HomeMy Public PortalAboutExhibit RC 70 - Rate Commission's Prehearing Conference ReportBEFORE THE RATE COMMISSION OF THE
METROPOLITAN ST. LOUIS SEWER DISTRICT
For Consideration of the February 26, 2018 )
Stormwater Rate Change )
Proposal by the Rate Commission of the )
Metropolitan St. Louis Sewer District )
PREHEARING CONFERENCE REPORT OF
BLACK & VEATCH, RATE CONSULTANT,
AND LASHLY & BAER, P.C.,
LEGAL COUNSEL TO THE RATE COMMISSION
Black & Veatch and Lashly & Baer, P.C., as Rate Consultant and Legal Counsel,
respectively, to the Rate Commission of the Metropolitan St. Louis Sewer District (“Rate
Commission”), respectfully submit this Prehearing Conference Report regarding the Stormwater
Rate Change Proposal (“Rate Change Proposal”) submitted to the Rate Commission by the
Metropolitan St. Louis Sewer District (the “District”) on February 26, 2018, Ex. MSD 1.
The Rate Commission is to determine whether the Rate Change Proposal or any
Alternative Proposal meets the criteria for recommendation contained in §§ 7.040 and 7.270 of
the Charter Plan.
The Prehearing Conference Report is to identify, define, resolve or settle the issues raised
by the prepared testimony and to describe the participant’s position, if any, on each of the criteria
and factors for recommendation.
THE DISTRICT RATE CHANGE PROPOSAL
District stormwater revenue is now derived principally from: (1) the District’s 2-cent
property tax used to fund stormwater regulatory services; and (2) the District’s 10-cent property
tax used to fund stormwater operation and maintenance services (funded through Prop S). Ex.
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MSD 30A. There is currently no dedicated funding source for stormwater capital improvements
within the District. See Ex. MSD 1, p. 3-1.
The District proposes to add an impervious area-based Stormwater Capital Rate to fund
capital improvements needed throughout the District’s service area. The District estimates its
capital improvement needs to be funded by the Stormwater Capital Rate at approximately $562
million. See Ex. MSD 25, p. 5. The Stormwater Capital Rate would generate approximately $30
million annually to finance these capital improvements.1 See Ex. MSD 1, p. 3-3. The Rate
Change Proposal would not utilize debt financing. See Ex. MSD 1, p. 3-2.
The Stormwater Capital Rate would charge ratepayers per Equivalent Residential Units
(“ERUs”) of impervious area (“IA”). An ERU is calculated to be 2,600 square feet of IA. See
Ex. MSD 1, p. 4-6. The Rate Change Proposal would assess a monthly rate of $2.25 per ERU.
See Ex. MSD 1, p. 4-6. Residential property will be divided into four tiers based on the amount
of IA. Most residential property will fall into Tier 2 (2,001-3,600 sq. ft. of IA) and will be
charged $2.25 per month (for 1 ERU) when the rate is fully implemented. Residential property in
Tier 1 (200-2,000 sq. ft. of IA) will be charged $1.42 per month (0.63 ERUs). Residential
property in Tier 3 (3,601-6,000 sq. ft. of IA) will be charged $3.74 per month (1.66 ERUs).
Residential property in Tier 4 (more than 6,000 sq. ft. of IA) will be charged $6.84 per month
(3.04 ERUs). See Ex. MSD 1, p. 4-6. A credit program would be available to residential property
owners implementing best management practices (“BMPs”) such as rain gardens or cisterns. See
Ex. MSD 1, p. 4-7. Non-residential properties will be charged per each ERU of IA on the
1 The Rate Change Proposal relies upon certain assumptions with respect to conditions, events,
and circumstances that may occur in the future. Although considered reasonable, some of these
anticipated conditions, events and circumstances may not occur resulting in potential differences
in revenues and costs than currently projected.
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property. See Ex. MSD 1, p. 4-6. A credit program will also be available for non-residential
ratepayers. See Ex. MSD 1, p. 4-7.
The District proposes to charge the Stormwater Capital Rate to non-profit and
governmental entities since it considers the Stormwater Capital Rate to be a “rate” or “charge”
pursuant to § 3.020(16) of the Charter Plan. See Ex. MSD 4, p. 7. The District intends to seek
voter approval for the Stormwater Capital Rate. See Ex. MSD 1, p. 3-3.
It is the District’s position that the Rate Change Proposal has been carefully developed
and the Rate Change Proposal meets the requirements of the Charter. See Ex. MSD 64.
STANDARD FOR RECOMMENDATION
Upon receipt of a Rate Change Notice from the District, the Rate Commission is to
recommend to the District’s Board changes in a wastewater, stormwater, or tax rate necessary to
pay: (i) interest and principal falling due on bonds issued to finance assets of the District; (ii) the
costs of operation and maintenance; and (iii) such amounts as may be required to cover
emergencies and anticipated delinquencies. See Ex. MSD 4, p. 18, Charter Plan, § 7.040.
