Coastal Services Center

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A Review of Project Cost Share Allocations and Funding Formulae Used by State, Local and Private Entities

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State and local policies on funding of beach nourishment projects differ widely throughout the Atlantic and Gulf states. Coastal states, recognizing the positive economic impacts of healthy beaches, have begun to adopt dedicated funding sources to assist local government in funding beach nourishment projects. The types of beach nourishment projects—both publicly and privately funded—include beach nourishment, dune/berm enhancement, coastal structures in concert with sand placement and inlet and navigation channel dredging with material disposal on the beach. In an effort to achieve fairness and equity in the distribution of these monies, states are moving to adopt policies and specific funding formulae to determine a project's eligibility and ranking.

Federal Cost Participation

Federal cost participation for beach nourishment may be available for beaches on which there is sufficient public access. The maximum federal cost share is 65 percent for initial project construction and 50 percent for subsequent beach maintenance.

The process of securing federal funds for large beach nourishment projects (those with a federal cost exceeding $3 million) can be very lengthy. At the request of an interested state or local government agency, the US Army Corps of Engineers (USACE) will conduct a Reconnaissance Study in which they provide a preliminary finding of a federal interest in the project, and develop a preliminary estimate of project benefits and costs. During the reconnaissance stage, the USACE will also determine whether or not there is a non-federal sponsor who is willing and able to pay the non-federal share of the project's costs, including the costs of detailed feasibility and design studies. Project sponsors can be the state or a political subpart of the state such as a county, city or town, port authority, or other taxing district. The roles and responsibilities of the federal (USACE) and non-federal project partners are formalized in cost-sharing agreements signed by the project partners at the end of the reconnaissance and feasibility studies.

After the reconnaissance phase, the USACE conducts a detailed project design and feasibility study, which can take several years to complete. Fifty percent of the cost of the feasibility study is borne by the local sponsor. The remaining fifty percent is paid by the federal government and requires a congressional appropriation. Completion of the feasibility study usually leads to federal authorization although this is not always the case. In certain situations, no action may be recommended, or Congress may not authorize a project despite favorable findings. Congress can also provide "contingency authorization," where construction is authorized prior to feasibility studies, conditioned upon the identification of federal interest. After authorizing a project for construction, Congress may then appropriate funds for its construction. In some cases, congressional authorization and appropriation of a project are provided at the same time. Construction funds include costs for pre-construction engineering and design and acquisition of property easements, as well as actual project construction. Once constructed, Congress funds approximately 50 percent of periodic renourishment projects over the 50-year life of the project.

For large projects that require a significant investment of federal funds (more than $3 million), the federal interest in the project must be demonstrated in addition to the requisite exploration and design studies required to assure that a project with a 50-year life can be constructed and will be effective. Long-term solutions or large-scale projects take longer to plan and implement. Typically, the Reconnaissance Study, Feasibility Study, General Design Memorandum (GDM) and the Construction Phases of a Project will require 10 or more years to complete. Under its continuing authorities program, USACE can construct small beach nourishment projects much more quickly.

Section 215 Federal Cost Reimbursement

An alternative to Corps of Engineers planning, design, and construction of a federally authorized project exists through Section 215 of Public Law 90-483. Although Section 215 is a little used provision, in certain cases this option is the best approach for a community. Under this provision, the local community enters into a local cooperative agreement with the Corps of Engineers allowing for the non-federal sponsor to become responsible for project planning and design, engineering, and construction administration with subsequent federal cost reimbursement. The maximum federal cost reimbursement under Section 215 is limited to $10 million.

State Funding Mechanisms

State funding criteria for beach nourishment projects vary widely throughout the Gulf and Atlantic regions. Some states, such as Florida and New Jersey, have well-developed funding formulae and criteria as well as a dedicated funding source. Other states, Maine for example, have no dedicated state funding for beach nourishment and are in the process of working with municipalities to develop new funding mechanisms for beach nourishment. A summary of state funding formulae for beach nourishment and dedicated funding sources in each of the Gulf and Atlantic states is provided below.

