Office of Water

                                          ON  THE  NATIONAL SCENE
The Congressional Outlook On Wastewater Infrastructure Issues
Carrie Jelsma, Staff, Subcommittee on Water Resources
and Environment
What's happening on "The Hill" regarding wastewater infrastructure and wet weather flows?
In the 106th Congress, both the House of Representatives and the Senate are considering
how to address the rising costs of making sure the U.S. has adequate wastewater infrastruc-
ture, and to control wet weather problems.
                                           The Price Tag Is Going Up
                                           Last year the American Metropolitan and Sewerage Authority and the Water Environment
                                           Federation published the "Cost of Clean" report that estimated more than $330 billion is
                                           needed over the next 20 years to repair and improve the nation's wastewater infrastructure.
                                           This is more than double EPA's 1996 estimate that approximately $140 billion would be
                                           needed over the next 20 years. EPA is also revising its 1996 Clean Water Needs survey with
                                           its "Needs Gap" analysis. While not yet final, it indicates costs over the next 20 years could
                                           be more than $300 billion.  Even though EPA's "Needs Gap" analysis and the "Cost of Clean"
                                           report employ different methodologies, the point is clear—the price tag is going up for mak-
                                           ing sure that our national wastewater infrastructure will help provide clean and safe water.
                                               Rough estimates reveal that the "gap" between how much is currently being invested in
                                           wastewater  infrastructure compared to how much will be needed is about $5-6 billion a
                                           year.  This is derived by subtracting the estimated $10-11 billion a year in combined feder-
                                           al, state and local investment from the estimated $16 billion a year that will be needed over
                                           the next 20 years.
                                               So, the questions Congress, EPA and other stakeholders are trying to answer include
                                           determining how much more  investment is needed, who is going to pay for it, and what are
                                           the best types of financing, such as loans or grants, among other options.

                                           Proposals To Help Fill "The Gap"
                                           Both the House and Senate have held  several hearings and will continue to consider, and
                                           possibly act on, various proposals to address the wastewater infrastructure needs "gap" and
                                                                                                      CONTINUED ON PAGE 2

                                               SRF's  Up
                       Billions of Dollars
                1988   1989  1990   1991   1992  1993   1994   1995   1996   1997   1998   1999
CWSRF Assistance Provided to Projects
NATIONAL SCENE from page 1

other wet weather flows issues.  While many proposals have
been introduced addressing these issues, the following are
some of the highlights.

The President's FY2001 Budget Request
On February 7, 2000 the President transmitted the FY 2001
budget proposal to Congress.  Similar to FY 2000, EPA
requests $800 million to capitalize the Clean Water State
Revolving Fund (CWSRF) for FY 2001, and recommends a
total of $4 billion be provided through FY 2005.  This request
is in accordance with the Administration's goal to provide
enough capitalization for the CWSRF to revolve at approxi-
mately  $2 billion a year.
    For the past several years, Congress has appropriated
more than EPA has requested for the CWSRF. For example, in
FY 2000 Congress appropriated $550 million more (+40%)
than requested for a total of $1.35 billion. In fact, many in
Congress have expressed concern that EPA has not requested
higher amounts. In response, EPA has stated an interest in
working with Congress and others to reevaluate what an
appropriate federal contribution would be in light of the rising
wastewater infrastructure needs.
    In addition, the President has reproposed "Better
America Bonds," that would allow state, local and tribal gov-
ernments to issue $10.75 billion in bonding  authority.
Communities would have access to zero-interest financing for
eligible projects because investors who buy the 15-year bonds
would receive tax credits in lieu of interest payments.  Eligible

                                              SRF's  Up
nil    11   !i
projects include those that protect water quality, preserve and
enhance green space, and clean up brownfields.
    The House and Senate have introduced bills to imple-
ment last year's similar bond proposal, H.R. 2446, the "Better
America Bonds Act," and S. 1558, the "Community Open
Space Bonds Act." H.R. 2446 has 124 sponsors and S. 1558
has six. Last year, questions arose regarding cost estimates,
agency accountability and program implementation that the
Administration intends to clarify with its FY 2001 bond pro-
posal. Recent press reports have had mixed analysis regard-
ing how much support this year's bond proposal will receive.

The Clean Water Infrastructure Financing Act of 1999
In August  1999, Reps. Kelly (R-NY), and Tauscher (D-CA)
introduced H.R. 2720, the "Clean Water Infrastructure
Financing Act of 1999" to reauthorize the CWSRF. H.R. 2720
would authorize a total of $15 billion in additional federal
capitalization for FYs 2000-2004.  The proposed authoriza-
tion would increase the average annual revolving loan  levels
above the  Administration's goal  of having the CWSRF revolve
at approximately  $2 billion a year.
    To increase state flexibility in addressing water quality
problems, H.R. 2720 would expand the types of projects eligi-
ble for loans to include activities of which the principal bene-
fit is improved or protected water quality. Examples include
restoring or protecting riparian areas, water use efficiency
and pollution prevention measures, among others. H.R. 2720
also would require EPA to provide guidance for and technical
assistance to small systems. For disadvantaged communities,
the proposal would extend loan repayment periods and pro-
vide principal write down.  So far, 57 members have spon-
sored this bill.
    Last October,  Sen. Voinovich (R-OH) introduced a simi-
lar CWSRF reauthorization bill, S. 1699, which has the same
title as the H.R. 2720. Both the House and Senate have held
hearings on their CWSRF reauthorization proposals.

