Extended Term Financing through CWSRF Affirmed by EPA

March 27, 2006

The Office of Water issued a statement affirming the U.S. EPA’s policy to allow states to purchase or refinance municipal debt through Clean Water State Revolving Funds (CWSRF) with terms exceeding 20 years. The Clean Water Act (CWA) authorizes the CWSRF program to provide loans for water quality purposes with terms up to 20 years. However, since the CWA does not directly limit the term of transactions for purchasing or refinancing local debt, it has been EPA’s policy to permit purchase or refinance transactions to exceed 20 years.

In 2005, the Office of the Inspector General (OIG) performed a financial audit of the Utah clean water state revolving fund. The OIG found that Utah was violating the CWA by purchasing communities’ bonds with 30-year repayment terms. The OIG recommended that Utah restructure these agreements and that EPA cease allowing states to follow EPA’s policy on extended term financing.

Based on a review of the statute, the legislative history, EPA regulations and consultation with the Office of General Counsel, EPA concluded that the CWA does allow a State managing the CWSRF to purchase municipal debt obligations where the terms exceed 20 years. The statement issued by the Office of Water upholds the extended term financing policy by allowing states to use, as appropriate, the practice of purchasing local debt with terms greater than 20 years and maintains this flexibility for other states that wish to take advantage of the practice.

Source: EPA

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