Helping Rural Water Utilities

April 11, 2008

About the author: Clare Pierson is associate editor for Water & Wastes Digest. Pierson can be reached at 847.391.1012 or by e-mail at [email protected].

The Rural Development agency within the U.S. Department of Agriculture (USDA-RD) provides low-interest loans, guaranteed loans and grants to eligible water and sewer utilities to finance capital improvements. The agency also provides financing for community development, businesses, cooperatives, housing, telecommunications and electricity in rural areas.

Clare Pierson, associate editor for Water & Wastes Digest, recently spoke with the northwest Illinois division’s Duane Smith, who has administered community development programs, including water and environmental programs, in the region since 1985.

Clare Pierson: What do you think the biggest challenge is in the everyday work that your agency performs?

Duane Smith: In general, our agency’s challenge is to assist as many systems as possible, distribute our funds equitably throughout the state and provide grant funds where they are necessary to keep the rates affordable. As a specialist in the field, my challenges are to help applicants obtain the funding needed to have a successful project, explain why grant funding is limited and encourage them to proceed with an application even though the resulting water or sewer costs will be higher than many users might consider affordable.

Applicants would like to finance as much of their projects as possible with grants rather than loans, but we have only a dollar of grant funding available for every three dollars of loan funds. In addition, the proportion of grant funds is limited to 45% or 75%, depending on the median household income of the service area.

Pierson: Please discuss the various programs and offerings that the USDA-RD can provide to rural and small water systems.

Smith: Our direct loan and grant program provides the most funds for small water systems. In Illinois, we distributed more than $39 million in low-cost loans and grants to them through this program last year. We fund public or nonprofit water and waste systems serving municipalities with fewer than 10,000 people and in unincorporated areas that are unable to finance a proposed project with their own resources or commercial credit. We also provide technical assistance to them throughout the process. That is particularly important for groups that have never before built, expanded or done a major repair to a water or sewer system.

Pierson: How do utilities apply for a loan or a grant? How does your department decide who gets one, and how long does it take to complete the entire loan application and distribution process?

Smith: We ask utilities to contact us if they are considering applying for our funding. They can call a local Rural Development office or find contact information online at We ask potential customers to complete an initial application that includes financial history, an environmental report, user information and a preliminary engineering report. Complete applications from eligible applicants are given priority scores. More points are given for projects serving smaller communities, communities with low median household income and projects that address health and safety issues. Eligible applicants are then invited to develop a full application.

From initial application to completed project, it can take a year to several years, depending on the complexity of the project. Developing a new system understandably takes longer to complete than an expansion or renovation.

Pierson: Does the recent sluggish economy affect the work the USDA-RD performs on a daily basis—and if so, in what way?

Smith: Because safe water and environmental systems are a critical need, federal funding for [utilities] will be available and communities will need to correct faulty systems. The sluggish economy may affect utilities’ attitudes about making improvements that could result in higher customer costs, but these projects are not short-term fixes. They are a fundamental part of a community’s future.

Duane Smith is an area specialist for the USDA-RD in northwestern Illinois. Smith can be reached at 815.875.8732 or by e-mail at [email protected].

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About the Author

Clare Pierson

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