The Combined Sewer Overflow Control
And Partnership Act
Last February, Rep. Barcia  (D-MI) and others introduced H.R.
828, "The Combined Sewer Overflow Control and Partnership
Act of 1999." This bill would authorize $2.25 billion of
grants for planning, design, and construction of CSO controls
(and storm sewer  overflow controls where appropriate).  It
would also codify EPA's CSO control policy, require that regu-
latory agencies for CSO communities review water quality
standards and designated uses before developing long-term
CSO control strategies, and provide specified timeframes to
complete CSO control projects. H.R. 828 has 48 sponsors.
Last April, Sen. Smith  (R-NH) and others introduced a com-
panion bill, S. 914, that has 16 sponsors, and the same title as
H.R. 828.  Both the House and Senate have held hearings on
these proposals.

The Urban Wet Weather Priorities Act of 2000
This February, Reps. LaTourette (R-OH), and Pascrell (D-NJ)
introduced H.R. 3570, the "Urban Wet Weather Priorities Act
of 2000."  This bill seeks to create national consistency in the
regulatory oversight of urban wet weather flows and would
                                CONTINUED ON PAGE 4

                                                 SRF's  Up
NATIONAL SCENE from page 3

address three primary areas of national concern-CSOs, SSOs,
and urban storm water problems.  The proposed bill also
would create watershed management demonstration projects,
determine cost-effective wet weather management and control
methods, and authorize over $3 billion in grants.

Other Options
Another idea, in early stages of discussion, is to create some
sort of clean water trust fund.  For example, the Water
Infrastructure Network (WIN)  is working toward finding a
permanent funding source, such as a trust fund, for water-
related infrastructure needs including clean water, drinking
water and nonpoint source pollution.  WIN plans to release a
report this March on potential funding sources, that also will
highlight the federal role in funding infrastructure projects.
WIN consists of about 40 local and state water and waste
water, environmental and natural resources, agriculture,
labor, engineering, and construction interests.

Carrie Jelsma is a Professional Staff Member on the House
Transportation and Infrastructure Committee, Water
Resources and Environment Subcommittee.  Her state-
ments do not reflect the positions of Members of Congress.
DWSRF Implementation
States continue to make progress in implementing the DWSRF
program. As of the end of 1999, $2.3 billion of the $3.6 bil-
lion appropriated for the program has been awarded. States
have closed more than 950 loans - a significant increase from
the 350 reported at the end of 1998. The total amount of
assistance provided nation-wide exceeds $1.9 billion and sev-
eral states, including New York, Kansas, and Colorado, have
significantly increased the amount of funds available for pro-
viding assistance by leveraging their programs. States contin-
ue to focus attention on small systems which frequently have
difficulty gaining access to other sources of capital financing.
Seventy-five percent of the loan agreements and 41 percent of
loan funding have been provided to systems serving fewer than
10,000. Approximately 21 percent of the federal funds allo-
cated for infrastructure assistance had been disbursed to
recipients of assistance as of the end of September 1999.
    States have reserved almost $400 million to conduct set-
aside activities. The percentage of reserved set-asides
decreased from the FY 1997 appropriation, primarily  due to
the fact that all states took advantage of a one-time only  set-
aside for source water delineations from FY 1997 funds.  An
average of 14 percent was reserved from the 51 FY 1998
grants and the 33 FY 1999 grants that had been awarded as of
the end of 1999.  More than $90 million has been reserved
to administer the DWSRF program, $37 million to provide
technical assistance to small systems, $87 million for state
program management activities, and $182 million for local
assistance which includes funding for source water delin-
eations and loans for protection measures. Approximately  15
percent of the federal funds allocated for set-asides had been
expended as of the end of September 1999.
    Many states have reported that they face challenges in
implementing their loan funds and set-aside activities due to
state-imposed restrictions on hiring.  Additionally, those states
that have been able to hire have found it difficult to find quali-
fied applicants in a tight labor market.  It is hoped that these
pressures will ease in the  future, because states will face a

                                                 SRF's Up
challenge in the next several years as they work to implement
new drinking water regulations.

Addressing Nonpoint Source
Pollution with the CWSRF
In recent years, state CWSRF programs have been increasingly
effective in addressing nonpoint source pollution. In 1999,
36 percent of the program's assistance agreements were for
nonpoint source projects-up from 11 percent in 1995. The
CWSRF seems to be addressing nonpoint source pollution in
new ways every day.  The following paragraphs highlight sev-
eral recent developments that will help state CWSRF programs
in these efforts.

