Title: Water User Fees An Equitable Cost Allocation Approach
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Title: Water User Fees An Equitable Cost Allocation Approach
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Language: English
Publisher: NWFWMD
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Spatial Coverage: North America -- United States of America -- Florida
 Notes
Abstract: Water User Fees An Equitable Cost Allocation Approach, Dec 1986
General Note: Box 10, Folder 17 ( SF Water User Fees - 1987 and 1991 ), Item 9
Funding: Digitized by the Legal Technology Institute in the Levin College of Law at the University of Florida.
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Bibliographic ID: WL00002382
Volume ID: VID00001
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Full Text
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WATER USER FEES

AN EQUITABLE COST ALLOCATION APPROACH

Northwest Florida Water Management District
Christopher D. Howell, Ph.D.
Senior Water Resources Planner
December 1986

INTRODUCTION

In March 1976, voters of the State of Florida ratified a constitutional

amendment to enable all five of Florida's water management districts to assess

ad valorem taxes. The wording of the amendment, however, provided 1.0 mill

taxing capability for four of the districts, but limited the Northwest Florida

Water Management District (NWFWMD) to 0.05 mills, or some five percent of the

taxing capability given to the other districts.

Despite widespread support (See Appendix I) and attempts on several

occasions to have the Legislature provide for an equitable tax cap through a

new constitutional referendum, NWFWMD still is capped in the State

Constitution and in Chapter 373, F.S., at 0.05 mills. This is largely because

of a general perception that a land ownership tax may not be the most

appropriate method to finance water resource management in this District, as

well as because of an originally negative response in northwest Florida toward

the 1976 constitutional referendum.

Since especially the beginning of this decade, substantial new duties

and responsibilities have been continuously assigned to water management

districts. In recent years, this has been done without the provision of

commensurate financial resources to accomplish these additional tasks. The

inadequate ad valorem tax revenues received by NWFWMD historically have been




4.1 I 1 1 1 II


augmented by general revenue funds appropriated by the Legislature, federal

revenue sources, and public and private short-term grants and contracts.

Federal revenue sources, however, have all but disappeared, and strong

reservations have been expressed by certain legislators over the use of

general revenue funds to supplement this District's ad valorem taxing

capability. Also, while contributing almost half to current operating revenue

and receipts, short-term grants and contracts fluctuate widely from year to

year, thus providing no dependableor'consistent basis for undertaking

essential water resource management programs. Significant additional funding

is required in order for NWFWMD to accomplish its state-mandated

responsibilities.

An obvious solution to the District's funding constraints would be to

increase the ad valorem millage cap. Based on the current tax levy of 0.3

mills by the Suwannee River Water Management District, NWFWMD would raise

sufficient revenues to assume the financial support for all existing District

programs, except land acquisition, at their current levels.

Should efforts to increase the millage cap fail, it has been

recommended that additional revenues be achieved through water use surcharges

or some related method of water user fees.(1) The "user fee" concept in

general has been gaining serious attention, and is one of the financing

alternatives currently being supported by various sectors to help implement

Florida's growth management process (See Appendix II). Specific advantages

and disadvantages of this approach for NWFWMD are summarized in Appendix III.

The primary benefit of a water user fee is that it is based directly on water

used, rather than property owned as with ad valorem taxation. Consequently,




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it is a powerful and useful management tool for water accounting and potential

conservation. A frequently cited drawback, however, is the perceived

difficulty of allocating fees on an equitable basis among various types of

users. The imposition of a surcharge 'of $0.02 per 1,000 gallons, for example

-- which has been recommended for New York State's Long Island -- may be of

little consequence to a residential household, but prove financially

disastrous for a crop farmer. One suggested approach to an equitable solution

is outlined below.

APPROACH

An income or equivalent value added basis is used to derive equitable

water use cost allocation units. An initial assumption is that a water user

fee for a typical residential household should not exceed an amount equivalent

to an ad valorem tax levy of 0.3 mills, which approximates the existing rate

imposed by the other water management districts. For the current fiscal year,

such a levy in northwest Florida would average $15.37. Assuming an average

per capital use of 150 gallons a day and an average household size of 2.8

persons, average annual household use of water approximates 153,300 gallons.

