House Study Bill 601 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED GOVERNOR BILL) A BILL FOR An Act relating to water quality by providing funding for 1 water quality financial assistance programs, extending the 2 period of time for collecting sales tax for deposit in the 3 secure an advanced vision for education fund, and modifying 4 allocations of state sales and use tax revenue collections. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 5473XL (8) 86 tm/sc

S.F. _____ H.F. _____ Section 1. Section 16.134, Code 2016, is amended to read as 1 follows: 2 16.134 Wastewater and drinking water treatment financial 3 assistance program. 4 1. The Iowa finance authority shall establish and 5 administer a wastewater and drinking water treatment financial 6 assistance program. The purpose of the program shall be to 7 provide financial assistance to enhance water quality. The 8 program shall be administered in accordance with rules adopted 9 by the authority pursuant to chapter 17A . For purposes of 10 this section , “program” means the wastewater and drinking water 11 treatment financial assistance program and “committee” means 12 the water quality financing review committee created in section 13 16.143 . 14 2. A wastewater and drinking water treatment financial 15 assistance fund is created and shall consist of appropriations 16 made to the fund and transfers of interest, earnings, and 17 moneys from other funds as provided by law. Moneys in the 18 fund are not subject to section 8.33 . Notwithstanding section 19 12C.7, subsection 2 , interest or earnings on moneys in the fund 20 shall be credited to the fund. 21 3. Financial assistance under the program shall be used to 22 install or upgrade wastewater treatment facilities and systems 23 and drinking water treatment facilities and systems , and for 24 engineering or technical assistance for facility planning and 25 design. 26 4. The authority committee shall distribute approve 27 financial assistance in from the fund in accordance with the 28 following: 29 a. The goal of the program shall be to base awards on the 30 impact of the grant combined with other sources of financing to 31 ensure that sewer rates do not exceed one and one-half percent 32 of a community’s median household income. 33 b. a. Communities shall be eligible for financial 34 assistance by qualifying as Priority shall be given for 35 -1- LSB 5473XL (8) 86 tm/sc 1/ 13

S.F. _____ H.F. _____ projects in which a disadvantaged community and is seeking 1 financial assistance for the installation or upgrade of 2 wastewater treatment facilities due to regulatory activity 3 by the department of natural resources and drinking water 4 treatment facilities . For purposes of this section , the term 5 “disadvantaged community” means the same as defined by the 6 department. 7 c. b. Priority shall be given to projects in which the 8 financial assistance is used to obtain with financing under the 9 water pollution control works and drinking water facilities 10 financing program pursuant to section 16.131 or other federal 11 or state financing. 12 d. c. Priority shall also be given to projects whose 13 completion will provide significant improvement to water 14 quality in the relevant watershed. 15 e. d. Priority shall also be given to communities that 16 employ an alternative wastewater treatment technology pursuant 17 to section 455B.199C . 18 f. e. Priority shall be also be given to those communities 19 where sewer or water rates are the highest as a percentage of 20 that community’s median household income. 21 g. f. Financial assistance in the form of grants shall be 22 issued on an annual basis. 23 h. g. An applicant shall not receive a grant that exceeds 24 five hundred thousand dollars. 25 5. The authority in cooperation with the department of 26 natural resources shall share provide information and resources 27 to the committee when the committee is determining the 28 qualifications of a community for financial assistance from the 29 fund. 30 6. The authority shall enter into agreements with financial 31 assistance recipients and distribute moneys under the program 32 pursuant to financial assistance determinations made by the 33 committee. The authority may use an amount of not more than 34 four percent of any moneys appropriated for deposit in the fund 35 -2- LSB 5473XL (8) 86 tm/sc 2/ 13

