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Funding Source Options

Many municipal stormwater programs depend on a single source for program funding, usually an allocation from the municipal general fund. However, the most successful municipal stormwater programs have found ways to leverage a combination of funding sources.

Photo of water flowing from a drainage structure, down a step-wise concrete flow dissipater, and into a vegetated area.

General funds.
Taxes and fees.
Dedicated revenue sources.
Grants and philanthropic funding.
Federal funding sources.
The Clean Water State Revolving Fund.
Resources

General funds

Many communities fund stormwater management through taxes (usually property taxes) paid into their general funds. Municipalities typically determine the funding amount for the stormwater management program during their annual budgeting process.

To ensure that tax-exempt properties like government facilities, schools, colleges, and universities pay their fair share to fund the stormwater program, consider expanding the property types that must contribute. By doing so, the average residential property owner will have to pay less for stormwater infrastructure and services.

General Fund Benefits	General Fund Challenges
Can be a reliable funding source for a public service like stormwater management. Uses an existing funding system. Can be used to fund both capital projects and operation and maintenance costs. Can possibly be leveraged to pay back bonds or loans. Is tax-deductible. Can be used to support planning and predevelopment work.	Because municipal agencies compete for these funds, they typically consider stormwater management a low priority unless they are reacting to a recent major storm or regulatory action. Property taxes are calculated based on a property’s market value, not its stormwater runoff contribution to the stormwater system; thus, they might not be considered a fair way to pay for stormwater control responsibilities. Tax-exempt properties may be major contributors of stormwater runoff that avoid paying their “fair share.” Property taxes typically do not provide sufficient or stable funding for stormwater management. The funding could change from year to year, making it difficult to conduct long-term stormwater program and master planning. Property taxes do not incentivize homeowners and business owners to reduce their contribution of discharges to the community’s stormwater system.

General Fund Benefits

General Fund Challenges

Can be a reliable funding source for a public service like stormwater management.
Uses an existing funding system.
Can be used to fund both capital projects and operation and maintenance costs.
Can possibly be leveraged to pay back bonds or loans.
Is tax-deductible.
Can be used to support planning and predevelopment work.

Because municipal agencies compete for these funds, they typically consider stormwater management a low priority unless they are reacting to a recent major storm or regulatory action.
Property taxes are calculated based on a property’s market value, not its stormwater runoff contribution to the stormwater system; thus, they might not be considered a fair way to pay for stormwater control responsibilities.
Tax-exempt properties may be major contributors of stormwater runoff that avoid paying their “fair share.”
Property taxes typically do not provide sufficient or stable funding for stormwater management. The funding could change from year to year, making it difficult to conduct long-term stormwater program and master planning.
Property taxes do not incentivize homeowners and business owners to reduce their contribution of discharges to the community’s stormwater system.

Taxes and fees

You can choose from several types of taxes and fees to fund your stormwater management program, including the following options:

Drinking water and wastewater fees: Some communities include stormwater management costs within their water or sanitary sewer system budgets, passing the cost to ratepayers. In these instances, the unit cost of service may be based on metered water flow or other metrics associated with the utility that is subject to the charge.

Consider potential legal challenges or concerns in cases where the unit of service does not align well with the service provided. For example, if you use water consumption to determine a stormwater-related fee for a shopping center, one could argue that the property’s metered drinking water flow bears little to no relationship to the volume of stormwater runoff it generates. Although runoff from the impervious area of the shopping center’s buildings and parking lots may be significant, its use of metered water may be relatively small.

Drinking Water and Wastewater Fee Benefits	Drinking Water and Wastewater Fee Challenges
Can be a reliable funding source if properly constructed in the utility/rate program. Uses an existing financing and billing system. Can be used to support planning and predevelopment work.	The lack of an independent utility or authority may limit the community’s financing capacity to create a dedicated repayment source tied to specific investments. The unit of service may not be well aligned with the service provided, which could open a community up to a legal challenge, confuse the public, or generate equity concerns. This approach is probably limited to communities that integrate their stormwater programs with their wastewater or drinking water utilities or programs. If stormwater is part of another utility’s fee program, it might not be highlighted as such on billing documentation, which could cause confusion.

Drinking Water and Wastewater Fee Benefits

Drinking Water and Wastewater Fee Challenges

Can be a reliable funding source if properly constructed in the utility/rate program.
Uses an existing financing and billing system.
Can be used to support planning and predevelopment work.

The lack of an independent utility or authority may limit the community’s financing capacity to create a dedicated repayment source tied to specific investments.
The unit of service may not be well aligned with the service provided, which could open a community up to a legal challenge, confuse the public, or generate equity concerns.
This approach is probably limited to communities that integrate their stormwater programs with their wastewater or drinking water utilities or programs.
If stormwater is part of another utility’s fee program, it might not be highlighted as such on billing documentation, which could cause confusion.

2. Developer fees: Communities often charge land developers for site plan reviews and inspections and use those fees to support their stormwater programs.

