Rep. Xavier Becerra, D-Calif., has introduced a bill that would create another type of tax-credit bond — clean renewable water supply bonds — and authorize the issuance of up to $6.2 billion of them through 2018.
The bonds would be issued to finance a number of projects designed to conserve and recycle water.
“Fresh water has become an increasingly scarce and valuable resource in our time,” Becerra, a member of the House Ways and Means Committee, said in a statement. “The next-generation technologies that will provide us new and renewable sources of clean water exist today, we just need to help our local water agencies invest in them. Our bill does just that, providing the tax-credit bonds needed to finance the up-front costs of implementing new technology.”
The bill marks the latest attempt by Congress to promote taxable tax-credit bonds in the municipal market. Since the American Recovery and Reinvestment Act was enacted in February, lawmakers have approved nearly $30 billion of tax-credit bond authority, but market participants say that a viable market for the bonds still has not developed.
Specifically, the bonds could be used to finance desalination, groundwater remediation, or “qualified recycled water” facilities. The legislation defines the latter as any wastewater treatment or distribution facility that exceeds legal requirements and is used to reclaim wastewater produced by the general public so it can be beneficially reused. Any facilities that are functionally related or subordinate to those mentioned also could be financed by clean renewable water supply bonds.
The amount of bonds that could be issued under the program would steadily rise annually from just $100 million in 2010 to $1.75 billion in 2018. Any unused bond authority could roll over into future years, but no additional authority would be granted under the bill after 2018.
To receive allocations under the program, interested tax-exempt bond issuers would have to submit applications to the Treasury Department. The Treasury secretary would be required under the legislation to provide for a three-month application period for each year’s bond authority, after which the department would have 30 days to decide which projects qualify. An applicant would have to certify that the project would adhere to all relevant federal and state regulations.
However, the legislation also calls for the Treasury to conduct a study of the allocation method to determine if there is a more suitable approach to allocating the bond authority.
Under the bill, allocations would be made on a first-come, first-served basis, but with a few caveats. First, no more than 60% of a year’s authority could go to large projects, which are defined as projects designed to deliver more than 10 million gallons of water daily. In addition, no more than 18% could go toward a single large project. And no more than 12% could go towards any single project, large or small, and no more than $95 million could go toward a single project in any one year.
Bonds issued under the program could not have maturities of more than 20 years.
Companion legislation has been introduced in the Senate by Sen. Bill Nelson, D-Fla.
If enacted, the bonds would join the ever-growing kinds of tax-credit bonds, bringing the total number available to eight. Three — qualified school construction bonds, qualified energy conservation bonds, and the tax-credit version of Build America Bonds — were created earlier this year by ARRA.