Water Quality Funding Bill Awaits Governor Reynolds' Signature

January 26, 2018
Kristine A. Tidgren

Update: Governor Reynolds signed SF 512 into law on January 31, 2018.

On January 23, 2018, the Iowa House finished work that was started last year by the Iowa Senate by passing a new water quality funding bill by a vote of 59-41. SF 512, which was passed by the Iowa Senate last April, is now awaiting the signature of Governor Reynolds. She has publicly supported the legislation and has stated that she will announce a signing ceremony “at a later date.” The legislation provides $282 million over 12 years to fund edge-of-field and in-field infrastructure projects designed to meet Iowa Nutrient Reduction Strategy goals, as well as to fund projects to improve the quality of Iowa’s surface water, ground water, and drinking water.

Initial Source of Funds

SF 512 initiates its funding stream by exempting from state sales tax the sale of metered water by utilities and instead creating a new Water Service Excise Tax. This money, collected by the Iowa Department of Revenue, would be deposited into the general fund, through fiscal year 2030. The excise tax will be repealed on July 1, 2029, or any time before that if the state increases its sales tax.

Money from the excise tax will be used to create two new funds, beginning in fiscal year 2019, a Water Quality Infrastructure Fund and a Water Quality Financial Assistance Fund.  

Water Quality Infrastructure Fund

In fiscal year 2019, one-twelfth of the water service excise tax will be allocated to the Water Quality Infrastructure Fund (WQIF). That percentage will climb to one-sixth of the excise tax in fiscal year 2020. Beginning in fiscal year 2021, however, the WQIF will be funded annually by $15 million in wagering tax receipts currently being used to pay off Vision Iowa Bonds.  The WQIF, which will be administered by the Division of Soil Conservation and Water Quality of the Iowa Department of Agriculture and Land Stewardship (IDALS), will support two main projects to implement key recommendations from the Iowa Nutrient Reduction Strategy: an edge-of field infrastructure program and an in-field infrastructure program.

Edge-of-field practices include wetlands, bioreactors, saturated buffers, and other land use changes implemented to capture or filter nutrients entering into surface water. In-field infrastructure projects would include those designed to decrease erosion and precipitation-induced surface runoff, increase water infiltration rates, and increase soil sustainability. The money for these projects would be made available to landowners through financing on a cost-share basis. These initiatives could include demonstration projects. Only projects designed for use over multiple years on agricultural land would be eligible.

State money used to finance these projects will be administered according to an agreement entered into between IDALS and the land owner. Information obtained by IDALS identifying a person holding agricultural land will be a confidential record. No more than four percent of the fund’s annual budget may be used for administrative purposes.  

Water Quality Financial Assistance Fund

In fiscal year 2019, one-twelfth of the water service excise tax will be allocated to the Water Quality Financial Assistance Fund (WQFAF). That percentage will climb to one-sixth of the excise tax in fiscal year 2020. From fiscal year 2021 through 2030, one-half of the water service excise tax will be allocated to the WQFAF. This should include just over $12 million each year. The WQFAF fund will be allocated each year as follows:

Forty-five percent will be appropriated to the Iowa Finance Authority (IFA) to fund the Water Quality Financing Program. This program will finance projects to improve the quality of surface and groundwater through loans, forgivable loans, and grants. These projects are designed to improve water quality by addressing point and nonpoint sources, with a higher priority provided to collaborative efforts. Entities eligible to apply for these loans include landowners, municipalities, public utilities, and rural water districts or rural water associations.

Forty percent will be appropriated to the IFA to support the Wastewater and Drinking Water Financial Assistance Program. The stated purpose of the program is to enhance water quality. Financial assistance offered through the program will be used to install or upgrade wastewater treatment and drinking water treatment facilities and systems, including source water protection projects.  Priority will be given to disadvantaged communities and to communities that employ technology to address the latest version of the Iowa Nutrient Reduction Strategy. Rural water systems will be eligible to participate. The program will be administered through contracts with IFA. Only one percent of the fund can be used for administrative costs.

Fifteen percent of the fund will be allocated to IDALS’ Division of Soil Conservation and Water Quality to support the Water Quality Urban Infrastructure Program. The purpose of this program is to support watershed projects and advance implementation of the latest version of the Iowa Nutrient Reduction Strategy. This program may include demonstration projects that decrease erosion, precipitation-induced surface runoff, and storm water discharges and that increase water infiltration rates. The projects will be based upon Iowa’s storm water management manual published by the Department of Natural Resources. The program will be financed on a cost-share basis or through cooperative agreements with watershed projects whose activities fall outside of the territorial boundaries of a city. The program will be administered through agreements entered into between the Division and the landowner. The Division may use money in this fund to support the three-year data collection of the in-field agricultural practices project or to maintain online resources displaying measurable indicators of desirable change in water quality within Iowa’s watersheds.

What’s Ahead?

Although this legislation creates a new funding mechanism for implementing some Iowa Nutrient Reduction Strategy recommendations, the funding stream begins as a trickle. In FY 2019, $1.9 million will be allocated to both the WQIF and the WQFAF.  That amount is increased to $4 million in FY 2020. The funding picks up in FY 2021 with the WQIF receiving $15 million and the WQFAF receiving just over $12 million.

It remains to be seen exactly how the new programs will be implemented. We will watch for details from IDALS and the IFA.

CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

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