New Framework For Success Enhancing Our Water Resources to Advance Economic Prosperity and Quality of Life in Oakland County

2016

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Enhancing Our Water Resources to Advance Economic Prosperity and

Quality of Life in Oakland County: New Framework for Success

EXECUTIVE SUMMARY Our Mission Oakland County is home for more than 1.24 million people. It also boasts more than 1,200 lakes as well as many rivers that flow through our neighborhoods, our parks, and our downtowns.

As with most of the country, we tended to view water less as an asset and more as a resource to exploit in pursuing economic prosperity. But now, we in Oakland County know better. The old perspective is being replaced by a new one.

The new perspective is that the economic prosperity enabled by our water resources is only sustainable if we protect those water resources. They provide a quality of life in Oakland County that few other areas, if any, can match. Quality of life is the key reason people and businesses choose to locate in Oakland County and also choose to stay here.

Just as our view of water resources has evolved, so has the role of the Water Resources Commissioner. My job description now goes far beyond preventing flooding and treating sewage.

I am in the quality of life business . . . a business my office shares with many other organizations of county government. Our roles are different, but our mission is the same: providing a quality of life that’s attractive to people and business.

This report explains what my team is doing to make this idea more than a cliché. It explains several of the initiatives designed to more fully reach our potential. It describes what we are doing, how we are making sure the right things happen, and what we are doing to partner with others in order to advance our shared mission.

Your ideas and comments to this report are both welcomed and encouraged.

Sincerely,

Jim Nash Oakland County Water Resources Commissioner

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Summary of Actions Already Underway After collaborating with experts from the region and the state, the Oakland County Water Resources Commissioner’s office is focusing on the following actions. Each of these actions was developed based on their contribution to our quality of life.

1. Currently, there are several programs to protect water quality. These programs are managed by different organizations on different schedules. Yet, we understand that optimizing the rate of return on investment and cost-effectiveness hinge on better alignment of actions at both the state and local level. We will continue to work with other communities in the region and reach out to the State of Michigan to develop a framework for collaboration on supporting the quality of life actions on which Pure Michigan is based.

2. Legislation has been introduced that, if adopted, will save taxpayer dollars currently being spent on defending claims and lawsuits. This legislation will make it clear that sewer service providers are not liable when rainfall is so intense that it overwhelms collection and treatment infrastructure.

3. The newly formed Great Lakes Water Authority (GLWA) is embarking on developing a new wastewater master plan to guide its actions. It is a perfect opportunity to implement more systematic, cost-effective decisions built through partnerships between local governments and the state. We will be cooperating with the GLWA in pursuit of actions that optimize benefits, result in quality service, and meet the needs of residents and businesses.

4. We must work to solve Michigan’s stormwater infrastructure problem. Stormwater infrastructure is essential to protecting both residents and businesses from property losses caused by flooding. We must ensure that utilities return as a viable option for local service providers. A stormwater utility can be created to make policy choices that are fair, efficient, and transparent in order to finance the infrastructure assets they operate and maintain.

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Table of Contents EXECUTIVE SUMMARY ............................................................................................................................................ 1

Our Mission ............................................................................................................................................................. 1

Summary of Actions Already Underway ................................................................................................................. 2

Chapter 1: Infrastructure Investment to Date .................................................................................................... 4

Chapter 2: Infrastructure Investment – Moving Forward ................................................................................... 5

Our Changed Values Require Changed Actions .............................................................................................. 5

What the Public Expects .................................................................................................................................. 7

Chapter 3: Priority Actions of the Oakland County Water Resources Commissioner ........................................ 7

Action 1: A New Framework for Success Built on Respecting Jurisdictional Responsibilities and a Shared Mission ................................................................................................................................................................ 7

Overview ......................................................................................................................................................... 7

A New Framework Built on Aligning Actions................................................................................................... 8

Partnering with the State ................................................................................................................................ 9

Proposed Starting Point for Focused Collaboration ...................................................................................... 10

Action 2: Change State Law to Save Taxpayer Dollars Otherwise Used to Defend Assertions of Liability for Certain Basement Backups ................................................................................................................................ 10

The Problem .................................................................................................................................................. 11

Local Government Immunity and Liability in Michigan ................................................................................ 11

The Solution .................................................................................................................................................. 11

Action 3: Work with the Newly Formed Great Lakes Water Authority to Implement Systematic Solutions focused on Quality of Life ................................................................................................................................. 13

Action 4: Form Partnerships to Systematically Address Mitigation of Flooding and Pollution from Stormwater, Develop Tools to Ensure Adequate, Cost-Effective Investment .................................................. 13

Topic 1: The science explaining Michigan’s persistent water pollution problem. ........................................ 14

Topic 2: Why infrastructure is needed to manage runoff from rainwater. .................................................. 15

Topic 3: The structure of Michigan’s persistent water pollution problem. .................................................. 18

Topic 4: How the private sector benefits from solving the structural problem. .......................................... 19

Topic 5: Our options for funding rainwater infrastructure and how they fare............................................. 20

Conclusion ............................................................................................................................................................. 23

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Chapter 1: Infrastructure Investment to Date Over the last century, the United States and Michigan have invested heavily in infrastructure to support economic prosperity and quality of life. Literally, billions of dollars have been invested in roads, bridges, drinking water systems and wastewater treatment facilities.

