Clean Water State Revolving Fund

Clean Water State Revolving Fund

The Clean Water State Revolving Fund (CWSRF) is a self-perpetuating loan assistance authority for water quality improvement projects in the United States. The fund is administered by the Environmental Protection Agency and state agencies. The CWSRF, which replaced the Clean Water Act Construction Grants program, provides loans for the construction of municipal wastewater facilities and implementation of nonpoint source pollution control and estuary protection projects.[1] Congress established the fund in the Water Quality Act of 1987. Since inception, cumulative assistance has surpassed US$65 Billion, and is continuing to grow through interest earnings, principal repayments, and leveraging.

Revolving structure

An SRF Functions Like an Infrastructure Bank

All 50 states, plus Puerto Rico operate a CWSRF. The 51 CWSRF programs function like environmental infrastructure banks by distributing low interest rate loans for water quality projects. Loan repayments are recycled back into individual CWSRF programs. States can only use the funds to make loans, purchase local debt, or issue financial guarantees. They cannot make grants or otherwise dissipate the capital in their funds. Principal repayments plus interest earnings become available to finance new projects, allowing the funds to "revolve" over time. States can also increase their CWSRF financing capacity by issuing CWSRF-backed revenue or general obligation bonds. To date, 27 states have leveraged their programs in this way, raising an additional $20.6 billion for important water quality projects.[2]

The 51 funds are capitalized in part by federal and state contributions. For every dollar contributed by the federal government, states contribute 20 cents. Since the first federal capitalization grants in 1988, the total federal appropriation to the 51 CWSRF programs has reached over $25 billion, with corresponding state contributions of $5.3 billion. Financial leveraging techniques conducted by state funds have snowballed federal and state contributions into $65 billion as of 2007.[2]

Program highlights

Fig. 2 SRF Funding Proportions

Since the inaugural CWSRF project was funded in 1988, the 51 state-run CWSRF programs have provided $65 billion in assistance for water quality projects through 20,711 loans. In 2008, the programs reached a new high for single-year financing, providing nearly $5.8 billion in assistance to loan recipients of all sizes, including farmers, homeowners, small businesses, nonprofit organizations, and major municipalities. While wastewater treatment projects have comprised 96 percent of all CWSRF funding to date, over $2.6 billion has gone to nonpoint source and estuary projects (see Figure 2). The number of assistance agreements for nonpoint source projects has grown significantly over the years, from only two projects in 1990 to 1,305 in 2007. The low cost and flexibility of CWSRF financing has helped the programs serve communities of all sizes. In 2007, two-thirds of all loans went to communities with populations below 3,500. In addition, over $1.1 billion in assistance targeted communities with fewer than 10,000 people (see Figure 3).[2]

The programs are projected to continue to grow over time, as interest earnings and repayments of loans increase (see Figure 4). Nationally, the CWSRF program provides a remarkable return on federal investment: over the last 20 years, the program has financed $2.31 in projects for every dollar the federal government has invested (see Figure 5).[2]

The demand for CWSRF funds nationwide can be attributed to high needs, low interest rates, and flexible financing options. The rate of fund utilization has increased steadily since 1988, signaling increased demand for funds as well as efficient state operations. As of 2007, 97 percent of all available funds were committed to projects. To meet high levels of demand, 27 states have chosen to implement leveraging approaches by issuing revenue and general obligation bonds that are secured by CWSRF assets. Through leveraging, states have increased their capacity to finance important water quality projects.[2]

The use of leveraging in the CWSRF

Fig. 3 Communities Served By CWSRF's
Fig. 4 Cumulative Assistance

27 CWSRF's leverage their funds to increase the amount of capital available for loan assistance. This means that these states augment their CWSRF capital by issuing municipal bonds. Typically, they loan the proceeds of the bonds while investing their capitalization funds (both state and federal). These investments serve two purposes. First, they are pledged to the bondholders as additional collateral, thus more than assuring a AAA bond rating. Second, the interest on the invested capital is used to pay subsidies to the CWSRF program's local utility borrowers.

