Water Laws

From the Fifth Annual Greening Rooftops for Sustainable Development , Conference Proceedings, Minneapolis, April 29-May 1, 2007.

Introduction
In March 2005, the City of Minneapolis began charging property owners for management of stormwater based on the degree to which their property was covered by impervious surfaces. Previously, property owners had paid a combined stormwater and sewerage fee based on water usage. More significant and innovative, the city concurrently implemented a program whereby property owners could qualify for fee reductions of up to 100 percent by establishing onsite water-quality and/or -quantity treatment systems, such as rain gardens, detention ponds and green roofs.

The Minneapolis city council sought to achieve two principal policy objectives through its stormwater policy: the easier mark was an equitable stormwater fee credit system, whereby property owners paid for stormwater management in proportion to the demand their properties placed on the system. The more ambitious proposition was meaningfully encouraging property owners to manage stormwater onsite.

The stormwater utility ordinance has definitely achieved the first goal. The persuasiveness of credit system to change behavior, though, has yet to be proven, Still, there is an the obvious thirst for green roofs and other stormwater-management techniques in Minneapolis¹ combined with the establishment of the policy, legal and administrative groundwork for a fee system that drives nonpoint pollution solutions implemented by an engaged and self-interested citizenry constitute the makings of a successful, sustainable trend. A close examination and critique of Minneapolis’ intrepid step forward into nonpoint source pollution management and green-building policy implementation reveals a number of instructive and useful lessons to grow on – in Minneapolis and elsewhere. It also raises intriguing issues regarding municipal stormwater policies’ effect on encouraging green roofs.

Overview of the Minneapolis system
Minneapolis’ new system – implemented under authority granted to cities by Minnesota Statute section 444.075 and contained in Minneapolis Code of Ordinances, chapter 510 – is designed to collect 100 percent of the funds needed for the city’s stormwater management efforts (including all activities required under the city’s National Pollutant Discharge Elimination System (Clean Water Act) stormwater permit). Also important, the city leaders’ goal was to have the stormwater utility be “revenue-neutral” – with the increase in stormwater fees offset by a reduction in the sanitary sewer charge. Minneapolis’ credit system is designed to encourage construction or adoption of onsite best management practices even on residential and other small sites. (Stormwater management to nondegradation standards is achieved in development and redevelopment projects through review and permitting by both the city and regional governmental watershed organizations with statutory powers to plan for and execute water-quantity and –quality management. See Minnesota Statutes Ch. 103B.201-.255 and 103D.)

The city’s system for assigning utility charges for the 110,000 or so properties in Minneapolis revolves around a measurement defined by the implementing ordinance called an Equivalent Stormwater Unit (ESU). The ESU and accompanying ESU rate are set by resolution of the city council (and as such can be adjusted over time without amending the utility ordinance). The ordinance includes three categories of single-family residential properties for purposes of the monthly stormwater rate charged: large properties (greater than 1,578 square feet of estimated impervious surface) pay $11.46 per month under the current resolution, medium (1,485 to 1,578 square feet estimated impervious) pay $9.17, and low (under 1,485 square feet estimated impervious) pay $6.88. See Minneapolis Code of Ordinances, Ch. 510.60 (2006).

The charges for all other properties are based on the size of the property and the land use, which serves as a surrogate for imperviousness: The degree to which a property was covered by impervious surfaces was estimated based on a statistical sampling of similar land uses nationwide. So, for example, sports or recreational facilities and parks and playgrounds were estimated to be 20 percent impervious, while office properties were estimated to be 91 percent impervious. See Minneapolis Code of Ordinances, ch. 510.60(a)(1), and Table 1, Minneapolis current imperviousness-ratings schedule.

The utility applies to all but a few land uses defined as “exempt property”: public rights-of-way, trails, streets, alleys and sidewalks, and railroad tracks (though rail yards are charged the fee), as well as the public lands and easements on which the city’s stormwater management system is actually located. Minneapolis Code of Ordinances, ch. 510.10, 510.60(a).The utility ordinance provides for the collection of the utility fee from private tax-exempt properties (which paid the combined sewerage fee under the pre-utility system) as well as properties that do not have water service (e.g., parking lots) and did not previously contribute to the stormwater program.

