You asked how other states fund the acquisition of watershed land, specifically drinking water supplies. This report focuses on state programs designed specifically to fund the purchase of such land and does not include state open space acquisition programs that may include the purchase of watershed land, or local funding options.

SUMMARY

According to the National Conference of State Legislatures, there is no comprehensive listing of state laws on land acquisition for watershed protection. However, we list below some of the strategies that states use and that land preservation organizations recommend. We describe state watershed protection programs in Massachusetts, New Jersey, North Carolina, Ohio, and Rhode Island.

WATERSHED PROTECTION FUNDING STRATEGIES

According to “Protecting the Source,” published in 2004 by the Trust for Public Land (TPL), a national, nonprofit land conservation organization, a combination of federal, state, local and private funding works best to implement a comprehensive source water protection plan. TPL says that while local funding and commitment is the key to any long-term conservation effort, state programs can promote drinking water source protection with incentives and funding programs that help local communities meet their watershed protection goals.

States can create a dedicated funding source for watershed protection. The revenue streams most commonly used for this purpose are (1) general obligation bonds, (2) sales tax revenues, (3) lottery proceeds, (4) real estate transfer taxes or deed recording fees, and (5) general fund appropriations.

A state can also enact enabling legislation, giving local governments the authority to raise local dollars. These can take the form of matching grants and low interest loans.

Finally, states can help leverage federal financing by linking state grants and loans to the federal Clean Water and Drinking Water State Revolving Funds, or by linking watershed protection to such other goals as recreation, historic preservation, and habitat protection.

PROTECTION ALTERNATIVES TO LAND ACQUISITION

“Creative Financing Techniques for Preserving Important Lands in Watersheds,” prepared for the University of Maryland’s Environmental Finance Center (attached), provides a number of protection strategies in addition to zoning restrictions and the acquisition of land, easements, or development rights.

States can, among other things:

1. notify owners that they possess important resources as a first step in establishing goodwill that may eventually result in a permanent commitment to protect the resources;

2. establish a recognition program that publicly announces the significance of a particular property, resulting in the property and the community receiving favorable publicity and encouraging responsible stewardship;

3. establish a nonbinding agreement program in which an owner voluntarily agrees to protect certain specified features of property;

4. enter an agreement in which an owner agrees to care for property for a set period of time, possibly in exchange for compensation, and impose property tax penalties if the land is developed;

5. lease the property from its owner at a nominal fee or at market prices;

6. provide low-interest loans to people who build or buy homes in desired areas that have environmentally sensitive features, such as a smaller “footprint” or that preserve more open space;

7. establish a revolving loan program under which the state loans money to communities or private parties at or below market rates for up to 20 years;

8. offer the public environmental bonds in small denominations and designate the proceeds for specific programs or activities; or

9. create special assessment districts (“stormwater utilities”) to finance particular services in a specific geographic area. More information on stormwater utilities is available in OLR Report 2004-R-0895.

SELECTED STATE WATERSHED PROTECTION PROGRAMS

Massachusetts, New Jersey, North Carolina, Ohio and Rhode Island have programs that are considered among the more innovative watershed acquisition programs in the country. We briefly describe these programs below.

Massachusetts

The Massachusetts Watershed Protection Act, enacted in 1992, directs the Metropolitan District Commission to adopt regulations protecting the sources of water to reservoirs that provide drinking water to 2. 5 million people. The act also created a $ 135 million bond for land acquisition to purchase the most vital lands. The MDC commissioner must spend $ 8 million per year on its three active watersheds until 2009, when the bond money will be exhausted. According to the commission, land acquisition is ahead of the schedule set in 1992.

New Jersey

Garden State Preservation Trust Act. The Garden State Preservation Trust Act, approved by New Jersey voters in a 1999 referendum, dedicated $ 98 million annually for 10 years from state sales tax revenue to preserve open space, and authorized the issuance of up to $ 1 billion in revenue bonds. In 2003, voters approved an amendment to increase the maximum bonding capacity to $ 1. 15 billion. The increased

bonding was earmarked for acquisition of open space in the state’s 1,250 square-mile Highlands area, an important source of New Jersey’s drinking water. For more information on the act, see OLR Report 2004-R-0727, (attached).

