By Scott Berry, Director of Policy and Government Affairs, US Water Alliance

November 28, 2017

A new regular installment on our US Water Alliance blog, where our Washington, DC office will break down what is happening in Washington and how changes on Capitol Hill may affect One Water management across the country. 

Tax Reform: On Washington’s Agenda in December

December will be much ado about something in Washington. Many legislative decisions have been delayed for the last few months due to protracted fights on issues like healthcare ‘repeal and replace’ will be coming to a head.

Perhaps foremost in the minds of members of Congress is finishing the overhaul of the nation’s tax code. House Republicans passed their version through an accelerated process. Taking a lesson from their failure to repeal and replace the Affordable Care Act to heart, policymakers crafting the largest tax reform attempt in a generation, kept the details of the plan under wraps and sped through committee markup. While lobbyists from many areas tried to enact changes, most were unsuccessful.

Some important details for water leaders to watch include the provision dealing with the state and local tax deduction (SALT) and the tax-exempt status of private activity bonds. The SALT deduction is particularly important in higher income tax states like New York, New Jersey and California. Without state taxes being deductible from federal taxes, there may be significant pressure on states to reduce their tax burden. This would put a significant squeeze on state budgets, which could potentially lead to reduced spending on water infrastructure.

Another important provision to watch would be removing the tax-exempt status of private activity bonds, effectively ending the program. Doing away with private activity bonds removes one of the key financing vehicles that public and private entities could use to unlock private investment in public goods like water systems. And thanks to strong advocacy from infrastructure and local government groups, along with the Alliance and its water sector partners, the tax exempt status of municipal bonds was preserved.

While the House has already passed their version, the Senate has yet to take a vote on their version of the bill. With few legislative days left this year, Congressional Republicans and President Trump may have a hard time meeting their goal of having a bill to sign into law by the end of the year.

Still TBD: Fiscal Year 2018 Funding Levels

Tax reform is going to be a tough needle to thread, but it is far from the only needle that needs threading before the end of the year. In addition to several complex and thorny issues like reauthorizing federal surveillance programs, Iran sanctions, healthcare market stabilization, funding for disaster relief, and the impacts of the Alabama senate race, Congress has still yet to tackle Fiscal Year 2018 spending levels.   A continuing resolution to freeze FY18 funding at FY17 levels for a few months passed earlier this year, but expires on December 8th. There is already talk of another more short-term extension, but conservatives are wary of extending funding beyond the end of the year and are looking to use their control of both chambers of Congress and the White House to extract spending cuts and programmatic changes. Democrats are also looking to withhold their votes unless they can get a deal on the Deferred Action for Childhood Arrivals (DACA) program – the policy for undocumented immigrants that came here as children. This sets the stage for a showdown that may result in a government shutdown.

Of important note in the current talks on spending levels, the House version of their spending bill would cut about $44 million (three percent) from the Clean Water SRF and add about $157 million (18 percent) into the Drinking Water SRF. The Senate version holds funding equal to last year. In terms of rural water investment, despite the complete zeroing out of the Rural Water and Waste Disposal program in the President’s Budget, both House and Senate keep the $571 million in funding from last year steady. Where the ultimate levels end up in the end of the year omnibus that must be agreed to by House and Senate is still up in the air.