ISSUE PAPER #1
FUNDING OPTIONS
Issue
On September 29, 2010, Lane County’s Board of County Commissioners
directed staff to begin a process of investigating the feasibility of a
stormwater utility. According to a staff report from October 8, 2010, the
purpose of the utility would be to provide “a secure, adequate, flexible, and
equitable funding mechanism to enable the County to meet its anticipated
future stormwater expenses.” Two issues are of particular concern. First, the
County pays for its stormwater programs through the County Road fund, and
this funding source is facing significant reductions due to the loss of fed eral
“Secure Rural Schools” money. Second, the County’s stormwater expenses
are increasingly unrelated to roads and therefore cannot be paid from Road
Fund monies.
This paper analyzes funding options for county stormwater programs in
Oregon and provides a recommendation based on that analysis.
Alternatives
Funding options that are most relevant to county stormwater programs in
Oregon are listed below:
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Road Fund
General Fund
Utility charges
Permanent rate property tax
Local option property tax
System development charges
Local improvement districts
Reimbursement districts
General obligation bonds
Revenue bonds
Grants and loans
We briefly analyze these options below.
Analysis
County Government vs. County Service District
Which funding sources are available depends partially on the entity that
serves as the stormwater management agency. Currently, stormwater
services are provided by the County. Alternatively, a county service district
could be formed to perform this function instead of the County itself. A
county service district can be viewed as a geographically and financially
flexible form of municipal utility.
A county service district is geographically flexible because ORS 198.720
affords great latitude in setting the district’s boundaries. Cities, however,
must consent to their inclusion.
A county service district is financially flexible because of the variety of
revenues that it is allowed to collect. These revenues are enumerated in ORS
451.490, but the two major categories are user charges and property tax.
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ISSUE PAPER # 1 –FUNDING OPTIONS
09/29/2011
User charges can take many forms, including monthly fees, one-time fees,
and system development charges. While monthly fees can be a substantial
source of revenue, counties typically do not have a billing mechanism in
place that would allow such fees to be implemented without significant
county-wide investment.
Formation of county service districts is governed by ORS 198.705 to 198.845
and ORS Chapter 451. The process can be initiated in one of three ways: (1)
petition of 15 percent of electors (ORS 198.800), (2) petition of all
landowners within the boundaries of the proposed district (ORS 198.830), or
(3) county board’s own motion (ORS 198.835). However the process is
initiated, the next step is a first public hearing held by the county board. If
the county board is inclined to form the district after the first public hearing,
it will schedule a second public hearing. If the county board both (1) receives
written objections from fewer than the lesser of 15 percent or 100 electors
within the boundaries of the proposed district by the second public hearing
and (2) does not intend to levy any form of property tax, the county board
may order the formation of the district without an election. If both conditions
are not met, then voter approval would be required.
Clackamas County provides a case study for the use of county service
districts to provide stormwater services. Among the entities with an MS4
permit within this county are two that are organized as county service
districts: Clackamas County Service District #1 and the Surface Water
Management Agency of Clackamas County. These districts do not collect
property tax but rely instead on user charges that include monthly fees,
planning fees, and system development charges.
Road Fund
Lane County can (and currently does) use its Road Fund to fund road-related
portions of its stormwater program. However, any portion of the stormwater
program that is not road-related must be funded from another source.
General Fund
The General Fund can be used to fund any part of a stormwater program, but
these monies tend to be the most scarce in a local government.
Utility Charges
It is common for cities to establish stormwater utilities by passing a
stormwater ordinance and charging a stormwater fee. This fee is usually
added to an existing bill for water and/or sewer services.
However, we know of no counties in Oregon that have established a
stormwater utility by ordinance. Before exploring this option further, the
County should secure a legal opinion regarding (1) its authority to establish a
stormwater utility and (2) the relationship of that utility to existing municipal
stormwater utilities within the county.
County service districts, on the other hand, routinely use utility charges in the
same manner as municipal utilities.
Permanent Rate Property Tax
ORS 451.547 allows county service districts to vote on the establishment of a
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ISSUE PAPER # 1 –FUNDING OPTIONS
09/29/2011
permanent property tax rate. Though such a funding source may be
politically problematic, it would offer the greatest stability and administrative
ease of all potential revenues.
