User charge system and sewer use ordinance
A municipality receiving financial assistance from the Clean Water Fund Program (CWFP) must adopt and maintain a user charge system (UCS). The UCS must proportionally distribute the costs of operations and maintenance among users and must generate sufficient revenue to cover all the costs of the municipality's sewerage system. In addition, the municipality must adopt and maintain a sewer use ordinance (SUO) for its sewerage system.
User charge system
A UCS is a written description of the methodology by which a municipality will recover the costs of building, operating and maintaining the sewerage system. Under the CWFP, user charge systems are required for all wastewater facilities and any urban storm water facilities financed by revenue bonds. A UCS typically identifies the costs of operation and maintenance (including the equipment replacement fund), revenue bond debt service, and specifies the methods for charging these costs to users. The UCS must be incorporated into an SUO or other municipal ordinance.
UCS requirements
Each user charge system must do all of the following:
- Proportionally distribute the costs of operation and maintenance among the users or user classes.
- Ensure sufficient revenues are generated to pay for all costs of the system including operation and maintenance, annual equipment replacement fund deposits, debt service on revenue bonds and debt coverage on revenue bonds.
- Require the establishment and funding of an equipment replacement fund (ERF).
- Establish a financial management system.
- Require a review of the UCS every two years.
- Require that any discharger of toxic waste pay for the treatment of that waste.
Note: A municipality with joint sewer and water utilities under the jurisdiction of the Public Service Commission of Wisconsin must get PSC approval of the user charge system.
Types of user charge systems
There are a number of different models of UCSs. Any of these models can be used as long as the UCS meets the requirements listed above.
The user charge usually has two components:
- a charge for debt service for capital costs; and
- a charge for the cost of operating and maintaining the sewerage system.
A typical user charge system will impose a fixed charge to recover the capital costs for construction of the sewerage system and an operation/maintenance charge (or volume charge) to recover the cost of treating the wastewater.
In metered municipalities, the fixed charge is often based on the size of the water supply pipe, and the volume charge is based on the amount of water used.
In communities without meters, charges are generally on a per Residential Equivalent Unit (REU) basis. One REU is intended to represent the equivalent of a single-family residence. Commercial, institutional and other residential facilities are assigned REUs based on the expected flows from each type of facility.
Typical flows from various types of facilities are provided in ch. SPS 383 Appendix, Wis. Adm. Code or from the Department of Safety and Professional Services (DSPS).
Utility revenues
Revenues of the sewer utility or storm water utility must be sufficient to cover all of the expenses of the utility. Utility revenues are typically generated from sources that include:
- user fees
- earnings on utility investments
- special assessments
- miscellaneous revenues
If a revenue bond is issued to fund a capital project, the revenue bond will normally include a debt coverage requirement ranging from 110% to 125%. In general terms, this means that the annual utility revenues remaining after paying utility operating expenses need to be equal or greater than 110% to 125% of the annual revenue bond debt service paid by the utility.
If the debt coverage requirement cannot be met, then the utility must consider raising its user charges to a level that will meet the debt coverage requirement. On a temporary basis, the municipality may need to transfer money into the utility in order to meet the annual debt coverage requirement.
The minimum debt coverage requirement for revenue bonds issued/sold to the CWFP is 110%. However, if the municipality has other utility revenue bonds outstanding with a higher debt coverage requirement (say 125%) then the debt coverage requirement for the bonds sold to the CWFP will also be 125%.
Sewer use ordinance
Loan recipients are required to implement the user charge system with a municipal ordinance. For wastewater projects, this ordinance is called a sewer use ordinance. In addition to implementing the UCS, the SUO establishes the requirements for using the sewerage system.
Typically, the SUO defines the types of wastes that can be discharged into the sewerage system, imposes requirements on industrial waste dischargers, establishes requirements for hooking into the sewerage system, and provides enforcement mechanisms.
Ordinance adoption requirements
The following are specific Wisconsin Statutes governing the ordinance adoption process:
- § 61.50, Wis. Stats. - Village
- § 62.11, Wis. Stats. - City
- § 59.14, Wis. Stats. - County
- § 60.80, Wis. Stats. - Town
- § 60.77, Wis. Stats. - Town Sanitary District
- § 66.0827, Wis. Stats. - Town Utility District
- § 33.22, Wis. Stats. - Inland Lake Protection and Rehabilitation District
UCS/SUO timeline
- Update UCS/SUO when preparing plans and specifications.
- DNR/Department of Administration (DOA) reviews the user charge system information in the application to determine if revenues will be sufficient.
- Public notice and publish the sewer use ordinance.
- Adopt the UCS/SUO before the Financial Assistance Agreement (FAA) is signed.
- Review the UCS/SUO at least every two years as required in ch. NR 162, Wis. Adm. Code.
UCS and ordinance requirements for storm water projects
Storm water projects have slightly different requirements for a user charge system and related ordinances. A UCS is only required for stormwater projects that either:
- receive a loan collateralized by a utility revenue pledge; or
- require an inter-municipal agreement.
Projects supported by a municipality general obligation (GO) pledge (and not part of an inter-municipal agreement) are not required to submit a user charge system.
- Contact information
- For information on this topic, contact:
- Dave Calhoon, UCS & SUO specialist