The Association of Metropolitan Water Agencies (AMWA) expressed its strong support for H.R. 6985, the Financing Lead Out of Water (FLOW) Act, new legislation announced by Rep. Dan Kildee (D-Mich.) today during his remarks at AMWA’s Water Policy Conference.
The FLOW Act would amend 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.
AMWA member 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 program. Denver Water approached AMWA to seek a legislative solution, and the association worked with Rep. Kildee to develop the legislation.
“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 passage of this important legislation.”
Under the FLOW Act, Section 141 of the tax code would be amended to 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.
“In developing our program to remove all lead service lines from our system, we recognized that most customers can’t afford to replace their own service lines,” said Jim Lochhead, CEO of Denver Water. “So it was critical that we cover that cost without putting a charge directly on the customer. This legislation will make it easier for utilities across the country to finance the replacement of lead service lines by incorporating the replacement into their capital programs, spreading the cost over the life of non-taxable municipal bonds.”
Rep. Kildee formally introduced the FLOW Act in the House of Representatives today. AMWA will work with his office to continue to build support for the measure.