Upgraded nonpoint source management programs.
Twenty-one states have upgraded their nonpoint source man-
agement programs. Upgraded programs reflect nine key ele-
ments identified in the May 1996 guidance, "Nonpoint Source
Program and Grants Guidance for Fiscal Years 1997 and
Future Years"  (found at
These elements include  an identification of waters and water-
sheds impaired or threatened by nonpoint source pollution, a
process to progressively address these waters and flexible,
targeted, iterative approaches to achieve and maintain benefi-
cial uses of water as expeditiously as possible. EPA expects
that almost all states will have upgraded programs in fiscal
year 2000.  These program upgrades should make it easier
for state CWSRF programs to identify priority nonpoint source
pollution problems and projects that will address them.

Nonpoint source needs in the
2000 Clean  Water Needs Survey.
The 1996 Clean Water Needs Survey assessed  nonpoint source
needs, but few  states documented these needs systematically.
As a result, project-level nonpoint source needs are unavail-
able and modeled totals under-represent the nation's true
needs. Although EPA does not expect the 2000 Clean Water
Needs Survey to document all nonpoint source needs, it will
try to improve this documentation significantly.  The survey
will identify and locate specific sources of nonpoint source
pollution, identify projects that would address these sources,
and estimate costs for needed projects.  This effort will enable
state CWSRF programs to identify specific sources of nonpoint
source pollution and projects that would address them.

Clarification of CWSRF policy.
EPA recently issued a policy memorandum clarifying the eligi-
bility of certain types of projects for CWSRF funding. Several
states have inquired about the eligibility of CWSRF loans to
private entities for nonpoint source projects with elements
that resemble point source "treatment works."  Treatment
works, as defined in section 212 of the Clean Water Act, are
ineligible for CWSRF funding if they are privately-owned.  The
following types of projects may have elements that resemble
treatment works: septic tank replacement, stormwater con-
tainment, and some agricultural best management practices
(e.g., lagoon systems). This recent policy states that a project
is eligible for CWSRF funding as a  section 319 or section 320
project unless it has a required NPDES permit or is deter-
mined ineligible by statute.

                                                SRF's  Up





State Focus:  Funding Combined
Sewer Overflow Projects with
Michigan's CWSRF Program
Tom Kamppinen, Michigan Department
of Environmental Quality
In the mid 1980s, Michigan began to address wet weather dis-
charges from combined sewer systems throughout the state.
A combined sewer system is a sewer system that was designed
to carry both sanitary waste and stormwater runoff. These
systems were designed in the late 1800s and early 1900s.
    This effort was the result of several factors including the
Remedial Action Plan for water quality problems in the Rouge
River in southeast Michigan and public comments received
during the issuance process of the National Pollutant
Discharge Elimination System (NPDES) permits for the city of
Grand Rapids.
    To address the combined sewer overflow (CSO) dis-
charges, Michigan developed a strategy that established the
goals of meeting water quality standards, protecting designat-
ed uses, and achieving the Clean Water Act objectives of pro-
viding fishable, swimmable water.  The CSO strategy consisted
of three phases, which were incorporated into the NPDES per-
mits as follows.  First, the permittees were required to opti-
mize operation of the collection systems to minimize wet
weather discharges and eliminate dry weather discharges of
sewage. Second, the permittees were required to develop and
implement plans to provide adequate treatment to protect the
public and eliminate raw sewage discharges. Third, the per-
mittees were required to develop and implement long-term
plans to provide adequate treatment  of CSO discharges to
comply with water quality standards.  Communities were pro-
vided default design criteria with the option to demonstrate
that a lesser technology would protect public health, eliminate
raw sewage discharges, and meet water quality standards,
during a design storm event.
    During the public noticing of the NPDES permits in the
Rouge Basin, communities challenged the default criteria for
adequate treatment.  As a result, agreement was reached with
the twelve communities and Wayne County on a demonstration
study where various facilities would use different design crite-
ria and evaluate the results. Other features were also
designed into some basins providing shunts to direct flows
greater than the design storm to the receiving stream, allow-
ing the basin to capture first flush and fully treat smaller
storms.  In addition, Wayne County was successful in receiving
a series of federal grants to evaluate impacts of wet weather
flows, study nonpoint source impacts, construct CSO retention
basins of different design, and separate sewers. This effort is
commonly known as the Rouge River Wet Weather
Demonstration Project. The basins are now complete and
performance evaluations are ongoing. Based on the results,
the communities and Wayne County will proceed with Phase II
and Phase III of this CSO program for the remaining outfalls.
    Initially, the Department of Environmental Quality identi-
fied 70 communities as having CSOs. All CSO facilities now
have NPDES permits issued requiring communities to develop
long-term CSO control plans and implementation schedules.
During this effort, the CWSRF has played a major role in
assisting municipalities in meeting their permit requirements.
Since  1989, a total of $1.076 billion in assistance has been
provided to 165 projects. We have funded 84 individual CSO
projects (46 communities) totaling $492 million.  This
equates to 46 percent of Michigan's CWSRF money going to
correct CSO discharges (see Figure 1).

