Water quality funding in Iowa

Lip Service: Iowa's Inadequate Commitment to Clean Water
State water quality spending and the Nutrient Reduction Strategy

April 24, 2019

Executive summary
News release

By David Osterberg and Natalie Veldhouse

Introduction

Water quality matters. Improved public health,[1] availability of recreation, and low water treatment costs all relate to good water quality. A state budget is a reflection of values and priorities. Is clean water truly an Iowa priority?

There is widespread public support for improving the quality of water in Iowa’s lakes, rivers and streams. That support includes a willingness to pay for better water, in the form of a sales tax increase earmarked in part for water quality.

The landscape of publicly funded water quality efforts in Iowa is highly complex. Funds from several state programs administered through multiple departments with dynamic commitments over the years blend with federal and combined programs. While recent increases in funding and creation of new strategies might seem to indicate progress, recent research shows the opposite: Iowa’s share of nutrient loading into the Mississippi and Missouri river watersheds actually increased between 2000 and 2016.[2]

In this paper we review past and current trends in water quality funding and assess recent developments. We conclude that current funding commitments are insufficient to make meaningful progress, and therefore propose alternatives for generating revenue that could address Iowa’s water quality issues head on.

Part One: State water quality spending and the Nutrient Reduction Strategy

The Iowa Nutrient Reduction Strategy

The Iowa Nutrient Reduction Strategy (NRS) was implemented in 2013 to reduce nutrient pollution that creates a hypoxic dead zone in the Gulf of Mexico, threatening marine life and local economic development. For two years Iowa State University, the Iowa Department of Natural Resources (DNR) and the Iowa Department of Agriculture and Land Stewardship (IDALS) worked to create the NRS. The United States Environmental Protection Agency (EPA) provided the framework and an impetus for states to reduce nutrient loading into the Mississippi River basin. The EPA was forced to intervene since upstream states continue to cause a hypoxic or dead zone in the Gulf of Mexico.[3]

The NRS strategy (written in 2012 but revised as recently as December 2017) estimated the cost of a 45 percent reduction in Nitrogen (N) and Phosphorus (P) pollution through mandatory changes for point sources and voluntary programs for nonpoint sources. Point sources discharge pollutants directly to waterways such as an outfall pipe at a wastewater treatment plant. Nonpoint sources are all other sources, mainly agricultural. Our analysis concentrates on spending to address nonpoint source pollution in Iowa, since farm fields dominate the Iowa landscape.

How the state of Iowa contributes to water quality spending

State spending on water quality efforts is mainly funded through the DNR and IDALS. The box below shows several state programs that contribute to improving water quality.

box -- list of programs

Later in this report we will look at how funding from many sources mitigates nutrient pollution from nonpoint sources. However, there is more to assuring water quality than nutrient reduction. Soil is the biggest polluter to water bodies and controlling bacteria is an important health component. In this section of the report we try to list programs that — in addition to reducing nutrients — address drinking water protection, monitoring our waters so we know when we have problems, and enhancing habitat and recreation. While some of the programs listed reduce the cost to treat drinking water or in some way relate to treating human and industrial waste, point-source pollution and drinking water treatment are mostly excluded from the report.

State water quality funding pre-NRS

Iowa’s water quality funding listed in the table and graph below wavered in the years leading up to the implementation of the NRS. In 2018 dollars, spending for the 16 mainly state-funded programs increased from $35 million in FY06 to $46 million in FY09, but fell back to $30 million in FY12. This was due in large part to a sharp disinvestment in Iowa’s Soil Conservation Cost Share program caused by tax shortfalls that came with the Great Recession. The Lake Restoration program has also fluctuated through time.

For the five years leading up to the adoption of the NRS in 2013, the state’s commitment to water quality funding actually decreased in real (inflation adjusted) dollars. This is shown in the table and the graph below. In fiscal year 2012, water quality funding remained well below pre-recession funding levels.