Any change in a rate recommended to the Board by the Rate Commission pursuant to
§ 7.270 of the Charter Plan is to be accompanied by a statement of the Rate Commission that the
proposed rate change: (i) is consistent with constitutional, statutory, or common law as amended
from time to time; (ii) enhances the District’s ability to provide adequate sewer and drainage
systems and facilities, or related services; (iii) is consistent with and not in violation of any
covenant or provision relating to any outstanding bonds or indebtedness of the District; (iv) does
not impair the ability of the District to comply with applicable Federal or State laws or
regulations as amended from time to time; and (v) imposes a fair and reasonable burden on all
classes of ratepayers. See Ex. MSD 4, p. 24.
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The Prehearing Conference Report is to identify, define, resolve or settle the issues raised
by the prepared testimony and to describe the participant’s position, if any, on each of the criteria
and factors for recommendation. See Ex. MSD 28, p. 8.
The issues raised by the prepared testimony relate primarily to the criteria set forth in
§ 7.270(v) of the Charter Plan – whether the Rate Change Proposal imposes a fair and reasonable
burden on all classes of ratepayers.
The Rate Commission, in its Rate Recommendation Report, will be required to provide
affirmative support that its rate recommendation meets each of the criteria. Although the issues
herein are discussed in the context of compliance with § 7.270(v), the issues may also affect the
discussion of compliance with the other factors and criteria in §§ 7.040 and 7.270.
CIRP PROGRAM
Scope of Program
The District estimates its capital improvement needs to be funded by the Stormwater
Capital Rate at approximately $562 million. See Ex. MSD 25, p. 5. The Stormwater Capital Rate
would generate approximately $30 million annually to finance these capital improvements. See
Ex. MSD 1, at p. 3-3.
The District states that the Stormwater Capital Improvement and Replacement Program
(“CIRP”) is prudent and reasonable. See Ex. MSD 54, p. 1, ll. 2-5. The District has an obligation
and authority to address stormwater flooding and erosion, and the public expects it. See Ex.
MSD 56 p. 1, ll. 4-12. The District receives hundreds of calls annually related to flooding and
erosion issues. Id. The District asserts it has put sufficient planning in the CIRP to justify the $30
million annually. See Ex. MSD 3E, p. 7, ll. 6-7.
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Intervenor Missouri Industrial Energy Consumers (“MIEC”) provided testimony that
there is inadequate planning to justify $30 million per year of revenue collection from customers
because the projects are, at the very best, a preliminary list of projects that may benefit the
stormwater erosion and collection objectives of the District. See Ex. MSD 52, p. 15, ll. 6-11.
MIEC’s expert, Michael P. Gorman, testified that: “I don’t believe the detailed engineering has
been conducted to create what would normally be a reasonable budget estimate that is
appropriate for either setting rates or asking bondholders to fund.” Id. at p. 16, ll. 7-10; see also
p. 28, ll. 1-6 (“[I]f they want customers to pay for the projects then they have to show which
projects need to be completed and why they need to be completed, and to get bond funding they
would have to make that demonstration to the bondholders, so I think the customers should get
the same protections”).
Rate Consultant Nicole Young disagrees with MIEC. Ms. Young testified that the District
has done sufficient, reasonable planning. See Ex. MSD 52, p. 98, ll. 2-14.
Some of the Rate Commissioners raised the question as to whether in fact the $562
million is enough. In the Technical Conference, Commissioner Palans noted the City of Ladue
estimated the scope of stormwater projects within its boundaries at 55 projects totaling $113
million. See Ex. MSD 65, p. 33, ll. 14-20. “So my little municipality identified about 2 percent of
the number of projects that the District identified and our cost to remediate those projects is
about 20 percent of what the District identified to remediate within a 520-square mile area.” Id.
at ll. 21-25. The District has testified that it is a reasonable start, and they considered what they
believed the voters could tolerate. See Ex. MSD 52, p. 45, ll. 14-18.
Rate Consultant Pam Lemoine testified that the District is one of the largest stormwater
service areas in the country, and so the magnitude of the issues that it is going to have to address
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is large. See Ex. MSD 52, p. 52, ll. 23-25; p. 53, ll. 1. “Certainly if the fees were higher and they
could fund more projects sooner, the program could be addressed more quickly…. I think it’s
definitely a step in the right direction to be able to start to address these issues that haven’t been
funded in the past. And again, it becomes a balancing act of customer affordability and the need
to address the issues.” Id. at p. 53, ll. 1-7.
Use of Debt
The Rate Proposal for the Stormwater Capital Rate does not contemplate the use of any
debt. See Ex. MSD 1, pp. 3-2; see also Ex. MSD 3D, p. 6, ll. 2; Ex. MSD 3E, p.6, ll. 16-18; Ex.
MSD 30B, p. 15 (Request No. 54).
The District testified that it believes it should make improvements in the most affordable
way possible. Debt funding will automatically increase costs; average ratepayer will pay $2.25
per month, well within EPA metrics for affordability. See Ex. MSD 55, p. 1, ll. 12-16. Moreover,
because the rate is so low, any debt funding would have a limited impact. See Ex. MSD 55, p. 1,
ll. 23-24. If debt financing were used, the District would have to collect rate revenue beyond the
construction timeline. See MSD Ex. 55, p. 2, ll. 3-4. The District also expressed concern about
whether and to what extent debt may be needed in future rate proceedings. See Ex. MSD 52, p.
