Fair Stormwater Funding?
Note: This is a very long post that covers both abstract and concrete details about stormwater infrastructure. It is primarily written for people who are aware of the city’s stormwater funding shortfalls and our efforts to correct it.
On February 2, 2016, Guelph council’s Infrastructure, Development, and Enterprise (IDE) Committee met to discuss staff’s Stormwater Funding Study report. While I certainly appreciate the dedicated and excellent work that staff put into the report, I am not convinced that staff’s recommendations (that the IDE committee approved in a 5-0 vote) produce the best results for stormwater funding in our city. The report and its recommendations will next be received by the entire council on March 21, 2016.
The heart of the recommendation removes the current funding of stormwater (more accurately, the current severe underfunding of stormwater) out of tax base and into a dedicated fee system. The city already does this type of dedicated funding with our non-tax supported water and wastewater utilities and at a glance it seems to make sense to also fund stormwater in a similar manner.
The funding methodology staff recommends is an Equivalent Residential Unit (ERU) strategy — that is, every residential unit in Guelph would be charged the exact same annual stormwater fee, while non-residential units (like industrial and commercial) would be charged according to a calculation of the units’ impervious areas (like roofs and parking lots) that cause stormwater to enter our infrastructure system instead of absorbing into the ground.
A detailed, city-wide Sustainable Infrastructure Report was commissioned in 2012. It identified an annual sustainable funding level for stormwater infrastructure (ie. the correct funding required) of $6.4M. At that time, taxes only contributed $2.3M annually to deal with stormwater — a 59% gap that resulted in a failing “F” grade being assigned to the funding. Even worse, when staff completed an updated 2015 scorecard, the stormwater funding “F” grade got even worse with an astounding 79% funding gap. In addition, in 2012 a $25M capital stormwater backlog was identified that needs to be addressed.
As The Arrow would say to Guelph council, “you have failed this city”.
Staff Studies The Options
It’s crystal clear that something needs to change regarding how we fund stormwater in Guelph. Staff carried out a detailed study that included community engagement throughout 2014 and 2015. One of the primary decision points for a new funding model was conveyed as follows:
Determining stormwater funding options and recommending the preferred option that offers a fair and equitable method for allocating the costs of the recommended stormwater management program keeping in mind administration efficiency.
To this end, staff reviewed ten different funding alternatives in the broad categories of variable fee (based on impervious area), flat fee (based on property count or area), and hybrid options.
Fair and Equitable?
As mentioned, a system that is fair and equitable was identified as a primary goal of the new funding method. According to the report:
A funding option is considered fair and equitable when the imperviousness closely matches the revenue generation.
Staff maintains that the current method of funding stormwater through the tax system is not inherently fair nor equitable since it is calculated based on assessed property value and not the amount of stormwater contributed to the city systems. Conversely, a variable fee that allocated charges based on hard surfaces — and thus the amount of stormwater contributed to the city’s infrastructure — is considered more fair.
Taken in isolation, I agree completely with the statement above. Basing stormwater fees on the total volume of impervious surfaces would be a very fair way to assess the rates charge. Unfortunately, this work-intensive method goes against another stated goal of the new funding model of “keeping in mind administration efficiency”. It would be a logistical nightmare to calculate exact square footages for the impervious surfaces of all residential homes in Guelph — and the cost to administer that model would fall directly on the residents of Guelph. So that high level of fairness and equity is not feasible to implement.
So what did staff recommend? They propose that charges should be based on the average amount of impervious area across all residential properties of 2,025 sq. ft., and then charge non-residential units based on their proportion of impervious area compared to the average residential base unit of 2,025 sq. ft.
And that is where I believe the recommendation completely loses its aim towards fair and equitable.
Explanation of the Base Unit
First, I want to focus on residential properties for this discussion and address non-residential properties later.
Staff has calculated the all residential properties in Guelph have on average 2,025 sq. ft. of impervious area, which includes primarily roofs and driveways. I believe there is little value in determining the average area, though, because properties vary substantially when comparing detached homes to townhomes to apartment condos. For example, a 3,000 sq. ft. suburban detached home with a double garage in Ward 6 certainly has a much greater amount of roof and driveway compared to a 1,300 sq. ft. interior townhouse with single-driveway, not to mention a 600 sq. ft. condo apartment in a high-rise building with a single parking spot.
Staff proposes that each residential unit be treated equally under the ERU funding method and consequently the owners of the above detached home, townhouse, and condo apartment would all pay the exact same amount of money for stormwater management. Since the current method of stormwater funding is based on assessed value, the detached home probably pays the most towards stormwater, followed by the townhouse next and the condo apartment the least. Having all residential units pay the same rate shifts the burden currently carried by the detached home owners (ie. more expensive homes) to the townhomes and, even more so, the condo apartments (ie. the least expensive homes). Is this fair and equitable? I have doubts.
Is Funding Stormwater in Tax Actually More Fair?
I propose that continuing to fund stormwater through the general tax base for residential properties is inherently more fair and more equitable and does not align with staff’s assertion above that:
…funding stormwater through the tax system is inherently not fair nor equitable since which is calculated based on assessed property value and not the amount of stormwater contributed to the city systems.
