Chapter 6 – An Economic Assessment of Coastal Stormwater Management

Authors

J. Wesley Burnett, Ph.D. and Christopher Mothorpe, Ph.D., Department of Economics, College of Charleston, Charleston, S.C.

Corresponding Author: Christopher Mothorpe, Ph.D. (mothorpeca@cofc.edu)

6.1 Background

Over the past four decades, there has been a tremendous amount of population growth in the United States’ (U.S.) coastal regions. According to a recent National Oceanic and Atmospheric Administration (NOAA, 2013) report, approximately 39% of the current population is concentrated in coastal counties, which constitute less than 10% of the entire land area within the contiguous U.S. Further, approximately 52% of the population lives in counties that drain into coastal watersheds, which represent less than 20% of the total U.S. land area. Based on current trends, the population within coastal regions will grow from the current level of 123 million to 134 million people by the year 2020. The trends in population growth are no different for the South Atlantic coastal region of the U.S., which consists of the states of North Carolina, South Carolina, Georgia, and Florida. According to the U.S. Census Bureau (2010), approximately 23 million people moved to the coastal counties within the Southeastern Region between 1960 and 2008. The South Atlantic region, as a whole (i.e., coastal and non-coastal areas), is host to the most active and persistent inflow of domestic migrants in the U.S. Based on current trends, this area could soon become the nation’s most populous region (Kotkin 2013). In South Carolina alone, the coastal region has experienced a 22% increase in population and is expected to reach over 1.5 million people by 2030 (South Carolina Revenue and Fiscal Affairs Office 2015). The South Atlantic coastal region is highly susceptible to frequent, and often severe, flooding events and water impairment issues. This susceptibility is due to the region’s low-lying elevations, moderate year-round rainfall, increasing development, and highly complex watersheds. According to the U.S. Environmental Protection Agency (EPA), global climate change has arguably increased the frequency of heavy rain events as well as the intensity, frequency, duration, and strength of Atlantic hurricane activity (EPA 2016a).

The current study contributes to the literature by exploring one of the least studied but most widely used instruments to control stormwater runoff – retention ponds. Retention ponds or catchments are one of the more commonly employed best management practices used to collect and filter runoff, sediments, and other harmful pollutants before the water is discharged into the natural environment. Retention ponds are designed to fulfill two primary objectives. First, they act as a flood protection measure by collecting stormwater runoff and gradually releasing it into the watershed, which helps mitigate downstream flooding. Second, they filter runoff containing pollutants such as oils, fertilizers, and pesticides that could adversely impact environmental quality. According to Smith et al. (2017), there are approximately 21,600 stormwater retention ponds in the eight coastal counties of South Carolina. Without proper management of these ponds, the South Atlantic coastal region will experience a continuing strain on its water resources, including intra-coastal waterways (and tributaries), marsh habitats, and other aquatic ecosystems.

Ponds, like any human-developed infrastructure, require regular monitoring and sustained maintenance throughout their useful lifecycle to ensure ongoing function and environmental effectiveness. The costs of maintaining many ponds ultimately fall on local, residential homeowners’ associations (HOAs). An HOA is a private organization within a community that makes and enforces rules within its jurisdiction. These collectives are composed of a relatively homogenous group of members (i.e., a club) within a residential development with well-defined boundaries (Groves 2006). Voter participant members who reside within a development generally manage HOAs, and the association operates to provide goods and services to its members. The purpose of the HOA is to enforce contractual land-use restrictions and provide services that would otherwise be offered by a municipal government or other entity. The association funds the provision of it services by collecting an annual or semi-annual HOA fee, which each of its members are required to pay. Within many jurisdictions, a residential developer initially constructs the ponds in accordance with local laws or ordinances. Developers often possess the requisite knowledge about pond construction and management. However, the ownership of common space within a development, including ponds, almost always passes to the HOA after development is complete. Therefore, HOAs may simply lack the knowledge to ensure their ponds are properly serving the designed function of mitigating harmful runoff and serving as flood protection (McKenzie 2005). This uncertainty can be compounded with deficient budgets to maintain many ponds.

