State Water Supply Development Funding Options
Arizona is divided into Active Management Areas that assess water fees by different
methods. In the Phoenix and Tucson areas, user fees are assessed at a rate of $3 per acre-
foot for groundwater consumers only. The fee is referred to as a 'pump fee'. Several
cities in the state also have impact fees for new growth, charging a flat fee to developers
and to new-home buyers. New Mexico has a similar fee structure, charging a one-time
impact fee for newcomers to the state who use municipal water supplies. Arizona also
has water-use fees that vary, depending on the aquifer supplying water.
A report prepared by Gary Woodard from the University of Arizona's Arizona Water
Expertise Directory covers water funding development methods for the states of New
Mexico, Colorado, Arizona, Nevada and Utah. In the report, all fundraising methods in
use by these southwestern states are summarized and illustrated. There is also a section
on he design of municipal modified rate structures for water providers. Woodard has
designed rate structures for many Arizona cities as well. This report is included in the
attachments to this summary. Gary Woodard can be reached at (520) 792-9591, ext. 23.
The state of California has a proposal on the 1996 General Election ballot to authorize
$995 million in general obligation bonds for an array of water programs. The measure
would fund a variety of Delta improvements and local programs designed to address the
state's water needs. Proposition 204 would provide $390 million for the CALFED Bay-
Delta Ecosystem Restoration Program, $235 million for clean water and water recycling,
$193 million for the state's share of Bay-Delta improvements under the Central Valley
Project Improvement Act (CVPIA) and other state-federal programs, $117 million for
water supply reliability, and $60 million for flood control.
The proposal was developed during 1995 and 1996 by state Senator Jim Costa (D-
Fresno). Senator Costa met with many groups interested in the Delta and water issues.
These groups included business, labor, agriculture and environmentalists. The Senate
Committee on Agriculture and Water Resources, chaired by Senator Costa, held four joint
interim hearings with the Assembly Committee on Water, Parks and Wildlife throughout
the state to receive input on how to develop the water bond plan.
The bond issue authorizes the state to sell $995 million of general obligation bonds. The
state pays the principal and interest costs with General Fund revenue. General Fund
revenue comes primarily from state personal and corporate income taxes and sales tax.
The measure specifies conditions under which the funds are available for loans, including
the terms for interest and repayment of loans. Typically, these types of bonds are repaid
over a 25-year period.
The Legislative Analyst reports that if all the bonds authorized by this measure are sold at
an interest rate of 6 percent, the cost will be about $1.8 million to pay off both the
principal ($995 million) and interest ($776 million). The average payment for the
principal and interest will be about $71 million per year.
The specific programs that Proposition 204 will fund are available in the material
attached to this summary. More information can be obtained from Jeff Cohen at the
California Department of Water Resource's Office of Water Education at (916) 653-
The state is also working on another water resource development project called The
California State Water Project, a water storage and delivery system of reservoirs,
aqueducts, powerplants and pumping plants that stores and distributes water to 29 urban
and agricultural water suppliers in Northern California, the San Francisco Bay Area, the
San Joaquin Valley and Southern California. Of total Project water deliveries,
approximately 40 percent is used to irrigate farmland, and 60 percent goes to meet the
needs of the state's growing population.
Funding for the State Water Project will come from the sale of general obligation bonds,
revenue bonds, tideland oil revenues, investment earnings, legislative appropriations for
recreation, federal flood control payments, and water contractor advances. Currently,
short-term financing for the project is obtained by commercial paper notes which are
replaced periodically by long-term revenue bonds.
In February 1996, State of New York Senate Majority Leader Joseph L. Bruno (R-
Brunswick) announced that the Senate Republican Conference would not approve any
new water taxes. The state Health Department has estimated that new federal rules would
raise the cost of New York's drinking water protection program from $9 million to $16
The 1996-97 proposed state budget includes provisions to levy a $2.30 per household
annual fee on water connections in New York. Businesses which use more than one
million gallons of water per year would pay a $275 annual fee. The state Division of the
Budget estimated the proposed water fees would generate about $8.7 million a year for
water supply protection.