CWSRF Benefits Reporting System

The CWSRF Benefits Reporting System (CBR), launched in 2005 and adopted by all 51 state programs, produces a quantifiable record of the environmental and public health impact of CWSRF investments. Figures 6 and 8 present data reported in the CBR System to date. CBR allows users to record anticipated water quality improvements from every CWSRF loan directed towards water quality improvement. The 51 state programs have used CBR to track the environmental impact of 4,878 projects. The data link $15.8 billion in CWSRF loans to projects that protect and restore drinking water sources, recreational areas, and aquatic wildlife throughout the country. In 2007, CWSRF programs funded more than 964 projects designed to protect and restore water bodies, including 597 projects with direct human health benefits.

Statutory authority

Fig. 6 Waterbody Designated Uses Protected & Restored by CWSRF Projects

Clean Water Act sections 212, 319, and 320 provide the statutory authority for programs funded by the CWSRF. The CWSRF is authorized to provide financial assistance for the construction of publicly owned treatment works (sec. 212), the development and execution of state's comprehensive conservation management plans (sec. 319), and the development and execution of an estuary conservation and management plan (sec. 320).

Eligibility

Fig. 8 CWSRF Benefits Reporting

Eligible projects under CWA section 212 include the capital costs for the construction and maintenance of publicly owned treatment works (POTWs).[3]

Eligible projects under CWA section 319 (nonpoint source projects) may include:

CWA section 320 (estuary management) allows the CWSRF to fund publicly and privately owned projects, as long as the project is part of the state's Comprehensive Conservation Management Plan (CCMP) and is sanctioned in the plan.[5]

Projects must have a direct benefit to the water quality of an estuary. This includes:

In many cases, estuary level protection plans are combined with other elements of an overall project. Where the water quality portion of a project is clearly distinct from other portions of the project, only the water quality portion can be funded by the CWSRF.[4]

Eligible use of funds

The CWSRF employs a variety of loan assistance mechanisms.

Loans

Purchase of debt or refinance

Guarantees and insurances

Guarantee SRF revenue debt

Provide loan guarantees

Return on federal dollar

Fig. 5 Return on Federal Dollar

Over the past two decades, the CWSRF has financed $2.31 in infrastructure projects for every $1 invested by the federal government, providing a remarkable return on federal investment (See Figure 5).[8]

EPA has projected that over a twenty-year time horizon, the initial federal investment into the CWSRF can result in the construction of up to three to four times as many projects compared to programs that utilize a one-time federal grant, depending on the allocation of resources to the program.[9]

Due to the income stream into the program from state match, loan repayments, interest earnings, investment earning, and bond proceeds from leveraging, the return on every federal dollar investment to the CWSRF is currently $2.31.

Addressing climate change

Climate change threatens both water quality and water quantity. The CWSRF can assist water utilities and municipalities mitigate the effects of climate change as they relate to water quality by capitalizing costs related to planning and implementing new technologies.[4] Eligible criteria include the following.

Energy conservation

Wastewater and stormwater treatment facilities consume energy to collect and distribute treated water. The CWSRF can fund capital costs needed to power these publicly owned treatment works (POTWs) and strongly encourages the implementation of energy efficient technology.

Green infrastructure

The CWSRF can fund the "capital costs" of green infrastructure projects with direct water quality benefits. Capital costs include traditional infrastructure expenditures (such as pipes, pumps and treatment plants), as well as unconventional infrastructure costs (like land conservation, tree plantings, equipment purchases, planning and design, environmental cleanups and even the development and initial delivery of environmental education programs). One of the few things the CWSRF cannot fund is the operation and maintenance costs of a project.[4]

The Water Infrastructure Finance and Innovation Act of 2014 established additional financing mechanisms and includes eligibility for green infrastructure projects.[10]

Carbon sequestration

The CWSRF can finance carbon sequestration through a variety of methods, including urban heat-island reduction, energy saving achievement, and habitat preservation. Aquatic environments, green spaces, and geologic carbon storage are efficient carbon sinks that can be utilized with CWSRF loans.

