Will 2017 Be the Year for Iowa Water Quality Funding?

March 9, 2017 | Kristine A. Tidgren

Update: The 2017 Iowa Legislative Session ended on April 22, 2017. No water quality legislation was enacted.

As we wait for the judge to rule on two pending summary judgment motions in the Des Moines Water Works lawsuit, two water quality funding bills with some traction are working their way through the Iowa legislative process. HSB 135 passed out of an Iowa House subcommittee on February 24, and SSB 1034 was recommended for passage by a Senate subcommittee on March 1. The bills are similar, yet distinctive.

New Water Quality Infrastructure Fund

Both bills would transfer roughly $230 million over a 13-year period from the Rebuild Iowa Infrastructure Fund to a new water quality infrastructure fund. The Soil Quality and Water Conservation Division of the Iowa Department of Agriculture would use the fund to administer two new programs, one designed to encourage edge-of-field water quality practices and one designed to encourage in-field infrastructure projects.

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.  All eligible edge-of-field and in-field projects would have to be consistent with the Iowa Nutrient Reduction Strategy. The money for these projects would be made available to landowners through financing on a cost-share basis. Only projects designed for use over multiple years on agricultural land would be eligible.

Water Service Excise Tax

The bills would both effectively divert sales tax assessments on sales of water by utilities to consumers and users to a new water quality fund. This would be accomplished by technically exempting such sales from the state sales tax and imposing a new water service excise tax. The Iowa Department of Revenue, however, would assess the tax in the same manner as the current sales tax.

The House Bill would appropriate one-sixth of this money to a water quality protection and wastewater treatment grant program to assist municipalities with implementing water quality projects. Five-sixth of the money would be allocated to a water quality financial assistance program designed to enhance the quality of surface water and groundwater. The program would include Iowa Finance Authority (IFA) funding via loans, forgivable loans, and grants. Projects involving a nutrient reduction exchange would be presumed to substantially improve water quality. The program would be administered by the IFA, but a committee comprising an appointee from the Iowa Department of Agriculture, the IFA, and the Iowa Department of Natural Resources would select projects for participation. The House Bill would also allow the IFA to issue bonds and notes to fund these programs through 28E agreements.

The Senate Bill would allocate 40 percent of the water service excise tax to a wastewater and drinking water treatment financial assistance program, 45 percent to a water quality financing program, and 15 percent to a water quality urban infrastructure program.  The water quality financing program, which would be administered by IFA, would provide loans, forgivable loans, and grants to projects designed to improve water quality by addressing point and nonpoint sources. The projects would be required to use water quality practices identified in the Iowa Nutrient Reduction Strategy.

These bills appear to be a starting point for negotiations on state funding for these crucial projects. We’ll keep you posted.

Update: SF 512, a successor to SF 482 and SSB 1034 passed the Senate on April 19.