Program spending 04-18
figure one

State water quality funding post-NRS

The implementation of the NRS in 2013 brought new water quality funding through the Water Quality Initiative (WQI), a program seeking to harness the collective ability of both private and public resources and organizations to reduce nutrient loss and improve water quality.[5] The WQI brought an initial $10 million in new funds. Along with new funding from the general fund given to IDALS, the new emphasis on water quality in the first year of the NRS, ($2.4 million plus $1.5 million for new research) was enough to make up for the decrease in funding up to Fiscal 2012.

Finding 1State funding in this area has been on a roller coaster surrounding implementation of the NRS. After the 2013 adoption of the NRS, state funding declined from $45 million to $37 million in FY14 before rising back up to $43 million in FY18. While it was assumed that adopting the NRS would increase Iowa’s commitment to water quality, it did not.

Part Two: Folding in federal spending and measuring state nutrient reduction post-NRS

The Water Resources Coordinating Council (WRCC), the organization tasked with overseeing NRS progress, has sought to measure the amount of financial resources allocated to reducing nutrient pollution from the state of Iowa to the Mississippi River system and the Gulf of Mexico. IDALS, DNR and ISU began writing annual reports, which are presented to the WRCC on the program’s annual progress.

The second annual report for 2014-15 produced a table — data summarized in Table 2 — describing both state and federal resources dedicated to nutrient reduction. Included were some aspects of the state-initiated programs mentioned in Part One of this report. The additions include two federal programs: Section 319 Grant Program, which provides federal funds to the DNR and the Natural Resources Conservation Service of the United States Department of Agriculture (USDA), which provides technical services and funds for conservation practices to reduce nonpoint source pollution.

Table 2 list

The Iowa State Revolving Fund, initially begun with federal funding, assists city wastewater and drinking water systems with low interest rate dollars. The program can be used for nonpoint source treatment since this could reduce the need for treatment in cities. This funding source blends state and federal dollars and is more fully explained in the box below.

SRF box

Finding 2 boxThe WRCC sought an answer to a different question from that posed by us in Part One. By asking how much state and federal spending was allocated to just nutrient reduction in Iowa, the second WRCC NRC progress report found the amount to be $105 million in FY2015.[7]

Adding in the Conservation Reserve Program

The measure of how much is spent each year on nutrient reduction changed with subsequent annual NRS progress reports, making it difficult to track year to year. Conservation Reserve Program (CRP) rent payments from the federal government for highly erodible or vulnerable land taken out of crop production was added to the estimate in subsequent progress reports. Certainly taking cropland out of production is a solid method of reducing nutrient loading to Iowa rivers and lakes to reduce Gulf hypoxia. Thus, the addition of the CRP rental payments captures more of the nutrient reduction programs within the state. Deciding to include CRP payments greatly increases the measure of the amount spent. The 2017-18 NRS Annual Progress Report puts nutrient reduction spending in the state at $512 million.[8]

How new state spending on nutrient reduction in 2018 measures up

Governor Kim Reynolds promoted the fact that her first bill-signing after taking office in 2017 was water-funding legislation, passed early in the 2018 session. According to The Des Moines Register:

The bill, which is the first Reynolds signed as governor, will allocate an estimated $282 million to water quality initiatives over the next 12 years.[9]

The new law has been highly criticized by conservation groups and newspapers such as the Cedar Rapids Gazette for being inadequate because of what it did not include — goals, deadlines, benchmarks of progress, or monitoring.[10]

Finding3 boxThe $282 million over 12 years amounts to an average of just $24 million per year, compared to the $512 million that the WRCC progress report found to be spent annually on nutrient reduction already. This represents an increase of just under 5 percent in nutrient reduction government spending for mainly nonpoint contamination reduction. Some of the new funding will be dedicated to urban origin pollution. According to the Iowa Secretary of Agriculture, the amount of the new funding dedicated to agricultural non-point pollution reduction is even smaller.