Credit System
Minneapolis’ stormwater utility – the legal mechanism by which the city is able to collect a fee from property owners for their use of the city’s stormwater-management system – is neither groundbreaking nor unique. A number of Minnesota cities implemented such revenue systems well before Minneapolis did.³

Along with the new stormwater utility, the city concurrently implemented a bold program whereby property owners could qualify for fee reductions by establishing onsite water-quality and/or -quantity treatment systems, such as rain gardens, dry wells, pervious pavement, ponds and green roofs. The city promulgated rules to facilitate the fee-credit system. City of Minneapolis, Stormwater Utility Credit Rules Pursuant to Chapter 510 of the Minneapolis Code of Ordinances.⁴

As the city’s 2006 Clean Water Act stormwater report states, “While most Stormwater Utility programs offer credits only to larger developments and commercial properties, the City of Minneapolis Stormwater Utility is innovative in making the stormwater credits program available to all property owners, including single-family homes. This not only encourages wider use of stormwater BMPs, but also gives Minneapolis property owners a greater stake in stormwater management issues, and provides increased opportunities for public education.” The credit system also provided the benefit of softening the blow to taxpayers who were seeing the stormwater utility fee as a specific line item on their bills. Council Member Lisa Goodman explains that the credit was a way to give those aggrieved by the utility fees a way to take the initiative to reduce them – placing the utility fee in a more politically palatable posture.

The Minneapolis program is also unique in allowing property owners to avoid paying the stormwater utility altogether by implementing BMPs. Up to 50 percent of the fee can be reduced through application of runoff quality-improvement devices (rain gardens, NURP ponds, dry wells, etc.).⁵ And up to 100 percent can be reduced through quantity-reduction systems (detention ponds, green roofs, wet ponds, pervious pavement, etc.).⁶ Retrofit of existing BMP structures also can qualify for stormwater quantity-reduction credit.

While some argued that offering the 100 percent credit would be a potentially disastrous blow to the city’s revenue stream for stormwater-management work, there is a simple logic supporting the city’s move: If property owners go so far as to completely manage stormwater onsite, they have significantly contributed to the city’s effort to reach its goals, and the compiled results of the credit-generating activities can be reported to the state pollution control agency and the EPA as a dramatic example of harnessing the power of the private sector (and individual citizen property owners) to achieve environmental goals. Extrapolated to its extreme, though, such success could leave either the city or the property owners who had not taken advantage of the credit system holding the bag for the management of runoff from public property such as streets. The city avoided this outcome by factoring its own stormwater management responsibilities into the design – there are very few exemptions from the charge, and the city retained responsibility for management of runoff from streets. As an initial step in a progressive direction, the design of the credit system errs in the direction of trying to produce real results in the form of privately implemented BMPs rather than trying to preserve the city’s revenue stream for its own efforts.

Legal issues in development of the utility and credit system
In Minnesota, stormwater utility fees can be set by cities by reference to the square footage of the property charged, adjusted for a reasonable calculation of the stormwater runoff; or by reference to a reasonable classification of the types of premises to which service is furnished; or by reference to the quantity, pollution qualities, and difficulty of disposal of stormwater runoff produced; or on “any other equitable basis. . . . ” Minn. Stat. § 444.075, subd. 3b. The only basis for rate-setting prohibited under the utility statute is water-usage (i.e., water usage cannot be used as a basis for setting the rate). Id.

Another critical bit of groundwork was the city’s stormwater management ordinance, which had been passed in 1999, and gave the city the regulatory authority to require comprehensive stormwater management at new developments. See Minneapolis Code of Ordinances Ch. 54.

The political, legal and policymaking complexities of applying a fee to otherwise tax-exempt properties did not hinder the implementation of the Minneapolis utility and credit system because Minneapolis had already been collecting from such properties via the combined sewer and water fee. Since there are 1,100 to 1,200 tax-exempt properties in the city, this was a significant hurdle not to have to overcome.

Results

The concern that the revenue for the city’s stormwater-management program would take a huge hit with the fee-and-credit system took effect was realized – but not because people flocked in with their plans for retrofit green roofs and rain gardens. Instead, the revenue hits have come from the substantial adjustments to the runoff-coefficient factors and individual property owner charges that had to be made in the initial 18 months or so of the program’s implementation.

Complaints and adjustments and the effect on revenue goals and realities
Minneapolis staff report that approximately 3,000 property owners complained informally about their stormwater utility charge and 30 to 50 percent of the complaints resulted in fee reductions.7 As of this fall, approximately 10 property owners had gone through the formal appeal process provided for in the utility ordinance, and three or four of these have resulted in lower fee determinations.

The city’s methodology of assigning impervious percentages based on land use eased implementation of the fee, but necessarily required subsequent adjustments for many properties. The biggest categorical change involved duplexes and triplexes, which were lumped in with other multifamily residential properties. The upshot was a dramatic ratcheting down of the impervious percentage rating for 11,500 properties (from 75 percent to 40 percent), and a return of roughly $1.5 million in fees collected, as well as a reduction in expected income in the future.