S.F. _____ H.F. _____ for administration purposes. 1 Sec. 2. NEW SECTION . 16.142 Definitions. 2 1. As used in this part, unless the context otherwise 3 requires: 4 a. “Committee” means the water quality financing review 5 committee created in section 16.143. 6 b. “Cost” means all costs, charges, expenses, or other 7 indebtedness incurred by a loan recipient and determined by 8 the committee as reasonable and necessary for carrying out 9 all works and undertakings necessary or incidental to the 10 accomplishment of any project. 11 c. “Eligible entity” means a municipality meeting the 12 requirements in section 16.146, or a landowner, as determined 13 by the committee. 14 d. “Loan recipient” means an eligible entity that has 15 received a loan under the program. 16 e. “Municipality” means a governmental body such as 17 a state agency or a political subdivision of the state. 18 Municipality includes but is not limited to a city, city 19 utility, county, soil and water conservation district, drainage 20 district, sanitary district, a subdistrict of any of the 21 foregoing districts, state agency, or other governmental body 22 or corporation empowered to provide sewage collection and 23 treatment services or drinking water, or any entity jointly 24 exercising governmental powers pursuant to chapter 28E or 28F, 25 or any other combination of two or more governmental bodies or 26 corporations acting jointly under the laws of this state in 27 connection with a project. 28 f. “Program” means the water quality financing program 29 created in this part. 30 g. “Project” means any combination of improvements, 31 structures, developments, tasks, actions, constructions, 32 modifications, operations, or practices designed to improve 33 water quality that are proposed by an eligible entity and 34 approved by the committee. “Project” includes but is not 35 -3- LSB 5473XL (8) 86 tm/sc 3/ 13

S.F. _____ H.F. _____ limited to any of the following: 1 (1) A project meeting the requirements of part 2 of this 2 subchapter. 3 (2) A project, operation, or practice undertaken or carried 4 out to address watershed protection, flood prevention, or water 5 quality improvement. 6 (3) A project meeting the requirements of a sponsor project 7 under section 455B.199. 8 Sec. 3. NEW SECTION . 16.143 Water quality financing review 9 committee. 10 1. A water quality financing review committee is created 11 consisting of the secretary of agriculture or the secretary’s 12 designee, the executive director of the authority or the 13 executive director’s designee, and the director of the 14 department of natural resources or the director’s designee. 15 2. The committee shall review and approve or deny 16 applications for financial assistance under the water quality 17 financing program established in section 16.144 and the 18 wastewater and drinking water treatment financial assistance 19 program established under section 16.134. 20 Sec. 4. NEW SECTION . 16.144 Water quality financing 21 program. 22 1. The authority, in cooperation with the department of 23 natural resources and the department of agriculture and land 24 stewardship, shall establish and administer a water quality 25 financing program. The purpose of the program shall be to 26 provide financial assistance to enhance the quality of surface 27 water and groundwater, particularly by providing financial 28 assistance for projects designed to improve water quality by 29 addressing point and nonpoint sources. 30 2. The authority shall determine the interest rate 31 and repayment terms for loans made under the program, in 32 cooperation with the department of natural resources and 33 the department of agriculture and land stewardship, and the 34 authority shall enter into loan agreements with eligible 35 -4- LSB 5473XL (8) 86 tm/sc 4/ 13