In Michigan, these investments are paying dividends. Improvements to the Great Lakes and Michigan’s inland water resources have enabled a variety of uses by businesses. And, the evolution of a national marketing campaign, Pure Michigan, would have been impossible were it not for these investments.

Less understood is that more investment must be made to operate and maintain that infrastructure in order to sustain protection of our public health and support our economic prosperity.

These investments have been driven by two generations of mandates from the federal government and the State of Michigan.

The first generation focused on massive infrastructure investment to correct problems of widespread pollution from discharges by wastewater treatment plants and industrial facilities. Correction of public wastewater treatment infrastructure was heavily subsidized by the federal government.

Decisions made during this generation for Southeast Michigan’s water resource infrastructure were dominated by centralized regulatory decision-making as well as centralized decision-making in the management of the Detroit Water and Sewerage Department (DWSD) regional system. While producing dramatic improvements in our water resource protection efforts, this form of decision-making produced significant tension between regulators and regulated parties, as well as between customers and owners or managers of the regional system.

The second generation of investments was characterized by shifting the emphasis to:

the correction of pollution problems resulting during rainfall, and promoting a more decentralized management approach to correcting remaining pollution problems.

Again, dramatic improvements were realized and water resource protection advanced through a more cooperative alliance of federal, state, and local agencies.

Decision-making in this second generation of investments was moderately improved by regulators and regulated parties working together and an unparalleled effort by DWSD and its customers collaborating at a much higher level to regionally address water resource issues.

Each generation of investments resulted in great progress in improving water quality. But despite the expectations of many that our water quality standards would be achieved, serious problems remain. Currently, the glass is both half full and half empty.

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In summary, our actions over the past four decades have largely been determined by responding to federal and state requirements. Those requirements continue to change, and in general, become more stringent. For example, approximately $2.4 billion has been spent in Southeast Michigan to add controls for sewer overflows and help improve water quality. 1 Important to note is that these requirements were often independently imposed from different organizations of government.

Chapter 2: Infrastructure Investment – Moving Forward Today, we need to focus on how much to spend, when to spend, and where to spend our limited resources to maximize improvements to the quality of life in Oakland County.

Preparing for a future based on this quality of life focus necessitated that we pause and refine the old mode of decision making. That old mode of decision making was heavily reactionary, focusing almost exclusively on responding to regulatory requirements.

Optimizing our investments is a public expectation we must meet. Doing so compels us to be more proactive and look beyond the more singular purpose actions of the past. Today, we need to ensure that our actions related to water quality are aligned with those of other government agencies. In doing so, we are better able to achieve multiple purposes that support some aspect of quality of life as efficiently as possible.

Some examples of “old realities” related to the services we provide and the “new realities” that we must now confront, are summarized below. Clearly, if we are to be more cost-effective and efficient, we must approach our investments more systematically. This requires careful weighing of the costs and benefits of a wide variety of options.

Our Changed Values Require Changed Actions Old Reality New Reality

Design development to get rainwater off property ASAP Design development to keep it there as long as possible Standard of design is combined sewer systems Standard of design is separate sewer and stormwater

infrastructure Except for flooding, stormwater is harmless Stormwater is polluting our water Regulating industry and sewage plants solves our water quality problem

Mandates have improved water quality, but problems persist because of polluted stormwater

Local general funds can finance stormwater Not feasible when core police and fire services are being trimmed to balance general funds

Creeks and rivers serve as an outlet to transport pollution

Creeks and rivers are a valued community amenity and component of Michigan’s recreation economy

Drainage systems were built by developers Local governments have inherited these assets absent a means to finance their maintenance

Federal and state government will subsidize sewer and water infrastructure

Local governments are on their own

Infrastructure is ugly and needs to be hidden Infrastructure can be multi-purposed, visually appealing, and increase property values

1 Investment in Reducing Combined Sewer Overflows Pays Dividends, Abstract, SEMCOG (September 2008)

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We are now at the beginning of a third generation of actions that’s driven by the commitment to fully fill the previously half empty glass. We are poised to achieve higher water quality standards to realize the economic prosperity and quality of life benefits available to our water-rich county and state. But, in addition to changed values, the governmental setting for this third generation is far different from the first two. The differences are substantial because they impact our manner of water and sewer services. Some key differences are:

Federal and state subsidies for infrastructure investment now range from minimal to absent, with no sign of change. Additional investments to reduce pollution from wastewater will produce marginal benefits compared to the first two generations. Now, many of the remaining water quality impairments are the result of discharges of pollutants in rainwater conveyed off private property to mitigate damages from flooding. Many communities are already in various stages of fiscal stress. Poverty is persistent and service costs in many areas already exceed federal affordability criteria. Optimizing cost-effectiveness is much more highly valued. But achieving cost-effectiveness requires us to transition to a more systematic, collaborative approach from the older, mostly separate initiatives to improve water quality.

The “new realities” are not all bleak. The institutional climate has never been riper for adaptation and meeting complex challenges.

An increasingly common focus of many government programs at all levels is improving quality of life and economic prosperity. This common focus provides tremendous opportunity to collaborate with a focus on leveraging resources and maximizing rate of return on investment. State government is focused on reinvention and result-oriented actions publically disclosed using a dashboard of measures. There is increasing recognition by the state and local governments that investments in public water infrastructure are investments in support of our own economic prosperity. An institutional management shift just occurred in the wastewater system serving almost one third of the population of Michigan and one of the largest in the world. Specifically, the process of creating the Great Lakes Water Authority (GLWA) produced a robust owner-manager-wholesale customer partnership, including board governance, with enormous potential waiting to be tapped. The GLWA is embarking on a new wastewater master plan. Development of this plan provides a perfect opportunity to:

o Build on the successes started with the formative steps of GLWA. o Tap the diversity in GLWA to advance decisions to a more holistic, systematic basis

considering multiple desirable interests and outcomes. o Manage our own road map and destiny.

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Without judgement on causes, impacts, or solutions: the crisis in Flint clarifies the importance of properly investing in our water-based infrastructure.

What the Public Expects Discourse on how best to meet our infrastructure challenges in this third generation of investments should occur in the context of what we believe the public expects. Based on what we hear from the public at meetings in local communities, their expectations can be summarized as follows:

Infrastructure services will meet their needs and keep them safe. Quality of life will be great. Decision-makers are continuously striving for cost-effectiveness. Bureaucracy won’t stand in the way of the collaboration needed in pursuit of quality, cost-effective service.

Chapter 3: Priority Actions of the Oakland County Water Resources Commissioner

Action 1: A New Framework for Success Built on Respecting Jurisdictional Responsibilities and a Shared Mission

Overview Comparatively speaking, decisions in the last 30-40 years were easier because the large sources of water pollution were more obvious and in need of pollution controls. But the remaining persistent problems are much more complex making continued subject matter decision-making much more prone to conflicting or compromising actions (see Figure 1, below).

That is why we are pursuing a new framework for success built on respecting jurisdictional responsibilities and a more shared understanding of purpose.

Figure 1

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Currently, there are several programs to protect water quality being managed by different organizations at all three levels of government. Each level of government often has multiple departments providing various infrastructure services. As illustrated in Figure 1, the actions in this “silo-style” chart flow from differing goals, needs, and priorities both between different levels of government and, at times, within a level of government. This mode of operation is in need of change because we understand from experience that optimizing the rate of return on investment and cost-effectiveness both hinge on better alignment of actions. This alignment is needed up and down all three levels of government as well as across the various infrastructure services each level of government is providing. At the very least, coordinated project scheduling provides ongoing opportunities for cost savings because, for example, the water service provider won’t have to tear up a road replaced just a couple of years earlier to now replace a water line.

Some examples of issues on mostly independent tracks presently before Oakland County include:

Responding to claims and defending lawsuits for basement backups occurring as a result of a massive storm in August 2014. Preparing for likely new requirements imposed in Oakland County by the state as part of their water quality permit oversight responsibilities. Preparing for likely new requirements imposed on the regional Great Lakes Water Authority, of which Oakland County is a part, by the state as part of their permit oversight responsibilities. Advancing management of the rainwater that runs into our waterways carrying pollutants that now represent the major cause of limitations of our recreational uses. Working with the Great Lakes Water Authority in their development of a master plan to ensure we are optimizing our investments and meeting public expectations. Developing asset management programs to ensure long-term investment in infrastructure is adequate. Integrating water quality-based investment decisions with multiple place-based initiatives of our local communities that are also designed to boost economic prosperity by making a quality of life that residents, workers, and businesses thrive in. Influencing policy in a new State Water Strategy and state-appointed Commission on Infrastructure.

A New Framework Built on Aligning Actions The rewards of our investment in action to align programs and actions of various entities are many, are powerful, and will be reaped by both the public and the business community: higher quality infrastructure services delivered more cost-effectively.

A new framework for aligning actions needs to be built with a singular, common denominator focus. That common denominator focus is quality of life and how we collectively choose to define it.

