United States
Environmental Protection
Agency
Office Of Water
(4204)
EPA 832-B-95-007
August 1995
Combined Sewer Overflows
Guidance For Funding Options
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EPA/832-B-95-007
August 1995
COMBINED SEWER OVERFLOWS
GUIDANCE FOR FUNDING OPTIONS
U.S. Environmental Protection Agency
Office of Wastewater Management
Municipal Support- Division
Washington, D.C.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
WATER
MEMORANDUM
SUBJECT: Guidance for Funding Options
FROM: Michael B. Cook, Director (
Office of Wastewater Management
TO: Interested Parties
I am pleased to provide you with the Environmental Protection
Agency's (EPA's) guidance document on funding options for
combined sewer overflows (CSOs). This guidance is one of several
documents being prepared to foster implementation of EPA's CSO
Control Policy. The CSO Control Policy, issued on April 11,
1994, establishes a national approach under the National
Pollutant Discharge Elimination System (NPDES) permit program for
controlling discharges into the nation's waters from combined
sewer systems.
To facilitate implementation of the CSO Control Policy, EPA
is preparing guidance documents for use by NPDES permitting
authorities, affected municipalities, and their consulting
engineers in planning and implementing CSO controls that will
ultimately comply with the requirements of the Clean Water Act.
This document describes a broad spectrum of options that may be
available to fund the capital, debt service, and operational
costs of CSO controls. The benefits and limitations of the
various options are presented to aid in evaluating the
applicability of each option.
This guidance has been reviewed extensively within the
Agency as well as by municipal groups, environmental groups, and
other CSO stakeholders. I am grateful to all who participated in
its preparation and review, and believe that it will further the
implementation of the CSO Control Policy.
If you have any questions regarding the manual or its
distribution, please call Haig Farmer in the Office of Wastewater
Management, at (202) 260-7279.
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Notice
The statements in this document are intended solely as guidance. This document is not
intended, nor can it be relied on, to create any rights enforceable by any party in litigation with the
United States. EPA and State officials may decide to follow the guidance provided in this
document, or to act at variance with this guidance, based on an analysis of specific site
circumstances. This guidance may be revised without public notice to reflect changes in EPA's
strategy for implementation of the Clean Water Act and its implementing regulations, or to clarify
and update the text.
Mention of trade names or commercial products in this document does not constitute
endorsement or recommendation for use.
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ontents
1. INTRODUCTION 1
Background 1
Evolution/History of the Policy 2
Guidance 4
Purpose 5
Audience 6
Guide Organization 6
II. OVERVIEW OF CAPITAL FUNDING OPTIONS 9
Bonds 10
Revenue Bonds 11
Case: Revenue Bonds • Atlanta, Georgia 12
General Obligation Bonds 13
Case: General Obligation Bonds- South Portland, Maine 14
Other Bond Options 15
Loans 17
SRF Loans 18
Case: SRF Loans-Cleveland. Ohio 19
Case: SRF Loans-State of Michigan SRF 20
Other State Loan Programs 21
Rural Utilities Service Loan Program 22
CoBank Loan Program 23
Commercial Loans 24
Grants 25
Federal Grants 26
State Grant Programs 28
Privatization 29
Other Capital Funding Options 31
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IIL OVERVIEW OF ANNUAL FUNDING OPTIONS 35
Fees 36
Wastewatcr User Fees 37
Connection Fees 38
Other Specialized Fees 39
Taxes 40
Income Taxes 41
Sales Taxes 42
Case: Columbus, Georgia 43
Property Taxss 44
Miscellaneous Annual Funding Sources 45
IV. DESIGNING YOUR FUNDING SOLUTION 47
Case: Western Port, Maryland 50
REFERENCES
GLOSSARY
APPENDIX A - State Grant a»d Loan Program!
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ntroduction
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ntroduction
B
BACKGROUND
Combined sewer systems (CSSs) are
wastewater collection systems designed to
cany sanitary sewage consisting of domestic,
commercial, and industrial wastewater and
surface drainage from rainfall or snowmelt in
a single pipe. During dry weather, CSSs
convey domestic, commercial, and industrial
wastewater to a treatment facility. In
periods of rainfall or snowmelt, total
wastewater flows can exceed the capacity of
the CSS and/or treatment facilities. When
this occurs, the CSS overflows directly to
surface water bodies, such as lakes, rivers,
estuaries, or coastal waters. These
overflows—called combined sewer overflows
(CSOs)~are a major source of water
pollution in communities served by CSSs.
CSSs serve about 43 million people in
approximately 1,100 communities
nationwide. Most of these communities are
located in the Northeast and Great Lakes
regions.
Because CSOs are comprised of
untreated domestic, commercial,
industrial wastes and wet weather flows,
many different types of contaminants are
present. Contaminants include
pathogens, oxygen-demanding
pollutants, suspended solids, nutrients,
toxics, and floatable matter. Because of
these contaminants, CSO discharges can
cause a variety of adverse impacts on the
physical characteristics of surface waters
and the viability of aquatic habitats.
CSOs have been shown to be a major
contributor to use impairment in many
receiving waters and have contributed to
shellfish harvesting restrictions, beach
closures, and even occasional fish kills.
Page 1 CSO Funding Options
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VOL UTION/HISTORY OF THE CSO
CONTROL POLICY
Historically, the control of CSOs has
proven to be extremely complex. This
complexity steins partly from the difficulty in
quantitatively determining CSO impacts on
receiving water quality and the site-specific
variability in the volume, frequency, and
characteristics of CSO discharges. In
addition, the financial considerations for
communities with CSOs can be significant.
The U.S. Environmental Protection Agency's
(EPA) 1992 NEEDS survey estimates the
CSO abatement costs for the 1,100
communities served by CSSs to be
approximately $41.2 billion.
To address these challenges, EPA's
Office of Water issued a National Combined
Sewer Overflow Control Strategy on August
10, 1989. The Strategy reaffirmed that
CSOs are point source discharges subject to
National Pollutant Discharge Elimination
System (NPDES) permit requirements and to
the Clean Water Act (CWA). The Strategy
recommended that all CSOs be identified and
categorized according to their status of
compliance with these requirements. In
addition, the strategy charged all states
with producing, by January 16,1990,
state-wide permitting strategies designed
to reduce pollutant discharges from
CSOs.
Although the Strategy was
successful in focusing increased attention
on CSOs, it fell short in resolving many
fundamental issues. In mid-1991, EPA
initiated a process to accelerate
implementation of the Strategy that
included negotiation with representatives
for the regulated communities, State
regulatory agencies, and environmental
groups. These negotiations were
conducted through the Office of Water's
Management Advisory Group. The
initiative resulted in the development of a
CSO Control Policy, which was
published in the Federal Register on
April 19,1994.