                                                  SRF's  Up
    The types of projects funded range from a small commu-
nity of 700 people costing $955,000, to the cities of Grand
Rapids for $65 million, Lansing for $65 million, and Saginaw
for $75  million. Grand Rapids, Michigan's second largest city,
has reduced the discharges of combined sewage by 90 per-
cent.  The project included a retention basin serving the east
side of the city and separation of combined sewers on the
west.  In addition to the CWSRF loans, the city received a 55
percent  construction grant for $18.6 million in 1990. This
effort  has substantially reduced the public health advisories in
the Grand River below Grand Rapids.
    The city of Lansing (population 125,000) is also on the
Grand River, and is addressing its $175 million CSO  program
over a period of 30 years by constructing new sanitary sewers.
The long-term period reflects the difficult task of large cities
separating sewers due to construction scheduling and com-
munity-wide construction impacts.
    The city of Saginaw, which will complete construction on
its last loan in 2000, will achieve compliance with its NPDES
permit and the State of Michigan and EPA CSO policy.
Saginaw received its first loan in 1991 and is utilizing a com-
bination of separation, rehabilitation of sewers for
inflow/infiltration removal, and retention basins.
    The alternatives chosen by communities reflect  local
conditions and are engineered to meet a community's needs.
In small communities, separation is the most common
approach. When separation is chosen, new sanitary sewers
are the most effective choice as it avoids the need for addi-
tional expense of rehabilitation of the combined sewers or the
need for equalization basins.
    There is much more to accomplish. The city of Detroit
has submitted its long-range CSO Plan estimated at $1 billion.
The first segment of this plan was funded in 1999 ($40.66 mil-
lion) .  The remaining segments are scheduled in the  city's
NPDES permit to be under construction by 2005.  The size of
this project exceeds the capacity of the  CWSRF to provide the
desired level of assistance.  Other significant projects include
the Twelve Towns drainage project in Oakland County for  $140
million, Port Huron for $60 million, Bay City for $30 million,
and other smaller but still important water quality projects.
    Here are some interesting observations in Michigan's pro-
gram. In fiscal year 1999, the CWSRF funded $245 million in
projects. Had grants been used rather than revolving funds, the
state could have provided only $59 million in assistance. In fis-
cal year 2000, Michigan has $350 million of projects seeking
assistance with only $210 million available. This amount
reflects 25 percent of the total national appropriation for fiscal
year 2000.  The demand for next year looks even greater.
    While Michigan has not funded any nonpoint source proj-
ects in the CWSRF, it can be readily seen that the larger envi-
ronmental bang for the buck is assisting communities in cor-
recting the discharge of raw sanitary sewage from their com-
bined sewers.  This does not  mean Michigan has done little in
addressing nonpoint pollution.  On the contrary, in 1998,
Michigan voters passed an environmental bond program that
provides assistance to brownfield cleanups and $50 million
for nonpoint source programs.
    While Michigan may be unique in its situation with CSOs,
it does point out the ability of the CWSRF to meet each state's
                                    CONTINUED ON PAGE 8

                                                       II. Advanced
                                                     1MB.  Major
                                                IVA. New
                                                Collection Sewers
 Michigan CWSRF Funding by Category

                                                SRF's Up

water quality issues; something the construction grants pro-
gram or similar proposed earmarked programs cannot do.
The CWSRF program has resulted in projects going to con-
struction in half the time, 60 percent coming in at or under
budget, and meeting performance requirements at a consis-
tently high level. In Michigan, the CWSRF program is admin-
istered by the Department of Environmental Quality,
Environmental Assistance Division, Municipal Facilities
Section,  along with the Michigan Municipal Bond Authority.
     What's ahead?  After another $1-2 billion in CSO needs,
we will be  facing the need to upgrade and expand facilities
previously  funded in the grant program that have reached
their useful life. The need for the revolving fund is there.
Depending on new initiatives such as TMDLs, etc. the question
is, at what  level?

For more information, contact Tom Kamppinen at
(517) 373-4718.

State Focus: Texas and Capacity Development
An interview with Carol Limaye, Texas Natural
Resources and Conservation Commission
It used to be called viability - the ability of a water system to
maintain operations and provide customers with safe drinking
water. The 1996 SDWA Amendments introduced a new term -
capacity - to refer to the technical, financial and managerial
ability of a system to operate properly.  Two provisions were
included in the law - the first requires states to ensure that all
new systems have adequate capacity,  and the second requires
states to develop a strategy to assist existing water systems in
acquiring and maintaining capacity. These capacity develop-
ment provisions are closely linked to the DWSRF program -
states are subject to loss of DWSRF grant funds if they fail to
implement them.  States are also required to assess the
capacity of DWSRF assistance applicants before providing
funding. Several of the set-asides provide funding for devel-
oping and implementing capacity development programs and
providing direct assistance to water systems lacking capacity.
While some states were uncertain about how this new focus
on capacity would impact their state programs, others saw the
new provisions as a validation and natural extension of the
work they had already been doing and were excited about the
opportunity to have funding for their programs.  Although
capacity-related work has been largely restricted to state
drinking water programs, finance agencies which provide
assistance to water suppliers are now seeing the benefits to a
comprehensive approach in working with water systems. After
all,  ensuring repayment of loans is better assured if the lender
can be certain that the system is being properly maintained
and is capable of maintaining a revenue stream. One state
that has taken the lead with respect to capacity development is
Texas.  The Texas Natural Resources and Conservation
Commission (TNRCC) oversees the drinking water program in
the  state and works with the Texas Water Development Board
(TWDB) to implement the DWSRF program.  We asked Carol
Limaye from TNRCC to provide some information on their
capacity development program.