S.F. _____ H.F. _____ entities in compliance with and subject to the terms and 1 conditions of the program as described in this part. 2 3. The authority may charge loan recipients fees and assess 3 costs against such recipients necessary for the continued 4 operation of the program. Such fees and costs shall not exceed 5 the costs directly associated with the administration of the 6 program. Fees and costs collected pursuant to this subsection 7 shall be deposited in the appropriate fund or account created 8 in section 16.145. 9 4. The program shall be administered by the authority in 10 accordance with rules adopted by the authority pursuant to 11 chapter 17A. 12 Sec. 5. NEW SECTION . 16.145 Water quality financing program 13 fund —— appropriation —— other funds. 14 1. a. A water quality financing program fund is created 15 and shall consist of appropriations made to the fund, transfers 16 to the fund pursuant to section 423.2, subsection 11, and 17 transfers of interest, earnings, and moneys from other 18 funds as provided by law. The fund shall be administered by 19 the authority as a revolving fund. Moneys in the fund are 20 appropriated to the authority for purposes of the program. 21 Notwithstanding section 8.33, moneys in the fund that remain 22 unencumbered or unobligated at the close of a fiscal year shall 23 not revert but shall remain available for expenditure for the 24 purposes designated. Notwithstanding section 12C.7, subsection 25 2, interest or earnings on moneys in the fund shall be credited 26 to the fund. 27 b. The authority shall use the moneys in the fund to provide 28 financial assistance to eligible entities under the program. 29 The authority may provide financial assistance in the form 30 deemed most convenient for the efficient financing of projects, 31 including loans, forgivable loans, or grants. The authority 32 shall administer the fund and the program in such a manner 33 as to provide a permanent source of water quality project 34 financial assistance to eligible entities. 35 -5- LSB 5473XL (8) 86 tm/sc 5/ 13

S.F. _____ H.F. _____ c. The authority may annually use an amount of not more 1 than one percent of the moneys in the fund for administrative 2 purposes. 3 2. a. The authority may establish and maintain other 4 funds and accounts determined to be necessary to carry out the 5 purposes of the program and shall provide for the funding, 6 administration, investment, restrictions, and disposition of 7 the funds and accounts. 8 b. Moneys appropriated to and used by the authority for 9 purposes of paying the costs and expenses associated with 10 the administration of the program shall be administered as 11 determined by the authority. 12 c. All moneys transferred to the authority pursuant to 13 section 423.2, subsection 11, shall be deposited and held in 14 a fund or account established and maintained pursuant to this 15 section for purposes of the program. 16 3. The funds or accounts held by the authority, or a trustee 17 acting on behalf of the authority pursuant to a trust agreement 18 related to the program, shall not be considered part of the 19 general fund of the state, are not subject to appropriation for 20 any other purpose by the general assembly, and in determining 21 a general fund balance shall not be included in the general 22 fund of the state, but shall remain in the funds and accounts 23 maintained by the authority or trustee pursuant to a trust 24 agreement. Funds and accounts held by the authority, or a 25 trustee acting on behalf of the authority pursuant to a trust 26 agreement related to the program, are separate dedicated funds 27 and accounts under the administration and control of the 28 authority and subject to section 16.31. 29 Sec. 6. NEW SECTION . 16.146 Eligible entities —— agreements 30 required. 31 1. An eligible entity may apply to the authority for 32 financial assistance under the program by submitting a plan 33 that meets the following requirements: 34 a. The plan includes one or more projects that substantially 35 -6- LSB 5473XL (8) 86 tm/sc 6/ 13

S.F. _____ H.F. _____ improve water quality in the local area or watershed. Projects 1 shall be in accordance with the latest version of the document 2 entitled “Iowa Nutrient Reduction Strategy” initially presented 3 in November 2012 by the department of agriculture and land 4 stewardship, the department of natural resources, and Iowa 5 state university of science and technology. 6 b. The plan describes in detail the manner in which the 7 projects will be financed and undertaken, including, as 8 applicable, the sources of revenue directed to financing the 9 improvements as well as the municipalities or landowners that 10 will be receiving the revenues and how such revenues will be 11 spent on the projects. 12 2. The committee shall review and approve or deny 13 applications for financial assistance. The provision of 14 financial assistance under the program shall take into account, 15 as applicable, the number of municipalities or landowners 16 comprising an eligible entity and the eligible entity’s 17 financing capacity. The committee shall score applications 18 for financial assistance according to rules adopted pursuant 19 to this part. The committee shall only provide financial 20 assistance to eligible entities that have sufficient financing 21 capacity and that submit an appropriate plan designed to 22 improve water quality. 23 3. An approved eligible entity shall enter into an agreement 24 with the authority for the provision of financial assistance. 25 The agreement shall include standard terms for the receipt 26 of program moneys and any other terms the authority deems 27 necessary or convenient for the efficient administration of the 28 program. 29 Sec. 7. NEW SECTION . 161A.101 Water quality infrastructure 30 cost-share program. 31 1. The division shall establish and administer a water 32 quality infrastructure cost-share program. The program 33 shall provide financial assistance on a cost-share basis to 34 landowners for installing infrastructure projects designed to 35 -7- LSB 5473XL (8) 86 tm/sc 7/ 13