The Policy contains provisions for
developing appropriate, site-specific
NPDES permit requirements for all CSSs
that overflow due to wet weather events.
CSO Funding Options
Page 2
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The Policy contains four key principles
to ensure that CSO controls are cost
effective and meet CWA objectives:
1. Providing clear levels of control
that would be presumed to meet
appropriate health and
environmental objectives;
2. Providing sufficient flexibility to
municipalities, especially financially
disadvantaged communities, to
consider the site-specific nature of
CSOs and to determine the most
cost-effective means of reducing
pollutants and meeting CWA
objectives and requirements;
3. Allowing a phased approach to
implementation of CSO controls
considering a community's financial
capability; and
4. Review and revision, as
appropriate, of water quality
standards and their
implementation procedures
when developing CSO control
plans to reflect the site-specific
wet weather impacts of CSOs.
The Policy also announces an
enforcement initiative that requires the
immediate elimination of overflows mat
occur during dry weather and ensures that
the remaining CWA requirements are
complied with as soon as possible.
Page 3 CSO Funding Options
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UIDANCE
To help CSO permittees and NPDES
permitting and WQS authorities successfully
implement the provisions of the CSO
Control Policy, several guidance documents
have been developed to support the Policy.
Exhibit 1-1 identifies each guidance
document and its purpose.
Extibtl 1-1 CSO Related G«id»ace Decorate
Title
Combined Sewer Oveiflowt-GuidmneeftrLoHf'
Torn Control Ptmn (EPA &2-B4&4t2V
Combined Sewer Overflow* Guidance for time
Minimum Control (EPA 832-95-W3)
Combined Sower Overflows-Guidance for
Screwing out Rannng (EPA 832-B-»S4t4)
Combined Sewer Overflows-Guidance for
Monitoring m*4 Modeling (EPA 832-B-9S405)
Combined Sewer Overflows-GuUutcefor
Fuuutdmt CtptbiHty Assessment mnd Schedule
DevdopmattfEPA 832-B-95-Q06)
Combined Sewer Overflows-Funding Options
GmUmnce (EPA 832-B-95-M7)
Combined Sewer Overflows-Guidance for Permit
Writers (EPA 832-B-95-t08)
Combined Sower Overflow-Questions mnd Answers
on Wmter QuoMty Standards and the CSO Program
(EPA 832-B-9S-009)
PMHM«
Pr*vtdtt reduce «• d>v»iipl«g«fcm 1mm CSO
cMMrolpfam
PrevMet jridtact o* tmf\fmmiamg1k9 mm*
vMmmm cratrob
Provide, critwte far «t*btt*tagprtafM« tor CSO
ccntro)
n inlrti i Liilrtiiif ii nn miiiilliiil>|, •ndhOlf, Mil
system etaaraetertzaltM
Provides gulduKc OB asaeutee ttir fluMrtai fanpart nf
CSO coatrob and developing a rwoaabfe «dirfnk
for ImplcaKatadoB of CSO eoatrob
Provides options for fnadteg CSO coatroh
Provides guidance oo writing NPDES perattts far
CSO controb
Provides antwers to crltkal question* a* water
quality standards and the CSO program
CSO Funding Options
Page 4
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URPOSE
This guide will help permittees as they
develop CSO control funding plans. The
guide describes different funding sources that
can be used for CSO control projects.
This guide presents alternative sources
for
*• capital funding to pay for CSO
construction projects.
*• annual funding to repay annual debt
service and operating costs.
The guide describes a broad spectrum
of funding options, discusses their
applicability to CSO control projects, and
reviews the benefits and limitations of each
option. The guide includes examples that
illustrate how permittees are addressing
CSO financing.
Finding the lowest cost funding
methods will be a significant challenge to
permittees. It is likely that most permittees
will continue to depend on local revenue
bonds or State Revolving Fund loans for
capital to fund CSO controls. It is also
likely that permittees will continue to use
user fees as the primary method of
funding annual CSO and other
wastewater treatment costs.
However, it is possible that
alternatives to these methods may be
available to provide CSO funding. By
surveying the options in this guide,
permittees can determine what funding
alternatives are available to them to help
minimize the cost of CSO controls.
Page 5 CSO Funding Options
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The guide includes references to
reports, books, and other documents that
provide detailed information on specific
funding options. It also includes references
to organizations that can provide permittees
with detailed information and assistance on
funding options.
UDIENCE
This guide will help permittees during
the development of their long-term CSO
control plans. In their development of
construction and financing schedules for
implementation of the long term control
plans, permittees can use mis guide during
their assessment of the viability and
availability of various funding sources. By
presenting a wide range of funding
alternatives, permittees will be able to review
the options that are available to them,
identify those that are most attractive from a
cost stand point, and select the set of funding
options that best meets their need.
This guide will also be useful to State
and Regional EPA professionals with CSO
planning, permitting, and oversight
responsibilities.
VIDE ORGANIZATION
There are three chapters that follow
this introduction. Chapter II presents an
overview of the major capital funding
options available to permittees. Chapter
III presents an overview of the funding
mechanisms that are available for
permittees to meet annual costs. Chapter
IV presents a discussion on designing a
funding solution. A list of useful
references and a list of state grant and
loan programs is found at the end of the
guide.
CSO Funding Options
Page 6
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verview of
Capital
Funding
Options
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verview of
Capital
Funding
Options
This chapter presents an overview of
CSO capital funding options available to
permittees. It includes examples of how
states and communities are using the options.
There are a variety of capital funding
options available for CSO projects. They are
grouped in these primary categories:
The permittee can identify its best
funding option after reviewing all the
funding sources, considering their
benefits and limitations, and determining
their applicability.
*• Bonds
*• Loans
*• Grants
» Privatization
*• Other Capital Funding Options
Not all options may be available to
every permittee. For example, due to limited
past experience in obtaining debt financing,
some permittees may have difficulty
obtaining long-term bond financing. Also,
not all states provide separate grant or loan
assistance programs for permittees.
Page 9 CSO Funding Options
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B
ONDS
Bonds are promissory notes issued
(sold) by local governments to raise funds to
pay for projects that require a large amount
of capital. A bond has a fixed payment
schedule, often 20 years for municipal or
local utility bonds. Periodic payments, often
semi-annual, of interest and principal are
made to repay the bond by the end of the
schedule.
Interest rates on the bond reflect the
relative security of the bond repayment
Therefore, permittees with more stable
socioeconomic conditions and proven
management capabilities will be able to
obtain a lower interest rate than permittees
with weaker conditions.