6.2 Framework

Despite the prevalence of water contamination issues associated with stormwater runoff, there has been little economics research addressing stormwater management. The existing economic literature is thin when compared to other scientific disciplines such as the marine sciences, engineering, hydrology, and ecology. For example, our search for the term “stormwater management” in the economics database, EconLit, resulted in only 18 studies published in peer-reviewed journal articles. Upon casting a wider net by using the search term “stormwater,” we identified 27 peer-reviewed journal articles, of which 19 loosely pertain to the current study. A search using Google Scholar generates several more results, although only some of the results come from peer-reviewed, scientific journals. Although not necessarily subject to the peer-review process, we also considered academic books and texts about stormwater management, and more specifically, stormwater pond management.

This chapter is organized as follows. In section 6.3, we offer a brief discussion of the relevant literature relating to quasi-public goods and stormwater management. In section 6.4, we discuss the local regulatory environment and industry practices, relevant to stormwater management in the South Atlantic coastal U.S. Section 6.5 offers an adaptation of a theoretical model, which outlines the social value and social cost of stormwater management in the context of retention ponds. Section 6.5 offers county-level data on stormwater pond fees, governmental expenditures, and enforcement. In section 6.6, we discuss the main findings and address policy implications within the context of a coastal watershed that is vulnerable to climate change and sea level rise.

6.3 Literature Review

An interesting aspect of stormwater retention ponds is that they can be described as “impure” (or quasi-) public goods (Wichman 2016). These types of economic goods are labeled as impure because they provide both private and public benefits. Salient analogs include green electricity, energy efficiency and renewable energy technology adoption, and fuel-efficient vehicles. Retention ponds fall within this category of goods because state or county laws and regulations assign private property rights of the ponds to private landowners, but the catchments provide benefits to the public. Homeowners within an HOA have legally assigned collective rights, which confer the rights to use and maintain all common areas in the development and such rights are governed by HOA covenants. Under these covenants, the HOA is the responsible party for the maintenance, repair, and replacement of the ponds. The construction and maintenance of a pond within one development may also provide flood and pollution mitigation benefits for downstream properties; however, downstream properties do not have to contribute to maintaining the pond. Put another way, environmental management problems must be treated in a spatial context, as nature links activities undertaken in one location with outcomes in another (Smith et al. 1997). These spatial links are especially true in low-lying elevations, such as coastal regions, that have complex, inter-connected watersheds.

The underlying problem with the private provision of public goods is that free-riding leads to an inefficient, underprovision of the good (Falkinger et al. 2000). In the case of retention ponds, the underprovision can take the form of under-development of the ponds or an inefficient level of maintenance activities over the life cycle of the pond. Free-riding can occur if neighboring houses outside of the development receive the downstream benefits of flood and pollution mitigation without having to contribute toward the costs of maintaining a retention pond. Historically, economic theory has addressed this phenomenon by viewing contributions to a public good as strategies in a non-cooperative game (Bergstrom et al. 1986; Cornes & Sandler 1986). Further, the literature has shown that the underprovision becomes stronger towards the end of a finite number of repetitions of a voluntary contributions game (Isaac et al. 1984; Ledyard 1995).

Incentive-based mechanisms have been proposed to induce efficient contributions to the public good (Varian 1994). For example, Falkinger (1996) designed a simple tax-subsidy scheme, which caused contributors to consider the relative size of their contributions in such a way that created an efficient level of the public good provision. Providing evidence from experimental trials, Falkinger et al. (2000) later showed this incentive-based mechanism performed quite well in a laboratory setting, leading to an immediate and significant shift, in the provision of the good, toward an efficient solution. Wichman (2016) built upon the early research by considering consumers with heterogeneous preferences over private and public components of environmental goods. He advocated for a combination of subsidy and credible punishments, which he posits lead to an incentive-compatible Nash equilibrium for the socially optimal provision of an impure public good.

It is challenging from a policymaking standpoint to determine the socially optimal provision of an impure good, such as the optimal level of flood or pollution mitigation provided by a stormwater retention pond. To establish such an arrangement, stakeholders first need some prerequisite knowledge of the economic costs and benefits of the services offered by stormwater retention ponds. The majority of the limited economic literature covering stormwater ponds is dedicated to assessing the costs or benefits, but not both, of the stormwater pond services.

The empirical benefit-analysis literature can be described as an assessment of the benefits provided by stormwater retention ponds, low impact development, land acquisition programs, or a combination thereof (Aminzadeh et al. 2013). The empirical cost-analysis literature, on the other hand, seeks to determine the economic or accounting costs associated with stormwater development, management, and maintenance. We reserve the discussion of the cost analysis to the next section, as it directly pertains to our discussion of the current regulatory environment within the South Atlantic coastal region.

