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Background

The U.S. Government Accountability Office (GAO) released a 50 page report, CLEAN WATER INFRASTRUCTURE: A Variety of Issues Need to Be Considered When Designing a Clean Water Trust Fund  on Monday.  The report explores viable revenue sources to support a $10 billion per year clean water trust fund.  Reps. James Oberstar (D-Minn.), chair of the House Transportation & Infrastructure (T&I) Committee; Eddie Bernice Johnson (D-Texas), chair of the T&I’s Subcommittee on Water Resources & the Environment; and Earl Blumenauer (D-Ore.), member of the House Ways and Means Committee requested the report during the 110th Congress as a precursor to introduction of a trust fund bill.

The release of the GAO report follows a flurry of legislative activity on Capitol Hill, including passage of the American Recovery and Reinvestment Act  (H.R. 1) to provide $4 billion in supplemental funds to the Clean Water State Revolving Fund (CWSRF), House passage of the Water Quality Financing Act  (H.R. 1262) to authorize $13.8 billion over five years for the CWSRF, and approval in the House and Senate Appropriations Committees of a fiscal year 2010 budget for the U.S. Environmental Protection Agency (EPA) that includes $2.3 and $2.1 billion respectively for the CWSRF.  Momentum is building to address the water infrastructure funding issue in a sustainable way, and due in large part to the work of NACWA’s Clean Water Funding Workgroup and the Water Infrastructure Network (WIN), a water trust fund is now a mainstream part of the discussion.

Report Summary

The GAO report is organized into several sections.  It first describes the pressing need for additional water infrastructure funding and recognizes that Americans rely on wastewater systems to protect public health and the environment.  The report cites the U.S. Environmental Protection Agency (EPA) and others that have estimated current spending levels to be inadequate to cover the costs of maintaining and replacing pipes, treatment plants, and other parts of this critical infrastructure.  In this context, the report then focuses on two key areas: 1) potential options that Congress could consider that would generate revenues of $10 billion annually to support a clean water trust fund, and 2) stakeholders’ views on issues that would need to be addressed in designing and establishing a clean water trust fund.  The discussion of possible revenue sources contains a breakdown of a variety of options and the potential obstacles for each without making any specific recommendations.  Finally, the GAO report includes several appendices that contain supplemental information on the scope and methodology of the report, the stakeholder responses to the GAO trust fund survey, the estimated tax bases for excise tax funding options, and also the pertinent GAO contacts.

Potential Funding Options for a Clean Water Trust Fund

The GAO report explains that there are a number of options for funding a clean water trust fund that could generate $10 billion in revenues.  These include a variety of excise taxes on beverages, fertilizers and pesticides, flushable products, pharmaceuticals, and water appliances and plumbing fixtures (all generally referred to in the report as “products that may contribute to the wastewater stream”); an additional tax on corporate income; an industrial discharge tax; and a water use tax.  NACWA met with GAO officials while the report was being put together and provided several documents  analyzing the possible revenue sources being considered with the exception of the water use tax, which NACWA opposes.  The documents, developed through NACWA’s Clean Water Funding Workgroup, provided details about each potential revenue option and the amount of money that they should be able generate.

The GAO includes several tables in the report that break down the various tax bases for product groups that may contribute to the wastewater stream as well as the estimated revenue from a range of excise tax rates in constant 2009 dollars.  These are found in both the body of the report as well as in Appendix IV.  Basically, GAO has provided the estimated revenue in 2009 dollars for a one percent tax, five percent tax, and ten percent tax on beverages, fertilizers and pesticides, flushable products, pharmaceuticals, and water appliances and plumbing fixtures.  While raising $10 billion from a tax on any individual product group amongst these could prove unreasonable, the GAO report finds that a very low tax rate could be levied on any number of these product groups to collectively generate up to $10 billion in revenue.  NACWA, WIN and others have advocated from the start that in order to be fair and equitable, Congress should use a suite of these potential revenue sources to finance the clean water trust fund.

