Don't mess with the money: A look into the Clean Water State Revolving Fund

How does the CWSRF work?

Under CWSRF, U.S. EPA provides grants to all 50 states plus Puerto Rico to capitalize state CWSRF programs. The states contribute an additional 20% to match the federal grants.

EPA also provides direct grant funding for the District of Columbia (DC), U.S. Virgin Islands, American Samoa, Guam and the Commonwealth of Northern Marianas.

The programs provide low interest loans to eligible recipients for water infrastructure projects. As money is paid back into the state’s revolving fund, the state makes new loans to other recipients for high priority, water quality activities.

Repayments of loan principal and interest earnings are paid back into individual state CWSRF programs to finance new projects that allow the funds to “revolve” at the state level over time.

States are responsible for the operation of their CWSRF program. Under the CWSRF, states may provide various types of assistance, including loans, refinancing, purchasing, or guaranteeing local debt and purchasing bond insurance.

States may also set specific loan terms, including interest rates from 0% to market rate and repayment periods of up to 30 years. States have the ability to target financial resources to their specific community and environmental needs.

What types of projects are eligible for CWSRF assistance?

• Constructing Publicly Owned Treatment Works (POTW)
• Nonpoint source
• National estuary program projects
• Decentralized systems
• Stormwater
• Reducing demand for POTW capacity through water conservation, efficiency and reuse
• Watershed pilot projects
• Energy efficiency
• Reusing or recycling wastewater, stormwater or subsurface drainage water
• Security measures at POTWs
• Technical assistance

Bipartisan Infrastructure Law funding

The Bipartisan Infrastructure Law (BIL) features a more than $50 billion investment, over a five year period, in drinking water, wastewater, water reuse, conveyance and water storage infrastructure.

The BIL provides $11.7 billion for the CWSRF plus an additional $1 billion for the CWSRF for emerging contaminants.^[3]

The BIL also highlights goals for funding through specific projects:

• Provide flexibility to meet local water needs;
• Increase investment in disadvantaged communities;
• Make rapid progress on lead service line replacement;
• Address PFAS and emerging contaminants;
• Support resilience and one water innovation;
• Support American workers and renew the water workforce;
• Cultivate domestic manufacturing
• Fully enforce civil rights; and
• Refine state SRFs to build a pipeline of projects.

The BIL specifically provides $11.7 billion for the CWSRF, $11.7 billion for the DWSRF, $1 million for clean water emerging contaminants, $4 million for drinking water emerging contaminants, and $15 million for lead in drinking water.^[4]

CWSRF funding in the BIL started at $1.9 billion in 2022 and will grow to $2.6 billion by 2026. For 2024, the BIL provides $2.4 billion in funding.

CWSRF BIL funding for emerging contaminants was $100 million in 2022 and will be $225 million from 2023 through 2026.

A hidden reduction in state funding

The Clean Water State Revolving Fund was reauthorized at the same level this year as it was in the year prior.

However, in 2022 earmarks came back, and Congress made the decision to use the SRF annual federal funding when the earmarks were reinstated in 2021.

Earmarks allow legislators to allocate funding to specific projects in their jurisdiction. If earmarks are taken from SRF funding, then they essentially eat in to the available funding for states projects.

“It’s been a devastating impact on state programs,” said Deirdre Finn, executive director of the Council of Infrastructure Financing Authorities (CIFA).

CIFA is a national not-for-profit organization that represents the Clean Water and Drinking Water State Revolving funds. Finn said that the real issue and concern is that the money is not a cut, but rather a redistribution of funding.

“West Virgina has seen an increase of $145 million in funding for water infrastructure, including funding for the SRF and Congressional earmarks,” said Finn. “At the same time, you have Texas whose funding has been cut $105 million for the same type of projects.”

Finn said that the way Congress has this set up, with the SRF’s and congressional earmarks, is a zero-sum game.

“There’s going to be winners and losers every year,” said Finn.

