MEMORANDUM

To: Representative Bill Thomas

From: Lauren P. Battle
Date: March 22, 2005
Re: Water Conservation Incentive Act

Summary
As per your request, here is the analysis of the Water Conservation Incentive Act introduced by
Representative Shelley Berkley of Nevada on February 22, 2005. I have examined three program
alternatives for increasing water conservation throughout the country: (1) rely on the current
federal, and state water conservation policies; (2) enforce mandatory water-use reductions and
require the use of residential water conservation equipment; (3) adopt the Water Conservation
Incentive Act which provides tax incentives for the conservation of water used for residential and
small business purposes. I evaluated the proposed alternatives using these four criteria:
robustness, political acceptability, equity, and regional/national effectiveness. From my analysis, I
determined the adoption of the Water Conservation Incentive Act would be the most effective
alternative to increase water conservation throughout the country.

The History of Drought in the U.S.

Historically droughts have been classified as phenomenon experienced by the western states. The
humid climate, annual rains and free-flowing rivers in the east have sheltered these states from
having to address many water management issues. Many of the droughts experienced in the
United States during the 20th century began in the west and were only experienced to a lower
degree by the eastern states.2 However, from late 1990's until the present many of the eastern
parts of the country have experienced severe multi-year droughts making the issue of water
conservation a national one. By the end of April 2004 32 percent of the contiguous United States
experienced moderate to severe drought while 15 percent fell into the extreme drought category3.
Scientists are still examining the climatic factors responsible for the duration of this current drought;
however many researchers believe that the severity of the impacts are due to primarily to the
increase in agricultural and residential water usage5.

Residential Water Use

Nationally approximately 346,800 million gallons of water per day (mgd) are withdrawn from
freshwater supplies to be used by the country's homes farms and industries. The states that were
the highest consumers of water in 2000 were California (51,200 mgd), Texas (29,600 mgd), and
Florida (20,100 mgd)1. Average annual household water use is approximately 127,400 gallons, with
an average daily use of 350 gallons. Approximately 50 to 70 percent of residential water is used
outdoors for watering lawn and gardens, the remaining 69.3 gallons is used indoors with the
majority of the water being used by the toilets, clothes washers, and showers (see figure 1) 2.

Most homes the U.S. are not equipped with the most efficient water fixtures and on average about
13.7 percent of the total daily use of water is wasted due to leaky plumbing. Research indicates
that by installing water conservation equipment such as low-flow showerheads, dual flush toilets,
and high-efficiency clothes washing machines households could reduce their daily water use by 35
percent (see figure 2)2. If all U.S households installed this equipment the national water use would
decrease by 30 percent saving almost 5.4 billion gallons of water each day.

As the nation continues to experience growths in the population the residential use of water will
impose greater demands on the country's water supplies and river systems. These demands will
even be greater in the western states where the population is expected to increase at least by 30
percent in the next 25 years3. In order to provide this growing population with sufficient water
supplies it is necessary to improve federal water policies to develop efficient water usage practices
that can be maintained in the long-term.
 MEMORANDUM

Federal Water Conservation Policy

The most comprehensive federal water policy act is the Clean Water Act, which focuses on the
protection of water quality4. Water management and conservation is addressed by the Soil and
Water Resources Conservation Act of 1977, which delegates power and responsibility to the state
and local governments. Many States rely on the following stage approach for drought response 2.
 Phase 1 (Watch): For a 5 to 10 percent shortage explain the drought situation to the
public and request voluntary reductions in water usage
 Phase 2 (Warning): For a 10 to 20 percent shortage mandate conservation actions and
ask consumers to reduce their water use by 10 to 20 percent
 Phase 3 (Emergency): For a 20 to 35 percent shortage institute rationing programs and
require all homes to install qualified water conservation equipment
 Phase 4 (Critical): For a 35 to 50 percent shortage allocate water on a per household
basis and prevent any outdoor or summer water usage.
This approach is effective when experiencing a drought; however, many states recognize the need
for the adoption of policies focused on drought preparedness and minimizing and/or avoiding the
impacts of drought.

Water Conservation Incentive Act

On February 2, 2005 Rep. Shelley Berkley of Nevada introduced the Water Conservation Incentive
Act in the House of Representatives where it was referred to the Committee on Ways and Means 3.
This act proposes to amend the Internal Revenue Code of 1986 to provide incentives for the
conservation of water in both residential and commercial properties. This incentive would allow for
a refundable tax credit equal to the "qualified water conservation" expenditures made by the
taxpayer during the taxable year. According to the text of the bill "qualified water conservation"
property means:
 smart dual or multi program irrigation clocks that allow for the separate watering of plants
and grass
 water efficient landscaping including xeriscape and artificial turf
 low- flow shower heads that use no more that 3 gallons of water per minute
 ultra low-flush or dual flush toilets
 drip irrigation
 high-efficiency clothes washing machine
 any other property of a type specified by the Secretary
The maximum credit value allowed for a taxable year would not exceed $1,000 and credit would
not be issued for expenditures less than $50. This act would only provide credits for properties
used as primary residences and/or used by small employers with less than 100 employees.

Policy Alternatives to Increase National Water Conservation

Solution: Adopt a federal policy that will increase long-term water conservation throughout the
United States. Three key policy alternatives that will be analyzed are:

Program #1 (rely on current federal and state water conservation policies): Rely on federal water
conservation policies such as the Soil and Water Resources Conservation Act of 1977 and
continue to rely on local and state governments to manage water supplies.

