People’s water bills should cover the cost of service, including externalities such as any environmental fixes the state deems necessary. Since water is delivered as a public utility, the rate structure must also cover new capacity and service extensions. If there’s a deficit, why not just increase water rates by the amount necessary? Why a new, separate tax?
Water utilities are mostly owned and run by local governments and they receive the money from the water bills for their operations. The State now wants their cut.