Earlier this month, CSU-Fresno hosted the event "Funding Water Infrastructure in the San Joaquin Valley." The vast majority of the event was focused on the so-called "Water Blueprint for the San Joaquin Valley," a high profile new investment plan for irrigation water.
At the event, the Blueprint rolled out a proposed funding plan - the centerpiece of which is a proposed 0.5% special sales tax in the 8 counties of the San Joaquin Valley. While the sales tax would provide the vast majority of funding for the Blueprint's multi-billion investment strategy, the funding plan also includes a modest $4 per acre foot charge on water users and hoped for matching funds from the state and federal government. In most years, the Blueprint projects the sales tax would generate 7 times more revenue than water user fees.
The sales tax is a bold new idea in water finance, but not a good one as proposed. It is inequitable across geography and income. It probably isn't politically feasible either, despite the optimistic spin from a new poll presented at the event. Below, I briefly discuss these issues and suggest some changes to the Water Blueprint to improve the equity and political prospects of their proposal.
Geographical Inequity - Taxes North San Joaquin Valley Counties Without Benefit
The tax is proposed for 8 counties, although the Blueprint plan only provides benefits to 5 counties from Madera south to Kern. The proposal would get 1/3 of its revenue from the North San Joaquin Valley counties while providing zero benefits to them - and potentially harm San Joaquin County's Delta region.
The Blueprint can correct this problem by dropping the 3 northern counties from their proposal, and leaders in the North San Joaquin Valley should demand that they do so.
I have argued for years that San Joaquin, Stanislaus, and Merced counties are ill-served by the 8-county region often used in state planning efforts. The Blueprint, which has gained some influence with state leaders, is an excellent example of this problem.
Geographical Inequity - Benefits Wealthy Out-of-Valley Landowners
Inequity Across Industries - Agriculture Is Exempt From Sales Tax, But Other Industries Pay
Income Inequity - Regressive Sales Tax Primarily Benefits Well-Off Landowners
The primary general argument against sales taxes are that they are regressive. Lower-income households pay a higher share of their income in sales taxes than higher-income households. The situation is the same here, and it is particularly problematic in this case as the largest beneficiary of the tax are the owners of farms - who generally have above average incomes in the Valley and include some truly rich out-of-Valley landowners as described above.
The Blueprint can improve this inequity by including funding to repair unsafe drinking water systems in the Valley to their plan. The tax is still regressive, but funding clean drinking water with its proceeds will at least direct more of the benefits to low-income communities.
Political Feasibility - Will it Pass?
- Eliminate the 3 North San Joaquin Valley counties.
- Add funding for safe drinking water in disadvantaged communities.
- Propose a full cost user charge with the sales tax to defray expenses for non-wealthy water users who live in the Valley.
Dr. Michael: I was impressed by your 8/23/20 blog post on the proposed SJV sales tax increase. It was carefully argued and well written. I like your proposals on how to improve the effectiveness and equity of the original proposal by the Water Blueprint supporters. I could only think of two points that you did not make in your post which would have supported your arguments against the sales tax increase:ReplyDelete
1. The large majority of the surface water used by agriculture in the five-county Blueprint area is already subsidized by taxpayers. Do wealthy farmland owners in that area need or deserve another taxpayer-funded subsidy, especially one that would be regressive?
2. While many of those who would benefit most from the proposed sales-tax increase are indeed “Wealthy Out-of-Valley Landowners,” you could have mentioned that many of those prosperous farmland owners are actually large corporations. Many of those corporations are headquartered outside the San Joaquin Valley, because their principal owners live outside the Valley. And some of these large agricultural corporations are effectively working with State and local government agencies, local water districts, and farming groups to invest in projects to reduce their regions' dependence on imported water. This is being done thru the Integrated Regional Water Management process, helped by significant voter-approved bond funding. Economists and public finance authorities generally recommend that long-term public works projects be financed by bonds, not from sales tax receipts. - Jim Rich