Clean Water Infrastructure:

Design Issues and Funding Options for a Clean Water Trust Fund

GAO-09-893T: Published: Jul 15, 2009. Publicly Released: Jul 15, 2009.

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Anu K. Mittal
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Many of the wastewater systems that Americans rely on to protect public health and the environment are reaching the end of their useful lives. The Environmental Protection Agency (EPA) has estimated that a potential gap between future needs and current spending for wastewater infrastructure of $150 billion to $400 billion could occur over the next decade. Various approaches have been proposed to bridge this potential gap. One is to establish a clean water trust fund. This testimony summarizes findings of a May 2009 report (GAO-09-657), where GAO was asked to examine (1) stakeholders' views on the issues that would need to be addressed in designing and establishing a clean water trust fund and (2) potential options that could generate about $10 billion annually in revenue to support a clean water trust fund. GAO administered a questionnaire to 28 national organizations representing stakeholders from the wastewater and drinking water industries, state and local governments, engineers, and environmental groups and received 22 responses; reviewed proposals and industry papers; and used the most current data to estimate revenue on a range of products and activities. While the May report identified a number of funding options for policymakers to consider, GAO did not endorse any option and does not have a position on whether or not a trust fund should be established. GAO did not make any recommendations in its report.

Stakeholders identified three main issues that would need to be addressedin designing and establishing a clean water trust fund: how a trust fund should be administered and used; what type of financial assistance should be provided; and what activities should be eligible to receive funding from a trust fund. While a majority of stakeholders said that a trust fund should be administered through an EPA partnership with the states, they differed in their views on how a trust fund should be used. About one-third of stakeholders responded that a trust fund should be used only to fund the existing Clean Water State Revolving Fund (CWSRF), which is currently funded primarily through federal appropriations, while a few said it should support only a new and separate wastewater program. A few stakeholders supported using a trust fund to support both the CWSRF and a separate program, while others did not support the establishment of a trust fund. In addition, more than one-half of the stakeholders responded that financial assistance should be distributed using a combination of loans and grants to address the needs of different localities. Finally, although a variety of activities could be funded, most stakeholders identified capital projects as the primary activity that should receive funding from a clean water trust fund. GAO identified a number of options that could generate revenue for a clean water trust fund, but several obstacles will have to be overcome in implementing these options, and it may be difficult to generate $10 billion from any one option alone. Funding options include a variety of excise taxes. In addition, Congress could levy a tax on corporate income. An additional 0.1 percent corporate income tax could raise about $1.4 billion annually. Congress also could levy a water use tax. A tax of 0.01 cent per gallon could raise about $1.3 billion annually. Regardless of the options selected, certain implementation obstacles will have to be overcome. These obstacles include defining the products or activities to be taxed, establishing a collection and enforcement framework, and obtaining stakeholder support for a particular option or mix of options. Obtaining stakeholder support may be particularly challenging where the link between a funding option and the wastewater stream is not apparent.

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