Q:  Did Texas have a "capacity development"pro-
gram before the  1996 SDWA Amendments?

A: Yes.  Although the primacy program and the utility regula-
tory program were in separate state agencies before 1992,
staff from the two agencies would often work together in an
attempt to move water systems towards compliance. When the

                                                 SRF's  Up
two programs were merged into the same agency in 1992, there
was more opportunity to see all aspects of the financial, mana-
gerial, and technical (FMT) resources of water systems. A
Viability Task Force was formed in 1994 which included staff
from the drinking water and utility regulation programs (includ-
ing rate change approvals, service area delineations, drinking
water monitoring and enforcement). The Task Force laid the
groundwork for TNRCC's capacity development program.

Q: Is  the capacity development program directed
towards a certain class of systems? If so, how have
you found working with them?

A: The program screens all sizes and types of new public
water systems.  New systems must attempt to obtain service
from neighboring systems before applying for approval of
engineering plans and specifications. The proposed new sys-
tem must also submit a business plan.  We have found that
entrepreneurs proposing water systems to support land devel-
opment often need basic information on financial concepts
and technical requirements.
    For existing systems, our on-site assistance program is
targeted towards systems which  serve under 15,000 in popu-
lation and have health and compliance problems.  Although
the assessment and assistance program is voluntary, less than
5 percent have declined to be assessed. Some  small systems
expressed concern that they do not have the staff time or
financial resources to engage in budgeting and business plan-
ning. The systems which have participated in planning have
found the process to be beneficial.

Q: Can you give an example of a specific activity
being conducted by TNRCC to support the drinking
water program?

A: Long before the implementation of the capacity develop-
ment strategies, TNRCC was providing technical assistance
and conducting programs for comprehensive performance
evaluations (CPE), operator certification, source water protec-
tion, and drinking water monitoring. Those programs are
now coordinated with the capacity development program.
    The new activity most supportive of the SDWA capacity
development requirements is the assessment and review of the
FMT capabilities of new water systems.  The engineering plans
and specifications of certain systems will not be approved
until they have submitted an acceptable business plan. TNRCC
has the authority to require existing systems to submit a busi-
ness plan if they have a history of non-compliance or  a pend-
ing enforcement action. Systems which require Certificates of
Convenience and Necessity to define  their service areas must
demonstrate that they have FMT capability.  TNRCC uses
agency staff and contractors to assess the FMT capabilities of
existing systems and provide assistance.  These new activities
address financial and managerial issues  which have not tradi-
tionally been addressed by technical  assistance and reviews.

Q: How have you worked with the TWDB to
incorporate the concept of capacity into their
application review?

A: If a system on the Intended Use Plan is invited to apply for
a DWSRF loan, the TNRCC prepares a capacity assessment
report for the TWDB.  The capacity assessment has two phas-
es: On-Site and Office Review.  The On-Site Assessment uses a
standard form to assess the FMT aspects of the system. The
form indicates the "non-negotiable"  strengths a system must
have to demonstrate FMT capability (budget, reports to the
governing board, periodic  rate review, emergency planning
etc.).  Other strengths may not be essential for FMT capability,
but are considered important and their presence or absence is
noted on the report.   The  office review checks for compliance
with drinking water standards and other requirements of the
agency.  TNRCC then certifies to  the TWDB whether or not  the
system has the FMT capability to comply with  drinking water
regulations.  TWDB and TNRCC staff  have worked together to
implement and refine this process.
                                 CONTINUED  ON PAGE 10

                                                             SRF's Up


Q:  Do you have examples of where the capacity
assessment has identified issues with potential
ffWSRF assistance recipients? What plan of action
resulted from the findings?

A:  Since the program began, several DWSRF systems have
been found not to have sufficient FMT capacity even with the
corrections to be made by the DWSRF project. Those systems
are following a Corrective Action Plan to address the deficien-
cies before  proceeding with a DWSRF loan. One system's plan
includes hiring a certified operator, conducting a rate study,
establishing billing, collection and service termination proce-
dures and establishing a preventative maintenance program.
Another system's plan calls for operator training schedules,
emergency planning and conducting a rate study. TWDB can
require these items to be resolved before funds are released
to the DWSRF applicant.

Q:  Has set-aside funding helped in implementing
your program?  How are you using the funds now or
planning to use them in the future?

A:  The set-aside funds have been used to contract with other
organizations to provide on-site assistance and other services
which include the following:
•  Assess the FMT capabilities of small water systems with
  health and compliance problems.
•  Develop and monitor the implementation of Corrective
  Action Plans based on capacity assessments.
•  Assess and monitor DWSRF applicants and assist with
  DWSRF applications, if necessary.
•  Assess the potential for consolidating or restructuring
  selected systems.
•  Assist water systems in  establishing Source Water
  Protection Programs.
•  Conduct CPEs for Surface Water Plants and improve training
  for their operators.
•  Develop an integrated data base for drinking water monitor-
  ing, economic regulation and district oversight.
•  Conduct research on capacity enhancements and
    TNRCC has also used set-aside funds to support some
agency positions and acquire additional computer hardware.
Although TNRCC has used less than 10 percent of the set-
asides available, the set-asides have provided funding for the
state to develop its own capacity in addressing the FMT prob-
lems faced by small water systems.

Q:  Are there any other cross-program/agency con-
nections that you're trying to make to spread the
concept of capacity development to other parties?

A: Yes. Within the agency, the capacity development program
staff has worked with the 16 TNRCC Regional Offices to coordi-
nate activities and on-site visits.  Staff is also presenting infor-
mation to the Local Government Assistance Team of the TNRCC.
    TNRCC is interested in working with  all funding agencies.
Recently, the Texas Department of Housing and Community
Affairs  (TDHCA) conducted joint training  sessions with TNRCC
staff on water  system FMT capability.  TDHCA administers the
community block grant program for non-entitlement counties.
Both agencies recognize the need to coordinate activities so
that funding is targeted to viable systems or used to restruc-
ture non-viable systems.
    Water associations and other stakeholders, known as the
Drinking Water Advisory Group, have been meeting with
TNRCC staff on a quarterly basis for updates and input into the
rule changes and initiatives of the TNRCC. The members of
that group are briefed on the status of the capacity develop-
ment program and the DWSRF program at every meeting.
    The state legislature has extended the requirement for FMT
assessments to applicants for other funding programs of the
TWDB. The principles of assessing and reporting on FMT capa-
bilities have been applied to state loans and grants for water
and wastewater systems in economically distressed areas.

for more information about the Texas  capacity develop-
ment program, contact Carol Limaye at (512) 239-6120 or
DougHolcomb at (512) 239-6960.

                                                 SRF's  Up
State Activities and Trends Briefs
Washington CWSRF Closes First Loans to Indian Tribe
The Swinomish Indian Tribal Community is the first Native
American community to receive financial assistance from the
CWSRF.  The Swinomish community has received more than
$1.2 million from the State of Washington for wastewater and
stormwater treatment.
     The Swinomish community has received two loans from
the State of Washington.  In March 1998, the Swinomish
received a $961,000 loan to refinance existing debt.  The
community used these funds to purchase capacity in an exist-
ing wastewater treatment plant in neighboring La Conner,
Washington.  In August 1999, the Swinomish community
received a second loan for $240,000.  The Swinomish are
using these funds to build a stormwater treatment facility on
tribal lands. The stormwater treatment facility will consist of
wet ponds,  biofiltration swales, and constructed wetlands.
     Although these are the first examples of a tribal commu-
nity receiving CWSRF funding, Native American tribes are eli-
gible for funding in every state.  Section 603 (c) of the Clean
Water Act provides that CWSRF funds shall be used to provide
financial assistance to any municipality, intermunicipal,  inter-
state, or state agency for construction of publicly-owned treat-
ment works.  Section 502(4)  of the Act defines "municipality"
to include "an Indian Tribe or an authorized Indian Tribal

For more information, contact Brian Howard at
(306) 407-6510.
Replacement Fund Innovation in Arizona DWSRF
A critical consideration for drinking water utilities is ensuring
that sufficient funds are available for the operation and main-
tenance (O&M) of water systems. Failure to maintain suffi-
cient O&M reserves can affect the capacity of a water system
to provide safe drinking water to customers. Private water
companies often have a difficult time obtaining approval for
rate increases from public utility commissions that would
allow them to maintain reserves for O&M.
    In order to ensure that water systems maintain capacity
after receiving a DWSRF loan, the Arizona Water
Infrastructure Financing Authority (WIFA) requires that a sys-
tem establish a replacement fund to replace and repair equip-
ment that may fail during the course of the loan. WIFA
requires that loan recipients make monthly payments to a
debt service reserve that provides initial security on the loan.
Five years into the loan repayment period these payments are
instead deposited into a replacement fund. Payments to the
replacement fund continue until the loan is repaid.
    This mechanism benefits both the state and  the water sys-
tem. The replacement fund provides an additional level of
security on the loan for WIFA should the debt service reserve
prove inadequate to meet a default, and the water system is
able to establish a fund to provide replacement costs both
during and after the loan period-something that has been his-
torically difficult for them to achieve. WIFA has worked with
the Arizona Corporation Commission, which regulates private
utilities in the state, to bring them on board-with the result
that the commission has approved rate increases for systems
receiving assistance to cover the debt service reserve and
replacement funds in addition to the funds needed to repay
principal and interest on the loan.

For more information, contact Greg Swartz at
(602) 230-9770.
                                 CONTINUED ON PAGE 12

                                                  SRF's Up


Project View
What do the SRF programs fund?  How do they provide public
health and water quality benefits? In this space we are high-
lighting projects that are typical of those funded by the Clean
Water and Drinking Water SRF programs. This issue focuses
on projects that address compliance with the Clean Water Act
and the Safe Drinking Water Act.