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A new, shared focus facilitates better alignment of actions among the many organizations delivering public services. It offers a path to evolve from silo-style decision-making to more systematic decision making. It focuses on the outcomes defining quality of life we all share: economic prosperity, public safety, mobility, educational opportunity, clean air, clean water, etc.

In this new, more systematic framework (see Figure 2), no single organization is responsible for all the services and outcomes needed to support quality of life. Instead, a first step is to recognize that each individual organization’s long-term success is intertwined with the degree of success of all the others. We are, in fact, interdependent. As an example, optimal water and sewer services are largely insignificant if schools are poor or residents do not feel safe.

Water and sewer service providers now have the opportunity to do their part by embracing quality of life as the high-level outcome we share across providers of service and hierarchically between federal, state, and local governments. Michigan’s dashboard2 represents a significant first step in this direction by revealing what is being measured in the pursuit of meeting public expectations.

Partnering with the State We cannot meet the challenges before us without a more meaningful partnership with the state. Various sectors of state government make decisions every day that one way or another can be traced to quality of life and impact Oakland County. So, the substance of our partnership with the state is clear: finding ways to align actions that maximize quality of life benefits. More collaboration with the state means more opportunity to leverage human and fiscal resources.

To help begin our conversation with the state, we summarized our understanding of the state’s mission:

Focus on place-making so that communities are alluring to residents and businesses. 2 Michigan’s Open Government Initiative, https://midashboard.michigan.gov/

Figure 2

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Make Michigan's business climate globally competitive. Provide the largest benefits possible for taxes expended. Ensure that our water resources reflect the Pure Michigan mantras and slogans. More specifically:

o Achieve water quality standards throughout the state. o Create a sustainable water infrastructure that makes Michigan increasingly

economically competitive using water as both a recreational and business asset. o Improve local water resources to make them a more prominent part of place-making

that is truly globally unique.

This is just a beginning. These ideas must be shared and honed in partnership with the state until various entities with differing specific responsibilities are comfortable they reflect their own missions and interests.

In doing so, we begin the work of identifying specific ways we can transition to more systematic decision-making and alignment of actions between organizations toward common outcomes we choose as representing our quality of life.

Proposed Starting Point for Focused Collaboration A first step in the process is to determine the extent to which we agree with all of the above and on some specific, fundamental principles defining our perception of the big picture. A starting point is provided below.

A key action of the Oakland County Water Resources Commissioner’s office is to share these draft principles with state and local entities through this report.

1. Water and sewer infrastructure and service delivery is part of a larger system of services delivered by government and its success is inextricable from other success in services provided by other organizations.

2. We recognize that quality of life for the region’s citizens and business is a common outcome we are all striving to support as part of our individual missions.

3. Cost-effectiveness and optimal investment cannot be fully achieved without a more systematic approach to higher planes of collaborative decision-making with agreements on high level outcomes and valid measures of those outcomes.

4. The state’s commitment to partnering and collaborating is essential for success.

Action 2: Change State Law to Save Taxpayer Dollars Otherwise Used to Defend Assertions of Liability for Certain Basement Backups A first step toward implementing our new path forward involves saving taxpayer dollars that today are being used to defend allegations of liability for basement backups.

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As of the date of this report, legislation has been introduced that would save taxpayer dollars by clarifying that sewer service providers are not liable when rainfall is so intense that it overwhelms our collection and treatment infrastructure. This section summarizes the problem and the proposed changes in state law to fix it as a result of the collaboration by several other local government entities as well as representative organizations of Michigan government and business.

The Problem Local governments have spent billions of dollars upgrading their sewer systems. Additional investments are needed to maintain sewer systems that are decades old. Unfortunately, the status quo is resulting in the diversion of such public funds to payments for damages, attorney fees, expert fees, and expenses in flooding lawsuits even when there was never any such liability intended by Public Act 222, the statutory sewage disposal system event exception to governmental immunity.

Using public funds to pay for lawyers, experts, endless government employee time and settlements resulting from lawsuits that occur when the amount of rainfall is near or greater than accepted design standards is poor policy. Under these circumstances, it clearly is the unusual intensity of rainfall that is the primary (proximate) cause of basement backups, or flooding. Current policy leads to either massive increases in sewer rates or other taxes to raise the money needed to pay for property damage caused by perhaps marginally foreseeable but practically unpreventable acts of God. This needs to be corrected.

Local Government Immunity and Liability in Michigan Most governmental entities are immune to tort liability unless the legislature creates an exception. The Michigan Supreme Court clarified that no liability existed for government related to sewer backups in early 2002. That same year, an exception for basement backups became effective by the Legislature in Public Act 222 (PA 222). This new policy established that local governments do not have absolute immunity. However, the new exception to immunity was carefully limited to specific circumstances, most notably, only when the evidence points to a defect that is at least 50% or more responsible for damages.

