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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
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
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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
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.
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
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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
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).
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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.
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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
(* 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
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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.
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
three percent (2.4 percent) of total cropland, would be subject to
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
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
Arizona Chemical 386.9
Cement Product Corp. 14.6
Southwest Forest Ind.(2)91.3
Rutsel Inc. 76.4'
Rysco Shipyard,Inc. *
Armstrong World, Inc. *
St. Regis Paper Co. 7,540.9
L AD VALOREM MILLAGE RATE USER EXISTING
WATER FEE TAX PLUS
(MG) 0.05 0.30 FEE
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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
Beef Stake Tomato
Fla. Wire & Nail
May Nurseries, Inc.
St. Joe Paper Co.(1)
Holmes Shirt Co.
- .-;. *
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COUNTY ANNUAL AD VALOREM MILLAGE RATE USER EXISTING
ENTITY GROUNDWATER 0.05 0.30 FEE TAX PLUS
USE (MGF) FEE
Baxter's Asphalt and
Concrete (2) 230.49 1,382.94 -0- 230.49
Lehigh Furniture 168.00 1,008.08 -0- 168.00
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
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
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
COUNTY ANNUAL AD VALOREM MILLAE RATE USER EXISTING
ENTITY GROUNDWATER 0.05 0.30 FEE TAX PLUS
USE (MFG) FEE
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
Olin Corp. *924.53 5,547.18 -0- 924.53
Showell Farms 230.0 204.65 1,227.90 919.80 1,124.45
First American Farms 194.7 153.00 918.00 97.35 250.35
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
(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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WATER USER FEES
AS PRINCIPLE SOURCE OF REVENUES FOR THE
NORTHWEST FLORIDA WATER- MANAGEMENT DISTRICT
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
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
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
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.
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.