The status of this budget item will be available in January 1997. More information can
be obtained from Robert Hennegan at the Office of Budgets, New York State Department
of Environmental Conservation, at (518) 474-6307.
South Dakota at one time had several water development districts, but now operates
under one water Conservation District with a Governor-appointed policy-making board.
In 1992, the state legislature for the first time dedicated funds to the Consolidated Water
Facilities Construction Program, providing grants and low-interest loans for water
resource development. All Consolidated Water Facilities Construction Program funds are
appropriated by the South Dakota State Legislature. Applicants for program funds must
belong to the State Water Plan. During the last four years, the amount appropriated has
been approximately $3.5 million annually. Funding is decided upon every legislative
session. The funds can be used only for small municipal and rural programs. Projects
that cost millions and take years to complete do not qualify under the state's program.
In addition to the legislative funds, South Dakota uses or has used several different
funding mechanisms, or combinations thereof, to meet water development needs. Water-
use fees, which include taxes, flat fees, connection fees, fees assessed on consumption,
and fees per resident in urban areas, are municipally based. There are no state-wide user
fees, but rural water systems belong to 'Sanitary Districts'. These non-urban areas do not
use septic systems and work in cooperation with the state to fund a waste-water treatment
system. One-time fees to connect to these treatment systems can range from $250-$1000.
This information was provided by Dave Ruhnke from South Dakota's Department of
Environment and Natural Resources, in the Division of Financial and Technical
Assistance. He can reached at (605) 773-4216.
The Texas Water Development Board was created in 1957 and provides many benefits to
municipalities and residents all over the state. It provides loans to local governments for:
water supply projects; water quality projects including wastewater treatment, municipal
solid waste management, and nonpoint source pollution control; agricultural water
conservation projects; and flood control projects. The Board also provides grants and
loans for water and sewer needs of economically distressed areas and administers the
Texas Water Bank which encourages the transfer, sale, or lease of water and water rights.
The Board's financial assistance programs are funded through state-backed bonds or a
combination of state bond proceeds and federal grants. Since 1957, the Legislature and
voters approved constitutional amendments authorizing the Board to issue up to $2.68
billion in Texas Water Development Bonds. To date, the Board has sold $1,236,190,000
of these bonds for construction of water and wastewater projects.
A six-member Board appointed by the Governor to six-year staggered terms meets
monthly in Austin to consider loan applications from eligible political subdivisions and
nonprofit water supply corporations, and to award grants for water-related research and
Financing is provided to local governments for water-related infrastructure through the
Water Development Board's sale of state general obligation and revenue bonds. The
state loans these proceeds to local governments by buying local government bonds.
Local governments use the proceeds for water projects. As a local government repays
principal and interest to the Board on its bonds, the Board uses the principal and interest
collected to pay the debt service on the state's bonds.
On September 1, 1993, the Texas Water Commission and the Texas Air Control Board
were merged to form the Texas Natural Resource Conservation Commission (TNRCC).
The TNRCC has regulatory oversight for protecting .air, water, and land resources in
Texas from pollution. The Texas Water Development Board is the state's water planning
and financing agency.
More information is available on the funding methods of the Texas Water Development
Board from Ignacio Madera of the Board's Financing Department at (512) 463 7509.
Vermont and New Hampshire
Resolution 129, a joint resolution granting consent of Congress to the Vermont-New
Hampshire Interstate Public Water Supply Compact, will allow Vermont and New
Hampshire to enter into cooperative agreements for construction, maintenance, and
operation of public water supply facilities. This requires compact approval from each
state's water supply agency and voter approval from Vermont municipalities.
The Resolution's details and provisions are outlined in the attached materials.
