Although local, state, and federal governments have invested billions in  wastewater infrastructure over the years, studies by EPA and the  Congressional Budget Office (CBO) suggest a potential gap exists between  what is currently being spent on wastewater infrastructure and estimated  future infrastructure needs. Stakeholders Identified Three Key Issues That Would Need to Be Addressed in Designing and Establishing a Clean Water Trust Fund

Three main issues would need to be addressed in designing and  establishing a clean water trust fund, according to stakeholders. These  issues include: how a trust fund should be administered and used; what  type of financial assistance should be provided for projects; and what  activities should be eligible for funding. Administration and use of a trust fund. A majority of stakeholders  (15 of 20) responding to our questionnaire expressed the view that a trust  fund should be administered through an EPA-state partnership like the  current CWSRF program. About a third of stakeholders (7 of the 20) expressed the view that a trust  fund should be used only to fund the existing CWSRF. Twenty-five percent of questionnaire respondents (5 of 20) supported  using a trust fund to both fund the CWSRF and establish a separate and  distinct program. Type of financial assistance. Only 2  stakeholders responded that a trust fund should be used to support  operations and maintenance for wastewater utilities. Various Options for Funding a Clean Water Trust Fund Could Generate a Range of Revenues, but Each Option Poses Certain Obstacles

Although a variety of options have been proposed in the past to generate  revenue for a clean water trust fund, generating $10 billion from any one  of these alone may be difficult. In addition, each funding option poses  various implementation challenges, including defining the products or  activities to be taxed, establishing a collection and enforcement  framework, and obtaining stakeholder support. A Variety of Options Are Available That Could Generate a Range of Revenue to Support a Trust Fund

Various funding options, including excise taxes on products that may  contribute to the wastewater stream, an additional tax on corporate  income, a water use tax, and an industrial discharge tax, could generate a  range of revenues for a clean water trust fund. Increasing the current corporate  income tax by levying an additional 0.1 percent on the $1.4 trillion in  corporate taxable income reported in 2006, after adjusting for inflation,  could raise about $1.4 billion annually. For a volume-based charge, levying a tax of 0.01  cent per gallon on the 13.4 trillion gallons of water that were delivered to  domestic, commercial, and industrial users from public supplies in 2000  could raise $1.3 billion annually, while a tax of about 0.1 cent per gallon  could raise about $13 billion annually. Each Funding Option Poses Certain Implementation Challenges

Implementing any of the funding options discussed above poses a variety  of challenges, including defining the products or activities to be taxed and  establishing a collection and enforcement framework, according to  interviews we had with agency officials and other stakeholders. This questionnaire asked for their views on  how a clean water trust fund should be administered, the types of  activities it should fund, and how funding should be distributed. We  received responses from 22 of these stakeholders. To identify and describe potential options for funding a clean water trust  fund that could generate $10 billion annually, we reviewed past legislative  proposals and position papers from wastewater industry groups that  discussed specific funding options for such a fund. Appendix III: Stakeholders Responding to Questionnaire on a National Clean Water Trust Fund

The following stakeholders responded to our questionnaire regarding the  issues that need to be addressed in designing and establishing a national  clean water trust fund as well as potential funding options that could be  used for this fund.
Why GAO Did This Study

The Environmental Protection Agency (EPA) has estimated that a potential gap between future needs and current spending for wastewater infrastructure of $150 billion to $400 billion could occur over the next decade. A number of entities are involved in planning, financing, building, and operating this infrastructure. Some of these stakeholders have suggested a variety of approaches to bridge this potential gap. One such proposal is to establish a clean water trust fund. In this context, GAO was asked to (1) obtain stakeholders' views on the issues that would need to be addressed in designing and establishing a clean water trust fund and (2) identify and describe potential options that could generate about $10 billion in revenue to support a clean water trust fund. In conducting this review, GAO administered a questionnaire to 28 national organizations representing the wastewater and drinking water industries, state and local governments, engineers, and environmental groups and received 22 responses; reviewed proposals and industry papers; interviewed federal, state, local, and industry officials; and used the most current data available to estimate the revenue that could potentially be raised by various taxes on a range of products and activities. GAO is not making any recommendations. While this report identifies a number of funding options, GAO is not endorsing any option and does not have a position on whether or not a trust fund should be established.

What GAO Found

In designing and establishing a clean water trust fund, stakeholders identified three main issues that would need to be addressed: how a trust fund should be administered and used; what type of financial assistance should be provided; and what activities should be eligible to receive funding from a trust fund. While a majority of stakeholders said that a trust fund should be administered through an EPA partnership with the states, they differed in their views on how a trust fund should be used. About a third of stakeholders responded that a trust fund should be used only to fund the existing Clean Water State Revolving Fund (CWSRF), which is currently funded primarily through federal appropriations, while a few said it should support only a new and separate wastewater program. A few stakeholders supported using a trust fund to support both the CWSRF and a separate program, while others did not support the establishment of a trust fund at all. In addition, more than half of the stakeholders responded that financial assistance should be distributed using a combination of loans and grants to address the needs of different localities. Finally, although a variety of activities could be funded, most stakeholders identified capital projects as the primary activity that should receive funding from a clean water trust fund. A number of options have been proposed in the past to generate revenue for a clean water trust fund, but several obstacles will have to be overcome in implementing these options, and it may be difficult to generate $10 billion from any one option by itself. Funding options include a variety of excise taxes. In addition, Congress could levy a tax on corporate income. An additional 0.1 percent corporate income tax could raise about $1.4 billion annually. Congress also could levy a water use tax. A tax of 0.01 cent per gallon could raise about $1.3 billion annually. Regardless of the options selected, certain implementation obstacles will have to be overcome. These include defining the products or activities to be taxed, establishing a collection and enforcement framework, and obtaining stakeholder support for a particular option or mix of options.