Among the benefit-analysis literature, the Cadavid and Ando (2013) study was one of the few studies that addressed the function, efficacy, and (separable) benefits of stormwater management in the U.S. Their research explored the willingness-to-pay (WTP) for stormwater control in the Champaign-Urbana region of Illinois. Since stormwater control is an impure public good, there is not necessarily an economic market to determine the price for offering the service or the quantity of stormwater control that should be provided. The authors estimated the benefits of stormwater control by conducting a stated-preference method (i.e., a choice experiment survey), and the authors found that households placed a positive monetary value on the following stormwater control services: reduction in basement flooding, improved water quality, and improved hydrological function and aquatic habitat. They estimated a $580,000 WTP value for stormwater control to reduce flooding (Cadavid & Ando 2013). Further, they estimated a WTP of $270 million to improve water quality. Since the authors only surveyed within one specific region of the Midwestern U.S., it would arguably be difficult to generalize their estimated results to other areas of the U.S., as households’ values of such services may differ by region.

A series of studies have conducted stated-preference evaluations to elicit the benefits of stormwater management in Australia (Jorgensen & Syme 2000; Jorgensen et al. 2004; Jorgensen et al. 2006). The goal of all three studies was to derive an accurate estimate of stormwater abatement benefits in Australia. For example, Jorgensen and Syme (2000) offered a contingent valuation survey in which they explicitly controlled for protest attitudes to elicit a more accurate WTP value for stormwater management. The authors estimated a total value of $13 million (in U.S. dollars) in benefits for stormwater management services. Brown et al. (2016) conducted a qualitative survey of private household participation in stormwater management in Australia. This particular study did not explicitly seek to estimate WTP for stormwater management; instead, the study sought to determine the factors that lead households to participate in a stormwater program. The authors found that the public is mainly uneducated about stormwater management practices, and they advocated for combining economic incentives with education programs to encourage mitigation behavior and other sustainability practices regarding stormwater management.

6.4 Retention Pond Maintenance

Stormwater pond governance is enacted at the municipal level; however, state and federal requirements guide local ordinances. At the federal level, the Clean Water Act of 1972 regulates the discharge of pollutants into the nation’s waters and empowers the EPA to monitor surface water quality. Specifically, the Clean Water Act authorizes the EPA to implement programs and guidelines to control point and nonpoint sources of pollution. Section 402 of the Clean Water Act implements the National Pollutant Discharge Elimination System (NPDES), which requires all stormwater discharges from point sources from specific activities to have a permit and makes it illegal to discharge stormwater without a license.

Each state has enacted additional legislation aimed at regulating the release of pollutants into waterways. These acts include the Water Resources Act of 1972 in Florida, the Water Quality Control Act of 1964 in Georgia, the Pollution Control Act of 1972 in South Carolina, and the Clean Water Responsibility Act of 1997 in North Carolina. The acts work in conjunction with the federal Clean Water Act and provide additional regulations and guidelines for the collection and discharge of stormwater within each state. The statutes authorize the governing body to pursue legal actions such as civil and criminal penalties for ordinance violations. The legislation often places a maximum penalty per violation per day that a governing body may assess. For example, the maximum penalty in Georgia per violation per day is $27,500 (Water Quality Control Act, 1964) while the maximum penalty in South Carolina is $10,000 per day (Pollution Control Act, 1972).

Municipal governments enact the final layer of stormwater ordinances, which often require developers to submit long-term maintenance plans before construction and operating permits are granted. The long-term maintenance plans serve as an agreement between the current and subsequent landowners and the municipal government regarding maintenance activities. Enforcement of stormwater pond ordinances is also the responsibility of municipal governments, which work to provide reasonable assurances that maintenance activities are performed. Reasonable safeguards include inspections, written violations, withholding and revoking of permits, and civil/criminal penalties for each violation. For example, the city of Savannah, Georgia may levy a sentence of up to $1,000 per day for each stormwater ordinance violation (Savannah Stormwater Management Ordinance, 2012).