Developer Fee Benefits	Developer Fee Challenges
Addresses potential stormwater impacts related to new construction and redevelopment, as well as new connections to the stormwater sewer system.	Alone, the fees are not a significant source of funds, especially to support stormwater system maintenance, larger projects, or system-wide improvements. The fees are highly variable and do not provide a reliable annual funding stream that communities could use as revenue to repay project financing costs. Raising the fees could be perceived as a deterrent to development. These fees might only address stormwater impacts from sites under construction and not necessarily address other ongoing post-construction stormwater impacts.

Developer Fee Benefits

Developer Fee Challenges

Addresses potential stormwater impacts related to new construction and redevelopment, as well as new connections to the stormwater sewer system.

Alone, the fees are not a significant source of funds, especially to support stormwater system maintenance, larger projects, or system-wide improvements.
The fees are highly variable and do not provide a reliable annual funding stream that communities could use as revenue to repay project financing costs.
Raising the fees could be perceived as a deterrent to development.
These fees might only address stormwater impacts from sites under construction and not necessarily address other ongoing post-construction stormwater impacts.

3. Special assessment/benefit district: If a stormwater construction project benefits only a portion of a municipality, it can be funded by fees assessed only to those properties within that area. This is called a special assessment district. Regional or multiple jurisdictional funding mechanisms are useful in some cases.

Special Assessment District Benefits	Special Assessment District Challenges
Funding could involve fees, as well as credits, for existing best management practices (BMPs) or retrofits. The fees could improve the storm sewer system in specific locations. The fees are directly connected to improvements and those receiving the benefit. Benefit districts support regional approaches. Separate stormwater utility districts can be formed within a town or by bringing several towns together.	The district only addresses improvements in specific location(s) and funding is not available for larger projects or system-wide improvements. The district may require specialized legal arrangements, particularly if multiple jurisdictions are involved. In some cases, the district may require specific acceptance under current legislation.

Special Assessment District Benefits

Special Assessment District Challenges

Funding could involve fees, as well as credits, for existing best management practices (BMPs) or retrofits.
The fees could improve the storm sewer system in specific locations.
The fees are directly connected to improvements and those receiving the benefit.
Benefit districts support regional approaches. Separate stormwater utility districts can be formed within a town or by bringing several towns together.

The district only addresses improvements in specific location(s) and funding is not available for larger projects or system-wide improvements.
The district may require specialized legal arrangements, particularly if multiple jurisdictions are involved. In some cases, the district may require specific acceptance under current legislation.

If an impaired stream has a fairly small watershed spanning parts of several municipalities, the municipalities could share stormwater implementation costs, and an existing regional authority (e.g., a soil and water conservation district) could manage the funding. The regulatory authority could choose to issue conditions or a general permit for discharges, especially if a watershed stormwater management plan exists (with specific nonstructural and structural BMPs). Parcel owners, developers, or permittees could fulfill their requirements by implementing the watershed plan.

4. One-time fees: New customers connecting to a water or sanitary sewer system are generally charged a one-time fee, commonly referred to as a system development charge, impact fee, connection fee, or tie-in charge. In this way, new customers buy into the existing infrastructure or the infrastructure expansion necessary to serve them. The amount of the charge or fee is typically based on the new customer’s estimated water demand. Municipalities can also develop stormwater system development charges or fees tied to the area of the customer’s property.

Case Study: Fairfax County, Virginia

Fairfax County, Virginia, uses a special service tax district as a dedicated revenue source for its stormwater management program. Beyond this revenue source, in 2017, Fairfax County utilized the Virginia state Stormwater Local Assistance Fund, collected revenue associated with development targeted toward stormwater management investments, and relied on municipal bonds for capital investment in a large flood control project built in conjunction with the U.S. Army Corps of Engineers (USACE).

Connection Fee Benefits	Connection Fee Challenges
The connection fee monetizes a service currently provided without charging new developments in communities.	Connection fees alone are not a significant, stable source of revenue, especially to support stormwater system maintenance, larger projects, or system-wide improvements. Connection fees may be perceived as deterring development.

5. Fees collected by other local programs: Many stormwater programs manage activities that may relate to the missions and services of allied departments. If those allied departments have separate funding sources, it may be feasible to tap a portion of those fees to help fund the stormwater program’s work in the shared area. For example, stormwater programs that control trash may be eligible for funding from solid waste management fees. Projects that restore or improve parklands or natural areas may be eligible for funding from parks and recreation fees.

Case Study: Prince George’s County, Maryland

Prince George’s County, Maryland, established a user-fee-funded program in response to a 2012 state requirement to establish a stormwater infrastructure investments payment plan to meet Chesapeake Bay total maximum daily load requirements. The county leveraged this fee through the established public-private partnership to receive over $48 million in CWSRF assistance at a sub-market rate. The county’s stormwater program also targeted the receipt of funds for stormwater-related services from a variety of sources, including state grants, federal cost-share programs (USACE), in-lieu fees from developers, and ad valorem tax contributions.

