Governor Newsom's New "Water Tax"

California Governor Gavin Newsom’s 2019-2020 budget contains several trailer bills, one of which is the Safe and Affordable Drinking Water and Exide Cleanup, which critics have branded as “the water tax.” This trailer bill raises several questions that need equal concern as whether the bill is a tax or a fee, or whether Californians can bear the burden of one more government charge of whatever name.

Here is a summary of such concerns.

Tax vs. Fee

Proposition 26 in 2010 made clear that a fee has specific characteristics. Primarily a fee benefits those who pay the fee. Everything else is a tax. The distinction is important because legislators can adopt a fee with a simple majority vote, while a tax requires a two-thirds vote of both houses for approval. This trailer bill charges a fee on the following entities located in the state. Amounts are complicated and seemingly fungible, since the legislature may change them with a two-thirds vote.

* Confined animal facilities excluding dairies: Fee is payable annually in an amount commensurate with the actual risk to groundwater from discharges of nitrate as determined by the working group set up for this purpose.

* Licensees whose name appear on the label of bulk or packaged fertilizing materials: Fee is based on the dollar sales of fertilizing materials.

* Milk handlers: Handlers deduct the fee per hundredweight of milk from payments they make to producers of milk, even if the handler and the producer are one entity.

* Individual rate payers: The fee is collected by community water systems from the systems’ rate payers (water consumers) and remitted to the Water Resources Control Board.

A fee levied on all fertilizer producers, milk producers, and water customers in the state for the purpose of improving water systems in specific locations does not appear to abide by the direct benefit rule of Proposition 26; therefore, they look suspiciously like a “pollution tax” and open to legal challenge.

Perhaps in anticipation of challenges, the trailer declares adoption of the charges an emergency measure “for the immediate preservation of the public peace, health, safety, and general welfare;” thus, claiming that the charges fall under California’s regulatory police powers, not its taxing powers. Also, the trailer frames the charges as a “social justice” issue – i.e., equal protection under the law – by pointing to the unhealthy water systems located in “disadvantaged communities.”

Critics’ Alternative Funding Suggestions

Critics of this trailer bill maintain new fees to clean contaminated soil and upgrade water systems are not necessary. The state could use the current budget surplus or issue water bonds. Some say the state should do nothing but hold local water agencies responsible for inaction and incompetence. These are alternatives on which to ponder.

The intent of the trailer bill is to provide on-going long-term funds to maintain water systems, not to do a one-time fixing and cleanup with the budget surplus. Bonds are a way of raising money, but they are expensive and somebody, often property tax payers, needs to pay for servicing the bonds. Perhaps clean and effective water systems are the responsibility of local water agencies, but they have not been providing that in some communities; so the state views taking over agencies’ responsibility as a practical solution.

Problem That Needs Fixing

Governor Newsom visited Monterey Park to hear water concerns.

Governor Newsom visited Monterey Park to hear water concerns.

The state is dotted with communities served by unhealthy and inadequate water systems. An example is the Central Valley, where farmers and other residents rely on scarce and often contaminated groundwater. The scarcity comes from water diverted to benefit fish and Southern California residents. The contamination largely comes from nitrate and other substances that seep into the soil from agricultural operations. Another example is Vernon, a city with industrial roots located not far from downtown Los Angeles, where regulators allowed Exide, a car battery recycler, to pollute the ground for 33 years.

Soil cleanup and upgrading of water systems are needed. Does this trailer bill accomplish that?

What the Trailer Bill Says It Will Do

Here is a brief summary of what this lengthy trailer bill says it will do:

* Establish the Safe and Affordable Drinking Water Fund in the State Treasury to hold and allocate funds for the purposes indicated in the trailer bill. Funds will be dedicated to the uses spelled out in the trailer bill unless two-thirds of the members of each house vote to use the funds otherwise.

* Prioritize assistance to “disadvantaged communities and low-income households served by a state small water system or domestic well.” Prioritize use of funds for “costs other than those related to capital construction costs, except for capital construction costs associated with consolidation and service extension to reduce the ongoing unit cost of service and to increase sustainability of drinking water infrastructure and service delivery.”

* Provide grants, loans, contracts, or services to assist eligible applicants with water replacement when needed to “ensure immediate protection of health and safety” in the short term, and to develop and implement “sustainability” in the long term.

* Provide long-term funding for the costs of replacing, repairing, blending, or treating contaminated or failing drinking water sources; creating and maintaining natural means of treating and improving sustainable water quality; consolidating water systems; and extending drinking water services to other public water systems, domestic wells, or state small water systems.

* Ensure that agricultural operations observe the following requirements in relation to discharges of nitrogen that lead to nitrate formation that adversely impact drinking water: best efforts in implementation and practice of practicable treatment or control, monitoring and reporting, and applicable timelines. Operators cannot be held liable for contamination if they observe these requirements.

Can The Trailer Bill Fix the Problem?

* Costs to consumers not eligible to receive assistance from the funds generated by the trailer will go up, making drinking water less affordable.

* Water once intended for farmers and residents of the Central Valley is now going to Southern California sustain fish. It is not clear what this trailer intends to do about that. Maybe provide bottled water to residents indefinitely?

* Contamination of soil from current methods used in agricultural operations, as the trailer bill indicates, is difficult to control. Therefore, we need to expect contamination to be an on-going challenge necessitating on-going cleanup. Whether such cleanup should be funded by taxpayers would be for voters to decide.