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Before the water rises: building resilient communities with stormwater utilities

image courtesy Jerry Posluszny

Stormwater utilities are used across the country to consolidate funding to address stormwater management requirements related to improving water quality and mitigating flooding, but they can do more by prioritizing opportunities for credit-based incentives, equitable rate structures, municipal capacity-building, regional cooperation, community engagement, and conservation.

Contents

  1. Introduction
  2. Project Background
  3. Legality of Utilities
  4. Establishing a Stormwater Utility
  5. Opportunities and Obstacles
  6. Other Considerations
  7. Recommendations
  8. Conclusion
  9. Acknowledgments

Increased flooding is one of many issues facing urbanized areas in Illinois and Indiana as climate change accelerates. Compounded by aging stormwater infrastructure and increasingly frequent and severe storm events, communities will need to invest in resilience. A 2008 study by the United States Environmental Protection Agency (U.S. EPA) found that municipalities in the Chicago region had a backlog of stormwater management needs totaling $233 per household, and flood damages cost the region $55 million per year. Increased flooding in communities that have combined sewer systems means an increase in combined sewer overflows and threats to private property, including untreated sewage backing up into people’s basements. This threatens not only aquatic ecosystems but public health, as well. In parts of our region that have separate sanitary and storm sewers, leakage from unmaintained infrastructure can pose a similar threat. 

For most municipalities, operations and maintenance of stormwater infrastructure are among the many responsibilities handled by public works departments, which are typically funded through tax revenues. Large capital projects generally rely on federal and state grants and loans. However, more communities are turning to dedicated fees as a means of funding stormwater management. In Indiana, for example, at least 76 new stormwater fees have been established since 2010. Stormwater utilities are a way for a municipality to create a dedicated funding stream for stormwater management activities that can improve a community’s climate resilience by improving its capacity to operate and maintain stormwater infrastructure and mitigate flooding.  

Project Background 

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A stormwater utility is a tool used to streamline stormwater management at the local or regional scale and authorizes the collection of a fee to finance its activities. Stormwater utilities can be part of a municipality’s public works department, a separate department under municipal government, part of an existing utility, or a standalone entity, depending on local context. In function, they are similar to other utilities, such as water and sewer utilities, but fees are collected for the specific purpose of addressing stormwater needs. The average monthly stormwater utility fee for a single-family residence is $5.94. According to an annual survey conducted by Western Kentucky University, there are nearly two thousand stormwater utilities nationwide. They are found in 41 states, as well as the District of Columbia, and in communities as large as Los Angeles (population: 4 million) and as small as Indian Creek Village, Florida (population: 88). Minnesota currently has the most stormwater utilities with 204, with Florida just behind at 187. 

Stormwater utilities provide many benefits for improving a community’s stormwater management activities. However, there are several key challenges that can arise. First, while stormwater utilities can improve municipal capacity, some may struggle to begin this process as the upfront labor and resources necessary can be a major roadblock, even if it saves resources over time. Next, implementing a new fee can result affordability concerns, and some community members may not be able to afford a new service, no matter how great the need. Conversely, though, with dedicated revenue for stormwater activities, municipalities should be more able to afford higher upfront costs of using natural systems and green stormwater infrastructure that are more sustainable over time – both environmentally and economically. With these considerations in mind, establishing stormwater utilities can make a meaningful difference in improving climate resilience. 

We set out to understand the current use of stormwater fees in Illinois and Indiana through the survey and analysis of existing utilities. We spoke with stormwater utility representatives as well as people who are directly or indirectly involved with stormwater management, including at stormwater management commissions, the Indiana Dept. of Natural Resources, municipal staff and elected officials, and more. Our goal was to identify how stormwater utilities are being used to manage stormwater and whether they could be employed to even greater effect and in more places. 

Legality of Utilities 

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In 1987, as an amendment to the Clean Water Act, U.S. EPA created the National Pollutant Discharge Elimination System (NPDES) permit program for controlling water quality from stormwater and sewer systems. The NPDES program requires urbanized areas to hold a permit for wastewater systems and comply with pollutant control measures. Requirements differ based on the type of sewer system, and permits are granted for either a Municipal Separate Sanitary Sewer System (MS4) or a Combined Sewer System (CSS).  

The NPDES program is an unfunded federal mandate, and stormwater utilities became a common pathway for creating a funding source to comply with this new permit program (though some utilities were established earlier).  

Municipalities in both Indiana and Illinois are authorized by state statute to establish stormwater utilities. The legal pathways differ slightly by state as well as by municipality due to each state’s home rule legislation, which may account for why they are more prevalent in Indiana than Illinois. 