Maine. There is currently no dedicated funding for beach nourishment in Maine. Creation of a beach nourishment policy and development of new funding programs for beach restoration are ongoing goals of the state's Coastal Zone Management Plan.

New Hampshire. There is currently no dedicated state funding for beach nourishment in New Hampshire.

Massachusetts. There is currently no dedicated state funding for beach nourishment in Massachusetts.

Rhode Island. The State of Rhode Island recently enacted legislation to provide for the "beneficial use" of dredged material from navigation maintenance, where beneficial use is defined as beach nourishment and habitat restoration and creation within the coastal zone (Section 46-6.1-3 Beneficial Use of Disposal Material). The law also authorizes the establishment of a means of supporting projects for dewatering dredged material, and for beneficial use and disposal of dredged material at sites above mean high water by the Rhode Island clean water finance agency.

Connecticut. There is currently no dedicated state funding for beach nourishment in Connecticut.

New Jersey. Section 13:19-16.1 of the New Jersey Statutes establishes a non-lapsing Shore Protection Fund. The monies in the fund are dedicated for use only to fund shore protection projects associated with the protection, stabilization, restoration, or maintenance of the shore, including monitoring studies and land acquisition, consistent with the current New Jersey Shore Protection Master Plan, and may include the nonfederal share of any state-federal project. The Commissioner of Environmental Protection may, pursuant to appropriations made by law, allocate monies deposited in the fund for emergency shore protection projects. Deposits to the fund derive from real estate transfer fees, and up to $25,000,000 per year from such fees may be deposited into the fund (Section 46:15-7 and 46:15-8).

The Commissioner of Environmental Protection, through a priority system for ranking shore protection projects, identifies projects each fiscal year for potential funding by the legislature. The list includes a description of each project and its purpose, impact, estimated cost, and estimated construction schedule, and an explanation of the manner in which priorities were established. The priority list becomes the basis for the current year's funding legislation for shore protection projects. On or before June 1 of each year, the legislature approves funding legislation containing the project priority list, including any amendments or supplementary provisions. No money from the Shore Protection Fund may be expended for any shore protection project unless the estimated expenditure is authorized by the legislature. The department is authorized to transfer monies between authorized projects to compensate for the differences between the estimated and actual costs of a project.

The "Coastal Protection Trust Fund" is a completely separate fund that receives monies from the sale of special coastal protection license tags. The primary purpose of the Coastal Protection Trust Fund is to fund the New Jersey Adopt-A-Shore program. However, license plate fees collected in excess of $1,000,000 during the year are placed into a special emergency reserve account and used to finance emergency shore protection projects.

Delaware. The State of Delaware dedicates two percent of the occupancy taxes collected statewide to beach nourishment projects (Shiner Moseley and Associates, Inc. 2002). Annually, the state contributes approximately $2 million to beach nourishment (Jack Faucett Associates 1998).

Maryland. There is currently no dedicated state funding for beach nourishment in Maryland.

Virginia. There is currently no dedicated state funding for beach nourishment in Virginia.

North Carolina. There is currently no dedicated state funding for beach nourishment in North Carolina.

South Carolina. There is currently no dedicated state funding for beach nourishment in South Carolina.

Georgia. There is currently no dedicated state funding for beach nourishment in Georgia.

Florida. Under Chapter 161.101 of the Florida Statutes, the state is authorized to pay up to 75 percent of the actual costs for restoring and nourishing a critically eroded beach, provided that the beach has adequate public access and that the project protects natural resources and provides protection for endangered and threatened species. Items eligible for cost sharing with the local sponsor include feasibility and related planning studies, project design and construction, and biological and physical monitoring. The state is authorized to pay up to 100 percent of the costs of approved beach erosion control projects when construction and maintenance are on lands of which the state is the upland riparian owner. The state is not permitted to fund projects that provide only recreational benefits. All funded activities must have an identifiable beach erosion control or beach preservation benefit directed toward maintaining or enhancing sand in the system. Eligible local sponsors include county and municipal governments and special taxing districts with the responsibility of erosion prevention or beach and shore preservation.

