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EPA Drinking Water State Revolving Loan Fund & Water Infrastructure Finance and Innovation Act

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Description

The 1996 amendments to the Safe Drinking Water Act (SDWA) established the Drinking Water State Revolving Fund (DWSRF) through which EPA awards grants to establish capital for drinking water infrastructure loan funds. The goal of the DWSRF is to help achieve the health protection objectives of the Safe Drinking Water Act (SDWA). Through 2017, the federal investment has been over $19.1 billion, which has been leveraged by state awardees to produce over $35.4 billion in loans and grants to water systems.

Funded activities include:

  • Improving drinking water treatment
  • Fixing leaky or old pipes (water distribution)
  • Improving source of water supply
  • Replacing or constructing finished water storage tanks
  • Other infrastructure projects needed to protect public health

DWSRF funds are awarded to state agencies, in addition to a mandated portion of the annual federal appropriation that goes to tribes, District of Columbia, and other territories. DWSRF opens funding and financing avenues for drinking water infrastructure improvements. Funds can be used to fund loans, refinancing, purchasing, guaranteeing debt and purchasing bond insurance.

SDWA also allows grantees to set aside up to 31% of their annual capital grants to support drinking water infrastructure, including capacity-building and development activities like community project development, and building technical staffing and financial capacity for water utilities. Water systems1 can also access additional support, including principal forgiveness, negative interest rates or outright grants.

The Water Infrastructure Finance and Innovation Act (WIFIA) was enacted into law in 2014. WIFIA is intended as a compliment to DWSRF and is focused on providing low interest rate financing for the construction of major water and wastewater infrastructure projects that exceed $20 million (projects must have a total cost of at least $5 million in jurisdictions of 25,000 or more). These types of projects are typically more difficult to finance through DWSRF, due to the health-based and regulatory focus of that funding stream.

Strategic Implementation

Documentation of long-term need is required to apply for these funds, and funds must be directed to under-resourced communities. In order to be awarded and deploy these funds, states or territories must develop annual Intended Use Plans (IUPs)2, as mandated under the SDWA, which address the following:

  • Demonstrate that they are prioritizing infrastructure projects on the basis of risks to human health, improving compliance with the SDWA, and improving affordability for communities.
  • Demonstrate that the loan funds can be managed to provide financial assistance in the long term, including maintaining repayment streams and balancing subsidization and other set-asides with the need to maintain the revolving loan funds.

In developing IUPs, states are required to solicit public comment. This presents an opportunity to interact with your state’s Environmental Protection authorities and local utilities to advance strategies for DWSRF and WIFIA investment.

Examples

In Indiana, the Indiana Finance Authority (IFA), which manages the State’s Drinking Water State Revolving Loan Fund (SRF), implemented the Lead Service Line Replacement Incentive program in 2018, to support full replacement of Lead Service Lines. IFA ranks eligible communities to receive interest rates as low as 0% for LSL replacement projects. These funds come from a 2017 award of WIFIA funding totaling $436 million to support the DWSRF.

The New Jersey Water Bank (NJWB) is a partnership between the New Jersey Department of Environmental Protection (NJDEP) and the New Jersey Environmental Infrastructure Trust (NJEIT) to provide low cost financing for the design, construction, and implementation of projects to protect and improve water quality and help ensure safe and adequate drinking water. The NJWB finances projects through two funding sources. NJEIT issues revenue bonds that are used in combination with 0% interest funds to provide very low interest loans for water infrastructure improvements. The NJDEP administers a combination of Federal Drinking Water State Revolving Fund (DWSRF) capitalization grants, State of New Jersey matching funds, loan repayments, state appropriations and interest earned on such funds.

Since 1988, the NJWB has funded 1,350 projects totaling $6.3 billion, provided an estimated $2.3 billion in interest cost savings to the State’s taxpayers and ratepayers, and provided over 130,000 direct construction jobs. More information here: https://www.nj.gov/dep/dwq/pdf/NJEIFP_Funding_Booklet20170517.pdf

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