Enabling legislation – Illinois 

Illinois has only 30 stormwater utilities compared to Indiana’s 99. Whereas Indiana state statute explicitly authorizes stormwater utilities, Illinois positions stormwater utilities as a power related to a municipality’s home rule status. That is, Illinois municipalities with a population greater than 25,000 residents, or those which have become home rule via local referendum, may exercise local control and perform any function not specifically prohibited by state law. Non-home rule communities are authorized under Illinois Municipal Code to own and operate utilities but have more limited powers to charge fees than home rule municipalities. Using this legal avenue, the non-home rule village of Richton Park was able to establish a stormwater utility via ordinance. Whereas the Indiana Dept. of Environmental Management (IDEM) recommends stormwater utilities for permit compliance, the Illinois Environmental Protection Agency prioritizes measures to protect water quality via grant funds rather than utilities, offering programs such as the Green Infrastructure Grant Opportunities program (and its predecessor, the Illinois Green Infrastructure Grant program) and the Section 319(h) program, among others. 

Enabling legislation – Indiana 

IDEM recommends stormwater utilities as a way of funding compliance activities related to a MS4 permit, and Indiana Code 36 authorizes municipalities to establish a dedicated fund for the improvement of sewer systems and for operating and maintaining sewage works. Where Indiana state statute explicitly authorizes stormwater utilities, Illinois legislation considers stormwater utilities as a power of home rule units in more general terms. The legality of stormwater utility fees by municipalities has held up in courts in both states, but actual use of this mechanism differs drastically between them. 

Home rule statute differs between Illinois and Indiana when it comes to the fiscal powers of the home rule unit. As home rule states, home rule units in both states are authorized to charge and collect a fee for stormwater management services. Indiana law prohibits home rule units from charging a fee greater than the cost of the service administered, and it places strict rate caps on property taxes, which are typically a significant, if not primary, source of funding for stormwater management across the country. Illinois, on the other hand, has no such cap on taxes (with the exception of income tax) nor limitations on charging fees for services provided by the municipality.  

Stormwater Management Planning Committees in Illinois 

In Illinois, county-level Stormwater Management Planning Committees are one method currently in use. Between 1986 and 1987, northeastern Illinois was hit with severe storms causing record floods, with flood damage costing $34.6 million in 1986 and over $54 million in 1987, resulting in the passing of Public Act 85-905 authorizing designated counties in the region to form such committees. Such committees were established in 12 counties and developed a stormwater management plan for the county. As an advisory body to county government, they use property tax levies to fund their operational functions and grants for capital projects. Public Act 85-905 does authorize the use of fees to fund stormwater management activities that may be affected by increased runoff from new development, but none currently do. Higher level organization of stormwater management activity widens the scope of flooding issues and relieves the pressure on individual municipalities. Illinois uses committees to serve this function rather than utilities, but having a dedicated revenue stream generated by a utility fee can help counties act on those plans, which is why some states, including Indiana, have county-level stormwater utilities. 

Establishing a Stormwater Utility 

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The process for establishing a stormwater utility can look different depending on the municipality’s starting point – that is, given their financial and organizational structures, the status of planning initiatives, and general needs. However, there are several common steps communities will take:

Not all communities will follow this exact process. Some will look at national, state, or regional averages and select a fee within that range, but it is recommended that the fee be based on a reasonable estimate of the cost of stormwater management activities – whether that be maintenance and operations, administrative duties, capital improvement needs, or all three.  

Opportunities and Obstacles 

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When establishing a stormwater utility, there are key considerations to ensure financial feasibility, both for the utility as well as those in its service area. It is important to charge enough that the program can be successful while not overburdening customers. Municipal capacity can be an obstacle to getting a new program off the ground, and it is important to recognize that stormwater does not respect jurisdictional boundaries, meaning opportunities for regional collaboration can have a major impact.

Financial Feasibility: Fee Structure 

image courtesy Marco Verch

The fee structure most commonly used by utilities across the country is one based on Equivalent Residential Unit (ERU). In this system, fees are charged based on the amount of impervious area of the average single-family residential parcel of the municipality or county. Impervious area refers to hard surfaces – for example, rooftops and paved surfaces that cannot absorb stormwater runoff. Factoring for imperviousness weights each property in terms of how much runoff it contributes to the municipal sewer system, and there are several methods that can be used to do so. These methods include assessment by exact impervious area or by Residential Equivalency Factor, a method similar to ERU.  

