Division of Legislative Services > Legislative Record > 2005

HJR 640: Joint Subcommittee to Study Options to Provide a Long-Term Funding Source to Clean Up Virginia's Polluted Waters, Including the Chesapeake Bay and its Tributaries

September 29, 2005

The joint subcommittee held its third meeting on September 29, 2005. The agenda included presentations on the requirements for cleaning up state waters, alternative approaches for reducing pollution from point and nonpoint sources, estimates of the costs of clean up, and options for funding the cleanup.


Mr. Bob Burnley, Director of the Department of Environmental Quality, discussed the legal obligation of the state to clean up its polluted waters. Large segments of the Chesapeake Bay, its tidal tributaries, and the southern rivers are listed under the Clean Water Act as impaired waters because they exhibit at least one of the following properties: low dissolved oxygen levels, poor water clarity or algae bloom conditions, or poor quality fish food. Under the State Water Control Law and Section 303 of the federal Clean Water Act, Virginia is required to clean up these waters. In addition, while the Chesapeake Bay 2000 Agreement does not legally obligate Virginia to restore the water quality of the Bay, it does represent a commitment by the state and the signatories to the agreement to clean up the Bay by 2010.

The question was raised by members of the joint subcommittee as to the consequences of Virginia not cleaning up its impaired waters. An official of EPA responded by discussing the possible sanctions that could be imposed upon Virginia for not meeting the requirements of the Clean Water Act. He suggested that since the water quality program is a federal program with authority to administer the program delegated to the state, EPA has the option of taking over the program and administering it out of the regional office. If EPA found that Virginia was not making a good faith effort to clean up its impaired waters, it has the option of taking the following actions: (i) developing the Total Maximum Daily Loads for Virginia's impaired waters (TMDLs), (ii) setting water quality standards for Virginia, (iii) reviewing and issuing wastewater discharge permits, or (iv) withdrawing the authority to administer the program.


Mr. David Schnare, of the Thomas Jefferson Institute, briefed the joint subcommittee on several alternatives for reducing nutrients from point and nonpoint sources. His remarks reflected three themes:

  • We know more than we realize but perhaps still don't know as much as we need to.
  • We rely heavily on mathematical models and perhaps not enough on empirical information.
  • A free market and the profit motive have produced the least expensive, most effective solutions.

He described four examples that reflect these themes and represent particular cost effective strategies:

  • Using spray irrigation of wastewater in which the costs of nutrient reduction is one-half the costs of using advanced water treatment. This approach is useful in small and some medium sized municipalities in rural settings.
  • Controlling the amount of chicken litter phosphorus through the use of a proprietary silica blend. It significantly reduces phosphorus, slightly lowers bird losses, and reduces litter moisture, litter volume, ammonia, and dust.
  • Reducing the impact from urban lawn fertilizers by either (i) banning lawn fertilizers, with an exception for purchased nitrogen reduction credits from other sources, or (ii) tax lawn fertilizer (e.g. $5 lbs N), with the tax dedicated to fund urban wastewater treatment.
  • Promoting more continuous no till agronomy. Such an approach results in no discharge of sediment, increased crop yields, lower fuel and fertilizer costs, minimum equipment (requires only a single tractor), and reduced time in the field.

Dr. Schnare suggested that the state, in developing and implementing its clean-up strategy, promote rather than inhibit free markets and the incentives and innovations free markets produce. Secondly, Virginia should make public investment decisions like we would any public investment, within our ability to pay the costs over the long-term and in balance with other public needs.


Mr. Russ Baxter, Assistant Secretary of Natural Resources, provided a more refined estimate of the clean-up needs for the upcoming FY'07-08 biennium. For point source upgrades, the needs will be between $190-230 million. Since the Water Quality Improvement Fund currently has a balance of $66 million, approximately $124-164 million of additional state funds will be needed through June 30, 2008. He cautioned the joint subcommittee that by December 2005 a more accurate estimate of the point source grant funding needs will be available with the completion of the Nutrient Credit Exchange Association project. The implementation costs for meeting nonpoint source pollution control measures will total approximately $90 million over the next biennium, with the Department of Conservation and Recreation being able to effectively expend $39.5 million in FY'07 and $50.6 million in FY'08. Based upon these estimates the total costs of meeting the clean-up needs over the next two years will be $214-254 million.


Delegate Scott Lingamfelter discussed the challenges and solutions for cleaning up the Chesapeake Bay. He suggested that emphasis be placed on mitigating any risk involved in the clean-up effort. This will involve a program that provides effective oversight, has an engaged staff, has a strategic plan that links state and local priorities of work, as well as ties finances to a specific program of work. The project plan should include phases with attainable goals with funding aligned to each phase.

To carry out this program, Delegate Lingamfelter recommended the establishment of a Chesapeake Bay Clean-Up Authority. Membership of the authority could be a combination of legislators, executive branch officials, and persons with pertinent experience. The authority would be led by an executive director who has a strong background in finance and program management. The staff would consist of a finance director, marine scientist, engineer, agronomist, and hydrologist. They would be responsible for developing the "Chesapeake Bay Clean-Up Strategic Plan" through the Department of Environmental Quality and would oversee the execution of the plan. The authority would issue up to $1 billion in bonds through the State Treasurer to be paid off over a 10-20 year period. Fifty percent of the revenues generated by the bonds would be dedicated to point sources and 50 % to nonpoint sources. Delegate Lingamfelter estimated that under a 10-year scenario the debt service would be $1.32 billion and for a 20-year scenario it would be $1.64 billion. The debt service on the bonds would be paid through a dedicated portion of the recordation tax revenue and $50 million per year from the general fund.

In addition to Delegate Lingamfelter's proposal, staff presented a number of funding options. The following criteria may be used in considering funding sources:

  • A nexus between the source of funding and the use of the funds.
  • The ease of collection.
  • The breath of applicability to the general public.
  • The stability of the funding source.
  • The amount of revenue generated.
  • The ease of understanding.
  • Practical feasibility.

Some funding mechanisms for possible consideration could include using current general funds (without designating a particular revenue source) or dedicating specific current revenues, such as:

  • Recordation Tax. The year-to-year growth in recordation tax revenues has averaged about $60 million for the past decade.
  • Insurance Premium Tax. The State Corporation Commission license tax revenues from farm owner, homeowner, and commercial multi-peril insurance policies are approximately $42.7 million per year.
    Sales Tax. House Bill 2777 and Senate Bill 1235, as introduced, would have dedicated for clean up of the state waters, one-twelfth of the revenue (up to $160 million a year) from the 2% sales tax currently deposited into the general fund .

Other mechanisms for possible consideration could include new taxes or fees, such as:

  • Surcharge on Insurance Policies. Insurance premiums collected from farm owner, homeowner, and commercial multi-peril policies were approximately $1.9 billion in 2004. Each one percent charged on the insurance premiums would generate $19 million per year. Insurance companies would collect the new surcharge.
  • Capital Gains Tax on Real Estate. A sliding scale capital gains tax could be imposed on gains from the sale of certain real estate. The scaled tax would depend on the percentage size of the gain and the length of the holding period. The tax on personal residences and certain farms could be excluded. This approach is similar to the capital gains tax proposed in 1989 (HB 1782).


The next meeting of the joint subcommittee will be held November 14, 2005, at 1:00 p.m. in House Room C of the General Assembly Building in Richmond.

The Hon. Vincent F. Callahan, Jr.

For information, contact:
Marty Farber, David Rosenberg, and Mark Vucci
DLS Staff



Division of Legislative Services > Legislative Record > 2005 

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