The formula for calculating the state cost share is based primarily on oceanfront footage that is accessible and a minimum number of parking spaces at each public beach access. The length of shoreline eligible for cost sharing is equal to the width of the public access plus one-half mile in each direction alongshore from the access. For example, a 200-foot public easement would provide cost sharing eligibility for a 5,480-foot length of shoreline (2,640 + 200 + 2,640).

It is the specific intent of the legislature to direct beach erosion control appropriations to the state's most severely eroded beaches, and to prevent further adverse impact caused by improved, modified, or altered inlets, coastal armoring, or existing upland development. In establishing annual project funding priorities, the Department of Environmental Protection is required to seek formal input from local coastal governments, beach and general government interest groups, and university experts. Criteria to be considered by the department in determining annual funding priorities include:

• The severity of erosion conditions, the threat to existing upland development, and recreational and other economic benefits;
• The availability of federal matching dollars;
• The extent of local government sponsor financial and administrative commitment to the project, including a long-term financial plan with a designated funding source or sources for initial construction and periodic maintenance;
• Previous state commitment and involvement in the project;
• The anticipated physical performance of the proposed project, including the frequency of periodic planned nourishment;
• The extent to which the proposed project mitigates the adverse impact of improved, modified, or altered inlets on adjacent beaches;
• Innovative, cost-effective, and environmentally sensitive applications to reduce erosion;
• Projects that provide enhanced habitat within or adjacent to designated refuges of nesting sea turtles;
• The extent to which local or regional sponsors of beach erosion control projects agree to coordinate the planning, design, and construction of their projects to take advantage of identifiable cost savings;
• The degree to which the project addresses the state's most significant beach erosion problems.

If more than one project qualifies equally, then funding priority is assigned to the projects that are ready to proceed.

Chapter 161.111 further provides that, if the governor declares a shore erosion emergency, the state, acting through the department, may spend whatever state funds are available to alleviate shore erosion.

Priority projects for Florida's Beach Erosion Control Program are funded through the Ecosystem Management and Restoration Trust Fund. Each fiscal year up to $30,000,000 from the payment of document taxes is disbursed into this trust fund for the specific purpose of funding beach restoration projects. Collection and disbursement of document taxes is authorized under Chapter 201 of the Florida Statutes. In addition, the proceeds of administrative fines and awards of damages collected under the authority of Chapter 161 are deposited into this trust fund.

Alabama. There is currently no dedicated state funding for beach nourishment in Alabama.

Mississippi. There is currently no dedicated state funding for beach nourishment in Mississippi.

Louisiana. There is currently no dedicated state funding for beach nourishment in Louisiana.

Texas. In 1999 the Texas Legislature enacted the Coastal Erosion Response and Planning Act (CEPRA). CEPRA provides for cost sharing between the state and local entities for coastal erosion studies, demonstration projects, and response projects if the land office receives legislative appropriations or other funding for that purpose. The original 1999 legislation required a 25 percent local cost share, but in 2001 the law was amended to reduce the local share to 15 percent. The coastal erosion account consists of money appropriated by the legislature, grants to the state from the federal government, and all money received by this state from the sale of dredged material.

