Draft IRS Regulations Could Limit Use of Tax-Exempt Bonds
The Internal Revenue Service (IRS) recently issued proposed regulations altering the definition of “political subdivision” for the purpose of issuing tax-exempt bonds and use of tax-exempt financed facilities. The proposed language could have troubling implications for certain wastewater and stormwater utilities seeking to finance projects using tax-exempt bonds and/or use facilities built with tax-exempt financing. NACWA is currently analyzing the proposal to determine potential impacts on Association members and would appreciate any feedback from the members on this issue by the end of next week!
Under current IRS regulations, a “political subdivision” is “any division of any state or local governmental unit which is a municipal corporation or which has been delegated the right to exercise part of the sovereign power of the unit.” This has meant that a public entity able to exercise taxing, eminent domain, or police (regulatory) powers, is able to issue tax-exempt bonds and use tax-exempt financed facilities. However, the proposed new language imposes two additional requirements: 1) public purpose, and 2) governmental control.
The “public purpose” component requires that the entity be organized and continually operate for a public purpose, and that it operate in a way that “provides significant public benefit with no more than incidental benefit to private persons.” Without clarification, this language could impact stormwater utilities in particular. For example, in a watershed where some private properties may receive a disproportionate share of the benefits of a particular project, the ability of the utility to issue tax-exempt bonds could be called into question.
The governmental control requirement is also concerning for any regional utility controlled by multiple governmental entities, as the proposed language requires that a single state or local government exercise control through its power to: 1) both approve and remove a majority of the entity’s directors, 2) the power to elect a majority of the directors in periodic elections of reasonable frequency, or 3) the power to approve or direct the significant uses of funds or assets of the entity in advance. If a regional utility’s governing structure does not allow a single local or state government to exercise majority control, the proposed regulations could prohibit that utility from qualifying as a political subdivision for tax-exempt bond and financing purposes.
The public comment period for the proposed regulations closes on May 23, 2016. A hearing has also been scheduled by the IRS at 10:00 am on June 6, 2016 at the IRS offices in Washington, D.C. NACWA is reviewing the proposal and will engage in necessary advocacy efforts, including submitting comments on behalf of its members by the May 23 deadline, to ensure the regulations do not negatively impact clean water agencies. Any members with additional thoughts or concerns about the regulations should contact
by the end of this week. Concerned members should also submit their own comments to the IRS directly by the May 23rd deadline.
Bipartisan Letter Touts Important WRDA Provision
A bipartisan group of Representatives on the House Transportation and Infrastructure Committee signed a letter May 4 supporting inclusion of a provision NACWA is advancing for inclusion in the 2016 Water Resources Development Act (WRDA). The provision would encourage greater collaboration between the U.S. Army Corps of Engineers and local entities managing stormwater for water supply or water quality.
The letter was addressed to Committee Chairman Bill Shuster (R-PA), Ranking Member Peter DeFazio (D-OR), Water Resources Subcommittee Chairman Bob Gibbs (R-OH) and Subcommittee Ranking Member Grace Napolitano (D-CA). NACWA played a key role in facilitating the letter, and thanks all Association members that reached out to their Members of Congress on this issue.
While the Senate introduced and passed their WRDA bill out of Committee the last week of April—with significant provisions for the clean water sector—the House has not yet introduced their bill. The House bill is anticipated to be introduced and marked up in Committee by the end of May. NACWA is also hosting a web seminar on WRDA on May 24 at 3:00pm Eastern. Please contact
for more information.
NACWA, EPA Discuss Phase II Stormwater Rule Proposal
NACWA met with EPA staff on May 3 to discuss the comments the Agency received on proposed changes to the municipal separate storm sewer system (MS4) Phase II rule. NACWA reinforced the Association’s comments on the proposal and the importance of maintaining flexibility for municipal permittees under the Phase II program. NACWA emphasized that EPA should not use the rulemaking to make substantive changes to the stormwater regulations or attempt to further define the “maximum extent practicable” (MEP) standard for MS4 dischargers.
EPA officials reiterated that the proposal is only intended to make procedural changes to the Phase II program, not substantive alterations. They also acknowledged a number of issues raised in the Association’s comments, including concern over a perceived switch from narrative to numeric effluent limits for stormwater permits, and indicated that the Agency would be making changes in the final rule to address these issues and clarify that the Agency’s intent is not to mandate numeric limits. EPA noted that the majority of the 74 public comments on the rule were supportive of the flexibility afforded by the Option 3 approach, which was also endorsed in NACWA’s comments.