Permittees may lower interest rates on
bonds by using credit enhancements like:
•> Purchasing bond insurance that covers
debt service payments should the
permittee default on a bond.
» Establishing a larger debt service
reserve fund that can be drawn on in the
event of a default.
LOCAL BONDS
» Obtaining additional backing in the
form of guarantees or assurances
from the state so that bond
payments will be made in the event
of a default.
Bonds are the primary method
governments and service utilities (e.g.,
regional sewer authorities) use to fund
capital intensive construction projects.
Using bonds allows issuers to spread out
payment for a capital intensive project
over a project's useful life.
This section describes the bonds
commonly used by permittees.
Additional information on the various
types of bonds can be obtained from
local investment firms, state finance
departments, or state municipal
organizations.
CSO Funding Options Page 10
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Revenue Bonds
Revenue bonds, sometimes referred to
as water/sewer bonds, are generally backed
by user fees or service charges paid by
system users. Permittees issue (sell) bonds
through an investment banking company or
through private placement with large
financial institutions. User fees and other
revenues can be used to make periodic
payments to the investors.
Benefits
» Revenue bonds can be used by a large
majority of permittees that need to
address CSOs.
»• Payments are spread out over a period
of time that roughly matches the useful
life of the facility. As a result, users
don't pay for a facility after it is no
longer operating.
» Users are more likely to accept user fees
as a way of paying for services.
User fees are more equitable
because the system users pay for the
service rather than the general
public.
Use of revenue bonds is not usually
affected by local debt limits or voter
approval requirements.
Limitations
Interest rates on revenue bonds are
generally higher than the interest
rates on the general obligation debt
of community/permittee.
Issuing revenue debt requires the
permittee to have legally established
authority to issue debt.
The permittee needs to have
advanced financial management
expertise.
Page 11 CSO Funding Options
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c
'ASE: Revenue Bonds - Atlanta,
Georgia
Atlanta has embarked on a
comprehensive effort to correct CSO
problems. The first phase, completed in
1985. was a major factor in the successful
cleanup of the South River, The cost for the
first phase was approximately $45 million
which was funded with both federal grant
funds and local revenue bonds.
The City has moved forward with a
second phase of the project to address the
CSOs in the Chattahoochee River Basin.
The total estimated cost for this phase is
SI 10 million. The City is currently
constructing an $18 million project as part
of this phase that is being funded with
reserves that have built up in the City's
sewer enterprise fund. The remaining $92
million in construction costs will be supplied
by revenue bonds. The primary reasons the
Citv chose to use revenue bonds are:
1. Lower cost State Revolving Fund
loans were not available since State
limits on the size of individual SRF
loans make their use impractical.
2. Interest rates on bonds were at their
lowest levels of the past twenty years.
3. The City has not had a rate increase
since 1983 and rates were low when
compared to nearby communities, so a
rate increase to repay the bonds would
not have been unreasonable.
4. A voter referendum could cause
delays if general fund resources were
used to fund CSO controls.
CSO Funding Options Page 12
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General Obligation Bonds
General obligation (GO) bonds are
bonds that can be issued by a municipal or
county government to fund capital projects
of the jurisdiction. GO bonds are secured by
the general taxing power of the local
jurisdiction. If planned revenues, primarily
property taxes and in some cases, income
and sales taxes, fall short of the amount
needed to meet bond payments, the
jurisdiction may raise taxes to generate
needed revenue.
Benefits
> The taxing power that backs GO bonds
means they are the most secure type of
local debt and have lower interest rates
than other forms of debt.
»• Using GO debt to fund CSO projects
may eliminate the need for separate
bonding authority and advanced
financial management capabilities for
the permittee.
GO bonds arc viewed
as the most secure type
of local debt...
Payments can be stretched out over
a period of time that roughly
matches the useful life of the facility.
Limitations
Many communities require voter
approval to issue GO bonds.
Often there is a statutory limit on
total GO debt or GO debt as a
percentage of property valuation.
General public may be paying for
projects that benefit only a portion
of the community.
Page 13 CSO Funding Options
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Ca
-ase: General Obligation Bonds -
South Portland, Maine
Under orders to decrease combined
sewer overflows the City of South Portland
began construction of an $8.0 million
expansion of the city's sewer treatment
facility in 1993. This project includes the
addition of three primary clarifiers to the
treatment process and an expanded
chlorination/dechlorination process. Upon
completion the newly expanded plant will be
able to process an additional 33.1 million
gallons a day of capacity for primary
treatment during wet weather overflows.
After examining the financial costs of
different funding options, the City decided
to issue its own GO bonds for the following
reasons:
1. At the time, the City's GO bond
rating was higher than that of the Maine
Municipal Bond Bank, a not-for-profit
organization that provides funding for
municipal construction projects.
2. The City's GO bond rating also
resulted in lower borrowing costs than
would have been experienced if the City
used revenue bonds.
3. Using GO bonds provided
complete local control over the capital
funding process.
4. By financing on its awn, the City
was able to issue Bond Anticipation
Notes that allowed the City to slowly
raise sewer user rates to cover
additional debt service costs, thus
avoiding rate shock.
CSO Funding Options Page 14
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Other Bond Options
There are variations on both revenue
bonds and GO bonds that are available to
fund CSO controls. These include "moral
obligation" bonds, "double-barreled" bonds,
and bonds issued through "state bond
banks."
Moral Obligation Bonds
A moral obligation bond is a revenue
bond with an additional nonbinding pledge
from the community to cover bond payments
in the event of revenue shortfalls.
Normally, revenue shortfalls are
reported to the local elected officials who
then appropriate the requested amount to
repay the bondholder, although there is no
legally binding requirement forcing them to
do so.
Benefits
» The moral obligation pledge can result
in lower revenue bond interest rates.
The bond market is more receptive
to revenue bonds with moral
obligation pledges, so the bond is
more saleable.
Moral obligation pledges do not
generally count against the issuing
government's debt limitations.
Limitations
The process required to use moral
obligation pledges may require
approval by elected officials.
Because the moral obligation is not
legally binding, interest rates on the
bonds will be slightly higher than
with GO bonds.
Page 15 CSO Funding Options
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Double-Barreled Bonds
A double-barreled bond is a revenue
bond that is backed by the "full faith and
credit" of the issuing jurisdiction. Unlike the
moral-obligation pledge, the full faith and
credit backing is a legally binding
commitment of the issuing government.
Benefits
» Double-barreled bonds have lower
interest rates man other bonds.
•> The bond market is more receptive to
double-barreled revenue bonds, so the
bond is easier to market.
Limitations
» Double-barreled bonds count toward
debt limitations.
» Some governments have limitations on
the use of double-barreled bonds.