Based on this total, a fee of $0.10 per 1,000 gallons is suggested, resulting

in a cost to the household of $15.33 per annum. This amount is equivalent to

0.05 percent of the 1984 regional medium household income of $27,240.

The next step is to derive fee rates which would result in

proportionately equal financial impacts upon other types of users. In the

case of a farmer using a permitted irrigation system, the basis for such a

rate can be calculated by determining the total amount of water required to

provide an income equivalent to that of an average household.




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Data pertaining to 1985 acreages of various crops under irrigation were

obtained from NWFWMD permitting files. A market value per acre was assigned

to each crop, based upon conversations with County Extension agents and the

most recently available reported data.'(2) -An average market value of $640 per

acre was derived. Of this amount, however, only 30 percent contributes to net

farm income, after production and other costs are deducted.(3) In order for

the farmer to realize a net (pre-tax) income of $27,420, therefore, some 142.8

acres of cropland would need to be*irrigated.(4) According to data derived

from NWFWMD permitting files, average irrigation requirements per acre per

year amount to 218,000 gallons. Thus, the average farmer irrigating 142.8

acres of cropland requires about 31.3 million gallons of water a year.

The above annual water requirement is approximately 200 times greater

than that of the average household. An equitable user fee for irrigation

water, therefore, is suggested at $0.10 per 200,000 gallons. At this rate, a

farmer would pay the same basic annual water fee ($15.30) on a crop unit that

provides him an income equivalent to that of an average household.

With regard to industrial and commercial users of water, total net

value added (value added less payroll) was considered as the best economic

'- indicator for estimating a user fee rate. Value added per employee data are

readily available, they are not prone to substantial changes from year to year

(as revenues may be because of accounting procedures), and they provide a

common yardstick for evaluating different types of industries.

The method used to equate an industrial user surcharge rate was

basically the same as that for irrigation. Annual usage data for each

..establishment were obtained from NWFWMD permitting files. Total value added


I




Il l. .I I I i L .1 1 11 III


was derived by multiplying net value added per employee by the establishment's

total employment.(5) This dollar value was then divided by $27,420 to

determine water requirements on a proportionate income unit basis.

Water user rates indicated by the above method varied substantially --

from $0.01 per 170 gallons to $0.01 per 9,480 gallons. This is to be

expected, considering that certain industries by nature are far more water

intensive than others. It is suggested, however, that a uniform rate of $0.01

per 2,500 gallons would appear to be a generally equitable compromise since it

approximates the weighted average of all the individual establishment rates.

APPLICATION OF FEE SCHEDULE

The preceding analysis suggests the following rates for various

categories of users in northwest Florida:

Public supply systems $0.10 per 1,000 gallons

Agricultural Irrigation, self-supplied $0.10 per 200,000 gallons

Industrial/Commercial

self-supplied $0.10 per 25,000 gallons

Imposition of this schedule would not be universal throughout NWFWMD, but be

limited by the following criteria:

1. Fees would apply only to public, agricultural irrigation and industrial

users required to obtain a NWFWMD Standard Water Use Permit. Such a

permit reflects that the user is withdrawing substantial amounts of water

and/or is located in an area of potential water supply shortage. (See

Rules of the District, Chapter 40A-2, F.A.C., Regulation of Consumptive

Uses of Water, Appendix IV).




I 1 ,1 .1 I ,. i U i III


2. Fees would apply only to groundwater. The primary intent of the District

in imposing a water user fee is to obtain adequate funding to ensure the

protection and provision of potable water supplies for existing and future

users. As such, fees primarily should .be directed towards groundwater.

