News: CJ Exclusives

A New ‘Rain Tax’ May Fall

North Carolina localities turn to new levies for stormwater programs

North Carolina’s rainfall is a source of the lush landscape and natural beauty that attracts thousands of tourists each year. But for residents, rain and the ensuing runoff have become yet another excuse used by cities and towns to raise taxes.

Municipalities call them stormwater utility fees, but those who oppose them say they’re taxes in disguise. Regardless of the label, the result is a steady and mostly unnoticed revenue stream flowing into government coffers sucked dry by ever-increasing local spending and the loss of state reimbursements.

Residents of some large metropolitan areas have been paying the rain tax as part of their water bill since the early 1990s. The charge stems from stormwater management programs required by the Environmental Protection Agency as an outgrowth of the Clean Water Act. Seven other communities reported charging utility fees for storm runoff programs implemented on their own, in a 2002 survey by the North Carolina League of Municipalities.

Smaller cities, towns next

But residents who live in one of about 125 less-populated cities and towns should get ready. Expanded EPA regulations now require smaller municipalities to comply with storm runoff rules. Whether these governments will institute rain taxes is the $64,000 question.

“There’s no federal law that requires them (local governments) to raise funds this way,” said Rep. Paul Stam, R-Wake, a lawyer whose firm represented clients in lawsuits against Durham and Greensboro over their rain taxes. “They know the stormwater programs need to be done.” Stam contends the localities should shift existing budget dollars to the program rather than instituting a new fee.

Instead, Durham, Greensboro, and three other urban centers levied fees to comply with 1990’s Phase I of the National Pollutant Discharge Elimination System law. It requires cities of 100,000 or more population to control trash, lawn pesticides, and other debris that collect in stormwater runoff and discharge into lakes and rivers. Large construction sites and 10 categories of industrial activity also faced strict rules.

Charlotte, Winston-Salem, Fayetteville, and Raleigh also were snagged in the population net and implemented stormwater management programs. Only Raleigh bucked the trend and operates its program from the general fund.

But that may change. The Raleigh City Council is considering creating a stormwater utility to charge each household $3 per month. Existing big-city residential rain taxes range from $1 per month in Fayetteville to $3.77 in Charlotte. Commercial assessments are higher and typically based on formulas related to the amount of impervious surface on the property.

If it smells like a tax…

Stam thinks politicians are playing a semantics game that attempts to equate the rain tax with what he says is a true utility fee, in which a person pays for a service, and starts and stops the service at will. He says the fees are a clever way to raise taxes without saying so. “You can’t disconnect from this thing,” he said. “It smells like a tax, eats like a tax, it’s a tax.”

“Certainly, people have commented on that,” said Bradley Bennett about the tax or fee debate. Bennett hears from the public and local officials in his job as supervisor of the Stormwater & General Permits Unit of North Carolina’s Department of Environment and Natural Resources, Division of Water Quality, which administers the EPA program.

“Communities are looking for ways to have an effective program. Obviously, they need a way to do this,” he said. Bennett agrees with Stam that nothing in the EPA rules requires a municipality to levy a fee or tax.

Now that Phase II of NPDES is taking effect, smaller communities are on the hook. According to the EPA web site, the rules “further reduce adverse impacts to water quality and aquatic habitat by instituting the use of controls on the unregulated sources of stormwater discharges that have the greatest likelihood of causing continued environmental degradation.”

In common language, it means that communities of 50,000 or more population must create stormwater programs with six focus areas: public education and outreach; public participation and involvement; illicit discharge detection and elimination; construction site runoff control; post-construction runoff control; and pollution prevention/housekeeping.

The state has discretion about whether even smaller locales of 10,000 or more population must institute detection and prevention programs. That decision-making process is under way.

Price of housing rises

Lisa Martin, director of regulatory affairs for the North Carolina Home Builders Association, is concerned about how the construction-related components of the rules will affect her members.

“They (the state) are expanding the program well beyond what the feds intended,” Martin said. She contends that the cost of new homes will increase because of the requirements.

“The more controls on building, the more cost that will be passed down,” Martin said, adding that entry-level home homebuyers will be most affected. Any additional cost can edge them out of the market, she said.

Bennett acknowledges Martin’s concerns, but defends the importance and “pro-active” nature of the Phase II rules. “The big thing is the water quality and potential impairment and problems,” he said. “You’re looking at trying to save problems down the road.”

Martin agrees that some runoff controls are necessary in major markets, but questions the inclusion of some smaller communities.

Belville wins an exclusion

She cites the Town of Belville in Brunswick County as an example. The town of 300 was designated a Phase II community because it’s considered part of the Wilmington urbanized area.

“They don’t have enough development to warrant this,” Martin said. Belville Mayor James A. Cain III agrees that, with two main roads and “very little industry,” his community poses little threat to water quality.

Since it doesn’t own and operate a sewer system, the town officially asked the state to drop it from the list of those required to implement a runoff program, and Cain said the state recently agreed.

Bennett, however, said that while the state has accepted the town’s certification about the sewer system, that fact may not completely eliminate Belville’s responsibilities. “The town still might be required to comply in some way,” Bennett said.

Although the mayor said he’s relieved, he’s still concerned about one thing. He said the town was assured by the state for more than a year that it would have to comply, so Belville paid $5,000 for special software to manage the program, Cain said. Now the box sits on a shelf and Cain hopes for a refund. “I figure that’s just the way government works,” he said of the confusion.

In the meantime, cities and towns across the state await word on whether they must comply. Bennett said his department will submit proposed final rules to the General Assembly for approval next session. Once program implementation begins and rain taxes appear in more municipalities, Martin predicts North Carolinians will get vocal.

“As more people become subject to fees, they’ll be calling their legislators,” she said.

Martinez is associate editor at Carolina Journal.