State Bond Banks
A bond bank is a state-created
financial entity that issues pooled bonds
for participating smaller communities.
By grouping together individual bond
offerings, the security of the bond issues
is increased, resulting in a higher bond
rating and a lower interest rate on the
bonds.
Benefits
» Bond banks lower interest and
issuance costs associated with
funding projects with bonds.
» Pooling bonds allows smaller
communities access to bond market.
Limitations
» Generally bond banks do not benefit
larger communities.
*• Involves underwriting and
administrative fees.
CSO Funding Options Page 16
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LOAMS
( FilbfcflrM***]
L "•*• J
L
L4ATS
Some permittees may use loans to
finance CSO projects. Pennittees have
different options depending on their overall
financial condition and the programs offered
by their state.
Loan interest rates vary by program.
Each state has different options and interest
rates available to local governments. Several
programs are designed specifically for small
or mid-size communities.
The ability of a permittee to secure a
loan witl depend, in part, on its
"creditworthiness." Creditworthiness is a
way of describing a permittee's ability to
repay the funds it borrows.
Pennittees can review their
creditworthiness by considering such
factors as:
» Current level of debt
» Source of funds to repay debt
» Past experience in obtaining and
repaying loans
*• Current socioeconomic conditions
*• Management capabilities
Loans are available from a variety of
sources including:
State Revolving Fund programs
Other state loan programs
Rural Utilities Service
CoBank
Commercial lending institutions
Each source has different requirements,
benefits and limitations.
Page 17 CSO Funding Options
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SRF Loans
All 50 states and Puerto Rico have State
Revolving Fund (SRF) programs that
provide funding for eligible wastewater
treatment projects. SRF programs can offer
low or zero interest loans, guarantees of
repayment, bond insurance, and refinancing
of existing debt under certain conditions.
Contact the state SRF authorities to
determine the availability of SRF loans for
CSO projects.
Benefits
» SRF programs can offer loans with
interest rates that range from zero
percent to the market rate. Most states
offer low (e.g., 3-5 percent) or very low
(e.g., 0-3 percent) interest rate loans.
» Low interest loans can be viewed as
having a "grant equivalence." For
example, a zero percent interest loan is
equivalent to a 50 percent grant when
local loans or bonds have a 8 percent
interest rate.
Low interest loans can
be viewed as having
a "grant equivalence."
SRF program staff may help
permittees identify other available
funding sources.
Limitations
The amount of SRF funding for
CSOs may be limited in some states
due to bom the size of the SRF and
the commitment of funds to other
projects.
CSO Funding Options Page 18
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c
ASE: SRF Loans - Cleveland, Ohio
The Northeast Ohio Regional Sewer
District has undertaken a program to
address the CSO problems in its service
area. The District has identified steps to
address CSOs: first, address lower cost
improvements that can be accomplished in
the short term; second, complete facility
plans for subareas with CSO problems; and
third, develop a conceptual master plan for
the District.
The District has indicated that funding
for the estimated $J billion in CSO
corrections (mostly tunnel storage) will
come from two sources: the SRF program
and local revenue bonds.
When the major construction projects
are ready to proceed, the District is hoping
to maximize the amount of SRF loans for the
projects.
SRF loan rates in Ohio have been in
the 3.5 to 5percent range. Local
revenue bond interest rates have been
approximately 6 percent. The use of
SRF results in more than a 20 percent
reduction in interest payments - a major
cost savings to District customers.
Page 19 CSO Funding Options
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c
ASE. SRF Loans - State of Michigan
The Michigan SRF program has taken
an active approach to addressing the
funding of CSO controls. The state requires
permittees to address CSO controls in long-
term \vastewater management plans.
To encourage the implementation of the
CSO controls, Michigan communities can
use SRF loans. One-half of the $206 million
that Michigan has distributed in SRF loans
has gone to CSO projects.
By making CSO funding a priority of
the SRF, Michigan is helping to
minimize the amount user fees will increase
as a result of CSO controls.
CSO Funding Options Page 20
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Other State Loan Programs
Twenty-six states have other loan
programs that offer assistance to permittees
for the construction of wastewater treatment
facilities. The loan programs differ in size
and requirements, but in many cases, CSO
controls are eligible for funding.
Appendix A presents a list of state loan
and grant programs. Permittees should
contact state agencies to determine the level
and availability of loans for their CSO
projects.
Benefits
» Many state loan programs exist
specifically to serve the water pollution
control needs of communities and
permittees. They are highly service-
oriented and strive to meet the needs of
the state's communities, particularly
those which may have difficulty
obtaining financing on their own.
- Interest rates are often low and the
repayment terms are favorable.
Twenty-six states hove
other loan programs^
Repayment periods may be longer
and loan requirements may be less
stringent than in the SRF program.
Limitations
If state resources are limited, the
state loan program may not have
funding sufficient to meet the CSO
needs of permittees.
Page 21 CSO Funding Options
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Rural Utilities Service Loan Program
The Rural Utilities Service (RUS),
formerly the Rural Development
Administration, provides loans for
communities that have populations under
10,000. RUS offers loans at three different
interest rates depending on the household
income of the service area. The three rates
are:
» Market rate
» Intermediate rate - a rate halfway
between 5 percent and market rate. To
receive this rate, median household
income must be below the median rural
household income of the state.
» Five percent - To receive this rate,
median household income must be
below the poverty level.
Local RUS offices will provide detailed
information on loan conditions and will assist
in the application process.
Benefits
» RUS offers low interest rates when
compared to commercial loans or
bonds.
» Repayment terms may be longer
than 20 years.
Limitations
» RUS serves rural areas of less than
10,000 people.
» If the only rate that is available is the
market rate, permittees may find a
lower rate through an SRF or other
state loan program.
CSO Funding Options Page 22
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CoBank Loan Program
Benefits
CoBank, the National Bank of
Cooperatives, was formed in 1989 through
the consolidation of 11 of the nation's 13
Banks for Cooperatives. CoBank is part of
the Farm Credit System and is a government-
sponsored enterprise, allowing it to obtain
low cost capital which it then lends out to its
members.
CoBank provides long-term loans to
communities with populations under 20,000.
CoBank is owned by approximately 2,400
agricultural cooperatives and rural utilities
that are also customers. CoBank evaluates
water and wastewater loans strictly on the
basis of creditworthiness.
Permittees may contact CoBank's
Denver offices for further information.
Because it is a cooperative financial
institution, CoBank can offer
competitive interest rates.
Loans normally mature in 10 years,
but may be written up to 35 years in
length.
Because CoBank operates as a
cooperative, the bank's earnings are
distributed to its customer-owners.
Limitations
Loan applicants can not be over
20,000 in population.
