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Texas is facing a loss of federal highway funds in non-attainment areas for failing to comply with federal standards and programs. Even more importantly, the health of Texans depends on achieving emissions reductions. Auto and other emissions are detrimental to respiratory health, particularly for children, the elderly and the sick, and the costs of pollution in terms of public health continue to grow.

New fees or taxes on pollution and natural resource extraction could help solve some of the funding needs related to health costs in the state. A recent study found a strong correlation between air pollution – measured in particulate matter – and the use of inpatient and outpatient care among older Medicaid and Medicare users in 183 U.S. metropolitan areas.2 A 1999 study commissioned by the City of Houston estimated that if the Houston region were to meet clean air standards for ozone and particulate matter in 2007, about $2.9 billion to $3.1 billion would be saved in health care costs. 3

Also compelling is consideration of the costs of NOT meeting clean air standards in Texas. Estimated losses in state revenues as a result of non-compliance related medical expenses and lost work time and productivity range from $157.4 million to $345.7 million, according to a November 2002 report prepared by The Perryman Group for the Texas Clean Air Working Group.

Simply put, air pollution costs money both to the individual and the state. It makes sense that industries that pollute and consumers who buy their products should pay for some of the costs of treating the victims of polluting. This is especially true at a time when Medicaid costs are rising dramatically, as is the cost of operating the Children's Health Insurance Program. Also, visits to hospital emergency rooms related to the breathing of unhealthy air have increased. We propose using funds from a new coal use tax to help fund the Children's Health Insurance Program.

The paper is divided into five categories of potential revenue options: restructuring current air pollution fees, taxing coal production, initiating consumer incentives such as fee-bates, adopting high sulfur diesel fuel fees, and levying new electricity efficiency fees.

We have tried in this report to quantify the benefits of these options to the state. With Texas facing an official $9.9 billion deficit just to meet current needs over the coming biennium, these options could help raise almost $1 billion for targeted clean air programs and for education and health care programs.

II. Restructuring Current Pollution Fees

Introduction

In

addition

to

paying

state

taxes,

industries

and

consumers

also

pay

a

variety

of

fees

to

support

state agencies and programs. For example, in FY 2002 nearly $4.4 billion of total revenues -- flowed to the state in penalties, licenses, fees, fines

  • or about eight percent

and

permits.4

Some

80

percent of the TCEQ's FY 2002 annual budget came from fees paid by consumers and the regulated

community.

5

2 Fuchs, Victor and Sarah Rosen Frank. “Air Pollution and Medical Care Use by Older Americans: A Cross-Area Analysis,” 2002. Available at (http://airmap.unh.edu/assessment/Team/ArticlePDF/Fuchs,2002.pdf). Lurman, Frederick et. al. “Assessment of the Health Benefits of Improving Air Quality in Houston, Texas,” Sonoma Technology, Inc. November 1999, ES-4. Texas Comptroller of Public Accounts, Texas Revenues by Source, FY 2002. TNRCC, FY 2002 Operating Budget, August 2002. 3 4 5

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