Just Add Water, Part Two

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By Tisha Johnson

This is the second part of a two part series. We return having read about the importance of water sustainability projects, the need for state funding and a state comparison of the water funding strategies used in other agriculture producing states. The Nebraska legislature is considering revenue strategies this session.

State Revolving Funds

Funding large amounts of money depends on the leveraging of funds from two to three lenders or partners. A good example of this is the State Revolving Fund (SRF), which is a federally funded grant program that requires state-matched funds that provide a lower-rate loan program to municipalities. State government, specifically the Department of Environmental Quality, administers the Clean Water State Revolving Fund (CWSRF) and the Drinking Water State Revolving fund (DWSRF) in Nebraska. Providing loans at a lower rate than would be possible on the open market, the SRF is a federal initiative that services local governments. The SRF department collects interest and repayments on existing loans, then reinvests by leveraging both the annual federal funding plus the loan repayments. Over the long run the fund pool increases. For both the Clean Water and the Drinking Water programs, Nebraska’s SRF program is receiving $16 million annually from federal funding and a 20 percent state match for each awarded grant. To be eligible, projects must fall into the following categories: wastewater improvement, nonpoint source pollution control or estuary pollution control. For some facilities, storm water run-off control measures are eligible. To receive a lower loan rate, projects must be “green” or Lied-certified. Green projects save money over the long term and are defined as those which save energy, conserve water or resources and use more efficient technologies.

Nebraska’s CWSRF is a healthy program with existing assets totaling $233 million, including $160 million in outstanding loans and $60 million in pending loans. As of January, for the year 2013, $16 million in loan money was still available to eligible borrowers. When asked whether the CWSRF would consider funding water quantity projects, the answer from the financial assistance supervisor was that “such projects would be considered through an environmental review, and evaluated based on the requirements of the Clean Water Act.”

Initially, Iowa’s State Revolving Fund would not accept nonpoint pollution source projects, but because it was discovered that most pollution in Iowa originated from nonpoint sources, they adjusted their requirements and expanded their criteria to meet the state’s demands. Jeff Andrus, manager of infrastructure financial assistance in the IL EPA, says that “SRF is a nice tool if used the right way, and it is possible to tailor the program to a state’s needs. For example, for years the SRF program in Illinois was entrenched with the thought ‘no storm water projects allowed,’ because the program was strictly set up to include wastewater and drinking water projects only. However in recent years, those criteria have been loosened to allow for the funding needed for new storm water management practices, including green infrastructure.” Suffice it to say that currently in the state of Nebraska, water quantity and water sustainability is of high importance.

Illinois has been incredibly responsible with SRF federal monies and has never defaulted on a loan. Recently, the governor of Illinois allowed for the expansion of the State Revolving Fund program to reach $1 billion under the Clean Water Initiative (CWI). The CWI is essentially the SRF on steroids. The SRF has been in effect for decades but with much less loaning power. CWI is set up so that the federally required match from the state will be the same percentage that it has been for years, so no new state taxes will be required; municipalities will remain responsible for paying back the principal and interest. The overall increase in the SRF’s debt ceiling will allow for never-before-seen compounding power, and the reinvestments will provide the inflow of dollars into the economy that has the capacity to create 28,500 new jobs. This large increase in the State Revolving Fund effectively opened the door incentivizing municipalities to get their grant requests in so that they can benefit from low interest rates.

SRF federal grants are based on a state’s population, so Nebraska has a much smaller budget than Illinois, but the two programs run on the same premise, essentially “using a little money to loan a lot.” What could be a great boost for funding Nebraska’s water projects is an infusion of cash, consequently expanding the State Revolving Fund’s loaning power. Wisconsin and Ohio have already done this to increase their fund pools and take advantage of low interest rates. This cash might come from the general fund, rainy day fund, another revenue stream or from the sale of state-released bonds. Whatever the case, the result of money that could be immediately accessed via loans would be an investment in the economy. Consider if Nebraska’s SRF had an operating budget triple what it gets today—$48 million—how many more projects could begin construction immediately. A state contribution to the program would allow loans for large-scale, multimillion dollar projects; a jobs multiplier from IMPLAN estimates that with a state infusion tripling the SRF’s fund pool, 642 total jobs could be created in the water sector.

Recommendations for Specific Funding Sources

Nebraska farmers and other water stakeholders recognize the importance of committing to a funding program, and committing to a revenue stream or combination of revenue streams that is likely to pass the legislature. Some alternatives to consider are listed below.

