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Proposed California Water Tax and Legislative Funding Proposals for Water Projects Compete For Support In Uphill Climb For Approval

California Governor Gavin Newsom is proposing to tax water users throughout California to help fund projects and programs to assist low-income communities where water quality and water supply issues are dire. Competing proposals urge utilizing existing funding sources rather than imposing a new and controversial water tax. Meanwhile, some Democratic California legislators are also pushing to lower the voting threshold to impose new local special taxes.

Background

With more than supermajority democratic control of both houses of the California legislature in place, Governor Newsom wasted no time proposing a new and controversial tax on water. In January, Governor Newsom released a California budget proposal that included spending millions of dollars for a “Safe and Affordable Drinking Water Fund.” That money would be used to help water systems, domestic wells and water users secure and maintain clean water supplies, primarily in small and disadvantaged communities.

The Water Tax

The details of Newsom’s plan trickled out recently, revealing that water customers would be taxed from 95 cents to $10 a month in order to raise about $140 million annually. The amount of the tax would vary depending on factors such as the size of water meters and would include exceptions for certain disadvantaged communities. More than 3,000 local water suppliers throughout California would be made responsible for collecting the tax. Animal farmers, dairies and fertilizer producers and handlers would also pay sizeable fees for programs to remedy nitrate and other types of groundwater contamination.

Newsom describes the water quality and water supply conditions for many in low income communities through the state, “a moral disgrace and a medical emergency.” According to Newsom, one million Californians live without clean water for drinking or bathing, and hundreds of water systems are out of compliance with primary drinking water quality standards due to contamination. Many struggling systems are located in the Central Valley and San Joaquin Valley.

Opposition

Similar legislative proposals were made and killed last year, including under threat of veto by then-Governor Jerry Brown. Newsom’s water tax also faces stiff opposition, not only from taxpayer associations but also from Democratic legislators representing largely agricultural districts and from the vast majority of public water agencies. Last year’s recall of a Democratic senator who voted to raise California’s gas tax also has many legislators nervous. Despite Democratic supermajorities, the water tax may have difficulty reaching the required two-thirds threshold of votes necessary to impose or increase new taxes.

Those opposed to the water tax note that voters have approved no less than eight water bonds totaling more than $30 billion since 2000, and they cite concerns that little of that funding has been used to create new water storage or develop new sources of water supply. Water tax opponents assert that statewide funding efforts should focus on these statewide water supply needs rather than directing funds to select local areas. Association of California Water Agencies (ACWA) representatives have taken the position that taxing a resource that is essential to living does not make sense and is not necessary when alterative funding solutions exist and the state has a substantial budget surplus.

The California Legislative Analyst’s Office, which is the Legislature’s non-partisan fiscal and policy advisor, recommends that the Legislature consider several issues as it deliberates and evaluates Newsom’s Safe and Affordable Drinking Water proposal, including: 1) its consistency with the state’s existing human right to water policy, 2) uncertainty about the estimated revenues that would be generated and the amount of funding needed to address the problem, 3) a comparison of the beneficiaries of the program with those who would pay the new charges, 4) the limited nature of alternative fund sources for the proposed program, and 5) trade-offs associated with the proposal’s safe harbor provisions.

Competing Proposals

Democratic State Senator Anna Caballero (D – 12thSenate District) has proposed a competing proposal that appears to be gaining traction. Rather than imposing a new tax, Senator Caballero would utilize money from California’s multi-billion-dollar budget surplus to create a trust fund to pay for water system and water supply related improvements.

Similarly, earlier this year California Assemblyman Devon Mathis (R – 26th Assembly District) introduced the Clean Water for All Act, a California Constitutional amendment that would cause, beginning with the 2021–22 fiscal year, not less than 2 percent of California’s General Fund revenues to be set apart for the payment of principal and interest on bonds authorized under the Water Quality, Supply, and Infrastructure Improvement Act of 2014, for water supply, delivery, and quality projects administered by the California Department of Water Resources, and water quality projects administered by the State Water Resources Control Board.

Local Tax Thresholds

As these statewide tax proposals move their way through the legislative process, so too does a proposed major Constitutional amendment to reduce the voter approval threshold to approve bonds and impose or raise local specialtaxes. California Assemblywoman Cecilia Aguiar-Curry (D – 4th Assembly District)’s proposed amendment, which could potentially be placed on the November 2020 ballot, would reduce that threshold from a two-thirds vote to a 55-percent majority.

According to Assemblywoman Aguiar-Curry:

“I have heard about deteriorating buildings, decrepit community facilities and our extreme lack of affordable housing. This will empower communities to take action at the local level to improve the economies, neighborhoods and residents’ quality of life.”

Taxpayer advocate David Wolfe, legislative director for the Howard Jarvis Taxpayers Association, however, says “If this passes it’s going to be devastating for property owners,” asserting that the new taxes and bonds that might be approved under the lowered thresholds would significantly increase costs of homeownership and burden taxpayers with long-term debt that lasts for decades.

Conclusion and Implications

Funding water projects and programs at practically any level in California is often difficult. While stakeholders across California largely share the view that such projects and programs are necessary to sustain life and economy in California, there is significant disagreement in how to fund them. As the proposed water tax and competing and related proposals work their way through the legislative process, stakeholders will surely demand to know how existing revenues and funding sources are—or could be—utilized to tackle these significant challenges before imposing new taxes, fees or charges on all or any Californians.

(Derek Hoffman, Michael Duane Davis)