Karl Westermeyer, the city staff person charged with primary responsibility for management of the utility program for Minneapolis’ public works department, estimates that altogether 3,000 accounts have been reviewed in response to complaints. He estimates that 30 to 50 percent of these reviews resulted in reductions in the impervious measurement and the utility rate. All told, the account adjustments and inaccuracies in the property records led to a shortfall of approximately $3.1 million on a budget of roughly $30 million for 2005. As of the utility staff report to the city council in June 2006, a revenue shortfall of $2.9 million is expected for 2006, though staff efforts to rectify incomplete and missing billings and otherwise investigate accounts is expected to diminish the 2006 shortfall significantly. (Westermeyer states that the increase in the ESU rate from $8.72 per month to $9.17 was programmed into the implementation of the utility, and was not an effort to make up for the 2005 shortfall.)

As noted, the city was receiving funding (via the combined sewerage fee) from private properties exempt from ad valorem property taxation even before the utility was implemented. Nonetheless, the city added 6,000 to 8,000 parcels to its roll of fee-paying properties: while parking lots (which heretofore had not been charged because they did not have water service) represent a significant portion of the increase, Westermeyer reports that many other properties were added because businesses that had expanded onto other parcels over the years but had not consolidated parcels or added water service suddenly were paying a charge for each of the parcels instead of just one. By way of example, Westermeyer mentions a towing company that had purchased 16 parcels over the years for stowing cars but had only one property with water service. When the utility ordinance took effect, the company was paying a charge for each of the 16 parcels instead of just the one. Further examples of properties captured for the first time include rail yards and utility facilities.

BMP implementation
So far the new fee and performance-based fee-reduction program has not prompted a proliferation of onsite stormwater best management practices. City staff have been busy in the first year and a half of the program responding to complaints and adjusting the rates at which some classes of properties and certain specific properties were charged – a process related to the city’s use of estimated imperviousness based on land use (using national averages) in setting up the utility. Further, the progressiveness of the credit program was undermined by the timidness with which the city promoted it early on. Other reasons have contributed to the underwhelming results so far, including the minimal impact on most property owners of the switch in rate systems, the difficulty of retrofitting BMPs in a well-built landscape and the bureaucratic requirements of the credit program (which city staff have tried to ease). The result is that so far the credit system has been underutilized, and its application to green roofs has yet to be much explored.

A June 2006 report from stormwater utility staff to the city council’s Transportation and Public Works Committee indicated that 167 applications for stormwater credits had been processed through April 15 of this year, in a city with 105,000 to 110,000 properties. The report indicates that 55 percent of the applications were for single-family residential properties, 32 percent were for commercial/industrial properties (including rail yards), 7 percent were for multifamily residential properties (duplexes), and 6 percent were for town home or condominium sites. The June report states that rain gardens have accounted for the vast majority of applications – 87 percent. Dry wells account for 6 percent of applications, ponds and wetlands were 4 percent and infiltration basins, swales and underground storage devices accounted for the remaining 3 percent, according to the report.

Westermeyer supplements the information in the report by estimating that 110 small (residential) properties (0.1% of all properties in the stormwater utility) have fully completed the process and received the utility credit. He notes that another eight large sites (greater than 1 acre) have completed the credit process, with approved maintenance and inspection plans. He estimates that four to eight more large sites are going through the process now, including, for example, a Macy’s warehouse in northeast Minneapolis that is implementing a series of small-site BMPs because it is not feasible to retrofit the property with a pond.

In addition, the city’s 2006 NPDES report indicates that 215 new development and construction properties received stormwater quality or quantity credits for onsite runoff management actions taken in compliance with the city’s comprehensive Storm Water Management Ordinance, which was implemented in 1999. See Minneapolis Code of Ordinances, ch. 54. (The rules for administration of the credits under the stormwater utility allow sites complying with the total suspended solids removal requirements of the comprehensive ordinance to be eligible for stormwater quality credit.) Westermeyer indicates that while these properties may have qualified for credits, they did not necessarily receive them. It cannot be said that the utility credit system spurred the implementation of BMPs at new construction sites, because compliance with the comprehensive ordinance is not optional.

It is not clear that properties that incurred the biggest increase in their billings responded by implementing BMPs at a greater rate than occurred at properties where the billing did not increase substantially. Westermeyer notes that he knows some churches have built rain gardens, but he adds that such detailed analysis will be facilitated by the creation of a database of properties that have implemented BMPs under the utility credit system.

While participation rates have fallen well short of resulting in the kind of dramatic revenue shortfalls predicted in the feasibility study for the utility, Westermeyer still expresses some disappointment that there has not been greater participation in the credit system and that to date the system’s potential as an educational tool has been under realized. As noted, city staff have focused since the stormwater utility was first implemented in March 2005 on adjusting the rates at which specific properties are charged and just generally dealing with inquiries and complaints about the new fee. As the rate schedules become more stable, city staff should be able to more consistently focus on the utility’s other goals of increasing implementation of BMPs and engaging citizens in improving stormwater management.

Implementation wrinkles
While the lack of specificity and some conflicting data argue against drawing hard and fast conclusions about the success of the Minneapolis stormwater utility in fostering implementing of BMPs at already developed sites, it cannot be said that the stormwater utility has prompted a rush to adopt or construct new BMPs in Minneapolis.

There are several potential impediments affecting the rate at which property owners have implemented BMPs to reduce their stormwater fees:

The change in the billing system did not result in a big enough jump in most property owners’ bills to drive those who were not otherwise inclined to implement runoff-management practices to do so. For many Minneapolis property owners, it seems the switch was financially insignificant, while churches, parking lots and large-roofed buildings bore substantially increased costs. For the most significant contributors to the utility (the University of Minnesota, the Park Board, railroads, the city Community Planning and Economic Development office), the first response was an effort to have their billing rates adjusted. It remains to be seen if such major contributors will take the next step of implementing BMPs to further lower their bills. Utility staff’s focus on handling the large volume of requests for corrections to property owners’ bills hampered more extensive outreach on the credit program. The city did not include information about the credit system in the original mailings to residents announcing the imposition of the stormwater utility. Securing the credits involves not only a capital investment (in the form of money and sweat equity), but also a fair amount of paperwork and some administration. The quality credit is easier to get: A rain garden, for example, requires filling out a five-page form, and Westermeyer indicates that for the small sites city staff are accepting property owners’ representations on their applications. (City erosion-control inspectors spot check BMPs that have been submitted for credits.) Some credits, on the other hand, are more complex and necessarily require engineering calculations and applications that must be performed by a registered professional engineer or a registered landscape architect, adding to the cost and administrative burden of securing the credit.

In the meantime, the adjustments to the impervious percentages at specific properties have increased the accuracy of its assignment of costs in relation to runoff-production, as the initial estimates of imperviousness based on land use give way to actual measurements. Westermeyer estimates that adjustments to the rates will be largely completed by the end of this year or the first part of 2007.

While the time and effort spent adjusting rates at which some property owners are charged, it could be argued that this has given staff an opportunity to fine-tune the system before rolling it out to the public broadly. Now that the refinement has largely been accomplished, the credit system can be confidently marketed – an effort that Council Member Goodman indicates is gearing up.

More Pieces of the Puzzle?
The argument could be made that Minneapolis could simply increase the stormwater utility fee and thereby the value of the fee credits, too, to drive greater implementation of green roofs and other best-management practices. The city currently charges a fee of $9.17 a month or $110.04 a year for each ESU, which, again, is based on 1,530 square feet of impervious surface per parcel. The system uses land use averages for the amount of impervious surface, which is a crude measure that does not reflect actual amounts of impervious surface but greatly eases the administration of the system.

The city offers a range of stormwater utility fee abatements for a variety of best management practices. However, in order to encourage green roofs, the system offers a 100 percent abatement for each square foot of green roof that offsets a parcel’s estimated amount of impervious surface. The 100 percent abatement is granted even for extensive green roof systems that do not hold more than 80 percent of the average rainfall from all rainfall events.

Even at this generous level of abatement, the stormwater fee is not a significant factor in the payback to a building owner on a green roof installation cost. On an annual basis, the stormwater fee amounts to only about 7.2 cents per square foot. If the cost differential between a conventional roof and green roof is $6 per square foot, the simple payback from the abated stormwater utility fee alone would be 83.3, years and on a net present value basis, it would be considerably longer.

To dramatically increase the incentives for green roof, the stormwater utility fee should probably be expected to reflect at least one-third of the cost differential on a green roof and have a payback of 10 years on a simple payback basis. At that level, the stormwater utility fee would need to rise to a level of about 20 cents per square foot of impervious surface, or about $300 annually for each ESU. That is an increase in the fee level that may be at or above a level of political possibility.

Another option for the city to encourage green roofs would be to simply add a $1 per month fee for each rate-paying parcel and use the funds collected to offer a $1 per square foot grant for implementation of qualifying green roof systems. Under such a fee schedule, subsidies could be made to green roofs that offered the highest environmental benefits to the public, i.e. managing a higher percentage of all rainfall events and located in areas identified as experiencing heat island effects.