S.F. _____ H.F. _____ improve the water quality of the watershed in which the land 1 is located. In order to be eligible for financial assistance, 2 a proposed project must be designed to reduce the transport of 3 nutrients to water from nonpoint sources within watersheds in 4 accordance with the latest revision of the document entitled 5 “Iowa Nutrient Reduction Strategy” initially presented in 6 November 2012 by the department of agriculture and land 7 stewardship, the department of natural resources, and Iowa 8 state university of science and technology. The division 9 shall review proposed projects submitted by applicants, 10 negotiate project details with applicants, and approve or 11 deny applications. The division shall score applications 12 for financial assistance according to rules adopted pursuant 13 to this section. The division shall adopt rules pursuant to 14 chapter 17A necessary for the administration of the program. 15 2. A water quality infrastructure cost-share fund is 16 created within the state treasury under the control of the 17 division. Moneys in the fund shall consist of appropriations 18 made to the fund, transfers to the fund pursuant to section 19 423.2, subsection 11, and transfers of interest, earnings, 20 and moneys from other funds as provided by law. Moneys in 21 the fund are appropriated to the division for purposes of the 22 program. The department may use up to four percent of the 23 moneys credited to the fund each fiscal year for purposes of 24 administrative costs. Notwithstanding section 8.33, moneys in 25 the fund that remain unencumbered or unobligated at the close 26 of a fiscal year shall not revert but shall remain available 27 for expenditure for the purposes designated. Notwithstanding 28 section 12C.7, subsection 2, interest or earnings on moneys in 29 the fund shall be credited to the fund. 30 Sec. 8. Section 423.2, subsection 11, paragraph b, 31 subparagraph (3), Code 2016, is amended by striking the 32 subparagraph and inserting in lieu thereof the following: 33 (3) (a) Of the one-sixth of the remaining revenues: 34 (i) Beginning July 1, 2016, transfer to the secure 35 -8- LSB 5473XL (8) 86 tm/sc 8/ 13

S.F. _____ H.F. _____ an advanced vision for education fund created in section 1 423F.2, an amount equal to the amount transferred to the 2 secure an advanced vision for education fund pursuant to 3 this subparagraph for the fiscal year beginning July 1, 4 2015. Beginning July 1, 2017, the amount transferred to the 5 secure an advanced vision for education fund pursuant to this 6 subparagraph subdivision shall increase each fiscal year by ten 7 million dollars. 8 (ii) Following the transfer under subparagraph subdivision 9 (i), transfer any remaining amount as follows: 10 (A) Twenty-five percent to the wastewater and drinking 11 water treatment financial assistance fund created in section 12 16.134. 13 (B) Twenty-five percent to the water quality financing 14 program fund created in section 16.145. 15 (C) Fifty percent to the division of soil conservation 16 and water quality of the department of agriculture and land 17 stewardship for purposes of the water quality infrastructure 18 cost-share program created in section 161A.101, assisting 19 landowners with implementing water quality practices on a 20 cost-share basis as provided in chapter 161A, and water quality 21 demonstration projects. 22 (b) This subparagraph (3) is repealed January 1, 2050. 23 Sec. 9. Section 423.2, subsection 14, Code 2016, is amended 24 to read as follows: 25 14. The sales tax rate of six percent is reduced to five 26 percent beginning on January 1, 2030 2050 . 27 Sec. 10. Section 423.5, subsection 5, Code 2016, is amended 28 to read as follows: 29 5. The use tax rate of six percent is reduced to five 30 percent beginning on January 1, 2030 2050 . 31 Sec. 11. Section 423.43, subsection 1, paragraph b, Code 32 2016, is amended to read as follows: 33 b. Subsequent to the deposit into the general fund of 34 the state and after the transfer of such revenues collected 35 -9- LSB 5473XL (8) 86 tm/sc 9/ 13

