Sanitary Sewer Issues Impacting New and Existing Developments In Miami-Dade County

Bilzin Sumberg Client Alert
Client Alert
November 7, 2012
The condition of the Miami-Dade County sanitary sewer system continues to be one of the most relevant topics in the local news. Whether it is the potential to halt new development in a particular area, or the projected $12 billion price tag for the fix, one way or another, every resident of Miami-Dade County will be affected.

To those who developed property in Miami-Dade County in the early 1990s, the story may sound all too familiar. Just as it did nearly two decades ago, the federal government has again stepped in, and Miami-Dade County is again negotiating a consent decree. The major difference this time, however, is that while the 1995 decree dealt with lack of capacity, the decree currently being negotiated deals with deterioration and the overall failure of the current sewer system.

Existing 1995 Consent Decree
Seventeen years ago, Miami-Dade County and the Environmental Protection Agency ("EPA")
negotiated a consent decree based on capacity of the Miami-Dade County sewer system. The 1995 decree created the current benchmark of ten operating hours per day for each pump station. Pump stations, along with the pipes and other wastewater collection and transporting facilities, are an integral part of the Miami-Dade County sewer system. Pump stations are used to connect wastewater to the larger force mains that transport the wastewater to the County water treatment plants.

Under the 1995 consent decree, if pump stations hit the magic number of ten operating hours per day, they are deemed to be operating at maximum capacity and are placed in "moratorium" status. This means that no additional properties (whether residential, commercial, or industrial) can be connected to the pump station. When a moratorium is in place, developers must explore alternatives to connecting to the existing sewer system. Options include using septic tanks (which are subject to significant limitations based on the use of the property, projected sewer flow, etc., and may require variances from the County Environmental Quality Control Board), the construction of new pump stations or lift stations at a hefty cost, or unfortunately, in the worst case, halting the development.

Pump Stations Out of Compliance
The increase in development along with the need for additional funding to repair the stations has caused a marked increase in the number of stations hitting moratorium status. According to the Miami-Dade County Water and Sewer Department, while ten pump stations ordinarily go out of compliance in a given year, approximately 60 stations have gone into moratorium status in the last 12 months. The end result is that over 100 pump stations, just under 10 percent of the County's pump stations, have gone into moratorium status or are upstream from a necessary station that has gone into moratorium status. Affected areas currently include Coconut Grove, large areas in Coral Gables, Doral, and numerous other areas throughout the entire County. Other areas are teetering on the verge of capacity issues, and while not currently in moratorium status, are in danger of being placed in moratorium status.

Once a pump station goes out of compliance with the ten-hour rule, required repairs or modifications typically cost in the one million dollar range and can take 12 to 18 months (including planning, design and contracting work) to complete. However, the stations historically are repaired in order of their failure date as opposed to the extent of their anticipated service area or need, and due to the current backlog, the repair of any particular pump station can take several years to complete from the time of failure.

Current Conditions and Deterioration and Funding
There have been several news articles on the current condition of the Miami-Dade County Water and Sewer System and the staggering costs to bring the system into compliance. The focus of the EPA's current consent decree is on the aging wastewater infrastructure and deterioration rather than just the capacity of the system, although the new consent decree will likely incorporate capacity to some extent as the 1995 decree will be subsumed into the proposed new consent decree. The wetter than normal rainy season has exacerbated existing conditions, but the EPA had already focused on Miami-Dade County as one of numerous jurisdictions throughout the nation with which it is pursuing consent decrees based on the current condition of the sewer system. The end result is that approximately $12 billion of infrastructure repair and improvements are needed over the next 10 to 15 years, with approximately $1.4 billion in immediate repairs to address critical issues.

The required improvements and system upgrades represent one of the largest, if not the single largest, capital infrastructure investments in our County's history. This investment represents what is needed just to bring the system into compliance, though certain logical upgrades will likely be included. Funding for this undertaking will have to come from various sources, and while a significant portion will likely come from bonds, they almost necessarily also will be derived partially from the often unpopular discussion of rate increases. The County is often quoted as having one of the lowest water and sewer rates in the nation. However, these low rates have come at a cost to the reliability of the sewer system, and based on current proposals, residents should anticipate a 9% increase over the next year (which may be broken up into two increments), followed by 6% annual increases thereafter for a period of time. Even with these increases, it will take time to catch up to the rates paid in many other areas in the state and throughout the nation. The County Commission has a pending resolution directing the County Mayor or Mayor's designee to identify additional sources of legally available funds (including general obligation bonds and convention development tax funds) to help fund the repair and replacement of the systems

New Consent Decree Coming
The new consent decree is being negotiated and must obtain approval by the United States Department of Justice and then the Miami-Dade County Board of County Commissioners, which is anticipated to hear the matter before the end of the year, possibly during the first week of December. The consent decree is likely to include some civil penalty, though there is an obvious recognition that every dollar spent in penalties is a dollar less that is available to undertake the necessary and critical infrastructure improvements.

The new consent decree would replace the 1995 consent decree but may incorporate some flexibility in the current ten-hour limitation on pump station operating time. The new decree may, for example, permit new de minimis connections to stations that have not had capacity related overflow and may potentially permit up to 12 hours of operating time in certain circumstances.

Sub-Basin Fees And Future Development
The moratorium issue is not new, but there has been a marked increase in the number of stations entering moratorium status. In order to address the lack of capacity in certain critical areas of development, the County has adopted sub-basin connection fees to help fund ongoing improvements to prevent an outright bar to development in certain large areas. These connection fee surcharges were adopted for the Brickell Basin II area earlier this year, but similar surcharges date back to 1985 for areas including Brickell, Downtown Kendall, and West Flagler. The surcharges generally terminate when the County Water and Sewer Department has been reimbursed for a predetermined amount (usually a percentage) of the actual project construction costs of the new facilities funded at the time of the ordinance implementing the surcharge.

With the marked increase in needed capital just to repair the existing system, in order to provide new capacity to developing areas, it is likely that new connection surcharges similar to those currently in place in the Brickell area will become the norm. Doral, for example, is currently a hotbed for new development and has a system that is likely unable to support the sewer needs of that development. Doral is therefore a likely candidate to join the list of areas with surcharges in the future. We understand that the Water and Sewer Department is actively working with the Mayor's Office and the Department of Regulatory and Economic Resources to prioritize the basins currently under moratorium in terms of development potential and to adequately fund and accelerate the process of bringing the pump stations into compliance.

To be sure, sewer costs are going up. This includes the connection costs for new developments and redevelopment, as well as the monthly operating costs for all users of the sewer system. However, without the needed repairs and new sanitary sewer facilities in developing or redeveloping areas, development could be severely curtailed throughout the region. The impact on the South Florida economy of such a de facto moratorium on development could be disastrous.

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