Other Local Fee Benefits	Other Local Fee Challenges
This strategy enables the stormwater program to extend its funding reach beyond traditional funding sources. This source can provide a steady contribution to program funding needs.	Other programs will likely be reluctant to share their resources with the stormwater program. Under local budgeting rules, it might be infeasible for one program to charge work to another program’s budget.

Dedicated revenue sources

Like an electric or water utility, a stormwater utility may collect fees to control and treat stormwater. Stormwater fees can be used to fund a municipal stormwater management program and are typically based on property type, area, or impervious area. They provide a reliable funding source for regulatory compliance and operation and maintenance costs. See Developing and Administering a Dedicated Revenue Source for more ideas on this topic.

Grants and philanthropic funding

Grants have been a staple of stormwater management programs for many years. Grants are available from a range of federal, state, local, and private sources. Many local stormwater programs have made grant funding a central element of their funding strategies. Grant funding sources include:

Public agency grant funding: Many environmental, transportation, emergency management, and community development agencies offer grants you can use to help fund stormwater projects and programs.
Philanthropic grant funding: Philanthropic organizations have a long history of providing support for environmental issues and causes.

Case Study: Urban Water Funders Network

The Urban Water Funders Network is a group of organizations focused on stormwater infrastructure philanthropic giving. The Network provides financial support for sustainable stormwater practices and green infrastructure.

Philanthropic Grant Funding Benefits	Philanthropic Grant Funding Challenges
Areas that experience runoff impacts often need stormwater infrastructure. The many co-benefits of green infrastructure make investments in this infrastructure type attractive to philanthropies involved in public health, workforce issues, and urban resilience. The landscape of philanthropies is wide and diverse. Some philanthropic organizations focus on local or regional issues, while others work at a national or even a global scale. Because this form of giving is not sourced from the public sector, there are often fewer reporting requirements.	If a nonprofit organization receives public funding, the administrative and reporting requirements for public grants may be required for philanthropic grants. Like public grants, this type of funding is not consistent and is highly competitive.

Philanthropic Grant Funding Benefits

Philanthropic Grant Funding Challenges

Areas that experience runoff impacts often need stormwater infrastructure. The many co-benefits of green infrastructure make investments in this infrastructure type attractive to philanthropies involved in public health, workforce issues, and urban resilience.
The landscape of philanthropies is wide and diverse. Some philanthropic organizations focus on local or regional issues, while others work at a national or even a global scale.
Because this form of giving is not sourced from the public sector, there are often fewer reporting requirements.

If a nonprofit organization receives public funding, the administrative and reporting requirements for public grants may be required for philanthropic grants.
Like public grants, this type of funding is not consistent and is highly competitive.

Federal funding sources

The federal government has many programs that assist communities with stormwater runoff. Because stormwater has impacts ranging from affordable housing and parks to flood emergencies and economic development, federal funding opportunities cross several agencies and departments.

It is not uncommon for federal funding to become available relatively slowly, involve a significant amount of upfront transaction effort, and require ongoing reporting and documentation. You should consider these attributes when contemplating funding and financing options.

Federal Agencies and Departments That Provide Funding

U.S. Environmental Protection Agency
U.S. Department of Housing and Urban Development
U.S. Department of Homeland Security, FEMA
U.S. Department of Defense, Army Corps of Engineers
U.S. Department of Transportation, Federal Highway Administration
U.S. Department of Agriculture
U.S. Department of the Treasury
U.S. Department of Energy
U.S. Department of Commerce
U.S. Department of the Interior

The Clean Water State Revolving Fund

Using a combination of federal and state funds, the Clean Water State Revolving Fund (CWSRF) provides loans to construct municipal wastewater facilities, control nonpoint sources of pollution, build decentralized wastewater treatment systems, create green infrastructure projects, protect estuaries, and fund other water quality projects. For more information, see the State Revolving Fund 101 Training Module.

Building on a federal investment of $42 billion, CWSRFs have provided more than $126 billion to communities through 2017. CWSRFs can fund publicly and privately owned, permitted and unpermitted projects that manage, reduce, treat, or recapture stormwater or subsurface drainage water. Funded project types include:

Green Infrastructure: green roofs, rain gardens, roadside plantings, porous pavement, bioretention ponds, bioswales, and rainwater harvesting.
Gray Infrastructure: traditional pipe, storage, and treatment systems; real-time combined sewer overflow management control systems; and sediment control features such as filter fences, street sweepers, and vacuum trucks.

Resources

Refer to the Developing and Administering a Dedicated Revenue Source page and the following additional resources for more guidance on funding source options for your municipal stormwater management program.

Article Description	Categories	categories_hfilter
Water Infrastructure and Resiliency Finance Center Author: U.S. EPA \| Developed/Updated on Date: February 19, 2020 Web Link: https://www.epa.gov/waterfinancecenter The EPA Water Finance Center provides financing information to help local decision-makers make informed decisions for drinking water, wastewater, and stormwater infrastructure to protect human health and the environment.	Funding: Funding Source Options	funding-source-options