S.F. _____ H.F. _____ under chapter 423B , the department shall transfer one-sixth of 1 such remaining revenues to the secure an advanced vision for 2 education fund created in section 423F.2 funds specified in 3 section 423.2, subsection 11, paragraph “b” , subparagraph (3), 4 in amounts proportionate to the transfers in section 423.2, 5 subsection 11, paragraph “b” , subparagraph (3) . This paragraph 6 is repealed December 31, 2029 January 1, 2050 . 7 Sec. 12. Section 423F.1, Code 2016, is amended to read as 8 follows: 9 423F.1 Legislative intent. 10 It is the intent of the general assembly that the extension 11 of the increase in the state sales, services, and use taxes 12 under chapter 423, subchapters II and III , from five percent 13 to six percent on July 1, 2008 to January 1, 2050 , shall be 14 used solely for purposes of providing revenues to local school 15 districts under this chapter to be used solely for school 16 infrastructure purposes or school district property tax relief 17 and water quality efforts . 18 Sec. 13. Section 423F.3, subsection 7, Code 2016, is amended 19 to read as follows: 20 7. The general assembly shall not alter the purposes as 21 stated in section 423F.1 for which the revenues received under 22 this section may be used from infrastructure and property tax 23 relief purposes and water quality efforts to any other purpose 24 unless the bill is approved by a vote of at least two-thirds 25 of the members of both chambers of the general assembly and is 26 signed by the governor. 27 Sec. 14. Section 423F.6, Code 2016, is amended to read as 28 follows: 29 423F.6 Repeal. 30 This chapter is repealed December 31, 2029 January 1, 2050 . 31 EXPLANATION 32 The inclusion of this explanation does not constitute agreement with 33 the explanation’s substance by the members of the general assembly. 34 This bill relates to water quality by providing funding 35 -10- LSB 5473XL (8) 86 tm/sc 10/ 13

S.F. _____ H.F. _____ for water quality financial assistance programs, extending 1 the period of time for collecting sales tax for deposit in 2 the secure an advanced vision for education (SAVE) fund, and 3 modifying allocations of state sales and use tax revenue 4 collections. 5 The bill creates a water quality financing review committee 6 to review and approve applications for financial assistance 7 under the water quality financing program and the wastewater 8 and drinking water treatment financial assistance program. 9 The bill amends the wastewater treatment financial 10 assistance program administered by the Iowa finance authority. 11 Currently, the program provides financial assistance to install 12 or upgrade wastewater treatment facilities and systems, and 13 for engineering or technical assistance for facility planning 14 and design. Awards of financial assistance are made by the 15 authority. The bill adds drinking water treatment facilities 16 and systems to the program and provides that the water quality 17 financing review committee shall approve financial assistance. 18 The bill creates a water quality financing program to 19 provide financial assistance in the form of loans, forgivable 20 loans, and grants to enhance the quality of surface water and 21 groundwater, particularly by providing financial assistance 22 for projects designed to reduce the amount of contamination by 23 point and nonpoint sources. The program is administered by 24 the Iowa finance authority in cooperation with the department 25 of natural resources and the department of agriculture and 26 land stewardship. The bill creates a water quality financing 27 program fund administered by the authority to provide financial 28 assistance under the program. The bill allows the authority 29 to establish and maintain other funds and accounts necessary 30 to carry out the purposes of the program. Moneys in the water 31 quality financing program fund are not part of the general fund 32 and are not included in determining the balance of the general 33 fund of the state. Under the program, an eligible entity is 34 a municipality, as defined in the bill, or a landowner. The 35 -11- LSB 5473XL (8) 86 tm/sc 11/ 13