Other programs for small
communities may offer lower loan
rates than those available from
CoBank.
Page 23 CSO Funding Options
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Commercial Loans
Permittees may seek loans from
financial institutions to fund CSO controls.
The loan terms, interest rate, and repayment
period can be negotiated for each loan.
Although commercial loans are widely
available, they are used by very few
communities. This is because communities
can obtain lower-cost financing either
through the use of bonds or from state or
federal loan programs that often offer
subsidized interest rates.
Contact local financial institutions for
detailed information on loan availability and
terms.
Benefits
The application process can be
faster for a commercial loan.
Because there are no set limits on
the amount of commercial loans or
the terms of the loan, there is more
flexibility when negotiating the loan.
Limitations
Commercial loans generally have
higher rates than other loans.
Commercial loans may be difficult to
obtain without adequate collateral.
CSO Funding Options Page 24
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(WANTS
G
RANTS
This section groups grants into two
categories, federal grants and state
grants.
Many permittees have experience with
wastewater construction grants. The federal
Construction Grants program provided
funding for much of the water pollution
control infrastructure in the country. Many
permittees have also received some form of
state grant for wastewater construction.
Grants will likely play only a limited role
in future CSO funding. The reliance on
direct federal wastewater construction grants
has been replaced with a reliance on SRF
loans and other local funding options.
However, there are several grant programs
that provide funding for wastewater projects
including CSO controls.
Most grant programs provide assistance
primarily for small, economically
disadvantaged communities. Some states,
however, have ongoing grant programs that
provide funding that is not limited to such
communities.
Benefits
Grants do not have to be repaid.
Grants help reduce user fees.
Limitations
Grants are not a reliable source of
funds.
Application process can be complex,
lengthy and not result in a grant.
Grant conditions add to project
costs.
Page 25 CSO Funding Options
-------
Federal Grants
Rural Utilities Service Grant Program
The Rural Utilities Service (RUS),
formerly the Rural Development
Administration, offers up to 75 percent
grants to small communities for the
construction of environmental infrastructure
facilities. In the past the focus has been on
wastewater treatment facilities. Historically,
the RUS has been an important source of
grant funding for small and economically
disadvantage^ communities.
RUS has state offices that will provide
detailed information on the availability of
grant funding for your CSO project.
Limitations
» Grants are only available for
communities with populations under
10,000.
» A service area's median household
income must be below the poverty
level or below 80 percent of the
state's nonmetropolitan median
household income.
Economic Development
Administration Grant Program
The Economic Development
Administration (EDA), U.S. Department
of Commerce, awards grants to
economically disadvantaged communities
for the construction of public works.
Grants are intended to promote long-
term economic development and
contribute to private-sector job creation
and retention in areas experiencing
severe economic distress.
On average, EDA grants cover 50
percent of project costs. However, grants
of up to 80 percent are available for
severely distressed communities.
CSO Funding Options Page 26
-------
Information on EDA grants may be
obtained from economic development
representatives located in most states, or
through Department of Commerce regional
offices.
Limitations
*• Program is limited to economically
disadvantaged communities.
» Community may have to provide
matching funds.
Community Development Block Grants
The U.S. Department of Housing and
Urban Development administers the
Community Development Block Grant/Small
Cities Program. The Small Cities block
grant program assists low-to-moderate
income areas. States administer the program
and determine the selection criteria for grant
awards.
Wastewater systems are among the
types of projects eligible for assistance.
On average, grants cover 50 percent of
project costs. Areas undergoing
significant economic distress are eligible
for grants of up to 80 percent.
Community development agencies
within state governments will provide
information on local funding available
and the application process.
Limitations
*• Communities must be lower-to-
moderate income areas.
*• Local matching funds are generally
required.
Page 27 CSO Funding Options
-------
State Grant Programs
Twenty-eight states have grant
programs. These programs vary significantly
in ftinding level and restrictions. Many
programs are offered only for small
communities. For example, California
provides state grant assistance to
communities under 3,500 people. The
maximum grant amount is $2.0 million.
Connecticut has the only grant program
specifically targeted at CSOs. In
Connecticut non-CSO projects receive a 20
percent grant and a 80 percent SRF loan,
while CSO projects receive a 50 percent
grant and a 50 percent SRF loan.
Appendix A summarizes non-federal
wastewater treatment grant programs.
Permittees should contact state agencies to
determine the availability of grants for their
CSO projects.
Twenty-eight states
have grant programs.
Limitations
Many state programs are limited to
small, economically disadvantaged
communities.
Many state grant programs are small
and dont have the resources to fund
CSO controls.
CSO Funding Options Page 26
-------
RIVATIZATION
Private investment in wastewater
treatment facilities may provide an additional
CSO funding option for permittees.
Executive Order Number 12803 of April 30,
1992 - Infrastructure Privatization
established an initiative to review and modify
federal policies and regulations that would
allow the full or partial sale of federally
funded infrastructure assets.
In response to the Executive Order,
EPA is considering policy and regulatory
changes that would encourage private
investment in EPA-funded municipal
wastewater treatment facilities.
The final outcome of these changes is
unknown at this time. Even if the sale of
federally-funded assets is allowed, it is
unlikely to be a funding panacea. However,
when privatization may be a viable option, it
may reduce cost and improve facility
performance. Other permittees that have
FUVAHZAHQN
WwtoPta
(0«a/0pcn»
low user charges and have facilities that
are well operated and maintained may be
less likely to benefit from privatization.
Information on the implementation
of the Executive Order will be available
through state water program offices.
Benefits
> Selling public wastewater assets can
generate capital for future CSO
controls without increasing the
permittee's debt burden.
* Private firms can sometimes provide
specialized skills that may improve
facility performance.
*• Privatization can stimulate
innovation.
*• Private firms may be better at
controlling costs. For example, a
private firm may have greater
flexibility to add preventative
maintenance staff and as a result
avoid potential large
repairs/replacements.
Page 29 CSO Funding Options
-------
Limitations
Privatization reduces the permittee's
direct operational control over the
facility.
Privatization will not always save
money. An efficient publicly owned
facility may operate at a lower cost
Privatizing facilities is a nonrecurring
event that cannot be used to meet
annual cash funding needs.
May require repayment of amortized
portion of Federal grant funds.
CSO Funding Options Page 30
-------
\^/THER CAPITAL FUNDING
OPTIONS
Other capital funding options include
special reserves, use of special assessments,
and "pay-as-you-go."
Special Reserves
Many permittees establish reserve funds
for capital equipment repair/replacement.
Generally, a portion of user fee revenues and
interest earnings on idle funds are placed in a
separate account for this purpose.