68, ll. 1-19.
Moreover, if the District considered debt financing, it would be precluded from issuing
tax-exempt bonds to finance certain projects and thus that debt financing of capital projects is
ultimately more expensive for consumers. See Ex. MSD 30B (Request No. 44). The District does
not claim the Stormwater Capital Rate cannot be funded by bonds, just that some projects cannot
be funded with tax-exempt bonds because the District may not own certain assets upon
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completion, and that it would drive rates higher. See Ex. MSD 41A (Request 1d); Ex. MSD 45,
p. 5, ll. 19-22; p. 6, ll. 1-16).
It is MIEC’s position that the District should be considering debt, but MIEC does not
make a proposal as to how much. Id. at p. 14. MIEC admits that the District will be required to
take on significant additional debt as part of Consent Decree, thus, “it should be a prudent level
of bond and rate revenue funding.” See Ex. MSD 52, p. 40, ll. 9-10. “Consideration should be
impact on debt – the structure of any bond rating, so that would require consideration of debt
service coverage, which is a credit rating factor…. It should also consider affordability by
customers in terms of issuing bonds for the stormwater, recognizing additional bonds for the
wastewater consent decree program.” Id. at ll. 10-18.
The Rate Consultant supports the District’s decision not to issue debt. See Ex. MSD 52,
p. 69, ll. 1-3. The Rate Consultant testified that “you have to look at the nature of the projects,
will the utility have an asset on their books as a result of that project, as well as the program as a
whole, when you’re investing a lot of money on a year-to-year basis.” Id. at p. 68, ll. 8-12.
Improvements on Private Property
The District testified that it is appropriate to make stormwater improvements on public
and private property. See Ex. MSD 50A (Request No. 2). Article 3, § 3.020(2) of the Charter
Plan authorizes MSD to operate stormwater drains, provide effective means of insuring the area
within the District has adequate sanitary and stormwater drainage. See Ex. MSD 4, pp. 4-5.
Projects on private property can be done, consistent with the Charter Plan, requiring easements in
favor of the District. See Ex. MSD 50A (Request No. 2). The District is not prohibited by any
policy from constructing improvements or repairs on private property, provided easement or
property rights exist. See Ex. MSD 50A (Request No. 2). The District states that if it would be
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unable to obtain those [property] rights for a project, the District would not undertake that
project. Id. (Request No. 3); see also Ex. MSD Exhibit 41 (75% will be assets owned by MSD).
Intervenor MIEC’s expert, Michael P. Gorman, testified that MSD cannot make
improvements on private property. According to Mr. Gorman, MSD’s own policy states that it
will only make investments in the public stormwater system or infrastructure that is located in
easement where MSD has right to access or is property owned by MSD. See Ex. MSD 52, p. 12,
ll. 20-25; p. 13, ll. 1-3. “It’s also consistent with standard practices for utilities that they don’t
make investments on private property.” Id. at ll. 22-23. Mr. Gorman believes that remediation
does not add value to the community as a whole “because there hasn’t been explicit
identification of projects and description of the benefits that those projects create.” Id. at p. 14, ll.
19-22. However, Mr. Gorman did not believe that it is possible that a project can be done on
private property and still be within the public interest. Id. at p. 13, ll. 16-23.
The Rate Consultant agrees with the District that certain projects could and should be
constructed on private property. Ms. Lemoine explained, “[i]f the capital program is addressing
erosion and flooding issues that are, you know, even where they’re on a private property for
instance in the example of a stream erosion, that runoff is occurring and that erosion is occurring
due to runoff through that watershed, and so in that regard that’s benefitting the entire watershed
area and the service area.” See Ex. MSD 52, p. 62, ll. 19-25. By addressing a lot of these
problems, it will also help with water quality type aspects that are required to be managed
throughout the service area. Id. at p. 63, ll.1-3. There are projects which benefit the region as a
whole “in order to manage that runoff and as well as the quality-related issues, so the quality of
that runoff as it enters other receiving streams.” Id. at p. 66, ll. 21-24.
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Prioritization / Cost-Sharing Arrangements
The Stormwater Capital Rate would fund projects listed in the CIRP. See Ex. MSD 1, p.
4-2. Projects in the CIRP have been identified based on historical records, previous engineering
studies, and customer complaints about flooding and erosion. See Ex. MSD 1, p. 6-9; see also
Ex. MSD 17; Ex. MSD 30L. Projects are scheduled to build the highest priority projects first.
See MSD Ex. 1, p. 6-10. Types of stormwater flooding problems, in order of severity, include
structure flooding, roadway flooding, and yard flooding. See Ex. MSD 30B, p. 5 (Response No.
