Discussion: Coconino County Flood Control District Potential Project Funding Options.

Coconino County (County) has requested feedback from elected officials of municipalities within the County regarding project funding options through the Coconino County Flood Control District (CCFCD). These requests were made at a meeting held on October 1, 2019. Two basic strategies are presented on how collected property taxes would be distributed to stakeholders in the County, including the County itself, for flood control projects: 1) Direct Allocation and 2) Competitive Grant. The direct allocation concept consists of the CCFCD distributing a percentage of the total CCFCD collected tax revenue to municipalities based on municipality's percentage of the total CCFCD property taxes contributed. The competitive grant process consists of the distribution of the CCFCD tax revenue to those applying to receive funding based on projects competing on their merits using a pre-defined and objective project ranking criteria. There has been some informal discussion among other municipalities on a hybrid of these 2 approaches, however, the Flagstaff Stormwater Section has not received any definitive proposal yet.

The competitive grant approach has the benefit of funding larger projects, but invites a more complex and potentially subjective process.

The direct allocation approach has the benefit of a simplified process, but annual funding might be less than what could be obtained through a fair competitive grant approach.

The information in this staff summary uses the best knowledge available by staff, but is not guaranteed to be error free.
 
During the last year, Coconino County has begun collecting property taxes assessed on properties located within the City of Flagstaff jurisdiction for the purposes of funding the Coconino County Flood Control District (CCFCD) as allowed by the Arizona Revised Statutes (ARS) Section 48-3602. Per ARS section 48-3603 and 48-3620, one of the primary functions of any flood control district in Arizona is to “implement flood control enhancement solutions” for the “common benefit” of the district.
 
State statues that govern flood control districts do not define common benefit, however the Arizona Revised Statutes (ARS) section 48-3604 does outline a process where a County flood control district may decide to divide itself into zones, presumably for the purpose of demonstrating common benefit of taxes collected in that zone versus flood control district expenditures in that same zone.
 
CCFCD held a stakeholder meeting on October 17, 2018 to discuss different approaches for the expenditure of CCFCD funds, primarily direct allocation versus open competitive grants.  The term “direct allocation” is a term coined by Coconino County in those presentations, however Arizona Revised Statues uses the term “zones” for essentially the same process.
 
A meeting was held on November 2, 2018 in the City management offices to discuss the information that was presented by the County. Staff made a recommendation at this meeting that the City proceed forward with a direct allocation approach with a hypothetical CCFCD zone map that I had prepared the week prior (attached as Exhibit A). It was determined at this meeting that additional research was needed to explain how other County flood control districts were using direct allocation and competitive grant processes. Staff completed this research in December 18, 2018 and this information was emailed by the Stormwater Section manager to Brad Hill, the Water Services division director. The results of this research are included below:
 
Example of Direct Allocation Process Used by Mohave County Flood Control District (or “Mohave County FCD”)
Based on staff research and phone conversations, Mohave County uses a direct allocation approach where property taxes collected from properties within municipalities is essentially returned to the municipality through Intergovernmental Agreements (IGA’s) based on that municipality’s percentage of total property taxes collected for Mohave County, however, the Mohave County FCD will keep a percentage of the tax revenue for their overhead and management costs, as allowed by ARS. Unincorporated areas receive funding for drainage improvement projects in their area based simply on the Mohave County’s FCD’s internal Capital Improvement Projects (CIP) program. Unincorporated area projects are reviewed for inclusion into Mohave County’s FCD CIP program once they are identified by flooding complaints or maintenance crews. To staff's knowledge, there is not a separate “small project” funding set-aside category of their CIP program.   If any of the municipalities needed more Mohave County FCD project funding that what was available from their annual allocation for a particularly large project in that jurisdiction, they would simply bank their allocation over several years until they were able to fund the project. As allowed by ARS, Mohave County’s Board of Supervisors also act as the Mohave County FCD Board. Direct allocation funding sent to municipalities is not a guarantee; Mohave County FCD will track and review projects for appropriateness and qualification for Mohave County FCD expenditures. 
 
