OLR Research Report

March 7, 2007




By: Paul Frisman, Principal Analyst

You asked what methods, besides bonding, states use to finance clean water-related projects. You specifically asked about programs in Maryland and North Carolina. We have referred the fiscal portions of your questions to the Office of Fiscal Analysis.


Maryland has created a Chesapeake Bay Trust Fund, financed by income tax check-offs, and a “flush tax” to finance the clean-up of Chesapeake Bay. North Carolina's Clean Water Management Trust Fund uses state appropriations to help local governments, state agencies, and non-profit conservation groups protect and restore surface water quality. Other states use a variety of programs to protect watershed land and water resources. Washington, for example, uses a portion of its tobacco tax revenue to improve water pollution control facilities, while Oregon allocates a portion of its lottery profits to protect its watershed. We briefly describe these and other funding methods below.


“Flush Tax”

In 2005, Maryland added an annual “flush tax” of $30, or $2.50 a month, to the utility bills of property owners who use the public sewer system and to septic tank owners. The money collected from public sewer system users is used to upgrade wastewater treatment facilities. The money collected from septic tank owners is split, with 60% of it used to fund grants for septic system improvements and 40% used for a program that encourages farmers to plant wheat, rye, barley, and other grains to reduce nutrient loading in Chesapeake Bay.

Maryland expects to raise about $65 million a year from public system users and $12.6 million a year from septic tank users. Maryland will use the $65 million from sewage treatment plant users to back more than $700 million in revenue bonds. These bonds will partially fund nearly $1 billion in capital projects at 66 major sewage treatment plants. We have attached a program summary from Maryland's Department of the Environment.

Chesapeake Bay Trust Income Tax Check-off and License Plate Fund

In 1985, Maryland established the Chesapeake Bay Trust, a private nonprofit grant-making organization dedicated to restoring and protecting the Bay and its tributaries.

Most of the Trust's revenue comes from the Chesapeake Bay and Endangered Species Fund check-off on the state income tax form and from sales of the specialty “Treasures of the Chesapeake” license plate. The former generates an annual average of $600,000; the latter, $550,000. Corporate and private donations added $115,000 in 2004. In 2004, the Trust granted $1.94 million to 516 schools, community groups, nonprofits, and public agencies. Grants ranged in size from $50 to $100,000, and averaged $3,800.

The University of Maryland's Environmental Finance Center is looking at ways to leverage the Trust's funding. More information is available on its website.


Clean Water Management Trust Fund

North Carolina created the Clean Water Management Trust Fund in 1996 (N.C. Gen. Stat. 113A-251 et seq.). The Fund is an independent agency, housed for administrative purposes in the state Department of Environment and Natural Resources. A 21-member board establishes criteria, allocates funds, reviews applications and approves grants. The Fund helps local governments, state agencies, and non-profit organizations finance projects to protect and restore surface water quality. Since its inception, the Fund has awarded 943 grants totaling $711.5 million. It has leveraged more than $1.43 billion in private and other public funds. Money for the Fund comes from state appropriations. The General Assembly, which appropriated $100 million a year for FY 05-06 and 06-07, has appropriated a total of $434.4 million since the program began. We have attached a Trust Fund fact sheet. More information on the Fund is available on its website,


Information on the following state programs comes from a working draft provided by the U.S. Environmental Protection Agency (EPA) Office of Wastewater Management's State Revolving Fund Branch, Municipal Support Division. We briefly describe some of these methods, and have attached EPA's more detailed information.

Tax Revenue in Washington

Washington's 20-year-old Centennial Clean Water Program is primarily funded with tobacco tax revenue, although it has recently been supplemented with state appropriations. Approximately 9 cents of the state's $1.42 tobacco tax goes to water quality projects, including the financing of planning, implementation, design, purchase, construction, and improvement of water pollution control facilities. The Fund has an annual budget of between $10 million and $12 million.

Lottery Revenue in Oregon

In 1998, Oregon voters approved a constitutional amendment allocating 15% of the state's lottery revenues to support parks and watershed health and habitat conservation. Half of the money goes to the Oregon Parks and Recreation Department and half to a conservation trust fund administered by the Oregon Watershed Enhancement Board. Two-thirds of the conservation funds are reserved for capital investment. For FYs 03-05, the watershed board's revenue share was expected to total almost $55 million. However, the legislature allocated about $25 million to other agencies.

Specialty Credit Cards in Connecticut

People's Bank donates 0.5% of the interest on all purchases made with its Long Island Sound Affinity Credit Card to the Long Island Sound Fund. The Department of Environmental Protection's Long Island Sound License Plate Program manages the fund to provide grants for education, research, public access and habitat restoration projects benefiting the Sound.

Planning and Design Assistance in Michigan

Michigan's S2 grant program helps Clean Water State Revolving Fund (SRF) and Strategic Water Quality Initiative Fund (SWQIF) loan applicants prepare projects more quickly. Using up to $40 million of SWQIF funds, with a maximum of $1 million per municipality, Michigan's Department of Environmental Quality covers 90% of the costs incurred to complete a loan application. Recipients have to repay the grant with interest if they do not proceed to construction using loan assistance from either the SRF or SWQIF. (The SWQIF is a state low-interest loan program that allows qualified municipalities to obtain financing for water pollution control facilities that do not qualify for SRF assistance). More information on Michigan's SRF and SWQIF programs can be found at


In addition to the attached documents, more information on state conservation funding programs is available at We also are attaching OLR Report 2005-R-0820, which describes state funding mechanisms used to acquire watershed land.