Re-evaluating Storm Water Runoff Costs
Toronto Contemplates User-Pay Rate Formula
By Barbara Carss
Advocates for the commercial real estate industry are united in opposition to a suggested new formula for calculating Toronto’s storm water service charges. The fee is still conceptual and just one of the discussion items in a more wide-ranging public consultation on the City’s need to augment capital funding for its water infrastructure, but is envisioned as a user-pay approach based on a property’s impervious surface area and the resulting volume of storm water runoff.
City staff sees it as potential means to raise additional revenue and/or create a better balance between the rates property owners pay and the storm water services they receive. Currently, storm water management is funded through the water rates, thus tying ratepayers’ contribution to the volume of water they consume.
“For every dollar collected, about 15% of it goes to storm water management and that’s expected to increase to about 30% in the next 30 years so it’s a growing part of the [water] program,” reports Adir Gupta, Manager of Financial Policy in Toronto’s Corporate Finance department. “But there is inequity. There is no relation between water consumed and the runoff.”
Meanwhile, the public consultation occurs in the broader context of a capital funding shortfall. Toronto’s long-range water infrastructure program, which City Council approved in 2006, was to be financed through nine successive years of 9% annual increases in the water rate, commonly known as 9 for 9. Now, after seven years of rate increases, last decade’s economic prognosis is off-target, partly due to newly emerging priorities and lower than anticipated revenue.
In particular, the City needs to upgrade and/or replace its water and wastewater assets, including aging combined sewers that discharge storm overflow into Lake Ontario and the Don River. Other capital budget items introduced since 2006 include: a program to address the chronic problem of system backup and basement flooding during severe weather; the switchover from chlorination to ultraviolet light for wastewater treatment; and new infrastructure to serve the redevelopment of the Regent Park and Lawrence Heights communities.
At the same time, a reduction in water consumption from the levels foreseen in 2006 translates into a 1.5 to 2% drop in projected annual revenue. The public consultation will contemplate possible additional funding mechanisms including ongoing rate increases, debenture financing and a new storm water utility charge that could be separated out from the water rate and apportioned differently.
“Council asked staff to consult with stakeholders. We haven’t recommended anything; we’re just putting out some ideas,” Gupta says. “There is $1 billion in funding pressure on Toronto Water’s budget. The way that’s been managed so far is by deferring capital spending and the depletion of what was once a reasonable reserve fund.”
In a joint letter, four of Toronto’s prominent real estate associations have declared their preference for continued water rate increases in the period beyond 2014.
“By extending rate increases over the next several years and thereafter reducing rate increases to a yearly inflationary level, our respective members hope Toronto Water will be able to avoid impacts to the quality of their water service, and trust that revenue generated will enable the City to raise the $1.1 billion in additional funds required to reinstate the original capital plan,” states the submission from the Building Owners and Managers Association (BOMA) of Toronto, the International Council of Shopping Centers (ISCS), NAIOP Toronto Chapter and the Real Property Association of Canada (REALpac).
EQUITY & INCENTIVES
In contrast, the four organizations reject the proposal for a targeted storm water management charge, which would shift costs between property classes and within the various classes. They argue that many larger retail and industrial facilities would suffer for complying with the parking design standards that the City enforced in the era when the projects were built.
“Existing developed properties are not able to reduce their impermeable area without prohibitive retrofit costs. Therefore, an impermeable rate structure is not an effective incentive to reduce runoff,” the letter contends.
Toronto’s Green Development Standard, adopted in 2010, now places restrictions on the volume and quality of storm runoff from a site, requiring developers/owners to implement on-site features and strategies to hold and filter rainfall. At minimum, new ICI and multi-residential development must be capable of retaining the first five millimetres from each rainfall or at least 50% of the annual rainfall, while 80% of total suspended solids (TSS) must be removed from runoff leaving the site. Development complying with these standards would presumably have a lower quotient of impervious surface, which would be reflected in the calculation of a storm water fee.
Many industrial ratepayers are disproportionally contributing to storm water management through the current funding formula and likely would benefit from a separate rate tied to the property’s impermeable area. Citywide, storm water management costs currently average out to 61 cents per square metre of impervious surface area.
“A large industrial [water] user is contributing about $12 per square metre,” Gupta says. “A large commercial shopping centre doesn’t consume a whole lot of water, but it has a huge square footage of impervious area so it might be paying 25 cents per square metre, which is well under the average.”
A separate storm water fee would be somewhat analogous to the way the reassessment process redistributes the property tax burden. Some property owners would pay more than they currently do for storm water services, but if the City simply needs to raise the same amount of money as is now collects through water rates, some ratepayers would pay less. Much would depend on how Council would choose to use the fee.
“A new fee structure might just be used to deal with the equity issue and as an incentive for site upgrades, rather than to raise additional revenue,” Gupta suggests.
That said, the City’s public consultation documentation does state that funding is “not fully in place for projects dealing with combined sewer overflows and improving water quality in the Don River and Waterfront” and the consultation is an exercise in looking for that money.
Gupta says it’s premature to speculate how such a new fee would be assessed and administered, but it seems inevitable that it would require staff, IT and administrative resources – costs that the four real estate associations highlight in their objections.
“A charge to impervious area will require the creation of a new costly administration to measure and calculate charges based on impervious area, including the creation of an impartial dispute resolution process to handle area disagreements. The database will have to be maintained and constantly updated to reflect physical changes,” their letter predicts.
Other Canadian municipalities that levy a dedicated storm water charge include Kitchener, Saskatoon, Regina, Calgary and Edmonton. “It’s very common in the United States,” Gupta adds.
The City of Hamilton also explored the concept in 2009/2010, garnering a response from the local Chamber of Commerce similar to the sentiments expressed by Toronto’s commercial real estate industry representatives. (See Canadian Property Management, March 2010.)
“We took a report to Council on the possibility of implementing a new storm water management fee, but Council did not approve and directed staff to stop working on the project,” says Roberto Rossini, Hamilton’s General Manager of Finance & Corporate Services.
The complete text of the organizations’ letter can be found at www.bomatoronto.org/images/BOMA/downloads/Submission-Toronto-Water-Rate-Pricing.pdf. For more information about Toronto Water’s public consultation see the web site at www.toronto.ca/finance/waterrates.htm. For more information about Toronto’s Green Development Standard see the web site at www.toronto.ca/planning/environment/greendevelopment.htm.