The discussion thus far has focused on the use of civil and criminal penalties as negative incentives to uphold stormwater ordinances; however, municipalities may also use positive incentives to encourage best management practices. Positive incentive policies may include stormwater fee discounts, development incentives, grants, rebates and installation financing, and awards and recognition programs. In a survey of 43 cities, the EPA (2009a) found that 29 of the cities (approximately 67%) implemented a stormwater discount fee, which provides homeowners and landowners incentives to reduce impervious cover and stormwater runoff generated from their property. Incentives targeted towards community groups such as HOAs include grants, rebates, and installation financing, which mitigate the cost of implementing best management practices. The EPA’s survey of cities also found that only 6 of 43 (14%) provided grants while just 14 of 43 (33%) offered rebate and installation financing (U.S. EPA 2009a).

Our review of the literature found several survey-based case studies investigating the economic cost of stormwater pond management and maintenance. For example, Weiss et al. (2005), Weiss et al. (2007), and Erickson et al. (2010) all explored the economic cost of stormwater management for the Midwest Region of the United States. Based on their survey and literature analysis, the authors found that the maintenance cost for a relatively standard-sized pond (i.e., one-acre pond), with initial construction cost of $10,000, required annual maintenance that averaged approximately 8% of the initial construction cost (Erickson et al. 2010); therefore, the cumulative maintenance cost would approximately equal the initial construction cost after 12 years. Erickson et al. (2010) represent the costs of stormwater ponds in a particular manner because the ponds are generally constituted by relatively large upfront construction costs, whereas the annual maintenance costs are small in comparison. In their article, Erickson et al. (2010) do not explicitly list a discount rate nor define a useful life for a stormwater pond. Based on the lack of stated discount, it can only be presumed that the original authors posited a zero-discount rate, in which case the estimated annual maintenance costs are a lower bound of the actual annual maintenance costs. Further, stormwater ponds (depending on the type) generally require extensive maintenance after 20 to 35 years, and the useful life of a pond can exceed 50 years (U.S. EPA 2009b). For ponds approximately 10 acres in size, the annual maintenance cost constitutes 4% of the initial construction cost of $100,000, and the cumulative maintenance cost would roughly equal the total construction cost after 25 years of operation. Weiss et al. (2005) explored pond maintenance and construction cost estimates from the empirical literature, and their findings are presented in Figure 6.1. The figure indicates that operating and maintenance costs fall as pond size increases.

Figure 6.1 Total operating and maintenance costs as a function of total construction cost in 2005 U.S. dollars for wet ponds. Notes: Diamond shaped points represent empirical estimates from the literature. The dashed line represents a line of best fit through the points. The two solid lines represent the 67% confidence interval for the estimates. Source: Weiss et al. (2005, p. 31).

Wossink and Hunt (2003) explored the economic costs of best management practice (BMP) stormwater ponds in the state of North Carolina, including the Coastal Plain region. The authors use the term BMP to denote the “best” type of pond construction based on the environmental needs in which the pond is located. Their definition of a BMP is a relative term to denote the best type of pond given the stated needs; it does not connote a superior type of maintenance or construction practice. The type of pond is determined by the size of the watershed, the imperviousness of the watershed, and the amount of available land for the pond construction (Wossink & Hunt 2003). For example, stormwater wetlands, a bio-retention pond, or a sand filter would be inappropriate for urban or suburban stormwater management because this type of watershed is probably relatively small, highly impervious, and has limited land available for construction of the pond. A structural wet pond would constitute a BMP for an urban or suburban region, because it is arguably the best solution based upon the environmental needs of the area.

Wossink and Hunt’s (2003) definition of the BMP cost includes the initial construction, land development, and annual operating expenses. Based on this definition, the authors estimated that a one-acre pond would cost approximately $14,000 to construct, whereas a 10-acre pond would require nearly $65,000 to build. Unlike Erickson et al. (2010), Wossink and Hunt (2003) estimated that the annual maintenance cost would run approximately 4% per year (as opposed to 8% cited in the previous study) of the initial construction cost. In other words, the cumulative maintenance cost would approximately equal the initial construction cost after 20 years. For a 10-acre pond, Wossink and Hunt’s (2003) estimates imply that the annual maintenance cost would constitute approximately 2% of the initial construction cost; based on these calculations, it would take approximately 60 years for the cumulative maintenance cost to equal the initial construction cost. The differences in Erickson et al.’s (2010) estimates and Wossink and Hunt’s (2003) estimates arguably stem from the difference in regions and policies of stormwater ponds. In general, Wossink and Hunt’s research indicates that a one-acre pond requires a higher initial investment, but has a lower annual maintenance cost than those estimated by Erickson et al. (2010).

