MWRD: Intergovernmental Agreement

MWRD: Intergovernmental Agreement

Metropolitan Water Reclamation District of Greater Chicago's "Green Infrastructure Call for Projects" program that began in 2017 allows MWRD to scale up its investment in green infrastructure to reduce flooding while reducing load on the sewer system. This effort resulted with the MWRD partnering with ~40 communities and public agencies throughout Cook County to fund and build GI projects. These projects will provide up to 5 million gallons of stormwater runoff storage to over 1,400 benefiting structures with the use of rain gardens, bioswales, and permeable pavement in parking lots, alleys, and residential streets. MWRD enters into "Intergovernmental Agreements" with its partner communities and agencies to set out the scope, design, construction, and operation and maintenance of the GI projects MWRD funds.

Click the link below to download a copy of the a copy of MWRD's template Intergovernmental Agreement.

 

DISCLAIMER: These materials are not offered as or intended to be legal advice. Readers should seek the advice of an attorney when confronted with legal issues. Attorneys should perform an independent evaluation of the issues raised in these materials. By providing these materials WaterNow does not endorse, either expressly or by implication, their accuracy or legality and expressly disclaims any and all liabilities and warranties related to use of these materials.

MWRD: O&M Plan for Permeable Pavement

MWRD: O&M Plan for Permeable Pavement

Metropolitan Water Reclamation District of Greater Chicago enters into operation and maintenance agreements with organizations that receive cost-share grants from MWRD to install green infrastructure on their property. This ensures the green infrastructure is properly operated and maintained and allows MWRD to rely on these localized solutions to manage rainwater where it falls.

Click the link below to download a copy of the O&M template MWRD uses for permeable pavement projects.

 

DISCLAIMER: These materials are not offered as or intended to be legal advice. Readers should seek the advice of an attorney when confronted with legal issues. Attorneys should perform an independent evaluation of the issues raised in these materials. By providing these materials WaterNow does not endorse, either expressly or by implication, their accuracy or legality and expressly disclaims any and all liabilities and warranties related to use of these materials.

MWRD: O&M Plan for Bioswales and Rain Gardens

MWRD: O&M Plan for Bioswales and Rain Gardens

Metropolitan Water Reclamation District of Greater Chicago enters into operation and maintenance agreements with organizations that receive cost-share grants from MWRD to install green infrastructure on their property. This ensures the green infrastructure is properly operated and maintained and allows MWRD to rely on these localized solutions to manage rainwater where it falls.

Click the link below to download a copy of the O&M template MWRD uses for bioswale and rain garden projects.

 

DISCLAIMER: These materials are not offered as or intended to be legal advice. Readers should seek the advice of an attorney when confronted with legal issues. Attorneys should perform an independent evaluation of the issues raised in these materials. By providing these materials WaterNow does not endorse, either expressly or by implication, their accuracy or legality and expressly disclaims any and all liabilities and warranties related to use of these materials.

Focusing on “People Issues” with Social Media

Focusing on "People Issues": Why Accessing Social Media Channels is Important for Utilities 

Watch this video to hear Melissa Elliot, President-Elect of the American Water Works Association, talk about the importance of meeting utility customers on social media channels to communicate with them.

NEORSD: Green Infrastructure Grants

Green Infrastructure Grants Program

The Northeast Ohio Regional Sewer District (Sewer District) supports the strategic implementation and long-term maintenance of green infrastructure that protects, preserves, enhances, and restores natural hydrologic function, including funding green infrastructure projects within the combined sewer area through the Green Infrastructure Grants (GIG) Program. NEORSD's GIG Program is open to member communities, governmental entities, non-profit organizations 501(c)(3), or business working in partnership with their community in the combined sewer area interested in implementing water resource projects that remove stormwater from the combined sewer system and in ensuring the long-term maintenance of the green infrastructure practices. Projects may be awarded up to $250,000.

Click the link below to download a copy of the 2019 GIG Program summary that includes example agreements NEORSD uses to ensure green infrastructure projects built under the GIG Program are property operated and maintained.

Taxability of Rebates: Federal Tax Issues

Taxability of Rebates: Federal Tax Issues

When a water utility makes rebate payments to a private property owner -- either residential or business -- to cover part or all of the cost of onsite, localized infrastructure (LI), for example, turf replacement, permeable pavers, or rain gardens, the principal federal income tax issue is whether these payments are taxable to the property owner under federal tax law.

Why does this matter?