Other considerations support this emphasis. NWFWMD has more regulatory

control and exerts more influence over groundwater withdrawal. Surface

water, for the most part, originates in the neighboring states of Alabama

and Georgia, and thus many aspects of its management are outside of the

District's control. Also, a user fee on ground water would help conserve

scarce resources in especially coastal areas by encouraging greater use of

surface water -- which is more readily replenished -- and reuse of

wastewater. In any event, the primary source of potable water -- ground

water -- would be afforded greater protection.

3. For permit holders who are required to submit annual water use reports,

fees would apply to the amount of ground water actually used, rather than

permitted. This criterion strictly supports the "user pay" concept, and

ensures that farmers and other users are not unjustly assessed because of

vagaries in the weather or the economy. It also encourages conservation

practices, generally reduces the burden of user fees (by an average of 30

percent), and provides the District with more accurate tracking of water

uses, as well as management and technical assistance needs. Permit

holders would have the option of either voluntarily submitting yearly

reports, applying to reduce their permitted withdrawal thresholds to more

accurately reflect actual usage, or maintaining their permitted thresholds

at existing levels.




III ; I I L I II 1, i ll


4. Thermoelectric power generation would be exempted from a user fee, since

its imposition could result in a double impact upon residential households

and other entities.

DISTRICT REVENUE AND COLLECTION

Based on 1985 District information and the above criteria, revenue

accruing to the District from user fees would be as follows:

Activity Fee Rate Revenue

Public Supply $0.10 per 1,000 gal. $2,703,540*

Agricultural Irrigation $0.10 per 200,000 gal. 3,433

Industry/Commerce $0.10 per 25,000 gal. 50,635

TOTAL $2,757,608

(* Assumes an 80 percent billing of water withdrawn to reflect revenue lost

through system flushing, leakage and emergency use.)



This total would cover 83 percent of the revenue shortfall currently

experienced by NWFWMD, based on the difference between 0.05 and 0.3 mills ad

valorem tax for 1985 ($3,302,760).

Billing would be undertaken under contract by a private firm or public

utility, on a quarterly or annual basis. Industrial and agricultural

irrigation Standard Permit holders would be billed on their actual water

usage, if reported, or else their permitted average annual groundwater

withdrawal threshold.


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ADVANTAGES OF THE USER FEE CONCEPT TO DISTRICT RESIDENTS

Analysis indicates that the suggested user fee rate structure would be

a fair and equitable means of providing funding for NWFWMD to undertake its

assigned legislative and other responsibilities. User fees also provide

specific advantages to each of the major categories of users.

1. Households

a) The $0.10 per 1,000 gallons would be a fixed rate and not subject to

increased property assessment. Since 1980, property assessments in

the District have increased at an average rate of approximately five

percent a year. If this trend were to continue over the next decade,

an ad valorem tax levy of 0.3 mills could cost a typical household

$23.82, as compared with a steady average fee of $15.33.

b) The user fee allows each household to control the amount it is billed.

Installation of inexpensive water-saving devices and prudent use of

water could significantly reduce fee billings.

c) Only households served by public supply systems would be subject to

user fees, since these systems are major users of water. All

households self-supplied from domestic wells would be exempted.

2. Irrigation Water Users

a) All farmers within the District would benefit from lower ad valorem

taxes, and only one percent would pay user fees. Currently, 51

entities have been issued Standard Permits for irrigation purposes,

out of an estimated total of 5,000 operating farms. Less than half of

one percent (0.2 percent) of the total District area, and less than






C0








three percent (2.4 percent) of total cropland, would be subject to

user fees.

b) For the 24 irrigation permit holders reporting their actual usage in

1985, the average user fee would be $45. In all cases reviewed for

this analysis, user fees would be lower than an ad valorem tax levy of

0.3 mills. Comparative examples are given in Table 1.

c) If no irrigation activities occurred in any year, no user fees would

be imposed. The alternative is that farmers would pay an ad valorem

tax levy of 0.3 mills to NWFWMD regardless of actual farming

activities undertaken.