S.F. _____ H.F. _____ bill provides certain application requirements regarding a plan 1 for water quality improvement and financing and requires loan 2 recipients to enter into agreements with the authority for 3 terms of the financial assistance. 4 The bill establishes a water quality infrastructure 5 cost-share program to provide financial assistance on a 6 cost-share basis to landowners for installing infrastructure 7 projects designed to improve the water quality of the watershed 8 in which the land is located. In order to be eligible for 9 financial assistance, a proposed project must be designed 10 to reduce the transport of nutrients to water from nonpoint 11 sources within watersheds in accordance with the latest 12 revision of the document entitled “Iowa Nutrient Reduction 13 Strategy” initially presented in November 2012 by the 14 department of agriculture and land stewardship, the department 15 of natural resources, and Iowa state university of science 16 and technology. The division of soil conservation and water 17 quality of the department of agriculture and land stewardship 18 shall review proposed projects submitted by applicants, 19 negotiate project details with applicants, and approve 20 applications. The bill creates a water quality infrastructure 21 cost-share fund under the control of the division to provide 22 financial assistance under the program. 23 Code section 423.2 imposes a state tax of 6 percent upon 24 the sales price of all sales of tangible personal property, 25 consisting of goods, wares, merchandise, and other items 26 designated by statute, sold at retail in the state to 27 consumers, except as otherwise provided by Code chapter 423. 28 Generally, by operation of law, a sale subject to the sales tax 29 is also subject to the use tax. Following certain specified 30 transfers, one-sixth of the remaining state sales tax revenue 31 from the 6 percent tax is transferred to the SAVE fund created 32 in Code section 423F.2. Moneys in the SAVE fund are allocated 33 to school districts on a per pupil basis to be used for 34 infrastructure and property tax relief purposes specified in 35 -12- LSB 5473XL (8) 86 tm/sc 12/ 13

S.F. _____ H.F. _____ Code chapter 423F. Under current law, the sales tax rate of 6 1 percent is reduced to 5 percent on January 1, 2030, and Code 2 chapter 423F, along with other corresponding provisions, is 3 repealed December 31, 2029. 4 The bill extends the imposition of the sales tax at the 5 6 percent rate, the allocation to the SAVE fund, and the 6 statutory repeal of Code chapter 423F until January 1, 2050. 7 The bill amends the legislative intent provision that describes 8 the purpose of increasing the state sales tax from 5 to 6 9 percent to include water quality efforts. 10 The bill also divides the revenues currently transferred to 11 the SAVE fund. Currently, after certain transfers are made, 12 one-sixth of the remaining revenues are transferred to the SAVE 13 fund. Beginning July 1, 2016, the bill transfers an amount to 14 the SAVE fund equal to the amount transferred to the SAVE fund 15 for the fiscal year beginning July 1, 2015. Beginning July 1, 16 2017, the amount transferred to the SAVE fund increases each 17 fiscal year by $10 million. Any moneys remaining from the 18 one-sixth of the remaining revenues following the transfer to 19 the SAVE fund are transferred to the wastewater and drinking 20 water treatment financial assistance fund, the water quality 21 financing program fund, and the water quality infrastructure 22 cost-share fund. The wastewater and drinking water treatment 23 financial assistance fund and the water quality financing 24 program fund each receive 25 percent of the remainder, and 25 the division of soil conservation and water quality receives 26 50 percent of the remainder for purposes of the water quality 27 infrastructure cost-share program, assisting landowners with 28 implementing water quality practices on a cost-share basis, and 29 water quality demonstration projects. 30 -13- LSB 5473XL (8) 86 tm/sc 13/ 13