fig 2 biggest share of spending has nothing to do with NRSThe legislation that was passed and signed into law commits more than $280 million to water quality efforts in Iowa over the next 12 years. The Department will receive $2 million this year, $4 million next year and then $15 million annually through this legislation.[11]

As shown in Figure 2, within the half-billion dollars of spending, the WRCC found that solely NRS-focused funding measured about $17 million, which would be about $200 million over 12 years. If the new $282 million to be spent over 12 years simply replaces this amount, there is little increase in funds committed to reducing nutrients. Even if the $282 million is in addition to the $17 million, it is still small compared to total state and federal funding already going to the problem.

Finding 4 boxWhile the Legislature and Governor responded to water pollution from nonpoint sources with the 2018 law, the problem is significant and ongoing, and more will be needed to meet the NRS goals. The increase, in short, turns out to be a figurative drop in the bucket compared to what is needed if Iowa is serious about meeting its obligations to reduce nutrient pollution.

Part Three: What is required?

How much would it cost to meaningfully reduce nutrient pollution in Iowa? The NRS strategy document estimated what it would cost to meet the 45 percent reduction in N and P. Much of the problem comes from nonpoint sources, mainly farmland, since about 24 million of Iowa’s 36 million acres is fertilized corn or soybeans.

The NRS strategy document estimated the cost of reducing nonpoint contamination under three scenarios:

Initial investment costs of the three scenarios range from $1.2 billion to $4 billion. Alternatively, annual costs, including initial investment and operating costs, range from $77 million per year to $1.2 billion per year.[12]

Such a range makes it difficult to compare the estimated required new spending since the NRS went to effect. However, clearly the cost is in the billions of dollars.

pointsource-funding-box

Lime Creek Watershed Improvement Plan

A more recent estimate of what it will cost to reduce the nutrient contribution from agriculture comes from the Iowa Soybean Association. That group and several partners looked at what it would take to reduce 41 of the 45 percent reduction in N and 29 of the 45 for P that come from nonpoint sources in just one watershed. The report states that sustained agricultural productivity and reduced flood risk are goals along with nutrient reduction. [14]

The U.S. Geological Survey divides the nation into hydrologic units, one of the smallest of which is a HUC 12 or Hydrologic Unit 12. Such geographic designations are sometimes termed watersheds.[15] Lime Creek HUC 12 is one of more than 1,600 in Iowa.[16] Nationwide a HUC 12 can vary from 10,000 to 40,000 acres.[17] Consequently multiplying the Lime Creek HUC 12 by the number of such areas in the state of Iowa may not make the best estimate of the total investment needed for the state. Instead, we take the number of acres in the state (35,748,541) divided by the acres in the Lime Creek study area (26,774); this gives a multiplication factor for estimating costs of nutrient reduction statewide, which is 1,335, assuming this HUC 12 is representative of the state of Iowa.

Consequently the capital cost to reduce N by 41 percent and P by 29 percent in Lime Creek is estimated at $2,277,663. Annual costs to maintain that capital as well as the “estimated total for management practices required to attain the goal is $955,321,”[18] and costs associated with continuing the program including employing a watershed coordinator require an additional $85,000. Those estimates imply a statewide cost of $1.4 billion a year for about 15 years. The report assumed that the goal could be accomplished by 2030 so it is comparable to the Governor’s commitment of 12 years of new funding of $282 million or approximately $24 million per year. This is another demonstration of the inadequacy of that spending.

Finding 5 nutrient $ fall shortThe total needs requirement would be covered not by public funding alone but also by a healthy contribution by landowners. Assuming a historic cost share of 50 percent from each, the numbers of what is required dwarf the commitment to date.

We can see that the 2018 Governor’s bill both fails to make significant increases to current nutrient reduction spending and falls far short of what is needed to make progress needed.

