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March 21, 2024 HB 24-1362
Legislative Council Staff
Nonpartisan Services for Colorado’s Legislature
Fiscal Note
Drafting Number:
Prime Sponsors:
LLS 24-0522
Rep. Lukens; Catlin
Sen. Roberts; Simpson
Date:
Bill Status:
Fiscal Analyst:
March 21, 2024
House Ag, Water & Natural Res.
Amanda Liddle | 303-866-5834
amanda.liddle@coleg.gov
Bill Topic: MEASURES TO INCENTIVIZE GRAYWATER USE
Summary of
Fiscal Impact:
☒ State Revenue
☒ State Expenditure
☐ State Transfer
☒ TABOR Refund
☒ Local Government
☐ Statutory Public Entity
The bill authorizes the installation of graywater systems statewide, allows local
governments to prohibit graywater use locally, and creates a tax credit for 2025
through 2034 for costs for installing of graywater systems. The bill reduces state
revenue beginning in FY 2024-25 and increases expenditures beginning in FY 2025-26,
with impacts continuing through FY 2034-35.
Appropriation
Summary:
No appropriation is required.
Fiscal Note
Status:
The fiscal note reflects the introduced bill.
Table 1
State Fiscal Impacts Under HB 24-1362
Budget Year
FY 2024-25
Out Year
FY 2025-26
Out Year
FY 2026-27
Revenue General Fund ($185,000) ($570,000) ($779,000)
Total Revenue ($185,000) ($570,000) ($779,000)
Expenditures General Fund - $153,646 $85,626
Centrally Appropriated - $18,839 $18,839
Total Expenditures - $172,485 $104,465
Total FTE - 1.0 FTE 1.0 FTE
Other Budget
Impacts
TABOR Refunds ($185,000) ($570,000) not estimated
General Fund Reserve - $23,047 $12,844
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March 21, 2024 HB 24-1362
Summary of Legislation
The bill authorizes the installation of graywater systems and the use of graywater statewide and
allows county, municipal, and consolidated city and county governments to adopt an ordinance
or resolution prohibiting the installation of graywater systems for some or all categories of
graywater use within their jurisdiction. Local governments must notify the Department of Public
Health and Environment (CDPHE) when such a measure is adopted.
The bill also creates a state income tax credit that allows a taxpayer to claim a credit in an
amount equal to 50 percent of the cost of a graywater system installation, up to $5,000 per
taxpayer. The amount of the tax credit not used to offset income tax liability may be carried
forward and applied to tax liability for up to five years following the installation of the system.
Background
Graywater is water used in a residential, commercial, or industrial building that may be collected
after the first use and put to a second beneficial use. There are different categories of graywater
systems which incur different costs and have different uses. At the top level, graywater is used
indoors for toilet flushing or outdoors for irrigation and garden watering, with different systems
available including laundry-to-landscape, branched drain, pumped systems, and automated
pumped systems for drip irrigation.
Graywater reuse is not legal statewide; however, local governments may authorize the use of
graywater within their jurisdictions. Graywater installations and usage are regulated by the
Water Quality Control Commission through rules that outline requirements, prohibitions, and
standards for graywater use for non-drinking purposes. As of 2023, five cities or counties have
adopted graywater use ordinances.
Assumptions
The fiscal note assumes that the majority of local governments will not take the action of
adopting an ordinance to opt-out of the statewide law and prohibit graywater treatment works,
as the majority of local governments have not taken the action to veer from current state law
and adopt an ordinance to allow graywater use. To the extent that more local governments opt-
out, revenue reductions may be less than estimated in the fiscal note.
The fiscal note assumes that tax credit claims for graywater system installations will ramp up to
about 300 per year by FY 2026-27. The assumed number of tax credits is derived from the
utilization of existing tax credits such as the heat pump tax credit, home modifications tax credit,
and the tax credit for electric vehicles. Utilization of the graywater installation tax credit is
assumed to be most closely aligned with the heat pump tax credit, as they both provide a tax
credit for a portion of installation expenditures. However, it is possible that the number of tax
credits claimed could be significantly more or less than the fiscal note’s assumptions. To the
extent that the number of claimed tax credits are more than estimated in the fiscal note, DOR
personnel resources and the revenue reductions may increase. Page 3
March 21, 2024 HB 24-1362
State Revenue
The bill reduces General Fund revenue by about $185,000 in FY 2024-25, $570,000 in
FY 2025-26, and $779,000 in FY 2026-27. The revenue reduction will increase up to about
$1.0 million dollars by FY 2033-34, followed by a final half year-impact in FY 2034-35. The bill
reduces income tax revenue, which is subject to TABOR.