12). Types of erosion problems, in order of severity, include stream erosion threatening a
structure, stream erosion threatening a road, and yard erosion. Id. A cost/benefit ratio is
calculated to determine project priority ranking. Id. at Response No. 13. Benefit points are
totaled for a project, and the points are divided by the cost of the project. Id. A project with 100
benefit points divided by $100,000 in costs would have a priority ranking of 1.00. Id. The
District utilizes a Prioritization Worksheet (see Ex. MSD 30K) and Guidelines for use of the
worksheet (see Ex. MSD 30J).
Some of the Rate Commissioners questioned the District witnesses as to whether the
District should consider incentivizing contributions by third-parties by adjusting a project’s
priority when a third party (the Missouri Department of Transportation, a municipality, or some
other entity) contributes funding. See Ex. MSD 65, pp. 43-53. Some Commissioners expressed
concern that $562 million may not be sufficient to address the District’s stormwater needs and
that third-party contributions should be incentivized by moving up projects in the CIRP when
third-party funds are contributed. Id.
The District’s position is that the Stormwater Capital Rate would impose a fair and
reasonable burden on all classes of ratepayers, as required by § 7.240 of the Charter Plan. See
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Ex. MSD 36, p. 195, ll. 14-19. The District intends to be receptive to cost-sharing arrangements
with third parties to finance capital improvement projects. See Ex. MSD 65, p 53, ll. 13-21; see
also Ex. MSD 54, p. 3, ll. 4-15. However, to ensure that the Stormwater Capital Rate is fair and
equitable, the District will not alter its cost/benefit analysis, or adjust a project’s prioritization
based on the contribution of third-party funds. See Ex. MSD 65, pp. 50, ll. 18-25; p. 51, l. 1. This
is to ensure that wealthier communities or entities cannot increase their chosen project’s priority
at the expense of a project in a community which does not have access to third-party funding.
See Ex. MSD 65, p. 58, ll. 8-18. “With prior approval the District will reimburse the
municipality for construction costs after completion of the project. Participation in this process
allows the municipality to have control of the project, defray District costs, but does not impact
the District’s priority or schedule to complete the project. This process eliminates discrimination
of those municipalities with limited or insufficient stormwater funding.” See MSD Ex. 30B, p.
13 (Response No. 45). “MSD has always been receptive to teaming with other entities in the full
or partial outside funding of stormwater capital projects. Examples include individuals,
municipalities or private companies completely funding their project or using partial funding
from MSD to execute their projects.” See MSD Ex. 54, p. 3, ll. 4-8. “In calculating the cost of a
project in determining the benefit-cost ratio, cost shall always be the cost to complete the project,
regardless of the source of funding. This process insures that the value of the stormwater capital
dollars from all rate payers will be weighed equally and not be influenced by the ability of a third
party source to provide additional funding to the process.” Id. at p. 3, ll. 11-15.
Intervenor MIEC supports the use of third-party funding for projects in the CIRP, but did
not state a position with regard to whether a third party’s contributions to a project should affect
that project’s priority. See Ex. MIEC 45, p. 8, ll. 5-13. After projects “have been clearly
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identified and the benefits of those projects have been estimated, then it would be appropriate for
the district to consider sharing the cost of those projects or requiring – attempting to require other
parties to fund the project themselves.” See Ex. MSD 52, p. 25, ll. 14-22. As discussed, MIEC
objects to the District utilizing funds derived from the Stormwater Capital Rate for projects on
private property. See Ex. MIEC 45, p. 2, ll. 7-14. In that regard, MIEC favors private
contributions to projects in the CIRP in part because it believes that the District should not be
funding projects on private property in the first place. Id. “And I believe there is just a fairness
standpoint that if private property owner or municipalities or primary beneficiaries, and MSD is
a stakeholder in that process also, it might be appropriate for a partnership to move forward with
the project or there might be instance where MSD really shouldn’t have to pick up any part of the
cost.” See MSD Ex. 52, p. 26, ll. 10-16. “MSD still has obligations to efficiently and prudently
manage how it spends that money [from the Stormwater Capital Rate] and that would include
considering whether or not there are other stakeholders that should contribute to the cost of those
projects.” Id. at p. 27, ll. 1-5.
Rate Consultant Nicole Young believes that the prioritization system, and the District’s
position with regard to third-party funding, is appropriate. See Ex. RC 44, p. 5, Q11.; see also
Ex. MSD 52, p. 87. “As a civil engineer, … we are concerned with equity when it comes to the
overall provision of service to the community. So we want to make sure that because one
community has the privilege of additional funds, that their projects are not moved up in the
schedule ….” Id. at p. 91, ll. 10-15. “The cost is not reduced [by third-party funding]. The cost
remains the same. The source of the funds changes.” Id. at p. 94, ll. 3-4. Contributions by third
parties “would be fair as long as it didn’t change the prioritization of the projects.” Id. at 92, ll.
23-24.
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METHODOLOGY OF STORMWATER CAPITAL RATE
Use of Impervious Area
All parties agree that the use of an impervious area charge is fair and reasonable. See Ex.
MSD 10, p. 126; see also Ex. RC 43, p. 4, Q9A3. However, as noted, under the Charter Plan, the
proposed rate change must also be consistent with the law. See Ex. MSD 4, p. 24; Charter Plan, §
7.270. The District testified that a stormwater capital rate based on impervious area is consistent
with the law. See Ex. MSD 3B, p. 1, ll. 25; p. 5, ll. 9-11.
