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Clean Water State Revolving Funds at 20 years The Clean Water State Revolving Fund (CWSRF) program has been described as “the Nation’s Water Quality Funding Source” (EPA 2001). Since the program was established, CWSRFs have funded over $57 billion for over 18,600 projects to improve water quality in 50 states and Puerto Rico (EPA 2007). This important and substantial funding mechanism has been in the news during 2007, as Congress considered changes to the program, including reauthorization of federal funding. Introduction to Clean Water State Revolving Funds The “Nation’s Water Quality Funding Source” has an innovative structure. Each state and Puerto Rico has set up a CWSRF, each of which provides low-cost financing to local governments and other organizations for water-quality projects in its own state. The CWSRFs are established with federal seed money, or capitalization grants, and a 20% match of the federal grant provided by the state. The CWSRFs are able to help borrowers save money on financing projects in a number of ways. They provide “loans, refinancing, purchasing, or guaranteeing local debt and purchasing bond insurance” (EPA 2007). They set interest rates, which are usually low interest and may be 0% interest, and they set repayment periods for their own loans. Many states use methods, called leveraging capitalization grants, to increase the amount of funding available to their borrowers. In addition, some states have designed innovative financing structures or programs, such as Ohio’s Water Resource Restoration Sponsor Program (WRRSP) (EPA 2002). The CWSRFs provide financing for a variety of water-quality projects, including nonpoint-source pollution prevention, watershed protection or restoration, and estuary management projects. Funding is also available for traditional municipal wastewater treatment projects. Examples of nonpoint-source projects include riparian land purchases; water rights purchases; stream restoration; brownfield restoration projects; fat, oil, and grease treatment; land purchases for conservation; and decentralized wastewater projects (EPA 2006). As borrowers repay their loans to the CWSRF, the money again becomes available for new projects. The funds are managed so that they are able to provide a perpetual funding mechanism for water-quality projects. Figure 1 shows the CWSRF structure. CWSRF Successes: Two Stories Hartselle Utilities was able to obtain an initial EPA grant that required a 45% funding match. After the utility exhausted its capital through matching the initial grant, it applied for and obtained low-interest loans from the Alabama SRF. The SRF loan served as the 45% fund match for subsequent EPA grants. Vest stresses the positive impact that the CWSRF loan has had: “Without the SRF loan, we wouldn’t have been able to make such progress. Over the last four years, we’ve been able to knock this work out left and right.” The alternatives for Hartselle Utilities were bleak. Solving the problems slowly would have jeopardized continued development in Hartselle because of the overflows, and the utility would have faced fines and penalties. Funding the I/I fixes through ordinary borrowing would have meant an immediate rate increase of 25%. The utility also would not have been able to take advantage of the EPA grant without the SRF, because it would have not been able to provide its 45% matching funds. “SRF is a good way to go,” says Vest. Asked whether he would apply for SRF loans again, he answers, “If the need arises, I will.” Not only are the strains on its wastewater plant vastly reduced, Hartselle Utilities is realizing some side benefits from the elimination of I/I. “Now we’re in a proactive mode,” says Vest. The Hartselle Utilities crews are able to spend time identifying small problems and fixing them before they become large problems. “We have responsibilities [as a utility] and shouldn’t spend money needlessly,” states Vest. The SRF loan saved the utility money in financing, and the utility and the community continue to realize the benefits of the SRF loan program. Truckee River Water Rights Purchase, Washoe County, NV Don Mahin, Washoe County senior engineer (now retired), helped negotiate the settlement and implement the agreement. He explains that the instream flows greatly benefit water quality: They augment the trickle of flow that remains after agricultural diversions downstream of Reno, diluting pollutants that may be in the flow and mitigating thermal effects. As with the Hartselle project, the timeliness of the SRF loan was important for Washoe County. As Mahin explains, “Without the SRF, it would have taken a long time before we could get into the [water rights] market.” Timing was everything. In 1996, the time of the settlement, the going price was $1,000 per acre-foot of water. Today, prices are as high as $60,000 per acre-foot. Washoe County, Reno, and Sparks were able to “get in and buy a lot of water early,” says Mahin. Today, their dollars will not go as far. “Two years ago, the price [per acre-foot] jumped by a factor of 10. We just paid $46,000.” As of January 2007, almost 2,900 acre-feet of water had been purchased. The availability of SRF loans was important for these two projects and for thousands more across the country. In these cases, time was money—and water-quality degradation.
