Last week, Reps. Dan Kildee (D-Mich.), Bill Pascrell (D-N.J.) and Gwen Moore (D-Wis.) introduced legislation in the U.S. House, the Financing Lead Out of Water (FLOW) Act (H.R. 6985), to ease the administrative burden related to the issuance of bonds to finance the removal of private lead service lines. Specifically, the bill would amend the tax code to exempt private activity bonds (PABs) issued to finance the removal of private lead service lines, as defined by the Safe Drinking Water Act (SDWA), from the required “private business use test.” Under current law, public entities that issue bonds to finance the removal or replacement of lead service lines that are buried on private property must prove the bond proceeds will not mainly benefit private businesses for the bonds to be tax-exempt.

Tax-exempt bonds that fall into this category are treated differently from governmental bonds in that they are subject to state-by-state volume limitations based on the population of the state. PABs are issued on behalf of a governmental body for public purposes that meet the private business use test and private security or payment test. However, they differ from governmental bonds because they have no claim on the general tax revenues and are largely financed through the revenues generated by the project itself. Furthermore, the bond proceeds benefit a larger percentage of the private sector than the proceeds of governmental bonds.

Exempting PABs issued to finance the removal or replacement of private lead service lines from the private business use test would expand the ability of counties to finance critical water infrastructure projects without having to cut through red tape.

Counties support the right of counties to issue governmental debt for essential services by marketing bonds to investors with interest on such bonds remaining totally exempt from federal taxation. Furthermore, counties support the provision of safe drinking water and believes the federal government should adopt clear federal policies and regulations that allow flexibility to state and local governments to implement programs that will protect public health balanced with environmental and economic impacts.