Make 'flush tax' dollars go further

Before raising the fee, change state law to allow a longer bond repayment period

November 10, 2011|By Michael Curley

A panel on growth and wastewater treatment recently recommended tripling the Bay Restoration Fee — known as the "flush tax" — between now and 2015. Good idea. It would raise more than $145 million a year for the Chesapeake Bay. And with a price tag of more than $10 billion on Maryland's Watershed Implementation Plan, we need it.

But before we ask residents for another $5 a month, we need to be sure that the money we have now, and the additional money we will have in the future, will be well spent.

More than 80 percent of the flush tax — about $60 million — now goes to pay for sophisticated sewage treatment, called enhanced nutrient removal (ENR). But the state doesn't just hand out the $60 million each year piecemeal; it wisely uses the money to pay off bonds, the proceeds of which are given out in grants for ENR. (In other words, the state borrows a large sum of money — $600 million today — by issuing bonds, which are paid off with the annual flush tax receipts.)

The problem is this: Instead of $600 million, Maryland could borrow more than $900 million without paying one more cent. In 2015, the state will collect about $180 million for ENR. If nothing changes, it will be able to finance about $1.8 billion worth of bay restoration projects. But it could also finance more than $2.7 billion — without tapping one more penny of our money.

How? If the state could issue 30-year bonds, instead of just 15-year bonds, it could get about 50 percent more bay restoration for the same amount collected.

Section 34 of Article III of the Maryland Constitution limits the pledging of tax revenues for more than 15 years, however. That's like the state telling you that you can only have a 15-year mortgage on your house.

There's a clear need here to amend the Constitution. Section 1 of Article XIV says that three-fifths of each house of the General Assembly may vote to submit an amendment to the people. Then, at the next general election, we, the people, would decide whether we wish to continue to cripple bay restoration by limiting financing to 15 years.

Some think that stretching out payments over a longer period is unwise or imprudent. But the U.S. Department of Agriculture has been making 40-year loans to rural water and sewer systems since 1941, with great results. In public finance, there is a maxim that projects should be paid for over their service lives. Houses last more than 30 years. Sewer systems last longer. They should both be paid for over the terms of their service lives.

Others are concerned that extending the tax/pledge term would adversely affect the state's pristine AAA credit rating, but this is not so. There are 17 states with AAA ratings from at least one internationally recognized credit rating agency. Of the 17, 10 have no limits on loan terms whatsoever. Of the remaining seven, New Mexico has a 50-year limit, and Virginia and South Carolina have 30-year limits. Maryland is the most restrictive of all the states, with only a 15-year limit.

Extending the term to a very reasonable 30 years would mean an additional $322 million of ENR projects at no additional cost to the people of Maryland. If this is not done, by the time the flush tax is tripled, it will mean we have lost $966 million for the bay.

So, before we raise the flush tax, let's extend payment terms to 30 years, so that our money will be wisely spent and the bay will be that much better off.

Michael Curley, a lawyer who served for 21 years on the U.S. Environmental Protection Agency's Environmental Financial Advisory Board, teaches at the Johns Hopkins University's Carey Business School. He is the author of "The Handbook of Project Finance for Water and Wastewater Systems." His email is

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