The GAO report also considers an additional tax on the incomes of corporations that would be similar to the Corporate Environmental Income Tax (CEIT) that provided funding for the Superfund program.  The report finds that by levying an additional 0.1 percent on the $1.4 trillion in corporate taxable income reported in 2006, the federal government could raise about $1.4 billion annually.  As a comparison, the CEIT that funded the Superfund program when it expired in 1995 was 0.12 percent.  GAO also raises the possibility of a tax on water usage involving a volume-based charge or a flat charge added to local residential, commercial, and industrial water utility rates.  GAO estimated that a volume-based charge of 0.01 cent per gallon could raise $1.3 billion annually, while a tax of about 0.1 cent per gallon could raise about $13 billion annually and a flat charge on household wastewater bills of $30 is estimated to raise about $2.6 billion annually.  NACWA remains strongly opposed to this option, and the stakeholder survey, discussed in the next section of this Alert, also found little support for this approach.  Finally, though GAO examined the possibility of an industrial discharge tax it was unclear what level of taxation would need to be levied to generate $10 billion.

Other Issues Raised by Stakeholders in Establishing a Clean Water Trust Fund

In conducting the review, GAO also administered a survey and received responses from 22 national organizations, including NACWA, that represent the wastewater and drinking water industries, state and local governments, engineers and environmental groups.  NACWA emphasized the importance of finding revenue sources that are fair, equitable, and firewalled and pointed out that municipalities currently bear about 95 percent of the water infrastructure funding load.  NACWA also provided the GAO staff with a list of NACWA public agency members to contact as they gathered information and understands that many agencies provided input for the report.  Based on this information and the questionnaire, GAO determined that the three main issues stakeholders believe must be addressed in developing a clean water trust fund are: 1) how a trust fund should be administered and used; 2) what type of financial assistance should be provided; and 3) what activities should be eligible for funding.

GAO reported that while a majority of 22 survey respondents believed a trust fund should be administered through an EPA partnership with the states, they differed in their views on precisely how trust fund dollars should be used.  Specifically, five groups, including NACWA, informed GAO that a trust fund should be used to support both the existing Clean Water State Revolving Fund (CWSRF) and a separate distinct grants program at EPA to fund targeted water infrastructure projects.  This would help provide additional flexibility to address the most pressing water quality challenges.  Seven groups responded that a trust fund should be used only to fund the CWSRF, while three said it should support only a new and separate wastewater infrastructure program, two said a trust fund should not be created, and 2 simply responded other.  More than half of the stakeholders contacted by GAO agreed with NACWA that financial assistance should be distributed using a combination of loans and grants to address the needs of different localities.  GAO also reported that most groups responding to its questionnaire identified capital projects as the primary activity that should receive funding from a clean water trust fund.  The report’s Appendix II provides a full range of responses to the questionnaire on design issues.

NACWA Provides Input on Water Trust Fund Bill

The long-awaited GAO report provides NACWA’s advocacy efforts with a significant boost by refocusing Congress and key stakeholders on this key issue.  Blumenauer is finalizing draft legislation to establish a federal water trust fund based on recommendations from NACWA and WIN, and continues to seek NACWA input now that the GAO report on potential revenue sources has been released.  NACWA anticipates the bill’s release on July 14, the day before a July 15 T&I Subcommittee hearing on the creation of a clean water trust fund.  At the hearing, Tom Walsh with Worcester, Massachusetts will be testifying on behalf of NACWA.  The Association will work to build upon the momentum created by these events and will continue to work with Blumenauer and other key members of Congress on introduction and passage of a water trust fund bill in the 111th Congress.  For additional information, please contact NACWA’s director of legislative affairs, Pat Sinicropi, at 202-533-1823 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it or NACWA’s Legislative Affairs Manager, Byron DeLuke, at 202-833-4655 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .