.- United States
Environmental Protection
Agency
Office of Water
4606
EPA 812-P-96-001
October 1996
&EPA
DRINKING WATER STATE
REVOLVING FUND
INTERIM GUIDANCE
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INTERIM GUIDANCE
October 4, 1996
INTERIM GUIDANCE - -
DRINKING WATER
STATE REVOLVING FUND
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INTERIM QUIDANCE October 4. 1996
TABLE OF CONTENTS
PAGE
INTRODUCTION
DEVELOPMENT OF A CAPITALIZATION GRANT APPLICATION/AGREEMENT ........ .2
A. Items Necessary to Establish a DWSRF Loan Fund that Complies with _
Federal Requirements ......... .'..'.. ..... ........ • • • • • • • • • • • ...... • • ; . ' • • '
1 . Assurance that the State has the authority to establish a Fund and to operate the
DWSRF program in accordance with the SDWA ....... ..... .......... " ' ' *
2 Assurance that the State will comply with State statutes and regulations. .......... 4
3 Assurance that the State has the technical capability to operate program ......... 4
4'. Assurance that the State will capitalization grant funds in accordance with a payment
* ........
....... . ........ ..,
'5 Assurance that the State will deposit all capitalization funds in DWSRF ...... ... 4
6 Assurance that the State will deposit an amount at least equal to 20 percent of the
capitalization- grant (State match) in the Fund and deposit any required match for _
1452(g)(2) activities in a non-project account ................ ............ -• • °
, 7 Assurance that the State will deposit all proceeds into the fund . . . ............. o
. a Assurance that the State will use generally accepted accounting principles, ---- ... 6
g Assurance that the State will have DWSRF funds audited annually in accordance
with Generally Accepted Government Auditing Standards ............ . ....... °
10 Assurance that the State will adopt policies and procedures to assure that borrowers
have a dedicated source of repayment of the unsubsidized portion of loans ... ---- b
11. Assurance that the State will disburse loans as efficiently as possible, and in an
expeditious and timely manner .......... , .................. ..... ....... °
12 Assurance that funds will be used in accordance with the IUP .... .......... • • • '
13'. Assurance that the State will provide EPA with biennial report and annual
14. Assurance that the State wilt comply with Federal cross-cutting authorities . ..... . . 7
B. Intended Use Plan (IUP) ---- .... ............. ........ ...... ............ , 7
1 List of projects, including description and size of community .................. o
2 Description of the criteria and method used for distribution of funds ............ a
3 Description of the financial status of the DWSRF ...... : .................... »
4. Description of the short and long-term goals of the DWSRF . . .... •••'••••_ ..... ' *
' 5 Description of the amounts transferred between the DWSRF and the CWSRF .... 10
6 Description of the non-DWSRF project activities, and percentage of funds, that
will be funded from the DWSRF, including DWSRF administrative expense
allowance, PWSS program support, technical assistance, etc. ....... . . ^ . ; • • • • 10
7. Description of how a disadvantaged system and the amount of DWSRF funds that ^
will be .used for this type of loan assistance . . ..... . ...... . ..... • • • ........ • 10
C. Capitalization Grant Agreement . ........................ ....... .......... 11
*•. '
' 13
D.. Operating Agreement ....... ...... ... ................. • ................ '
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INTERIM GUIDANCE October 4, 1996
ALLOTMENT/USE OF FUNDS 14
A. Allotment/Reallotment/Withholding of Funds 14
1. Allotment formula 14
2. Period of availability and reallotment 14
3. Withholding of funds : . . 14
B. Set-asides from the national appropriation and ceilings on State allotments
1. National set-asides . 16
a. Indian Tribes/Alaska Native Villages 16
b. Health effects studies . . • 16
c. Unregulated contaminant monitoring . ; 16
d. Small system technical assistance • • 16
e. Operator training reimbursement = • • 16
2. Set-aside based on State allotment (D.C. and other jurisdictions) 17
3. Ceilings on State non-project activities • 17
a. DWSRF administrative expenses ..'•••' 1?
b. State program management , 18
c. Small system technical assistance 18
d. State and local assistance programs 18
1. Source water land acquisition 19
2. Source water protection measures • 19
3. Delineate/assess source water protection 19
4. Wellhead protection projects 20
5. Capacity development projects 20
e. Transfer of funds • 20
C. Types of Financial Assistance 23
1. Loans ' • 23
2. Principal subsidy to disadvantaged communities 24
3. Buy or refinance existing debt obligations . ... - 24
4. Guarantee or purchase insurance for local debt obligations 25
5. A source of revenue or security for payment of DWSRF debt obligations . . : 25
6. Earn interest on fund accounts 26
III. ELIGIBLE SYSTEMS AND PROJECTS • • • • • • 27
A. Eligible Systems • 27
B. Eligible Projects • ' ' ' 07
1. SDWA compliance and public health • • • 2f
2. Loan assistance to systems that meet definition in section 1401(4)(B) • • 28
3. Land acquisition . , 28
4. Planning and design of a drinking water project • 28
5. Restructuring/facilitate consolidation of systems that lack adequate capacity ...... 28
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C. Projects Not Eligible for Funding ....................... ....... .- • • • ........ 29
1. Lack of technical, managerial and financial capability ....... . ............... 29
2. Significant rioncompliance . , ........... . . . . . , ................ • .......... 29
3. Growth ...... /.". . . ---- ........ • • ........ ............ • ---- ,- • ......... 29
D. Compliance without DWSRF Funding ......... . . .............. • • • .......... 30
E. Impact of System Mergers and Sales . . . . ................ . ...... ' ........... 30
IV. State/Project Level Requirements ........ : . . ...... ...... ........ ..... ....... 31
A. .Cross-cutting Federal requirements ...... ........ ..................... ..... 31
B. Environmental Reviews ... ........... . ............... , • • • • - - '• • ........... 32
1 . Equivalency projects ...... .................... • ...... ............... 32
2. Non-equivalency projects ...... ..... ......,' ..... . ........... ....... • • 33
3. EPA approval/reviews ...... .............. ..... ..... , ..... • ......... . . 34
V. .FUNDING PROCESS
A. State Match
B. Federal funding process ...... . . ...... - .......... • • .............. ........ -36
1. Generally .............: ..... . ...... - - - • • .............. • ..... ' ..... ^°
2. Schedule of Payments ............. ......... .......... ........ ...... • ^°
3. Binding Commitments ....... . -. .............................. ........ 3o
4. Cash Draw ......... ... ...... • • • • ............ ..... • • • •". ....... : - • • • 3'
VI. REPORTING/REVIEW RESPONSIBILITIES ................. ..... ........... • • • 40
A. State Responsibilities ...... . . . . . . ........ .......................... ' ' ' 40
1. Biennial report : .................. .......... ......... ......... • • ; ..... 4U
2. Annual audit ...... . . . .
3. Information management system
B. EPA Responsibilities : ..... .......... 42
1. Annual review of DWSRF ..... . . .........
2. Evaluation report of National DWSRF program
3. Compliance assurance ....... . . ......
4. Dispute resolution ........ .....
44
VII. APPENDICES ............... ---- ' ...... ............. .................... T*
44
' A. Annual review ............... ............ ............... ..... • •.. ..... '
46
B. Definitions ...... . ................... • ................. • ......... .....
IV
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INTERIM GUIDANCE ' . October 4. 1996
INTRODUCTION : •
The Safe Drinking Water Act (SDWA) Amendments of 1996 (Pub. L. 104-182) authorize a .
Drinking Water State Revolving Fund (DWSRF) program to assist public water systems to
finance the costs of infrastructure needed to achieve or maintain compliance with SDWA
requirements and to protect public health. Section 1452 authorizes the Administrator of the U.S.
Environmental Protection Agency (EPA) to award capitalization grants to States, which in turn
can provide low cost loans and other types of assistance to eligible systems.
The SDWA Amendments also establish a strong new emphasis on preventing contamination
problems through source water protection and enhanced water systems management. That
emphasis transforms the previous law from a largely after-the-fact regulatory oriented program
into a statute that can provide for the sustainable use of water. Central to this emphasis is the
development of State prevention programs, including source water protection/capacity
development and operator certification. States have the option to use a portion of their
capitalization grant to fund these eligible activities as allowed in the statute. The success of
these activities will act to safeguard the DWSRF funds that are loaned for improving system
compliance and public health protection, and help determine whether the new law's potential as
a preventive environmental statute is realized.
The DWSRF program will help ensure that the nation's drinking water supplies remain safe and
affordable that drinking water systems that receive funding will be properly operated and
maintained, and that permanent institutions will exist in each State to provide financial support for
drinking water needs for many years to come. Congress has placed particular emphasis on
assisting smaller drinking water systems,' and those serving less affluent populations, by
providing greater funding flexibility for these systems under the DWSRF to ensure that systems
have adequate technical, managerial, and"financial resources to maintain compliance and
provide safe water. _
Under the SDWA, a State may administer its DWSRF in combination with other State loan funds,
including the wastewa'ter SRF, hereafter known as the Clean Water State Revolving Fund
(CWSRF) Beginning one year after a DWSRF program receives its first capitalization grant, a
State may also transfer up to alhird of the amount of its DWSRF capitalization grant to its
CWSRF or an equivalent amount from its CWSRF capitalization grant to its DWSRF.
' These two provisions linking the DWSRF and the CWSRF signal Congressional intent to
implement and manage the two programs in a similar manner. EPA also intends to administer
the two programs in a consistent manner, and to apply the principles developed for the existing
CWSRF to the DWSRF program to the fullest extent possible. Like the CWSRF, the DWSRF is
fundamentally a State program. Each State will have considerable flexibility to determine the
design of its program and to direct funding toward its most pressing compliance and public health
protection needs. Only minimal Federal requirements will be imposed.
This document provides a comprehensive description of the guidelines that will apply in the
operation of the DWSRF program. In basic terms, the guidelines explain:
. what States must do to receive a DWSRF capitalization grant;
• what States may do with federal capitalization grant funds;
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INTERIM GUIDANCE October 4, 1996
. what States may do with funds the law intends for activities other than project
construction (non-project funds); and
• the role of both the States and EPA in managing and administering the program. .
The sources of these guidelines are the statute itself, existing regulations and policies that apply
in EPA grant programs, particularly those that apply in EPA general grant regulations and the
CWSRF program, and the Administrator's authority to regulate under SDWA. Where a specific
statutory or regulatory provision is the basis for a requirement, that provision is cited. Questions
of a more detailed nature are bound to arise during the implementation- of the DWSRF program,
as they continue to arise in the CWSRF program. The Agency will address these questions in
subsequent policy memoranda.
I. DEVELOPMENT OF A CAPITALIZATION GRANT APPLICATION/AGREEMENT
The capitalization grant agreement process begins when the State is ready to receive a
capitalization grant. A capitalization grant cannot be awarded until after federal funds have been
appropriated for the DWSRF under section 1452 and then allocated to the States. A State
submits an application to the Regional Administrator (RA) requesting a capitalization grant. With
its application, the State must also submit an Intended Use Plan (IUP), documentation on the .
institutional framework of its DWSRF program, and a proposed schedule for capitalization grant
payments by the EPA.
The Act allows States the option to use part of the capitalization grant for uses other than project
construction to encourage the development of source water protection and State prevention
programs and to enhance water systems management. All DWSRF funds, including those that
States will direct toward set-asides, will be awarded through the capitalization grant process.
Before applying for a capitalization grant, States must prepare an IUP that identifies how it
intends to distribute the grant among the set-asides and the DWSRF fund, and includes the list
of projects that will be funded.
The State must seek public review and comment on these funding decisions. A State may,
however, prepare this IUP in two parts. The first part would present the overall framework of
how the State intends to allocate the grant among the set-asides and the DWSRF Fund, but
would not include the project priority list. The second part would be the IUP for the project fund
only States would still be required to provide public review and comment on both parts. The
two part process has the advantage of allowing States to proceed with a partial capitalization
grant application (e.g., a set-aside) before it completes all of the activities required to obtain a full
capitalization grant.
In addition to identifying the distribution of funds, the IUP outlines the State's planned DWSRF
activities, provides assurances and specific proposals for meeting requirements of the SDWA
and Federal general grant regulations, and serves as the basis for negotiations between the RA
and'the State on the proposed payment schedule. The IUP and the payment schedule are then
incorporated into the capitalization grant agreement, which also defines the State program and
operating methods and the Regional oversight role. Material in these documents that does not
change from year-to-year may be incorporated by reference in subsequent grant agreements or
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INTERIM GUIDANCE. , , . ^ Oct«ber 4< 1996
in an operating agreement, which remains in effect unless the Regional Administrator and the
State agree to amend it. An operating agreement contains those portions of the capitalization
grant agreement which do not change annually.
For DWSRF grant applications, States must submit EPA's standard application for non-
construction grant assistance (EPA Form SF-424). States should submit grant applications no
later than ninety days prior to the end of the period of funds availability. _ By so doing, EPA has
adequate time to properly review the application and, as necessary, request additional
information from the State. States that submit applications after this date run the risk of losing
funds due to the provisions governing reallotment.
Headquarters will concur on one State capitalization grant application in each Region.
A. Items Necessary to Establish a Loan Fund that Complies with Federal
Requirements
The State must provide assurances in the capitalization grant agreement on how it will
comply with the fourteen specifications discussed below for all DWSRF funding. In some
cases, the State must simply agree or certify in the grant application that it will comply with
the specifications. In other cases, documentation on the procedures by which the State
plans to ensure compliance with the specifications must be furnished. The State should
include this documentation with its capitalization grant application (see Table 1).
1: Assurance that the State has the authority to establish a Fund and to operate the
DWSRF program in accordance with the SDWA
The State must establish a Fund and comply with section 1452 before it can receive a
capitalization grant award (section 1452(a)(1)(B)).
With each capitalization grant application, the State's Attorney General (AG), or someone
designated by the AG, must sign or concur in a certification that the authority establishing the
DWSRF program and the powers it confers are consistent with State law and that the State
may legally bind itself to the terms of the capitalization grant agreement. The AG must also .
provide written assurance that the DWSRF program will be administered by an_
instrumentality of the State that is authorized to (1) enter into capitalization grant agreements
with the EPA, (2) accept capitalization grant awards made under section 1452(a)(1)(A) of the
SDWA and (3) otherwise manage the Fund in accordance with the requirements and the
objectives of the SDWA . Documentation supporting the AG's certification, such as copies of
statutes, executive orders, or administrative orders, must be furnished with the application.
If more than one State Agency is involved in the DWSRF program, the roles and
responsibilities of each agency must be described in the application, and a copy of any
Memoranda of Understanding or interagency agreement(s) that describes the roles and
responsibilities between agencies/must be included with the application. However, the
agency that is awarded the capitalization grant must retain ultimate responsibility for properly
" executing the grant agreement under federal general grant regulations (40 CFR 31.3),
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INTERIM GUIDANCE • October 4, 1996
A State may (as a convenience and to avoid unnecessary administrative costs) combine, in
accordance with State law, the financial administration of the Fund with the financial
administration of any other revolving fund established by the State if otherwise not prohibited
by the law under which the Fund was established and if the State certifies that:
(A) all monies in the Fund, including grants, state match, bond proceeds, loan '
repayments and interest, will be separately accounted for and used solely for the
purposes specified in section 1452(a); and
(B) the authority to establish assistance priorities and carry out oversight and related
activities (other than financial administration) with respect to assistance remains with the
State agency having primary responsibility for administration of the State's public water
supply supervision program (primacy agency), after consultation with other appropriate
State agencies (section 1452(g)(1)).
In those States that are eligible to receive a capitalization grant but do not have primacy, the
Governor shall determine which State agency will have the authority to establish priorities for
financial assistance from the State loan fund (section 1452(g)(1)(B). Evidence of the
Governor's determination must be furnished with the application.
2. Assurance that the State will comply with State statutes and regulations
The State must agree to comply with all State statutes and regulations that are applicable to
DWSRF funds including federal capitalization grant funds, State match, interest earnings,
bond proceeds and repayments, and funds used for non-project activities.
3. Assurance that the State has the technical capability to operate the program
The State must provide documentation demonstrating that it has adequate personnel and
resources to establish and manage the DWSRF (e.g., current and future staffing plan,
background/qualifications statements).
4. Assurance that the State will accept capitalization grant funds in accordance with a
payment schedule
The State must agree to accept federal grant payments in accordance with the negotiated
payment schedulf and use those payments for the activities of its Fund and other programs
under section 1452. As part of its capitalization grant applicat.on, the State must submit a
proposed schedule of grant payments that is consistent with its proposed binding
commitments outlined in its IUP (see section I.A.11 below), and its plan for expending non-
™7e* fcnds. The payment schedule will become part of the capitalizatio^grant agreement
The State will receive Federal funds in accordance with the provisions of the EPA-Automated
Clearing House (formerly known as Letter-of-Credit). (See section V.B. below.)
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INTERIM GUIDANCE . October 4, 1996
5. Assurance that the State will deposit all capitalization grant funds in the DWSRF
The State must agree to deposit the capitalization grant in the Fund except for those portions
of the grant that the State intends to use for non-project purposes authorized under the
SDWA (section 1452(a)(1)(B)). The State must maintain an identifiable and separate
account(s) for the portion, or portions, of the capitalization grant to be used for non-project
activities (see section jhB. below).
Once capitalization grant funds are deposited into the Fund, such monies may only be
expended for activities authorized under section 1452(f), which describes the types of
infrastructure assistance eligible from the Fund. At its option, a State may submit a grant
amendment to transfer unused capitalization grant funds that were made available for non-
project activities into the DWSRF Fund. States must document any transfer of funds from
the non-project account to the Fund and include this information in the biennial report.
6 Assurance that the State will deposit an amount at least equal to 20 percent of the
capitalization grant (State match) in the Fund and deposit any required match for
1452(g)(2) activities in a non-project account
The State must agree to deposit into the Fund an amount equaling at least 20 percent of the
amount of each capitalization grant. Except for payments made from FY 1997
appropriations the State match must be deposited into the fund on or before the date that
each federal capitalization grant payment is made to the State (section 1452(e)). States
have until September 30, 1999 to provide the State match for FY1997 appropriations. (See
Section V.A for additional details.) -
A State may use up to 10% of its capitalization grant.for 1452(g)(2) activities. The State must
match these funds, dollar for dollar, and deposit these funds into a non-project account. A
State cannot use any of the 20% fund match to match this 10% match requirement.
7. Assurance that the State will deposit all proceeds into the Fund
The State must agree to credit all funds, except as otherwise allowed, including repayment of
principal and interest, and any other funds, into the DWSRF Fund. Fund assets may be used
as a source of revenue or security for general obligation or revenue bonds, as long as the net
proceeds of the sale of bonds will be deposited into the Fund (section 1452(f)(4)).
Loans for land acquisition and source water protection, made pursuant to section
1452(k)(1)(A) must be repaid. A State may deposit these repayments, including principal
and interest, in the DWSRF Fund or the State may choose to deposit the repayments into a
subaccount'revolving fund dedicated to 1452(k)(1)(A) activities.
A State may undertake pooled bond arrangements, as long as the revenues from the bonds
are deposited in the Fund in the same proportion as the Fund's assets are used for security
on the bonds.
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8. Assurance that the State will use generally accepted accounting principles
The State must agree to establish fiscal controls and accounting principles, as promulgated
by the Governmental Accounting Standards Board, that are sufficient to account for and
report DWSRF activities. The accounting system used for the DWSRF should allow for
proper measurement of (1) revenues earned by the DWSRF and other receipts, including, but
not limited to, loan repayments, capitalization grants, State match deposits and bond
proceeds; (2) expenses incurred by the DWSRF and other disbursements, including but not
limited to, loan disbursements, repayment of DWSRF bonds, asset-purchases and other
expenditures allowed under section 1452; (3) the assets, liabilities and capital contributions in
the DWSRF; (4) the DWSRF's maintenance of the corpus of the federal and State capital
contributions made to the DWSRF; and (5) the DWSRF's performance in relation to its short
and long-term financial goals as identified in the previous IUP.
9. Assurance that State will have DWSRF funds audited annually in accordance with
Generally Accepted Government Auditing Standards.
The State DWSRF funds shall be audited on an annual basis. Such audits shall be
conducted in accordance with generally accepted government auditing standards (GAGAS)
issued by the Comptroller General of the United States.
The Administrator is relying on the annual audit of the DWSRF funds to minimize the risk of
waste, fraud and abuse and increase the chance that such occurrences will be detected and
reported. As called for under GAGAS, audits should be designed to provide reasonable
assurance of detecting material misstatements resulting from non compliance with applicable
laws, regulations, contracts and grant agreements, and which have a direct and material
effect on the determination of financial statement amounts. If specific information comes to
the auditor's attention that provides evidence concerning the existence of possible
noncompliance, auditors should apply procedures specifically directed to ascertaining
whether noncompliance has occurred.
10. Assurance that the State will adopt policies and procedures to assure that
borrowers have a dedicated source of repayment of the unsubsidized portion of
loans.
The State must agree to determine that an applicant has the ability to repay a loan according
to its terms and conditions, prior to making that loan. States must develop criteria to
evaluate an applicant's financial ability to repay the loan, in addition to paying for operation
and maintenance costs, and other necessary expenses.
11. Assurance that the State will disburse loans as efficiently as possible, and in an
expeditious and timely manner
The State must agree to commit and expend all DWSRF Fund monies "as efficiently as
possible" (section 1452(g)(3)) and to enter into binding commitments with recipients of Fund
assistance equal to the combined amount of each quarterly grant payment and match within
one year of the grant payment. The State must agree to disburse the funds in a timely and
expeditious manner ( See section V.B.3. for additional details.)
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12. Assurance that funds will be used in accordance with the Intended Use Plan
The State must agree to expend DWSRF funds in accordance with an Intended Use Plan
(section 1452(b)) that has undergone public review and comment. (See section I.B. for
additional details) ' . , ' •
13. Assurance that the State will provide EPA with a biennial report and annual audit
The State must agree to complete and submit a biennial report and annual audit {with
separate opinion) on the uses of the capitalization grant. The scope of the report and audit
covers the Fund and all other non-Fund activities funded by the state from: funds in the
DWSRF program. The contents of the annual audit and the biennial report are discussed in
more detail under part VI of this guidance.
States which jointly administer DWSRF and CWSRF programs, in accordance with section
1452(g)(1), may submit a report and/or audit which covers both programs. However, even
though the report/audit covers both programs, financial information must be reported
separately for each program. If the State elects to prepare a joint report, it has the option of
either (1) submitting a.joint report in alternate years, and an annual CWSRF report in the
other years; or (2) submitting a joint report annually.
The Administrator will periodically audit State Funds and all other amounts allotted to the ;
States pursuant to section 1452(m).
14. Assurance that the State will comply with all Federal cross-cutting authorities
The State must agree to com.ply with all applicable federal cross-cutting authorities in
existence at the time that a loan recipient receives a binding commitment from the DWSRF.
(See section IV.A for additional details.)
B. Intended Use Plan
The central component of the capitalization grant application is an Intended Use Plan (IUP)
(section 1452(b)), which describes how the State intends to use available DWSRF funds for
the year to meet the objectives of the SDWA and further the goal of protecting public health.
The state must prepare the IUP, after providing for public review and comment, and submit it
to the Regional Administrator as part of its capitalization grant application. In the IUP, the
State must include specific details on how it will use all funds available to the capitalization
grant, including funds that will be allocated to the set-asides. States may, as an alternative,-
develop the IUP in a two part process, one part that identifies the distribution and uses of the
funds among the various set-asides and the DWSRF Fund and the other part dealing only
with project funding in the DWSRF Fund. The two part process would allow States to submit
a capitalization grant application for a portion of the funds before.it completed all of its
specific funding decisions. In this situation, a State would have to conduct two rounds of
public review and comment -- one for the overall distribution of funds and the other for the
project priority list(s).
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For example, assume that a State has decided to allocate 75% of its funds to the DWSRF
Fund, 10% of its funds to the source water delineation set-aside, 4% for DWSRF
administration, and 10% for the PWSS program set-aside, but the State has not yet
developed its project priority list(s). This State could seek public review and comment on the
allocation of funds and submit a capitalization grant application for the 24% of funds that will
be used for set-aside purposes. As with all grant applications, the State would have to
include a detailed description of what the set-aside funds would be used for. The State
would then, at a later date, develop the DWSRF Fund component, including the project
priority list,'seek public review and comment on this list and then submit an amendment to
the capitalization grant application for the additional funds.
To the maximum extent possible, the part of the IUP for the DWSRF Fund must give priority
for the use of funds to: (1) projects that address the most serious risk to human health; (2)
projects that are necessary to ensure compliance with the Safe Drinking Water Act; and (3)
systems most in need, on a per household basis, according to State affordability criteria
(section 1542(b)(3)).
Because the Fund account can only provide those types of assistance described in section
1452(f), funds that the State will use for non-project activities must be placed in an account
that is separate (outside) from the Fund account.
The IUP must describe how all funds, including capitalization grants, state match, loan
repayments, interest earnings, bond proceeds, and other monies deposited info the Fund
account are intended to be expended. The State must prepare an IUP as long as the
DWSRF Fund account remains in operation, not just in those years in which the State
submits an application for a Federal capitalization grant.
States must provide IUP information in a format and a manner that is consistent with the
needs of the Regional Administrator.
1. List of projects, including description and size of community
The IUP must contain a list of the projects (eligible projects list) expected to receive
assistance from the DWSRF Fund account for the year (section 1452(b)(2)). This list must
include the name of the public water system and a description of the project, the expected
terms of financial assistance, and the size of the community served.
In addition to the list of eligible projects to be funded in the current fiscal year, a State must
develop a "comprehensive priority list" of projects that are eligible for assistance from the
DWSRF States may elect to combine these lists into one and indicate, each year, where the
bottom of the priority funding line for the current year is drawn. After notice and opportunity
for public comment, each State must publish and periodically.update this comprehensive
priority list of projects that are eligible for assistance under section 1452. The comprehensive
priority list must include the priority assigned to each project and, to the extent known, the
expected funding schedule for each project (section 1452(b)(3)(B)).
A State may by-pass a project on the priority list if the State's by-pass procedures have
undergone public review and comment. These by-pass procedures should clearly identify the
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conditions which would allow a project to be by-pasied and the way the-State will identify
which projects would receive the by-passed funds.
A State'must annually use at least 15% of all funds credited to the DWSRF Fund account to
provide loan assistance to systems serving fewer than 10,000 persons (section 1452(a)(2)),
to the extent that there are a sufficient number of eligible projects to fund. States must
determine the amount to be used for this provision based on the level of available funds on
the first day of the planning year of the IUP. A State that does not use at least 15% of the
available funds for small systems must describe in the next IUP the steps it is taking to
ensure a sufficient number of projects for future years. States that exceed the prescribed
percentage of assistance may bank the excess toward future years.
2. Description of criteria and method used for distribution of funds
The IUP must describe the criteria and method that the State will use to distribute DWSRF
funds (section 1452(b)(2)(B)). This description will include: (1) the process for selection of
systems to receive assistance, (2) the rationale for providing different types of assistance and
terms (e g length of repayment, interest rate), including a description of the financial
planning process undertaken by the Fund, (3) the priority and allocation of assistance the
State gives to different eligible categories of projects, and (4) the impact of funding decisions
on the long term financial health of the DWSRF Fund.
A State may also place into a separate, non-project administration sub-account,' loan
application fees or other program fees or assessments that a DWSRF program collects from
loan recipients to help offset the cost of running the DWSRF program. Because these fees
and assessments would be considered-program income under the Agency's general grant
regulations (40 C.F.R. 31.3125), the grant agreement must specify that they will be used for
purposes directly related to the DWSRF program and not be made available for other
purposes. The IUP should also identify the amount of any fees that are placed in the non-
project administration account, and describe how they are used.
3. Description of the financial status of the DWSRF
The IUP must include a description of the,financial status of the DWSRF account (section
1452(b)(2)(C)). This description should detail: the total amount of funds in the DWSRF Fund;
the types of projects to be funded; the loan terms and conditions for each project; and the
amount of the capitalization grants that will be used for disadvantaged community assistance.
4. Description of the short and long-term goals of the DWSRF
The IUP must describe the short and long-term goals of the DWSRF program (section
1452(b)(2)(C)) including how the capitalization grant funds will be utilized to ensure
compliance and protect public health. The IUP should include factors such as expected loan
demand, the need to leverage, and other factors that determine the short-term and long-term
focus of the program.
The IUP must also describe the objectives of the DWSRF program over the long-term
(section 1452(b)((2)(C)), and how these objectives can be realized. The IUP should include a
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INTERIM GUIDANCE October 4, 1996
description of how the capitalization grant funds will be used to support other components of
the State drinking water and ground water programs, including restructuring, capacity
building, operator certification, source water protection, and wellhead protection.
i,
5. Description of amounts transferred between the DWSRF and the CWSRF
The Governor of a State may transfer up to 33% of the DWSRF capitalization grant to the
CWSRF or an equivalent amount from the CWSRF to the DWSRF, starting a year after the
State has set up its DWSRF program, but no later than the beginning of FY2002 (section 302
of Pub. L. 104-182). EPA will provide additional guidance concerning these fund transfers at
a later date. „
6. Description of the non-DWSRF project activities, and percentage of funds, that will
be funded from the DWSRF capitalization grant, including DWSRF administrative
expenses allowance, PWSS program support, technical assistance, etc.
The IUP must identify what portion of the capitalization grant a State is electing to use for
non-DWSRF project activities (e.g., section 1452(g)(2), section 1452(k)), and place those
funds in a non-project account(s). The non-DWSRF project account must be dedicated to"
supporting the other activities authorized in section 1452. The IUP must describe how the
funds placed in this separate account will be used. States must provide the same level of
detail for projects funded-from the non-DWSRF project Fund as is required from the Fund.
Unused funds in the non-DWSRF project account may be transferred to the DWSRF Fund
account if the IUP authorizes a transfer and the state and Regional Administrator amend the
capitalization grant.
Recipients of 1452(k) loans are required to repay the loans in a manner similar to loans from
the DWSRF Fund. The State has the option to place the repayments in the DWSRF Fund or
it can set up a sub-account to continue funding eligible 1452(k) loan activities. Subsequent
loans from this sub-account must meet the same requirements as loans from the Fund.
7. Description of how a State will define a disadvantaged system and the amount of
DWSRF funds that will be used for this type of loan assistance
A State may provide additional subsidies to disadvantaged communities receiving DWSRF
Fund loans (section 1452(d)). If the State establishes a disadvantaged community program it
must describe in the IUP how the program will operate. This description must include: (1) a
definition of disadvantaged community, (2) the total amount of the capitalization grant that will
be used for providing additional subsidies, (3) an identification of the systems that will receive
additional subsidies and their amount, (4) a description of affordability criteria that the State
will use to determine how much loan forgiveness to allow, and (5) an evaluation of the effect
that providing disadvantaged community assistance will have on the DWSRF Fund over the
long-term.
The value of subsidies a DWSRF Fund provides in any year under this'provision cannot
exceed 30 percent of the amount of the capitalization grant for that year. Subsidies under
this provision cannot be banked for future use.
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INTERIM GUIDANCE October 4, 1996
C. Capitalization Grant Agreement
The Capitalization Grant Agreement (CGA) is the principal instrument by which the State
commits to manage its revolving fund program, and to ensure that it conforms with the
requirements of the SDWA Amendments of 1996. The CGA contains, or incorporates by
reference, the following parts of the agreement: the application; the IUP, set-asides funding,
the agreed upon payment schedule; certifications or other agreement requirements
discussed in the first section, and the operating agreement, if used, and other documentation
required by the Regional Administrator. In addition to these requirements, the CGA should
also define the types of oversight responsibilities that will be required to determine
compliance with section 1452. Agreement also is needed on the contents of the biennial
report, annual audit, and the EPA review. Table 1 describes how each of,the following
assurances and CGA requirements should be addressed:
11
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INTERIM GUIDANCE
TABLE 1
State Requirements for the Capitalization Grant Agreement
October 4, 1996
REQUIREMENT
CG APPLICATION
Part 31 Assurances
Established SRF
Instrumentality
Technical Capability to
Manage Program
Review Technical, Financial &
Managerial Capability of
Assistance Recipients
IUP
(1) List of Projects
(2) SRF Goals
(3) Activities to be Supported
(4) Disadvantaged Communities
(5) Assurances and Proposals
- Environmental Review
- Federal cross-cutters
-120% binding Commitments
- Timely Expenditure
(6) Criteria & Method for
distributing funds
Payment Schedule/Schedule of
Estimated SRF Disbursements
Other Activities to be Supported
By Set-Asides
Transfer of Funds to/from CWSRF
GRANT AGREEMENT
Accept Grant payments
Deposit Funds in DWSRF Account
Deposit State Match
o Source of the Match
o Deposit of match
120% Binding Commitments
Information Management System
Use State Laws & Procedures
Use GAAP
Use GAGAS (Generally Accepted
Government Auditing Standards
Design a system to minimize risk of Waste, Fraud & Abuse
Recipient Accounting
Biennial Report
Annual Audit
Environmental Review
Program Oversight
HOW ADDRESSED
Agree to
Document
Document
Document
Propose
Propose
Describe
Describe
Propose
Document/certify
Document/certify
Agree to
•Agree to
Describe
Propose
Identify Amount and Propose
Work plan
Identify
Certify
Certify
Identify
Certify *
Agree to
Agree to
Agree to
Agree to
Agree to
Agree to
Agree to
Agree to
Agree to
Agree to
Agree to
All changes to the agreement require a formal grant amendment.
^
match is deposited.
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INTERIM GUIDANCE October 4, 1996
D. Operating Agreement
The framework and procedures of the DWSRF program that are not expected to change
annually may be described in an Operating Agreement (OA) that can be included as part of
the Capitalization Grant Agreement. The grant application and subsequent grant agreement
may incorporate by reference relevant portions of the previous year's application. If there are
proposed changes to the OA, the State should outline them in the capitalization grant
application.
The decision to prepare an OA does not entail additional program requirements,
"demonstrations or documentation. The OA simply describes the structure of the state's
program explains its goals and objectives, and includes review, overview, accounting,
auditing and sanction provisions. Upon the successful completion of negotiations, the OA
must be signed by the State signatories to the CGA and the Regional Administrator. On an
annual basis, the OA should be supplemented with an Intended Use Plan that identifies the
projects and activities that the State .plans to support with financial assistance from the fund.
Based on the OA.and the Intended Use Plan, the Region would award a capitalization grant
to the State. Regions and States that choose this alternative method of program
implementation may find that it facilitates their program management capability.
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INTERIM GUIDANCE ' October 4.1996
II. ALLOTMENT/USE OF FUNDS .
Section 1452(m) authorizes a total of $9.6 billion for the DWSRF from FY1994 through FY
2003 This section describes how these funds will be allotted and reallotted, national and
State set-asides, and types of financial assistance available from the capitalization grant.
A. AIlotment/Reallotment/Withholdlng of Funds
1. Allotment formula
Funds available to States from FY 1997 appropriations will be allotted according to the
formula used for distributing Public Water System Supervision (PWSS) grants under section
1443 in FY 1995. Funds available to States from FY 1998 appropriations and beyond will be
allotted according to a formula that reflects the .proportional share of each state's needs
identified in the most recent Needs Survey conducted pursuant to section 1452(h). In each
case the minimum proportionate share established in the formula will be one percent of the
funds available for allotment to the States. Wyoming and the District of Columbia will also
receive a one percent share of available funds. The Virgin Islands and the Pacific Island
territories will together receive an allotment of 0.33 percent (Section 1452(a)(1)(D)).
2. Period of availability and reallotment
Funds are available for the Agency to obligate to the State's during the fiscal year in which
they are authorized and during the following fiscal year (section 1452(a)(1)(C)). The amount
of any allotment not obligated to the State, at the end of this period of availability will be
reallotted among other States according to the original formula used to allot these funds (FY
1997 funds- PWSS formula; FY 1998 funds and beyond: Needs Survey). Any state that does
not obligate all of the funds allotted to it in the period of availability shall not be eligible to
participate in the reallotment of funds for that particular fiscal year. The Administrator may
reserve up to 10 percent of the funds available for reallotment to provide additional
assistance to Indian tribes (section 1452(a)(1)(E).
3. Withholding of Funds
a. The Administrator will withhold funds under the following provisions:
1 Capacity Development Authority -The Administrator will withhold 20% of a State's
allotment unless the State has obtained the legal authority or other means to ensure
that all new community water systems and new nontransient, noncommunity water
systems commencing operation after October 1, 1999, demonstrate technical,
managerial, and financial capacity with respect to each drinking water regulation in
effect. This withholding provision becomes effective with FY 2000 funds and will
cease when the State obtains the required statutory authority.
2 Capacity Development Strategy - The Administrator will withhold funds from any
States that are not developing and implementing .a strategy to assist public water
14
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INTERIM GUIDANCE ' October 4, 1996
systems in acquiring and mainlining techrticaff managerial, and financial capacity.
The amount of a State's allotment that will be withheld is 10 percent of FY 2001
funds, 15 percent of FY 2002 funds, and 20 percent of each subsequent year funds.
Funds will cease to be withheld once a State develops and implements its capacity
. development strategy. EPA plans to issue separate guidance for States to use in
developing these strategies.
The total amount that will be withheld if a state fails to meet the requirements of both
of these provisions is 20 percent of the capitalization grant (section 1452(a)(1)(G)(l)).
3 Operator Certification Program - The Administrator will withhold 20% of a State's
funds unless the State has adopted and is implementing a program for certifying
operators of community and nontransient, noncommunity public water systems. This
withholding provision will begin two years after the Administrator publishes guidelines
for certification of operators. The Administrator is required to publish guidelines no
later than February 6, 1999. Funds will cease to be withheld once a State complies
with the requirement (section 1452(a)(1)(G)(ii)).
4 Loss of Primacy - A state may not receive capitalization grant funds if the State had
primacy on the date of enactment of the Safe Drinking Water Amendments of 1996
(August 6, 1996) and subsequently lost primary enforcement responsibility for the
drinking water program pursuant to section 1443 (section 1452(a)(1)(F)). Wyoming
and the District of Columbia did not have primacy prior to August 6, 1996, and
consequently, they are eligible to receive DWSRF funds. The Administrator may
reserve funds from the allotment of a State that loses full primacy, for use by EPA to
administer primary enforcement responsibilities in that State. The balance of the
funds not used by EPA to administer primacy will be reallotted to other States
pursuant to section 1452(a)(1)(E).
b. Reallotment of Withheld Funds
1 All funds withheld from a State because the State does not have the capacity
development authority, does not develop .and implement a capacity development
strategy, and/or does not develop and implement an operator certification program,
will be reallotted, after the period of availability, using the same formula that was
originally used to allot those funds. A State that has funds withheld for any one of
these three activities is not eligible to receive reallotted funds for that activity. Thus, if
a State does not develop an operator certification program but does have a capacity
development strategy, the State would be eligible to receive a reallotment from -
withheld funds from States without capacity development programs but would not be
eligible for reallotted funds under the operator certification provision. A State would „
also have to be eligible to receive reallotted funds in accordance with the reallotment
provisions in section 1452(a)(1)(E) prior to being eligible to receive reallotted funds
under the specified withholding provisions. This section limits reallotment to those
States that have obligated all of their allotment during the period of availability.
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INTERIM GUIDANCE October 4, 1996
B. Set-asides from the national appropriation and ceilings on state allotments
Section 1452 authorizes numerous national set-sides from the appropriation for that section
and allows States to use certain percentages of their allotment for various purposes other
than project construction. Table 2 below provides an overview of the available set-asides
and Table 3 presents a flow chart for calculating these set-asides. EPA strongly encourages
States to carefully evaluate and balance the needs related to the set-asides with the need to
maintain an adequate level of funding for infrastructure projects in the DWSRF fund.
1. National Set-asides
The National set-asides are reserved from the funds appropriated by.Congress to carry out
section 1452. These set-asides are: . .
a. Indian Tribes/Alaska Native Villages
The Administrator may reserve (the Administrator will provide these funds) up to 1.5% from
annually appropriated funds for grants to Indian Tribes and Alaska Native Villages (section
1452(1). EPA will provide separate guidance regarding the selection of projects, project
management, and program oversight.
b. Health Effects Studies
The Administrator will reserve $10 million from annually appropriated funds to conduct health
effects studies on drinking water contaminants (section 1452(n)).
c. Unregulated Contaminant Monitoring
The Administrator will reserve $2 million from annually appropriated funds, starting in FY
1998, to pay for the costs of monitoring unregulated contaminants under section
1445(a)(2)(C)(section 1452(o)).
d. Small System Technical Assistance
The Administrator may reserve up to 2% of the funds annually appropriated in FYs 1+997- '
2003 to carry out the technical assistance provisions of section 1442(e) to the extent that the
total amount of funding appropriated under section 1442 is not sufficient. The set-aside from
section 1452(q) plus the appropriation in 1440(e) cannot exceed $15 million per year (section
1452 (q)).
e. Operator Training Reimbursement
The Administrator shall provide reimbursement to States for training ^^certification costs
for some operating systems serving 3,300 persons or fewer (section "^W^iCoyi™*
has authorized to be appropriated $30 million annually from FY1997 through FY2003. If the
appropriation is not sufficient to meet these requirements, the Administrator, prior to
allocating funds to the States, shall reserve such sums from 1452(m) as are necessary to
provide grants to State for reimbursement of training and certification costs mandated by the
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INTERIM GUIDANCE October 4, 1996
SDWA. .. - :•; : .;> " v: . • _
2. Set-asides Based on State Allotment
a. D.C. and Other Jurisdictions
The Administrator will reserve up to 0.33% of the total funds allotted to the States for grants
to the Virgin Islands the Commonwealth of the Northern Mariana Islands, American Samoa,
and Guam The funds will be allotted according to the formula for allotting PWSS grants
under section 1443(a)(4), and may be used to fund projects eligible for assistance under
section 1452(a)(2) The District of Columbia will receive one percent of funds allotted to the
States. EPA will provide separate guidance regarding the.management of this set-aside.
3. Ceilings on State Non-project activities
Section 1452 authorizes States to provide funding for certain non-project activities, described
below provided that the amount of that funding does not exceed certain ceilings. A State
must describe in the IUP the amount of funds that it will use for these activities. A separate
account must be set up to accept these funds. .If a State does not expend all of jts non-
project funds a State may transfer the monies to the DWSRF account, or it may redirect the
funds to another non-project activity as long as the maximum' allowed for that activity has not
been reached for the Fiscal Year from which the funds were derived.
a. DWSRF administrative expenses
A State mav use up to four percent of the funds allotted to it for the reasonable costs of
administering the programs under section 1452 (section 1452(g)(2)). These costs include
such activities as loan portfolio management; debt issuance; DWSRF program start-up costs,
financial, management and legal consulting fees; and support services from other State
agencies.
Expenses incurred issuing bonds guaranteed by the DWSRF may be absorbed by the
proceeds of the bonds rather than charged against the four percent admmistrative,costs
allowance. The net proceeds of those issues must be deposited in the Fund.
The State may charge an application fee to process, manage or review an application for
DWSRF Fund assistance. Such fees may be collected in a fund outside the DWSRF Fund
account and used to supplement administrative expenses. Monies in this non-project fee
account must be dedicated to the administrative purposes associated with the DWSRF
orooram If fees are collected and deposited into the DWSRF Fund account, they are
subject to the stipulated uses of the DWSRF Fund, which does not include the use of funds
for administrative purposes.
States may recover reasonable costs associated with the development of the DWSRF
program if the costs were incurred between August 6, 1996, the date of enactment of the
SDWA Xmendments of 1996, and the date on which the first capitalization grant for a State is
awarded. Documented reimbursement costs will be counted as part of the 4/o in FY199/,
not in addition to it.
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INTERIM GUIDANCE
October 4, 1996
Funds that a State chooses to use for administrative purposes cannot be deposited into the
DWSRF Fund. Instead, these funds must be deposited into a separate account, or with other
non-project funds.
If the state does not use the entire four percent for administrative costs in one year, it can
bank the excess balance and use it for administrative costs in later years.
b. State Program Management
A State may use up to a total of 10 percent of its allotment to:
o administer the State PWSS program; . .
o administer or provide technical assistance through source water protection programs,
which includes the Class V portion,of the Underground Injection Control Program;
o develop and implement a capacity development strategy; and
o develop and implement an operator certification program.
(section 1452(g)(2)).
The State must provide a dollar for dollar match for capitalization grant funds used for these
purposes At least one-half of the State match funds provided by the State must be in
addition to the amount the State expended for the PWSS program in FY1993. Federal grant
regulations preclude a State from using the same State funds to meet match requirements
for two different programs. Thus, the same State dollar cannot be used to match this
provision and the match provision in Section 1443 of the SDWA (PWSS program grants).
If the state does not use the entire 10 percent for these activities in any one year, it can bank'
the excess balance and use it for the same activities in later years.
To calculate the required'match, a State must determine the level of State funds.it spent for
its PWSS program in FY1993. The State can use the amount spent to satisfy up to half of
the required match. The State would then have,to come up with the remaining balance from
new monies. State funds counted toward the PWSS match are not eligible to be counted.
c. Small Systems Technical Assistance
A State may use up to two percent of its allotment to provide technical assistance to public
water systems serving 10,000 people or fewer (section 1452(g)(2)). If the state does not use
the entire 2 percent for these activities in one year, it can bank the excess balance and use it
for the same activities in later years.
d. Local Assistance and Other State Programs
A State may fund several other categories of activities to assist development and/or
implementation of local drinking water protection initiatives (section 1452). A State may use
up to 15% of the capitalization grant amount for any of the specified uses below, with the
stipulation that not more than 10% of the capitalization grant amount can be used for any one
activity. A State is not allowed to bank any of these funds for use in future years:
18
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INTERIM GUIDANCE October 4, 1996
11 Assistance to a public water system to acquire land or a conservation easement for
source water protection purposes:
A State may provide assistance, only in the form of a loan, to a public water system to
acquire land or a conservation easement from a willing party for the purpose of protecting the
system's source water(s) and ensuring compliance with national drinking water regulations.
To be eligible for this loan assistance, the land must be an identified need that is included in
an approved source water protection program under section 1453.
If a State elects to use this set-aside, the State must develop a list of systems that will
receive loans, giving priority to projects that promote compliance and public health protection,
and then seek public review and comment on this list:
2. Assistance to a community water system to implement voluntary, incentive-based
source water quality protection measures:
A State may make a loan to assist a community water system implement voluntary, incentive-
based source water protection measures in areas delineated under a source water
assessment program described in section 1453 and for source water petitions. Only
community (as opposed to noncommunity) water systems are eligible for this assistance. A
State may establish a source water petition program and receive petitions from
owners/operators or local governments requesting State assistance in the development of a
voluntary, incentive-based partnership among systems, local governments, and others likely
to be affected by the management measures. Only pathogenic organisms, chemicals in
source water at levels above a drinking water standard, or chemicals that are not reliably and
consistently below the drinking water standard can be identified as contaminants in a petition.
If a State elects,to use this set-aside, the State must develop a list of systems that will
receive loans, giving priority to projects that promote compliance and public health protection,
and then seek public review and comment on this list.
Note: Funds loaned out for land acquisition and source water protection activities
under (1) and (2) must be repaid within 20 years. The funds must be repaid, either to
the DWSRF account or if the State so chooses, to a subaccount within the DWSRF
account. This option would allow a State to continue funding eligible land acquisition
and source water activities, which are not eligible for funding in the main DWSRF
account.
3. Provide funding to delineate and assess source water protection areas:
A State may use up to 10% of its FY 1996 and FY1997 capitalization grant to delineate
and/or assess source water protection areas for public water systems in accordance with
section 1453. Assessments include the identification of potential sources of contamination
within the delineated areas. Funds set-aside for this purpose must be expended within four
fiscal years after the State receives its grant. •
Funds are available from the capitalization grant only for fiscal years 1996 and 1997 to
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INTERIM GUIDANCE . October 4, 1996
delineate and assess source water protection areas in accordance with section 1453.
Since there are no FY1996 funds available for the DWSRF, FY 1997 is the only year
when funds will be available for this important activity. EPA encourages States to
determine how much it would cost to delineate and assess their source water
protection areas, and then take the necessary amount. UP to the full 10% allowed, from
the FY 1997 funds. EPA will review the State's determination as part of the
capitalization grant application review. Source water assessments are required of
primacy States.
4. To support the establishment and implementation of wellhead protection
program:
The State may make expenditures from the DWSRF Fund to establish and Implement
wellhead protection programs under section 1428. Only a State with.anEp^PProved Sta*e
wellhead protection program may participate in this funding. To establish a WHP program, a
State must submit a program to the EPA Region for approval and spend all the funds it
receives for that purpose in accordance with its intended use plan.
5. To provide funding to a Community Water System to implement a project under the
capacity development strategy:
A State may provide assistance to a public water system as part of a capacity development
strategy under section 1420(c).
e. Transfer of funds
Section 302 of the SDWA Amendments of 1996 allows a State to transfer up to 33% of the
capitalization grant funds allotted to a State under section 1452(m) to the CWSRF or a
equivalent amount from the CWSRF to the DWSRF. This transfer is at the ,Gov5rno^
discretion and cannot occur until at least a year after the State has received its first DWSRF
capitalization grant. EPA plans to issue guidance at a later date concerning this transfer.
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INTERIM GUIDANCE October 4, 1996
- , TABLE 2
Set-Asides and funding ceilings in the Drinking Water SRF Program
Before Allotment to States
Programmatic ™'*
- Technical Assistance to Small Systems ^-u /0
- Assistance to State programs (PWSS, SWP, capacity
Development, operator certification) lc"no/°
-Combination of the Following:* 1£>-u/0
- Loans for public water systems to acquire land
or conservation easements.
- Loans for community water systems to implement SWP
measures or to implement recommendations in SW petitions.
- Technical and financial assistance to public water .systems for
capacity development.
- Expenditures to delineate or assess SWP areas.
--Expenditures to establish and implement WHP programs.
* Although 15% can be used on the combination of these
activities, each separate activity cannot receive greater
than 10%.
Projects „' .. • -in no/
- Loan Subsidies for Disadvantaged Communities ^M-u /o
o/ **
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DWSRF SET-ASIDES
APPROPRIATION
I
Atotmant to States to carry out
Section 1452
SET-ASIDES
1.5% for grants to Indian Tribes [1452(1)1
Up to 2.0% for small system technical assistance [1452 (q)l
510 million for health effects research [1452(n)J
Beginning In FY98, S2 million for monitoring unregulated
contaminants [1452(o)]
Operator training (S unknown)
ALLOTMENTS
1% of Allotment to DC [14S2(a)(1)(D)l
• 0.33% of Alotment to Territories [1452 (j)]
WITHHOLDINGS
INTENDED
-USEPLAN-
20% STATE
MATCH
(1-452(e)]
(Based on
eapiaKzation
grant)
CAPITALIZATION
GRANT
302 Transfer (see nota)
4% of allotment for administration [14S2(g)(2)]
(Basad on allotment)
10%, if matched (OTM to one) by State for
[14S2(g)(2)l activities (Based on allotment)
Up to 2% for technical assistance to small
systems [1452(g)(2)l (Based on allotment)
15% for [1452001 activities (teens/grants) (Based
on capitalization grant)
DWSRF ACCOUNT
15% of fund reserved for small systems
30% can be us«d for disadvantaged
loans (Based on capitalization grant)
1452(k) loan activities (optional)
Loans for:
Land Acquisition
* SW Protection Measures
^^
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INTERIM GUIDANCE October 4, 1996
C. Types of Financial Assistance that the DWSRF Fund may provide
A DWSRF Fund may make direct loans for project construction, purchase or refinance
local debt obligations, guarantee or purchase insurance for local debt issues, provide
revenue for or secure state bonds if the proceeds of the bonds are deposited in the Fund,
and earn interest on Fund accounts (section 1452(f)).
1. Loans .
A DWSRF Fund may make loans with interest rates that are less than or equal to the
market interest rate, including zero percent loans. The State is responsible for identifying
the economic method it will use to determine the "prevailing" market interest rate at the
time a particular loan is executed with an assistance recipient. As part of its capitalization
grant application, the State should outline its policy with respect to interest rate terms for
various potential categories of assistance recipients.
A state may issue separate loans for planning, design, and construction costs. If the
State had made prior loans to a recipient, the Fund may "roll over" the separate loans into
a subsequent loan for construction. A State may also provide "incremental" assistance to
finance a multi-year construction activity (e.g., for particularly large, expensive projects).
a. Repayment of Loan >
Assistance recipients (borrowers) must begin repayment of principal and payment of
interest as provided in the loan agreement, but which cannot be later than one year after
completion of the project. A project is considered complete when the operations are
initiated or are capable of being initiated. Recipients must complete loan repayment not
later than 20 years after the completion of the project. However, States which establish a
disadvantaged community loan program pursuant to. section 1452(d) may provide loans to
qualified recipients for up to 30 years, as long as the period of the loan does not exceed
the expected design life of the project.
b. Dedicated repayment source
Each loan recipient must establish a dedicated source of revenue for repayment of the
loan. ,ln most cases, this will be a pledge of revenues from user charges, tap fees,
development charges, among others, and for privately owned systems, they could include
the pledge of accounts receivable and proceeds therefrom.
c. Financial security of privately-owned systems .
Eligible water systems that are privately owned must demonstrate, in addition to
establishing a dedicated source of revenue for repayment, that there is adequate security
to assure repayment of the loan. In some cases a State may determine that it .is
appropriate to require such systems to provide credit enhancements, to pledge a variety
of collateral,, and/or to provide other types of security, such as corporate or personal
guarantees. .
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d. Financial, technical, and managerial capability analysis
The State shall review the financial capability of the recipient to repay the loan as well as
technical and managerial capability of the assistance recipient to maintain compliance
with the SDWA (section 1452(a)(3)(A)(i)). Findings of the financial capability analysis
may be used to determine the terms of assistance for applicants.
2. Disadvantaged communities
A DWSRF Fund may provide additional subsidies (e.g., principal forgiveness, negative
interest rate loans) to communities meeting the definition of "disadvantaged" or which the
State expects to become disadvantaged as a result of the project. A "disadvantaged
community" is one in which the service area of a public water system meets affordability
criteria established after public review and comment by the State in which the public
water system is located (section 1452(d)). The Administrator shall publish information,
within 18 months after enactment, to assist States in developing affordability criteria.
EPA will undertake this effort in consultation with States and the Rural Utilities Service.
The State should take its affordability criteria into account when deciding the level of
subsidy a disadvantaged community will receive, in order to make the loan affordable.
Where capacity of the system is an issue, the loan subsidy should, along with other
actions, ensure that the system has adequate financial, technical and managerial
capacity to maintain compliance.
The total value of disadvantaged community subsidies a DWSRF Fund may provide in
any year cannot exceed 30 percent of the capitalization grant for that year. The State
cannot bank the excess balance and use it for this purpose in later years.
3. Buy or refinance existing debt obligations
A DWSRF may buy or refinance debt obligations of municipal, intermunicipal or interstate
agencies at or below market rates/Where the initial debt was incurred after July 1, 1993
(section 1452(f)(2)). Refinancing may entail purchasing existing municipal debt such that
the proceeds of the transaction may.be used to call the bonds. This provision is intended
to encourage projects to proceed using their own means of financing in advance of the
availability of DWSRF assistance, by offering the prospect of project refinancing at better
financial terms at a later date.
Projects incurring debt and initiating construction between July 1, 1993 and the effective
date of a State capitalization grant must meet the eligibility requirements of section 1452
to be eligible for refinancing. Where the original debt for a project was in the form of a
multi-purpose bond incurred for purposes in addition to eligible purposes under section
1452, a DWSRF may provide refinancing only for eligible purposes, not for the entire
debt.' , .
If a State has credited repayments of loans made under a pre-existing State loan program
as part of its State match (see section V.A.), the State cannot also refinance theprojects
under the DWSRF. If the State has already counted certain projects toward its State
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match which it now wants to refinance, the State must provide replacement funds for the
amounts previously credited as match! *?'.
The State should seek the advice of bond counsel or tax attorneys to ensure that these
refinances do not conflict with Federal law.
4. Guarantee or purchase insurance for local debt obligations
A DWSRF Fund may provide'assistance to improve the marketability of local debt.
obligations or to reduce interest rates to attract potential buyers of the bonds and loans
(section 1452(f)(3)). These credit enhancements may take the form of guarantees or
purchases of insurance, which is available from a number of insurance companies.
Assistance of this type is limited to local debt obligations that are undertaken to finance
projects eligible for .assistance under section 1452.
5. A source of revenue or security for payment of DWSRF debt obligations
The State may use assets deposited in the DWSRF Fund to "leverage" (i.e., increase) the
total amount of funds available within the DWSRF (section 1452(f)(4)) . Leveraging-is
accomplished by using DWSRF assets as a source of revenue or security for the
payment of the principal and interest on revenue or general obligation bonds issued by
the State. The net proceeds of the sale of the bonds secured by the DWSRF must be
deposited into the DWSRF.
The security may be provided by any of the assets of the DWSRF, including an existing '
DWSRF balance and future revenues from loan repayments. The State may also choose
to borrow against the repayment stream from outstanding loans made from an initial set
of capitalization grants (or part of the capitalization grant or State match), thus increasing
the financial resources of the DWSRF much sooner than would otherwise be possible.
Bonds may be issued by an instrumentality of the State, including the State agency
responsible for administering the DWSRF.
Note that the use of a capitalization grant to leverage does not, in and of itself, satisfy any
requirements on the use of DWSRF .funds. The proceeds of the bond issue must
ultimately be used for providing loans and other assistance to satisfy the requirements of
section 1452. . '
For the purposes of this section, "net proceeds" is defined as the funds raised from the
sale of the bonds minus issuance costs (e.g., the underwriting discount, underwriter's
legal counsel fees, bond counsel fees, financial advisor fees, rating agency fees, printing
of disclosure documents/bond certificates, trustee banks' fees).
The State may use funds in the DWSRF as security for the issuance of State bonds used
to provide the State match, provided that the net proceeds of the bond issue were
deposited into the DWSRF and the amount 'of security subject to being paid out is limited
to an amount equal to the interest earning of the Fund.
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B. Earn interest on Fund accounts
Sections 1452(c) and 1452(f)(5) authorize the State to earn interest on Fund accounts
prior to disbursement of assistance (e'.g., on reserve accounts used as security or
guarantees). Funds should not remain in the DWSRF primarily to earn interest. States
and municipalities should obtain the legal opinion of a bond counsel or tax attorney with
respect to using the DWSRF to earn interest on the proceeds of a tax-exempt issue.
There are limits to the type of investments that, a State can make with Fund accounts.
Section 1452[c] requires that funds not required for current obligation or expenditure
should be invested in interest bearing obligations. The authority to earn interest does not
include investment methods that earn dividends or yields other than interest. Most States
have State laws that restrict the eligible investments of these fund accounts.
Furthermore, if a State engages, in a leveraged program, there may be restrictions on
eligible investments in the trust indenture securing the bonds.' In certain cases, the
Federal tax code may limit the investments a leveraged program can make with fund •
accounts.
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111. ELIGIBLE SYSTEMS AND PROJECTS
A. Eligible Systems
Drinking water systems that are eligible for DWSRF Fund assistance are community water
systems, both privately and publicly owned, and nonprofit noncommunity water systems.
Federally-owned systems are not eligible to receive DWSRF Fund assistance (section
1452(a)(2)).
The DWSRF should seek tax advice if it plans to issue bonds, to ensure that the
requirements of the Private Activity Use Rule are met, particularly with regard to funding
eligible private systems.
Drinking water systems that have components of their system in more than one State are
eligible to receive funding from a DWSRF. However, the system can only apply to a State
DWSRF to receive loan or other assistance for the portion of the facility that provides service
in that particular State.
B. Eligible Projects
1. Compliance and Public Health
A DWSRF Fund may provide assistance for expenditures (not including monitoring,
operation, and maintenance expenditures) "of a type or category which the Administrator has
determined, through guidance, will facilitate compliance with national primary drinking water
regulations applicable to the system under section 1412 or otherwise significantly further the
health protection objectives o.f this title." (section 1452(a)(2)).
Capital investments to upgrade or replace infrastructure in order to continue providing the
- public with safe drinking water are eligible for assistance.
Projects to address exceedances of SDWA health standards or prevent future violations of
the rules are eligible for funding. These include projects to maintain compliance with existing
regulations for contaminants with acute health effects (i.e., the Surface Water Treatment
Rule, the Total Coliform Rule, and nitrate standard) and regulations for contaminants with
chronic health effects (i.e., Lead and Copper Rule, Phases I, II, and V rules, and safety
standards for total trihalomethanes, arsenic, barium, cadmium, chromium, fluoride, mercury,
selenium, combined radium-226, -228, and gross alpha particle activity). In addition, projects
to comply with the recently promulgated Information Collection Rule are eligible.
Projects to replace aging infrastructure are also eligible. Examples of these include projects
to:
rehabilitate or develop sources to replace contaminated sources;
install or upgrade treatment facilities if, in the State's opinion,-the project would improve
the quality of drinking water to comply with primary or secondary standards;
install or upgrade storage facilities, including finished water reservoirs, to prevent
microbiological contaminants from entering the water system; and
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• install or replace transmission and distribution pipes to prevent contamination caused by
leaks or breaks in the pipe. , ,
Projects to consolidate water supplies - for example, when individual homes or other public
water supplies have an inadequate quantity of water, the water supply is contaminated, or the
system is unable to maintain compliance for financial or managerial reasons -- are eligible for
DWSRF Fund assistance.
The purchase of a portion of another systems's capacity is eligible for a loan, if the purchased
system is a small system which is part of a consolidation plan to bring the system into
compliance., and it is the most cost-effective solution for that small system, when considering
the buy-in fee and user fees.
2. Loan assistance to systems that meet the definition in section 1401(4)(B)
This section refers to entities that receive water.through constructed conveyances, other than
piped water systems, and which are not currently considered a public water supply. The
SDWA Amendments would classify.such systems as pubic water systems unless they
comply with provisions of 1401 (4)(B). Such systems are eligible for funding for the purposes
specified in 1401 (4)(B)(i)(lll).
3. Land acquisition .
Land is eligible only if it is integral to a project. In this instance, integral is defined to include
only the land needed to locate an eligible project. In addition, the acquisition has to be from a
willing seller who receives fair market value for the land. Land that is necessary for source
water protection may be eligible to receive a loan under section 1452(k).
The cost of complying with the Uniform Relocation Assistance and Real Property Acquisition
Policies Act of 1970 (the Uniform Act) is an eligible cost to be included in a DWSRF loan.
See (Section on Cross-cutters) for a more detailed discussion of the Uniform Act.
4. Planning and design of a drinking water project
A DWSRF Fund may provide assistance for the costs of project planning, design and other
related costs. The provision of assistance for design and planning costs does not guarantee
a system that the DWSRF will provide funding for the construction of the project. The State
may choose to combine the loan for planning and design with a construction loan.
Costs to municipalities of preparing environmental assessment reports may be included as
part of the costs of planning a project. Costs incurred by the State in reviewing the
environmental assessments are considered DWSRF administrative costs.
5. Restructuring of systems that are in noncompliance or that lack the technical,
managerial and financial capability to maintain the system
A DWSRF may provide assistance to an eligible public water system to consolidate with other
public water system(s) only if the assistance will ensure that the system returns to and
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maintains compliance with SDWA requirements (sectipn 1452(a)(3)(B)).
If the system does not have the technical, managerial, and/or financial capability to ensure
compliance or is in significant noncompliance, -the system may receive assistance only if (1)
the assistance will ensure compliance, or (2) the owner or operator of the system agrees to
undertake appropriate changes in operations. These changes include consolidation or
management changes that will ensure that the system has the technical, managerial, and
financial capability to ensure and maintain.compliance with SDWA requirements.
A State should establish criteria or guidelines to help assess what types of operational or
management changes may be appropriate for a water system. Further, a State should define
when a system would be a good candidate for physical consolidation to solve a compliance
or long-term financial issue, or when a system could consolidate by other means, such as
through management consolidation. . ,
C. Projects not eligible for funding
The following projects and activities are not eligible for funding:
• Laboratory fees for monitoring.
• Operation and maintenance expenses.
• Projects needed mainly for fire protection.
• Systems that lack technical, managerial and financial capability, unless assistance will
ensure compliance.
• Systems in significant noncompliance, unless funding will ensure compliance.
• Projects primarily intended to serve-future growth.
• Construction of dams or reservoirs, except for finished water reservoirs.
• Land necessary for the construction or storage of water related to reservoirs or dams,
except for finished water reservoirs.
1. Lack of technical, managerial and financial capability
A DWSRF Fund may not provide assistance to a system that lacks the technical, managerial
or financial capability to maintain SDWA compliance, unless the State dete™nes th^'h.® to
financial assistance from the DWSRF will allow the system to maintain long-term capability to
stay in compliance (section 1452(a)(3)(B)(l)).
2. Significant noncompliance
A DWSRF Fund may not provide assistance to any system that is in significant
noncompliance with any national drinking water regulation or variance unless the State
conducts a review and determines that the project will enable the system to return to
compliance and the system will maintain an adequate level-of technical, managerial and
financial capability to maintain compliance (section 1452(a)(3)(B)(ii)).
3. Growth
A DWSRF Fund cannot provide assistance to finance the expansion of any drinking water
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system in anticipation of future population growth (section 1452(g)(3)(C). Eligible projects,
however, can be designed and funded at a level which will serve the population that a system
expects to serve over the useful life of the facility. In determining whether or not a project is
eligible for assistance, the State must determine the primary purpose of the project. If the
primary purpose is to supply or attract growth, the project is not eligible to receive SRF funds.
If the primary purpose is to solve a compliance or public health problem the entire project,
including the portion necessary to accommodate a reasonable amount of growth over its
useful life, is eligible, In reviewing the proposed project/the State should review the basis of,
and the reasonableness of the population projections.
A State must also consider the extent of current risk to public health in establishing funding
priorities. Consequently, if a project includes substantial growth, it would presumably be
placed at the lower end of the priority list. It would be contrary to the intent of Congress, as
reflected in the "anticipation of growth" provision, to fund a project with a substantial amount
of growth ahead of a project where a significant portion is attributable to rectifying a current
health threat.
D. Compliance without DWSRF funding
The inability or failure of any public water system to receive assistance from a DWSRF Fund
or any other funding agency, shall not alter the obligation of a drinking water system to.
comply in a timely manner with all applicable drinking water standards and requirements of
section 1452 (section 1452(1)).
E. Impact of System Mergers and Sales
1. Disadvantaged Community Loans
In the event that a system which has received assistance under the disadvantaged
community provision is purchased or acquired in some other'form by another public water
system that would not itself be eligible for a disadvantaged loan, the acquiring entity must
agree to assume the remaining balance (principal only) on the original loan. The time period
should be the remaining length of time on the assistance agreement, but no longer than 20
years (beginning from the date of the original loan agreement). The State has the option to
decide the terms of the loan.
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IV. STATE/PROJECT LEVEL AUTHORITIES
A. Cross-cutting Federal Authorities
There are a number of Federal laws, executive orders and government-wide policies that
apply by their own terms to projects and activities receiving Federal financial assistance,
regardless of whether the statute authorizing the assistance makes them applicable: These
"cross-cutting Federal authorities" (cross-cutters) include environmental laws such as the
National Historic Preservation Act and the Wild and Scenic Rivers Act, and social and
economic policy authorities such as Executive Orders on Equal Employment Opportunity and
government-wide debarment and suspension rules.
A few cross-cutters apply by their own terms only to the State as the grant recipient (e.g.,
. Drug-Free Workplace Act, Pub. L 100-692 § 5152 et seq.), because the authorities explicitly
limit their application to grant recipients.
The DWSRF Fund may consist of funds from several sources: Federal grant dollars, State
match.amounts, loan repayments, and; perhaps, bond proceeds. It is therefore difficult to
identify which projects are receiving Federal financial assistance and are thus, subject to the
cross-cutters. Consequently, the cross-cutters will apply to an amount of funds equaling the
' amount of the Federal grant. Requirements imposed by the cross-cutters must be met by
projects whose cumulative DWSRF funding equals the amountpf the capitalization grant
("equivalency projects").
The concept of equivalency was developed for the GWSRF program, although in that
program it had an additional feature. In the CWSRF program, equivalency projects were
subject to a number of specific requirements listed in the Clean Water Act (section
602(b)(6)), as well as'the cross-cutters. In the DWSRF program, the concept of equivalency
is only used to describe which projects must comply with cross-cutters.
Projects funded with DWSRF monies in amounts greater than the capitalization grant are not
subject to these requirements. However, all programs, projects and activities undertaken by
the DWSRF are subject to Federal anti-discrimination laws, including the Civil Rights Act of
1964, section 504 of the Rehabilitation Act of 1973 and the Age Discrimination Act of 1975.
-Because of the similarities between the DWSRF and CWSRF programs, and because the
State plays a more substantial role in thpse two programs than in other federal assistance
programs (particularly in its relationship with assistance recipients), the method for applying
cross-cutters in the DWSRF program will be the same as that used in the CWSRF program.
The Agency will remain ultimately responsible for ensuring that assistance recipients comply
with the cross-cutters, but will carry out this responsibility mainly though its annual oversight
and approval roles. Day-to-day responsibility for overseeing funding recipients
implementation of the cross-cutters will fall upon the State. For example, where a cross-
cutter requires consultation with another federal agency, such as the U.S. Fish and Wildlife
Service the State will take this action initially. If a compliance issue cannot be resolved for a
particular project through that consultation, then the State may seek the Regional Offices's
assistance in settling the matter.
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B. Environmental Reviews
The environmental review principles developed for the CWSRF program will Provide the
basis for the development of a State environmental review process (SERF) in the DWSRF
program The SERF that applies to DWSRF equivalency projects must be the same as the
process for CWSRF equivalency projects. Non-equiyalency projects must also undergo an
environmental review, but the State may elect to apply an alternative SERP to these projects.
1. Equivalency. Projects
Eauivalencv projects are reviewed under a State environmental review process (SERP) that
conforms generally to the National Environmental Policy Act (NEPA). The State may elect to
apply the procedures at 40 CFR Part 6, Subpart E and related subparts, or apply its own
"NEPA-like" SERP for conducting environmental reviews. For equivalency projects, a SERP
must contain the elements described below.
Leqal foundation- The State must have the legal authority to conduct environmental reviews
of construction projects receiving DWSRF assistance. The legal authority and supporting
documentation must specify:
. The mechanisms to implement mitigation measures to ensure that a project is
environmentally sound;
. Tne legal remedies available to the public to challenge environmental review
determinations and enforcement actions;
. The State agency that is primarily responsible for conducting environmental reviews; and
• The extent to which environmental review responsibilities will be delegated to local
recipients and will be subject to oversight by the primary State agency.
Interdisciplinary approach: The State must employ an interdisciplinary approach for
identifying and mitigating adverse environmental effects including, but not limited to, those
associated with cross-cutting Federal environmental authorities.
Decision documentation: The State must fully document the information, processes and
premises that influence its decisions to:
. Proceed with a project contained in a finding of no significant impact (FNSl) following
documentation in an environmental assessment (EA);
. Proceed or not proceed with a project contained in a record of decision (ROD) following
preparation of a full environmental impact statement (EIS);
• Reaffirm or modify a decision contained in a previously iss'ued categorical exclusion (CE),
EA/FNSI or EIS/ROD following a mandatory 5 year environmental reevaluation or a
proposed project; and
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• If a State elects to implement processes for either partitioning an environmental review or
CE from environmental review, the State must similarly document these processes in its
proposed SERP.
Public Notice and Participation: .
The State must provide public notice, when a CE is issued or rescinded, a FNS1 is issued but
before it becomes effective, a decision issued 5 years earlier is reaffirmed or revised, and
prior to initiating an EIS. Except with respect to a public notice of a categorical exclusion or
reaffirmation of a previous decision, a formal public comment period must be provided during
"which no action on a project will be allowed.
A public hearing or meeting must be held for all projects'except for those having little or no
environmental effect.
Alternatives Consideration: The State,must have evaluation criteria and processes which
allow for: '
• Comparative evaluation among alternatives, including the beneficial and adverse
consequences on the existing environment, the future environment and individual
sensitive environmental issues that are identified by project management or through
public participation; and
• Devising appropriate near-term and long-range measures to avoid, minimize or mitigate
adverse impacts.
2. Non-equivalency Projects
The State may elect to apply an alternative SERP to non-equivalency construction projects
assisted by the DWSRF, provided that the process: .
• Is supported by a legal foundation which establishes the State's authority to review
construction projects; •
• Responds to other environmental objectives of the State;
. Provides for comparative evaluations among alternatives and accounts for beneficial and
adverse consequences to the existing and future environment;
. Adequately documents the information, processes and premises that influence an
environmental determination; and
. Provides for notice to the public of proposed projects and for the opportunity to comment
on alternatives and to examine environmental review documents. For projects
' determined by the State to be controversial, a public hearing must be held.
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3. EPA Approval and Review Process
The RA must review and approve any State "NEPA-like" alternative procedures to ensure
that the requirements for both have been met. The RA will conduct these reviews on the
basis of the criteria for evaluating NEPA-like reviews contained in Appendix B to these
guidelines. Because these criteria are also used in the CWSRF program (Appendix A to the
CWSRF regulations), a state may simply adopt those for the DWSRF program. Significant
changes to State environmental review procedures must be approved by the RA. The
approved SERP may be incorporated in the State's operating agreement, if it elects to
prepare one. (See section I.D. above)
States should establish administrative procedures for monitoring, collecting and summarizing.
environmental review information and provide documentation of these activities in the
Biennial Report. EPA's annual review will include a review of a sample of DWSRF projects
to verify the application and the adequacy of the SERP.
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V. FUNDING PROCESS _
A. State Match
The State must agree to deposit into the DWSRF an amount equaling at least 20 percent of ,
the amount of each grant payment (section 1452(e)). The State matching funds must be from
State sources and must be deposited on or before the date when grant payments are made
to the State, except for grant payments from FY1997 appropriations. As discussed in the
' next section, a grant payment under the DWSRF does not involve the transfer of Federal
funds to the State.
For grant payments made to the State from funds appropriated in FY 1997, the State may
defer deposit of its matching amount to no later than September 30, 1999. This flexibility is
provided to States which may need additional time to secure State funding for the required
matching amount. Note that even if the State defers deposit of its matching amounts, it must
identify the source of its matching funds in the capitalization grant application and certify that
the State funds will be available by September 30, 1999. : •
States that fail to provide their match on a timely basis will lose their eligibility to receive
grants from future federal appropriations. Any State allotment that is not awarded to a State
will be reallotted to the other eligible States. . ,
States may acquire the matching amount from a variety of sources, including legislative
appropriations, proceeds from State issued bonds, revenues from State taxes or
assessments, and funds maintained in other State accounts. Bonds issued by the State to
derive the match may be retired from the interest payments made to the DWSRF on loans
awarded by the DWSRF if the net proceeds from the State Issued bonds are deposited in the
fund. Loan repayments on the principal of a loan must be repaid to the DWSRF and cannot
be used as a source of funds to retire State bond issues that provide the State match. This
flexibility to retire State debt should not be used to the extent that it endangers the long term
financial goals and objectives, and financial condition of the DWSRF, as described in the
IUP. If the State provides a match in excess of the required amount, the excess balance may
be banked toward match requirements associated with subsequent capitalization grants.
The State may already manage a dedicated revolving fund which provides assistance for
activities consistent with section 1452(a)(2) of the SDWA. The State may credit toward its
match requirement State monies deposited into this dedicated fund between July 1, 1993 and
prior to the receipt of a capitalization grant under section 1452(a) of the SDWA if:
(1) the monies were deposited in an SRF that subsequently received a capitalization
grant and, if the deposit was expended, it was expended in accordance with section
1452 of the SDWA;
(2) the monies were deposited in a separate fund that has not received a capitalization
grant, they were expended in accordance with section 1452 of the SDWA and an
amount equal to all repayments of principal and payments of interest from these loans
will be deposited in the Federally capitalized .fund; or
(3) the monies were deposited in a separate fund and used as a reserve consistent with
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section 1452 and an amount equal to the reserve is transferred to the Federally
capitalized fund as its function is satisfied.
B. Federal Funding Process
1. Generally
A State will receive each capitalization grant payment in the form of an increase to the ceiling
of funds available through the EPA-Automated Clearing House (EPA-ACH). Funds will be
transferred to the State from the U.S. Treasury on. a reimbursement basis, after the
assistance recipient has billed the DWSRF for work completed and the DWSRF requests
reimbursement from EPA. The State then reimburses assistance recipients for costs
incurred —,a process known as the disbursement from the DWSRF.
2. Schedule of Payments
A State must include a payment schedule in its capitalization grant agreement that is based
on its projection of binding commitments (see below) in the State's Intended Use Plan.
Increases in the ceiling of funds available in the EPA-ACH will track this schedule of
payments. All payments will be made by the earlier of 8 quarters from the date of when a
State could receive a capitalization grant or 12 quarters from the date of allotment. The
schedule of payments applies to all funds in the capitalization grant, including those funds
that are used for non-project activities.
3. Binding Commitments
In order to demonstrate continuing progress in project initiation, and to further the intent of
Congress to "commit(s) and expend(s) funds ... as efficiently as possible..." (section
1452(g)(3)(A)), the State must agree to enter into binding commitments with assistance
recipients to provide financial assistance under the DWSRF program. A binding commitment
is a legal obligation by the state to a recipient of assistance that defines the terms for
DWSRF assistance. In most cases, the binding commitment will be an executed loan
document The binding commitment should include a description of the project to receive
financial assistance, the expected terms of the assistance, and expected date of project
initiation and project completion.
Binding commitments must be made in an amount equal to the amount of each quarterly
grant payment that is deposited into the Fund and state match within one year after the
receipt of each grant payment.
If a project on the Intended Use Plan is not able to proceed with entering into an assistance
agreement from the DWSRF, the State must expedittously identify a substitute project(s),
amend the IUP in accordance with the grant agreement, and work with the public water
system to enter into an assistance agreement in a timely manner.
The State must continue to make progress in providing DWSRF assistance by entering into
binding commitments equaling the amount of the grant payment and state match within one
year after it receives a grant payment. If the binding commitment requirement is not met, the
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Agency may withhold future grant payments and require adjustments to the payment
schedule before releasing further grant'payments. To facilitate compliance with this
requirement, the State may wish to plan for binding commitments greater than the 120
percent requirement. Then, if some projects are unable to proceed for unforeseen reasons,
the State will still be able to comply with the requirement. The State may make binding
commitments for more than the required amount, and bank the "excess" balance towards the
binding commitment requirements of subsequent grant payments.
If a State is concerned about its ability to comply with the binding commitment requirement, it
should notify the RA before it fails to fulfill its responsibility, and propose a revised payment
schedule. .
4. Cash Draw
The AGH processes structured so that neither the DWSRF nor the assistance recipients will
be required to provide interim financing on financial transactions of the DWSRF. Transfer
procedures have been established to ensure that cash will be in the DWSRF account within
two days after the Agency receives a valid request for cash draw from the State. To effect
this two day transfer, the Agency will only subject requests to account verification. The
Agency will not review the DWSRF program (e.g., construction status of projects, adequacy
of voucher documentation) as part of the cash draw process.
Cash draws from the DWSRF-ACH are limited by the ceiling available in the DWSRF-ACH,
and by the amount of the DWSRF-ACH that is dedicated to the. various types of assistance a
DWSRF program can provide. However, in the event of an imminent default (e.g., debt
service payments to bondholders and resulting need for a cash draw from a DWSRF-ACH for
use as a security or guarantee), the Agency can amend the grant agreement and payment
schedule to allow for an increased cash draw not to exceed the amount of the capitalization
grant. The QWSRF or the assistance recipient must first incur a cost, but not necessarily
disburse funds for that cost, in order for cash to be drawn against the DWSRF-ACH. The
State may draw cash from the DWSRF-ACH for the proportionate Federal share of 'eligible
costs at the time those costs have been incurred. For example, if a non-leveraged DWSRF
that consists of a $1 million ACH ceiling and $200,000 in State match receives a request for
disbursement of $120 based on construction costs incurred, the State may draw cash for
$100 from the DWSRF-ACH and the remaining $20 must come from the State match.
The foiiowing subsections describe the cash draw rules that apply to the different types of
assistance a DWSRF Fund can provide.
a. Loans
The State may draw cash from the DWSRF-ACH when the DWSRF receives a request
from a loan recipient, based on incurred costs, including pre-building and building costs.
b. Refinance or purchase of municipal debt '
For completed construction, cash draws will be made at a rate no greater than equal
amounts over the maximum number of quarters that capitalization grant payments are
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made and up to the portion of the DWSRF-ACH committed to the refinancing or
purchase of the local debt. Cash draws for incurred building costs will generally be
treated as refinanced costs. With the approval of the RA, the State may draw cash
immediately when it is prepared to refinance for up to five percent of each fiscal year's
capitalization grant or two million dollars, whichever is greater, to refinance or purchase
local debt. ,
For projects or portions of projects that have not been constructed, the State may draw
cash based on incurred construction costs according to the rule for loans.
For the purchase of incremental disbursement bonds from local governments, cash
draws will be based on a schedule that coincides with the rate at which construction
related costs are expected to be incurred for the project.
* •
c. Purchase of insurance
The State may draw cash to purchase insurance as premiums are due.
d. Guarantees and security for bonds
In the event of an imminent default in debt service payments on a guaranteed or secured
debt the State can draw cash immediately up to the total amount of the DWSRF-ACH
that is dedicated to the guarantee or security. If a balance remains after the default is
covered, the State must negotiate a revised schedule for the remaining amount dedicated
to the guarantee or security.
In the absence of default, the State can draw cash up to the amount of the DWSRF-ACH
dedicated for the guarantee or security in accordance with a schedule that is based on
actual construction cost. The amount of the cash draw would be the actual construction
costs multiplied by the Federal share of the reserve multiplied by the ratio of the reserve
to either the amount guaranteed or the proceeds of the bond issue.
In addition, in the case of a security the State can identify a group of projects whose
value equals approximately the total of that portion of the DWSRF-ACH and the State
match dedicated as a security. The State can then draw cash based on the incurred
construction costs of the selected projects only, multiplied by the ratio of the Federal
portion of the security to the entire security. ,
Where the cash 'draw rules discussed immediately above would significantly frustrate a
State's program, the Agency may permit an exception to these cash draw rules and
provide for a more accelerated cash draw, where the State can demonstrate that: %
- there are eligible projects ready to proceed in the immediate future with enough costs
to justify the amount of the secured bond issue;
- the absence of cash on an accelerated basis will substantially delay these projects;
- if accelerated cash draws are allowed, the SRF will provide substantially more
assistance; and
-- the long term viability of the State program to meet water quality needs will be
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protected.
When the ACH is used for securing .State issued bonds, cash draws cannot be made at a
rate greater than equal amounts over the maximum number of quarters that payments can
be made. Exceptions to this limitation are in cases of default and where cash draws are
based on construction costs for all projects. •
e. Administrative expenses ,
One payment will be made at the time of the grant, based on the portion of the ACH
estimated to be used for administrative expenses. The State can draw cash based on a
schedule that coincides with the rate at which administrative expenses will be incurred, up to
that portion of the ACH dedicated to administrative expenses.
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VI. REPORTING/REVIEW RESPONSIBILITIES
Each State must submit a Biennial Report to the Administrator discussing the State's
activities which receive funding through the Federal capitalization grant (section 1452(g)(4)). -
The Administrator has determined that the Agency shall conduct reviews of the DWSRF
program on an annual basis. The Annual Review is necessary to carry out the Agency s
Federal fiduciary responsibilities and to assure that States are implementing the program as
• efficiently as possible" (section 1452(g)(3)(A)). Specific elements of the Agency's Annual
Review are outlined below.
Several other programs may receive funding from the State's allotment, including operator
certification, small systems technical assistance, source water protection, and wellhead
protection Agency review of these other programs shall generally be conducted separately
in accordance with procedures described in program specific guidance. The Agency may
develop additional guidance to reflect new components for the other eligible programs
receiving funds pursuant to section 1452.
A. State Responsibilities
1. Biennial Report
The State should submit its Biennial Report to the RA according to the schedule established
in the grant agreement.
The Biennial Report should contain detailed information on how the State has met the goals
and objectives of the previous two fiscal years as stated in the lUP and grant agreement.
The Report should provide information on loan recipients, loan amounts, loan terms, project
categories of eligible cost, and similar details on other forms of assistance. This information
should be provided in a format and a manner that is consistent with the needs of the
Regional Office The Report should also describe the extent to which the existing DWSRF
financial operating policies, alone or in combination with other State financial assistance
proqrams will provide for the long term fiscal health of the Fund, attain and maintain
compliance with the Safe Drinking Water Act, and carry out other provisions specified in the
legislation.
The State must submit a detailed financial report as part of the Biennial Report. At a
minimum the financial report shall include the financial statements and footnotes required
under GAAP to present fairly the financial condition and results of operations. These
financial statements should measure and demonstrate the DWSRF's ability to maintain .ts
contributed capital. The financial report should follow generally accepted accounting
principles and should follow enterprise fund reporting standards.
In addition, the State must establish in its DWSRF Biennial Report that it has:
- reviewed all DWSRF funded projects in accordance with the approved State
Environmental Review Procedures;
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INTERIM GUIDANCE • October 4, 1996
- deposited its match on or before the date pn which each grant payment was made;
made bjnding commitments to provide assistance equal to 120 percent of the amount
of each grant payment within one year after receiving the grant payment, except for
FY1997; ' ;
- managed the Fund in a fiscally prudent manner and adopted policies and processes
which promote the long-term financial health of the Fund;
- complied with Agency grant regulations, (40 CFR Part 31) and specific conditions of
the grant; . . . • -
complied with Federal cross-cutting authorities that apply to the State as a Federal
grantee and those which flow through to assistance recipients;
- provided assistance only to eligible water systems and for eligible purposes under
section 1452; and
- funded only the highest priority projects listed on the IUP, according to their priority
and readiness to proceed, and any procedures for by-passing priority projects on the
IUP/
While the focus of the report should be on DWSRF Fund activities, the State should also
include summary information about the use of funds provided in the capitalization grant for
other eligible programs authorized by section 1452. The State must provide, in the biennial
report, all information necessary to demonstrate that the State remains eligible to receive its
full allotment of funds provided under section 1452(m). Information on the other eligible
programs provided in the State's biennial DWSRF report shall not replace reporting ,
requirements of other Agency program-specific guidance. At its option, the State may wish to
incorporate by reference or attach copies of the most recent copies of other reports to the •
Agency describing progress under the other eligible programs.
2. Annual Audit
• States will conduct annual audits in order to assure adequate financial management of the
program.
The program requirements are being reviewed in the CWSRF and this section will be written
to correspond with the CWSRF requirements,
3. Information Management System
In conjunction with the States, the Agency shall develop and implement an information
management system which includes regularly updated data on projects receiving DWSRF
assistance and other information on Fund status. To the extent practical, this system will be
coordinated with the implementation of a similar effort in the CWSRF program. Once
developed, States will be required to enter information into the information system. The
Agency will have access to .information in the system as needed, but will not be able to
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modify State-entered data. The Agency will use this information to assess the program on a
national basis and to monitor State progress in years in which biennial reports are not
required. In particular, the Regional Offices will use the information to assist in conduct of
the annual reviews.
B, EPA Responsibilities '
1. Annual Review of DWSRF
EPA will conduct annual reviews of each DWSRF to assess the success of each program in
meeting the objectives of section 1452. See Appendix B for additional details.
2. Evaluation
The Administrator will prepare an evaluation of the effectiveness of the DWSRF program's.
operations through FY 2001 (section 1452(r)).
3. Compliance Assurance
The Administrator will develop guidance necessary to assure effective program management
and to prevent waste, fraud, and abuse (section 1452(g)(3)). The Agency will ass.st the
State in achieving and maintaining compliance with program objectives and requirements
There may be cases, however, when technical support may be insufficient or where a State
mav be reluctant or unable to correct identified problems. This section of the guidance
outlines procedures and potential actions which may arise in cases of non-compliance.
If the annual review or audit, reveals that the State has not complied with its capitalization
grant agreement or other requirements under section 1452, the Agency wril notify the State of
such non-compliance and prescribe the necessary corrective action. Failure to satisfy the
terms of the capitalization grant agreement, including unmet assurances or invalid
certifications, is grounds for a finding of non-compliance.
In addition if the State does not manage the DWSRF in a financially sound manner (e.g.,
allows consistent and substantial failures of loan repayments), the Agency may take
corrective action as provided under this guidance. '
In making a determination of non-compliance with the capitalization grant agreement and
devising the corrective action, the Agency will identify the nature and cause of the problems
• The State's corrective action must remedy the specific instance of non-compliance and adjust
program management to avoid non-compliance in the future.
If within 60 days of receipt of the non-compliance notice, a State fails to take the necessary
actions to obtain the results required by the EPA, or provide an acceptable plan ta achieve
the results required, the Agency may withhold payments to the DWSRF until the State has
taken acceptable actions. Once the State has taken the corrective action deemed necessary
and adequate by the Agency, the withheld payments shall be released and scheduled
payments shall recommence.
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If the State fails to take the necessary corrective action deemed adequate by the Agency
within twelve months of receipt of the original notice, any withheld payments may be
deobligated and reallotted to other States. All future payments may be withheld from a State,
and reallotted, until such time that adequate corrective action is taken and the Administrator
certifies that the State is back in compliance.
4. Dispute Resolution
Any State applicant or recipient that has been adversely affected by an Agency action or
omission may request a review of such action or omi'ssion. The procedures are codified in
the Agency's general grant regulations at 40 CFR Part 31, Subpart F.
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VII. APPENDICES
A. ANNUAL REVIEW
The purposes of the Annual Review are to (1) assess the success of the State's performance
of activities identified in the IUP, the State's Biennial Report, the Operating Agreement (if
used) and the DWSRF information management system, (2) determine how the DWSRF is
achieving the intent of section 1,452 and the overall goals and objectives of the SDWA as
amended (3) determine compliance with the capitalization grant agreement, and (4) assess
the financial status of the DWSRF. The time period for conduct of Agency Annual Reviews is
not connected to the period of award of Federal capitalization grants (i.e., Annual Reviews
will continue even after Federal appropriations are no longer available).
EPA will complete an Annual Review of the IUP and the Biennial Report covering the same
fiscal year according to the schedule established in the grant agreement (generally within 60
days of receipt of the Biennial Report in the year it is due, and approximately the same date
on the year the biennial report is not due). After reasonable notice by EPA, the State or loan
recipient shall make available to the EPA such records as the EPA reasonably requires to
review and determine State compliance with the requirements of section 1452 of the SDWA
as amended in 1996. EPA may conduct on-site visits as needed to provide adequate
programmatic review. During years in which a State Biennial Report is not required, the
Region will to the extent practicable, obtain information necessary to conduct its Annual
Review from the DWSRF Information System. If necessary, the Region will request the State
to clarify information in the system or provide additional information. Requests for such
supplemental information shall be kept to a minimum necessary for conduct of the Annual
Review. ,
The State has lead responsibility for resolving project specific issues. If questions of waste,
fraud or abuse arise, however, EPA may require project level review in some cases. In _.
conducting its audits, the Office of Inspector General may find it necessary to review recipient
records In addition, in some cases, at the request of the State or another Federal agency,
EPA may participate in the review or resolution of some issues related to compliance with
cross-cutting Federal authorities.
Upon completion of its on-site Annual Review, the Regional review team shall conduct a brief
exit interview with the State DWSRF program manager and other appropriate State staff
summarizing principal findings of the review. Within a reasonable time, the review team shall
prepare a draft Program Evaluation Report (PER) which will: (1) summarize findings of the
on-site review, (2) provide comments on the State's Biennial Report (if appropriate), (3)
hiqhlight areas of concern and suggestions for improved program operations, and (4) note
progress made on issues raised in prior year PERs and other correspondence with the State
DWSRF manager. The Region shall submit the draft PER to the State for review and
comment prior to preparing the final PER. -
Identification and resolution of issues need not be limited to the Annual Review process. As
the Region becomes aware of issues in DWSRF program operations, the Region shall
consult with the State as appropriate. The Region shall assist the State in resolving DWSRF
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INTERIM GUIDANCE . October 4, 1996
program issues as requested by the State or when deemed necessary by the Region.
Prior to the on-site Annual Review visit, the State and Region may wish to consult on the
scope, format, detail, and timing of the particular visit, which may vary somewhat from year to
year Note also that some topics may be reviewed while on-site, while other topics may be
addressed based on a "desktop review" of information provided by the State or available in
the DWSRF information system. For example, EPA staff may use DWSRF financial
information to conduct financial analysis, including the preparation of financial ratios and
indicators. There may be some areas of review which merit attention each year, whereas
other topics may be addressed on a less regular basis, particularly once the DWSRF program
becomes established. In general; the EPA review team will be reviewing the adequacy of
State program management procedures and compliance with procedures as described in the
State's capitalization grant application and Operating Agreement (if used). On a sample
basis, it may be necessary to examine selected project files to complete the assessment.
The following is a list of review topics which may be included as part of the Annual Review:
Compliance/General Program Management •
• Compliance with capitalization grant conditions and EPA grant regulations;
• Compliance with the State assurances incorporated in the capitalization grant
agreements);
• Consistency of DWSRF program operations with the State's short and long term goals
and objectives as reflected in the DWSRF capitalization grant application(s) and grant
agreements;
• Coordination between the DWSRF and other State drinking water program management
. activities (e.g., source water protection, wellhead protection, capacity development,
assistance to sma.ll systems);
• Compliance with requirements of section 1452 (e.g., eligibility of recipients, types of
projects, and types of financial assistance provided); and
,• Program administration costs; adequacy of staffing.
• Adequacy of State in filing timely "UCC Financing Statements" to ensure security on loans
to private systems.
Pace of Program
• Status of binding commitments and progress in initiating and completing projects;
• Compliance with projections of Federal outlays and adequacy of efforts to manage
outlays, both for the current year as well as the period covered by the Annual Review;
• Size of uncommitted fund balance.
Project Level Management
• Compliance with cross-cutting Federal authorities;
.• Adequacy of State environmental review procedures (including consideration of
mitigation, consultation with appropriate State and Federal environmental officials, and
adequacy of project documentation); ,
• Adequacy of State procedures for reviewing assistance applicants' financial (financial
s,
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capability and credit analysis), managerial and technical capabilities; .
Adequacy of State procedures to review proposed dedicated repayment sources and
^ inclusion of assistance terms; accounting, audited
record keeping procedures; default management provisions; and compliance with ,
Lancia,, managerial and .echnica,
of assistance recipients and appropriateness of State actions to resolve areas of concern.
. ConsSncy orf assistance recipients with lUPs (e.g., names of recip.ents, ass.stance
. JS^SSSS^^ oversight (e.g., change orders, comp.iance with
applicable labor laws, adherence to schedule, record keeping).
Financial Management
. Adequacy of State financial management system (including documentation relating j to
Federal cash draws, deposit of State matching funds, posting of repayments and interest
earnings); . .
. Timeliness of flow of funds to assistance recipients;
. Adequacy of financial statement of the DWSRF program; n*«n«ra«nn
. Adequacy of fund balance to meet financial responsibilities (e.g., curren operating
expenses, debt service payments, funding of reserves, long-term financial assistance
needs); •
f "fo^gemen, (including billing and colledions, aging of
accounts, actions to prevent payment default); ,•....
Reoavment record, including defaults and potential for defaults;
Mb! -and relative risk of financial assistance types (e.g., various Merest rates, guarantees,
refinancings, disadvantaged community assistance);
Adeauacv and reasonableness of State fund investment practices;
ApprlprSteness of State policies and strategies with respect to .mpacts on the long-term
i review of fmancia, trends, and long term
forecasting of project assistance needs.
B. Definition Section
- A
Plan and grant agreement.
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Annual Review - EPA's assessment of the: success of a State DWSRF program.
Appropriations - Statutory authority that allows Federal agencies to obligate funds and make
payments from the Treasury for specified purposes.
Assurances - Certifications or pledges by the State that it will meet the requirements of'the
SDWA and other requirements of the program.
Automated Clearing House - A federal payment mechanism that transfers cash to States and
other recipients of Federal assistance using electronic transfers from the Treasury through the
Federal Reserve System.
Bank/Banking - Crediting amounts (contributed by the State to SRF eligible projects or activities)
to the SRF in excess of amounts required towards meeting certain requirements of future
capitalization grants. ,
Binding Commitment - A legal obligation by the State to a local recipient that defines the terms
and the timing for assistance under the SRF,
Capitalization Grant - The assistance agreement by which EPA obligates and awards funds
allotted to a State for purposes of capitalizing that State's .revolving fund and funds for other
purposes authorized in section 1452. .
Capitalization Grant Application - An application for Federal assistance submitted by a State,
which in addition to the application form includes,an Intended Use Plan, proposed payment
schedule, and operating agreement or other documents describing how the State intends to
operate its SRF.
Certification/Certify - Documentation signed by the responsible party that specific requirements
or standards have been or will be met.
Community Water System - A public water system that: (a) serves at least 15 service
connections used by year-round residents of the area served by the system; or (b) regularly
serves at least 25 year-round residents.
Cross-cutting Authorities - Federal jaws and authorities that apply by their own terms to
projects or activities receiving federal assistance.
Default - Failure to meet a financial obligation such as a loan payment.
Debt Obligation - A legal obligation or liability to pay something to someone else.
Disadvantaged Community - The service area of a public water system that meets affordability
criteria established after public review and comment by the state in which the public water
system is located. ,
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Disbursement - The transfer of cash from the SRF to the assistance recipient.
Disbursement Schedule - A quarterly schedule of estimated disbursements from the SRF. •
Eligible System - Community water systems, both privately or publicly owned, and nonprofit
noncommunity water systems. ' -
Environmental Review - An environmental review process conducted by States that complies
with 40 CFR Part 6, Subpart E or an alternative "NEPA-like" state environmental review..
Equivalency Projects - Projects that must total the amount equal to the federal capitalization
grants and must comply with environmental review requirements and federal cross-cutting
authorities.
Financial Health/Integrity - The ability of the DWSRF to address SDWA needs and to be
continually available to meet future needs.
Guarantee - A promise to provide municipal bondholders with full and timely payment of principal
and interest on the municipal debt obligation to the limit of the guarantee, in the event of default
by the municipality. .
Intended Use Plan - A document prepared each year by the State, which identifies the intended
uses of the funds in the SRF and describes how those uses support the goals of the SRF.
Leveraging - The use of the capitalization grant as the security for the sale of State bonds
Leveraging does not include State financing arrangements in which repayment streams, rather
than capitalization grant or ACH are used as the primary security for the bond issue.
Loan - An agreement between the DWSRF and the local recipient through which the SRF
provides funds for eligible assistance and the recipient promises to repay the principle sum back
to the SRF over a period not to exceed 20 years, except for disadvantaged communities that may
receive a loan for up to 30 years (that does not exceed the life of the project), at an interest rate
established at or below market interest rates (may be interest free).
Noncompliance - Failure to satisfy the terms of the capitalization grant agreement, including
ImeSrances, invalid certifications, or failure to manage the DWSRF in a .financially sound
manner.
Noncommunity Water System - A public water system that is not a community system.
Nonprimacy States - States that do not exercise primary enforcement responsibility for public
water systems.
Operating Agreement - An optional document in which the State may establish the basic
framework and procedures of the DWSRF that are not expected to change annually.
Payment/Payment Schedule - A payment is an action by EPA to increase the amount of funds
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available for cash draw in the Automated Clearing House. A payments not a transfer of cash to
the State, but only an authorization making funds available for transfer to the State when a cash
draw request is submitted. A payment schedule, indicating the timing and size of the payments
to be made, will be agreed upon by EPA and the State based on the State's projection of binding
commitments.
Refinancing - Purchase of a previously executed debt obligation where initial debt was incurred
and construction initiated after July 1, 1996.
Set-Aside -.Non-project use of allotted State funds for a range of specific SDWA related
activities identified in Section 1452, to encourage source water protection and other State
drinking water program activities..
State Match - Funds equaling at least 20% of the amount of the capitalization grants which the
State must deposit into the DWSRF Fund. The State must also provide a 10% match if the State
uses the 1452(g)(2) set-aside.
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