Many CWSRF loans are used to replace aging sewage treat-
ment works with compliance violations.  The city of Hoover,
Alabama  (population 40,000) has done so after receiving two
loans from the Alabama SRF program for more than $18 mil-
lion. The city used these funds to design and construct a new
1.2 million gallon per  day waste water treatment plant and
holding pond to replace an older facility.  The new plant has
enabled the city to eliminate sewer system overflows, bypasses
of untreated or partially treated wastes, and effluent viola-
tions.  The plant discharges to the environmentally sensitive
Cahaba River, and for this reason the facility's NPDES permit
has advanced limits. Most notably, the permit allows dis-
charge to the  river only between the months of December and
April, when streamflow is greatest.  Also included in the proj-
ect is an infiltration/inflow study to determine sources of
stormwater intrusion into the sanitary sewer collection sys-
tem, design and construction for the rehabilitation of this
sewer collection system, and  design and construction for the
rehabilitation of several existing wastewater pumping systems.

Two projects from Washington demonstrate how the State's
DWSRF program is helping both small and large public water
systems fund projects needed to ensure compliance with the
Safe Drinking Water Act. Both of these loans completed fund-
ing packages for systems that were under Agreed Orders from
the Department of Public Health related to compliance with
the Surface Water Treatment Rule. The State provided a
$45,423 loan to Camp Zanika Lache (population served -
100) for a project needed to allow the system to discontinue
use of unfiltered creek water as a source of drinking water.
The system used the funds to install a new well and make
additional improvements, including pumps, storage, distribu-
tion and a standby disinfection system. A $1 million loan was
provided to the City of Walla Walla (population served -
31,000) to install an ozone system to allow it to resolve disin-
fection compliance issues.  The system also constructed two
new distribution reservoirs to replace existing uncovered
reservoirs which will be  used for raw water storage instead.
Additional examples of projects being funded in Washington
can be found in the state's February 2000 Water Tap newslet-
ter, available on-line at

                                                 SRF's  Up
Training Needs
In the summer of 1998, EPA conducted nationwide training
for state and EPA regional staff on financial issues for the SRF
programs. Nationwide training with a sole focus on the
DWSRF program was last conducted in the summer of 1997.
Since that time "SRF 101" training has been conducted on an
as requested basis.  During the fall of 1999, EPA conducted a
DWSRF 101 training requested by Region 7. While a small
group of staff from Kansas, Missouri, Iowa and Nebraska was
anticipated, the training ended up attracting more than 80
people from 10 states.  Obviously, with the addition of new
staff, and with staff turnover, there is still a need for training
in the DWSRF program.  Last spring the Association of State
Drinking Water Administrators (ASDWA), Association of State
and Interstate Water Pollution Control Agencies (ASIWPCA),
and Council of Infrastructure Financing Authorities (CIFA)
collaborated to conduct a survey of training needs for the
CWSRF and DWSRF programs.  Questionnaires were distrib-
uted to state personnel working in the various agencies that
implement the SRF Programs.  ASDWA compiled the results of
the survey and issued a report in August 1999.  A total of 279
responses were collected from DWSRF (55%) and CWSRF
(41%) financial and programmatic staff in 47 states. The sur-
vey asked respondents  to identify beginner, intermediate  and
advanced training needs in the financial/legal and engineer-
ing/program administration arenas.  The top two financial/
legal topics were analysis of financial statements and intro-
duction to project financing. The top two engineering/ proj-
ect administration topics were cross-cutting federal authori-
ties in the SRF  programs and environmental review. Results
from the  survey have been used to develop an agenda for state
DWSRF training planned in a few EPA regions during the sum-
mer of 2000 and will also be used to develop future plans for
training conducted by EPA and the respective associations.
Drinking Water Needs Survey
Site visits to small systems are continuing, but the primary
data collection period has closed and the results are being
tallied for the next Report on Drinking Water Infrastructure
Needs, scheduled for release in February 2001. An impres-
sive 98 percent of the questionnaires distributed to water sys-
tems were returned to EPA.  A preliminary assessment indi-
cates that the number of projects identified by systems is
greater than that  reported during the first survey.  Results
from this new survey will be used to update the formula used
to allot DWSRF funds among states beginning with the FY
2002 appropriation.  EPA has been asked to consider
whether the allotment formula should be changed to address
several states that restrict privately-owned public water sys-
tems from receiving DWSRF funding.  Concerns have been
raised by associations representing private utilities, members
of Congress, and  several states that it is not equitable for a
state to receive an allotment based on total infrastructure
needs when the state will only finance that portion of the
needs associated  with publicly-owned systems.  While EPA
has not made a final decision concerning future changes to
the allotment formula, it has raised the issue to states and
other stakeholders at meetings. EPA will release a notice in
the Federal Register sometime this fall that will  propose and
seek comments on revisions to the existing formula based on
the results of the  latest needs survey.

