Snow Hill Charrette

Snow Hill, Worcester County
Maryland

Population: FY'96 Budget: Households: Assessable Base: Municipal Property Tax: Median Household Income:

2,217 $909,624 866 $697,415 $1.80/$100 $24,868

Town Background

Snow Hill, a town of 2,217 residents, was settled in 1642 by a small group of colonists. The town is located on the Eastern Shore of Maryland along the banks of the Pocomoke River, which runs along the western edge of town and drains to the Chesapeake Bay. The town is situated at the intersection of Route 12 and Route 394, thirty minutes from Ocean City, a major summer resort on the Atlantic.

Snow Hill grew and prospered as a farming and business community, with the river playing a key role in its development. Chartered in 1686, the Town of Snow Hill was made a Royal Port in 1694. By 1740, the population had grown and when Somerset County was divided into Worcester and Somerset Counties in 1742, Snow Hill was designated the county seat of Worcester County. Today, emphasis is placed on developing the town's full recreational potential, and on maintaining its quiet, brick-sidewalked, tree-lined streets, enriched by lovely old houses.

Small businesses, located along the Route 12 corridor that enters Snow Hill from the west before crossing the Pocomoke River, serve the needs of the Town as well as surrounding agrarian interests. The Route 12 businesses include a recently constructed Nursery School, a local Tastee Freeze, Scarborough Oil, Central Implement, and The Cannery - river front property proposed for a new restaurant. A Tyson's Foods hatchery there has recently closed.

The Issue

The businesses along Route 12 have always been an essential part of the Snow Hill community, providing jobs and services to the residents of the Town. The recent decline of the area has been due in part to the fact that no central utility systems exist there, thus restricting redevelopment of the properties. Over the past several years the property owners in that area have petitioned the Town to annex the area and to provide, as a minimum, a central sewer system to eliminate the need for on-site septic systems which regularly fail due to a high groundwater table and frequent flooding of the area.

The Town of Snow Hill currently has a wastewater treatment plant located adjacent to the Pocomoke River. The plant was constructed in the early 1980s and was sized for an average flow of 500,000 gallons per day (GPD) with a peak flow of 1.75 million GPD. Although the treatment plant consistently meets permit requirements, the pumps are undersized to handle both the existing in- town flow and future Route 12 flows, and therefore a central utility system is needed to service both.

Without the extension of sewer to the Route 12 corridor, properties along the corridor will be hampered in their attempts at further development, and a number of the properties could potentially be destined for closure by the Health Department due to the failure of on-site septic systems.

Environmental Context

The deteriorating on-site septic systems of the Route 12 properties could have potential ill effects not only on the quality of the drinking water for that area, but also on the Pocomoke River, which drains to the Chesapeake Bay.

While the health and environmental concerns are more urgent for some property owners than others, the long-term need is apparent, and property owners should expect an increase in market value upon access to public sewer. The essential issues would appear to be whether the benefits conferred by the system are substantial enough to justify its cost and, if so, the method by which the cost of the system could be equitably distributed among the properties benefited.

Project Financing

The Route 12 corridor businesses commissioned an engineering firm in June, 1994 to devise a sewer plan, estimate the expenses associated with that plan and devise a formula for distributing the cost of the system equitably among the properties. The Mayor and Council of Snow Hill and the property owners along the Route 12 corridor desire that the present Town users not incur additional expenses due to construction of the Route 12 Sewer Extension Project.

The engineer's report recommended the installation of a conventional sanitary sewer system which would cost approximately $750,000. On behalf of the Route 12 corridor, the Town of Snow Hill applied to The Farmers' Home Administration (FmHA) for a loan in the amount of $750,000 to fund the project. The loan was approved and would be amortized over a period of forty years, creating a debt service in the amount of $40,000 per year at a rate of 4.5%.

The formula that has been derived allocates the cost of the system to the individual property owners in direct proportion to the volume or flow each individual property will generate. Volume is measured in terms of Equivalent Daily Usages (EDU's) - the volume of wastewater flow which would be generated by an average single family household - and is based on the nature of the usage of the property.

In essence, the $40,000 debt service will be divided by the number of EDU's to determine the cost of each EDU. The cost to each property owner will be the product of multiplying the cost per EDU by the number of EDU's purchased by the owner.

On average, small to medium-size businesses generate approximately 900 GDP of sewage, which equates to 3 EDU's; therefore each commercial property along Route 12 should be assigned a minimum of 3 EDU's. Property owners, however, may elect to purchase fewer EDU's than set forth in the allocation. In the event a property owner underestimates his or her needs and later requires additional EDU's - owing to, perhaps, either an underestimate as to the sewer needs for present usages, or increased needs for changed usages or additional development - he or she will be required to pay impact fees over the first 3-5 years of the FmHA loan debt. While the cost per EDU at that time will be substantially higher, the idea is not necessarily to punish those who commit late; but instead, to reward those who chose to commit early.

Using the present tax rate and the present assessed values of the Route 12 property owners, the present yearly tax would be $13,111.40. To offset the burden of the impact fees on the Route 12 property owners during the 3-5 year period, the town would waive both property and personal property taxes.

Recommendations and Observations

1. Since the design and financing of the Central Utility System has been devised, the key issue in this case is how to allocate costs and how to fund the "beginning" of the project. Long-term funding has been secured, but Route 12 property owners must be willing to commit up-front to the construction and cost of the new sewer system. One of the key difficulties, then, is urging users to "pay now" rather than to "pay later." This is difficult despite the knowledge that paying later will certainly mean higher costs. Those who are willing to pay for improved sewer services now have the challenge of "selling" this idea to those who see no reason to act now, since they may not be faced with an impending penalty, system failure or other motivation for immediate change.

2. The Town could consider pre-financing through user fees if it agrees that growth and development are a priority. Any new development would pay impact fees and these fees would reimburse the Town. With this option the Town will not need the EDU's up front and will assume the risk until the area develops and more people buy EDU's and pay impact fees.

3. The town could strike a deal with one or two property owners who were especially interested in moving this project forward, perhaps because of plans to develop or expand. With the extra aid of these property owners, the project could more easily get over the initial financing "hump."

4. Funds can come from a variety of sources - FmHA, Maryland Department of the Environment (MDE), Community Development Block Grants (CDBG), and the State Revolving Fund (SRF). To be considered for CDBG, the project is approached in terms of community development and economic development. Currently, the Maryland State Revolving Fund can lend money for no more than 20 years - however, pending legislation would increase this limit to 30 years. The SRF lends at a low, floating rate (e.g., 3.2%).

5. If financing continues to be a problem, the town could consider the Maryland Municipal Pool Loan Program - recently established by the Maryland Economic Development Corporation (MEDCO) in conjunction with Nations Bank - which offers jurisdictions a tax exempt variable rate bond. Borrowers (government entities) pay on a monthly basis and may borrow at a term of 20 to 25 years. Also, the Maryland Industrial Land Act (MILA), a program at the Maryland Department of Business and Economic Development - allows local jurisdictions to borrow money from the state under a "utility" category.