State Revenue Sources for Drinking Water Programs
State contributions to drinking water programs are shifting toward greater use of
alternative funding mechanisms (AFMs) and less reliance on general funds. AFMs
include cost-of-service fees, service connection fees, population-based fees, and water-
use fees (or taxes). The most commonly used AFM is the cost-of-service fee for
operation certification, laboratory analysis, plan review and permit to operate. Service
connection fees are assessed on water systems at a monthly or annual rate per service
connection. Population-based fees are set annually, based on the number of customers
served by the system. Water-use fees are taxes assessed on water systems, based on a
uniform rate per volume of water delivered to customers (e.g., $0.01 per 1,000 gallons).
In Fiscal Year 1994, $63 million (56 percent of the state match) came from alternative
funding mechanisms, while state general funds accounted for $50.2 million (44 percent).
Fees and taxes increased to $71.6 million in FY 1995 (57 percent of the state share). This
compares to state general fund revenue of $54.0 million in FY 1995 (43 percent).
A summary of selected State Drinking Water Legislation for 1995 can be found in the
State Water Supply Development Funding Options
Summary of state drinking water legislation
State revenue sources
Selected state drinking water legislation, 1995
New Mexico and other southwestern states
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FUNDING STATE DRINKING WATER PROGRAMS
NCSL published a survey of how states fund their drinking water programs in March 1995
(see publications section for ordering information). Alternative Funding Mechanisms for State
Drinking Water Programs, 1994-1995 compares the federal/state contribution to the operation
of each state's drinking water program, and breaks down the state portion into general fund
and alternative funding mechanism components.
The percentage of funding provided by the states to operate the drinking water program in the
49 states (all except Wyoming) that exercise primacy over program administration is
increasing, on a national basis, relative to the amount of federal support. Total funding for
drinking water programs has risen from $173.8 million in 1994, to $188.7 million in 1995.
State revenues accounted for two-thirds of that funding, $113.8 million and $125.6 million,
respectively. Federal grants also increased, but at a slower rate--$60 million in 1994, to $63.1
million in 1995.
The total amount of the state drinking water budgets in fiscal year 1994 was $173.8 million.
State revenue accounted for $113.8 million, or 65 percent of the total, with federal grants
comprising $60.0 million, or 35 percent. State revenue increased to $125.6 million in FY
1995, or 67 percent of the total state drinking water budgets of $188.7 million. Federal grants
contributed $63.1 million, or 33 percent of the total. State revenue increased at twice the rate
of federal funds--10 percent compared to 5 percent--between the two years. Figure 1
illustrates the state-federal share of drinking water funding.
SState Revenue Sources
The makeup of the state contribution to the drinking water program is shifting toward greater
use of alternative funding mechanisms (AFMs) and less reliance on general funds. AFMs
include cost of service fees, service connection fees, population based fees, and water use fees
(or taxes). The most commonly used AFM is the cost of service fee for operator certification,
laboratory analysis, plan review and permit to operate. Service connection fees are assessed
on water systems at a monthly or annual rate per service connection. A population based fee is
set at an annual rate based on the number of customers served by the system. A water use fee
is actually a tax assessed on water systems based on a uniform rate per volume of water
delivered to customers (e.g., $0.01 per 1,000 gallons).
In FY 1994, $63.6 million (56 percent of the state match) came from alternative funding
mechanisms, while state general funds accounted for $50.2 million (44 percent). Fees and
taxes increased to $71.6 million in FY 1995 (57 percent of the state share). This compares to
state general fund revenue of $54.0 million in FY 1995 (43 percent).
10/29/96 4:25:56 PM
SUMMARY OF STATE DRINKING WATER LEGISLATION, ... Microsoft IntePage 7 of 13r
Alternative Funding Mechanisms for State Drinking Water Programs, 1994-1995, Larry
Morandi, Deb Starkey and Addie Romero, National Conference of State Legislatures, Denver,
This survey of how states finance their drinking water programs is the fourth consecutive
report on this issue dating back to 1991. It describes the state and federal contributions to the
operating costs of each state's program, and details the general fund/fee components of the
state match for both fiscal year 1994 and FY 1995. The report concludes that states pay for
two-thirds of their drinking water program budgets, and that they increasingly look to
dedicated fees and taxes as an important source of state revenue. Alternative funding
mechanisms account for a larger portion of the drinking water budget than either state general
funds or federal grants.