Some communities use these reserves to
fund CSO controls. For example, Atlanta,
G A built reserves over time and recently
used them to fund a portion of its CSO
controls.
Benefits
» Funds are immediately available for use.
OIHERORIDNS
» Using reserves avoids the cost of
issuing bonds or paying interest on
bonds or loans.
Limitations
» Reserves should not be used for
rehabilitation or replacement of
capital facilities if they were
established for repair/replacement of
existing equipment.
* The funding level provided by
special reserves is limited in
comparison to other capital funding
sources.
Special Assessments
Special assessments are used to
provide and fund projects for a specific
geographic area. Special assessment
districts provide the legal arrangement to
charge those receiving the service for
capital and/or operating costs of the
project. CSO projects may be funded
with special assessments.
Page 31 CSO Funding Options
-------
For example, in Michigan,
neighborhoods with significant basement
flooding problems have approved the use of
special assessments to fund corrections to
their wastewater collection system that
include correction of CSO problems.
Benefits
»• Costs are borne by the beneficiaries.
" Special assessment districts can use
bonds, SRF loans, or other capital
funding options.
Limitations
» State law on the use of special
assessment districts varies.
» State-wide limits on revenues collected
from all methods can hinder the use of
special assessment districts.
Pay-As-You-Go
Smaller communities often, as a
policy, prefer not to be in debt. They
avoid the use of bonds, loans, or other
capital funding approaches. These
communities use a pay-as-you-go
approach when project size allows
funding with annual tax and other
revenues.
Benefits
» Avoids long-term debt.
*• Eliminates interest cost and cost of
debt issuance.
Limitations
» Meeting state water quality
standards may require projects that
involve large initial capital
investment.
CSO Funding Options Page 32
-------
verview of
Annual
Funding
Options
-------
verview of
Annual
Funding
Options
Permittees should consider various
options to fund annual CSO-related cost that
include:
» operation and maintenance costs for
CSO controls
» annual loan payments for SRF or other
loans used to fund CSO controls
*• debt service on local bonds used to fund
CSO controls
•• reserves for future CSO equipment
replacement
There are various funding options that
could generate revenues to cover these
costs.
This guide presents three categories of
options for funding annual CSO costs:
•• Fees
» Taxes
» Miscellaneous
Not all funding options may be
available to every permittee. For
example, some states allow local sales
taxes while others do not.
Some of the options described in
this section may be familiar to local
utility managers. Other options may not
be familiar. The permittee can identify
the best option after reviewing all the
funding sources, considering their
benefits and limitations, and determining
if they are appropriate.
Page 35 CSO Funding Options
-------
EES
Fees are the most widely used source of
annual funding. User fee systems that
equitably charge residential, commercial, and
industrial users have been a requirement of
the federal construction grant program and
the SRF program. In addition, wastewater
utilities structured as enterprise funds require
dedicated revenue sources, in most cases
user fees, to pay for both capital and
operating costs.
User fees are widely accepted as an
equitable source of revenues for water
pollution controls. Fees are directly linked
to the service rendered. Fees match the
costs of water pollution controls to those
who benefit from the controls.
Permittees may need to consider several
issues when modifying user fees to address
CSO-related costs.
j
First, many communities are
establishing separate fees, and in some
cases, separate utilities, to fund storm
water management requirements.
Because storm water management is
closely related to combined sewer
overflow occurrences, permittees may
find it necessary and beneficial to
coordinate fees associated with CSO
controls with storm water control fees.
Storm water fees can be designed to
encourage controls that will reduce
combined sewer overflows.
Second, because CSO controls
benefit the whole service area,
permittees should recognize that, in most
cases, it will be necessary to use a fee
structure that distributes the CSO control
costs among all system customers.
Recovering costs through increases to
system-wide user fees will distribute the
cost increases more broadly.
CSO Funding Options Page 36
-------
Wastewater User Fees
Wastewater user fees for residential,
commercial, and industrial users are most
often based on volume of water consumption
and strength of pollutants in the discharged
wastewater.
In most cases, the annual costs
associated with CSO controls can be funded
by user fees.
Benefits
» For many communities, the increases in
user fees required to fund CSO controls
may not be burdensome because CSO
costs may be shared by all users within
the permittee's service area.
* User fees are a stable source of revenue
and reassure lenders that revenues will
be available to repay loans or bonds.
*• User fee systems are relatively easy
to implement regardless of size of
service area.
» User fees ensure that system users
(beneficiaries) pay for costs.
Limitations
» When permittees1 user fee systems
do not equitably allocate costs or do
not fully recover annual system
costs, users frequently resist rate
increases.
*• If rates were artificially low, there is
a greater chance that raising rates to
actual costs will meet opposition
from users.
Page 37 CSO Funding Options
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Connection Fees
Some permittees charge connection fees
to customers that wish to receive service.
Connection fees can be either one-time
charges for new service connections or
annual service charges or assessments for
being connected to the system.
Most often connection fees are one-time
charges for new residential, commercial, and
industrial users.
Benefits
» Covering a portion of the CSO control
costs with connection fees will help to
reduce the rate impact of other user
fees.
Limitations
» Permittee service area must be growing
to provide revenues through one-time
connection fees.
Annual connection fee assessments
are uncommon in wastewater
treatment systems and their
implementation may be difficult
CSO Funding Options Page 38
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Other Specialized Fees
Many communities have devised
specialized fees to generate revenues for a
variety of environmental program
requirements. For example, communities in
California and Florida charge privately
operated facilities a fee that covers the cost
of drinking water monitoring. In Spokane,
Washington, a $30 fee is charged to register
septic tanks.
Specialized fees may be established to
help cover CSO control costs. Options
include:
Facility permit fees
Application processing fees
Inspection/certification fees
Septic tank fees
Impact fees
Drainage area fees
Benefits
» Fees may be targeted to specific users
or system beneficiaries.
* Specialized fee systems arc relatively
easy to develop and implement.
Many communities
have established
specialized fees...
Limitations
Specialized fees often have a limited
revenue base and a disproportionate
impact on a specific group of users.
Revenues from specialized fees may
be inconsistent from year to year.
Lenders usually do not consider
specialized fees to be reliable
revenue sources.
Page 39 CSO Funding Options
-------
AXES
Taxes may be used as a limited funding
source for annual wastewater system costs.
Options include income taxes, sales taxes,
and property taxes.
All federal wastewater construction
grants and some of the SRF projects have
user charge system restrictions that often
limit the use of taxes to fund annual costs for
wastewater systems.
The primary restriction is that a user fee
system must be in place that ensures that
each user or user group pays its
proportionate share of operating costs, based
on the quantity and quality of wastes
discharged. As a result, taxes may not be
used to pay operating costs for these
projects.
