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Would a new water trust fund actually provide money for aging water and wastewater infrastructure?
By Tom Curtis
U.S. policy makers at every level of
government are increasingly aware of
the need to significantly invest in aging
water and wastewater infrastructure. The
question now is how we should pay for
these critical improvements. With the immense and
widespread need, it's not surprising that a number
of people and organizations sincerely believe the
answer lies with the federal government through the
development of a new water trust fund. Unfortunately,
federal trust funds are historically untrustworthy
mechanisms for accomplishing their stated goals.
Today's federal trust funds are
regularly raided to subsidize other
federal spending unrelated to the
purposes of the dedicated tax.
The federal government has created more than 400
trust funds, although for technical reasons some of
them aren't called by that name. Regardless of what
they are called, Congress has "earmarked" a revenue
stream for deposit into a dedicated account at the
United States Treasury. The revenue stream can be a tax,
such as the federal tax on airline tickets that passengers
pay each time they fly and which support the Airport
and Airway Trust Fund, or the revenues can come from
another source, such as the portion of offshore oil and
gas leasing revenues that is paid into the Land and
Water Conservation Fund.
The source of revenues isn't critical; it's the deposit
into a dedicated treasury account that marks a trust
fund. That's because once deposited in the trust
account, these funds are supposed to be available only
for the special purpose to which the revenues are
dedicated. The implication is that the revenues are
managed "in trust" for a specific purpose.
However, Congress has a poor track record of
actually spending all the trust fund money it collects on
the dedicated purpose. Congress needs vast amounts
of money to fuel the federal engine. So although most
trust accounts are protected by "firewalls" that prevent
the direct diversion of trust fund taxes into the general
fund, Congress has found another way to accomplish
the same purpose.
Here is how it's done: First, the dedicated tax receipts
are deposited into the intended trust fund account, as
required. Then, some _ but generally not all _ of those
receipts are appropriated by Congress for the dedicated
purpose for which the monies were raised. The balance
of receipts _ funds collected but not appropriated
_ are then "lent" to the general fund in exchange
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for a special kind of federal IOU. For example, at the
beginning of FY 2008 the Airport and Airway Trust
Fund had IOUs for more than $10 billion. That means
more than $10 billion has been collected from airline
passengers for the expressed purpose of improving
airports, but were instead lent to the general fund, spent
on other purposes and replaced with IOUs.
These IOUs do pay interest, so everything should
be fine, right? Not so fast. You need to ask how these
IOUs can actually be redeemed. First, understand that
the money "lent" to the general fund has been spent
and is gone forever. So in reality, there is no way that
these dollars can be repaid to the trust fund and spent
on the purpose for which they were collected. The
only hope of "recovering" these funds is that at some
point in the future Congress might find new money
to increase trust fund spending above the level of
dedicated taxes it collects.
There are only three ways this can be done: First,
Congress could cut the budget elsewhere and use those
savings to spend more through the trust fund. Second,
Congress could increase general taxes and use these
new tax receipts to increase trust fund spending. Or
third, Congress could borrow money, increasing the
federal deficit, and use the borrowed money to increase
spending from the trust fund.
These three tools for redeeming the IOUs in a trust
fund are exactly the same tools Congress already has
available in the absence of a trust fund. In other words,
trust fund IOUs are only as good as Congress's willingness
to cut other spending, raise taxes or increase the deficit.
In a 2008 study, the American Water Works
Association examined 10 federal trust funds, and every |
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one raised more money
in dedicated taxes than
was spent on the purpose
for which the tax was
imposed. The simple fact is
this: Today's federal trust
funds are regularly raided
to subsidize other federal
spending unrelated to the
purposes of the dedicated
tax. There is no reason to
think a new water trust fund
would be different.
There are other drawbacks
to a water infrastructure trust
fund. Many utility experts
believe that a water trust fund
would encourage deferring
local projects, as officials
await their turn for money
from the trust fund instead of moving ahead under local
initiatives. There is also a question of equity. Many more
communities will pay into the trust fund than will ever
receive funding from it. The questions about who will
subsidize whom and whether it is really efficient to send
money to Washington for years in the hopes of getting
some back someday are not easily answered.
AWWA has not taken a position on the possible
development of a water trust fund, other than to say it
will strongly oppose any form of federal tax on water.
But even if a water trust fund were to be financed
in some other way, its supporters should insist on an
ironclad guarantee that Congress would appropriate all
the funds it collects each year for water infrastructure.
At the end of the day, America needs to increase
investment in water and wastewater infrastructure.
The State Revolving Funds can be a big help and need
significantly more capital. An innovative mechanism such
as a federal water infrastructure bank could also make
a huge difference, by lowering the cost of capital. And
adjusting local water rates and charges is critical for many
communities. These things are the most straightforward
_ and trustworthy _ way to get the job done. |
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