TO: Mayor and Members of City Council
THRU: Adam Lindsay, Assistant City Manager
FROM: Sheila Thomas-Ambat, Public Services Director
DATE: April 7, 2025
RE:
Title
Stormwater Impervious Area Analysis & Tiered Rate Study
end
COUNCIL DISTRICT(S):
Council District(s)
All
b
Relationship To Strategic Plan:
Goal 3: High Quality Built Environment
Goal 4: Desirable Place to Live, Work and Recreate
Executive Summary:
With the adoption of the FY24 budget, Council appropriated stormwater enterprise funds to go towards an impervious area analysis and tiered utility rate study. The goal of the project was to evaluate the current utility rate structure and develop recommendations for a tiered rate structure that was fair and equitable, would generate sufficient revenue to support program goals, and mimic a rate structure that is comparable to other North Carolina Phase 1 MS4 communities.
New impervious area data will be used moving forward to accurately assess fees to non-residential properties to address lost revenue.
Staff is also seeking Council consensus to provide guidance on which tiered structure, if any, to move forward with developing for FY26. There is no proposed rate increase per ERU, however depending on the tiered structure selected, varying increases in revenue may be realized by the equitable billing of residential properties.
This is a preliminary update to Council from the consultant. The final report will be forthcoming, however, staff wanted to provide preliminary findings that may influence upcoming budgetary decisions.
Background:
The City of Fayetteville implemented its stormwater utility in 1995. Residential property owners are billed a flat rate for one (1) residential unit, and non-residential billing is based on equivalent residential units (ERUs). Each ERU is defined as 2,266 square feet of impervious area and ERU billings are updated based on customer inquiries and regular updates by the County Tax Assessor. The City has implemented multiple rate increases including the most recent increase to $7 per ERU, effective in FY 2025 with two additional rate increases planned to increase the rate per ERU to $8 in FY 2027 and $9 FY 2029.
The City’s Stormwater Utility serves a population of approximately 210,000 and a land area of approximately 148 square miles. There are approximately 70,000 customers: 64,000 residential and 6,000 non-residential accounts. This customer base represents approximately 161,000 ERUs, generating a total revenue of approximately $13.5 million based on the billing database provided by the County Tax Assessor and the FY 2025 Adopted Annual Budget document at the current rate of $7 per ERU per month.
The City of Fayetteville commissioned this tiered rate analysis to accurately assess the amount of impervious area attributed to each parcel within the City and to generate potential tiered rate structure alternatives. The three major phases of this project were the Collection and Processing of New Aerial Imagery, an Impervious Area Analysis, and a Stormwater Utility Rate Structure Evaluation.
The consultant assessed current budgets, program activities, revenues, and projections for revenue growth to determine their adequacy to support City and program goals.
An additional part of this analysis is a “benchmarking” exercise used to compare the City’s utility to several similar municipal stormwater utilities. Recommendations regarding program implementation and future revenue will be included in the report.
Issues/Analysis:
Benchmarking:
As part of this study, five similar utilities in the southeast were evaluated to benchmark the City’s utility. The Cities included in this benchmarking were Durham, Raleigh, Greensboro, Winston-Salem, and Columbia, SC. These communities were selected because of location, similarity in size (population and area served), Phase 1 status, and related services. Although Columbia is not in North Carolina, it is included based on its similarities with Fayetteville and its location adjacent to a large military installation. The final report will include details of the benchmarking exercise. The primary difference noted in the benchmarking is that Fayetteville has a flat rate for residential rate payers vs. various tiered rates for peer communities.
New Aerial Imagery:
As part of this study, new Orthoimagery was collected City-wide and impervious area was delineated for all non-residential parcels as well as a random sampling of over 2,000 single family residential parcels.
With respect to the non-residential parcels, there are multiple rate payers that are not being assessed an accurate ERU based off the existing impervious surfaces that are present. This results in some rate payers being under billed while others are being over billed for the impervious surface they have. Overall, the City is underbilling by approximately 143,000 ERUs, equating to nearly $1,000,000 in unrealized/lost revenue. By accurately assessing non-residential properties based on their actual ERUs, projected revenues will increase in future years with no increase in current rates.
Assessment of Current Rate Structure:
The City currently operates under a Flat Rate, ERU basis framework. The ERU size is 2,266 square feet of impervious area and the billing rate is $7.00 per ERU. A breakdown between residential and non-residential accounts can be seen in the table below:
|
Type |
Accounts |
Revenue |
Impervious Area |
|
Residential |
92% |
40% |
37% |
|
Non-Residential |
8% |
60% |
63% |
The current rate framework projects approximately $13,676,155 in functional revenues in 2025. FY25 expenses are projected to be $13,748,575, resulting in a deficit of $72,420. Though resulting in a minor deficit in FY25, the current framework is generating sufficient funds to meet current needs. However, it does not account for future needs or additional capital funds needed to address projects identified from the on-going watershed studies.