Highlands Water Protection and Planning Act. In 2004, the New Jersey legislature approved the Highlands Water Protection and Planning Act to preserve open space, including water sources that supply drinking water to more than 5 million residents. It requires the creation of a Highlands Water Protection and Planning Council to develop a regional master plan for the entire region by June, 2006.

Environmental Infrastructure Financing Program. In 1985, New Jersey created the New Jersey Environmental Infrastructure Trust to provide low-cost financing for the construction of projects that ensure the safety of drinking water supplies. Working with the New Jersey Department of Environmental Protection (NJDEP), the trust, through the Environmental Infrastructure Financing Program (EIFP), has provided more than $ 1. 5 billion to local and county governments and private water companies to, among other things, finance safe drinking water supplies and open space acquisition.

Under the program, most borrowers receive two loans, a zero percent interest loan from NJDEP and a market rate loan from the sale of the trust’s AAA-rated, tax-exempt bonds. Land acquisition projects receive 75% of the total loan from DEP and 25% from the trust, so that these loans are financed at only one-quarter of the market rate.

The trust estimates that the program has saved ratepayers and taxpayers nearly one half billion dollars through its combination of low interest rates and other cost-saving features.

North Carolina

North Carolina created a Clean Water Management Trust Fund in 1996 to help finance projects that address water pollution problems, including protection and conservation of polluted waters. Originally, the fund received 6. 5% of the state’s surplus funds or $ 30 million, whichever was more. The North Carolina legislature agreed to increase funding to $ 100 million a year starting in 2003, but has not fully funded it. The fund received $ 62 million in FY 04.

State agencies, local governments, and nonprofit conservation organizations may apply for funding. Historically, about one-half of the money is used to acquire or preserve wetlands and river buffer zones. Local matching funds are not required, but in the application process additional points are awarded to projects that provide local funds. The value of donated land may be counted as a local match. As of September, 2005, the fund had awarded 699 grants for a total of $ 535. 4 million and leveraged at least $ 810. 3 million in private and other public funds. The fund’s grants contributed to the protection of 297,080 acres and 3,363 miles of river buffers.

Ohio

In 2000, the Ohio Environmental Protection Agency (EPA) created the Water Resource Restoration Sponsorship Program, which offers reduced rates on Clean Water Fund State Revolving Fund loans to utilities and local governments for traditional wastewater treatment work if the recipient either implements or sponsors a watershed protection or restoration project by a land trust or other entity. A loan recipient receives a reduced rate on its loan so that its total repayment is lower than it would have been on a standard loan just for the wastewater project. The savings it receives is then used for the watershed project.

According to the Ohio EPA, communities used $ 24 million from the Clean Water State Revolving Fund to protect and restore 1,850 acres of river land and wetlands and 38 miles of stream corridors between 2000 and 2002.

Rhode Island

The Rhode Island Water Resources Board, through its Land Acquisition Program, provides grants to public water suppliers to protect watershed supply lands under its “penny per hundred” program. The program, named for its levy of one cent (actually 0. 01054 cents) per hundred gallons on customer water bills dedicated to water quality protection, was enacted in 1989 and generates about $ 2. 2 million annually to acquire land to protect the state’s water supply. Each water supplier must spend a minimum of 55% of this money for land acquisition. The first two phases of the program saw the disbursement of $ 18. 3 million, of which $ 13. 6 million was used to protect 2,410 watershed acres through land acquisition or purchase of easement rights. A $ 7. 2 million revenue bond, backed by the fee, was issued in November 2002 and will provide funding through February. 2006.

MORE INFORMATION

We have attached copies of both “Protecting the Source,” the TPL report cited above, and a U. S. Environmental Protection Agency (EPA) report, “Protecting Sources of Drinking Water. ” The EPA report examines watershed management and protection programs used by 17 drinking water utilities.

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