As a real estate broker for over 10 years, I know a little something about houses. I would say it is generally true that overall properties with higher assessed values have more impervious surfaces on their properties than those with lower assessed values. More expensive (ie. higher assessed) homes usually have larger square footages (ie. larger impervious roofs) as well as larger driveways and more hard landscaping like patios (ie. larger impervious surfaces). Condo apartments usually have the lowest assessed values and they have great efficiency when comparing total impervious surfaces vs. unit square footages (in a 10-story building, for example, the roof apportioned to each unit is very small). This trend is not true for every home, obviously, but I think it’s close enough to meet the fair and equitable goal as well as the “keeping in mind administration efficiency” goal. At the very least, funding stormwater through the assessed tax base is certainly not less fair and equitable than treating every residential property as equal and charging them the same fee.
Finally, it’s important to address the financial impact and affordability issues with Guelph’s residents. I believe it’s generally true that people who live in homes with higher assessed values have more wealth (not necessarily more income; that’s another issue) and ability to absorb tax rate increases than those in homes with lower assessed values. Under the ERU method, residents who can most afford to pay higher stormwater fees (those in more expensive homes like large detached houses) receive a proportionate fee discount, while residents who can least afford to pay (those in less expensive homes like small towns and apartment condos) will see dramatic rate increases compared to what they current pay in their taxes.
What About Non-Residential Properties?
Residential homes are only part of the funding model, with the other being non-residential properties like industrial and commercial. In this area, I can agree with staff that the ERU method may work well because charging fees based on a unit’s actual impervious surfaces (in relationship to the residential average 2,025 sq. ft.) seems to be reasonable. Administration of this application is high, but the number of non-residential units is substantially lower than the number of residential units. ERU is probably a decent application here, though it might not be possible to mix in-tax residential with user-fee non-residential. In these instances, staff could implement a funding methodology that keeps these funding differences in mind, yet respects the integrity of the tax/user fee system.
Exceptions and Credit Systems
The staff report also addressed that the city could implement an incentive-based credit policy to encourage good stormwater management practices. What does this mean? Properties that have on-site practices to minimise the amount of stormwater that enters the infrastructure system could receive a credit for such practices. For example, a really simple management practice could involve using rain barrels to store and perhaps reuse stormwater. This incentive seems to make sense to an extent, but could this system take into account all the necessary variables for credits?
For example, many of the homes in Westminster Woods back onto greenspace and stormwater management ponds (and owners paid a premium price for this opportunity) and much of the runoff from these homes is stored in the ponds instead of entering the stormwater system. These houses may not have any management systems on the property, but the homes (in fact, the entire subdivision!) are build in a community that has built-in stormwater efficiencies. Compare these homes to century downtown homes that have no such greenspace/stormwater ponds near the homes, and it’s clear that two homes that may have the same assessed value do not contribute to stormwater run-off in the same way. Should all homes in newer master-planned communities like Westminster Woods receive a stormwater credit based on their location and the community development practices that were in effect at the time of building? A similar problem arises with homes with massive lots (and thus a high pervious to impervious surface ratio). How would credits be handled in this situations?
I don’t have all the answers for these questions — and they are legitimate questions — but I believe some guidelines could be established that reflects a fair and equitable credit system:
• Detached homes on individual lots under one acre are not eligible for credits unless they have on-site management areas that hold more than 5,000 Litres of stormwater (or whatever number is appropriate to reflect grey water holding tanks and other significant stormwater management facilities).
• Detached homes on lots between 1-3 acres receive a 25% stormwater fee credit, while homes on lots more than 3 acres receive a 50% credit. This credit reflects the high ratio of pervious to impervious surfaces that is inherent to having large lots with grass and soft landscaping.
• Non-residential properties with significant on-site stormwater management practices could apply for credits up to 50% of their stormwater fee (staff would determine the exact credit based on impact).
• Current tax-exempt non-residential properties could still be required to pay stormwater fees since their fees would be outside the assessment tax system. These properties were addressed by the staff report, so it’s important to acknowledge such properties in our funding model.
One final thing: what should we do about the identified $25M backlog of capital stormwater infrastructure? Whatever method council ultimately chooses for fully funding stormwater at a sustainable level — ensuring the funding gap is reduced to zero and the backlog doesn’t grow — we should add on 5% of the backlog amount each year for 20 years until the backlog is eliminated as well. This slow catch-up method isn’t as aggressive as it could be over a 5- or 10-year catch-up period, but I believe it balances responsibility with affordability in a way that doesn’t compromise safety.
If you’ve continued reading until the end, I say thank you. I’m sure you’ll agree that funding stormwater infrastructure is a complex undertaking. Yet, it is vital to the safety and security of our city that we stop underfunding our stormwater systems and take bold action to move to a fully sustainable funding model. This requires more than an additional $4M annually, much of which will come from city residents. Collecting these extra funds isn’t merely one option of many to consider, though; it’s 100% necessary and must happen in the near future. Doing otherwise is irresponsible oversight and abdication of our fiduciary and moral responsibilities.
I do not plan to fail this city.