Example of Competitive Grant Process Used by the Maricopa County Flood Control District (or “Maricopa County FCD”) 
The Maricopa County FCD has an advisory board that presents its recommendations to the Maricopa County FCD board for CIP funding. The advisory board receives recommendations from the Maricopa County FCD staff who rate projects submitted for review. According to a comprehensive report published on the Maricopa County FCD website, the report appears to publish all of the projects submitted by agencies for review and consideration, as the total list of needed projects is about $1.5B for an annual CIP budget of approximately $50M. The report also presumably lists all Maricopa County FCD projects completed since the Maricopa County FCD’s inception.
 
Per ARS, the advisory board consists of seven members: five members will be appointed residents with one from each district and qualified to vote, one ex-officio member will be the City engineer from the largest city, and the last ex-officio member will be a representative from the largest irrigation district. Of the five appointed members, three must be residents of cities in Maricopa County. ARS states that advisory boards are optional, but if a FCD wants to set one up, the rules are specific. As an interesting side-note, some counties in Arizona only have three districts and would not be able to fulfill this advisory board requirement if they in fact wanted an advisory board. Pima County actually has a 12-member committee that serves an advisory role. The Flagstaff city limits intersect four districts, and ARS does not specifically state that the three residents who must be City residents must come from different cities. Conceivably, a hypothetical seven-member Coconino County FCD advisory board might have four City of Flagstaff residents.
 
Budget and Project Ranking:
The Maricopa County FCD receives requests for funding and they process these requests based on a standardized process. The request is initially reviewed by Maricopa County FCD staff for completeness and administrative standards. City of Flagstaff staff has not confirmed what these administrative standards are in this particular context, but it is presumed that the project must meet Maricopa County project development standards and floodplain regulations, and must contain all information requested in their funding application. The Maricopa County FCD staff can deny the project from moving forward through the process. All projects are then ranked and sent to the advisory board for consideration, with the highest ranked projects recommended for approval. The projects are then ranked based on the following criteria with Stormwater Section Staff comments in parenthesis:

1. Funding Commitment/Agency Priority (20 points)

(Interpretation: Is the applicant ready to go and ready to fund their share?)

2. Flood Control/Drainage Master Plans (8 points)

(Interpretation: Did the applicant plan their project appropriately to consider regional impacts even though the project met all FCD standards?)

3. Flooding Threat (15 points)

(Interpretation: How serious is the flooding?)

4. Level of Protection (10 points)

(Interpretation: How much will the project improve the situation?)

5. Area Protected (25 points)

(Interpretation: Tell the Maricopa County FCD more about the flood reduction benefits of the project?)

6. Ancillary Benefits (12 points)

(Interpretation: Extra points are awarded for economic benefits, water quality improvements, wildlife enhancements, etc.)

7. Level of Partner Participation (12 points)

(Interpretation: Is the applicant ready to spend more than the required minimum percentage, or provide other means of cost share, such as in-kind services or dedications of land? Is there a third party funding addition?)

8. Operations and Maintenance (O&M) Costs to FCD (6 points)

(Interpretation: Will the applicant operate and maintain the project after its built?)
 
It appears that the Maricopa County FCD is trying to set up a means where benefits and costs are defined as points instead of a more formal benefit cost ratio (BCR).
 
The Maricopa County FCD Comprehensive Report from 2015 suggests that the largest projects selected for funding constituted about 20% of their total Capital Improvement Projects budget. All projects funded by the Maricopa County FCD will require an Intergovernmental Agreement (IGA). The Maricopa County FCD CIP budget has a portion of it allocated for small projects to reduce “red tape” and get small projects built relatively quickly. This “small project fund” is called the Small Project Assistance Program (SPAP) and typically constitutes about 6% of the total Maricopa County FCD CIP budget on average. Project costs are construction only, and typically cannot exceed approximately 10% of the SPAP budget. The Maricopa County FCD pays up to 75% of construction costs only; No operations and maintenance (O&M), property acquisition, permitting or project design/planning costs are paid by the Maricopa County FCD. Funding is meant for a single project (not phased), and typically more focused on the prevention of flooding of structures rather than including considerations of ancillary benefits.
 
