Resort Mulls Stormwater Utility; Council To Further Discuss Fee Structure

OCEAN CITY – The City Council is continuing to weigh options to address its aging stormwater infrastructure concerns, including a rate structure that would fund a new utility within the city.

On Friday afternoon, while the Mayor and City Council wrapped up budget hearings, City Engineer Terry McGean gave an update on the concept of instituting a stormwater utility fee to start repairing the millions of dollars’ worth of needed infrastructure repairs.

“You don’t really need to make a decision as far as budget time today,” McGean said. “I will caution in the budget right now we do have paving for a number of streets. Those streets do need stormwater work done to them but that is not in the budget right now. So it could be something where we are paving the street and then five years later we are digging it up to put storm drains in … it is something we really need to start thinking hard about as we move forward.”

In September 2010, the Environmental Finance Center (EFC) at the University of Maryland was contracted by Ocean City to conduct a stormwater financing feasibility study. The goal of the study was to provide a recommendation on how the town might implement a long-term strategy for financing stormwater management.

When the study was conducted, three imminent funding needs were identified to address project backlog of at least 50 individual projects to repair storm drains and joint leaks, replace outfalls, pipes and catch basins that cost between $1,000 and $50,000 each, address major infrastructure replacement of corrugated metal pipe that costs approximately $6 million and launch an ongoing program to protect infrastructure investment.

At that time, stormwater management projects were funded through the public works construction street account which had a budget of $197,790. Stormwater received $65,000.

The study identified the Town of Ocean City will need to expend close to $12 million in stormwater expenses over 10 years to improve the stormwater system.

“I have looked at all the figures they did … and I determined the bare minimum we would need is $750,000 [annually],” McGean said.

The study recommended Ocean City implement a stormwater utility that distributed the costs of paying for repairs and improvements in proportion to the types of land uses that are contributing to the problem and encourage building owners and tenants to recognize and be accountable for the stormwater that is created from their built environment.

A stormwater utility fee allows for the assessment of the amount of impervious surface contributing to the stormwater problem on a property basis. The study calculated a rate structure based upon Equivalent Residential Units (ERU) where one ERU equals 2,500 square feet of impervious area. For residential properties, including condos, based on the assumption that an average property has about 2,500 square feet of impervious surface, the study recommended that all residential properties be charged $2.92 a month, or $35 a year, regardless of property size or amount of impervious surface. Based on the total number of residential properties in Ocean City at 28,085, the fee would bring in almost $983,000 a year.

For commercial properties, the fee would be based directly on the amount of impervious surface on a property. However, the commercial property fee would be capped at 25 ERUs per property.

“The mayor had identified a significant unfairness to this rate structure, and that was if you had 200-unit hotel you would pay 25 ERUs because it would be the most you could pay for commercial properties, it would be capped,” McGean said. “Whereas if you had a 200-unit condominium you would pay 200 ERUs because every single unit would be charged a $35 flat rate fee … so we tried to make it fair.”

Over the 18 months, city staff has measured the amount of impervious area for every condominium in Ocean City.

“The rate structure is based on those calculations. As you can imagine, the number of available ERUs dropped significantly when we don’t charge every single condominium unit a flat rate for ERU,” McGean said.

The revised fee calculation uses a structure based on one ERU equaling 2,250 square feet and each ERU on a property is assessed $40 per year. Revenue was calculated differently for single family and multi-family/ commercial properties. Single family fees would be based on an ERU flat rate and multi-family/commercial would have a structure based on impervious surface with a 50-ERU cap.

“There is so many different ways in handling this,” Council President Lloyd Martin has found in researching how other areas fund stormwater repairs. “I am not saying this is a bad way or a good way. I just know we need to start doing it somehow.”

Councilman Joe Mitrecic offered a motion to continue the discussion over implementing a utility fee versus other options during a future work. The council voted 6-0, with Councilwoman Margaret Pillas absent.