TAXES
Tta
I
J
Cot*
I
However, user charge regulations
do not require that capital outlays or debt
service be covered in the user charge
system. As a result taxes can be used to
repay bonds or loans for CSO projects
that are subject to CWA Title II
requirements.
Projects funded with other sources
such as local bonds, state loans, etc. do
not have these restrictions.
CSO Funding Options Page 40
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Income Taxes
Limitations
Individual or corporate income taxes
have historically had less applicability to
environmental program funding than other
taxes such as property taxes, and targeted
sales taxes.
Income taxes are used to fund
environmental programs, but their use is
largely at the state level. For example, Ohio
earmarks a portion of corporate income
taxes to pay for roadside litter control and
recycling programs.
While income taxes may provide
revenues for some environmental programs,
it is unlikely that they will provide funds for
water pollution control projects, including
CSO controls.
Benefits
> Income taxes provide a stable source of
revenues.
» Using income taxes to pay for annual
system costs may lessen the user fee
burden on lower-income households.
State government generally controls
the level of taxes mat local
governments may levy.
Most often, it is politically difficult
to raise taxes and/or to earmark
taxes for water pollution controls.
With taxes, mere is no direct link
between service provided and
revenue source.
Page 41
CSO Funding Options
-------
Sales Taxes
Many local jurisdictions raise funds
through sales taxes. Communities may
dedicate a portion of local option sales tax
revenues to water pollution control, or may
impose a local option sales tax on a specific
product or service. A limited sample
include:
Fertilizer Tax - Kansas charges a tax on
the sale of fertilizer to fund water quality
projects.
Tire Tax - Arkansas charges a tax per
tire to help fund solid waste disposal.
Motor Fuel Tax - Some states use
motor fuel taxes to fund highway
construction and maintenance.
Watercraft Sales Tax - Some states tax
the sales of boats to fund water quality
projects and marine fuel spill cleanups.
Connnimitics may
dedicate a portion of
local option sales tax
revenue to water
pollution control.
Benefits
Sales taxes can be targeted to
products that contribute to water
pollution.
Revenue base can be broad, so a
small tax can collect a significant
amount of revenue.
Purchasers of products who do not
reside in the service area help pay
for impacts of the products they
purchase.
Limitations
Due to strain on local governments,
the competition for revenues from
sales taxes is strong.
Many communities already use the
maximum allowable sales tax rate.
CSO Funding Options Page 42
-------
c
ASE: Columbus, Georgia
Columbus, Georgia is a community of
approximately 190,000. Tit e City'sfunding
approach demonstrates how local option
sales taxes can be used to fund CSO
controls.
The Columbus Water Works is an
executive department in the City
government. The department is responsible
for both water and wastewater services in
the area. The department is managed by a
separate board that sets user fee levels and
selects finding approaches.
After reviewing the finding options the
local water board decided that revenue
bonds repaid with local sales tax revenues
would be an appropriate method to finance
$65 million in CSO controls (80 percent of
total CSO control costs).
As in other states, local option sales
taxes must be approved by the voters
through a local referendum.
To bolster the appeal of the one
percent sales tax required for eight
years, local leaders combined the CSO
controls with other popular local
initiatives addressing public safety
facilities, recreation programs, and
neighborhood sidewalks. CSO controls
accounted for about one-half of the
revenue bond issued by the City.
As an additional incentive to voters,
the water board passed a rate increase
that would take affect if the voters
rejected the local sales tax proposal.
The voters of Columbus passed the
local sales tax proposal by an
overwhelming margin. Over ninety
percent of voters approved of the CSO
finding approach.
Page 43 CSO Funding Options
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Property Taxes
Local governments use ad valorem
property taxes as the primary source of
funding for general government operations.
Ad valorem property taxes are based on the
value of property. As a result, residents with
larger and/or more expensive homes pay
more in property taxes than residents with
less expensive homes.
Benefits
» Local governments have control over
the use and level of property taxes.
» A portion of the property tax revenues
may be dedicated to wastewater
treatment control in general or CSO
controls specifically.
Limitations
» Many communities have encountered
substantial resistance to increased
property taxes.
State-wide limitations on increases
of property taxes or property tax
levels restrict the use of property
taxes for additional services.
Using property taxes to fund
wastewater system cost doesn't
provide the direct link between
services and costs as does a user
charge system based on water usage
and type of discharge.
CSO Funding Options Page 44
-------
^MISCELLANEOUS ANNUAL
FUNDING SOURCES
Permittees may wish to consider other
funding sources that can help offset
increasing annual costs. These options are
proffers, capacity credits, and fines and
penalties.
Proffers are generally defined as
contributions of land, services, or facilities
from private sector development companies.
Proffers, also called exactions, are negotiated
on a case-by-case basis. Typical examples of
proffers are the donation of land for parks or
green areas, paying for road improvements,
or cash donations to the government.
Capacity credits are rights to connect to
a water/sewer system in the future. Fees
charged to developers to access services may
be used to fund construction on additional
treatment capacity or controls.
MISCELLANEOUS SOURCES
Developon/
I
Benefits
Proffers and capacity credits place
cost increases on the new users that
benefit from these services.
Revenues may be targeted to
specific improvements.
May provide substantial one-time
funding in advance of facility
construction.
Limitations
Proffers and capacity credits work
best in growth communities.
Revenues are difficult to predict.
Page 45 CSO Funding Options
-------
esigning
Your
Funding
Solution
-------
esigning
Your
Funding
Solution
When developing long-term plans for
CSO controls, a permittee will find it
necessary to identity a specific capital and
annual cost funding approach. Most
permittees have some experience with the
primary funding approaches. Many
permittees have issued local revenue bonds,
used SRF loans, and have explored
alternative annual funding options in addition
to user fees.
Other permittees have not constructed
facilities since the federal construction grant
program was replaced with the SRF
program. As a result, some permittees will
be assessing some of the capital funding
approaches discussed in this report for the
first time.
As demands on local resources grow, it
will be increasingly important to seek out
and evaluate available CSO funding sources.
It is clear that different funding solutions are
available. The best opportunity to minimize
costs comes from reviewing all viable
options and selecting the best mix of
available alternatives.
Permittees may start this process by
following these basic steps.
Step 1 - Assess the availability of state or
federal grants for the community.
Contact state and federal offices
referenced in this guide to review grant
options.
Step 2 - Evaluate local debt options
including low interest SRF loans,
revenue bonds, and G.O. bonds to
determine what options are available that
provide sufficient funding levels, lowest
interest costs and acceptable repayment
terms.
Step 3 - Determine the effect of using
user fees to fund annual costs in terms of
the cost per household as a percent of
median household income. (See EPA's
Combined Sewer Overflows-Guidance
for Financial Capability Assessment and
Schedule Development).