• Federal taxability of LI rebates and similar utility incentives matters to water utilities because if the payments are taxable, the water utility may be required to issue an IRS Form 1099 to participating property owners, a significant administrative burden.  Failure to do so can subject the water utility to monetary penalties.
• Taxation of utility rebates matters to the property owner because the tax on the payment functionally reduces the rebate amount. Thus, a taxable rebate payment will not cover as much of the property owner’s out-of-pocket expense.

Of course, by making the program less attractive to property owners, a tax on the reimbursement payment will make it less likely that a property owner will enroll in an LI rebate program. Thus, the burden on the property owner will lead to a less successful rebate program for the water utility.

In practice, this has been an ongoing challenge for water utilities.

What should a water utility do?

Until federal law is clarified on this issue, a water utility has two courses of action:

1. Evaluate the arguments, in consultation with its tax advisors, for treating the rebate payments as non-taxable under current law as applied to the particular facts of its rebate program, weighing the risk of penalty if the IRS takes the position that the rebate payments are taxable against the detriment of deterring property owner participation in the rebate program. To assist in the analysis, we set forth arguments for nontaxability in the next section.
2. Explore alternative structures for the rebate program that may enhance the likelihood that the rebate payments are not taxable. We set forth some alternative structures in the second following section.  Each has its complexities and drawbacks, but they offer potential routes around this tax issue.

Arguments for Non-taxability

There are two basic arguments to support the conclusion that the rebate payments should not be taxable:

First, it may be argued that the LI rebate should not be treated as a taxable “accession to wealth” of the property owner. The purpose of the LI rebate is to enable the water utility to achieve water conservation or stormwater management objectives at least cost. The payment is being made to the property owner not to confer a benefit on the property owner, but rather because it may be cheaper for the water utility to have the property owner install the LI project than to build more water production capability or stormwater disposition facilities.  Any benefit to the property owner may be incidental and may be offset by the property owner’s obligation, if any, to maintain the LI project.

Second, it may be argued that the payments should be treated for federal income tax purposes as a reduction of the purchase price of the LI rather than as taxable income. For example, when a retail customer purchases an automobile and receives a manufacturers rebate for a portion of the purchase price, the rebate is treated as a reduction of the automobile purchase price (and not as income to the purchaser). By analogy, it may be argued that the LI rebate payment by the water utility to the property owner should be treated as a reduction in the purchase price of the LI and therefore not as taxable income.

The strength of these arguments may vary depending on the particular facts surrounding each LI project.

Alternative Program Structures

There may be alternative ways to structure an LI rebate program for private property owners that would enhance the likelihood that the rebate payments would not be taxable to the property owner. We explore four such options below:

1. Easement Structure.

Under this structure, the property owner would grant an easement to the water utility to install the LI project.  An easement is an actual property interest under local real property law. The easement is recorded as affecting legal title to the property and it binds not just the current property owner but also anyone to whom the property owner transfers the property in the future. Under the easement, the water utility would be granted the right to install the LI project and would actually own the project. The structure may be viewed as an analogous to a utility pole easement. If a property owner gives an easement to a utility to install a utility pole, the utility, not the property owner, is the owner of the utility pole. Similarly, it may be argued that, in this structure, the LI project is owned by the water utility, not by the property owner. Therefore, it may be argued that the payments to install the LI project should not be taxable to the property owner.

This approach results in the water utility’s having a property interest that appears on the property owner’s title to the property. This consequence would have to be carefully considered both by the water utility and by the property owner. Also, the LI project must be appropriate for an easement. For example, a rain garden to facilitate stormwater absorption might be appropriate for an easement while a low-flush toilet would not. However, we provide this structure for consideration, where appropriate, as a way of potentially avoiding taxability of the rebate payments to the property owner.

2. Fee reduction structure.

Ratepayers generally pay fees to their water utilities for the water they use. In addition, some jurisdictions impose stormwater fees requiring property owners to pay for (or at least help to alleviate) the costs they impose for failing to absorb the stormwater falling on their property. Rather than making rebate payments to property owners that install LI projects, water utilities could structure a program that allows a property owner a credit against the property owner’s water fees or stormwater fees for all or part of the amounts expended by the property owner for LI projects.

The IRS has issued a Revenue Ruling (a form of administrative guidance) holding that, where a customer of an electric utility receives a rate reduction or non-refundable credit on the customer’s electric bill for participating in an energy conservation program, the amount of the rate reduction or non-refundable credit is not taxable to the customer. (See Revenue Ruling 91-36, 1991-2 CB 17.) By analogy, it may be argued that if a property owner receives a rate reduction or non-refundable credit against the customer’s water bill or stormwater bill to defray part or all of the customer’s cost of installing a LI project, the rate reduction or non-refundable credit should not be taxable to the property owner.