Part Four: Other sources of funding for nutrient reduction

The Lime Creek Watershed Improvement Plan recognizes that significant resources are needed to meet nutrient reduction goals. That report includes a list “of creative and/or sustainable approaches.” The ideas include hunting leases to generate revenue; a water quality trading program with point source polluters; conservation easements; and property or income tax deductions for landowners adopting soil and water conservation programs. One interesting approach that would not involve new public funds is the following:

Conservation addendum to agricultural leases: More than half of Iowa’s farmland is cash rented or crop shared, and an increase in this trend presents issues for ensuring proper conservation measures are in place on Iowa farms. Conservation addendums may be a way to ensure both the landowner and the tenant agree on conservation. Addendums could include any conservation measure, but the practices included in this plan would be of most benefit. A standard conservation addendum could be developed and shared with all absentee landowners in the Lime Creek Watershed.[20]

These ideas notwithstanding, there are other possible public sector sources of new funds to address nutrient pollution in Iowa.

Natural Resources and Outdoor Recreation Trust Fund

Iowa voters have spoken on the need to do more for environmental protection and enhancement. As noted by Iowa’s Land and Water Legacy organization:

“In 2010, 63 percent of Iowans voted for a constitutional amendment to create the Natural Resources and Outdoor Recreation Trust Fund, a permanent and protected funding source dedicated to clean water, productive agricultural soils and thriving wildlife habitats.”[21]

As that organization noted, the trust fund sits empty because it requires a state sales tax increase of three-eighths of a cent for funding. [22]

The concept behind the fund was to expand funding for water quality while addressing outdoor recreation as well. Referred to by proponents as IWILL, up to two-thirds of the fund as created could be used for voluntary conservation efforts prescribed by the NRS[23]. This is two-thirds of an estimated $187.5 million per year, or $125 million per year. The table below is the spending formula contemplated when the constitutional amendment was passed.

Figure 3 IWILL formula

Sales and use tax on fertilizer

Data from the original NRS strategy document shows that more than 90 percent of N and two-thirds of the P come from nonpoint sources, almost all from agricultural runoff. Given that fertilizer is the source of the contamination, it is odd that the normal Iowa sales tax does not apply to the N or P used in agriculture. An urban Iowan might stop by the local hardware store to purchase a bag of Scotts 10-10-10 garden fertilizer and pay sales tax. While the state sales tax rate is 6 percent, inputs to agricultural production are exempt. (There is a small fee already on chemicals, including N and P for groundwater protection programs, but no general sales tax).

Iowa farms use a lot of fertilizer. The USDA’s latest Census of Agriculture (2017) shows about $1.8 billion spent on “commercial fertilizer, lime and soil conditioners” in Iowa that year. Canceling the exemption and taxing such a large input would bring a substantial source of nutrient reduction funding: $1,845,469,000 X 6 % = $ 110,728,140.

Since N and P are the culprits polluting Iowa waters and the Gulf, it is a logical to propose a tax on those inputs. Farmers have exemptions to inputs for their operation. However, they do pay tax on one such product. Just like all Iowans, farmers pay a use tax on the pickups they use on the farm and off, to pay for the impact their vehicles impose on the roads we all use. Since agricultural fertilizer is used on the farm but also flows into rivers and lakes, costing us all, a tax on fertilizer follows the same logic.

Finding 6 boxThe roughly $110 million a year from a sales tax on fertilizer would over 12 years produce nearly five times the amount appropriated by the act Governor Reynolds signed in 2018 . It is roughly comparable to what would come from the amount dedicated to water quality in the three-eighths of a cent on the general sales tax for IWILL. Over the next 30 years, a 6 percent fertilizer fee on the amount of fertilizer used in 2017 would bring in something close to what was estimated to be required by the NRS scientific study to meet the nonpoint portion of the overall reduction of 45 percent in N and P. Taxing the chemicals that pollute Iowa waters follows the polluter pays concept that is standard in much of environmental legislation.