Requests for SPAP funding will be reviewed by the Maricopa County FCD staff using a simplified project scoring matrix but the SPAP project may be referred to the more comprehensive general CIP project ranking process.
 
The SPAP project ranking criteria is as follows:

1. Smallest storm event flooding the structure(s)?

(Interpretation: This is a measure of how severe the flooding is.)

2. Number of structures being flooded?

(Interpretation: How widespread is the flooding?)

3. Number of times the structure(s) have been flooded?

(Interpretation: This determines whether the structure(s) actually flooded or flooding is theoretical?)

4. Does project incorporate water conservation, alternative stormwater management or 3^rd party funding?

(Interpretation: Extra credit for ancillary benefits.)

5. Smallest storm flooding roadway or access?

(Interpretation: Flooding of transportation infrastructure is also a problem of flooding.)

6. Design plans complete?

(Interpretation: Is the applicant ready?)

7. Does project have all right-of-way and/or easements in place?

(Interpretation: is the applicant ready?)

8. Is the project one of the applicant’s top priorities?

(Interpretation: Self explanatory.)
 
The following project ranking criteria were proposed by Coconino County at their October 17, 2018 stakeholder meeting:

1. Level of mitigation.
2. Structures mitigated (number and to what degree).
3. Mitigation to critical infrastructure.
4. Is project in a FEMA recognized floodplain?
5. Historic flooding issues.
6. Alignment with applicant’s Drainage or Floodplain Master Plans.
7. Simple Benefit Cost Analysis.
8. Applicant’s financial contribution.

City of Flagstaff Stormwater CIP Current Project Ranking Criteria
The City of Flagstaff’s current Stormwater Section CIP Project Ranking Criteria is the following (each with a maximum 10 points)

1. Urgency – Is there a bridge about to crumble?
2. Severity of Hazard – Is the structure subjected to 1 foot of water or 8 feet of water?
3. Feasibility – Does project have community support and property rights in place?
4. Cost – What are the benefits relative to cost?
5. O&M – What positive or negative impact does project have on the City’s O&M costs?
6. Regulatory Compliance – Does project correct a regulatory deficiency such as non-code-compliant structures?
7. Environmental and Sustainability – does project promote/benefit the City’s environmental and sustainability goals?
8. Other Community Benefits – does project promote/benefit other City goals?

The Staff research report concludes with a recommendation that the City pursue a direct allocation approach.

On November 16, 2018 a letter from the Flagstaff City Attorney to the Coconino County Attorney and the CCFCD states “…plans presented by the County officials raise several concerns. The County’s plans demonstrate the County has already made conclusions about projects and priorities for the expenditures of tax payer dollars.”

The CCFCD held a stakeholder meeting with staff from municipalities in March 2019. On April 9, 2019, the City of Flagstaff sent a letter to the CCFCD on behalf of the municipalities stating, “Based on the information provided by the County over the past several months, it is clear that the CCFCD has not changed their priorities for projects and thus plans to move forward with them as previously defined, and without the benefit of a master plan which would identify drainage and flood control needs within the District as a whole. As the City of Flagstaff has expressed numerous times in various formats, this is not acceptable as it provides no opportunity for the cities/towns taxed by the County to fairly compete for projects funded by tax dollars taken from their own residents. The Flood Control District has picked specific projects without an equitable process.”  
Information received from the CCFCD indicates that the City of Flagstaff residents contribute approximately 50% of the current $2.5M to $3M tax revenue, and the total CCFCD budget is anticipated to increase in the future from increased property taxes.