The attractiveness of this structure will depend on a number of factors. One obvious factor (for stormwater LI) is whether the relevant jurisdiction imposes a broadly-applicable stormwater fee. Another factor is whether the water or stormwater bills are sufficiently substantial that the bill reduction or non-refundable credit will offset the portion of the property owner’s LI cost that would otherwise have been rebated by the water utility.

3. State tax credit structure.

Another possible approach would be to structure the rebate payments as a credit against the property owner’s state tax liability. States often provide tax credits against state income taxes (or occasionally against other state taxes, such as real property taxes) for payments by state taxpayers that contribute to what the state considers to be worthy objectives. As one example, New York State provides a tax credit of up to $5,000 per year for 25% of the fair market value of food donations by farmers to food banks.

The way a state tax credit works is that it reduces the state tax liability dollar-for-dollar by the amount of the credit. For example, suppose the state tax rate is 10%, a taxpayer’s taxable income for state tax purposes is $20,000, and the tax credit is $300. Prior to application of the credit, the taxpayer’s state tax liability is 10% of $20,000, or $2,000. The tax credit reduces the tax by $300, from $2,000 to $1,700. A tax credit is much more valuable than a deduction because it reduces tax not taxable income. For example, if the $300 credit were instead a $300 deduction, it would reduce the taxpayer’s taxable income from $20,000 to $19,700 and would thus only reduce the taxpayer’s state tax liability from $2,000 to $1,970, a benefit of $30 as compared with the $300 benefit of a tax credit.

Generally, tax credits may be “non-refundable” or “refundable.” If the credit is non-refundable this means that if the taxpayer does not have sufficient tax liability to absorb the full amount of the credit, the unused portion is carried forward and can be used to offset tax liability in future years (sometimes subject to a limitation on the number of years it may be carried forward). If the tax credit is refundable, then, if the taxpayer does not have sufficient tax liability to absorb the full amount of the credit, the taxpayer may get a tax refund in the amount of the excess (in effect, a cash payment equal to the amount of the excess).

The reason to consider this structure is the federal tax treatment of the state tax credit. Generally, the IRS treats non-refundable credits as reductions in future state tax liability. Thus the reduction is not treated as current income to the taxpayer (although it may reduce the taxpayer’s deduction for state taxes, if any). In the case of a refundable credit, the IRS generally bifurcates the credit. The portion that reduces the taxpayer’s state tax liability is treated as a reduction in state tax paid (the same treatment as a non-refundable credit) and the portion that is actually paid to the taxpayer as a tax refund is treated as taxable.

Accordingly, a state could structure a LI project rebate program as a state tax credit. Under this structure, a state could provide a tax credit against state income tax for all or part of the payments made by a property owner for a LI project. If the tax credit were non-refundable, as described in the previous paragraph, the amount of the tax credit should not currently be taxable to the property owner.  If the tax credit were refundable, then only the amount actually paid as a tax refund should be taxable to the property owner.

This structure could also be used with a tax credit against the property owner’s real property taxes rather than state income taxes, if this were preferable. This approach, whether used in conjunction with state income taxes or real property taxes, would require the state legislature to enact a statute to effectuate the program. There undoubtedly would be complexities that would have to be addressed as well. For example, water utilities should consider the recent Treasury regulations aimed at curbing efforts to avoid the limitation on deducting state and local taxes (see TD 9864, 6/11/19) and whether these regulations have any implications for the tax credit structure. Nevertheless, we offer this as another potential solution.

4. Program for low income residents.

Separate from the discussion above, water rebate programs specifically directed to disadvantaged communities may qualify for another exception to taxability.  Under the “general welfare exception,” government payments to the needy are not generally subject to federal income tax. To come within this exception, the IRS generally requires the payments to be (i) made from a governmental general welfare fund; (ii) for the promotion of the general welfare (that is, on the basis of need rather than to the general population); and (iii) not made as payment for services. The general welfare exception has generally been limited to those receiving government payments to help them with their individual needs (for example, housing, education, and basic sustenance). Payments to compensate for lost profits or business income do not qualify nor do payments made to the population generally without regard for need.

Based on these principles, a water utility could consider structuring a rebate or direct installation program tailored to the needs of low income residents. Payments under such a program may potentially be nontaxable to the recipients based on the general welfare exception. Of course, the applicability of the “general welfare exception" would depend on the particular features of the program, including the income limitations or other measures of need.

