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New legislation unveiled during AMWA’s Water Policy Conference last week would reduce administrative burdens faced by drinking water systems that seek to finance full lead service line replacement projects with tax-exempt debt, a situation that an AMWA member brought to the association’s attention last year.

Sponsored by Rep. Dan Kildee (D-Mich.), the Financing Lead Out of Water (FLOW) Act (H.R. 6985) would amend Section 141 of the federal tax code to allow public water systems to pay for the replacement of privately-owned lead service lines with tax-exempt bonds, without first navigating IRS’ “private business use test.” Currently, water systems must certify to IRS that proceeds from a tax-exempt debt issuance do not benefit private entities above a certain threshold – a requirement that in practice has meant that water systems must verify whether a business operates out of any residence with a privately owned lead service line that would be replaced with those funds. Denver Water went through this process last year and found that it added months of work and administrative expense to the utility’s lead service line replacement project and approached AMWA to seek a legislative solution.

AMWA engaged with staff to Rep. Kildee, who agreed to work with the association to develop a legislative fix. The resulting legislation would specify that “qualified lead service line replacement” projects are not subject to analysis through the private business use test, thereby allowing water systems to pay for them more easily with tax-exempt bonds. The bill would not require any water system to cover the cost of replacing a privately-owned lead service line but would merely ease administrative burdens on water systems that elect to do so.

Rep. Kildee formally announced the bill in remarks last week during AMWA’s Water Policy Conference, and he subsequently introduced the bill in the House of Representatives. Aside from AMWA, the measure has been endorsed by AWWA, NRWA, the US Water Alliance, the National League of Cities, the National Association of Counties, and other organizations.

“We need to get serious about removing every lead pipe to ensure everyone has access to clean, affordable drinking water,” Congressman Kildee said in a statement. “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.”

“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,” said AMWA CEO Diane VanDe Hei. “Federal policy should make it easier, not harder, to fully replace lead service lines, so AMWA strongly supports the FLOW Act, and we commend Rep. Kildee for his commitment to this issue. We look forward to the passage of this important legislation.”

The bill has been referred to the House Ways and Means Committee, which has jurisdiction over all legislation to alter the tax code. Supporters hope to attach the bill to larger tax legislation that the committee may consider this year and are also working to get a version of the bill introduced in the Senate.