The Solution Michigan law (2001 PA 222) creating the limited exception to immunity was founded on four principles:

Facilitating Accountability: By limiting liability to instances where the government was 50% or more responsible for the backup. Providing Certainty: So that otherwise immune governmental entities know what they must do to meet their responsibilities. Recognition: That preventing all flooding is not feasible.

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Increasing Public Protection: So that ratepayers and businesses do not bear the cost of unnecessary litigation and by increasing the awareness of the availability of private insurance coverage.

1. Explicitly Establish that Immunity Continues to Apply When Rainfall is so Intense it is Clearly the Main Cause of a Backup

On August 11, 2014, an extraordinary amount of rain fell across Oakland, Macomb, and Wayne Counties in a matter of hours. No existing sewer system is capable of handling the volume of water from such an intense storm. When these intense rainfall events do occur, it is clearly the improbable amount of rainfall that is the proximate cause (50% or more) of any backup or flooding. Yet, thousands of claims (many that have developed into class action lawsuits) are being filed against government agencies alleging that government is responsible for damages from this surprising event.

Language is proposed clarifying there is no exception to immunity when and where this intense, unpreventable rainfall occurs.

2. Improve Certainty by Elaborating on Service Provider Responsibility PA 222 appropriately provided an exception to immunity for construction and design defects if they are a 50% or greater proximate cause of the damage caused by flooding. This was designed to provide certainty so that otherwise immune governmental entities know what they must do to meet their responsibilities. This also was designed to provide certainty to the public so they know that the applicable standards are specific to that time and location, not to standards for systems constructed later, in other places.

Periodically, the state orders improvements to sewer systems that result in modifications to original construction and design. This is not done across the board, but on a case by case basis. The law can be improved so that it is clearer that the appropriate governmental agency is accountable for the requirements specifically applicable to its service provision and that includes ordered system changes.

Language is proposed to make clearer that exceptions to immunity resulting from alleged construction and design defects are to be based on applicable requirements in the area and at the time of design or construction and this includes state required modifications, if any.

3. Make Notice Provisions Clearer to the Public Current law describes a specific process for filing claims and for governmental agencies to follow so the public is informed. However, the language creates some ambiguity which could unintentionally penalize claimants for not sending their notice to assert a claim to the correct governmental contacts or the correct governmental agencies. This confusion has already led to adverse Michigan Court of Appeals decisions.

Language is proposed requiring the designation of a specific point of contact by a responsible government agency. This will help ensure the public knows whom to notify.

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Action 3: Work with the Newly Formed Great Lakes Water Authority to Implement Systematic Solutions focused on Quality of Life Many believe, and are publicly arguing, that most persistent water quality impairments are the result of stormwater discharges. Even though many of the GLWA communities are served separately by local stormwater systems, it will be difficult or impossible for them to make the wisest use of their resources for wastewater collection and treatment if service decisions are made in separate venues at separate times. Conversely, we can better optimize our water quality protection investments if we develop and consider options more holistically.

Also, over time, wastewater system investment needs are largely driven by whatever emerges from regulatory and legislative decision processes. Those processes ultimately trickle out of water quality needs and public demands.

It is in everyone’s best interest that we work with the GLWA to ensure that we simultaneously assess comparative costs and benefits of investments in our stormwater and wastewater systems.

As of writing this report, the GLWA is embarking on developing a new wastewater master plan to guide its actions. It is a perfect opportunity to implement more systematic, cost-effective decisions built through partnerships between local governments and with the state.

This office’s staff is already working to ensure that supporting quality of life is a key outcome guiding the GLWA wastewater master plan. My office is working to identify actions that will optimize benefits, result in quality service, and meet the needs of residents and businesses.

The value added to Oakland County and the state is fourfold.

1. The resources of multiple sewer service organizations are leveraged in a more singular direction.

2. That direction becomes clearer to multiple other governmental organizations and to the public.

3. The public interest is more likely to be achieved. 4. Continued, broad-based support of actions and decisions is more likely.

Action 4: Form Partnerships to Systematically Address Mitigation of Flooding and Pollution from Stormwater, Develop Tools to Ensure Adequate, Cost-Effective Investment Action 2 is designed to save taxpayers the costs of lawsuits. Action 3 is designed to help make sure we invest in the right parts of our sewer infrastructure. Action 4 is intended to make sure we have the tools necessary to make those investments in our stormwater systems. This issue is legally complex. The topic of stormwater is not well understood, and is still viewed by many as harmless rainfall.

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In January 2015, my office formed a workgroup to confront this issue. The workgroup consists of experts from local government, state government, the engineering community, the legal community and the environmental community. This was the first part of Action 4, forming partnerships.