Conclusion

This paper pulls together diverse estimates of revenues from the Iowa state budget, the WRCC, IWILL, and fertilizer used in the state. It combines these with estimates of nutrient reduction spending needs from the NRS scientific study and the Iowa Soybean Association. Up until now these figures have not been brought together so that public policy is given direction. The findings documented throughout this report are reproduced below.

• Since the implementation of the NRS, water quality general fund spending has dropped off and struggled to return to pre-recession levels.
• State and federal spending on nutrient reduction in the state of Iowa was more than half a billion dollars in the year 2017/2018.
• The 2018 law did not greatly increase state and federal government funding for nutrient reduction in Iowa.
• The largest share of nutrient reduction spending in Iowa, reported in the WRCC progress report, has nothing to do with the NRS.
• The 2018 nutrient reduction spending bill pales in comparison to estimates of what is required to deal with the problem.
• Other sources are available to fund nonpoint nutrient reduction in Iowa such as funding IWILL and taxing fertilizer.

Policy makers need to acknowledge both the magnitude of the water quality problem in Iowa, and the role nutrient pollution plays. Financing has been inadequate. We are paying lip service to our financial responsibility as a state and have underestimated what is required for success. In addition, previous IPP papers have shown that more funding alone may not be sufficient. The whole voluntary nature of Iowa’s approach to nonpoint water pollution is not working.



David Osterberg is an Emeritus Professor in the Department of Occupational and Environmental Health at the University of Iowa and a former state representative. As a co-founder of the Iowa Policy Project, he served as director for the first 12 years of the organization and remains as IPP’s lead researcher on issues affecting policy on energy and the environment.

Natalie Veldhouse is a Research Associate with the Iowa Policy Project. She previously conducted education and health policy research with the University of Iowa Public Policy Center. As a former AmeriCorps VISTA, Natalie coordinated research efforts for the Johnson County Hunger Task Force. She holds a Master of Social Work degree and a bachelor’s degree in Ethics and Public Policy from the University of Iowa.

We gratefully acknowledge the support of the McKnight Foundation and the Fred and Charlotte Hubbell Foundation. Views expressed are solely the perspective of the authors and the Iowa Policy Project.

Though this paper and its conclusions are those of the Iowa Policy Project, we thank the following partners for their comments on this paper: Dr. Chris Jones, IIHR Hydroscience & Engineering; Laura Sarcone, Des Moines Water Works; Cindy Lane, Iowa Environmental Council; Steve Falck, Environmental Law & Policy Center; Dr. Mary Skopec, water quality researcher; Katie Rock, Center for Rural Affairs; Adam Mason, Iowa Citizens for Community Improvement; Laura Krouse, farmer and Linn County Soil and Water Commissioner; and Carolyn Buckingham, environmental lawyer.



