Eliminating Tax Hurdles for Homeowners to Invest in Water Efficiency and Green Infrastructure

Earlier today, a bipartisan group of Representatives, led by Rep. Jared Huffman (D-CA), introduced legislation to clarify that rebates provided by water utilities for water conservation and green infrastructure improvements on private property are not taxable.

Clarifying that these rebates are tax exempt makes a lot of sense, since these rebates are not designed to provide a net benefit to the property owner, but rather to the water utility and the larger community. Encouraging property owners to reduce water usage by replacing water-thirsty lawns or replacing older toilets and clothes washers with more efficient models or to assist stormwater management by installing rain gardens and cisterns, benefits the water utility by reducing the amount of water coming into its system that has to be pumped and treated. Communities benefit because there is less strain on water sources and the costs of protecting local water quality are reduced.

Water utilities across the country are increasingly recognizing these benefits. In Seattle, the Rainwise program provides rebates to homeowners to install rain gardens as part of the City's larger goal to manage 700 million gallons of polluted runoff per year with green infrastructure by 2025.

The Milwaukee Metropolitan Sewerage District's Green Infrastructure Partnership Program pays up to 50% of the cost of capturing stormwater onsite. Their overall goal is to install enough green infrastructure by the year 2035 to capture 740 million gallons of water every time it rains to reduce water pollution and protect the region's water sources, including Lake Michigan.

But, if water conservation and green infrastructure rebate payments are considered taxable income to the property owners who receive them, it significantly deters participation in these programs, making it harder for utilities to cost-effectively manage stormwater and protect drinking water sources.

That's why this legislation so important. While the net revenue impact would be negligible, the larger benefits to our communities and our waterways could be significant. As one of the co-sponsors, Rep. Dana Rohrabacher (R-CA), noted, "Taxpayers should not be penalized for doing the right thing."

About the Authors

Alisa Valderrama

Senior Policy Analyst, Water Program

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