Federal Appropriations for Capitalization Grants After the authorization expired in 1994, funds continued to be appropriated for capitalization grants to CWSRFs every year. As Rick Farrell, executive director of the Council of Infrastructure Financing Authorities (CIFA), says of his CWSRF members, “We’ve been staying in business on the basis of annual appropriations.”
Figure 2 shows these annual appropriations. Over the last few years, appropriations held steady and then decreased. In 2007, the original appropriation was for $688 million, and although Congress eventually increased the appropriation to a little over $1 billion, the proposed budget for fiscal year 2008 is again $688 million (CRS 2007, www.expectmore.gov). Paul Marchetti, executive director of PENNVEST, the State of Pennsylvania agency that administers the CWSRF, says that Pennsylvania’s capitalization grant is “about half of what we used to get,” and other states have experienced the same thing. PENNVEST, despite the lower federal grant, has “maintained our funding [to borrowers] at the same levels we have in the past. But we can’t continue to do that indefinitely,” says Marchetti. Over time, the decrease in appropriations has affected CWSRFs. As Rick Farrell describes what has happened, “It took a couple of years for it to really start hurting, but in the last year, you start to see a number of priority projects fall below the funding line. Projects that a state wanted to do in a given year and would have normally funded because they met other criteria—there was not enough money for them.” Marchetti notes an additional problem that PENNVEST has faced: “There’s really been an increase in demand” for loans.
The Water Quality Financing Act of 2007 Reauthorization of Funds “We’re still falling short of our demand on the wastewater side by a lot, and we could use the extra funding here,” Marchetti says. “I would expect you would hear that from most any state.” Organizations such as the National Association of Clean Water Agencies (NACWA) and CIFA issued statements and press releases supporting the reauthorization (www.waterindustry.org).
On the other hand, some could have a more general objection to the reauthorization, as well as an objection to continued annual appropriations. They might argue that the 1987 CWA amendments set up a revolving loan system because it was “intended by Congress to enable a phase-out of federal involvement after states build up a source of capital for future investments. … The intention was that states would have greater flexibility to set priorities and administer funding, while federal aid would end after FY1994” (CRS 2006). Under that characterization, reauthorization and continued appropriations may not match the Congressional intent of the 1987 amendments. The White House opposes H.R. 720. It does not explicitly object to the reauthorization but describes the funding authorization as “excessive” and “unrealistic in the current fiscal environment” (OMB 2007). In addition, perceiving the authorized funding amount as a radical departure from current policy, the White House and other opponents of the bill have pointed out that the $14 billion authorized is a 250% increase over current funding levels (OMB 2007, WSJ 2007). Davis-Bacon Act Requirements In contrast, the inclusion of Davis-Bacon requirements is sharply criticized by some and raises concerns for others. For instance, the White House “strongly opposes” H.R. 720, in part because the application of Davis-Bacon is “contrary to the Administration’s long-standing policy of opposing any statutory attempt to expand or contract the applicability of Davis-Bacon Act prevailing wage requirements” (OMB 2007). Marchetti puts his concerns in less strongly worded terms, saying, “There are some provisions in the legislation that I find problematic.” Other Provisions
