Financial Analysis

Analysis of Billing Units and Potential Rate Structures


The vast majority of stormwater management enterprise funds across the country use an assessment of total impervious cover per parcel as the primary billing unit for stormwater, often referred to as an Equivalent Residential Unit (ERU). An ERU represents the amount of impervious cover on a “typical” residential parcel based on the community’s distribution of housing stock. For example, a typical single family residential (SFR) property would be billed for one ERU fee whereas a commercial property with ten times more impervious cover would have ten ERUs and pay ten times the fee. The cost per ERU is calculated by dividing the total stormwater program cost by the total number of ERUs. In more recent years, many communities are choosing to bill on the basis of a Stormwater Billing Unit (SBU) since impervious cover data is more accurate and easier to obtain than before. It can also be seen as a more equitable approach that more accurately captures the total impervious area for a parcel by using smaller billing units.

During this study, ERUs and two different SBUs were developed for comparison during the revenue analysis for a SMEF.

Equivalent Residential Unit (ERU) Analysis

The two most common methods for calculating the ERU are: calculate the mean of a sample set of SFR parcels (e.g., 100 single family residences) or calculate the median for all SFR parcels in the database. The method chosen should be influenced by the quality of impervious cover data for SFR parcels. Since Bristol’s GIS data for impervious cover on a parcel by parcel basis is reasonably accurate, it is appropriate to use the mean of all SFR parcels in the Town database.

To calculate the ERU, parcels were classified as “single family residential (SFR),” “other residential,” “non-residential” (e.g., commercial, industrial, institutional), or “non-billable.” The following ERU analysis assumes that fees will be assessed town-wide and excludes roads and state owned properties. “Other residential” includes multi-family homes such as duplexes and apartments. “Non-billable” parcels are either a non-parcel (such as roads and right of ways) or exempted parcels (such as state owned parcels). The breakdown of parcels and total impervious area by property type is outlined in the table below (non-billable parcels were not included).

 

Parcels and Impervious Area by Property Type

Parcels and Impervious Area by Property Type

 

The distribution of impervious cover for all SFR properties is depicted in the figure below and illustrates how the “normal mean” was calculated (mean within the normal range of data to account for statistical outliers for SFR properties).

Bristol ERU based on Normalized Single Family residential – Impervious Area Data

Bristol ERU based on Normalized SFR Impervious Area Data

Using the normal mean total impervious cover for SFR parcels as a building block, it is possible to derive total ERUs for the Town, assuming an ERU based rate structure, or to determine an appropriate ERU for a tiered rate structure. For this study, a preliminary analysis of ERUs was performed with the available data, assuming a flat ERU rate structure. In a flat rate structure, a single family home lot is assigned one (1) ERU.  All other properties are assigned multiple EDUs (1 or more, depending on the amount of impervious.). The results are summarized in the table below.

Total ERUs by Property Type

Total ERUs by Property Type

*One ERU is assigned for each single family residential property.  All other property types comprise one or more ERUs per property.

Stormwater Billing Unit (SBU) Analysis

During the revenue analysis, additional SBUs were calculated for the Town’s consideration. This is intended to provide an example of alternative rate approaches and the resulting billing units by property type. For this study, SBUs of 500 sq ft impervious area and 1,000 sq ft impervious area were developed and presented in the table below.  It is important to note that while smaller billing units may be more equitable from one property to the next, it will require more data updates and ongoing maintenance by the Town. A final rate structure needs to be determined through further review and analysis.

Total SBUs by Property Type (500 and 1,000 sq.ft. examples)

Total SBUs by Property Type

Preliminary Revenue Analysis

Based on future stormwater program costs discussed under the ‘Bristol’s Future Stormwater Management Program’ tab, a gross estimate of revenue was developed to support the stormwater program if a stormwater fee were implemented. It is important to note that there are several policy decisions that will need to be made on how the final billing unit and rate structure will be determined and how fees will be calculated. Additionally, the impact of credits on revenue and other administrative costs will need to be evaluated. The table below summarizes the assumptions and revenue requirement under a SMEF.

Summary of Revenue Requirement

Summary of Revenue Requirements

Using this revenue requirement, the following stormwater enterprise fees were calculated on an ERU and SBU basis):

·         $/ERU/year = $117.09

·         $/1,000 sq ft/year = $33.38

·         $/500 sq ft/year = $16.70

The SMEF (impervious, ERU basis) was compared to the stormwater program cost on the basis of property value (General Fund) to illustrate the difference in revenue distribution by property type. The figure below shows a more even distribution of revenue by property type on an ERU basis, which is more consistent with the distribution of impervious area by property type.

Revenue Distribution on ERU Basis versus Property Value

Revenue Distribution on ERU Basis versus Property Value

The average change in the future stormwater cost by major property type under a user-fee scenario versus the tax basis (property value) is outlined in the table below. This information illustrates that SFR properties typically pay less for stormwater than non single-family residential (NSFR) properties due to their proportionately lower amount of impervious area with respect to property value.

Average Costs for SFR and NSFR Properties

Average Costs for SFR and NSFR Properties

Example User Fees by Property Type

The following examples of various property types in Bristol illustrate the difference between charging for stormwater under a user fee versus property tax basis.

Commercial Property Tax Example A Fee versus Tax

Commercial Property Tax Example A

 Commercial Property Tax Example B Fee versus Tax

Commercial Property Tax Example B

Single Family Residential Property Example A Fee versus Tax

Single Family Residential Property Example A

Single Family Residential Property Example B Fee versus Tax

Single Family Residential Property Example B

Whiles these examples illustrate how a stormwater fee can balance equity for most properties on an impervious area basis, some outliers exist. For example, the figure above shows large SFR properties that should be treated as a NSFR property due to their size. The Town can decide to bill on the basis of a 1,000 sq ft billing unit, which will help to address some of these inequities.

 

Credit Considerations and Examples

Stormwater management impacts on a community’s infrastructure are not purely a function of the amount of impervious cover on a parcel of property.  In some cases, the on-lot pollution contribution is reduced by treatment practices installed on the property. In such cases, some amount of credit should be allowed.  In other cases, stormwater is directed away from the Town’s stormwater system, in which case the responsibility for managing the on-lot pollution is the property owner’s.  A partial exemption may be warranted for eligible components. 

 

A stormwater credit can be defined as an ongoing reduction in a property’s calculated user fee that is given for some rational and legal reason, typically related to private investment for a public good. Under the Rhode Island enabling legislation, municipalities are required to offer credits as a part of all stormwater utilities. Credit systems may be developed so as to encourage property owners to undertake “retrofits” of uncontrolled stormwater runoff to help reduce the burden placed on the public system.  Generally, properties with higher amounts of impervious are more likely to take advantage of such credit offers.