According to data obtained from the Oregon Department of Revenue, 25
service districts (a “service” district being just one type of special district)
have a permanent property tax rate. Among these, the median permanent rate
is $0.075 per $1,000 of assessed value. However, many of these districts are
educational in nature, and none is a stormwater utility.
Local Option Property Tax
Although Section 11(3)(b), Article XI of the Oregon Constitution prohibits
the County from raising its permanent tax rate to fund a stormwater utility (or
for any other reason), the County can raise operating funds from a local
option operating levy under Section 11(4) of the same article. Such levies
can be imposed for up to five years for operating expenses or up to ten years
for a capital project.
Although a local option levy is a form of property tax, revenue derived
therefrom is more risky than revenue derived from a permanent rate. When
overlapping tax rates exceed the Measure 5 limits for any individual property,
local option levies are the first tax rates to be compressed (to zero, if
necessary) before any permanent rates are reduced.
This funding source is also available to a county service district, whether or
not it has a permanent tax rate.
Capital-Only Funding Options
Additional funding options are available for the capital (but not operational)
needs of a stormwater utility.
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System development charges (SDCs). ORS 223.297 to 223.314 allows
local governments (however organized) to impose SDCs for capital
improvements related to stormwater. SDCs are one-time fees imposed on
new development or certain types of “major redevelopment.” They are
intended to recover a fair share of the costs of existing and planned
facilities that provide capacity to serve growth. Consequently, SDC
revenues may only be used as a funding source for projects that add
capacity to the system. SDCs cannot be used for operation or routine
maintenance.
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Local improvement districts (LIDs). ORS 223.387 to 223.401 provides
jurisdictions in Oregon the statutory authority to establish LIDs and levy
special assessments on the benefited property to pay for improvements.
LIDs result in upfront or annual payments from affected property owners
within a district. LIDs are payable in annual installments for up to 30
years. LIDs are generally used for capital improvement projects that
benefit numerous large tenants and/or private property owners. The future
revenue stream generated by LIDs can be used by local governments to
obtain financing through the use of loans (e.g., Oregon Public Works
Trust Fund) or bonds (e.g., issuance of revenue bonds).
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Reimbursement districts. Similar to LIDs, jurisdictions can negotiate
public/private advance financing arrangements with developers, where a
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Lane County
ISSUE PAPER # 1 –FUNDING OPTIONS
09/29/2011
developer agrees to front capital improvements/investment (such as a new
local park or traffic signal) within a designated zone of benefit district
(ZBD). The local jurisdiction that adopts a zone of benefit applies a
special development impact fee that is charged based on a proportional
benefit to properties for the capital infrastructure. The developer is then
partially reimbursed as new land use development approvals are granted
within the ZBD over a period that usually extends 10-15 years. However,
there is no guarantee that future revenues will be as steady and reliable as
with the LID or property tax assessments.
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General obligation bonds. The County (or its service district) can use
general obligation bonds to finance capital improvements. This method
of financing requires voter approval.
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Revenue bonds. If user charges produce a reliable revenue stream,
revenue bonds may be an option. Revenue bonds do not require voter
approval, but they do require adherence to covenants such as minimum
debt service coverage ratios.
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Grants and loans. Some state- and federally administered grant and loan
opportunities, such as the Federal 319 Program, are available for capital
funding.
For convenience, we have compiled selected information and analysis about
funding sources below. The following table reflects three important
considerations. First, some revenues must be spent on capital, while others
may be spent on operations. Second, most funding sources are available to
the County itself (except a new permanent rate property tax), and many are
also available to a county service district. Third, any revenue source
collected through property taxes requires voter approval.
May Be Spent on
County Requires
County
Service
Voter
Operations Capital Government District Approval
Funding Source
Recommendation
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May Be Imposed by
Road Fund (existing)
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General Fund (existing)
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Utility charges
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Permanent rate property tax
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Local option property tax
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System development charges
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Local improvement districts
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Reimbursement districts
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General obligation bonds
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Revenue bonds
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Grants and loans
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We recommend that the County establish a stormwater utility as a county
service district. We further recommend the use of more than one of the
funding options as needed to meet the County’s objectives.
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