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FY 2014 Budget

The Obama Administration announced its Fiscal Year (FY) 2014 budget request today, which includes a funding request of $8.2 billion for the U.S. Environmental Protection Agency (EPA). With sequestration in effect, this 3.5 percent or $296 million reduction from FY 2012 spending levels comes as little surprise. The budget request in its entirety can be found here. While NACWA is still analyzing the budget, below are a few items to note:

Discretionary Spending and the State Revolving Fund Programs:

The Administration’s budget proposes steep reductions to the Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF): The CWSRF would be cut by $357 million to $1.095 million, and the DWSRF would be cut by almost $92 million to $817 million. The Budget proposes to maintain the green set-aside in both programs (20% for the CWSRF and 10% for the DWSRF). The Administration also proposes to continue allowing States to provide no less than 20% but no more than 30% in additional subsidization for SRF loans.

Below is a chart on proposed discretionary spending levels for EPA programs NACWA tracks:

 *(minus an additional $10 million from previous year’s unallocated SRF funds)

In addition to the cuts made to SRF programs, the Administration proposes several revenue-related measures that impact water-related infrastructure investments, including:

• Restricting Tax Exempt Deductions on Municipal Bonds for High Income Tax Payers: The Administration’s budget imposes a 28 percent benefit cap on tax-exempt municipal bond interest for high income taxpayers. According to a recent Conference of Mayors report,if this provision had been enacted over the last decade, it would have cost states and municipalities $173 billion (nearly $19 billion in 2012 alone) in interest expense for infrastructure projects and prevented many others from going forward. While it is unclear how much of this additional cost would have been borne by the water infrastructure sector, it clearly would have been a significant amount. NACWA will be working to determine more precisely how such a cap would directly impact clean water projects. NACWA is extremely concerned about this proposal and will be speaking to Congressional leaders in both the Senate and House of Representatives about the negative impacts such a proposal would have on the clean water sector.
• Lifts the Volume Cap for Private Activity Bonds: The FY14 budget proposal eliminates the volume cap for private activity bonds (PABs) for water and wastewater infrastructure. This proposal has the support of many in Congress and within the water and wastewater community though NACWA does not think it would bring significant new revenue into the wastewater arena.
• Replaces Build American Bonds with New America Fast Forward Bonds: The Administration’s budget proposes a new and permanent America Fast Forward (AFF) bond program to replace the Build America Bonds (BAB) program. This new bond program would provide a 28% subsidy to local and state governments on taxable bonds issued to finance investments in governmental capital projects instead of a 35% subsidy under the BAB program.

The FY2014 budget request will now serve as a baseline for Congressional budget negotiations in the coming months though both the House and Senate have already passed separate budget proposals. Now Congress must reconcile these competing proposals into a final package which can govern spending decisions for FY14. NACWA will track these developments and report back to our members as they occur.   

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