With a $1 subsidy per square foot, an increase in the stormwater utility fee to about $160 per ESU annually would be a combined incentive that accounts for about one-third of the average cost differential between a conventional roof system and a simple, extensive green roof installation.

There seems, however, to be little appetite in the city for such a hike so soon. Minneapolis City Council Member Sandra Colvin Roy, who spearheaded the development of the city’s stormwater utility and the credit system, notes that public support is required to generate the political support for such moves. “If you don’t get it right the first time, it will be eight to 10 years before you get a chance to do it again” because people are too bruised and unwilling to move forward into the fray again. Since the utility was first implemented within the past couple of years and the dust is just settling on the subsequent rate-adjustment, Minneapolis may simply be too close for a rate increase – especially given that one of the key policy drivers for the implementation of the utility was to create a revenue-neutral system that would pay for the city’s stormwater efforts.

A potentially more viable policy opportunity is one that the city is now pursuing in earnest: the development of performance measures for green roofs that can be integrated into the city’s development review and zoning code enforcement. Such measures can account for the benefits that green roofs (and other, less multifaceted BMPs) provide beyond contributing to stormwater runoff-management: reducing energy consumption (by cooling rooftop surfaces in warm weather), protection of roof membrane and extending roof life, improving air quality by removing carbon dioxide and fine particulates from the air, and mitigating urban heat islands, along with the aesthetic and amenity benefits they provide (in Minneapolis green roofs at the Omni Northstar Hotel, Brit’s Pub, and Phillips Eco-Enterprise Center notably demonstrate the amenity benefit). Adjusting such performance measures may also allow clarification of regulatory practices, encouraging the use of green roofs as part of broader initiatives to increase green space in the city.

Rather than altogether new policies, implementation of performance measures will serve to ensure that the potential of the city’s initial investment in strategies to promote green roofs and other best management practices (i.e., the stormwater utility credit system) is fully leveraged.

Performance measure models that could be adapted to meet Minneapolis’ needs include the Biotope Area Factor calculation that is used in Berlin and the Runoff Coefficient calculation that is used in North Rhine Westphalia, Germany.8 While the exact workings of each is beyond the scope of this article, both offer established ways to measure the effectiveness of various green building and landscaping components to achieve goals such as onsite stormwater management. Key to the process of developing a meaningful and successful performance measure would be integrating such a system with the existing ESU rates that staff at the City of Minneapolis has worked so hard over the last two years to perfect for the characteristic land uses of the area.

Conclusion

Whatever stormwater utility policy adjustments may be realized, it is clear that the city’s policy cannot accommodate all of the economic issues in green roof development. The multiple benefits of green roofs – beyond stormwater management – suggest a role for private sector engagement. Leadership among innovative building owners to gather green roof information, promote a wider understanding of roof replacement economics, marshal other grant resources, or offer new creative incentives can also contribute significantly to progress.

Endnotes

¹ Rooftops around the Twin Cities (and especially in Minneapolis) are going green with increasing intensity: The best database available indicates that there are 54 in the metropolitan area, the vast majority of which were installed in the last two years and most of which are in Minneapolis. See http://www.greenroofs.org (last visited March 10, 2017). (One of the most prominent green roofs, on the Phillips Eco-Enterprise Center in south Minneapolis -- which shows its green top to riders-by on the city’s Blue Line -- is receiving credit under the Minneapolis stormwater fee/credit system, but it is not clear that any others are.
² “Range” refers to percentage estimates of imperviousness.
³ See, e.g., the City of Bloomington’s stormwater ordinance (last visited March 10, 2017), Bloomington City Code, Sec. 11.42, a stormwater utility that was first established in 1988.
⁴ See the Minneapolis stormwater quality credit application and stormwater quantity credit application (last visited April 3, 2017).
⁵ See the Minneapolis stormwater quality credit program (last visited April 3, 2017).
⁶ See the Minneapolis stormwater quantity credit program (last visited April 3, 2017).
⁷ The rate at which complaints have led to reduction in charges is a particularly shaky statistic. City staff indicate that the rate was very high early on (90 percent), but declined in 2006.
⁸ For more detail on performance measurement models, see Goya Ngan, Green Roof Policies: Tools for Encouraging Sustainable Design, December 2004, at https://www.coolrooftoolkit.org/wp-content/uploads/2012/04/Green-Roof-Policy-report-Goya-Ngan.pdf (last visited April 3, 2017).