In a Nutshell:

• Stormwater management infrastructure is often a low priority until failure of the system leads to disaster
• A stormwater utility (SWU) is a formal approach to planning, funding, and managing stormwater infrastructure
• Michigan should pursue a regional cooperative approach to stormwater utilities

The June 2021 Southeast Michigan flood caused hundreds of millions of dollars in damages. The Free Press reports that as of April 8th, 2022, the Federal Emergency Management Agency (FEMA) had paid out more than $188 million across about 56,000 claims, yet 22,700 claims have been denied and 14,000 are still awaiting a decision.

In a previous blog, CRC reported that Michigan is receiving $86 million in federal disaster recovery funds from Housing and Urban Development (HUD). This grant, along with hundreds of millions of dollars in available funding from the Infrastructure Investment and Jobs Act (IIJA) and American Rescue Plan (ARP), represents a rare opportunity for Michigan communities to make much-needed investments in water infrastructure projects including flood prevention and stormwater management.

Unfortunately, this one-time flood of funding will not be enough to completely prevent future floods and releases of untreated sewage into Michigan waterways. Southeast Michigan is inherently flood-prone, having been built on flat, poorly-draining soil–some of it within natural flood plains. Many of Michigan’s existing stormwater conveyance systems were constructed decades ago and are now undersized for the demands being placed on them. Additionally, climate models predict that Michigan will experience more frequent high-intensity precipitation events in coming years that may exceed the capacity of existing stormwater management systems.

When it is not prioritized, stormwater infrastructure is often quietly neglected for years, emerging as a problem only when a rare storm overwhelms the system.

Upgrading Michigan’s stormwater infrastructure to mitigate the damages and risks of high-intensity precipitation events will require decades of strategic capital investments. Furthermore, the performance of stormwater infrastructure is very dependent on routine maintenance. Many infrastructure elements require inspection and maintenance annually or more often to function as designed. Examples of such maintenance activities include removing debris from sewer grates, removing sediment from detention basins, servicing lift and pump stations, and maintaining vegetation in bioswales and rain gardens. Small scale projects are often maintained informally by volunteers. However, it is best to have institutional arrangements in place to assure that systemwide maintenance is sufficient to keep the stormwater management system in good operating condition.

Volunteers Maintain a Roadside Bioswale

Using a Stormwater Utility (SWU) to Fund and Manage Stormwater Infrastructure

Most local governments in Michigan fund stormwater management through some combination of a general fund, transportation funding, waste management funding, and other sources as available. In such frameworks, stormwater management/infrastructure is often an afterthought – added only as required to drain property or other infrastructure like roads, or to meet regulatory requirements. When it is not prioritized, stormwater infrastructure is often quietly neglected for years, emerging as a problem only when a rare storm overwhelms the system. Such systemic failures can result in extensive property damage and risk the health and safety of residents, as Michigan many communities have recently experienced.

As governments come to recognize the benefits and necessity of routine, strategic stormwater management, it has become increasingly popular to create a stormwater utility (SWU). According to the Western Kentucky University Stormwater Utility Survey, as of 2020, Michigan has 12 SWUs (map below). We were unable to verify the existence of two SWUs listed by Western Kentucky University, yielding ten confirmed SWUs in Michigan. This is a uniquely low number among other states in the Great Lakes region. For example, Wisconsin has over 200 SWUs; Minnesota and Ohio each have over 100.

Stormwater Utilities in the United States as of November 2020

Michigan’s SWUs are in Ann Arbor, Berkley, Birmingham, Chelsea, Detroit, Lansing, Marquette, New Baltimore, Oak Park, and Saint Clair Shores. It is most common for a SWU to be created by a municipal government and cover the geographical boundaries of the city or village. Michigan’s ten existing SWUs are contained within municipalities. However, there is nothing preventing local governments from joining together to create regional SWUs. There is substantial legal authority for various types of intergovernmental cooperation in Michigan.

A regional approach can benefit many infrastructure systems; this is especially true for stormwater. Water flows within a watershed without regard to municipal boundaries. In a sprawling urban area like southeast Michigan, watersheds and sewer systems overlap and interconnect in complex, often unknown ways. Low-lying municipalities are often inundated by floodwater that fell as precipitation miles upstream. Upstream areas can experience flooding due to backed-up sewer systems when downstream areas have insufficient or poorly-maintained stormwater infrastructure. These various interdependencies means that cross-jurisdictional cooperation is practically necessary to understand and correct system deficiencies.

A regional approach can facilitate better management of many infrastructure systems; this is especially true for stormwater.