Houle et al. (2013) conducted an engineering analysis of stormwater pond construction and maintenance costs in New Hampshire. The authors only calculated the costs for low impact development systems, which are arguably higher than the capital and maintenance costs of stormwater ponds. Nevertheless, the authors estimated that low impact development systems would cost approximately $33,400 per acre in initial capital, and the annual maintenance cost would run approximately 19% of the initial capital cost. Based on these estimates, it would take approximately five years for the cumulative maintenance cost to equal the initial development cost. We obtained maintenance cost estimates from a stormwater pond developer and service manager located in the state of South Carolina. The estimates are provided for a one-acre pond with an approximate depth of five-to-eight feet and 1,000 feet of shoreline.

Table 6.1 contains two sets of cost estimates – a lower and upper bound estimate. The estimates are broken up into recommended annual, five-year, and 30-year maintenance costs. The forecast at the bottom indicates that maintenance activities for a one-acre pond can cost between $671,000 and $1,420,000 USD over a 30-year cycle of a pond. The total costs are relatively sensitive to the included service. For example, not all retention ponds will contain a fountain. Retention ponds vary in size from one to 15 acres (or larger), and the cost estimates are not levelized; nevertheless, a more extensive pond would scale the maintenance costs higher than what are provided (Table 6.1).

Table 6.1 Estimated 30-Year Maintenance Costs (USD) for Stormwater Retention Ponds. Notes: Service cost estimates based on a one-acre pond, 5-8 feet in depth, and 1,000 feet of shoreline. The 30-year aggregated cost consists of 30 annual maintenance activities, six five-year maintenance activities, and one 30-year maintenance activity.

6.5 Theoretical Considerations for Stormwater Management Policies

In the previous sections, we discussed the properties of stormwater control as an impure public good, which can lead to market failure and divergence between the marginal value of stormwater control to an individual and the marginal costs to society. Given this potential for free market failure, government intervention in terms of oversight, monitoring, and enforcement is arguably justified in order to bring the private and social value of stormwater management into equilibrium. This should, in turn, lead to the socially optimal level of runoff reduction.

In our theoretical models (Appendix A6-2), we argue that if the demand for runoff is inelastic, then Figure 6.2 implies that the free market solution (Qf) for stormwater control results in high levels of runoff, and by extension risks for flooding and poor downstream water quality. Conversely, reducing the amount of runoff to the optimal level for social welfare (Q_w) requires that the marginal social value is negative (high costs) and that the government would need to expend a tremendous amount of resources. These high government expenditures could further detract from social welfare. It is possible that the marginal social value of stormwater is negative based on the positive estimated benefits ascribed to stormwater management (i.e., runoff reduction), as evidenced by the recent economic literature (Cadavid & Ando 2013). However, this study was based in the Champagne-Urbana region of Illinois, so it is difficult to generalize the authors’ findings to other areas of the country. Further, Jorgensen and Syme (2000) found positive total estimated benefits associated with stormwater management. Jorgensen and Syme’s (2000) findings imply that runoff could generate negative marginal value to society, but not at a significant enough level to justify the costs of reducing runoff to the socially optimal level (Q_w in Figure 6.2). As a result, government enforcement is likely to yield a level of runoff that is less than the social optimum (somewhere between Q_f and Q_w in Figure 6.2).

A government subsidy for stormwater management could arguably reduce the costs of additional enforcement carried by the pond manager and thus induce individuals to further reduce runoff through effective maintenance activities. If a local government can calculate the current level of runoff and also determine the socially optimal level of runoff for an area, then presumably they could offer a marginal subsidy to offset a community’s additional per-unit costs of stormwater management. In Figure 6.3, the marginal subsidy (shaded in gray) would provide the final inducement to reduce the level of runoff to the socially optimal level, Q_w. This suggested combination of a subsidy scheme and enforcement would arguably generate an incentive-compatible Nash equilibrium, as found within the game theoretic work by Wichman (2016) pertaining to impure public goods.

Figure 6.3 Demand curve for pond maintenance including the costs of both government enforcement and incentives. The marginal unit of subsidies accounts for the additional cost of maintenance to achieve optimal levels of runoff by incentivizing managers to maintain their pond(s) at recommended levels.

