Managing stormwater is a new challenge for many communities, but veterans and greenhorns alike share the same concern: how are we going to pay for this?
Like any financial challenge, there is no one-size-fits-all solution to stormwater capital planning. Most communities benefit from a strategy that relies on a mix of funding sources.
Below are five sources that local governments can use to pay for stormwater capital projects.
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1. User Fees
In North Carolina, local governments cannot charge a stormwater fee without operating a stormwater utility fund.
What is a stormwater utility fund?
A stormwater utility fund is the legal mechanism of imposing a fee on developed property owners to pay for the cost of handling stormwater runoff caused by impervious surfaces on their property. It is operated like a business, similar to water and sewer utilities. User fees are dedicated to paying for stormwater operational and capital costs associated with maintaining the system.
Did You Know?
Only about 20% of North Carolina local governments manage an enterprise stormwater utility fund as of January 1, 2023, according to the UNC School of Government’s Environmental Finance Center.
Establishing a stormwater utility fund may be the single best way to improve the financial condition of a stormwater network. It fairly distributes the financial burden of a stormwater system among all users. It also brings in dedicated stormwater revenues, rather than having stormwater services competing for revenues from the local government’s general fund.
For communities that already have a stormwater utility fund, it is important to periodically re-evaluate impervious areas, rate structures, and capital plans. The re-evaluation makes sure that revenue generation is aligned with community needs and goals. WithersRavenel recommends conducting a billing audit for existing funds once a year as a part of the annual budget process, and stormwater rate analysis no less frequently than every three to five years.
2. Capital Improvement Plans and Comprehensive Master Plans
A capital improvement plan (CIP) or comprehensive stormwater master plan (MP) is a critical component for setting future rates for a stormwater utility fund, but even without a utility, it is valuable for understanding how a community will pay for stormwater capital improvements.
What does a Capital Improvement Plan or Stormwater Master Plan include?
A robust CIP or MP will include several components:
- Location and condition of stormwater assets
- Boundaries of existing watersheds
- Location and extent of flooding or other issues
- Concept plans for proposed stormwater improvements
- Future flood mitigation and resiliency measures
- Future large equipment needs to operate the utility
- Opinions of probable cost
A CIP or MP provides a framework for local governments to allocate a portion of their stormwater enterprise fund revenues to stormwater capital projects. In particular, it enables them to prioritize projects based on a variety of factors:
- Risk
- Availability of funds
- Opportunities to combine compatible projects
Without one of these documents, proactive stormwater investments are unlikely to be a priority. Communities may fall back into a reactive strategy of only paying for emergency fixes when a problem arises.
This kind of reactive asset management is more expensive because it does not allow local governments to bundle projects. Bundled projects can reduce service disruptions or secure favorable rates on labor or materials.
3. Debt Issuance
Debt issuance enables local governments to address expensive infrastructure issues more quickly by allowing them to implement a solution now and pay for it over time, rather than saving up money for years to pay for a fix in the future. This can be especially helpful when the issue is aging, deteriorating, or failing infrastructure, which will only worsen over time while the community waits for savings to grow in the bank.
What are the types of debt financing for stormwater projects?
There are two types of debt financing that North Carolina governments commonly issue for stormwater projects:
- Revenue bonds – Debt secured for a specific improvement project where the revenue generated from the asset serves as collateral
- Installment financing & capital leases – Debt commonly used for real property or large equipment purchases, where the asset being financed serves as collateral
In North Carolina, debt issuances are approved by the NC Local Government Commission to ensure the local government can reasonably repay the debt.
Did You Know?
As a result of this special commission, North Carolina has a greater percentage of units rated “AAA” by national bond rating agencies compared to other states.
4. Grants
Even with judicious financial planning, local governments may find themselves unable to afford the stormwater capital projects their communities desperately need. Stormwater grants can inject vital funds into anemic budgets and help communities kick-start their stormwater capital improvement projects.
Funding for stormwater capital projects
Unfortunately, there is limited funding available for stormwater capital projects in North Carolina except in the 14 FEMA disaster-declared counties as a result of Hurricane Helene.
The good news is there are construction dollars available through:
- FEMA’s Hazard Mitigation Grant Program (HMGP)
- Golden LEAF Foundation’s Flood Mitigation Program
- North Carolina Division of Water Infrastructure’s SRF Funding for Hurricane Helene
Eligibility and deadlines vary by program, and funding availability is subject to annual appropriations.
Contact WithersRavenel Director of Funding Amanda Whitaker for more information about stormwater grant application requirements.
5. No-Interest/Low-Interest State Loans
For communities that are not eligible for grant funding, no-interest and low-interest loans can bridge the budget gap and provide immediate funds for emergency or critical stormwater projects.
For example, in North Carolina, the Clean Water State Revolving Fund offers 0% interest loans for green infrastructure projects as well as loans with interest set at one half the market rate for stormwater projects such as stormwater control measures (SCMs) and stream restoration.
No-interest loans may come with additional conditions beyond those of a typical installment loan, so it is important to work with a financial professional to make sure they make sense with your community’s financial strategy.
The bottom line
Local governments that are grappling with how to afford expensive but important stormwater improvements have options, and WithersRavenel has the financial expertise to help you navigate those choices on the path to sustainability.
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