The second part, systematically addressing pollution from stormwater and developing tools to ensure necessary investment, was undertaken by the workgroup. The workgroup produced the remainder of this report.

From the outset, the workgroup recognized the many complexities of this topic and that the complexities were very different in nature. The group decided to break down the topic into various parts, all designed to support implementation of necessary actions. The topic areas purposefully contain some overlapping information so that readers and policy makers can migrate to the section of greatest interest to them without sacrificing context.

The topic areas and highlights of the workgroup findings follow.

Topic 1: The science explaining Michigan’s persistent water pollution problem. 1. We have made great progress. By several measures, the quality of water in Michigan’s inland

lakes, rivers, and the Great Lakes is greatly improved.3

2. That progress has produced significant benefits to the state’s economic prosperity.

3. Progress to date has been carried on the shoulders of industry and municipal sewage treatment facilities.

4. Cleaning up our water has been very costly. Billions of dollars have been invested in capital costs. Sustaining the benefits achieved thus far is also costly. Billions more are spent each year on operation, maintenance, repair and replacement so that pollution control benefits from these sources are sustained.

5. Despite our great progress, scientific measurements clearly illustrate the

3 Investment in Reducing Combined Sewer Overflows Pays Dividends, Figures 1 and 2, SEMCOG (September 2008); See also, Rouge River Restoration Summary, Wayne County Rouge River National Wet Weather Demonstration Project (1992-2014), http://www.rougeriver.com

Figure 3

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job is not finished. Water quality problems persist, are found throughout the state, and threaten protection of the Great Lakes.

6. In general, the science of economics shows that finishing the job of water quality protection by imposing additional regulations on our businesses and sewage treatment facilities would be very COST-INEFFECTIVE.

7. Previously, management of rainwater was focused on mitigating flooding on private property. Rainwater runoff is now a key water quality problem. Although rain normally is clean when it falls, it becomes polluted before it reaches our lakes and rivers. Metals, sediments, harmful bacteria, phosphorus, nitrogen, and a long list of other pollutants are washed into our lakes and rivers every time it rains.

8. All inland waters eventually end up in the Great Lakes. The Great Lakes provide Michigan with immeasurable economic benefits.

9. Investing in rainwater management is investing in our own economic prosperity.

10. The problem is NOT one of science or technology. The science reveals the problem. The technologies to solve the problem exist, are commercially available, and are being improved.

11. Solving the problem requires building broad acceptance and recognition that the many seemingly small sources of rain runoff from our roads, our roofs, our driveways, etc. are so numerous that in the aggregate, they are the most significant part of the persistent impairment of our water resources.

In summary, unless we invest in controlling the pollution that’s generated whenever it rains, our economic prosperity is compromised. Pure Michigan . . . fishing, recreation, boating, tourism, business attraction, and the quality of life of our residents will all be unnecessarily limited.

Topic 2: Why infrastructure is needed to manage runoff from rainwater. 1. A critical part of our infrastructure is out of the public eye both figuratively and literally. Yet,

whenever it rains, we depend on that public infrastructure to protect public safety and health. To mitigate flooding, rain is collected and channelled off the vast majority of developed private properties resulting in a quantifiable public service demand. To illustrate, more than 100,000 gallons of rainwater are discharged every year from a quarter acre residential lot. This rainwater runoff must be safely collected, transported, and discharged to a nearby creek, river, or lake.

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2. Therefore, managing water from rainfall running off property (stormwater) necessitates an extensive system of infrastructure including:

o Collection system (sewer pipes, manholes, inlets) o Detention ponds o Open channels and creeks o Bridges and culverts o Treatment

3. Just as other infrastructure services have

evolved, the new reality is that the required “service” of infrastructure to manage rainwater has also changed dramatically. Science clearly demonstrates that protecting public health and making our treasured water resources (Great Lakes and inland lakes, rivers) safe requires targeted enhancements to our rainwater management infrastructure to address pollution.

4. Just like roads, water lines, electrical service, etc., the footprint of built infrastructure to manage rainfall runoff has roughly doubled in the last 35 years in southeast Michigan alone.

Figure 4

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Source: SEMCOG

Figure 5

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5. Yet, unlike all these other daily services needed for residents and businesses to function (see Figure 6, below), there is no institutionalized system of funding infrastructure for rainwater in Michigan.

6. Properly designed and maintained rainwater infrastructure provides many ancillary benefits that improve aesthetics, reclaim formerly blighted areas, and increase property values.

7. Michigan’s ability to retain and attract residents and businesses increasingly depends on providing a better quality of life than offered by competing areas. For many, quality of life is evaluated based on the quality of public services for drinking water, sewer service, transportation, and energy.