NACWA will continue to stay engaged on this issue with EPA as the Agency moves to finalize the rule by November of this year, and will likely provide additional written feedback to EPA in light of public comments submitted by other organizations. Members with any questions on the rule can contact
Congressional Briefing on Low-Income Rate Assistance to Spotlight NACWA Member Agency Challenges
Representative Marcia Fudge (D-OH) is hosting a Congressional Briefing, supported by NACWA, on Thursday, May 12 to address affordability challenges faced by low-income rate payers struggling to pay for water and sewer bills. Participants in the hearing will include two members of NACWA’s Board of Directors -- Julius Ciaccia, CEO for the Northeast Ohio Regional Sewer District; and George Hawkins, CEO & General Manager of DC Water. In addition, Kishia Powell, Director of Public Works for the City of Jackson, Mississippi and Eric Rothstein, a national expert on ratepayer affordability issues, will also participate.
Congress is currently considering a number of legislative proposals to address low-income ratepayer affordability challenges. One is Rep. Fudge’s bill H.R. 4542, the Low Income Sewer and Water Assistance Program Act, which creates a pilot program to award grants to low-income households to assist with payment of water and sewer bills. Such federal efforts to address the growing water affordability challenge are critical to providing a sustainable path forward for communities to invest in their water and wastewater infrastructure while also ensuring low-income households to not bear a disproportionate financial burden. NACWA is strongly supportive of these efforts, including Rep. Fudge’s proposal, and is also working with other water sector groups on a national analysis of low income rate assistance programs.
Any NACWA members interested in attending the briefing can click here for the briefing notice.
New Grant Awards Support Watershed Management Projects in the Great Lakes
EPA announced 28 new grant awards made through the Great Lakes Restoration Initiative (GLRI) on May 4. The awards, totaling $12.5 million, include implementation projects that address urban watershed management, agricultural watershed management, and invasive species prevention and control. Clean water agencies including NACWA members have been lead or partner agencies on GLRI grants, implementing projects that directly improve water quality and other ecosystem concerns. The GLRI program was authorized for the first time through the 2016 Omnibus funding legislation as part of a negotiated compromise brokered by NACWA, which also removed a potentially disastrous $72 billion unfunded mandate for the municipal clean water sector.
Among the grant recipients were Association member agency the Milwaukee Metropolitan Sewerage District and the Great Lakes Community Conservation Corps. NACWA recently met with The Corps Network, an association that represents Conservation Corps, which are youth workforce development programs modeled after the New Deal’s Civilian Conservation Corps (CCC). The Corps Network has partnered with a number of clean water utilities around the country and wanted to discuss with NACWA how their mission may align with Association member needs. For more information about this discussion, contact
New Report Examines Benefits of SRF Green Project Reserve Spending
In a report released on May 2, EPA’s Office of the Inspector General (OIG) recommended that EPA collect additional data and better evaluate the environmental and economic benefits of Green Project Reserve (GPR) projects, which received over $3 billion of Clean Water State Revolving Loan Funds (CWSRF) between 2009-2014. The OIG began their investigation into the measured benefits of the Green Project Reserve (GPR) funds distributed through the CWSRF program in early 2015. This involved meeting with many stakeholder groups, including NACWA, as well as analysis of available data. The report cites CWSRF funds used for water reuse projects based on information from NACWA’s 2013 Recycled Water Survey .
The report concludes that EPA should do a better job tracking the effectiveness of programs funded through the GPR, noting a recommendation “that the Office of Water publicly release the EPA’s benefit findings from internal reports, develop a routine process to collect GPR benefits data as part of the regular oversight of state programs, and evaluate and report to the public collected environmental and economic benefits information in collaboration with states and GPR loan recipients.”
The Office of Water provided a response to the draft report in which it indicated that the annual review of state-run CWSRF programs and the anticipated benefits from Green Infrastructure projects is a more efficient use of EPA resources than collecting post-construction project-level data for all projects funded wholly or partially by GPR funds. NACWA will have further discussion with EPA on this issue and work to ensure there are no additional administrative burdens placed on recipients of GPR funding.
GAO Report Confirms Utilities Face Challenges to Expanding Water Reuse
The Government Accountability Office (GAO) has found that clean water utilities interested in reuse of treated wastewater face significant regulatory and financial hurdles. While this is not news to the many NACWA members that have been exploring this concept for years, a new GAO report confirms that there can be barriers to effectively implementing water reuse and recycling projects. Although primarily focused on freshwater supply issues, the report also lays out the various available reuse treatment and desalination technologies, as well as technologies that assess pipe condition. While not expected to result in any immediate regulatory or legislative changes, the report adds to the growing body of information on water reuse issues and the need for national strategies to expand the role of water resue/reclamation.