Methane capture

Water conservation and reuse

Eligible water conservation and reuse projects include:

Public-private partnerships

Public-private partnerships, or "P3s", are one investment technique by which municipalities can finance the upgrade, expansion, repair, or implementation of new technology for wastewater infrastructure. The CWSRF, because of its unique financing authorities, is authorized to oversee (in concert with the EPA's Assistant Administrator for Water), provide technical assistance, and guidance for municipalities that choose to investigate P3s for the provision of their wastewater services.

A P3, as defined by the Environmental Financial Advisory Board,[11] is a contractual, institutional, or other relationship between government and a private sector entity that results in sharing of duties, risks, and rewards of providing a service in which the government has an interest, recognizing that the government retains ultimate responsibility for insuring that social needs and objectives are met.[12]

P3s are sought by states and local governments as a way to reduce the financial burden of water pollution and infrastructure needs. It has been estimated that, of the costly capital improvements, upgrades, expansions, and new compliance requirements imposed on water and wastewater utilities, local governments bear 95% of the costs. Among local government expenditures, only education is higher.[13]

Water Infrastructure Finance and Innovation Act

Congress passed the Water Infrastructure Finance and Innovation Act of 2014 (WIFIA) to provide an expanded credit program for water and wastewater infrastructure projects, with broader eligibility criteria than the previously-authorized revolving funds for wastewater and drinking water.[10] Pursuant to the act, EPA established its Water Infrastructure and Resiliency Finance Center in 2015 to help local governments and municipal utilities design innovative financing mechanisms, including public-private partnerships.[14] Congress amended the WIFIA program in 2015 and 2016.[15]

See also

References

  1. ↑ "Clean Water State Revolving Fund". Washington, D.C.: U.S. Environmental Protection Agency (EPA). 2017-03-17.
  2. 1 2 3 4 5 EPA (June 2008). Clean Water State Revolving Fund: 2007 Annual Report (PDF) (Report).
  3. ↑ CWA sec. 212, 33 U.S.C. § 1292.
  4. 1 2 3 4 5 6 7 8 9 Clean Water Act. Title VI: "State Water Pollution Control Revolving Funds."33 U.S.C. § 1381 et seq.
  5. ↑ CWA sec. 320, 33 U.S.C. § 1330.
  6. ↑ EPA (2006-03-17). "Policy Statement--Extended Financing Terms under the Clean Water Act State Revolving Fund Program." Memorandum.
  7. ↑ CWA sec. 603(d)(3), 33 U.S.C. § 1383.
  8. ↑ EPA (2008). "CWSRF National Information Management System".
  9. ↑ US EPA, 1996
  10. 1 2 United States. Water Infrastructure Finance and Innovation Act of 2014. Pub.L. 113–121, title V, §5022. Approved 2014-06-10.}}
  11. ↑ The Environmental Financial Advisory Board (EFAB) provides independent financial advice to EPA. See EFAB.
  12. ↑ U.S. Environmental Financial Advisory Board (April 2008). "Public-Private Partnerships in the Provision of Water and Wastewater Services: Barriers and Incentives" (PDF) (Report). EPA. Retrieved 2010-02-06.
  13. ↑ U.S. Conference of Mayors. Washington, DC (2007)."Who Pays for the Water Pipes, Pumps and Treatment Works? Local Government Expenditures on Sewer and Water-1991 to 2005." Accessed 2010-02-06.
  14. ↑ "Learn About the WIFIA Program". EPA. 2017-03-21.
  15. ↑ United States.
    1. Fixing America's Surface Transportation Act. Pub.L. 114–94, §1445. Approved 2015-12-04.
    2. Water Infrastructure Improvements for the Nation Act of 2016. Pub.L. 114–322, §5008. Approved 2016-12-16.

Further reading

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