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California Legislators Reject Water Tax but Approve Funding for Safe and Affordable Drinking Water

California lawmakers recently approved and presented to Governor Gavin Newsom a $214.8 billion California budget with new spending for safe and affordable drinking water: . Lawmakers rejected Governor Newsom’s initial proposal to impose a water tax, pursuing instead a compromise to appropriate over $130 million of existing tax revenue for improvements to the drinking water systems and supplies.

Background

Several funding proposals were introduced earlier this year to support safe and affordable drinking water supplies particularly for disadvantaged communities in California. Governor Newsom’s January and May budget proposals included a controversial water tax ranging from 95 cents to $10 a month on water customer bills in order to raise approximately $140 million annually for a proposed “Safe and Affordable Drinking Water Fund (SADWF).”

The California Assembly and Senate simultaneously juggled many other bills aimed to fund and support clean and reliable drinking water in areas of high need throughout the state. Examples included Assembly Bill 217 (Garcia) and Assembly Bill 134 (Bloom), which proposed creating a safe drinking water fund to be financed through taxes on various agricultural interests, livestock, fertilizers, and local water systems. Examples of Senate proposals included Senate Bill 669 (Caballero) to create a water trust fund using General Fund appropriations, and Senate Bill 200 (Monning) to creates and implement a safe drinking water fund but without specifying a funding source.

A Compromise Result

On May 22, 2019, the California Senate Budget Subcommittee voted 37-1 to reject Governor Newsom’s proposed water tax. Both Republican and Democratic lawmakers were hesitant to implement a new tax in light of the state’s projected surplus of $21.5 billion. The Senate instead recommended an alternative proposal to appropriate money from existing tax dollars to finance the Safe and Affordable Drinking Water Fund. The proposal included funding from other bills and laws including Proposition 1 and Proposition 68 to fund various projects to strengthen water delivery systems.

Following extensive negotiations, the legislature approved in early June and sent to Governor Newsom a $214.8 billion state budget including more than $130 million for clean water projects funded primarily from the Greenhouse Gas Reduction Fund which derives proceeds from the sale of greenhouse gas emission credits.

“In the 2019‑20 budget plan, the administration proposes to establish the SADW program to increase access to safe drinking water for Californians. Similar to last year’s proposal, the program would provide certain local wateragencies—particularlyones in disadvantaged communities—with grants, loans, contracts, or services to help support their O&M costs. This funding would be supported by new charges proposed by the Governor on water system ratepayers, fertilizer sales, and certain agricultural entities. For 2019‑20, the administration requests $4.9 million General Fund in one‑time funding for state administration costs at the SWRCB and CDFA to begin implementation of the program. Below, we provide additional details about key aspects of the administration’s proposal.” (LAO Office Analysis of the 2019-2020 California Budget).

The breakdown of funding sources, are summarized below. In total, the administration estimates that the various proposed charges would generate roughly $110 million to $140 million annually when fully implemented. Charges on fertilizer and agricultural entities would sunset 15 years after they go into effect. Specifically the administration proposes budget trailer legislation to implement the following charges:

  • Charge on Water System Customers ($100 Million to $110 Million).Beginning July 2020, the administration proposes imposing monthly charges on most water system customers ranging from $0.95 to $10 per month based on the size of the customers’ water meter. According to a recent report by a private consulting firm, the average monthly residential water bill across the state typically falls between $40 to $80. SWRCB estimates these charges would generate between $100 million and $110 million annually when fully implemented. Beginning July 2022, SWRCB could reduce the amount consumers are charged. Customers would be exempted from the charges if (1) they self‑certify that their household income is equal to or less than 200 percent of the federal poverty level ($25,100 for a family of four in 2019) or (2) receive service from a water system with fewer than 200 c Local water systems would be authorized to retain 4 percent of the revenue to cover costs associated with the collection of the charges until July 2022 when the amount the water systems could retain would decline to 2 percent.
  • Fertilizer Mill Fee ($14 Million to $17 Million).The administration proposes a mill fee of six “mills” (equal to six‑tenths of a cent) per dollar on the sale of fertilizer. This would be in addition to the current mill fee of three mills. This fee would go into effect upon enactment of the budget trailer legislation. According to CDFA, this charge is estimated to generate $14 million to $17 million per year when fully implemented.
  • Charges on Milk Producers ($5 Million).The administration proposes to impose charges on milk producers beginning January 2022. In total these charges are estimated to generate $5 million per year when fully implemented. We note that the dairy industry in California generated $6.6 billion in cash receipts in 2017.
  • Charge on Confined Animal Facilities (Amount Not Estimated).Beginning January 2022, the administration proposes to impose a charge on confined animal facilities—excluding dairies—such as poultry and other livestock operations. A workgroup would be convened by the administration to establish a charge commensurate with the risk to groundwater confined animal facilities create by discharging nitrates. The charges are capped at $1,000 per facility. (Ibid)

Some environmental advocates have described the comprise budget bill’s use of the Greenhouse Gas Reduction Fund as asking Californians to choose between clean water and clean air. In response, Governor Newsom has asserted that while money from the cap-and-trade programs are legally required to be spent on projects to reduce the greenhouse gases responsible for global warming, the lack of clean drinking water in various locations throughout the state results in increased carbon emissions from transporting bottled water to those communities.

Conclusion and Implications

The legislature finds that each year, more than one million Californians lack access to clean drinking water. As of the time of this writing, lawmakers were finalizing details of the Fiscal Year 2019-2020 budget legislation, including through developing trailer bills. The compromise proposal avoids the controversial imposition of a water tax, which may be among its most compelling qualities from the perspective of the many urban water suppliers that would have been burdened with collecting such a tax. An analysis by the California Legislative Analyst’s Office of the water related portions of Governor Newsom’s 2019 budget is available online at: https://lao.ca.gov/Publications/Report/3933#Water

(Paula Hernandez, Michael Duane Davis)