Based on posted prices from greywater installation companies, it is assumed that graywater
system installation costs for indoor use will be $4,000 for single-family homes and $10,000 or
more for larger residential buildings, such that the tax credit amount would be $2,000 for
single-family homes and $5,000 for larger residential buildings. The fiscal note assumes that
84 percent of installations will occur in single-family homes. Thus, the average tax credit amount
per taxpayer is estimated at $2,473 in FY 2024-25, an amount that is assumed to grow by
inflation.
State Expenditures
The bill increases expenditures for the Department of Revenue (DOR) by about $172,500 in
FY 2025-27 and $104,500 in FY 2026-27 and future years through FY 2034-35.
Table 2
Expenditures Under HB 24-1362
FY 2024-25 FY 2025-26 FY 2026-27
Department of Revenue
Personal Services - $76,994 $76,994
Operating Expenses - $1,280 $1,280
Capital Outlay Costs - $6,670 -
GenTax Programming and Testing - $47,190 -
Office of Research and Analysis - $7,392 $7,328
Document Management (Paid to DPA) - $14,120 $24
Centrally Appropriated Costs
1
- $18,839 $18,839
Total Cost - $172,484 $104,464
Total FTE - 1.0 FTE 1.0 FTE
1
Centrally appropriated costs are not included in the bill's appropriation.
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March 21, 2024 HB 24-1362
Department of Revenue. The DOR requires staff and other related expenditures to implement
the tax credit.
Analyst. DOR requires 1.0 FTE analyst to work with CDPHE and stakeholders to determine
what qualifies as graywater treatment works and assist with the implementation of the tax
credit. Since no other agency is required to certify the graywater installation expenditures,
DOR must review, vet, and manually register each claim for credit for the purposes of
verification and tracking of the income tax credit. Registration of the income tax credit is
needed to track the income tax credit over time since it can be carried forward up to 5 years.
GenTax programming and testing. For FY 2025-26, the bill will require changes to DOR’s
GenTax software system. This includes $27,810 in GenTax programming costs, $13,300 in
development and testing in support of the GenTax programming, and $6,080 in business
and user acceptance testing following the GenTax programming.
Office of Research and Analysis. The Office of Research and Analysis within the
Department of Revenue will perform 231 hours of work at a rate of $32 per hour in
FY 2025-26, and 229 hours of work in future years, to update database fields and conduct
ongoing reporting.
Document management. For FY 2025-26, DOR will incur $14,120 in document
management costs, which are reappropriated to the Department of Personnel and
Administration. This includes one-time changes to existing forms and the creation of a new
tax form, plus minor ongoing Integrated Document Solutions (IDS) costs including $24 in
FY 2026-27, $42 in FY 2027-28, and $51 in FY 2028-29. The population workload impact is
expected to be minimal and absorbable.
Centrally appropriated costs. Pursuant to a Joint Budget Committee policy, certain costs
associated with this bill are addressed through the annual budget process and centrally
appropriated in the Long Bill or supplemental appropriations bills, rather than in this bill. These
costs, which include employee insurance and supplemental employee retirement payments, are
shown in Table 2.
Other Budget Impacts
TABOR refunds. In FY 2024-25 and FY 2025-26, the bill is expected to decrease the amount of
state revenue required to be refunded to taxpayers by the amounts shown in the State Revenue
section above. This estimate assumes the March 2024 LCS revenue forecast. A forecast of state
revenue subject to TABOR is not available beyond FY 2025-26. Because TABOR refunds are paid
from the General Fund, decreased General Fund revenue will decrease the TABOR refund
obligation, but result in no net change to the amount of General Fund otherwise available to
spend or save for years that General Fund revenue is above the TABOR limit.
General Fund reserve. Under current law, an amount equal to 15 percent of General Fund
appropriations must be set aside in the General Fund statutory reserve. The bill is expected to
increase the amount of General Fund held in reserve by the amounts shown in Table 1. Page 5
March 21, 2024 HB 24-1362
Local Government
Workload may be increased for counties and municipalities to update regulations and adopt
resolutions and/or ordinances if they choose to prohibit graywater treatment works in their
jurisdictions. For local governments that do not permit graywater treatment works under current
law, there may be increased costs for inspections of graywater systems.
Effective Date
The bill takes effect 90 days following adjournment of the General Assembly sine die, assuming
no referendum petition is filed.
State and Local Government Contacts
Counties Municipalities Natural Resources
Public Health and Environment Revenue State Auditor
The revenue and expenditure impacts in this fiscal note represent changes from current law under the bill for each
fiscal year. For additional information about fiscal notes, please visit the General Assembly website.