In April of 2019, the CCFCD staff presented to the CCFCD Board of Directors several options for the expenditure of CCFCD revenues, and none of the options presented follow either a direct allocation or competitive grant process. The City of Flagstaff received an email from the CCFCD staff with a copy of the presentation that is assumed to be the same as what was presented to the CCFCD Board of Directors. Option 1 highlights the highest CCFCD priorities as it represents the leanest proposed CCFCD budget. Option 1 lists the following categories:

Salary/ERE’s – $380,500
Operations –  $575,000  (Itemized forest restoration and plan implementation of $185,000 for Mormon Mountain, Sedona/Oak Creek and Munds presumed to be included in $575,000)
Capital: Forest Restoration for Bill Williams Mountain  - $650,000
Capital: Air Curtain – $130,000 (this is smoke reduction equipment for waste biomass burning)
Mountain Dell – $1,980,000
Total = $3,715,500 (this is added here but not listed in the presentation)

The April-CCFCD presentation does show details for a hypothetical direct allocation program, and includes a line item for direct allocation within proposed larger CCFCD budgets created through tax increases, however the amount of direct allocation ranges from 6% to 10% of the total CCFCD proposed budgets.

Concerns from staff that have not yet been addressed:

1. How has the CCFCD determined that the proposed costs for Salary/ERE’s and Operations complies with state law? For example, does the preparation of forest restoration studies count as “operations”, or should they be defined as “projects”?

2. How were projects listed by the CCFCD as highest priority objectively ranked through a transparent process to show common benefit to the district? There are no City of Flagstaff projects listed in Option 1 of the April 2019 CCFCD presentation. The City of Flagstaff Rio de Flag project, that represents a flood control project affecting most of downtown and NAU, is not listed. Bill Williams Mountain forest restoration is listed, but nothing from the Flagstaff Watershed Protection Project within the City of Flagstaff.

3. How will emergency response expenditures be defined? For example, IF emergency response is defined as ALL costs associated with flood emergency response/flood damage correction/flood threat mitigation/infrastructure improvements needed for all downstream areas from the burned watershed conditions from the Schultz Fire, would that that same definition be applied to the Museum Fire response? 

4. ARS Section 48-3616 D. states, “After a flood control district has been established in a county with a population of fewer than three hundred thousand persons, the chief engineer may conduct a survey of flood control problems, prepare a comprehensive program for flood control and a five-year capital improvement program pursuant to this section. He shall at least make an assessment of flood control problems in the area of jurisdiction and make an annual report of his findings and recommendations for dealing with them to the board.” Where is this assessment that includes the City of Flagstaff? If the City of Flagstaff is not represented in this assessment, how can City of Flagstaff residents be taxed?

Conclusion
The Stormwater Section staff interpret the actions by the CCFCD thus far as a negative bias against the City of Flagstaff, and therefore direct allocation is recommended. However, direct allocation as thus far proposed by the CCFCD, is unacceptable as the allocation is being defined as a small percentage of the CCFCD budget, and the direct allocation is being defined exclusive of budget allocations for CCFCD projects.

The Stormwater section staff recommends that the City of Flagstaff draft a resolution that expresses support for a direct allocation approach of distributing collected CCFCD tax revenue to the City of Flagstaff and other interested municipalities for their flood control projects however, the such a resolution should include conditions that the allocation is defined after reasonable subtractions needed from the CCFCD for their administrative and operations costs as allowed by state law. The resolution could also include conditions for the competitive grant approach as an alternate approach.

The Stormwater Section is examining other alternatives for CCFCD accountability including transfer of floodplain management responsibilities from the City to the CCFCD to ensure that the City of Flagstaff is unquestionably part of their area of jurisdiction, and as such, search for construction funding for the Rio de Flag project and forest restoration in the City of Flagstaff for the Flagstaff Watershed Protection project. ARS does allow the CCFCD to refuse to fund municipal projects that have already been initiated, however ARS does not define the term "initiated" in the statutes that govern flood control districts as applied to the aforementioned City projects. For example, many projects in other flood control districts in Arizona are defined as construction, and therefore the project was indeed not initiated if only design has been completed.