  1. The rainy day fund is pieced out of the state’s general fund—funded by sales and income tax revenues. Annually there are hundred-million-dollar deductions appropriated to education, crime and health care, while there are relatively no deductions from the rainy day fund. This is reserved for special and unique purposes. Perhaps water issues today are special and unique to the state. For the year 2013 there is $384 million in the kitty. If Nebraska were to deduct just 10 percent of this, there would be $38 million available for water-related projects. Nebraska would then carry less than 10 percent of general fund expenditures in their rainy day fund, and join 41 other states that do the same.
  2. Infuse Nebraska’s SRF with more money to effectively increase their fund pool. Expand the amount of state-released bonds or use state general fund dollars, specifically a portion of the rainy day fund, to fund the boost. Utilize the SRF staff at the Nebraska Department of Environmental Quality and their already established programs to administer more and larger loans. Make the necessary changes to loosen restrictions that might exclude water quantity projects from the Clean Water State Revolving Fund; and address Nebraska’s pressing water needs—water quantity and water sustainability.
  3. If SRF would find that they could not fund water quantity projects because they would not be fulfilling the terms of the Clean Water Act, then fashion an altogether new entity like the Texas Water Development Board that includes all water-related projects. This would be a bond bank that would secure a low interest rate to pay back bondholders, then reallocate the money to pay for a loan to municipalities for a lower interest rate that they would find independently on the open market. Start the bond bank with dollars from the state’s general fund with an initial and substantial amount of funds. This might come from a sales tax, tap fee, real estate transfer fee or the rainy day fund. Then utilize North Carolina’s Clean Water Management Trust Fund as a model for ranking, selecting and distributing these funds. Quantitative criteria already exists from North Carolina’s CWMTF and Florida’s CWI that exemplifies a fair and effective method for choosing who is awarded funds.
  4. Similar to Iowa’s recent vote to increase sales taxes to create a natural resources fund or Minnesota’s clean water fund, increase the sales tax to become a dedicated source of annual funding that would come directly from the state’s general fund.
  5. Establish the tap fee that includes all water users, differentiating between residential, commercial and industrial; AND while keeping the rate the same at $10 per acre, direct more Natural Resource Districts to enact the occupation tax. This could be an effective compromise, a way to share the load while addressing the broad-based tax versus direct tax debate.

Nebraska’s Next Steps

As of this article’s printing date there has been progress by the legislature, as LB 516 has entered the legislative mix. It would create the Nebraska Water Legacy Commission that would work to prioritize water projects. The commission, within a year, would create a plan for a Nebraska Water Legacy Fund; and funding is to come from one-quarter of one cent sales tax, general fund cash appropriations and principal and interest payments to the fund. Note that there is no consideration of utilizing the State Revolving Fund, rainy day fund, bond banks, tap fees or occupation taxes.

While a good start, the funding combination put forth may trigger a great deal of debate about utilizing the sales tax or general fund dollars; perhaps some of the alternative revenue strategies listed above could push the bill forward. Based on the comparison of what other ag-producing states have done, LB 516 revenue sources seem sound and likely to pass if supported by constituents. This is where you come in. Let your legislators know you stand behind them to fund water sustainability projects as you understand the importance to Nebraska’s agriculture industry and Nebraska’s economy. Funded amounts in other states have varied, but the states are steadily completing projects; those Nebraska should look to are spending hundreds of millions of dollars annually toward water-related projects.

A monthly water roundtable meeting draws approximately 80 professionals, all interested in working to tackle Nebraska’s water concerns. Water stakeholders, namely agriculture, environmental, hydropower and natural resource districts, have forged an integrated management plan that would allow for more effective and collaborative decision making. Professionals at Department of Natural Resources, academic leaders from the Nebraska Water Center and water-engineering consultants are of crucial importance in determining water policy and water project design. Nebraska has the intellectual power to innovate and apply techniques that will improve water sustainability, but only with substantial funding.

Tell legislators to awaken to the fact that water quantity issues affect the ag industry’s production, and the ultimate rise or fall in the state’s GDP. Our economic vitality resides in agriculture. Now, legislators of Nebraska, let’s feed the ag industry by investing in water.

 

Personal phone interviews were completed to confirm data presented in this article. Potential funding amounts have not been calculated for each alternative.

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