Studies funded under this act must address:

• Assessment of the feasibility, cost, and financing of different methods of avoiding, slowing, or remedying coastal erosion;
• Beneficial placement of dredged material where appropriate to replenish eroded public beach, bay shore, marsh, and dune areas;
• Public beach, bay shore, and marsh nourishment or restoration projects using sediments other than material from navigational or other dredging projects;
• Guidelines on grain size and toxicity level;
• The economic, natural resource, and other benefits of coastal erosion projects;
• The protection, revegetation, and restoration of dunes;
• The planting of vegetation as a means of inhibiting bay shore erosion and projects developing and cultivating disease-resistant vegetation adapted to local conditions;
• The construction or retrofitting of dams, jetties, groins, and other impoundment structures with sediment bypassing systems;
• Estimating the quantity and quality of sediment trapped by reservoirs, navigation channels, and placement areas and identification of other sediment sources;
• Hard structures on bay shorelines, giving preference to "soft" methods of avoiding, slowing, or remedying erosion in lieu of erecting hard or rigid shorefront structures;
• Storm damage mitigation, post-storm damage assessment, and debris removal from public beaches; and
• Other studies or projects the land commissioner considers necessary or appropriate to implement this statute.

The Texas Legislature appropriated $15 million for coastal erosion response projects and related studies for the biennium September 1, 2001 through August 31, 2003.

Under Texas law, the land commissioner is also required to adopt rules requiring that beach-quality sand dredged during construction and maintenance of navigation inlets and channels of the state be placed on eroding beaches or to restore eroding wetlands wherever practicable.

The Local Cost Share

Funding formulae and revenue sources for the local cost share of beach nourishment projects often proves a controversial subject, given the semi-private characteristics of most beach communities and the resistance of non-oceanfront residents to paying for beach improvements. Who pays the local cost share for beach construction projects is often controversial and may cause significant delays to the project schedule. Financing plans to allocate the local share of project costs are especially important in those locations where a project does not qualify for federal money or for any significant amount of state funding. Residents of communities in which there is little or no public beach access, and the community does not wish to increase public beach access, will be required to pay most if not all of a nourishment project's costs.

Local financing is a major and often the most critical step to the success of a beach construction project. All other project funding, state and federal, depends upon the commitment of the local community to cost share in the beach restoration effort. The local sponsor, whether a county, a municipality, or an unincorporated community, is faced with the difficult task of determining the fairest and most equitable formulae for funding the local cost share. Whether the local cost share is $1 million or $20 million, the socio-economic, legal, and political issues are similar and may be summarized as follows:

• What is the legal authority under which the local sponsor will assess project costs?
• Who benefits and by how much?
• What distinct revenue sources are associated with each type of benefit group?
• What are the legal process and the local governance requirements to establish the revenue sources to fund beach nourishment projects?
• What is the political process for implementing the financing plan?

One of the first steps undertaken by a community should be to research the existing local government charter and state statutes to determine the community's authority and power to undertake a beach nourishment project. In Florida, this authority is given under Chapters 161 and 125 of the state statutes, which empower counties to act as beach and shore preservation districts, allowing for the establishment of municipal taxing districts for the purpose of implementing beach construction projects within unincorporated areas of the county. These statutes authorize the county to assess property for the beach nourishment project in accordance with an economic analysis of special benefits accruing to individual properties or within specific benefit zones. In the case of a municipality, the establishment of a municipal taxing district would be unnecessarily redundant. Accordingly, the local city charter should be researched to determine the city's authority to undertake a beach construction project. Subject to this authority, the legal and administrative procedures to follow must be determined to ensure that the process is comprehensive and legally defensible.

In order to formulate an equitable financing plan for the local cost share of beach nourishment in a timely and efficient manner, all types of benefit categories and the significant demographic characteristics of the beneficiary groups must be identified prior to conducting the data collection phase of the economic analyses. The most significant, quantifiable classes of benefits for use in determining the local cost share are the storm damage reduction benefit and the recreation benefit. A further breakdown of these two beneficiary groups is shown in Figure 1.

When formulating and structuring a local financing plan, project beneficiary groups are identified and benefits allocated to those individuals and properties that primarily gain the benefit. Assignment of benefit to beneficiary groups provides a basis to formulate a project's cost-share allocation plan to businesses, individuals, and property owners based on the benefits derived. This is important when the local cost share is substantial and no federal cost participation is expected, or when the project is to be funded 100% by the local sponsors.