Aside from imperviousness, other common fee structures include charging a flat fee, a dual system (usually separate fee for residential/non-residential properties), or a tiered or incremental system. Others assess based on water consumption or by land use or zoning codes, such as commercial, residential, industrial. However, fee structures that charge based on impervious area are generally seen as less regressive as they allow customers to reduce their bill by removing impervious surfaces. In their place, solutions that mimic the natural, pre-development landscape – collectively referred to as “green stormwater infrastructure” – are implemented, which reduce the property’s total runoff. This incentive is mutually beneficial, allowing property owners to reduce their fee assessment while also capturing and treating a portion of the rain where it falls, thereby placing less demand on municipal sewer systems. 

Some stormwater utilities charge as a fee on utility bills. Others assess via property tax bills. Regardless, as local economies and stormwater management needs fluctuate, so should the stormwater utility fee. Hobart, Indiana, for example, has scheduled fee increases of about 3% annually. Building in regular rate increases ensures fees are sufficient to cover the costs of stormwater management without adding an excessive financial burden to the community members they serve. 

Financial Feasibility: Equity and Affordability 

Affordability and equity are important considerations for communities exploring whether to establish a stormwater utility. Due to the Chicago region’s long-standing history of racial and economic segregation, stormwater management across the region is an issue of environmental justice. Black and Brown communities have been systemically disadvantaged, under-resourced, and are more likely to be located in flood-prone areas. The result is that these communities are more likely to experience the worst impacts of storm events while also being among the least able to afford the required interventions. 

Of the 14 municipalities in Cook County, Illinois, with a stormwater utility, 10 are in the northern part of the county, which is more affluent. Winnetka, for instance, has a median household income (MHI) of over $250,000. Among the other communities with a stormwater utility, Richton Park has the “lowest” MHI at $62,858, though that is comparable to the countywide average of $64,660. Many of the communities in Chicago’s South Suburbs – including Harvey, Dixmoor, Calumet City, and Blue Island – have MHIs ranging from $30,306 to $49,668, are majority Black or Latinx, and experience among the worst flooding in the Chicago region. Despite a clear need for the benefits offered by a stormwater utility, affordability is a significant obstacle for some communities. 

In conducting the feasibility study for establishing a stormwater utility fee, a municipality must balance what needs to be done and what can reasonably be charged to their constituents. Lower income communities may have a great need for major capital projects, but cannot necessarily afford to pay a high fee to implement them on a rapid timeline. Furthermore, communities want to attract investment, but developers can be dissuaded from investing in areas that charge high fees, so affordability is not only a concern for residents but an economic development consideration, as well.  

Obstacle: Municipal Capacity 

Municipal capacity refers to the extent to which a municipality is able to sufficiently provide services to its constituents. Several factors play into the overall picture of municipal capacity, including financial resources, staffing (both numbers and expertise), income levels, and environmental conditions. These factors limit what the municipality can afford to accomplish and, thereby, force the municipality to prioritize certain needs over others. Municipal capacity is both a reason to establish a stormwater utility and an obstacle to doing so.

A 2019 survey by the Metropolitan Water Reclamation District of Greater Chicago (MWRD) found that, while over half of the responding communities in Chicago’s south suburbs experience recurrent flooding, most lack the overall capacity to mitigate the threat. Many indicated a lack of stormwater-related staff – GIS analysts, planners, engineers, grant writers, and even public works directors. And 67% use consulting engineers on a contractual basis for individual project needs compared to 12% which have an engineer on staff. In addition to staffing constraints, 40% of respondents said they did not have a stormwater master plan. While a stormwater utility can go a long way toward improving municipal capacity, limited capacity can often be the very thing standing in the way of doing so. Low-income communities may struggle to carve out the financial and staff resources required to create further plans, contract out for a feasibility study, or conduct community engagement to implement a stormwater utility, even if the end result is more funding to address stormwater management. As Indiana has far more stormwater utilities than Illinois, both high- and low-capacity communities have more readily available models to follow. In Illinois, however, the communities that have established a stormwater utility thus far are higher capacity municipalities. 

Nevertheless, having a dedicated source of funding for stormwater management activities can allow a municipality to take on bigger projects, keep up with regular maintenance, comply with regulations, mitigate flooding, and more. It can mean stormwater is no longer competing for funding among other governmental activities. This funding can also go towards increasing the number of stormwater-focused staff so that the municipality has more people working directly on these issues while improving municipal capacity overall.

