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California Considers Charge on Utility Bills to Create Safe Water Fund
A plan to help fix some of the state’s most persistent drinking-water problems is opposed by many water agencies, but a similar scheme has worked in the energy sector for decades.
GAPS IN FUNDING for water treatment are a major problem in California. Water providers operate independently, relying virtually entirely on customer fees to cover costs. For agencies with scale, money and access to quality water sources, this model works well. But absent those resources, contamination persists for years without resolution.
Around half a million people in the state receive water from a system that is out of compliance with safe drinking water standards, according to a November analysis by PPIC Water Center. Most of those failing systems are small – serving just a few thousand or a even a few hundred residents. While state bonds and grants can help systems build treatment facilities, there’s no state source of funding to subsidize ongoing operation costs for water providers that can’t afford them.
A piece of legislation, introduced last year as Senate Bill 623 and later included as a trailer bill in the governor’s proposed budget, seeks to solve this structural problem by raising a $140 million annual Safe and Affordable Drinking Water Fund, from a combination of charges on agriculture and residential water users. Money would go toward ongoing operation and maintenance costs for treatment in under-resourced districts. The charge on residential users would amount to about $1 a month for most households served by the 1,000 or so agencies collecting fund revenue.
While there is growing interest in fixing water contamination that has plagued some communities for years, there’s also opposition from water agencies against using a so-called “public goods” charge – a charge tacked on to a utility bill to fund public-interest programs – to get it done.
Opponents see water as an inherently local issue. Some water providers worry the charge would upset customers, who elect their agencies’ boards. They also say it would be costly and difficult for them to administer.
But a public goods charge on utility bills has financed successful innovations in the energy sector in California for decades and proponents of the water fund think there’s reason to believe the time could be right for the same funding mechanism to address California’s safe drinking water issues.
Origins in Energy
The energy sector, for instance, has been collecting public goods charges on the bills of electricity users since the mid-1990s.
The use of public goods funding in energy “shifted the paradigm significantly,” said Newsha Ajami, a professor at Stanford University who leads urban water policy research at the Water in the West program.
The revenue collected has gone toward research and energy efficiency programs, and has helped California reduce per capita energy use, according to a 2015 Water in the West report.
“Although the water and electricity sectors operate differently, the water sector can benefit from examining practices employed by the state’s electric utilities,” the report concluded.
But implementing a funding mechanism like this in water is more difficult.
Most Californians purchase electricity from one of three investor-owned utilities regulated by the state Public Utilities Commission. “In the water sector, you literally have thousands of water providers,” said Lester Snow, a proponent of the proposed charge who served as director of the state Department of Water Resources from 2004 to 2010.
That may not be an insurmountable hurdle. Other states – such as Kansas, Missouri and New Jersey – impose charges on urban water users to fund safe drinking water initiatives. California even does this in some cases on a regional level. For example, water wholesaler Metropolitan Water District in Southern California collects a “stewardship charge” from its 26 member agencies to fund efficiency efforts and encourage local resource development, like building more water treatment plants.
There are some general similarities between Metropolitan’s stewardship program and the proposed statewide charge: Both rely on a dedicated source of funding from a charge on customers or member agencies to make water system improvements more affordable.
But the district’s board opposes adding a charge to residential water bills statewide.
“The fundamental difference between the two is that Metropolitan is able to ensure that all agencies that pay the Water Stewardship Charge receive a benefit from it,” said Metropolitan spokesperson Bob Muir. He added, “A statewide public goods charge on water is different in that there is no way to ensure that the dollars contributed by a specific locality provide any direct benefits to people in that locality.”
A Shift in Thinking
This isn’t the first time the idea of a public goods charge for water has come up. California state legislators proposed statewide charges on water bills in 2006 and again in 2010. Previous legislation didn’t focus on water safety but instead would have established funds to cover other improvements to water systems throughout the state.
The legislation also didn’t have the backing of a diverse coalition of agricultural, environmental and water justice advocates that has bolstered support for the current effort, which has also been aided by more data on the extent of water contamination in the state. One influential study was a 2012 University of California, Davis report on nitrate contamination that revealed more than 250,000 people in the Central Valley’s Tulare Lake Basin and the Salinas Valley “have drinking water supplies susceptible to significant nitrate contamination.”
Jonathan Nelson, policy director for grassroots advocacy group Community Water Center, said the report “really rocked a lot of people back on their heels just about the severity of the crisis.” Nitrate can interfere with the ability of blood to carry oxygen, making it especially dangerous for infants, and is associated with cancer. Widespread contamination in aquifers in agricultural areas of the state has been traced to farming operations.
Jennifer Clary, a water policy and legislative analyst for the environmental advocacy group Clean Water Action, said such data makes it easier to advocate for solutions. “It’s very difficult to move things forward if people have no idea what the need is.”
The study prompted the governor’s office to call together representatives from state agencies, agriculture associations, water utility groups and environmental organizations to discuss remedies to nitrate contamination and how to finance them. The group met in 2012 and 2013 and included members from the Association of California Water Agencies (ACWA), Community Water Center and Clean Water Action.
An August 2013 report submitted to the governor’s office lists fees or taxes on agriculture operations and water use as potential dedicated funding streams for operations and maintenance of public water systems.
Both these solutions went into the trailer bill, which proposes revenue from a charge on agriculture operations to cover nitrate contamination and from a charge on customers (both residential and commercial) of water agencies to cover other contaminants that are not linked to agriculture.
ACWA, which advocates for its public water provider members, opposed the water use charge when it came up in discussions in 2012 and 2013, according to Cindy Tuck, deputy executive director of the organization. The group is the main opposition to the current legislation and is opposed to adding a charge to customers’ water bills. ACWA has advocated instead for tapping general fund dollars.
Without taking special measures, an allocation from the general fund isn’t guaranteed annually, which advocates of the charge say could leave communities in the lurch if funding is suddenly pulled due to budget cuts.
“How much longer do these communities, these children, have to drink toxic water for us to act?” asked Nelson, who said that opponents of adding a charge have snoozed on an opportunity in the years since the governor’s stakeholder meeting to propose a different, dedicated stream of funding.
ACWA started circulating a document describing alternative funding streams with legislators last month, said Tuck. “This can be solved this year if the proponents are willing to look at other alternatives,” she said.
One option for a dedicated stream of funding described by ACWA is an irrevocable trust, which is a trust that cannot be changed or terminatedwithout the approval of the beneficiary. A one-time contribution of $750 million from the state’s general fund to the trust’s principal could yield $50 million in interest each year for spending on operations and maintenance, ACWA’s proposal says. That’s less than half what the proposed charge on water bills is intended to raise.
It’s “not super clear how it would work, and also not clear why they haven’t brought it up over the last five years of discussions or even last few months if they think it is [a] viable piece of the puzzle,” said Community Water Center co-executive director Laurel Firestone. “But we are interested in any ideas to leverage new and existing funding to make it go further.” Firestone and other proponents of placing a charge on water bills said ACWA had not shared the proposal with them.
Timing is critical, said Snow. “We’re talking about needing revenue right now, to talk about dealing with a serious problem right now.”