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Thursday, February 7, 2013
UHERO: Bag Tax and Conveyance Tax Have Downside
By News Release @ 8:55 PM :: 7097 Views :: Environment, Economy, Taxes

Financing Watershed Conservation without Shrinking the Economy

From UHERO February 6, 2013

In his recent State-of-the-State address, Governor Abercrombie urged lawmakers to consider either an increase in the conveyance tax on high-priced real estate transactions or a 10-cent fee for single-use plastic checkout bags to finance his watershed protection initiative, “The Rain Follows the Forest,”

The proposed taxes, however, have a downside. While they are expected to generate $10 million and $15 million respectively, such taxes can shrink the economy unnecessarily by discouraging investment and artificially raising the price of basic needs.

Nonetheless, a healthy watershed is critical and preserving it requires a stable financial foundation. We describe and analyze one financing alternative in a new UHERO research paper. We found that by financing conservation investments with bonds and paying back those bonds out of a portion of increased benefits to groundwater consumers, the watershed initiative can be realized in a win-win fashion. Unlike the proposed bag and real-estate taxes, there would be no adverse consequences for the economy, yet the environment would still be improved, and water users in both the present and the future are made better off.

A variety of ecosystem services, including groundwater recharge, improved water quality, climate control, recreation, scenic amenities, and cultural values all rely on a healthy watershed. The State Legislature has already recognized the importance of these services by partially funding Governor Abercrombie’s watershed protection initiative in 2012. The question of how to finance the rest of the $11 million per year investment over the next ten years, is hopefully informed by this research.

Roumasset, J., Wada, C.A., 2013. A dynamic approach to PES pricing and finance of interlinked ecosystem services: Watershed conservation and groundwater management. Ecological Economics 87, 24-33.

James Roumasset and Christopher Wada

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