The report consists of a two-page narrative analysis, three figures and 17 pages of
comparative information on each state's program in matrix format. To obtain a copy, contact
Addie Romero in NCSL's Denver office at (303) 830-2200, or fax your request to (303)
An Overview of Existing State Alternative Financing Programs: Financing Drinking Water
System Capital Needs in the 1990s, U.S. Environmental Protection Agency, Office of Water,
EPA/812-R-92-001, Washington, D.C., May 1992.
This report provides an overview of how states provide financial assistance to local entities for
the construction, enhancement and rehabilitation of drinking water treatment facilities. Capital
financing is an important issue for states as they seek to help water suppliers meet
infrastructure needs in the absence of federal capitalization grants for state drinking water
revolving funds. More states will consider SRFs as the likelihood of federal capitalization
grants increases, however, and the experiences of the 12 states reviewed in this report
provides useful information.
The report summarizes loan, grant and bond programs in Arkansas, California, Colorado,
Florida, Georgia, Ohio, Oklahoma, Pennsylvania, Texas, Washington, West Virginia and
Wyoming. The information is presented in comparative matrix format, including maps and
charts, and contains detailed narrative descriptions for each individual state. To obtain a copy,
contact Jamie Bourne, EPA, Office of Ground Water and Drinking Water, Mail Code 4604,
401 M Street, S.W., Washington, D.C. 20460, (202) 260-5557.
Department of Health and Environmental Control's Implementation of the Safe Drinking
Water Act, South Carolina Legislative Audit Council, Report to the General Assembly,
This legislative audit report is in response to a request of the South Carolina General
Assembly to review the Department of Health and Environmental Control's (DHEC)
SUMMARY OF STATE DRINKING WATER LEGISLATION, ... Microsoft IntePage 8 of 13r
implementation of the Safe Drinking Water Act. It examines policy issues--centralized
monitoring, water system viability and regulation of small systems--and administrative
issues--water monitoring cost analysis and enforcement of fees.
Among other conclusions, the report found that South Carolina's administrative and funding
policies promote the continued existence of small, nonviable systems through fee subsidies
that will increase long-term monitoring and enforcement costs. It further questioned the
adequacy of DHEC's cost comparisons in determining the least-cost alternative for water
monitoring. The report had no disagreement with DHEC's decision to run a centralized water
monitoring program, and found no problems with the department's water monitoring
procurement process, contract management or expenditures of drinking water fees to operate
the program. The report includes DHEC's detailed response to its findings and conclusions.
To obtain a copy of this 34-page report, contact the South Carolina Legislative Audit Council,
400 Gervais Street, Columbia, S.C. 29201, (803) 253-7612.
Fee-Based Models for Funding Water Quality Infrastructure, The Environmental Finance
Center, The Maxwell School of Citizenship and Public Affairs, Syracuse University, Syracuse,
N.Y., April 1995.
This draft final report evaluates alternative sources of fee revenue to finance water-related
capital construction projects, including drinking water facilities. The report's goal is to
generate different funding models for financing water quality infrastructure. Three were
selected: Federal Fee Model, Federal/State De Minimis Fee Model and Voluntary State Fee
The report concludes that the Federal/State De Minimis Fee Model offers the most advantages
and the fewest disadvantages to states of the three. Under this approach, the federal
government would impose fees on public water supply withdrawal and wastewater discharges,
which states would then adopt and implement under their own programs. States could
substitute other water-related fees for those assessed by the federal government.
This 78-page report describes each model in detail and contains several comparative tables
and figures. Four appendices are attached, including one that describes existing state fee
programs. To inquire about the availability of the report, contact Victoria Kennedy,
Environmental Finance Center, 219 Maxwell Hall, Syracuse University, Syracuse, N.Y.