New Tennessee Stormwater Law Limits Use of Post-Construction Performance Standards
A Tennessee stormwater bill (S.B. 1830) that recently became law would require that NPDES MS4 permits issued by the state be no more restrictive than federal requirements for post-construction management of stormwater. This could lessen the ability of local governments to use post-construction onsite retention standards for managing stormwater. This bill sets a concerning precedent for other states, especially where municipal stormwater utilities are interested in using such standards as part of their stormwater management programs and must determine whether individual performance standards exceed "the federal minimum".
The Tennessee Dept. of Environment and Conservation (TDEC) and a number of municipal interests opposed the bill, noting that the law limits the ability of localities to set post-construction controls. Post-construction performance standards in many cases require new or redeveloped sites to retain or infiltrate a certain amount of runoff on site. It is not immediately clear how the law will affect local jurisdictions in Tennessee, but any MS4 communities that have adopted post-construction stormwater measures that may exceed federal law are only grandfathered in until they seek coverage under a new NPDES permit. At that point, any municipality that has an ordinance already in place has to re-pass the ordinance when a new permit is issued. The state is in the midst of a public hearing process for their draft Phase II MS4 General Permit, which will be impacted by this law.
The law took effect April 22 absent the signature of Gov. Bill Haslam (R), who said in a letter that he was concerned about its potential impact on water quality and the possibility of opening up municipalities and the state to litigation. The National Association of Home Builders and the state branch of the National Federation of Independent Business backed the measure.
The potential ramifications of this law are significant, not just for municipalities in Tennessee that now have another cumbersome procedural burden and the potential of legal challenges but also as precedent for other states and municipalities that rely on post-construction performance standards as an avenue to meet their water quality goals. NACWA has concerns with the mandatory imposition of post-construction retention standards by federal or state regulators, but believes individual municipalities and MS4s should be able implement such standards if they so choose as part of a stormwater management program. The Association will be closely tracking any efforts in other states to pass similar legislation, and will also be discussing this issue with the National Stormwater Advocacy Network.
Calling All Region 4 Clean Water Utilities – Register Now for June 8 Regional Meeting!
NACWA is pleased to be hosting a Clean Water Utility Leader Dialogue on June 8 in Atlanta for all Region 4 clean water agencies – both NACWA members and non-members – to discuss critical issues facing utilities in the Region. Topics to be addressed will include wet weather, water quality standards issues (including bacteria, nutrients, and toxics), water reuse, stormwater, affordability concerns, and collection system issues. A draft agenda is now available. The meeting is being co-hosted by the Georgia Association of Water Professionals (GAWP) and NACWA member the City of Atlanta Department of Watershed Management. Make your plans to attend today!
Utilities attending the Region 4 meeting should also consider registering for the U.S. Water Alliance’s One Water Leadership Summit, being held in Atlanta June 8 - 10.
Time Running Out -- Register Now for Webinar on Building the Workforce of the Future
Mark your calendars and register now for the next Enabling the Water Resources Utility of the Future Webinar scheduled for Thursday, May 19, from 2:00 – 3:30 pm Eastern.
This second webinar in the series being co-sponsored by NACWA, EPA, the Water Environment Federation (WEF), the Water Environment Research Foundation (WERF) and WateReuse, is titled, It’s All About the People: Building the Workforce of the Future. Association Past President and Board Member Karen Pallansch, CEO of Alexandria Renew Enterprises and Juliet Ellis, Assistant General Manager, External Affairs for Member Agency the San Francisco Public Utilities Commission, will share what their utilities are doing to develop and nurture a sustainable workforce. The webinar flyer for the event contains a registration link or simply click here to register.
- The Wet Weather Partnership will host its annual Conference, Cutting Edge Developments and Strategies for Urban Wet Weather Management Programs , in Louisville, KY, May 17-19. Space is still available - reigster today!
- The National Association of Flood & Stormwater Management Agencies (NAFSMA) has opened its 2016 Green Infrastructure Awards Program to recognize communities using GI to advance their wet weather management goals and enhance their communities. Applications are due on May 17. Applications are also available for a separate recognition program for communication around "Improving Water Quality".
- Register today for the U.S. Water Alliance's One Water Leadership Summit, June 8-10, 2016, in Atlanta, GA. The Summit is the premier gathering of the country's sharpest minds addressing our nation's most urgent water challenges to build stronger and more prosperous communities.
- Apply now for the Utility of the Future (UOTF) Today recognition program by 5:00 pm Eastern, June 17, 2016. Applicants must have no major permit violations in the past year prior to the submission date of their applications.
Who Should Pay for Nutrient Pollution?
As the issue of nutrient impairment continues to be a growing problem in watersheds across the United States, the question of who should pay for addressing this issue is gaining increasing attention. An ongoing lawsuit in Iowa between drinking water interests and nonpoint source discharges seeks to answer this complex question in a particularly pointed way. Lauren Tavar, guest blogger and former NACWA legal intern, explores this issue in this week’s The Water Voice blog – read on to learn more!