[1] Iowa Environmental Council, “Nitrate in Drinking Water: A Public Health Concern for all Iowans.” September 2016.
https://bit.ly/31SI13T
[2] Christopher Jones, Jacob Nielsen, Keith Schilling, & Larry Weber, “Iowa stream nitrate in the Gulf of Mexico.” April 2018. PLOS.
https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0195930&type=printable
[3] Iowa Department of Agriculture and Land Stewardship, Iowa Department of Natural Resources, Iowa State University College of Agriculture and Life Sciences, “Iowa Nutrient Reduction Strategy: A science and technology-based framework to assess and reduce nutrients to Iowa waters and the Gulf of Mexico.” November 2012.
http://www.nutrientstrategy.iastate.edu/sites/default/files/documents/NRSfull-130529.pdf
[4] Will Hoyer, Brian McDonough and David Osterberg, “Drops in the Bucket: The Erosion of Iowa Water Quality Funding.” March 2012. Iowa Policy Project.
https://www.iowapolicyproject.org/2012Research/120301-water.html
[5] Ibid.
[6] Memo from Lori Beary, Community Development Director at the Iowa Finance Authority.
[7] Iowa Water Resources Coordinating Board, “Iowa Nutrient Reduction Strategy Annual Progress Report 2014-2015.” June 2015.
http://www.nutrientstrategy.iastate.edu/sites/default/files/documents/1415progress.pdf
[8] Iowa Water Resources Coordinating Council, “Iowa Nutrient Reduction Strategy 2017-2018 Annual Progress Report. Page 9.
https://bit.ly/2IQvsOS
[9] Brianne Pfannenstiel, “Reynolds signs water quality bill, her first as governor.” January 2018.
https://bit.ly/2DTLk2k
[10] Cedar Rapids Gazette, “A flawed water quality bill falls far short.” January 2018.
https://www.thegazette.com/subject/opinion/staff-editorial/a-flawed-water-quality-bill-falls-far-short-20180126
[11] Mike Naig, “District annual report letter.” November 26, 2018. Iowa Department of Agriculture and Land Stewardship.
[12] Iowa Department of Agriculture and Land Stewardship, Iowa Department of Natural Resources, Iowa State University College of Agriculture and Life Sciences, “Iowa Nutrient Reduction Strategy: A science and technology-based framework to assess and reduce nutrients to Iowa waters and the Gulf of Mexico.” Updated December 2017.
https://bit.ly/2KErCdE
[13] IDALS, IDNR, ISU CALS, “Iowa Nutrient Reduction Strategy: A science and technology-based framework to assess and reduce nutrients to Iowa waters and the Gulf of Mexico.” November 2012. page 2
[14] Iowa Soybean Association Environmental Programs & Services, “Lime Creek Watershed Improvement Plan: A roadmap for improved water quality, sustained agricultural productivity & reduced flood risk. N.D.
https://www.iasoybeans.com/search/?q=lime+creek
[15] U.S. Geological Survey, “Hydrologic Unit Maps: What are Hydrologic Units?” N.D.
https://water.usgs.gov/GIS/huc.html
[16] U.S. Geological Survey, “Hydrologic Unit Maps: The Watershed Boundary Dataset.” N.D.
https://water.usgs.gov/GIS/huc.html
[17] U.S. Fish & Wildlife Service, “Hydrologic Unit Codes – (HUC).” October 2002.
https://www.fws.gov/r5gomp/me/nrcs/HUCprimer.pdf
[18] Iowa Soybean Association Environmental Programs & Services, “Lime Creek Watershed Improvement Plan: A roadmap for improved water quality, sustained agricultural productivity & reduced flood risk. N.D.
https://www.iasoybeans.com/search/?q=lime+creek
[19] ibid. page 43.
[20] Ibid.
[21] Iowa’s Land and Water Legacy, “Iowa’s Natural Resources and Outdoor Recreation Trust Fund.” 2017.
https://www.iowaswaterandlandlegacy.org/wp-content/uploads/2016/12/IWILL-handout-2017.pdf
[22] Ibid.
[23] Iowa’s Land and Water Legacy, “Iowa’s Natural Resources and Outdoor Recreation Trust Fund.” 2017.
https://www.iowaswaterandlandlegacy.org/wp-content/uploads/2016/12/IWILL-handout-2017.pdf
[24] United States Department of Agriculture 2012 Census of Agriculture, “Chapter 2, Table 3. Farm Production Expenses: Fertilizer Totals, Incl Lime & Soil Conditioners-Expenses measured in $.” 2019.
https://www.nass.usda.gov/Quick_Stats/CDQT/chapter/2/table/3/state/IA
[25] Iowa Department of Revenue, “Iowa Tax/Fee Descriptions and Rates.” N.D. “Iowa Department of Revenue, Iowa vehicle purchase and lease. (undated) “These vehicles are subject to a one-time registration fee equal to 5% of the sales or lease price.”
https://tax.iowa.gov/iowa-tax-fee-descriptions-and-rates#MVUT