Although the stormwater utility has utilized supplementary funding in the form of grants from various sources, these funds are one-time, project specific, and do not provide long term, on-going support to address the outstanding capital needs.
Level of Service Assessment:
Details of the Level of Service Assessment will be found in the final report but highlights of the assessment can be shown in Capital Projects, System Maintenance, Regulatory Compliance, and Administrative Support.
Driven by a robust watershed master planning program, funding needs of more than $500M have already been identified and presented to Council. The top projects identified alone account for $200M. Additional funding will need to be appropriated to support the implementation of these projects.
With respect to System Maintenance, a gross estimate of the City’s system value (located in the r/w only) is more than $400M. The maintenance of 280 miles of piped drainage, 75 miles of open channel, 10 miles of culverts and 55 stormwater control measures is in addition to any capital improvements currently undertaken by the City.
The City is also responsible for Regulatory Compliance with its NPDES permit. With the newly issued permit, there is an increased focus on maintenance and inspection of private and public SCMs, focus on impaired waters, and an increase in water quality monitoring.
Additional Administrative Support is tied directly to our Capital Projects, System Maintenance, and Regulatory Compliance. As each of those programs grows, the need for the support services grows.
Future Projections:
The LOS Assessment also identified several needs moving forward. The need for additional revenue for capital projects, a strategic asset management plan, a strategic water quality monitoring strategy, and a funding analysis for priority CIP projects were included with other expenses to include inflation, system growth, and wage increases.
Utilizing the current billing database, when projecting out for the next five fiscal years for the stormwater model to maintain its current services, it must be supported by a $1 fee increase in FY 27/28 and an additional $1 fee increase again in FY 29/30. If Council desires to take a more aggressive approach to tackling its mounting Capital and Maintenance needs, additional fee increases will be needed to generate the revenue needed to achieve Council goals.
The table below shows the needed rate to generate additional annual CIP funding.
|
Additional Annual CIP Funding |
FY26 |
FY27/28 |
FY29/30 |
|
Approved Rates |
$7.00 |
$8.00 |
$9.00 |
|
$1M |
$7.50 |
$8.50 |
$9.50 |
|
$2M |
$8.01 |
$9.01 |
$10.01 |
|
$5M |
$9.51 |
$10.52 |
$11.52 |
|
$10M |
$12.03 |
$13.03 |
$14.04 |
|
$15M |
$14.54 |
$15.55 |
$16.55 |
|
$20M |
$17.05 |
$18.06 |
$19.07 |
If the billing database were to be updated to accurately bill non-residential properties, there would be an increase in revenue realized. In FY26 that increase is approximately $1,000,000, with additional increases each year with projections for FY30 totaling $1,183,415 in additional revenue. This increase in revenue is achieved with previously approved rates.
Tiered Rate Structures:
Multiple tiered rates structures were analyzed with three different tier levels per structure. Details of the tiered rates to include the percentage of parcels affected, impervious area ranges, and monthly/yearly rates will be found in the final report. Different methods were used to designate impervious area ranges.
Of the tiered structures evaluated, staff would recommend the structure that is more in line with how non-residential rate payers are assessed, on an ERU basis. This rate structure can be found in the table below:
|
Tier |
% of Parcels |
Impervious Area (sf) |
Monthly Rate |
Yearly Rate |
|
Tier 1 |
67% |
< 2,266 |
$7.00 |
$84.00 |
|
Tier 2 |
27% |
2,267-3,339 |
$10.50 |
$126.00 |
|
Tier 3 |
6% |
> 3,400 |
$14.00 |
$168.00 |
The above tiered structure would result in additional revenues generated of approximately $1.03M.
Budget Impact:
Billing Database:
By updating the billing database on actual impervious area for non-residential property, the utility will see an increase in revenue of approximately $1,000,000 beginning in FY26. By accurately assessing fees to non-residential properties based on their actual impervious area, this lost revenue is collected.
Tiered Rate Structures:
Leaving the current rate structure as a flat fee will result in no increased revenues. Depending on the tiered rate structure selected, increases in revenue range from $491k to $1.32M. While there is no rate increase per ERU, some percentage of residential rate payers may see an increase in their fee due to the equitable billing of residential properties.
Options:
Tiered Rate Structure:
1. Continue with the flat rate fee structure for residential rate payers.
2. Pursue Tiered Structure #1 (staff recommendation) for FY26.
3. Pursue one of the other Tiered Structure presented for FY26.
4. Remand back to staff for further evaluation or future fiscal year implementation.
Recommended Action:
Tiered Rate Structure:
Staff recommend Council provide consensus to pursue Tiered Structure #1 as presented for FY26.
Attachments:
2025.04.07 Imp Area and SW Utility Fee Review