In 2010, 63 percent of Iowans voted to amend the Iowa Constitution to create the Natural Resources and Outdoor Recreation Trust Fund. Since then, many advocates of clean water have urged Iowa lawmakers to raise the state sales tax in order to “fund the trust fund” and provide “immediate, permanent, reliable, substantial funding aimed at improving our water quality.” The trust fund, however, is not the only way to do that, and any bill that achieves those goals is worthy of support. For this reason, the Iowa Association of Municipal Utilities supports House Study Bill 135.
The House’s “water quality” bill provides immediate funding to help address water quality in a couple of ways. First, it appropriates $5 million in the current fiscal year to nonpoint source projects, and also provides for an excise tax on sales of water by public utilities. While it’s true Iowans already pay sales tax on their water, the proposed excise tax is innovative. Instead of simply pouring the revenues into the state’s general fund, this excise tax would be used by the Iowa Finance Authority to issue bonds secured by future excise tax revenues. The ability to issue revenue bonds means hundreds of millions of dollars would be available today, instead of simply waiting on legislative appropriations each year.
The bill provides permanent funding, too. While it’s true that the bill’s infrastructure appropriations only last until 2030, the excise-funded revenue bonds would be used to create a revolving loan fund, which the Iowa Finance Authority is required to operate as a permanent funding source. In other words, the money from the excise tax won’t simply be granted away. The funds will be loaned at low interest rates to local communities, which in turn will pay the state back so the revenues can be loaned out again.
The bill provides reliable funding because the excise tax is a revenue stream that is not subject to the legislature’s annual appropriations process. In fact, once the revenues from the excise tax are pledged to secure bonds, the state will be required to keep its commitments to the bond holders. Incidentally, this is a model that the Iowa Finance Authority has been using for decades with a federal funding stream called the State Revolving Fund, and it’s proven to work.
The bill also provides substantial funding. In total, the appropriations amount to $230 million between now and 2030. The excise tax, like the state sales tax, is imposed at 6 percent. In the current fiscal year, that is estimated to be more than $22 million, and it will increase steadily each year. With that much predictable revenue, the Iowa Finance Authority will be able to raise hundreds of millions in bond issuances for the program. That is substantial funding.
Finally, the bill is very much aimed at improving water quality. In fact, in this respect, it is better conceived than the spending allocations that have been preapproved for the trust fund. This is because the bill recognizes that any meaningful water quality solution must include funding for municipal water utilities, wastewater infrastructure, and other point source projects. The trust fund provides no funding for municipal infrastructure assistance programs.
The Natural Resources and Outdoor Trust Fund has been the most talked about solution for water quality funding since 2010, but that shouldn’t mean its supporters can’t get behind other solutions that achieve all of the same goals. After all, raising the sales tax was only supposed to be the means to an end, not the end in itself. Take a closer look at House Study Bill 135. It deserves your attention.
• Timothy Whipple is general counsel at the Iowa Association of Municipal Utilities.