Congress Considers Federal Tax Support For Proposed Clean Water Trust Fund

Rep. Earl Blumenauer (D-Ore.) defended his proposal for new excise and corporate taxes to finance water infrastructure by telling a congressional hearing July 15 that local water fees are threatening to expand greatly from levels that in some communities already are “crushing.”

A day earlier, Blumenauer introduced the Water Protection and Reinvestment Act (H.R. 3202) to establish a clean water trust fund as a mechanism for increasing federal financial assistance for drinking water and wastewater infrastructure. Blumenauer lined up bipartisan cosponsorship, and the bill garnered support from the National Association of Clean Water Agencies, some environmental groups, and some contractor associations that would do the work of upgrading infrastructure.

But at the hearing of the House Transportation and Infrastructure Subcommittee on Water Resources and Environment, the bill drew skepticism from the National Association of Water Companies, the American Water Works Association, and the American Beverage Association, a group representing some of the bill's tax targets.

The bill would create a tax of four cents per container for water-based beverages, including soft drinks but not milk, juice, alcoholic beverages, or pharmaceutical drinks. It would create a 3 percent tax on products disposed of in wastewater, such as toothpaste, cosmetics, toilet paper, and cooking oil. It would levy a tax of 0.5 percent on pharmaceutical products. It would boost corporate taxes by one-fifteenth of one percent on profits over $4 million.

The unveiling of the bill followed by two weeks the release of a Government Accountability Office (GAO) report on options to be considered if the federal government were to try to raise $10 billion annually for water infrastructure investment (123 DEN A-11, 6/30/09).

Financial Needs, Obstacles

Members of Congress and witnesses at the July 15 hearing emphasized the need for huge investments in water infrastructure, a subject studied by the Environmental Protection Agency, the Congressional Budget Office, and others. The latest EPA report, as Blumenauer and other witnesses noted at the hearing, estimated a $534 billion funding gap between current investment levels and projected needs over the next 20 years.

According to a recent report by the U.S. Conference of Mayors, municipalities currently pay for about 95 percent of wastewater infrastructure and 99 percent of drinking water infrastructure.

Thomas K. Walsh, a water agency official from Massachusetts, in testimony prepared on behalf of the National Association of Clean Water Agencies, asked, “If highways merit a trust fund with $30 billion per year, and airports $10 billion per year, why should we not have one for water?”

Environmental groups said a trust fund could make a significant contribution to protecting water quality. American Rivers, for example, issued a statement applauding Blumenauer's bill and saying the trust fund could make “investments in green solutions.”

The obstacles to a clean water trust fund include, most importantly, the question of where to find the money, as Blumenauer acknowledged. Other problems were raised in another GAO report that was released for the hearing, Clean Water Infrastructure: Design Issues and Funding Options for a Clean Water Trust Fund.

The GAO said stakeholders identified three main design issues that would have to be addressed for a trust fund: how it should be administered—the most notable example being the existing EPA-state partnership for revolving loans; what type of financial assistance should be provided—grants, loans, or a combination of the two; and what activities should be eligible for assistance.

Differing Ideas on Funding

“It remains unclear how a trust fund would be funded,” said Rep. John Boozman (R-Ark.), the ranking minority member of the Water Resources and Environment Subcommittee.

The American Water Works Association (AWWA), a professional society, encouraged expanded use of the existing state revolving funds for drinking water and wastewater infrastructure loans. It urged more use of private activity bonds for water projects, which currently are limited by volume caps. AWWA also recommended creation of a federal water infrastructure bank that could provide loans and could purchase or guarantee state revolving fund bonds.

But the basic responsibility for water infrastructure resides with local communities and their utilities, AWWA said. “AWWA supports the principle that water rates and other local fees should reflect the full cost of service,” the association said.

A statement released by the National Association of Water Companies argued that the proposed mix of federal taxes for water projects would have the unfortunate side effect of discouraging responsible water use and conservation because it would subsidize existing behavior and mask the true cost and value of water service.

Boozman said the hearing was the first of several on how to finance water infrastructure. Blumenauer's bill (H.R. 3202) will have to run a committee gantlet, having been referred not only to the Transportation and Infrastructure Committee but to the Committees on Energy and Commerce, Ways and Means, and Science and Technology.