In 2007, the District recommended and subsequently implemented a stormwater fee (not
the capital rate) based on impervious area. In Zweig v. Metropolitan St. Louis Sewer District,
412 S.W.3d 223 (Mo. banc 2013), the Missouri Supreme Court held that the District violated
Art. X, § 22(a) of the Missouri Constitution (commonly known as the “Hancock Amendment”)
by implementing the new stormwater charge based on impervious area without voter approval.
The Zweig decision also makes a reference to the District’s authority to use an impervious area
method for calculating the stormwater charge. Specifically, the court explains that the District’s
ability to fund its activities is limited and quotes Art. VI, § 30(b) of the Missouri Constitution, as
follows: “The plan shall provide for the assessment and taxation of real estate … giving due
regard to other provisions of this constitution.” Zweig, 412 S.W.3d at 229. The court states in a
footnote: “Ratepayers do not challenge MSD’s authority to levy the stormwater user charge
under the Plan or section 30(b) of the constitution. The only claim in this case – and the only
issue decided here – is whether section 22(a) prohibits MSD from levying this stormwater user
charge without prior voter approval.” Id. at n.2.
It is not clear whether the Missouri Supreme Court in the Zweig footnote was actually
alluding to the possibility that a stormwater charge based on impervious area (and regardless of
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Hancock) is unauthorized under the Missouri Constitution. However, there exists at least a
concern that a court could consider any stormwater charge based on the amount of impervious
area, and not on the value of the property, to be noncompliant with Art. X, § 4(b) of the Missouri
Constitution.2
The District asserts it has the authority to impose a Stormwater Capital Rate based on
impervious area in this situation because the charge is a “rate.” See Ex. MSD 36, p. 84, ll. 20-22.
The District has stated it has a legal opinion from outside legal counsel indicating the
Stormwater Capital Rate based on impervious area is consistent with constitutional and statutory
law. See Ex. MSD 36, p. 83, ll. 6-15.
Intervenor MIEC and the Rate Consultant have not filed testimony with respect to this
issue.
Rate Imposed on Governmental and Nonprofit Property Owners
The District proposes to charge the Stormwater Capital Rate on property owned by non-
profit and governmental entities since it considers the Stormwater Capital Rate to be a “rate” or
“charge” pursuant to § 3.020(16) of the Charter Plan. See Ex. MSD 4, p. 7.
Article X, § 6 of the Missouri Constitution provides that “[a]ll property, real and
personal, of the state, counties and other political subdivisions … shall be exempt from taxation;
… and all property, real and personal, not held for private or corporate profit and used
exclusively for religious worship, for schools and colleges, for purposes purely charitable, for
agricultural and horticultural societies, or for veterans’ organizations may be exempted from
taxation by general law.” Emphasis added. The General Assembly has exercised the authority
2 Article X, Section 4(b) of the Missouri Constitution, along with Mo. Rev. Stat. § 137.115,
“require that real property in Missouri be taxed according to its true value in money.” Snider v.
Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 348 (Mo. banc 2005).
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granted by Art. X, § 6 by enacting Mo. Rev. Stat. § 137.100(5), which provides that “[a]ll
property, real and personal, actually and regularly used exclusively for … purposes purely
charitable and not held for private or corporate profit,” shall be “exempt from taxation for state,
county or local purposes.”
In discussing this issue, the District General Counsel, Susan Myers, noted that a court
would likely attempt to harmonize the provisions of the State Constitution with MSD’s Charter
Plan. See Ex. MSD 3B, p. 3, ll. 1-13. Therefore, it could be a reasonable interpretation that
MSD’s authority to tax is limited by the provisions of Article X of the Constitution exempting
governmental property from taxation. Myers’ testimony argues that, even if a court concludes
that the Stormwater Capital Rate is a tax from which governmental entities are exempt,
nonprofits would still be subject to the rate. Myers reasons that while the tax exemption for
governmental bodies derives from the Missouri Constitution, the tax exemption for nonprofits is
statutory. “The exemption from taxation for non-profit entities is not constitutional, but rather is
statutory in nature, so it can be superseded if it is inconsistent with the Charter.” See Ex. MSD
3B, p. 3, ll. 7-9.
In fact, Ms. Myers testified that there is a three-part rationale for charging the Stormwater
Capital Rate to governmental, non-profit, and other tax-exempt entities. First, the Stormwater
Capital Rate can be properly interpreted as not being a property tax or any other form of tax, but
instead is a charge or “rate” authorized by the Charter Plan, thus non-profit and governmental
entities would not be exempt from paying the rate. The constitutional and statutory exemptions
for governmental and non-profit entities apply to ad valorem property taxes. The Stormwater
Capital Rate is not in any way based on the value of property, so it is not an ad valorem tax, and
thus the tax exemptions should not apply to the Stormwater Capital Rate. The Charter Plan
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expressly allows the District to collect revenue through ad valorem property taxes, special
assessments, and rates and charges. The Stormwater Capital Rate is plainly a rate or charge that
is authorized by the Charter and is not a special assessment or ad valorem tax. Therefore, this
Stormwater Capital Rate can be charged to all customers “whether public or private” in the
District pursuant to the express terms of the Charter § 3.020(16).
The District testified that it has a legal opinion supporting its authority to impose the
Stormwater Capital Rate on all types of property. See Ex. MSD 30B, p. 6 (Response No. 17).
The District also submitted a memorandum summarizing that legal opinion. See Ex. MSD 30Q.
Intervenor MIEC and the Rate Consultant did not file testimony with regard to this issue.
Effect of Mo. Rev. Stat. § 204.700
Missouri Revised Statute § 204.700 provided that “[n]o person who owns real property
that is used for residential purposes within the boundaries of any district created under Section
30 of Article VI of the Missouri Constitution shall be assessed any fee, charge, or tax for storm
water management services if the district does not directly provide sanitary sewer services to
such property and if the storm water runoff from such person’s property does not flow, or is not
otherwise conveyed, to a sewer maintained by such district.” If this statute is applicable to the
Stormwater Capital Rate, then the rate would not in fact be consistent with Statutory law.
Susan Myers, District General Counsel, testifies that this section is an unconstitutional
special law in violation of Art. III, § 40(30) of the Missouri Constitution, that House Bill 661
violates the single-subject provision (Art. III, § 23, Mo. Const.), and is inconsistent with the
Charter Plan, and thus preempted. See Ex. MSD 3B, p. 4, ll. 7-14. The District also testified that
they had an opinion from an outside law firm supporting this position. See Ex. MSD 30B, p. 6,
(Response No. 17).
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Intervenor MIEC and the Rate Consultant support the use of impervious area charges as
fair and reasonable without any regard to these legal issues.
Consideration of Compacted Dirt/Vacant Properties
The District proposes to charge the Stormwater Capital Rate to all owners of real
property with impervious surface, even if those owners do not currently receive a wastewater bill
from the District. See Ex. MSD 1, p. 6-18. These properties include properties served by a septic
tank, park properties without wastewater facilities, farm properties, and parking lots. See Ex.
MSD 37A, Q10, pp. 7-8. The District projects that approximately 40,000 ratepayers will be
stormwater-only accounts. See Ex. MSD 31A, Q17, p. 5. Residential property that is vacant will
be charged the Stormwater Capital Rate. See Ex. MSD 36, p. 201, ll. 8-13. Unimproved property
with insignificant (under 200 square feet) of impervious area would not be charged the
Stormwater Capital Rate. See Ex. MSD 36, p. 201, ll. 18-25; p. 202, ll. 1-7. District Consultant
Henrietta Locklear testified that including vacant (unoccupied but with impervious area)
property is common practice, as is excluding property with little or no impervious area. See Ex.
MSD 36, p. 217, ll. 15-25; p. 218, ll. 1-2.
It is the District’s position that the Stormwater Capital Rate will not be varied or adjusted
based on the character of the soil (e.g., compacted soil which absorbs less water than typical
soil). “Whether property is native or previously developed is irrelevant for a proposed
Stormwater Capital Rate. The billing is based upon the impervious surfaces within a property
identified and measured from aerial photography.” See Ex. MSD 37A, Q28, p. 14-15. Henrietta
Locklear testified on behalf of the District that adjusting a charge based on the character of the
soil was impractical. “Such an approach would be complex, time-consuming, and more prone to
errors because of the greater work to classify areas on properties. Overall it would be more
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expensive to administer relative to the common approach of classifying area as either pervious or
impervious.” See Ex. MSD 57, p. 1, ll. 9-12. “Assessing whether a specific lot had ‘compacted
soil’ or some other condition that made it less pervious than other similar vacant lots would be
time-consuming and expensive, particularly in comparison with administration of an impervious
area rate structure…. [I]t is fair and appropriate that properties without impervious area are not
assessed the fee.” Id. at ll. 18-24.
The Rate Consultant disagrees. Ms. Lemoine testified that parcels which were formerly
improved “may have surfaces including compacted dirt, that restrict infiltration and therefore
still contribute stormwater runoff.” See Ex. RC 43, Q20, p. 10. “Excluding these types of
improved vacant land parcels completely from stormwater billing could potentially impact equity
of cost recovery, as these types of improved vacant land also contribute some level of stormwater
runoff, especially during high intensity wet weather events …. [T]he District could have
considered estimating an effective impervious area by applying a reasonable low runoff factor to
the parcel lot size.” Id. “There are utilities who assess an effective impervious area based on a
runoff factor for properties such as vacant properties that have compacted soil and things, so
even if they don’t have impervious area, if the soil is compacted from previous development
where it, in effect, is not pervious area … compared to, say, a natural state, that utilities do
indeed implement that.” See Ex. MSD 52, p. 64, ll. 10-17.
Intervenor MIEC did not directly take a position on whether an individualized assessment
of the runoff from a particular parcel based on the character of the soil. However, counsel for
MIEC inquired of Ms. Locklear as to how conducting an individualized assessment could be
more “error-prone” as Ms. Locklear testified. MIEC Counsel asked: “[i]f the baseline is we use
aerial photography to determine perviousness or amount of area, how it can be more error-prone
18
to actually go out and visit the property or perhaps walk the property, take measurements of the
property?” See Ex. MSD 65, p. 111, ll. 5-9. Counsel for MIEC advocated for an “appeals process
whereby a property-specific inspection can occur and you can go out and gather additional data
about that specific parcel of property.” Id. at p. 112, ll. 8-11. Ms. Locklear agreed that such a
process would be effective, and that “the District made accommodation for that type of
individualized reconsideration in the previous charge that was implemented and would or could
do something similar in this case as well under an impervious area of rate structure.” Id. at p.
112, ll. 15-20.
Incentive Programs
The District proposes to provide an incentive program for residential and non-residential
ratepayers. For residential ratepayers, the District will provide a credit of 50% of the average
residential bill over a 10-year period for those ratepayers who implement Best Management
Practices (“BMPs”) such as rain gardens or cisterns. See Ex. MSD 1, p. 4-7. Non-residential
ratepayers will be eligible for a 50% credit for impervious area tributary to Volume Reducing
Green Infrastructure, and for detention basins meeting the current channel protection criteria. Id.
This will be a renewable 5-year credit. Id. The District will also provide credits for green roofs
and pervious pavement, for ratepayers whose impervious area is less than 15% of the gross
surface area for a parcel or contiguous parcels, and for ratepayers whose stormwater drains
directly to a large river. See Ex. MSD 1, p. 4-8. The District estimates that the annual cost of the
credit programs will be approximately $467,000.00. See Ex. MSD 3D, ll. 19-20.
It is the District’s position that the credit programs are adequate and reasonable, in that
they give a credit to those who choose to construct and maintain green infrastructure without
compromising the financing of projects in the CIRP. See MSD Ex. 64, p. 5. Ms. Locklear
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testified that “[m]ost utilities offer credits as part of a rate system…. MSD’s proposed credit and
incentive program is within industry norms for such programs with respect to its major features.”
See Ex. MSD 3F, p. 3, ll. 13-16. The District does not intend to inspect BMPs and will “assume[]
that most BMPs will remain in place and functional until such time as the BMP fails or is
removed by the property owner.”3 See Ex. MSD 37A, Q15, p. 9. The District determined that an
upfront 50% credit of $135.00 for residential ratepayers was preferable as opposed to reducing a
ratepayer’s bill by 50% (which would reduce their bill by $1.12 in most cases). See Ex. MSD
37A, Q16, pp. 9-10. The District determined that “an ongoing credit program would involve
costs to track and manage the credit program, plus efforts to continue to ensure the effectiveness
of the creditable practice. The District chose not to create a burdensome program unsupported by
revenue or otherwise offset by the benefits received.” See Ex. MSD 37A, Q5, p. 6. The District
intends to inspect facilities on non-residential properties which receive incentives on a three to
five-year schedule. See Ex. MSD 36, p. 101, ll. 7-15.
The District intends for the credit program to “provide some nominal benefit to property
owners to provide BMPs without compromising the CIRP.” See Ex. MSD 64, p. 5. The concern
with making the credit larger is that BMPs provide limited benefits and increasing the size of the
credit results in less available revenue to construct projects in the CIRP. Id.
Intervenor MIEC has not stated a position with regard to the adequacy of the credit
programs.
Rate Consultant Pam Lemoine testified that “[g]iven the small monthly fee, the
Residential Incentive program as currently proposed may not provide adequate incentive for
customers to deploy and maintain BMPs. The Commercial Incentive Program criteria appears
3 The District has published a BMP toolbox identifying volume reducing BMPs. See Ex. MSD
37A Q14, p. 9.
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reasonable.” See Ex. RC 43, p. 5, Q9A4. Ms. Lemoine stated that “there appears to be no
consideration for increasing participation in credit program over time, or any meaningful
adjustment for appeals…. Therefore, it is possible that the District could expect lower revenues
than that projected, and if the impact of the credit program is not incorporated into the billing
units, the impact on revenues would be significant ….” Id. p. 9, Q19A. Ms. Lemoine further
stated that the “credit program provides customers that have onsite stormwater Best Management
Practices (BMPs) that mitigate stormwater runoff an opportunity for ongoing reduction to their
bill. This enhances the equity of cost recovery. The maximum level of credit presented in the
District’s rate proposal of 50 percent is within the range commonly used by stormwater utilities
with similar programs.” Id. at p. 10, Q21A.
Ms. Lemoine testified that the credit program for non-residential customers, however, is
unlikely to achieve a reduction in effective impervious area. “Because the proposed Stormwater
Capital Rate is so low, it is unlikely that a credit program will greatly incentivize customers to
incur the up-front capital costs required to design and implement stormwater BMPs, if the
properties already do not have those.” Id., Q22A. Similarly, with regard to the residential credit
program, the “magnitude of this incentive will likely not be sufficient for a residential property
owner to install stormwater BMPs.” Id., p. 11, Q23A. Additionally, the use of an upfront credit,
as opposed to an ongoing credit, provides no ability for the District to revoke a credit for BMPs
that are no longer functioning. Id.