As outlined in section 6.4, positive incentives (such as subsidies) consist of stormwater fee discounts, development incentives, grants, tax rebates, installation financing, awards, and recognition programs. The EPA (2009) found that only 14% of surveyed cities provide grants and 33% of surveyed cities provide rebates or installation financing. Therefore, it appears that few cities in the U.S. currently offer stormwater management subsidies.

6.6 Stormwater Pond Management in South Carolina

The objective of this section is to offer a series of descriptive statistics associated with stormwater pond management and enforcement for a vulnerable area within the South Atlantic coastal region. We only present descriptive statistics since there is little to no economic data pertaining to stormwater pond costs and benefits. Of course, an empirical analysis would allow us to test our model’s various predictions and provide the opportunity to draw inference from one or more hypothesis tests associated with stormwater pond management and enforcement. However, the objective of the current study is to push stormwater management to the fore so that research can be conducted in the future.

We examine stormwater management among South Carolina’s eight coastal counties. Figure 6.4 displays the coastal region of South Carolina, which consists of Jasper, Beaufort, Colleton, Dorchester, Charleston, Berkeley, Georgetown, and Horry counties. Characteristics of the coastal region include a generally flat terrain, slow moving rivers, widespread marshlands and swamps, and moderate year-round rainfall. The region contains two metropolitan statistical areas (MSA): 1) the Charleston MSA; and 2) the Myrtle Beach MSA. Charleston County has the largest population followed by Horry, Berkeley, and Beaufort counties. The Charleston MSA consists of Charleston, Berkeley, and Dorchester counties. The Myrtle Beach MSA consists of Horry county.

Figure 6.4 Map of South Carolina showing the eight coastal counties and the Charleston and Myrtle Beach MSAs.

6.6.1 Stormwater Pond Budget Data

As of 2013, there were approximately 21,600 ponds, encompassing around 30,000 acres, in South Carolina’s coastal counties (Smith et al. 2017). We obtained stormwater pond construction permit data from the S.C. Department of Health and Environmental Control (S.C. DHEC). Figure 6.5 shows the total number of stormwater best management practice (BMP) permits issued each year between 2009 and 2015. S.C. DHEC issued nearly 5,000 BMP permits between 2009 and 2015, and averaged 671 new BMP permits per year. The largest number of permits were issued in the most populated counties. Given the large population increase between 2006 and 2017, it is expected that the provision of BMP permits continued to increase in the years 2016 through 2018 (data not available).

Figure 6.5 Stormwater best management practice permits 2009 – 2015. Notes: The graph displays the annual number of stormwater best management practice permits issued by the S.C. Department of Health and Environmental Control between 2009 and 2015.

As a proxy for the enforcement of stormwater pond ordinances, we use county-level expenditures on stormwater management. We focus on years between 2009 and 2015 due to the availability of S.C. DHEC permit data. Expenditures on stormwater management include personal and contractual services, supply and materials, capital outlay, and construction costs for publicly maintained ponds. These expenditures can loosely be interpreted as the costs of enforcement, identified as E in section 6.5. In Table 6.2, we explore the percentage change in stormwater expenditures per pond permit, stormwater expenditures per person, total county government expenditures, government expenditures per person, stormwater expenditures as a percentage of total county expenditures, population, and median household income. We compare these statistics in the form of percentage changes, as there is a tremendous amount of variation between county-level population size and household income.

Table 6.2 Percentage Change in Stormwater Expenditures, Total County Government Expenditures, Population, and Household Income: 2009-2015. Notes: All numbers represent percent changes.

Stormwater expenditures per pond permit (column 1) declined in all counties between 2009 and 2015. We contend that this reduction in stormwater expenditures represents a decline in enforcement activities relative to the number of ponds in a county, which leads to a movement away from the socially efficient level of stormwater abatement. Stormwater expenditures per person (column 2) declined in some counties but rose significantly in others. For example, Beaufort, Dorchester, and Horry County all experienced a 20% decline in stormwater expenditures per person. Conversely, Berkeley, Charleston, and Georgetown County all experienced large increases. Berkeley County’s per-person stormwater expenditures reveal a caveat to this story; that is, the average per-person stormwater management expenditures charged during the 2009-to-2015 period within the eight coastal counties was approximately $12 per person, whereas for Berkeley County it was less than $2 per person during this period. The large percent increase in stormwater expenditures per person in Berkeley County is driven by the fact that expenditures were at a relatively low level ($0.50 in 2009) and increased to $3 by 2015. A similar story can be told for Charleston and Georgetown counties, which initially had expenditures lower than the eight-county region average. These statistics suggest that the counties were operating at socially inefficient levels and sought to remedy the situation by raising per-person expenditures.