8. Smart infrastructure investment can make a quality of life globally unique to Michigan. It will result in alluring clean and accessible water resources. Contrarily, the status quo WILL result in increased flooding damages to private property, degraded water quality in the Great Lakes, inland lakes and rivers, reduced access to beaches, risks to public health and safety, decreased property values, and a lost opportunity for improving economic prosperity by capitalizing on Michigan’s unique water resources.

Figure 6

Source: OHM Advisors

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Topic 3: The structure of Michigan’s persistent water pollution problem. The structure of Michigan’s persistent water pollution problem is summarized in the following five points.

1. Actions are mandated independent of any means to finance their implementation. Federal and state mandates increasingly require implementation of pollution control programs aimed at stormwater. But the numerous pollution control mandates are unaccompanied with any revenue to support their implementation.

2. The fairest mechanism for funding mitigation of flooding and control of pollution from rainwater is, in essence, unavailable in Michigan.

In 1998 the Michigan Supreme Court rendered a decision in Bolt v. City of Lansing detailing the difference between any tax and any fee under Michigan's constitution. In its decision, the Court described three characteristics of fees:

a) Fees must serve a regulatory purpose rather than a revenue-raising purpose. b) Fees must be proportionate to the necessary costs of the service. c) Fees must be voluntary – users must be able to refuse or limit their use of the

commodity or service. So, even though Michigan law specifically allows for the formation of stormwater utilities, confusion persists over how to properly structure such a utility that meets these three characteristics. This is stifling the implementation of necessary actions to invest in our water assets. It is important to note that the Court did not state that stormwater utilities were illegal and the Court explicitly recognized there is no bright line test for distinguishing a valid user fee and a tax.

3. The structural problem creates and perpetuates inefficiency resulting in higher public costs. The magnitude and complexity of financing multimillion dollar infrastructure improvements and replacements involving projects with long and uncertain service lives means pure “pay-as-you-go” financing is theoretical, not practical. A “pay-as-you-go” approach amounts to crisis management which is incongruent with the need for cost-effectiveness and efficiency. Inattention to maintaining infrastructure assets shortens their useful life and unnecessarily accelerates the need for replacement resulting in cost escalation. In short, inattention to managing assets results in the creation of legacy costs. Therefore, there is an accepted, widely applied principle of public utility ratemaking to allow for the creation of reserve funds designated for improvements and replacements.

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4. Inequities exist and will continue to get worse because the structural problem compels local decision-makers to seek other forms of revenue which are much less fair.

In general, the amount of service needed is proportional to the amount of rainwater leaving a piece of property and entering a stormwater system. One particular 10,000 square foot property might be valued at $1,000,000 while another is valued at $100,000. The real costs of service would be similar, yet the charges would be 10 times higher for one of the property owners if revenues were based on property values.

5. The structural problem leads to funding methods less transparent and less understandable to the public.

It is far easier to see and understand a utility charge based on usage than to see and understand the rationale for a line item in a general fund related to a utility service. Technological advances make it very practical to approximate the amount of rainwater running off a piece of property in need of services from a public entity responsible for mitigating flooding, protect-ing drinking water resources, and/or compliance with mandates. This makes more transparency to the public within reach. The problem is solvable. There is no single “right” approach for managing our water assets fairly, transparently, and efficiently. While theoretically available, a utility to finance stormwater assets is practically unavailable because of the continued uncertainty of how to structure one that meets the Court’s three-part test set forth in the Bolt case. Michigan must work to solve this structural problem by acting to ensure that utilities return as a viable option for service providers to use when they make a policy choice that it is a fair, efficient and transparent way to finance the stormwater assets they own and still meet the three-part test of the Court.

Topic 4: How the private sector benefits from solving the structural problem. 1. Fee-based funding to manage rainwater is much fairer to the private sector than is a tax basis.

For example, two properties with the same value pay the same for service in a funding structure based on taxing property. Yet, the amount of service actually provided has nothing to do with property value. The amount of service provided is determined by the amount of rainfall falling on a property that runs off the property and drains into a stormwater system.

2. The private sector would have to be compensated for investments in pollution control. Businesses would have much more control over determining their own destiny by deciding what part of a utility fee is more efficient to pay and what part is worth reducing based on their own return on investment analysis.

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3. Left unaddressed, the structural problem means businesses will continue to be the object of stricter laws and regulations because they will be targeted for more stringent pollution controls even though stormwater runoff controls may be more cost-effective. The failure to appropriately manage pollution from rainwater often will lead to inequities and inefficiencies.

4. Unlike taxes, the proportionality test of the Court means fees must be structured so that all users of service pay their fair share.

Topic 5: Our options for funding rainwater infrastructure and how they fare. Part I: Where have we been?

1. Key parts of the old model for funding protection of our water (grants, bonds, general fund allocations) are obsolete. Wastewater treatment costs were originally heavily subsidized by federal and state grants which are no longer available.