3. Industries

a) As with irrigation water users, all industries in the District would

benefit from lower ad valorem taxes, and only two percent would pay

user fees. Currently, 17 industrial Standard Permits have been issued

by NWFWMD for 14 entities, as compared to a total of 497 Panhandle

firms listed in the Directory of Florida Industries.

b) For the 14 permitted entities, the mean and median user fee would be

$2,978 and $63.76, respectively, based on 1985 data. Again, as with

irrigation permit holders, user fees would be substantially lower than

a 0.3 mill ad valorem tax levy, as shown in Table 1.

FUTURE APPLICABILITY OF AD VALORE4 TAXATION

If enabling legislation allowed NWFWMD to implement water user fees,

the current, universal imposition of a 0.05 ad valorem tax levy would be

maintained, but no additional increase (such as the recommended 0.3 millage

rate) would be required or necessary.


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TABLE 1: AD VALOREM TAX VERSUS WATER USE FEES:

FINANCIAL IMPACT ON SELECTED ENTITIES


ANNUAL
GROUND
COUNTY USE
ENTITY

BAY

Arizona Chemical 386.9

Cement Product Corp. 14.6

Southwest Forest Ind.(2)91.3

CALHOUN

Rutsel Inc. 76.4'

Rysco Shipyard,Inc. *

ESCAMBIA

Armstrong World, Inc. *

Monsanto 2,584.2

St. Regis Paper Co. 7,540.9


L AD VALOREM MILLAGE RATE USER EXISTING
WATER FEE TAX PLUS
(MG) 0.05 0.30 FEE


7


$ 706.57

17.76

3,500.04



29.45

38.86



1,063.78

5,354.90

9,557.69


$ 4,239.42

106.56

21,000.24



176.70

221.16



6,382.68

32,129.40

57,346.14


$ -0-

58.40

365.00



38.24

-0-



-0-

10,336.80

30,163.60


$ 706.57

76.16

3,865.04



67.69

38.86



1,063.78

15,691.70

39,721.29


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COUNTY ANNUAL AD VALOREM MILLAGE RATE USER EXISTID
ENTITY GROUNDWATER FEE TAX PLU!
U-E (MFG) 0.05 0.30 FEE


GADSDEN

Beef Stake Tomato

SGrowers

Coastal Lumber

Fla. Wire & Nail

Higdon Furniture

May Nurseries, Inc.

Niagara Lockport

Quincy Farms

GULF

Allied Chemical

Fico Farms

St. Joe Paper Co.(1)

Sylvachem

HOLMES

Bonifay Manufacturing

Holmes Shirt Co.

- .-;. *


I


68.5



*




14.2


45.
145.0


7.2

232.57

-0-

*


29.03

631.63

112.00

30.41

24.02

320.00

401.47


3,743.36

200.00

10,798.00

283.91


4.75

30.90


174.18

3,789.78

672.00

182.46

144.12

1,920.00

2,408.82



22,460.16

1,200.00

64,788.00

1,703.46



28.50

185.40


34.24

-0-

-0-

-0-

7.10

-0-

22.50



28.80

116.29

-0-

-0-


63.;

631.6

112.C

30.1

31.1

320.C

423.9



3,772.1

316.2

10,798.0

283.9


-0-

-0-


4.7

30.9


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COUNTY ANNUAL AD VALOREM MILLAGE RATE USER EXISTING
ENTITY GROUNDWATER 0.05 0.30 FEE TAX PLUS
USE (MGF) FEE

JACKSON

Baxter's Asphalt and
Concrete (2) 230.49 1,382.94 -0- 230.49

Lehigh Furniture 168.00 1,008.08 -0- 168.00

LEON

Freeland Farms 158.28 17.94 107.64 79.29 97.23

Maples Concrete Prod. 65.63 393.78 -0- 65.63

Municipal Code Corp. 77.43 464.58 -0- 77.43

Rose Printing Co. 126.50 759.00 -0- 126.50

Wayne H. Colony Co. 27.13 162.78 -0- 27.13

OKALOOSA

Fairchild Industries 188.01 1,128.06 -0- 188.01

Fla. Mining &

Materials 15.9 29.10 174.60 63.76 92.86

Keltec Florida 219.43 1,316.58 -0- 219.43

Louisiana Pacific
Corp. 25.6 182.09 1,092.54 102.40 284.49

Metric Systems Corp. 8.2 346.11 1,076.66 32.98 379.09


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COUNTY ANNUAL AD VALOREM MILLAE RATE USER EXISTING
ENTITY GROUNDWATER 0.05 0.30 FEE TAX PLUS
USE (MFG) FEE