The local share of the cost of a beach nourishment project may be distributed to beneficiary groups proportional to the total benefits ascribed to each group. The dollar value of benefit received by each individual property is proportional within each benefit category to the value of the property. In other words, the more valuable the property, the greater will be the benefit (and ultimately the greater the assessment for the beach project). Because a beach nourishment project will generate a stream of benefits for property owners, business, and beach users, these benefits ultimately result in an enhancement of property values, increased business sales, and increased visitor and resident beach usage.

The proportional benefits and project costs may then be assessed directly to distinct benefit groups, as shown in Table 1, where different benefits and thus project costs are assigned to the distinct benefit groups identified. In concert with the economic analysis of project benefits and primary beneficiary groups, specific local revenue and funding sources should be identified that may be directed at each distinct beneficiary group. Examples of targeted revenue sources are shown in Figure 2. Additional potential sources of funding may be available depending upon the specific laws governing each state and local government.

The problem with funding a major portion of a project using ad valorem taxes is that this approach often does not allocate the financial burdens in proportion to the benefits received. However, ad valorem taxes can be fairly assessed in accordance with the shared community-wide benefit, or the minimum benefit received by all properties, and that portion of the project cost allocated to the community.

The local government may place assessments on specially benefited properties in relative proportion to the benefits derived. Special assessments provide a legal method to assess oceanfront property and commercial property in accordance with the "special" benefits gained from the nourishment project. The combination of ad valorem taxes and special assessments may provide a large portion of the total project cost or the total project cost when applied in accordance with the benefits received.

Benefits in the day and overnight tourist recreation benefit categories allow for distinction of benefits ascribed to commercial properties and a county or local tourism council (that is, the tourist development tax [TDC] or local room occupancy tax). The local tourist development council may provide funding for the tourist related benefits in the form of a dedicated long-term revenue source. For example, reserving a percentage of the TDC or room occupancy tax for future beach nourishment programs may be applied to fund the overnight tourist portion of a project cost allocation plan. For the day beach visitor who is not a resident of the community, user fees assessed in the form of beach parking decals and parking meters at public beach access sites are potential revenue sources.

Finally, the overall local financing plan may distribute the cost of the project to beneficiary groups in direct proportion to the total benefits received by each group or associated revenue source. As discussed above, a major element in the financing plan is the revenue source assigned to each beneficiary group. Once the revenue sources are assigned, the project costs are allocated to individual properties within each group.

Specific legal procedures outlined by the local sponsor's legal counsel will dictate the required documents, special workshops, public hearings and resolutions, and voter approval necessary to accomplish the beach nourishment program. Although the political process is specific to the local and state laws, project planners must remember that the major public issues will be equitability of the financing plan, public beach access, and community support.

Conclusions

State and local funding mechanisms for beach nourishment projects vary widely throughout the Atlantic and Gulf states. Local governments seeking to sponsor a beach nourishment project must become familiar with both federal funding requirements and their state's specific funding criteria, in addition to their own community's legal requirements. In formulating a local financing plan, the key issues are assignment of costs in proportion to the benefits received (equitability), and compliance with local laws and guidelines (legal defensibility). Unless these goals are achieved, the project will not receive critical community support and will not survive a legal challenge.

References

Applied Technology and Management, Inc. (ATM). 2001. Fort Myers Beach Florida: Economic Analysis and Funding Sources. (Report).

ATM. 1999. Indian River County, Florida: Economic Analysis and Cost Allocation Plan. (Report).

Jack Faucett Associates. 1998. The Economic Effects of a Five-Year Nourishment Program for the Ocean Beaches of Delaware. Prepared for the Shoreline Management Branch, Division of Soil and Water Conservation, Dept. of Natural Resources and Environmental Control.

Florida State Statutes.

Maine Coastal Zone Management Plan.

New Jersey State Statutes.

Rhode Island State Statutes.

Shiner Moseley and Associates. 2002. Company web-site. http://www.shinermoseley.com/funding.html.

Texas State Statutes.