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Tonight, Roanoke City Council is holding a public hearing on the proposed storm water utility fee.
Sunday, October 20, 2013
It’s Starbucks money, the Roanoke city engineer says.
The average cost per month from the proposed storm water utility fee for a residence will come to about $7 , according to city figures. Or, what you can spend in a couple of trips to the ubiquitous coffee shop chain.
But what if you’re the Roanoke Regional Airport with nearly 11 million square feet of impervious surface — runways, hangars, parking lots, the airport terminal itself? That adds up to a potential bill of about $20,000 a month, or nearly $240,000 a year. How will they pay it?
It doesn’t take an engineer to know water runs downhill. You don’t have to be an economist to know costs run downhill, too.
So if the Roanoke City Council approves the fee, perhaps later this year, its costs will trickle into all sorts of places at the airport and elsewhere — including into the wallets of run-of-the-mill consumers.
The council is holding a public hearing Monday on the fee, which will assess 90 cents per 500 square feet of impervious service on every parcel of land in Roanoke except the public right-of-way for roads. It’s likely to be phased in over three years. It will pay for a $70 million backlog of work to the city’s storm water system and for federally required treatment of storm water to reduce pollution in the Roanoke River.
No one is exempt from the fee — not even churches, nonprofits and the government. The city will bill itself $224,000.
The local business community has been assessing the fees’ effects, some of them more subtle than others. Could parking fees go up at the Roanoke Regional Airport? Could airlines be discouraged from serving Roanoke by increased costs passed on to them?
Will rents on commercial properties go up, eating into businesses’ bottom lines?
Could commercial property be devalued by lenders and appraisers who see landlords lose profit margin to the fee?
All of these questions are being raised by observers and those who would be directly affected by the fee.
Business people understand the need for the fee, “but they’re thinking with their pocketbooks,” said Roanoke City Engineer Phil Schirmer. They’re thinking, “I’m struggling now … and you just reached in my pocket.”
In Schirmer’s view, the trickle starts with an unfunded mandate from the federal government and the Clean Water Act, the driving force that’s pushing localities to clean up waterways. The Roanoke River is on the EPA’s impaired rivers list because of bacteria and sediment.
The source is largely the city’s storm water system. It was designed the way all old storm water systems were designed — focused purely on collecting storm water and flushing it into the river as quickly as possible. That very efficiency is what’s polluting the river.
The system isn’t even all that efficient — problems everywhere make up that $70 million backlog, from $5,000 pipe replacements to reduce ponding in somebody’s yard, to an overhaul of the system in downtown, which lags well behind the design standard of being able to handle a 10-year flood. Add to that the need to begin cleaning the water before it hits the river — through natural systems mostly using vegetation — and there’s the demand that’s pushing the need for the fee.
City officials have been preparing for the onset of the fee since 2004, Schirmer said. Since 2008, the council has met with city staff twice a year to discuss it, but only recently warmed to the idea. Schirmer said city property owners and businesses have come to understand the need for the fee.
Few in the business community question that the city must implement a fee. The Roanoke Regional Chamber of Commerce wrote to the council twice this year, acknowledging the “necessity of modernizing the city’s aging storm water infrastructure and improving regional water quality.”
But the understanding isn’t doing much to mitigate the financial discomfort from the fee. The chamber has pressed the city on the idea of phasing in the fee.
Of particular concern are lease agreements on commercial properties.
“I don’t think [the proposal] shows a real understanding of the lease business,” said Roger Elkin, a managing partner at commercial real estate firm Hall Associates.
Because of the way many commercial leases are written, landlords will be stuck with paying the fees, and — for a time at least — no way to pass them on to tenants as they do other operating costs, he said. The estimated average fee for commercial properties is about $80 a month.
Commercial leases typically provide for landlords to pass on costs of “common area maintenance” and other costs, which could change from year to year, to tenants, Elkin said. Snow removal costs can vary wildly from year to year with the weather. But few if any leases are drafted in a way that can be construed to include something like the storm water fee.
“None of us foresaw this coming two or three years ago,” Elkin said.
Commercial leases are often good for five to 10 years, so it will be a while before they can make changes. Warehouses will be hit disproportionately hard, Elkin said, because their rents are lower.
If landlords have to absorb the fees, Elkin added, that could trigger yet another consequence — diminished property values.
Net operating income — a landlord’s profit margin — is the primary tool appraisers use to determine the value of a building. In other words, a commercial building’s value is closely connected to how much money the owner can make from it.
If landlords have to absorb the fees, that will reduce their profit margins, Elkin said, which may lead to lenders and appraisers devaluing a building and further to a reduction in its sale price.
Once landlords can pass on those costs to tenants, they’ll likely be further passed on to those tenants’ customers.
The situation is the same at the Roanoke Regional Airport. The Roanoke Regional Airport Commission is largely a landlord, renting out everything from parking spaces to hangars to use of the runways for landing planes.
“It’s very hard when you are gathering money from rentals and so forth to immediately absorb that kind of bill,” said Jacque Shuck, executive director of the airport commission. The airport’s leases allow it to pass on costs of utilities to tenants, she said, but the storm water fee doesn’t exactly fit in that category.
The airport has made improvements in handling storm water recently, and engineers are reviewing those in light of a provision in the proposed fee ordinance that allows property owners to gain credit against their bill for such work. Up to 50 percent of the fee can be set aside.
But for the at least $120,000 that will remain, Shuck said, “We’ve got to decide to what degree we can pass on the fee directly, or offset part of that by revenues we collect in other areas, for example, parking.”
Of particular concern are the agreements with airlines that allow them to serve Roanoke. The commission subsidizes those fees to keep Roanoke attractive to carriers. The fees could cause a reduction in that subsidy — and a bigger bill for the airlines.
“We have a great concern about the airlines,” Shuck said. “We don’t want to discourage airline service by having fees too high to consider serving us.”
In the long run, though, someone other than the airport commission will pay the fee.
“It’s definitely going to be user-paid,” Shuck said, “whether directly or indirectly.”
Passing on the cost is not an option for one of the city’s largest residential landlords, the Roanoke Redevelopment and Housing Authority.
At full implementation, the authority is facing a bill of $31,000 per year for the public housing it owns.
“It’s a significant hit,” said RRHA Executive Director Glenda Edwards. The authority depends largely on federal funding, and it’s currently being funded at 82 percent of what it should be getting.
Because rents for public housing must follow HUD regulations, the RRHA can’t just jack up rents to cover the cost.
“We’ll have to reduce expenses somewhere else,” Edwards said.
The city itself has enjoyed the foresight to reduce its own bill by building advanced storm water management systems into all of its new construction projects over the past eight years, from fire stations to the overhaul at Elmwood Park.
Schirmer, the city engineer, said that at Elmwood, “if water is falling on a hard surface, it’s being collected.”
That water will be stored in a 15,000-gallon cistern buried under the eastern side of the park and used to irrigate all of the park’s landscaping.
City officials hope that, as time passes and with the fee as an incentive, builders and developers will incorporate rainwater collection systems, pervious concrete and other technology into their projects. Owners of established developments might see the same value as they renovate properties, they hope.
Elkin suspects that, without additional incentives like a tax credit, use of that technology will be a long time coming.
Until then, the costs will continue to trickle down, even Schirmer acknowledges.
“It’s ‘Joe Six Pack’ who is going to pay it.”
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