To demonstrate that the decline in stormwater expenditures per permit is not due to an overall reduction in government expenditures, we provide the percentage change in total county expenditures in column 3 of Table 6.2. Total, county-level expenses increased in each county, indicating that the decline in stormwater expenditures cannot be attributed to declining government expenditures. We include the percentage change in government expenditures per person, which remained relatively steady during this six-year period. Further, we show that stormwater expenditures as a percentage of total county expenditures (column 5) have declined in all but Berkeley, Charleston, and Georgetown counties. However, as we argued above, each county was leveeing an inefficient stormwater management fee during this period. As further evidence, we show that the population (column 6) has grown for each of these six counties during the six-year period. Finally, median household income increased for three of the counties and only marginally decreased for the remaining counties (Dorchester, Georgetown, and Horry). We include column (7) to demonstrate that the county-level governments did not reduce stormwater expenditures per permit due to economic hardship.

Table 6.3 Residential and Nonresidential Stormwater Management Fees (USD): 2009-2015. Notes: Nonresidential (commercial) stormwater fees calculated as one acre of developed property with 40% of impervious surface.

Table 6.3 offers the residential and nonresidential stormwater management fees for the six non-rural counties along the coastal region of South Carolina. Each county has slightly different methods for assessing the residential and nonresidential fees, and each county may have differentiated fees based on location within the county. Further, some counties use the stormwater fee revenues to pay for all of the county-level stormwater management expenditures, whereas other counties supplement the spending with other sources of income, such as taxes and fees through other county or municipal services. Beaufort County charged the highest residential fee, whereas Charleston County charged the highest non-residential fee on a per acre basis. As discussed above, Berkeley County had some of the lowest per-capita stormwater expenditures within the coastal region. This finding seems consistent with the county’s residential stormwater fee, which is $10 less than the average residential fee within this region. Horry County levied the lowest residential and non-residential fees; however, Horry County was one of the fastest growing counties in terms of population and economic development, which may have offset the need to charge higher fees.

In Table 6.4, we examine the change in developed areas between 2006 and 2011. The land development data is based on the National Land Cover Database (U.S. Geological Survey, 2017), which classifies land into 20 different classifications. Columns (1) and (2) report land classified as: Developed, Low Intensity; Developed, Medium Intensity; or Developed, High Intensity. Column (7) demonstrates that every county experienced an increase in development between 2006 and 2011. The change in land development is significant because the South Carolina Stormwater Management and Sediment Reduction Act (1993) requires that any new, land-disturbing development activity have a stormwater management and sediment control plan. Additionally, if the plan necessitates a retention pond, then the developer is required to file for a stormwater pond permit. Therefore, Table 6.4 can be construed as an additional robustness check on county-level stormwater expenditures per pond permit (offered in Table 6.2). In other words, population increases are driving land development in South Carolina coastal counties; therefore, the number of stormwater ponds is increasing as well. Despite the increase in development, the government expenditures per pond permit declined between 2009 and 2015.

Table 6.4 South Carolina Coastal Region’s Change in Land Development: 2006-2011. Notes: Developed area represents area classified as: 1) Developed, Low Intensity; 2) Developed, Medium Intensity; or 3) Developed, High Intensity according to the National Land Cover Databases. Legend available at https://www.mrlc.gov/nlcd11_leg.php.

6.6.2 Enforcement Data for Horry County, South Carolina

To provide additional evidence that counties are moving away from the efficient level, we collected data from the Horry County Stormwater Management Department (HCSMD). We chose Horry County for two reasons. First, among the coastal counties in South Carolina, it has the largest concentration of stormwater ponds (Chapter 1), and it experienced the greatest amount of land development between 2006 and 2011 (Table 6.4). Second, HCSMD utilizes the Cityworks and Energov platforms to manage, track, and analyze infrastructure assets. We used these platforms to collect inspection and compliance data on stormwater ponds.

