The Price Of Free Money

By Robert Carpenter, Editor | August 2009 Vol. 64 No. 8

I read recently that a bipartisan group of lawmakers is proposing to raise about $10 billion a year for the rehabilitation of sewer and water systems. The funding sources?

Increased taxes, of course, to come from sewer and water’s biggest industrial users. The money would be funneled into an industry trust fund. The essentials of the idea aren’t new; trade associations have been suggesting variations on that theme for several years now.

It’s an intriguing idea, sure to be opposed by manufacturers most impacted by the new taxes, such as bottled water, pharmaceuticals, detergents, toiletries, cooking oils, etc. Frankly, I don’t have much sympathy for the bottled water industry – one of the greatest rip-offs in marketing history.

The trust fund concept has proven successful, to a limited degree, in the transportation industry and is worth exploring for sewer/water. However, it really doesn’t matter which industries are taxed, ultimately that cost would be passed along to consumers and adding taxes to our frail economy right now seems irresponsible, even irrational.

But beyond the increased tax burden, I’m also concerned about the message this sends to city councils and mayors: Big Brother to the rescue once again. Part of the underground infrastructure funding mess we’re suffering now had its roots with the formation of the Clean Water Act and the initiation of the State Revolving Loan Fund. The sudden availability of cheap Federal funds or matching grants led many municipal governments to keep user fees artificially depressed, so much so that water/sewer rates often can’t even support operations. As funding has decreased from these programs – which was the plan all along – cities found themselves with inadequate local funding to address their needs.

If the infrastructure “trust” program were to be established, federal funding levels would be increased four to 5 times current levels. I fear city councils would once again abandon realistic user fees and other local financing options in lieu of turning to Uncle Sam to provide major funding as needed. The sad part is it doesn’t matter where the money comes from, you and I are still going to pay for it. The difference is that with a trust fund, we’ll be paying for programs in cities other than our own. Of course, city councils would look like good financial stewards by not raising sewer/water rates to keep up with costs and inflation.