Questions & Answers about Clean Renewable Water Supply Bonds


QUESTION: Who would be able utilize this new form of Tax Credit Bonds?

ANSWER: Any public agency currently eligible to sell tax exempt municipal bonds would be eligible as long as the bonds are used to finance a desalination, water recycling, or groundwater clean-up facility.


QUESTION: Why would it be preferable to use Clean Renewable Water Supply Bonds to finance an eligible facility rather than using tax exempt municipal bonds?

ANSWER: The proceeds from the sale of the bonds would result in an interest-free loan to the issuing agency. Instead of the issuing agency having to make interest payments to the holders of the bonds, the federal government would provide the bond holders with a tax credit equal to what the interest payments would have been. On a $100 million capital project the agency would save more than $62 million in interest payments.


QUESTION: Who would likely purchase these bonds? Why?

ANSWER: Individuals, corporations, and institutional investors. Basically, the same type of investors that purchase municipal bonds except that the Clean Renewable Water Supply Bonds would be also be attractive to investors wishing to shelter income from federal income taxation.


QUESTION: How would a public agency go about selling Clean Renewable Energy Bonds?

ANSWER: Under the proposed legislation the process would be exactly the same as the agency currently utilizes to sell municipal bonds. The agency would retain an investment bank and bond counsel who would be responsible for selling the bonds.


QUESTION: How much of a subsidy would the utilization of these bonds create?

ANSWER: Assuming a twenty year maturity, which is what the legislation calls for, the resulting subsidy would be well excess of fifty percent.


QUESTION: This seems too good to be true. Why would Congress ever agree to this?

ANSWER: Congress has already approved the use of tax credit bonds to finance inner city school construction and renewable energy projects as well as to help finance the reconstruction in the Gulf States after the 2005 hurricanes. There is a growing realization in Congress that the federal government is not going to be able to assist financially (to any great degree) in the development of new water supply infrastructure through the traditional grants process. This mechanism will allow the federal government to help meet these immense needs by encouraging the mobilization of private capital rather than through the appropriations process.

"From Florida to California, climate change and water source pollution are combining to make the need for new water supplies a critical priority in the years ahead."

--Michael Slayton,
Coalition Chairman and
Deputy Executive Director of
St. Johns River Water Management District

 

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