Funding Rural Water Quality

Jan. 29, 2007

About the author: Stephanie vonFeck is an environmental protection specialist with the EPA. She can be reached at 202/564-0609 or by e-mail at [email protected].

If you are like leaders in many rural communities, you are faced with the challenge of protecting the quality of life in your community. Along with education and public safety, environmental quality plays an important role in what makes small communities a desirable place to live. Many communities struggle to provide adequate wastewater treatment.

In addition, failing septic tanks and runoff from streets, lawns and agricultural areas can impact water quality. There will never be enough grants to pay for what is needed. Indeed, grants become fewer every year and are not a sustainable source of funding for water quality projects. There is an alternative.

The Clean Water State Revolving Fund (CWSRF) is a water quality funding program run by each state and Puerto Rico that helps communities of all sizes pay for water quality projects. With more than $55 billion in funds, the CWSRF program is one of the largest, most flexible water quality funding programs in the nation.

Since 1988, the federal government has provided seed money for the fund each year. This money, as well as state match funds, is used for low interest loans to communities, non-profit organizations, businesses, farmers and homeowners.

In 2005, the average interest rate on a CWSRF loan was 2.2%, compared to the market rate of 4.9%. A low interest loan of 2.2% translates into a 21% subsidy, or grant equivalent, as compared to financing a project with a market rate loan.

The program is revolving and will be a source of water quality funding into the future. This is because the low interest loans are repaid, generally over a period of 20 years. Communities receive the benefit of readily available funding.

In addition, there is no match requirement for projects and, generally, no funding ceiling. It is also easy to utilize the funding, since loan repayments do not begin until one year after the project is completed.

Useful to rural communities

States made almost $5 billion in loans in 2005. Many states have structured their programs to ease small community access to funding by adjusting interest rates to the affordability of the project, directing repayments from prior loans to small and rural projects to ease the burden of federal requirements, pooling projects to increase bond ratings, and providing assistance to communities to help them through the application process.

In 2005, 22% of the funding, or almost $1.1 billion, was provided to communities of 10,000 or fewer people. Because water quality projects in rural communities are smaller, communities with fewer than 10,000 people accounted for more than half of all the loan agreements.

Wastewater and storm water

The Clean Water Act has provided a very broad and flexible authority for the CWSRF program to fund wastewater, storm water, non-point source and estuary protection projects. All states fund publicly owned municipal wastewater treatment and collection systems (POTWs). States can also fund publicly owned storm water projects that implement Phase I or Phase II of the Storm Water Permit program. The CWSRF cannot be used to fund the operation and maintenance of POTWs or storm water projects, storm water program development, or watershed planning and monitoring.

The CWSRF can, however, be used to implement watershed plans and Total Maximum Daily Load (TMDLs) by covering the costs of planning, design, and building capital projects, including low-impact or soft-path technology.

Septic tanks

Septic tanks serve approximately 25% of the U.S. population and 40% of new developments. The U.S. Census Bureau estimates that at least 10% of septic tanks have stopped working, and some communities report failure rates as high as 70%. Failing septic systems are the third-most common source of groundwater contamination. The Environmental Protection Agency (EPA) is encouraging better maintenance of septic tanks, including centralized management.

The CWSRF can cover the costs associated with establishing a centralized management entity that manages septic tanks and other decentralized wastewater systems. This includes capital costs, such as pumper trucks and spare decentralized equipment, as well as start-up costs to establish the management entity.

The CWSRF can be used to repair or upgrade failing septic tanks and install other decentralized technology to replace failing septic tanks. The CWSRF can even provide funding to a private septic tank pumper to purchase capital equipment, such as the pumper truck, and build a privately owned septage pretreatment facility. The CWSRF can also cover the costs to connect a home with a failing septic tank to a POTW.

Non-point source pollution

The CWSRF has provided more than $2.1 billion in loans for non-point source projects. To be eligible for funding, projects must be consistent with the state’s Non-point Source Management Plan or 319 Plan. Where non-point sources are threatening surface or groundwater sources of drinking water, the CWSRF funding for non-point source projects provides the important benefit of protecting human health through cleaner drinking water. Thirty-seven states have funded capital non-point source projects, ranging from manure Best Management Practices (BMPs) on small-and medium-size animal feeding operations, to direct seed, or no-till crop equipment.

States have funded the cleanup of Brownfields to eliminate sources of water pollution, purchased wetlands and riparian buffers, removed leaking underground storage tanks, and installed storm water BMPs for areas not covered by the Storm Water Phase I and II programs. Non-point source projects can be either publicly or privately owned, so everyone, from municipalities to businesses, can receive assistance to clean up or prevent water pollution from non-point sources.

Estuary protection

The federal government has designated 28 areas around the coast as National Estuaries. The CWSRF is authorized to provide funding to develop and implement the management plans for the National Estuaries, called Comprehensive Conservation and Management Plans. Wastewater, storm water, septic tank and non-point source projects in a National Estuary’s watershed can receive CWSRF loans. In addition, funding is also available for manure management activities on concentrated animal feeding operations.

Accessing the funds

Each state CWSRF program sets its own water quality priorities, selects projects and makes loans. Each year, the states develop Intended Use Plans (IUP) that outline the funds available and which projects will receive funding. To be included in the IUP, an application must be completed.

Some states accept applications once a year, while others accept applications at any time. It is important to review your state’s IUP to get a feel for the water quality priorities and what types of projects have received funding. It is also a good idea to contact your state program manager to discuss your project and how it relates to your state’s water quality priorities. The state CWSRF program manager can provide application materials, program requirements and, in many cases, assistance with completing the application.

Many states that fund septic tank projects and other non-point source projects have developed alternative systems to deliver funding to small projects. States will often work through local banks, county governments or regional governments to provide a local source of CWSRF funding.

New CWSRF for disadvantaged communities

The EPA has established guidelines for states that want to expand their CWSRF program to provide 30-year assistance to disadvantaged communities. The Clean Water Act limits CWSRF loans to a 20-year repayment period; however, with EPA approval, states can purchase a community’s 30-year debt obligation or bond with CWSRF funds. The community receiving CWSRF assistance has 30 years or the life of the asset, whichever is less, to repay the CWSRF.

The lower annual payments associated with 30-year assistance help financially strapped communities afford essential water quality projects. This financing technique has already been used by a number of states to help disadvantaged communities pay for necessary water quality projects.

The CWSRF is a reliable source of funding for water quality projects in rural communities across the U.S. It can be used for everything from publicly owned wastewater treatment projects, to storm water BMPs, to non-point source abatement projects.

States have been extremely innovative by growing the funds available for projects and delivering that funding to high priority water quality projects. Rural communities should feel comfortable approaching their CWSRF state program manager and exploring funding for their water quality projects.

About the Author

Stephanie vonFeck

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