13244-1090, (315) 443-3759.
SUMMARY OF SELECTED STATE DRINKING WATER LEGISLATION,
Arkansas HB 1008
Reduces the Department of Health's monthly service connection fee on public water systems
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from $0.25 per connection to $0.15 per connection. (Withdrawn by sponsor)
Colorado SB 83
Creates the Drinking Water Revolving Fund to be administered by the Colorado Water
Resources and Power Development Authority. The fund is authorized to provide financial
assistance to local governments for eligible projects, including loans, purchasing or refinancing
local government debt obligations, or purchasing insurance for local government debt
obligations. The Department of Public Health and Environment must prepare a list of eligible
projects for approval by the legislature. The bill would transfer revenue from the Domestic
Water Supply Project Revolving Fund to the Drinking Water Revolving Fund. (Passed Senate;
on House floor)
Florida HB 97 and SB 1358
Requires each county to provide for the long-term availability of water supplies for approved
land development in its growth management plan. (HB 97 in House committee, SB 1358 in
Indiana SB 442
Requires the Natural Resources Commission to prepare a compilation and map all community
public water supply systems that serve at least 500 customers in the state, and to update the
compilation and mapping at least once every five years. (Passed Senate and House; awaiting
Iowa HF 36 and SF 44
Requires public water supply system permit fees to be used solely for technical assistance.
Requires the Environmental Protection Commission to adopt annual fees which shall not
exceed appropriations to the Department of Natural Resources for administering water supply
programs. Repeals language that established the specific amount of fees to be generated each
year. (HF 36 passed House, died in Senate committee; SF 44 died in Senate committee)
Kansas HB 2159
Returns primacy over the state drinking water program to the U.S. Environmental Protection
Agency and prohibits the use of state funds for technical assistance to drinking water systems.
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(In House committee)
Mississippi HB 209
Establishes a Local Governments and Rural Water Systems Improvements Revolving Loan
Fund administered by the Department of Health to assist water suppliers with infrastructure
improvements, including construction of new water systems and expansion or repair of
existing systems. Authorizes the issuance of state general obligation bonds to capitalize the
Montana HB 493
Creates the Safe Drinking Water Treatment Revolving Fund to provide low-interest loans and
grants to water supply systems. Authorizes the issuance of $10 million in state general
obligation bonds to match future federal capitalization grants. (Passed House and Senate;
awaiting governor's signature)
Requires the Board of Health and Environmental Science to adopt standards for the review
and approval of voluntary programs submitted by public water supply systems to prevent
water contamination from a cross-connection. The bill also authorizes a public water supply
system to voluntarily submit a wellhead protection program for review and approval by the
Department of Health and Environmental Science. (Enacted)
Nebraska LB 640
Establishes an annual fee of 5 cents per $1 of gross retail sales of pesticides distributed in the
state to be deposited in a newly created Drinking Water Source Quality Fund. One-half the
revenue in the fund shall be used for sustainable agriculture programs, and one-half shall be
allocated to the Department of Health to administer the state drinking water program,
primarily to subsidize the costs of drinking water tests. (In Senate committee)
Nevada SB 92
Requires all administrative fines for drinking water violations to be deposited in a special
account for the education of water suppliers in the state general fund to be used for training
and educating water suppliers about drinking water laws and regulations. (In Senate
SUMMARY OF STATE DRINKING WATER LEGISLATION,... Microsoft IntPage 11 of 13r
0 New Hampshire
New Hampshire HB 494
Establishes a fee schedule for laboratory analysis of drinking water contaminants that ranges
from $10 to $450 per test, depending on the substance. One-half of the fee revenue is
allocated to the Commissioner of Environmental Services to purchase new laboratory
equipment to improve testing services. (Passed House; in Senate committee)
New Jersey AB 1003
Prohibits specified land use activities in watershed management areas, defined to mean lands
that are used to protect the water quality of public surface water supplies. Requires
municipalities with a public water supply to amend their development regulations to protect
buffer zones adjoining watershed management areas. Prohibits the sale or transfer of land
within a watershed management area or public surface water supply without the approval of
the Department of Environmental Protection. The department must develop a comprehensive
watershed management program based on local government implementation of best
management practices to control nonpoint source pollution. (In Assembly committee)
AB 1960 and SB 1431
Authorizes the New Jersey Wastewater Treatment Trust to provide financial assistance to
local governments for drinking water supply projects. Renames the trust the New Jersey
Environmental Infrastructure Trust and capitalizes it with the proceeds from several existing
general obligation bond acts. Revenue in the trust would be used for zero-interest loans to
cover up to 50 percent of eligible project costs. Additional revenue bonds issued by the trust
would be used to finance the balance of local government loans at below-market interest rates.
