EPA warns against using water money to balance state budget

JEFFERSON CITY, Mo. -- State lawmakers are reconsidering their use of a water-loan fund to help balance the budget after the Environmental Protection Agency said the move could cost the state $74 million in federal money.

At issue is a state fund that provides loans to cities, counties, water districts or other government units for public drinking water projects or water pollution control projects.

Budget negotiators had agreed to use $19 million from the fund to help pay principal and interest on state water pollution control bonds. That would have freed up $19 million in general revenue to be used for other purposes throughout the budget.

But the EPA, which also channels federal money to the state fund, said using the money to pay off the state general obligation bonds would violate the federal Clean Water Act and a federal regulation.

As a result, the EPA would withhold $74 million in federal water funds intended for Missouri, said U.S. Sen. Kit Bond, R-Mo. Bond sent a letter to Gov. Bob Holden encouraging him to try to stop the diversion of state water-loan funds.

Holden spokesman Jerry Nachtigal said Wednesday the governor understands why lawmakers would want to tap into the water fund as they face multimillion-dollar budget cuts.

But "the governor has never supported taking $19 million from that fund, and he has voiced those objections to those in the legislature who are proponents of doing it," Nachtigal said.

The lead budget negotiators from the House and Senate both said that conferees were reconsidering the use of the water-loan fund in light of the EPA warning.

"It's $19 million we were hoping we could count on, but it doesn't look too bright," said Senate Appropriations Committee Chairman John Russell, R-Lebanon.

If lawmakers don't use the water-loan fund, "we'd have to find some money someplace through more cuts or reductions," Russell said.

Paying public debt is the first priority in the state budget, the Missouri Constitution states.

Missouri law also says that money from the Water and Wastewater Loan Fund can be used to pay principal and interest on state revenue bonds or general obligation bonds.

House Budget Committee Chairman Tim Green expressed frustration that the EPA was intervening at the end of the state budget process, which is supposed to be completed by Friday evening.

The House had included the water-fund transfer in its version of the budget many weeks ago. The Senate had not, but agreed to the move last week as a way to avoid cuts to other programs.

"We have the laws that say we can" use the water fund to pay off state bonds, said Green, D-St. Louis. "We have the bureaucrats in Washington who say we can't."