Legislation Would Help Local Communities Access Low-Cost Financing for Lead Pipe Replacement
U.S. Reps. Dan Kildee (D-MI-05) and Bill Pascrell, Jr. (D-NJ-09), both members of the tax-writing House Ways and Means Committee, today introduced the Financing Lead Out of Water (FLOW) Act, legislation that will remove federal red tape to help more communities finance the removal of lead service lines.
The FLOW Act, would allow bonds that are issued by public water utilities to finance the removal of private lead service lines to bypass the IRS’ so-called ‘private business use test.’ Removing this barrier in the tax code will help more communities access low-cost financing for lead service line replacement and comply with federal drinking water standards.
“What happened to my hometown of Flint is not an anomaly; it is a warning to other communities across America. We need to get serious about removing every lead pipe to ensure everyone has access to clean, affordable drinking water,” said Congressman Kildee. “My new legislation would cut through federal red tape to make it easier for communities to support water infrastructure projects removing lead service lines that threaten public health.”
Lead service lines are often owned by both the local government and private entities. Removing lead service lines is a costly endeavor that can be financed by issuing tax-exempt bonds. However, under current law, if a drinking water utility issues bonds to finance the replacement of lead service lines that are buried on private property, the utility must prove the bond proceeds will not mainly benefit private businesses, which would cause the bonds to be ineligible for tax-exempt status. Proving this to the U.S. Internal Revenue Service (IRS) requires an extensive and costly analysis of the utility’s service area.
“A civilized society provides clean water to all its citizens,” said Congressman Pascrell. “It is one of our foundational responsibilities. The continued existence of lead pipes in our communities is an enduring threat to the well being of millions of lives, especially children. This legislation will give communities flexibility to remove lead pipes without facing an undue financial burden on their ledgers. Government must do all it can to encourage lead pipe removal and this thoughtful bill is step in that direction.”
“Many drinking water systems are working with their customers to fully remove lead service lines, but red tape from the IRS can slow down the process when the utility seeks to finance these critical infrastructure projects with tax-exempt bonds. Federal policy should make it easier, not harder, to fully replace lead service lines, so AMWA strongly supports the FLOW Act. We look forward to passage of this important legislation,” said Diane VanDe Hei, CEO of the Association of Metropolitan Water Agencies.
“With funds from the American Rescue Plan and the Bipartisan Infrastructure Law supporting local efforts to replace lead service lines, it is just as important to reduce administrative burdens on cities, towns and villages to help these investments go further in communities. We thank Congressman Kildee for recognizing the challenges in financing lead pipe replacement, particularly privately owned lines, and for sponsoring this bill that will ease administrative and cost burdens on local governments as they work toward compliance with the Lead and Copper Rule,” said Clarence E. Anthony, CEO and Executive Director of the National League of Cities.
“The FLOW Act will simplify the process by which water utilities finance lead service line replacement with tax-exempt bonds by removing unnecessary barriers that can add months of paperwork and delays,” said Tracy Mehan, Executive Director for Government Affairs for the American Water Works Association.
“This legislation would allow issuers to directly and effectively address drinking water lead remediation efforts all the way to the home. The FLOW Act tackles a thorny administrative challenge to providing clean, safe drinking water to communities across the country,” said Emily S. Brock, Director of the Government Finance Officers Association Federal Liaison Center.
The FLOW Act is endorsed by the Association of Metropolitan Water Agencies, American Water Works Association, Children's Environmental Health Network, National Rural Water Association, National League of Cities, Government Finance Officers Association and the National Association of Counties.
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