Report to Congress on Transfers
This August, EPA  must provide Congress with a  report on the
use of the provision in the 1996 SDWA Amendments that gives
states the flexibility  to transfer an amount equal to 33 percent
of their DWSRF grant to the CWSRF program, or an equiva-
lent amount from the CWSRF to the DWSRF program.  As of
the beginning of 2000, New York,  New Jersey, Colorado,
Maryland, and Montana had transferred funds from their
CWSRF to their DWSRF programs.  All states, with the excep-
tion of Colorado,  transferred repayments.
                                 CONTINUED  ON PAGE 14

                                                            SRF's Up
IN THE WORKS from page 13

SRF Work Group Meeting
The State/EPA SRF work group will have its seventh meeting
this May in Washington, B.C.  Several sub-groups have been
formed to address specific issues including audits, sprawl,
financial measures, and environmental indicators. These sub-
groups also include state and EPA staff who are not official
members of the work group.  State staff are encouraged to
contact representatives of the work group to inform them of
any issues that they would like to have the group address.  A
membership listing of the work group and sub-groups can be
found on the DWSRF website.  There are currently 18 state
representatives on the work group with equal representation
from the CWSRF, DWSRF, and financial program areas. A
process has been developed for rotation  of members on the
group that will result in 6 new members  every year. State staff
interested in participating on the work group should contact a
member to learn more.

CWSRF Progress Report
The CWSRF  issued its first progress report in 1995, highlight-
ing a successful transition from the Construction Grants pro-
gram to the new revolving fund concept.  Five years later, the
program remains a remarkable success story, but its continu-
al innovation has led to increased sophistication-and a need
for a progress update.
    A new report of progress should be available this sum-
mer. It will highlight the program's success addressing a vari-
ety of water quality problems, working with a variety of bor-
rowers, and managing the program to fully utilize its growing
financial resources. It will also discuss ways in which the
CWSRF can address future challenges.
                                                                               FAXBACK    FORM
                                                                                         Please fax to EPA Headquarters:
                                                                                CWSRF PROGRAM (Attn: S. Hoover) • 202-260-0116
                                                                                DWSRF PROGRAM (Attn: V. Blette) •  202-401-2345

                                                                          Comments on Current Newsletter:
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                                             SRF's  Up
1. Association of Metropolitan Sewerage
  Agencies Annual Meeting
  Location: Washington, D.C.
  Date: May 20-24, 2000
  Information: See AMSA website

2. National Rural Water Association Rally
  Location: Washington, D.C.
  Date: May 21-23, 2000

3. Water and Growth in the West Conference
  Location: Boulder, CO
  Date: June 7-9, 2000

4. American Water Works Annual
  Conference and Exposition
  Location: Denver, CO
  Date: June 11-15, 2000
  Information: See AWWA website

5. Watershed Management and Operations
  Management 2000
  Location: Fort Collins, CO
  Date: June 20-24, 2000

6. Association of State and Interstate
  Water Pollution Control Agencies Annual Meeting
  Location: San Diego, CA
  Date: August 13-16, 2000
  Information: See ASIWPCA website
                                                          SRF LINKS
                                                            Both SRFs maintain pages on the EPA website with informa-
                                                            tion on the programs. Both sites contain guidance, policy
                                                            documents and contact lists for state and regional staff.
                                                            The URLs are as follows:
                                                            •  CWSRF:
                                                            •  DWSRF:
                                                            The DWSRF site includes a link to a Local Drinking Water
                                                            Information page, which has state by state information on
                                                            drinking water systems and programs. Where available,
                                                            this page includes a link  to state DWSRF programs.

                                                          2. National Associations
                                                            •  Association of State  and Interstate Water Pollution
                                                              Control Agencies:

                                                            •  Association of State  Drinking Water

                                                            •  American Water Works Association:

                                                            •  Association of Metropolitan Water Agencies:

                                                            •  Association of Metropolitan Sewerage Agencies:

                                                            •  National Association of Water Companies:

                                                          3. State Programs
                                                            Many SRF programs have websites that are used to provide
                                                            program information and application materials. This
                                                            newsletter places a spotlight on Maryland.
                                                            •  Maryland CW/DWSRFs
                                                              websrvr. mde. state, md. us/wqfa/

United States
Environmental Protection
Washington, DC 20460
Official Business
Penalty for Private Use
     On the National Scene
     • The Congressional Outlook on Wastewater
      Infrastructure Issues
     • DWSRF Implementation
     • Addressing Nonpoint Source Pollution with the CWSRF

     State Activities and Trends
     • State Focus: Funding Combined Sewer Overflow Projects
      with Michigan's CWSRF Program
     • State Focus: Capacity Development in Texas' DWSRF Program
     • Washington Closes First CWSRF Loans to Indian Tribe
     • Replacement Fund Innovation in  Arizona's DWSRF
In the Works - Report on Ongoing SRF Activities
•  Training Needs
•  Drinking Water Needs Survey
•  Report to Congress on Transfers
•  SRF Work Group Meeting
•  CWSRF Progress Report
Events* SRF Fax Back •  SRF Links