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Commission Memorandum
REPORT TO: Honorable Mayor and City Commission
FROM: Kyle Mehrens, Stormwater Program Coordinator
Craig Woolard, Public Works Director
SUBJECT: Stormwater Rate Model Recommendation and possible direction to Staff on the
Development of a Formal Stormwater Rate Resolution and Implementation Time-line based on
the Guiding Principles Outlined as written and presented in the February 23, 2015 Staff
Memorandum.
MEETING DATE: February 23, 2015
AGENDA ITEM TYPE: Action
RECOMMENDED MOTION: I hereby move to direct staff to proceed with the development
of a formal stormwater rate resolution and implementation time-line based on the guiding
principles outlined in this memorandum and presented on February 23, 2015.
KEY POLICY ISSUES AND RECOMMENDATIONS: Since its creation in 2012, the City
of Bozeman has inventoried and evaluated the condition of stormwater assets and developed level of service options to fully implement a stormwater utility. This memorandum recommends a rate model and implementation timeline based on previous Commission policy discussions and
community input. Staff recommends a stormwater rate model with three key components: 1) A
flat or base charge that distributes deferred maintenance costs equally across the rate base; 2) A
variable charge that spreads operating and system enhancement costs proportional to impervious area; 3) and a credit program that recognizes previous investments in modern stormwater infrastructure.
Staff recommends activating the flat/base charge and terminating the current rate model on May
1st, 2015. December 1st, 2015 is the recommended date for implementing the variable charge
and credit portions of the rate model.
BACKGROUND: On June 25th, 2012 the City Commission adopted Ordinance 1831 creating a stormwater utility. Funding was allocated primarily to inventory, map and assess the condition
of the City’s stormwater system.
On March 3rd, 2014 Public Works staff presented the results of these efforts. The City’s
stormwater system consists of over 10,000 individual assets, including 551 outfalls, 3,059 inlets, 1,276 manholes, and 93.4 miles of underground pipe. Staff inspected over 22 miles of underground pipe locating 35 segments with severe cracking or that have collapsed. Excessive
sediment and debris was also found in much of the system. Of the 263 detention ponds
inspected, 75% were found in disrepair. In addition, a regulatory program review was completed
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identifying problems with current system maintenance, construction management, community
outreach, and pollution response practices. Commissioners directed staff to develop options for
addressing the infrastructure and regulatory compliance issues identified during the evaluation of
the stormwater system.
On April 21st, 2014 options for a fully functional stormwater utility were discussed. Staff
presented three level of service options to provide for ongoing operations and maintenance,
address deferred maintenance, and implement system enhancements. Staff estimated that
$570,000 - $720,000 annual funding (depending upon staffing levels and maintenance
frequency) would be required to properly maintain the stormwater system. The system
assessment also identified approximately $7 million in deferred maintenance costs and an
additional $3 million to install treatment at direct outfalls. Three level of service options termed
the “gold”, “silver” and “bronze were presented and discussed. Each level of service differed
primarily on the time required to address the deferred maintenance backlog and install system
enhancements to address untreated discharges. The Commission provided general direction for
staff to implement the “bronze” level of service at a total funding level of $1.2 million annually
consisting of the following components:
Utility Operations - $550,000 per year to fund the staff and equipment necessary for
routine maintenance, water quality monitoring, MS4 permit compliance, construction site
permitting, outreach activities, and inspections.
Deferred Maintenance – $450,000 per year for 15-years to fund $7 million dollars of identified deferred maintenance that includes repair of compromised pipelines, cleaning
of clogged pipelines, manholes and inlets. The full replacement of existing undersized
stormwater piping systems and the repair of private detention ponds are not included in
this deferred maintenance estimate.
System Enhancements - $200,000 per year for 15-years to fund $3 million in identified system improvements necessary to treat direct strormwater discharges.
Staff also outlined six general rate model options. The Commission provided broad policy
guidance directing staff to prepare a rate model capable of quantifying impact based on
impervious area coverage and also accounting for previous investments in stormwater infrastructure.
Staff spent the past nine months analyzing and testing a range of impervious area based rate
model options. Impervious area is any hard surface area that does not absorb water during rain
events (e.g., rooftops, parking lots, and driveways). The impervious area value is used as the
basis of a rate model that relates the fee charged to the amount of stormwater generated by a property.
Development of the rate model initially utilized Montana Department of Revenue (DOR)
impervious area data. The approximate and incomplete nature of this data limited its usefulness
in developing an accurate rate model. To obtain accurate data, staff hired a consultant that
evaluated every parcel within the City to determine specific impervious square footage on each property. These data were then used to develop the final rate model proposed in this memorandum.