Efficient planning and funding of stormwater infrastructure requires system-wide assessment across a watershed. There are already some regional, multi-jurisdictional planning efforts related to stormwater in Michigan. For example:

• The SEMCOG Water Resources Plan for Southeast Michigan (2018)
• SEMCOG Southeast Michigan Infrastructure Asset Management Project
• Michigan Department of Environment, Great Lakes, and Energy Storm Water Discharge Permit Program
• Great Lakes Water Authority Wastewater Master Plan (2020)
• Michigan Water Asset Management Council (WAMC) water asset management surveying and coordinating activities

These efforts are valuable in understanding current conditions and estimating needs. However, the leading agencies have limited regulatory authority and no ability to collect revenue based on the ongoing use of a regional stormwater management system. Adoption of planning objectives is largely voluntary and reliant on the buy-in and resources of member communities. A formal regional SWU could be much more effective in coordinating individual efforts towards common goals with fair and rational distribution of costs.

Bolt Test for Michigan Stormwater Utilities

In 1972, the federal Clean Water Act required that municipalities minimize water pollution from sewer discharges and surface runoff. Nationwide, stormwater utilities have since become a common policy approach to meeting and exceeding water pollution mitigation requirements. Without a SWU, it is difficult for public agencies to fund projects that reduce the quantity of, and improve the quality of, stormwater runoff.

As noted, Michigan communities have adopted a limited number of SWUs, in part because of regulatory requirements that are unique to Michigan. Communities must ensure the adopted fee-based financing mechanism complies with a 1998 Michigan Supreme Court case, Bolt v. City of Lansing. The ruling in that case found that Lansing’s stormwater service charge was structured as an illegal tax.

Lack of legal clarity has created a “chilling effect” on Michigan municipalities considering stormwater utilities.

The Bolt decision did not prohibit stormwater utilities per se. However, any stormwater-related charge, absent a public vote of approval to collect the charge (per the Headlee Amendment to the Michigan Constitution), must be a “user fee” and not a “tax.” Per Bolt, “there is no bright-line test” to identify the difference between a user fee and a tax. The court laid out three criteria to distinguish a fee from a tax:

1. User fees must serve a regulatory purpose rather than a revenue-raising purpose
2. User fees must be proportionate to the necessary costs of the service
3. User fees are voluntary in nature; property owners are able to refuse or limit their use of the service

This three-point test provides guidance but is open to interpretation. Some municipal SWUs have withstood legal challenges while others have been found illegal. Royal Oak, for example, was successfully sued to have its SWU fee repealed and the city had to reimburse rate payers $2 million. This lack of clarity has created a “chilling effect” on municipalities considering stormwater utilities or any stormwater-related fees. For many municipalities, the cost of defending legal challenges, even if successful, could exceed the revenue generated by the program.

Governments could avoid a potential Headlee challenge by placing a stormwater tax on the ballot for voters to approve. However, officials have found it difficult to communicate the necessity and benefits of dedicated stormwater revenue to voters. When the City of Jackson put its stormwater utility fee to a vote, it failed by a 2:1 margin.

Clarify the Legal Requirements of a Stormwater Utility

In addition to the Michigan-specific hurdles to adopting or increasing taxes, a stormwater management utility user-fee may be applied more fairly than a traditional tax. Rates can be tailored to the costs imposed on the system based on impervious surface area and/or related metrics. Many tax-exempt organizations such as public universities and government agencies are substantial users of stormwater management systems because they own large buildings and parking lots. A user fee can be assessed on the basis of specific regulatory purposes such as protection against property damage and economic loss, threats to public health and safety, and damage to the environment from flooding, erosion, or polluted runoff. 

Any property that produces runoff or drains into a storm sewer imposes costs on the local stormwater system that can be compensated by a fee that is proportional to the costs of a stormwater management program. Such a framework encourages property owners to reduce their fees by reducing their use of the stormwater management system, for example by minimizing impervious surfaces and constructing on-site detention ponds. 

Municipalities and other stakeholders should actively explore frameworks to guide the creation of regional, multi-jurisdictional SWUs in urbanized areas such as southeast Michigan.

Many Michigan municipalities are aware of the benefits of establishing a SWU, but are hesitant to do so in the current regulatory environment. For example, Royal Oak says that, “the city is waiting for legislation to be approved by the state before formally approving a stormwater utility.” 

The objective of new legislation would be largely to provide legal clarity and guidance for new SWUs, giving officials confidence that any new stormwater fees will withstand legal challenges. The Michigan legislature should prioritize providing such guidance. 

In the meantime, municipalities and other stakeholders should actively explore frameworks to guide the creation of regional, multi-jurisdictional SWUs in urbanized areas such as southeast Michigan where watersheds and sewer systems cross political boundaries. Such institutional arrangements are essential to effectively reduce flooding and manage stormwater in the state’s denser urbanized areas.

By: Eric Paul Dennis, PE – epdennis@crcmich.org

This post was revised August 22, 2022 to acknowledge a stormwater assessment fee in Oak Park, which was adopted in 2020.

Revised May 15, 2024 to correct a misstatement regarding the number of active SWUs in Michigan (at time of original publication).