation. Will the higher municipality be interested in participating in the solution if does not feel it has a stormwater problem?
Another problem is that different municipalities have different legal duties. Different requirements apply if the MS4 discharges into or is located in “High Quality Waters” or “Exceptional Value Waters”, a waterbody with “Total Maximum Daily Load” or the Chesapeake Bay watershed.
A more practical concern is that stormwater systems are traditionally not integrated the way a water or sewer system is. The stormwater “system” in a region probably consists of a hodge-podge of publicly owned and privately owned assets, including detention systems, retention systems, wet ponds, infiltration basins, inlets, drains, pipes and ditches. SWMP requirements may include upgrading or retrofitting facilities, or even planting trees and removing impervious areas. Will the regional authority want to take ownership of or responsibility for all these different assets?
In addition, some of the municipalities may have already spent money and time developing stormwater management and others may not. Will municipalities who have been diligent be reluctant to join a cooperative venture with municipalities that have not, because they feel their residents will be paying to help the residents of the other municipality “catch up”?
How will the regional authority generate its revenues? Should the participating municipalities contribute money from their general funds? Should specific fees be imposed on property owners in the region? If so, how should the fees be imposed?
Municipalities that have established their own “one-municipality” stormwater systems have been able to impose fees based on residential versus commercial use, size of the property, and size of impermeable surface on the property. Both the City of Philadelphia and the Municipality of Mt. Lebanon in Allegheny County have successful stormwater programs.
But the calculus becomes much more complicated, for the reasons stated above, when you are looking to establish a regional authority covering many municipalities. How much control will the individual municipalities want to retain over the operations of the regional authority in their municipality, particularly with a municipality that has MS4 obligations?
In some ways, these problems may be easier to deal with if the municipalities already have a regional authority that operates a water or sewer system. In such a situation, they may want to use the existing authority rather than create a new one. Act 68 allows incorporating municipalities to transfer stormwater systems to a municipal authority. But even that situation raises the question about whether the region covered by the existing water or sewer system makes sense for the stormwater system.
An important question is whether a regional authority can generate sufficient revenues from fees to pay for its operating expenses and for the debt service on any bonds or notes it may issue. Because it is a new operation, the lending bank or bondholders may require municipal guarantees to back up the authority’s debt. If a large number of municipalities are involved in the regional authority, the guarantees could make for a cumbersome financing.
The bottom line is that a regional stormwater authority can be a complicated entity. Its operations are complex because they can be a hodge-podge of public and private assets. Getting the municipalities in the region to participate in the authority and, if they do participate, having them cooperate on an ongoing basis, are complex because they have different needs and different legal requirements. The finances of a regional authority, and the practical ability of the authority to issue debt, can also be complex because the fee structure may not generate revenues that are as robust as traditional water and sewer systems.
This does not mean the establishment and operation of a regional stormwater authority cannot be done, but it will take a lot of careful planning and execution.
David Unkovic is a public finance lawyer with McNees Wallace & Nurick LLC which has offices in Harrisburg, Lancaster, Scranton and State College, and his firm serves as bond counsel to authorities and other local governments. J. Adam Matlawski is a partner with McNichol, Byrne, & Matlawski, P.C. in Media, and his firm serves as solicitor to authorities and other local governments. They are members of the Pennsylvania Association of Bond Lawyers.
This article is for general information and is not to be followed as legal advice in specific situations.