FLOW Act Aims to Expedite Financing for Lead Pipe Replacement Projects

FLOW Act Aims to Expedite Financing for Lead Pipe Replacement Projects

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The Association of Metropolitan Water Agencies recently applauded new bipartisan legislation that will help drinking water systems nationwide more efficiently finance the replacement of lead service lines. 

The Financing Lead Out of Water Act was originally introduced in the House and Senate last year after AMWA identified IRS regulations making it more difficult for public water systems to finance full lead service line replacement projects with tax-exempt bonds. This year's version of the bill introduced in the House on March 7 and Senate on March 9, sponsored by Rep. Dan Kildee (D-Michigan) and Michael Bennet (D-Colorado), mirrors the bill first introduced in the 117th Congress.

The FLOW Act would amend the federal tax code to allow public water systems to pay for the replacement of privately owned lead service lines with tax-exempt bonds without first navigating IRS' "private business use test." Currently, water systems must certify to IRS that proceeds from a tax-exempt debt issuance do not benefit private entities above a certain threshold — a requirement that, in practice, has meant that water systems must verify whether a business operates out of any residence with a privately owned lead service line that would be replaced with those funds.

AMWA member Denver Water went through this process when attempting to secure financing for its lead service line replacement program and found it added months of work and administrative expense. AMWA worked with Denver Water, Rep. Kildee and Sen. Bennet to introduce the legislation in both chambers of Congress.

"Community water systems across the country are working hard to remove and replace lead service lines, but current IRS rules make it hard for utilities to finance these projects with tax-exempt bonds carrying the lowest interest rates," says AMWA CEO Tom Dobbins. "The FLOW Act will simply allow these replacement projects to proceed more quickly, while minimizing costly interest charges that are ultimately borne by ratepayers. AMWA commends Rep. Kildee and Sen. Bennet for their leadership on this issue."

The FLOW Act would amend Section 141 of the tax code to specify that "qualified lead service line replacement" projects are not subject to analysis through the private business use test, thereby allowing water systems to pay for them more easily with tax-exempt bonds. The bill would not require any water system to cover the cost of replacing a privately owned lead service line, but would merely ease administrative burdens on water systems that elect to do so.

On March 10, AMWA led a coalition of eight water, municipal and special district organizations in writing to Rep. Kildee supporting the FLOW Act. Passage of the bill is one of AMWA's top legislative priorities for 2023, and the Dobbins says the association looks forward to continuing to build bipartisan support for the legislation.


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