The City has 8,083 single-family residential and 2,188 multi-family and commercial properties
with a total of 83.7 million square feet of impervious area. Single-family residential units
account for 30% of the total impervious area. The average single-family residential property has 2,700 square feet of impervious area with limited variation between individual residential
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properties and the average. Multi-family and commercial properties account for 70% of the total
impervious area. Variation between commercial properties is large. For example, Wal-Mart has
over 500,000 square feet of impervious area, whereas Roundhouse Ski and Sports has only
16,000 square feet.
An engineering standard was implemented in the early 1980s requiring new development to
provide on-site stormwater treatment using retention or detention ponds. As a result, most of the
development constructed post-1980 has already invested in some form of stormwater
infrastructure. These systems typically consist of stormwater detention ponds that are
maintained by the commercial property or a homeowner’s association in residential subdivision
developments.
STORMWATER RATE MODEL PRINCIPLES: To develop the rate model outlined in this
section, staff sought input from over 300 individuals and 30 stakeholder groups. Individual homeowners, business representatives, non-profits, and economic specialists all provided useful
feedback to develop a rate model tailored to the unique needs of Bozeman. The rate model
proposed for the City of Bozeman has three main components. These include:
A base or flat charge that allocates deferred maintenance costs evenly across the rate base.
A variable charge that allocates operation and maintenance and system enhancement
costs based on the amount of impervious area.
A credit system that accounts for previous investments in private stormwater
infrastructure.
The base or flat charge distributes deferred maintenance costs evenly across all properties within the service area. This charge is based on the principal that deferred maintenance costs are a
legacy issue and should be shared evenly across the community regardless of property type. Staff
explored several methods for assessing this base charge and ultimately selected water meters for
their simplicity and established billing structure. All properties with a water meter receive a flat charge independent of size for deferred maintenance each month. Properties with multiple water meters pay the flat charge each month for every meter.
The variable charge distributes operating and system enhancement costs across properties
proportional to the amount of impervious area. This charge is based on the principal that
operating and system enhancement costs are related to runoff generated from impervious area.
The credit system recognizes that the majority of properties developed post-1980 have made investments in private stormwater infrastructure. This component of the rate model is based on
the principal that those who have already invested in private stormwater infrastructure should not
be charged for system enhancement projects. By providing an aggregate credit to post-1980
properties, system enhancement costs are reallocated to pre-1980 properties that do not have private stormwater infrastructure. The credit program will require staff to conduct periodic inspections to ensure private stormwater systems exist and are being maintained. In the
proposed rate model, only multi-family, commercial, and single-family residences in HOA
managed subdivisions are eligible. Single-family properties outside of an HOA managed
subdivision are not immediately eligible, but a similar credit program may be developed in the future. Credits do not apply to the deferred maintenance base charge, only to the variable charge.
STORMWATER RATE ANALYSIS: To calculate the base charge, the deferred maintenance
annual funding goal is divided by the total number of water meters resulting in a monthly charge
per meter of $3.23.
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$450,000 annual deferred maintenance cost/11,624 water meters = $38.71/12 months =
$3.23 monthly charge per meter
Impervious area data is used to calculate the variable charge using an Equivalent Residential
Unit (ERU) approach. An ERU is the average impervious area of all single-family residential properties (i.e., 2,700 square feet). Once calculated, the ERU becomes the standardized billing
unit. As the following example calculations illustrate, all single-family residential properties are
billed for one ERU each month. Multi-family and commercial properties are billed for multiple
ERUs each month depending upon the amount of impervious area.
Single-Family Residential: (2,700ft2 of impervious area)/(2,700ft2)=1 ERU billed monthly
Multi-Family and Commercial: (18,900ft2 of impervious area)/(2,700ft2)=7 ERUs billed
monthly
The City has a total of 31,000 privately owned ERUs (83.7 million square feet of impervious
area/2,700 square feet). This value does not include city owned right-of-way.
The first component of the variable charge is calculated by dividing the annual operations and
maintenance funding goal of $550,000 by 31,000 ERUs. This results in an ERU charge of
$17.74/year or $1.48/month.
The system enhancement charges are reallocated by dividing the annual system enhancement
funding goal of $200,000 by the number of ERUs from properties constructed pre-1980 (approximately 45% or 13,945 ERUs). Thus, the second component of the variable charge is
$14.34/year or $1.20/month.
The total variable charge per ERU for all pre-1980 properties that do not have stormwater
treatment infrastructure is $1.48 + $1.20 = $2.68 per month. Post-1980 properties that have
already stormwater infrastructure investments are automatically credited 45% or $1.20 month per ERU resulting in a charge of $1.48 per month.