Program #2 (enforce mandatory water use reductions): Enact a policy that imposes mandatory
reductions in residential water-use and requires the installation of qualified water conservation
equipment.
 MEMORANDUM

Program #3 (provide tax incentives for the conservation of water): Provide tax incentives for
residences and small businesses that install qualified water conservation property.

The following four criteria will be used to determine the effectiveness of each of the proposed
polices in increasing efficient residential water-use practices and promoting water conservation
throughout the United States: robustness, political acceptability, equity, and regional/national
effectiveness.

1. Robustness- Will the proposed policy alternative be successful and can it be easily implemented
and improved?
Policy #2 will require additional federal and state resources to enforce the regulations. Policy #3
will be successful in encouraging residents to explore novel water conservation technologies and
will only require minor administrative costs. Policy # 1 will require continued coordination between
federal and state governments.

2. Political acceptability- Will the proposed policy alternative be accepted in the current political
climate?
Program #3 is the most politically acceptable because it utilizes an incentive approach that is
desirable in the current political climate. Program #1 is also politically acceptable because it does
not require any additional costs or regulation. Program #2 is politically unacceptable due to the
increased cost to all residential property owners, strict federal regulation, and lack of flexibility.

3. Equity- Will the costs of the proposed policy alternative be distributed evenly and fairly among
the residents and the federal and state governments?
Program #1 would not result in any additional costs. Program # 2 would require residential property
owners to pay the full cost of the water conservation equipment. Program #3 would equally
distribute the costs by allowing residential property owners to be compensated for their water
conservation efforts.

4. Regional/national effectiveness- Does the proposed policy alternative result in an increase in

water conservation both regionally and nationally?
Program #1 will result in water conservation only for those states that are experiencing extreme
drought. The program will not encourage better water management practices or promote long-term
conservation. Program #2 will result in the greatest increase in water conservation throughout the
nation. Program #3 will only result in water conservation if residential property owners are willing to
purchase the equipment.

Recommendation
According to the above analysis Policy #3 would be the most effective alternative to address the
necessary increase in long-term water conservation throughout the country. While the existing
regulations are effective in addressing water management during a drought, they do not promote
drought preparedness or minimize the impacts of severe droughts. Residential water use is one of
the factors that contributed to the severity of the current drought being experienced throughout the
country. As the population continues to increase, especially in the western states, it is imperative
that federal policy be established to promote better water management practices. Policy #2 would
result in the greatest increase in water conservation; however strict federal regulations are not
feasible in the current political climate. Policy #3 utilizes an incentive approach that encourages
residential property owners to adopt current methods for increasing the conservation of water in
their homes, and encourages them to explore novel water conservation technologies.
 MEMORANDUM

Analysis Matrix

-3 -2 -1 0 1 2 3
High Medium Low No Impact Low Positive Medium High
Negative Negative Negative Impact Positive Positive
Impact Impact Impact Impact Impact

Criteria Policy # 1 Policy # 2 Policy #3

Current Federal Mandatory Provide tax
and State Water reductions in incentives for
Conservation water-use conservation of
Policies water
Robustness -1 -2 2
Difficulty Will require large Will encourage
coordinating administrative residents to
federal and state effort to enforce explore novel
efforts reductions water conservation
technologies;
minor
administrative
costs associated
with implementing
new regulations
Political 3 -2 3
Acceptability No major political Opposition from No major political
opposition residents and opposition
states who feel
that this is too
much federal
control
Equity 0 -2 3
No impact Residents have to Price of water
pay the total cost conservation
of the water equipment equally
conservation distributed
equipment between residents
and government
Regional/National -2 3 2
Effectiveness Will only result in Will result in Will result in
water conservation greatest increase increases in water
in states that are in water conservation in
currently conservation regions where
experiencing throughout the residents are
severe to extreme nation willing to comply
drought
 MEMORANDUM

Figure 1

1999 Residential End Uses of Water

Showers 16.8%

Clothes Washers
21.7%

Dishwashers 1.4%

Toilets 26.7%

Baths 1.7%

Leaks 13.7%

Faucets 15.7%

Other Domestic
Uses 2.2%

Source: American Water Works Association (2005) "Conservation Info and Tips." (Accessed March 14,
2005). http://www.awwa.org/Advocacy/learn/conserve/resources/ConservationInfo.cfm.

Figure 2
 MEMORANDUM

Residental End Uses of Water For Households

Using Conservation

Showers 19.5%

Clothes Washers
22.1%

Dishwashers 1.5%

Toilets 18%

Baths 2.7%

Leaks 8.8%

Faucets 23.9%

Other Domestic
Uses 3.4%

Source: Ibid.

References
1. American Water Works Association, "Conservation Resources: Conservation info and
tips"
(Accessed March 14, 2005).

2. American Water Works Association, "Conservation Resources: Drought Fact Sheet"

(Accessed March 14, 2005).
http://www.awwa.org/Advocacy/learn/conserve/resources.cfm.
http://www.awwa.org/Advocacy/learn/conserve/resources/ConservationInfo.cfm.

3. Berkley, Shelley (NV). Water Conservation Incentive Act. Introduced to the House on
February
2, 2005. Referred the Committee on Ways and Means.

4. Binnebose, Brianna. "U.S. Water Policy and Conflicts." Part of Water is Life, a class
website produced by University of Wisconsin-Eau Claire. Professor Zoltan Grossman.
(Accessed March 14, 2005) http://www.uwec.edu/grossmzc/BINNEBBD

5. National Aeronautics and Space Administration, "Why so dry?" (Accessed March 14,
2005).
http://science.nasa.gov/headlines/y2004/21may_drought.html.