SANTA ROSA

Air Products & Chem. 981.9 2,570.05 15,420.30 3,929.40 6,499.45

American Cyanimid 1,233.7 2,081.09 12,486.54 4,934.80 7,015.89

Vanity Fair Mills 45.74 274.44 -0- 45.74

WAKULLA

Olin Corp. *924.53 5,547.18 -0- 924.53

Showell Farms 230.0 204.65 1,227.90 919.80 1,124.45

WALTON

First American Farms 194.7 153.00 918.00 97.35 250.35

WASHINGTON

West Point Pepperell 233.39 1,400.34 -0- 233.39

NOTE: NWFWMD permitted entities underlined.

(1) District-wide information
(2) Partial information only
* Water use data not readily available


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(1) Report of the Goals, Planning and Development Committee of the Northwest
FLorida Water Management District. Havana, Florida, March 28, 1985.

Perry, J. M. and L. A. Woods: Permit Fee and Alternative Funding Source
Evaluations Required to Facilitate Water Resource Protection in Northwest
Florida. Center for Regional Economic Development, University of North
Florida, 1986

(2) Florida Statistical Abstract 1985, Tables 9.62 and 9.69; data for 1982-84.

(3) Ibid, Table 9.22; data for 1983.

(4) Based on $(27,420 192) 142.8

(5) U. S. Department of Commerce,,Bureau of the Census, Statistical Abstract of the
United States, 1985, Table 1342. Value added is provided for 1982 on a three-
digit SIC level.

The Florida Chamber of Commerce, Directory of Florida Industries, 1984-85.
Provides establishment employment and SIC information.
Source: NWFWMD permitting data; phone conversations with tax
collector offices and individual entities.




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APPENDIX III

WATER USER FEES

AS PRINCIPLE SOURCE OF REVENUES FOR THE

NORTHWEST FLORIDA WATER- MANAGEMENT DISTRICT

ADVANTAGES

1. Concept is based on "user pays" and is directly supported by those who benefit.

2. Does not require constitutional change, extraordinary vote of Legislature or
possibility of referendum failure in northwest Florida.

3. Implemented by City of Tallahassee with no discernible public attention or
objection.

4. Very low cost of water in northwest Florida makes a user charge an ideal vehicle
to provide revenues to the District.

5. Reduces competition with cities, counties and school boards for ad valorem
revenue source.

6. Major industries and land intensive activities such as agriculture and forestry
will pay less than under the ad valorem tax method.

7. New, equitable revenue sources must be found in Florida to support its projected
needs; this is one.

8. Before the year 2000 A.D., we will likely have a water use fee in Florida and
the only question will be which institution will receive it.

9. Would-be supported by northwest Florida legislators easier than an ad valorem
increase.

10. New administration is on record for support of user fees as are several other
special committees and study commissions.

11. Eliminates constitutional prohibition for expending ad valorem taxes for state
purposes, i.e., state imposed regulatory programs.

12. Fee can be equitably adjusted to type of use and not as a flat fee on all
property owners without regard to water management needs.

13. Encourages water conservation through its rate structure.

14. Water use charge can be accomplished in one year; millage cap change will take
at least 3 1/2 years and two actions by the Legislature and a statewide referendum.




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15. Could eliminate water banking.

DISADVANTAGES

1. Alters the traditional source of revenues to support the activities of the water
management district and might not be supported by other districts.

2. There is presently no established system for collection of revenues.

3. Represents a new and visible source of revenue.




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