(AB 1960 in Assembly committee; SB 1431 in Senate committee)
AB 1961 and SB 1434
C Authorizes the use of bond act revenue to create a Water Supply Fund and a Water Supply
Trust Fund. The bill authorizes $300 million to be deposited in the Water Supply Fund for
low-interest or zero-interest loans to local governments for projects to repair or consolidate
water supply facilities. It authorizes $50 million to be deposited in the Water Supply Trust
Fund to establish a reserve account for loans made by the trust, and a guarantee account to
secure debt issued by local governments to finance water supply projects. (AB 1961 in
Assembly committee; SB 1434 in Senate committee)
Report on Environmental Legislation, 1st Sess... Microsoft Internet Explorer
Defines publicly owned treatment works as a treatment device or system that was constructed
and is owned by a state or municipality or was constructed and was owned by a state or
municipality and the ownership has been transferred to a (1) regulated ut ility, (2) private
entity that has in effect a contract with a state to receive municipal wastewater, or (3)
regulated, entity with a contract within a service area that would otherwise be served by the
Defines regulated utility as an entity that is licensed to own and/or operate a wastewater
treatment facility by the state water pollution control agency and is charged fees regulated by
Introduced by Frank Lautenberg (D-NJ) on 29 Nov 95.
Referred to Committee on Environment and Public Works.
H.J.Res. 129 -- Joint Resolution Granting Consent of Congress to the Vermont-New
Hampshire Interstate Public Water Supply Compact
Allows Vermont and New Hampshire to enter into cooperative agreements for construction,
maintenance, and operation of public water supply facilities.
Requires compact approval from each state s water supply agency. Requires voter approval
from Vermont municipalities.
Authorizes (to the extent authorized by state law) and requires water supply agency of each
stateto (1) review and give approval for all engineering documents necessary for federal or
state grants-in-aid, and (2) supervise and regulate the design, const ruction, maintenance, and
operation of facility. Requires grants-in-aid to be made jointly basing the amount attributable
to each state s allotment upon reserves determined by state water supply agencies. Authorizes
municipalities to raise appropriate revenues to contribute to the cost of the facilities.
Requires compacts contain a (1) system of charges for users, (2) uniform set of standards, (3)
provision for pro rata sharing of operation and maintenance costs based on ratio of actual
usage, (4) provision for arbitration and resolution of disputes, (5) provision carriage of
liability insurance (when applicable), (6) provision for modification of agreement, (7)
provision for adoption of regulations for the use, operation, and maintenance, and (8)
provision for non-owner to pay other municipality for share of maintenance and operation
Reserves the right to alter the joint resolution. Provides severability clause to allow for partial
revoking of the compacts.
Introduced by Bernard Sanders (I-VT) on 30 Nov 95.
Referred to Committee on Judiciary.
H.R. 2637 -- Study on Certain Cross-border Sources of Air Pollution
Requires EPA (in consultation with state and local air pollution control agencies) to conduct a
study on air pollution from mobile sources that enter the US from other countries to
determine (in nonattainment areas) the amount attributable to these source s. Requires EPA to
develop a verifiable model to estimate the amount of air pollution from mobile sources and
apply the model to at 1 east one metropolitan area near an international boarder (including San
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