17 states have benefitted from the redistribution, and 33 states have lost money according to Finn.

Another issue that cuts into funding is the cost of labor and materials. Post-pandemic costs have increased about 40% eating more into the funding.

“The money isn’t going as far as people thought it might,” said Finn, referencing the addition of the BIL funding.

Finn said that the biggest issue right now is the earmarks, and that Congress completely changed the fundamental nature of the SRF’s from a subsidized loan program run by the state to a massive new grant program.

“There’s a lot of concern over what the future will bring,” said Finn. “Especially when the funding in the infrastructure bill ends in two years.”

At a local level

“Outside of grant funding, SRFs is our number one funding,” said Erin Girardi, director of financial analysis at Hampton Roads Sanitation District (HRSD).

HRSD provides regional wastewater treatment to 18 cities and counties in southeast Virgnia. HRSD treatment plants have a combined capacity of 225 million gallons per day (MGD).

HRSD has projects ranging from $1 million to $500 million, and it utilizes SRF funding when they can, but the utility has felt the squeeze.

Girardi maintains a 20-year financial plan for HRSD where he can analyze all the rates, and projected rates, for the district. Any reduction in funding ripples the whole plan.

“Funding has been down the last couple of years from what we anticipated getting,” said Girardi. “If we don’t get subsidized debt through the SRF, then we have to go to the capital market and get funding that way—which is more expensive and affects our rates.”

Girardi thinks the SRFs are giving them everything they can while still funding other needs throughout the state.

HRSD just finished fiscal year 2024 (FY24) and is expected to cross $550 million in capital spent. According to Girardi the planned number for FY25 is $820 million.

“Hopefully FY25 is kind of our peak spend.,” he said. “We still have some big years coming up in the plan, but everything is in progress right now.”

HRSD is implementing a new program called the Sustainable Water Initiative for Tomorrow (SWIFT) where the district will take effluent from the wastewater treatment plant and treat it to drinking water quality before it is discharged into the Potomac aquifer.

HRSD will essentially construct a water treatment plant at the end of the wastewater treatment plant for this express purpose.

The previous plan was to have each locality design their own improvements to their wastewater collection systems to reduce all sanitary sewer overflows (SSO).

The district has been serving under a consent decree from U.S. EPA since 2010. The consent decree was modified in 2021 to resolve problems with the districts SSOs.^[5]

“There have been phases to this consent decree. When it first came out, each locality had to do their own,” Girardi said. “We quickly realized that didn’t make the most sense. So HRSD took ownership of the regional improvements—we’re going to do all those improvements.”

HRSD is utilizing the SRF program, as well as EPA programs, for the project. However, some of the expected SRF funding has fallen short of the district’s goals.

Girardi said that the after runing the numbers, the $10 million that HRSD did not receive from the SRFs would have far outweighed the $1 million it could have received in CDF funding in terms of life cycle savings. This holds true even though the CDF is a grant and the SRF is a loan.

“It’s more of a benefit to us if we would have received the SRF funding. They can leverage it and make better use of it,” he said noting the district loves the SRF program and hopes it thrives. “It’s a great vehicle to really make substantial improvements to the environment.”

Conclusion

Even though the SRF funding has looked stable over the past few years, the reintroduction of Congressional earmarks has eaten into the funding that is distributed to utilities for their projects.

Utilities can take different approaches to secure funding, like applying for grants in HRSD’s circumstance, but it is not as cost-effective as receiving SRF funding as Girardi pointed out.

When one zooms out and look at the numbers as a whole like Deirdre Finn has done, one can see that the cuts and redistribution of funding may not make a ton of sense from a financial perspective.

Some states have seen cuts this year, while others have seen a boost in funding, and it may not be the same story next year.

The SRFs play a crucial role in helping utilities fund much needed programs.

At a time when water scarcity is prevalent in states like California, and climate change is driving a new wave in water reuse, it might be best to not mess with the money.