Project Eligibility. The first issue is that H.R. 720 explicitly sets out several types of nonpoint-source pollution management projects that are eligible for funding by CWSRFs. Although nonpoint-source projects were included in the legislation before, the enumeration of project types and the inclusion of “measures to manage, reduce, treat, or reuse municipal stormwater” shows the stature that stormwater projects have attained as a means for cleaning up our nation’s water bodies (www.thomas.gov). Table 3 shows the differences in language between the Clean Water Act and H.R. 720, which amends the Clean Water Act. Although some states have not seen many nonpoint-source projects, states such as Pennsylvania anticipate funding more nonpoint-source projects in the future, according to Marchetti. Provisions to watch. Rick Farrell, of the CIFA, and Paul Marchetti, of PENNVEST, both express reservations about some of the provisions of the bill that might loosely be termed “strings” attached to the funds that would affect borrowers. Both express concerns that increasingly onerous bidding and reporting requirements might discourage the participation of smaller and disadvantaged communities in CWSRF loan programs. These communities, which sometimes have a difficult time obtaining low-cost financing arrangements from other entities, can greatly benefit from CWSRF programs. In addition, Marchetti has concern about H.R. 720, because it appears to apply requirements appropriate for “brick-and-mortar” projects to nonpoint-source projects. The application of these requirements “would make it difficult, if not impossible, to fund NPS projects,” he says. Some of these provisions may be changed as the Senate considers the bill, and the differences between the House and Senate versions are resolved in the final version. Clarification of Issues. One benefit of the legislation, according to Farrell, is the clarification of several issues that were somewhat unclear in the 1987 Clean Water Act Amendments. He explains, “From time to time, we run into issues with different aspects of the program where having more clarity in the statute would have been useful to us. From that standpoint [the reauthorization is] helpful. Issues such transferability of funds and 30-year financing are important considerations for us and have somewhat been open questions.” Next Steps Whatever the results are of this legislation, the CWSRF will continue to be a valuable source of funding for nonpoint-source projects. From the start of the CWSRF program through 2006, nonpoint-source and estuary projects made up only 4% of projects financed through the CWSRF (EPA 2006). CWSRF financing should be considered among the options for funding nonpoint-source projects. Ferrell Vest of Hartselle Utilities describes the CWSRF application process as “probably the easiest part of the project.” You can find a list of CWSRF contacts on the EPA Web site: http://www.epa.gov/r5water/cwsrf/pdf/agency.pdf. Acknowledgement References CRS. No date. CRS Report for Congress: Water Infrastructure Project Earmarks in EPA Appropriations: Trends and Policy Implications. Washington, DC. Updated December 13, 2006. http://www.ncseonline.org/NLE/CRSreports/07Apr/RL32201.pdf. Accessed April 2007. EPA. June 2002. CWSRF Activity Update: Ohio’s Restoration Sponsor Program Integrates Point Source and Non-point Source Projects. EPA 832-F-02-001. Washington, DC. http://www.epa.gov/owm/cwfinance/cwsrf/ohio_wrrsp.pdf. Accessed April 2007. EPA. No date. How the CWSRF Program Works. http://www.epa.gov/owm/cwfinance/cwsrf/basics.htm. Accessed April 2007. EPA. July 2003. “Paying for Water Quality: Managing Funding Programs to Achieve the Greatest Environmental Benefit.” Report to Congress. EPA-832-R-03-003. Washington, DC. http://www.epa.gov/owm/cwfinance/cwsrf/rtc0703.pdf. Accessed April 2007. EPA. November 2006. “CWSRF PISCES Awards: Performance and Innovation in the SRF Creating Environmental Success 2006 Award Winners.” EPA 832-F-06-040. Washington, DC. www.epa.gov/owm/cwfinance/cwsrf/final_2006pisces.pdf. Accessed April 2007. EPA. May 2001. Financing America’s Clean Water Since 1987: A Report of Progress and Innovation EPA-832-R-00-011. http://www.epa.gov/owm/cwfinance/cwsrf/progress.pdf. Accessed April 2007. OMB. March 8, 2007. Statement of Administration Policy, H.R. 720 –Water Quality Financing Act of 2007. http://www.whitehouse.gov/omb/legislative/sap/110-1/hr720sap-h.pdf. Accessed May 2007. Wall Street Journal Editorial Board. March 17, 2007. “Expanding Davis-Bacon.” Page A8. Henrietta H. P. Locklear is with AMEC Earth and Environmental Inc. in Raleigh, NC. SW October 2007 |
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