Ms. Lemoine noted that the some “utilities have implemented grant programs to provide
financial support for the installation of approved features, such as rain gardens, that help mitigate
stormwater runoff contribution.” Id., Q24A. “The District could consider a similar program,
funded annually on a first come, first served basis, ….” Id., pgs. 11-12, Q25A. “By providing a
21
grant that offsets a greater portion of the up-front costs associated with implementing a BMP
such as a raingarden, it could provide a greater incentive to manage stormwater runoff from
eligible BMPs.” However, such a program “would reduce the funding available for the capital
projects ….” Id., p. 12, Q30A. Ms. Lemoine testified that “as a general rule, the level of
incentive that’s going to be provided by the credit programs is going to be limited just due to the
nature of the low fee in the first place. Even with 100 percent credit, because the fee is so low,
the utility is going to be limited in incentivizing folks to do things.” See Ex. MSD 52, p. 47, ll. 5-
10.
Rate Consultant Nicole Young also testified that the “credit programs provide some
nominal benefit to property owners to provide BMPs without compromising the CIRP. I believe
this is a reasonable approach to provide some benefit to BMPs while maintaining the integrity of
accomplishing the CIRP.” See Ex. RC 44, p. 6, Q12A. Ms. Young added that “[w]hile it is
beneficial to install BMPs, MSD needs to collect the funds in order to build the stormwater
infrastructure or undertake buyouts included in the CIRP. Increasing incentives or credits may
increase BMPs, without actually achieving a reduction in effective impervious area where
needed. Additionally, BMPs are expensive to build and maintain. In my experience, the amount
of incentive or credit that would need to be provided to gain interest from residential or
commercial property owners would need to equal the cost to the property owner to inspire
participation that is not regulated, to gain a green certification, or altruistic.” Id.
The District has not proposed allowing subdivisions and/or homeowners associations to
be eligible for credits to maintain BMPs which serve their residents. Commissioner Goss asked
Richard Unverferth whether the District would give consideration to permitting homeowners
22
associations to “pool” their credit. Mr. Unverferth testified that “we probably could explore that
a little farther than has been done.” See Ex. MSD 65, p. 98, ll. 3-4.
The District provided examples of other credit programs utilized by stormwater utilities
throughout the nation. See Ex. MSD 37E – Baltimore Single Family Property Credits Guidance;
see also Ex. MSD 37E-1 – Baltimore Non-Single Family Property Credits Guidance; Ex. MSD
37E-2 – Northeast Ohio Stormwater Fee Credit Policy Manual; Ex. MSD 37E-3 – Raleigh
Rainwater Rewards Credit Program; Ex. MSD 37E-4 – Raleigh Stormwater Quality Cost Share
Policy Revised; Ex. MSD 37E-5 – Raleigh Stormwater Utility Fee and Rate Information; Ex.
MSD 37E-6 – Raleigh Stormwater Utility Credit and Adjustment Manual; Ex. MSD 37E-7,
Realize Rain Gardens Rochester Cost Share Grant; and Ex. MSD 37E-8 – Rochester, MN Rain
Gardens Grant Program. Henrietta Locklear testified that the Northeast Ohio Stormwater
program provides for commonly-owned impervious area (such as those owned by subdivisions
or homeowners associations) to be eligible for a credit. See Ex. MSD 36, p. 217, ll. 6-10. Under
the Northeast Ohio policy, homeowners or condominium associations are eligible for stormwater
quality credits of up to 25%, and up to 75%, in certain circumstances. See Ex MSD 37E-2, p. 4.
23
Respectfully submitted,
LASHLY & BAER, P.C.
By /s/ Lisa O. Stump
Lisa O. Stump
Brian J. Malone
714 Locust Street
St. Louis, Missouri 63101
Tel: 314-621-2939
Fax: 314-621-6844
Email: lostump@lashlybaer.com
BLACK & VEATCH
Pamela R. Lemoine
16305 Swingley Ridge Road, Suite 230
Chesterfield, MO 63017
Tel: 636-536-5813
Fax: 913-458-3579
Email: LemoinePR@bv.com
24
CERTIFICATE OF SERVICE
The undersigned certifies that a copy of the foregoing was sent by electronic transmission
to Janice Fenton, Office Associate Senior, Metropolitan St. Louis Sewer District; Susan Myers,
Counsel for the Metropolitan St. Louis Sewer District; and Brandon Neuschafer, Counsel for
Intervenor Missouri Industrial Energy Consumers on this 28th day of June, 2018.
Ms. Janice Fenton
Office Associate Senior
Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, MO 63103
JFENTON@stlmsd.com
Ms. Susan Myers
General Counsel
Metropolitan St. Louis Sewer District
2350 Market Street
St. Louis, MO 63103
smyers@stlmsd.com
Mr. Brandon W. Neuschafer
Bryan Cave LLP
211 N. Broadway, Suite 3600
St. Louis, MO 63102
bwneuschafer@bryancave.com
/s/ Lisa O. Stump
Lisa O. Stump