7913

• UCREFRP Catalog Number: 7913
• Author: Freshwater Society.
• Title: Water Management in Transition, 1985.
• USFW Year: 1985.
• USFW - Doc Type: Navarre, MN.
• Copyright Material: YES

Only one-third of one cent is
allocated for water - and
that amount is going down.

If private capital is to be
attracted into traditionally
public projects, then
economic incentives for
capital investment must be
available.

At the state and local levels, there is no immediate capacity to raise the necessary
billions of dollars for water and wastewater facilities. State and local budget
pressures stem from a number of factors, including drastic cuts in federal grants,
high interest rates, and reduced attractiveness of municipal bonds due to
accomplished and proposed changes in federal tax law.

A major factor affecting the potential availability of state and local funds for water
facilities is a fear that federal cuts in the financing of social services - and in
revenue-sharing dollars - will force increased demand for state and local
funding of these services.

Proposed Restraints on State Responses

New and serious threats to local financing capabilities are proposed by the
Department of Treasury's "tax reform" proposals. Many analysts see these
proposals as an assault on traditional sources of state and local revenue raising,
including the tax-exempt municipal bond market. Key concerns include
proposals to:

· Eliminate the deduction for state and local income, property and sales taxes;

· Further restrict the arbitrage profits which state and local governments can
earn on investment of the proceeds of a tax-exempt issue even though, in
most states, these proceeds can only be used for the project the bonds finance;

· Eliminate tax-exempt financing for certain "exempt" purposes such as sewage
and water facilities where more than one percent of the proceeds from
industrial development bonds (IDBs) would directly or indirectly benefit a
non-governmental party;

· Eliminate the investment tax credit (ITC) and accelerated cost recovery system
(ACRS) which have served as incentives for private capital investment.

In the absence of direct federal funding, it seems reasonable - if states and
local governments are to bear an increasing share of the financial burden for
water - that IDBs and tax benefits be available to communities seeking
affordable ways to provide services essential to economic viability, If private
capital is to be attracted into these traditionally public projects, then economic
incentives for capital investment must be available. The Treasury proposals head
in precisely the opposite direction,

Taken together, these proposed changes could result in reducing and limiting
the access of state and local governments to the tax-exempt bond market. This
will occur because of a number of shifts in the economy- changes in the amount
of real revenues a given tax will generate, changes in the relative strength of
various sectors of the economy, and changes in the creditworthiness of state
and local governments.

All in all these proposed reforms could result in further decreasing the ability
of state and local governments to finance the necessary water projects needed
to protect public health and promote economic activity - at a time when state
and local governments need to be in a position to pick up a greater portion of
the tab.

Informed, responsible local officials may want to boost spending for water, but
the counter-pressures of unemployment and the threatened loss of city services
such as police or fire protection are more immediate and visible needs, Many
public works services lack glamour and visibility and, therefore, tend to go
unnoticed until they fail.

The public perception is that water is cheap, clean, easily available, and, therefore,
not worthy of a high priority for investment. This is an ironic - and self-defeating
- outcome of the successes of the past forty years to subsidize the provision
of water.

47