2. Unlike roads, the new reality is that the true cost of funding infrastructure to clean up and protect water must come entirely from local government.

3. Funding any infrastructure’s entire true cost of service through grants, bond sales, and/or annual allocations from the general fund is a completely unsustainable strategy.

4. Progress in protecting the Great Lakes and cleaning up Michigan’s inland lakes and rivers is being stifled. Despite the science showing that rainwater runoff is the primary source of most of our water pollution problems and the increasingly stringent and expensive regulatory clean up requirements being imposed to fix the problem, there is no adequate, sustainable way to pay for the management of rainwater runoff.

Figure 7 Source: WKU Stormwater Utility Survey

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Part II: Where are we now?

1. Until recently, the sole purpose of infrastructure built to manage rainwater was to prevent flooding. The amount of that infrastructure has more than doubled in the last 30 years or so, (see Figure 5).

2. In addition, the required public service of that expanded infrastructure has now changed dramatically because of demands made in federal and state regulations designed to alleviate chronic water pollution problems. So, we not only have a much larger quantity of infra-structure to manage rainwater, it now has to meet an additional purpose not part of the original design.

3. The federal and state regulatory requirements will continue to evolve, motivated by public

demand to resolve persistent water pollution problems. We expect they will continue to be unaccompanied by any means or strategy for funding their implementation.

4. Many states and communities are responding by allowing for the formation of utilities as they did for other similar services like water and sewage treatment because it is viewed as fair and equitable. According to a 2013 survey, there are about 1,500 stormwater utilities in the country. 4 Part III: What are our options and how do they fare?

1. One option is using Michigan’s Drain Code.5 While useful in many circumstances, fully funding stormwater management using the Drain Code has limitations. In some cases it would be insufficient to cover cost of service, and is not an optimal fit in certain communities.

2. Another option is using local government’s general funds. But, general fund dollars for local communities have been sharply reduced by a combination of cuts in state revenue sharing and substantial diminution in taxable value of property.6 Funding the ongoing capital, operation, maintenance, and replacement of infrastructure needed to operate a stormwater system using local government general funds would most likely be inadequate to cover the real cost of service. This underinvestment will increase costs.

3. Still another option is voter approval of a millage designed specifically to fund stormwater management. A millage is defined as a property tax rate stated in terms of cents in tax per

4 Western Kentucky University Stormwater Utility Survey 2013, http://www.wku.edu/engineering/civil/fpm/swusurvey/western_kentucky_university_swu_survey_2013.pdf 5 Act 40 of 1956, as amended. 6 Fiscal Capacity Outlook, 2015-2017, SEMCOG (October 2014)

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dollar of property value.7 A millage is assessed in proportion to the value of the real property. As with use of the general fund, a millage is built on raising revenue in direct proportion to the taxable value of property. As with the general fund, a millage is considered a very inequitable option.

4. Utilities are the most popular option in many parts of the country. Neighboring Ohio has almost 100 stormwater utilities8 (see Figure 7).

5. Theoretically, utilities to manage rainfall runoff continue to be enabled and can be structured as fees in compliance with the three-part test of the Bolt case. But as a practical matter, attempting to design a compliant rate structure based solely on the Court’s generic ruling of distinguishing taxes from fees is considered by many communities and their financial advisors to be an unacceptable risk.

6. Utilities are the most transparent, equitable, and cost-effective means for managing runoff from rainwater. Recognizing that regulatory requirements will continue to evolve and become more costly until water quality standards are met, the utility framework also provides a basis for flexibility and adjustment as circumstances evolve.

7. Utilities will not be the best fit for all communities and in all circumstances. They should not be required, just an option.

7 See, http://www.dictionary.com/browse/millage 8 See WKU Survey, footnote 5.

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Conclusion The fix for Michigan’s obsolete rainwater funding “system” is the same as the fix for wastewater treatment: ensure that fees for usage reflect the true cost of service without any reliance on federal or state subsidies. Doing so requires acceptance and confrontation of the reality that all costs will have to be paid at the local level. Therefore, state legislation built around compliance with the three-part test of the Michigan Supreme Court is essential to ensuring that flooding on private property is mitigated and to advancing the water quality protection needed to protect drinking water, public health, and recreational assets. But my team is reaching beyond the minimum criteria laid out by the Court. We will use, and propose local governments also use, three criteria to assess the optimal way to fund rainwater services:

1. Transparency – so that property owners know what they are paying for and how much it costs.

2. Equity – so that property owners only pay their fair share for the service they receive. 3. Cost-effectiveness – so that property owners know that their money is being used wisely.

Meeting these criteria makes us more accountable to the public and helps build support for investments that improve our quality of life.

One Public Works Drive, Building 95 West Waterford, MI 48328-1907 248-858-0958 www.oakgov.com/water

Of ice of the Oakland County Water Resources Commissioner