Opportunity: Regionalization 

image courtesy Chesapeake Bay Program

Several counties in northwest Indiana charge a stormwater utility fee, including Porter and Lake, but these fees only apply to the unincorporated areas within the county, and several municipalities in these counties charge their own stormwater fee. There are examples from other states that have formed regional stormwater utilities through existing water and sewer districts. For instance, the South Washington Watershed District (SWWD) in Minnesota manages water resources for several sub-watersheds across Washington County, charging a stormwater utility fee as a special assessment on the Washington County Property Tax statement, including both unincorporated areas and incorporated municipalities. Revenue goes into the SWWD project fund and is used for capital projects, bond repayment, operations and maintenance of regional stormwater and flood control systems, and for projects to improve the water quality of stormwater runoff. 

Similarly, the Northeast Ohio Regional Sewer District (NEORSD) manages all wastewater (including stormwater) for most of Cuyahoga County and several municipalities in surrounding counties. Their stormwater utility fee is added onto the regular, monthly utility bill for the district and is assessed on impervious areas on a tiered system. Revenue from the fee funds the Regional Stormwater Management Plan, and NEORSD manages stormwater projects impacting multiple municipalities, while individual municipalities are responsible for their own sewers and local stormwater management. 

One benefit of having a wide taxing body for a regional stormwater utility like NEORSD is that they are able to build affordability and equity into their fee structure. The district’s “homestead” program allows seniors aged 65+ and disabled individuals to apply for discounted utility fee rates, and the affordability program allows for discounted rates to customers whose annual income is at or below 175% of the federal poverty guidelines. Additionally, NEORSD offers crisis assistance for those who have experienced a “major event,” such as sudden medical expenses or job loss by providing a one-time payment of up to 50% of the monthly bill. 

Short of implementing a regional fee structure, regional cooperation between stormwater utilities can have many benefits. Sharing resources (e.g., ordinance language, educational materials) and lessons learned can help individual utilities, especially those that have only one full- or part-time staff member administering the program. 

Other Considerations 

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Stakeholders should be engaged early and often during program design to jointly establish a reasonable tradeoff between cost-of-service and acceptable risk. Also, consider looking to non-traditional partners to achieve stormwater management goals, including open space conservation and restoration organizations, such as forest preserves and land trusts. And, if applicable, consider the interplay between stormwater utilities and a stormwater credit trading marketplace.

Community Engagement 

image courtesy 1Day Review

In order to create the most effective and equitable stormwater utility, community engagement is needed early and at regular intervals throughout the process. NPDES permits for MS4 communities and for controlling combined sewer overflows require some element of public engagement and education in the permit holder’s stormwater management programs. For example, the Lake County (Illinois) Stormwater Management Commission distributes pamphlets and factsheets, produces a quarterly newsletter, and develops manuals for property owners on topics such as managing riparian areas. Related to stormwater utilities, Indiana law requires a public hearing before a utility can adopt or change its service rates. Printed and electronic materials are one way to keep residents and other stakeholders informed, and public forums provide a venue for concerns to be raised. Merrillville, Indiana, has a Stormwater Resource Center as both headquarters for stormwater operations and as a physical location for public engagement. 

Unfortunately, based on many examples from across the country, the establishment of new stormwater utilities can be a contentious issue. One engineering firm told us that they go into public meetings with maps of flood-prone areas and a list of proposed capital projects to address them. The word “proposed” is important, as the intention is to help stakeholders understand the need for a new fee and, over the course of sustained engagement, collaboratively arrive at an agreed-upon tradeoff between costs and risks. In places where a hardship will be incurred by the establishment of a fee, engagement can help to identify and work toward mutually-beneficial solutions. 

Hardships related to the establishment of a new fee can hit residents as well as business owners. Especially in an ERU-based fee system, commercial properties with large impervious areas will often have the highest fees assessments. For so-called big box stores and other national chains, this may be viewed as part of the cost of doing business, but locally-owned small businesses can be among a proposed utility’s loudest critics. Accordingly, they should be engaged directly about the costs and benefits and to explain options under a credit-based system, where removal of impervious surfaces yields fee discounts. The argument here is that engagement is needed early and often, both to win over potential critics as well as – more importantly – to design a system where community needs are prioritized. And engagement related to the establishment and subsequent implementation of a fee can, itself, be an opportunity to educate stakeholders and get buy-in for the need to address stormwater issues.