Written in cooperation with Roger Baneman, advisor, Natural Resources Defense Council

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The foregoing general discussion is not legal or tax advice. The actual tax consequences will depend on the particular facts of each program. Water utilities and property owners are urged to consult with their own tax advisors about the taxability of any rebate payment or any other federal, state, or local tax issues in connection therewith.

Stormwater Retention Credit Trading Systems: Local Tax Issues

Stormwater Retention Credit Trading Systems: Local Tax Issues

Washington, D.C.'s Stormwater Retention Credit (“SRC”) trading system potentially jeopardized the real property tax exemption of DC area nonprofits that sell SRCs. As detailed below, the District resolved this challenge with a legislative solution that may serve as a model for other jurisdictions. For an overview of the DC DOEE's stormwater regulations click here.

Tax-exempt entities are generally exempt from ad valorem real property taxes in the District. However, property used to generate income from activities unrelated to the owner’s exempt purposes is generally not exempt. Some tax-exempt entities in the District own property that is appropriate for locating stormwater management practices. They sought to take advantage of this potential, either by building the stormwater management practices on their property and selling the resulting SRCs or, alternatively, by leasing the property to a lessor who would build the stormwater management practices, sell the resulting SRCs, and pay rent or royalties to the tax-exempt entity. The concern was that the receipt of this income could jeopardize the tax-exempt entity’s real property tax exemption with respect to the property.

To alleviate this concern, the District enacted a statutory amendment, effective October, 2018, that expressly provided that the use of tax-exempt property to generate SRCs would not jeopardize the real property exemption with respect to that property. Click here to download a copy of the District's updated ordinance.

You can download a copy of the D.C. Office of Tax and Revenue's testimony in support of the provision by clicking the link below.

Impact of Green City, Clean Waters on Philadelphia

Impact of Green City, Clean Waters on Philadelphia

In May 2019, the Sustainable Business Network of Greater Philadelphia (SBN) released an evaluation of triple-bottom line impacts of Philadelphia Water's Green City, Clean Waters program. The analysis found significant economic, social, and environmental benefits to the City, including:

• $40 billion in total economic (direct, indirect, and induced) impact in terms of 2018 dollars
• 1,160 jobs on average per year
• $337 million in avoided costs due to reduced crime
• Increased open space with 65% of green infrastructure projects located in low- and moderate income neighborhoods
• $50.1 million in health-related cost savings
• 51% of public green infrastructure projects and 40% of private green infrastructure projects are located in high-risk heat island areas

Click the link below to download a detailed summary of SBN's analysis.

The 2017 City Energy Efficiency Scorecard

American Council for an Energy-Efficient Economy: The 2017 City Energy Efficiency Scorecard

Water utilities are at the confluence of the water-energy nexus, as they often implement programs to improve both energy and water efficiency throughout the water treatment and delivery system and among their customers. Water usage involves significant energy consumption because electricity and/or natural gas are used to source, treat, and transport potable water and to collect, transport, treat, and discharge wastewater, as well as to heat hot water at the consumer end use. As a result, improving the water efficiency in municipal systems can also result in reduced energy consumption.

The 2017 City Energy Efficiency Scorecard ranks 51 large cities and compares them across five policy areas:

• Local government operations
• Community-wide initiatives
• Buildings policies
• Energy and water utilities
• Transportation policies

Download the report below to see where your city ranks, and refer to Chapter 5 for information specific to the water-energy nexus.

 

Leveraging rates, fees, and incentives

Leveraging rates, fees, and financial incentives

The existence of a utility rate or fee can provide a lever to motivate private parties’ participation in localized infrastructure solutions. Rebates, subsidies, grants, and other financial incentives also play an important role in motivating private property owners to employ decentralized solutions. Communities’ programs across the country provide helpful examples on the role rates, fees, and financial incentives play, including:

Milwaukee Metropolitan Sewerage District’s 2019 Green Infrastructure Partnership Program, which is currently paid for out of the utility’s operating budget, provides private property owners who plan to install green infrastructure on their property incentive funding for development and installation of constructed wetlands, native landscaping, porous pavement, and several other onsite rain capture strategies

Los Angeles Department of Water and Power’s debt-financed Turf Replacement program provides rebates to residential and commercial customers who replace turf with sustainable landscapes that include rain capturing feature like a rain garden, rain barrel, cistern, infiltration trench, or vegetated swale

Seattle’s participation the in the debt-financed Saving Water Partnership provides area businesses and multi-family homeowners with rebates that result in significant savings on customers’ water bills

To explore the Toolkit sections on financing options for localized solutions click here.