The credit for existing stormwater infrastructure will be awarded automatically to all post-1980
properties without requiring an application. The credit program also provides incentives for new
commercial development. As shown in Figure 1, additional credits can be obtained by providing
increased runoff detention or advanced treatment beyond current standards. Credits for advanced treatment will be evaluated individually by stormwater staff.
Figure 1 - Proposed credit structure
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STORMWATER COST DISTRIBUTION and RATE EXAMPLES: Figure 2 represents the
total stormwater cost distribution between single-family and multi-family and commercial
properties. Approximately 55% of annual utility costs will be paid by multi-family and
commercial using the proposed rate model. Single-family residential properties will be charged the remaining 45%.
Several examples of how the proposed rate model would be applied to various properties are included in the following paragraphs. Table 1 summarizes the proposed stormwater rates for
various residents and businesses and compares proposed rates to the current rate structure.
Example: Single-family residence constructed pre-1980 without HOA detention pond
Flat charge: 1 water meter x $3.23 per water meter = $3.23
Variable charge: 1 ERU x $2.68 per ERU = $2.68 Credit: none - no HOA detention pond
Total: $3.23 + $2.68 = $5.91/month
Example: Single-family residence constructed post-1980 with HOA detention pond
Flat charge: 1 water meter x $3.23 per water meter = $3.23 Variable charge: 1 ERU x $2.68 per ERU = $2.68 Credit: 1 ERU x $1.20 credit per ERU = ($1.20)
Total: $3.23 + $2.68 - $1.20 = $4.71/month
Example: 16,200 square foot impervious area multi-family or commercial property constructed
pre-1980 without private stormwater infrastructure
Flat charge: 1 water meter x $3.23 per water meter = $3.23 ERU Calculation: 16,200ft2 impervious area / 2,700ft2 (1 ERU) = 6 ERUs
Variable charge: 6 ERUs X $2.68 per ERU = $16.08
Credit: none – no private infrastructure
Total: $3.23 + $16.08 = $19.31/month
Example: 16,200 square foot impervious area multi-family or commercial property constructed post-1980 with private stormwater infrastructure –
Flat charge: 1 water meter x $3.23 per water meter = $3.23
ERU Calculation: 16,200ft2 impervious area / 2,700ft2 (1 ERU) = 6 ERUs
Variable charge: 6 ERUs X $2.68 per ERU = $16.08 Credit: 6 ERUs x $1.20 credit per ERU = ($7.20) Total: $3.23 + $16.08 – $7.20 = $12.11/month
Figure 2 – Rate model cost distribution
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IMPLEMENTATION TIMELINE: Because the proposed rate model will result in a
significant change, a phased implementation plan is proposed. Stormwater rates would be phased in by first assessing the flat charge for deferred maintenance (and eliminating the current
flat fee assessed at the creation of the stormwater utility in 2012). The variable charge and credit
system would be implemented 6 months later thus allowing staff time to finalize all property
analysis. This 6 month period will also allow time for residential and commercial property
owners to budget for increased rates. Following Commission action on the proposed motion, staff recommends the following timeline for implementing stormwater rates.
February 23, 2015: City Commission adoption of the stormwater rate model concept and
authorization to move forward with a public hearing on a two-year rate resolution.
March 22, 29 and April 5th, 2015: Stormwater Rate Resolution on file with City Clerk. Legal
advertisement of Rate Hearing.
March 27, 2015: City water bills include message for Notice of Rate Hearing.
April 13, 2015: Public hearing and rate adoption (Rate Hearing.)
May 1, 2015: Implementation of deferred maintenance flat charge (and elimination of current
rate model)
December 1, 2015: Implementation of variable charge and credit system components of the proposed rate model.
UNRESOLVED ISSUES: Previous policy discussions included debate about distributing costs
geographically (i.e., assessing different rates based on location). The Commission should
recognize that the proposed rate model distributes costs based on the presence of existing
stormwater infrastructure rather than geographically. The deferred maintenance cost estimates do not include full system replacements to current standards, only repairs. Many street
reconstruction projects may require full replacement of the stormwater systems. Under the
proposed rate model, full replacement costs for these projects would be part of the street
reconstruction special improvement district.
ALTERNATIVES: As proposed by the Commission.
FISCAL EFFECTS: The proposed stormwater level of service and the associated rate model
proposed in this memorandum will result in an additional ~$1 million per year in stormwater
charges (above those currently being assessed) that allocated to the various customer classes as
outlined in this memorandum.
Attachments: None
Report compiled on: February 18, 2015
Table 1 - Stormwater rates for representative residential and commercial properties
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