WITH NEW WATER FEE INCREASES, THE TEXAS COMMISSION ON ENVIRONMENTAL QUALITY DISCOVERS A NEW WAY TO CALCULATE FISCAL IMPACTS…SIMPLY IGNORE THEM

On July 7, the Texas Commission on Environmental Quality (TCEQ) adopted an increase in three water quality fees applicable to cities: (1) the Public Health Service fee; (2) the Consolidated Water Quality fee; and (3) the Water Use Assessment fee. The rule passed with no amendments from the commissioners and very little discussion, and took effect on July 30. For cities serving fewer than 160 connections, the Public Health Service fee has increased, but remains a flat fee. For cities serving more than 160 connections, the Public Health Service fee calculation has changed from an equation to a per-connection fee of up to $2.15. The Consolidated Water Quality Fee increased rates and minimums for all the fee factors by a percentage across the board and increased the fee multiplier from 1.00 to an amount up to a maximum of 1.75. The Water Use Assessment Fee will also increase for all levels of water use.

When the proposed rule was published in the Texas Register, the TCEQ staff claimed there would be no significant economic impact to cities, because the cost could simply be passed on to the customer. TML Executive Director Frank Sturzl replied with the following comments on the rulemaking:

Over five years, the rule will generate $15.3 million for the state. Incredibly, however, there will be no fiscal implications for local governments since any resulting fee increases "are anticipated to be passed on to their customers." Of course the fees will be passed along; cities can't print money!

This fiscal note produces an entirely new and outlandish result: no governmental action will ever impose a negative fiscal effect on any other unit of government. If the federal government were to place an unfunded mandate on the TCEQ, there would be no fiscal note because the TCEQ would simply increase fees, as it is now doing. If Congress were to place an unfunded mandate on the Texas Legislature, there would be no fiscal note because the Legislature would simply raise taxes or fees paid by Texans.

The purpose of a fiscal note is to quantify the amount of revenue that an affected unit (or units) of government would be forced to generate as the result of a proposed action. The fiscal note in question clearly and utterly fails to do so.

In the final rulemaking package as published in the Texas Register, the TCEQ responded:

TML commented that the fiscal note produces an entirely new and outlandish result: no governmental action will ever impose a negative fiscal effect on any other unit of government. For example, TML stated that if the federal government were to place an unfunded mandate on the TCEQ, there would be no fiscal note because the TCEQ would simply increase fees, as it is now doing. Further, TML stated that if Congress were to place an unfunded mandate on the Texas Legislature, there would be no fiscal note because the legislature would simply raise taxes or fees paid by Texans.

The fiscal notes to the proposed rule published in the March 13, 2009, issue of the Texas Register stated that local governments would not see significant fiscal impacts. The commission assumed that municipal utilities would pass the cost of the increase along to its customers. The increase is not projected to significantly impact a utility's customers because such costs are not anticipated to be significant and are typically spread across a 12-month period. The commission made no change in response to this comment.

It seems clear that the fiscal impact analysts at the TCEQ have passed through a magical looking glass into their own private wonderland, where entities (including cities) that must generate revenue for the TCEQ do so without feeling any fiscal impact whatsoever. This must be seen for what it is: an astonishing refusal to properly calculate a fiscal note.

The TCEQ is arguing that the fee increases will not “significantly impact a utility’s customers.” But the agency isn’t imposing the increase on individual customers; to do so would require the agency to send a bill to each customer. The agency is imposing the increase on each municipal utility, and that increase will be significant. Each utility will have to decide how to pay for the increase: from utility reserves, from other municipal funds, or by increasing the customers’ rates. It is widely known from previous research that any of the methods will require a large outlay, an outlay that TCEQ refuses to recognize.

More information on the rule change may be found on TCEQ’s Web site, at: http://www.tceq.state.tx.us/agency/waterfees.html. TML will continue to monitor TCEQ and other agency rulemakings on behalf of our member cities. If you have any questions or need more information, please contact TML at (512) 231-7400.

TML member cities may use the material herein for any purpose.
No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the
Texas Municipal League.

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