The Real Deal - Fall 2019 Issue

Date: October 10, 2019

Recent Stormwater Regulations and Development Concerns in the Mid-Atlantic

By: Stephen E. LuttrellM. Trent Zivkovich

Aging infrastructure, a desire to reduce pollutant loads, rising sea levels, and the impact of more intense weather events have created an urgent need for state and local governments to upgrade their water infrastructure, including stormwater systems. The public focus on water infrastructure tends to gravitate towards clean water and wastewater issues given the immediate public health impacts when those systems are not properly functioning. While those issues are important to address, stormwater infrastructure plays an often unseen and increasingly critical role in our communities.

Frequently neglected, stormwater infrastructure tends to be a patchwork of systems implemented at the municipal and subdivision level designed to collect, filter, and convey stormwater runoff from storm and flooding events away from areas where it may collect and cause flooding to an outfall point. The regulatory scheme governing the implementation of stormwater systems focuses on preventing water quality impacts to the water body at the outfall point. The federal Clean Water Act imposes stormwater outfall permitting and water quality requirements on local governments through the Municipal Separate Stormwater System (“MS4”) permitting system, which also imposes stormwater-related development reviews and costs. However, the impacts of more extreme weather events and sea level rise place an increasing stormwater load on these systems causing severe and prolonged flooding. This emerging pattern has pushed legislatures in the Mid-Atlantic and Northeast regions to consider new investments, taxes, and regulatory programs to control and upgrade their stormwater infrastructure. The burden of these new programs will fall on real estate owners and developers who will be stuck between the dilemma of increased costs and regulatory burdens versus improved infrastructure that facilitates development.

The State of Maryland and the District of Columbia have enacted so-called “rain tax” laws to offset the impact of development on stormwater management. In Maryland, the purpose of the law is to establish the local means and funding to provide for the remediation and maintenance of the state's stormwater management facilities, streams and creeks in its most heavily developed areas. The state law authorizes local jurisdictions to charge property owners fees based on a flat rate, by a graduated amount based on impervious surface or by other reasonable methods.  Jurisdictions are required to give credit against the fee charged to property owners to account for measures that reduce the quantity or improve the quality of stormwater discharged from a property, along with those subject to substantial economic hardship. The D.C. Department of Energy & Environment also charges a separate stormwater fee, in addition to requiring developers to adhere to certain stormwater management practices and standards. These standards may be particularly difficult to meet when the District’s development constraints leave little room for pervious surfaces to reduce stormwater runoff.

New Jersey is the most recent state in the region to address this problem through new legislation and provides a useful case study. The impact of increased flooding in New Jersey communities has been documented extensively in the news, by government agencies, non-profit groups, and the business community. A statewide task force and the New Jersey Infrastructure Bank both reported recently on the dire need to invest in the state’s water infrastructure. As reported by the Press of Atlantic City in its “Rising Waters” series, a Rutgers University professor posited that the impact from melting ice caps will result in a disproportionate impact to South Jersey communities via rising sea levels in the Delaware and Chesapeake estuaries. Nonprofit groups such as Jersey Water Works advocate for a holistic approach to water infrastructure including green infrastructure that reduces the volume of stormwater runoff by returning groundwater or retaining it for beneficial use. Of concern to developers, a major credit rating agency announced that its government bond ratings would consider whether a government issuer is prepared for climate related threats to its infrastructure. Critically, their analysis considered whether local governments were planning and investing in stormwater infrastructure to prevent the economic impacts caused by climate-related flooding, citing Superstorm Sandy and Hurricane Katrina as examples of the long-term economic impacts caused by these events. In response to the these concerns, earlier this year the state’s legislature passed the “Clean Stormwater and Flood Reduction Act” that authorized local governments to create new stormwater utilities with the power to assess fees, create oversight bodies, and make investments in stormwater infrastructure, and impose development requirements.  The impact of this legislation will take time to play out as the local governments decide whether to use their new-found authority. But, it is safe to assume that it will add complications to already challenging regulatory environment for real estate developers and owners.

Richmond Continues to Assess Short-Term Rentals

Through public hearings continuing into fall and winter 2019, the Richmond community continues to debate the benefits and shortcomings presented by the city’s proposed Short-Term Rental regulations (STRs, in short). May marked the close of the survey period in which Richmonders could share their thoughts on proposed regulations, and the public hearing period since has revealed the community’s concern and frustration regarding those significant questions left unanswered by the proposal.
By way of background, Richmond homes have for several years played host to online rental platforms like Airbnb, FlipKey, and HomeAway. These STRs are currently illegal under the Richmond City Zoning Ordinance without a Special Use Permit, though enforcement is conducted solely on a complaint basis. Richmond’s interest in addressing how to regulate STRs originated from the 2015 UCI Road World Championships, when hundreds of Richmond-area properties were offered up as rentals to race-day visitors. Since then, the General Assembly passed a bill preserving the ability for localities to implement local regulations and create registries for STRs, and developed draft regulations following a review of other localities’ approaches. Richmond has not yet implemented any regulations governing STRs, though STRs continue to be available illegally in hundreds of area homes.
The opportunity presented by the proposed regulation removes the need to obtain a Special Use Permit for home-based operators only, instead requiring these operators to register to obtain a Certificate of Zoning Compliance (CZC) for Short-Term Rental on a biennial basis, for $300. STRs would be permitted uses in any zoning district permitting residential uses, and would be available to both tenants and property owners alike, provided the STRs are the operators’ primary residences (domiciled at least 185 days per year). The hang-up for would-be commercial STR operators is the standing requirement to obtain a special use permit – an elusive prerequisite to operating in the otherwise burgeoning STR sphere.
Besides the obstacle of the special-use permit, complaints voiced in the community surround uncertainty relating to effects on parking, noise and use complaints and enforcement, tax implications, and quality concerns.
The run-down on each item in turn: 1) The city has not yet provided clear answers as to how increased parking congestion would be handled with the projected rise of incoming visitors once STRs are legalized (if ever they are). 2) The proposal places limits on guest capacity, but the threat posed by a repeat of that locally infamous and now-condemned Church Hill Airbnb listing, a home in Richmond whose floor collapsed in January 2019 under the weight of too many visiting party-goers, presents a strong cautionary tale. Complaint-based enforcement and general references to third-party registry monitors provide little potential redress for concerned neighbors. 3) Opportunity typically comes with tax implications. The value to the city is unclear in this case, though, as the actual contingent to which the 8% transient occupancy tax for multi-family and larger single-family operators would apply constitutes a minute percentage of potential STR operators. Primary-residence operators (the vast majority of potential legal operators) would not be subject to additional business licensure requirements or taxation under the proposed regulations. 4) Finally, the practical effects of the domicile requirement along with the difficulty in obtaining special use permits means that renters can expect to lose the services of those STRs operated by professional, experienced commercial business owners, who otherwise make many a visitor feel safer and more secure in renting temporary spaces. The risks of operating illegally will push any commercial owner with well-run, trustworthy options away from the market rather than towards it.
More to come as Richmond continues to mull over the STR option.