Conservation, Restoration, and BMPs in series 

image courtesy Center for Neighborhood Technology

The overwhelming majority of Chicago’s south suburbs surveyed in MWRD’s 2019 study stated interest in green stormwater infrastructure development. Given current capacity constraints, many do not have the resources to act on this. Most Indiana and Illinois stormwater utilities focus on NPDES permit compliance, and green stormwater infrastructure is a lower priority or future goal once permit requirements are met. Part of this lies in the difficulty in making the case for higher expense now even if the benefits are greater over time, as natural solutions often cost more upfront for installation and establishment but, in the long run, can be more cost-effective and sustainable than traditional grey infrastructure. Smaller municipalities are also limited geographically to implement larger-scale ecosystem restoration or conservation projects. Stormwater utilities can help overcome these obstacles by incentivizing green stormwater infrastructure at the parcel level and engaging inter-municipal partners for larger-scale projects. 

Many stormwater utilities structure their fee to incentivize small-scale green stormwater infrastructure through providing discounts or credits to property owners who implement measures such as rain gardens or rain barrels. Others partner with park districts to install rain gardens and bioswales in public parks or with forest preserves to develop ecosystem restoration projects as part of a capital improvement project. Regional utilities, such as SWWD and NEORSD, tend to have more resources and a greater geographic scope which allows for projects impacting multiple communities. NEORSD also facilitates inter-municipal partnerships and community cost-share programs. 

An established municipal utility, like the one in Merrillville, Indiana, can generate capital to construct rain gardens and be financially self-sufficient through its utility fee revenue. Regional coordination like the Northwest Indiana Stormwater Advisory Group (NISWAG) for MS4 communities can help foster inter-municipal prioritization and cooperation on stormwater management activities.  

StormStore

A stormwater utility could also work in conjunction with the StormStore pilot program that was launched in 2021 by MWRD. This program allows developers to meet stormwater management requirements through off-site credit trading that enables communities with the greatest need to develop stormwater infrastructure. By reducing their overall impervious area through the installation of green stormwater infrastructure, a property owner can reduce their stormwater utility fee. In a program like StormStore, a developer would be disincentivized to sell credits if it means their own property has a greater impervious area, and, thus, a higher fee. As there are very few examples of stormwater credit trading programs in the country, we can look to the nation’s capital to set a precedent for combining a stormwater utility fee with stormwater credit trading.  

The District of Columbia splits stormwater management into two parts, the Department of Energy and Environment charges a stormwater fee for MS4 compliance and DC Water charges a fee for the Clean Rivers Impervious Area program for controlling combined sewer overflows. In credit trade situations, green stormwater infrastructure credits are only applied to the property on which the infrastructure is built, meaning only one party in the trade is eligible for credits on their fees. The stormwater programs in DC show precedent for how to implement both a stormwater credit trade program and stormwater utility fees as means to more effectively and comprehensively address stormwater management. 

Recommendations 

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After talking with representatives from several stormwater utilities across Indiana, Illinois, and Ohio, and conducting further research on their usage across the country, we have established a list of recommendations for municipalities considering this pathway. These recommendations are for any municipality considering establishing a stormwater utility or for those with an existing utility that are looking to improve its efficacy:

Fee Structure 

Equity and Affordability 

Municipal Capacity 

Regionalization 

Conclusion 

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Stormwater utilities are an effective tool for increasing a community’s resilience to flooding events by enabling them to maintain and improve stormwater systems. Increased flooding is not only a public health risk but also a threat to the environment and the economy. The financial threat of flooding is particularly severe for communities that already struggle with maintaining aging infrastructure. Having a dedicated funding source for stormwater management through a stormwater utility allows communities to maintain, repair, and improve infrastructure before major floods happen.  

Stormwater utilities charge a fee to property owners within their jurisdiction and have the power to design effective and equitable programs using these recommendations. The utility can structure the fee they charge to incentivize the development of green stormwater infrastructure to reduce demand on municipal sewer systems. For communities with limited resources, stormwater utilities can fund necessary stormwater master planning or staff positions for management activities which can greatly improve municipal capacity. Likewise, regional utilities are effective in managing stormwater infrastructure and mitigating flooding at a broader geographic level as they can facilitate and financially support inter-municipal partnerships. At any level of government, whether large urban metropolis or small rural town, whether regional, county-level, or local, having dedicated funding through the establishment of a stormwater utility can enable municipalities to make a big impact. 

Acknowledgments 

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The Metropolitan Planning Council wishes to express our sincere appreciation to the Gaylord and Dorothy Donnelley Foundation for their support of this work. Additionally, the following individuals were vital to our understanding of the opportunities and benefits of stormwater utilities: 

Additional reading