According to the Horry County Stormwater Design Manual (Horry County, 2017), the stormwater management office will conduct periodic maintenance inspections over the useful life of a pond. The purpose of the inspections is to ensure that “…permanent maintenance is being performed by the maintenance schedules for the various stormwater management facilities in the County permit or approved stormwater management plan” (Horry County, 2017, p. 81). According to the HCSMD’s Best Management Practice Inspection Program, the goal is to conduct a post-construction inspection for each pond once every two years.

The HCSMD provided data on construction and post-construction inspections that occurred between 2010 and 2017. The HCSMD manages their post-construction inspection data using the Cityworks platform, and the data includes the date of the inspection, an itemized list of inspection criteria, and inspector recommendations. The inspection data lacks a field indicating if the pond is in compliance or not; therefore, we treat a pond as non-compliant under the following conditions: 1) the inspector listed recommended maintenance; 2) the inspector includes specific instructions or indicated routine maintenance for any of the inspection criteria. Given this definition, non-compliance suggests that the pond manager has not maintained the pond up to the level specified in the county permit or the approved stormwater management plan.

Table 6.5 Horry County Stormwater Management Department’s Retention Pond Inspections. Notes: The “Count of All Inspections” column includes both construction and post-construction inspections.

Table 6.5 presents inspection and compliance statistics occurring in Horry County, S.C. between 2010 and 2017. We calculated the percent of post-construction inspections relative to all inspections conducted, as well as the percent of post-construction inspections that resulted in a “compliant” status. During this period, the HCSMD conducted 6,773 inspections, of which, 484 (approximately 7%) were post-construction inspections. The number of inspections has increased over time; however, the number of post-construction inspections relative to the cumulative number of inspections conducted fell every year. We interpret this as declining government enforcement efforts targeted towards existing ponds. If the HCSMD were to meet its stated goal of inspecting each constructed stormwater pond every two years, then HCSMD would have to conduct 3,900 post-construction inspections each year. We interpret the information in Table 6.5 as evidence that the HCSMD is moving away from the efficient level, and, by extension, other municipalities are as well.

6.7 Summary and Recommendations

In sum, we argue that current governmental enforcement of stormwater management leads to a reduction in stormwater runoff, but not at a level that maximizes social welfare. Due to the nature of retention ponds as an impure public good, it is difficult to regulate stormwater runoff efficiently. Based on the theoretical model, and examples from the South Atlantic coastal region, we demonstrated that government expenditures on stormwater management are costly. We also provided evidence, based on the limited economic literature, that stormwater management offers positive social benefits, and we claimed that these benefits are arguably diverging from the social costs of stormwater runoff. Given the high cost of enforcement, we posited that the government’s current disincentive structure (fees, penalties, and implementation, among others) is limited in affecting a reduction in stormwater runoff, so the disincentives should be combined with an incentive program, a potentially less-costly alternative. In other words, the government needs to offer a carrot in addition to a stick to induce the optimal management of stormwater runoff.

The optimal government program for reducing stormwater runoff is essential for the South Atlantic coastal region in particular, which is primarily vulnerable due to hurricane activity, low elevations, moderate year-round rainfall, and a growing population. This problem will arguably become exacerbated in the future due to climate change and sea level rise. In addition to well-designed government programs, future research is needed to estimate the social costs and benefits of stormwater management. Specifically, additional research is needed to better understand at least three aspects of stormwater management services. First, future research should offer a more comprehensive empirical analysis of the cost and benefits associated with stormwater ponds and stormwater management. For example, nonmarket valuation techniques, such as revealed preference or stated preference methods, could be used to continue analyzing the benefits of such services. Second, future research should attempt to better understand the supply side of stormwater management, why a potential underprovision of stormwater services may be offered, and the impacts of the underprovision of stormwater management on society. Three, additional research needs to further explore the funding needs and financial incentives offered by stormwater utility services. As a social science with a well-established literature of non-market valuation, the field of economics needs additional research dedicated toward better understanding stormwater runoff systems and mitigation.

Research Gaps

• In addition to well-designed government programs, future research is needed to estimate the social costs and benefits of stormwater management.
• Future research should attempt to better understand the supply side of stormwater management.
• As a social science with a well-established literature of non-market valuation, the field of economics needs additional research dedicated towards a better understanding of runoff systems and mitigation.

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Chapter 7 – Communication Recommendations for Improved Stormwater Pond Maintenance in Coastal South Carolina >