Page 47 CSO Funding Options
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Step 4 - Should the user fee result in a high
level of financial burden on households,
consider contacting NPDES and Water
Quality Standards' (WQS) authorities to
explore the possibility of extending the
implementation schedule and modifying
WQS. (Sec EPA's Combined Sewer
Overflows-Guidance for Financial
Capability Assessment and Schedule
Development).
Step 5 - Develop and carry out a public
information program. The program should
describe clearly why facility improvements
are needed, the expected cost impact, and
the environmental protection anticipated
from making the improvements. Public
information techniques to consider include:
» Regular briefings of key officials or
groups
* Public meetings
» Feature stories in newspapers
* Mailing of planning documentation to
civic leaders
»• Newsletters
»• Paid advertisements
*• Public service announcements
» Hotline telephone information
number
Involving the public during the
planning process will help to ensure that
an acceptable, equitable funding solution
is adopted.
Public participation can take many
forms including:
» Advisory groups/task forces
comprised of interested parties
» Focus groups to discuss funding
options and impacts
*• Interviews with key officials and
interested citizens
*• Open planning meetings or
workshops to involve all interested
parties
CSO Funding Options Page 46
-------
•• Public hearings to provide formal input
into the decision making process
+ Surveys or polls to determine public
preferences
A public information program need not
be expensive and overly time consuming. To
be efficient, consider what you wish to
accomplish in the program. What segments
of the public are most important to reach?
Are there existing committees or groups that
will help you implement the information
program? What has been the experience of
others within the community that have
carried out public information programs?
Spending time with residents during the
planning process will help to ensure the
adoption of an acceptable funding solution
that reflects the concerns and desires of
households.
Page 49 CSO Funding Options
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c
ASE: Western Port, Maryland
Western Port, Maryland is a community
of approximately 2,750 (500 households).
The town decided to address its CSO
problem when it was discovered that the
collection system needed significant repair.
The cost of the improvements was $1.5
million. This small community was able to
afford this project because it developed a
finding solution that drew from all
available low cost sources.
The community was fortunate that,
because of its proximity and involvement
with a local paper company, it was eligible
for grant Junding from the federal Bureau of
Mines and the Soil Conservation Service.
These grants covered one-third of the
project cost.
The community was also able to secure
a low interest (3.5 percent) SRF loan from
the Maryland Department of Environment.
The SRF loan covered another third of the
project.
A grant from the federal
Community Development Block Grant
program covered one-fifth of the project
cost, and a county grant covered 3
percent of the project.
The net result of the funding
solution was a user fee level at 1.2
percent of median household income.
Western Port faced the same
challenge that other permittees will face
when designing their CSO funding
solutions. Other permittees may not
have the same funding alternatives
available, but by exploring all the
options the lowest cost options can be
identified.
CSO Funding Options Page 50
-------
eferences
American Public Works Association, American Society of Civil Engineers, Water Pollution
Control Federation. Financing and Charges for Wastewater Systems, Second Edition, VMW
Printing, Hyattsville, MD, 1984.
Environmental Financial Advisory Board. EFAB Advisory: Small Community Financing
Strategies for Environmental Facilities, August, 1991.
Ernst & Young. Ernst & Young 1992 National Water and Wastewater Rate Survey, Ernst &
Young, New York, NY, 1992.
Lamb, Robert, and Rappaport, Stephen. Municipal Bonds, McGraw-Hill Book Company, New
York, NY, 1987.
Moody's Investor Services, Inc. Moody's on Municipals - An Introduction to Issuing Debt,
Moody's Investor Services, Inc, 1989.
National Conference of State Legislatures. Earmarking State Taxes, National Conference of State
Legislatures, Washington, D.C., 1990.
Standard & Poor's. Municipal Finance Criteria. Standard & Poor's Corp. New York. NY.
1993.
Raftelis, George A. Comprehensive Guide to Water and Wastewater Finance and Pricing,
Second Edition, Chelsea, MI, Lewis Publishers, 1993.
U.S. Environmental Protection Agency. Alternative Financing Mechanisms for Environmental
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U.S. Environmental Protection Agency. Assessing and Improving Your Community's
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-------
U.S. Environmental Protection Agency. Building Support for Increasing User Fees. Washington,
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U.S. Environmental Protection Agency. Combined Sewer Overflows-Guidance for Financial
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U.S. Environmental Protection Agency. Public Meeting on Private Investment in Municipal
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U.S. Environmental Protection Agency. Public-Private Partnership Case Studies - Profiles of
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U.S. Environmental Protection Agency, SRF Report to Congress: Financial Status and
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-------
U.S. Government Printing Office, Catalog of Federal Domestic Assistance, Washington, D.C.,
1991.
U.S. Environmental Protection Agency, Utility Managers Guide to Financial Planning,
Washington, D.C., 1989.
U.S. Environmental Protection Agency, Financial Capability Guidebook, Washington, D.C.,
1989.
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lossary
Bonds Written evidence of the issuer's obligation to repay a specified principal amount with
interest at a stated rate.
CoBank The National Bank of Cooperatives is a government sponsored enterprise that provides
low cost capital to communities under 20,000.
Combined Sewer System Wastewater collection system designed to carry sanitary sewage,
consisting of domestic, commercial, and industrial wastewater and surface drainage from rainfall
or snowmelt in a single pipe.
Combined Sewer Overflows During periods of heavy rains or snowmelt, total wastewater flows
exceed the capacity of the treatment facility and the combined sewer system flows directly into
surface water bodies.
Connection Fee Either a fee charged one time only for new service or an annual service charge
for being connected to the system.
Construction Grants Program A federal program that provided funding to communities for
wastewater infrastructure projects without repayment required. Grants will play only a limited
role in future funding.
Double-Barreled Bond A bond secured by a defined source of revenue plus the full faith and
credit of the issuer.
Executive Order Number 12803 An initiative signed in April, 1992 to review and modify
federal policies and regulations that would allow the full or partial sale of federally funded
infrastructure assets.
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General Obligation Bond A bond secured by a pledge of a community's taxing power.
Moral Obligation Bond A bond secured by a defined source of revenue with an additional non-
binding pledge from the community to cover bond payments in the event of a default.
Revenue Bond A bond payable from a specific source of revenue that does not pledge the full
faith and credit of the issuer.
Rural Utility Service Provides loans and grants for communities that have populations under
10,000.
Special Assessments Provide funding for projects in a specific geographic area.
Special Reserve Fund A fund established with a portion of user fee revenues and interest
earnings on idle funds to finance future wastewater infrastructure investments.
State Revolving Fund Program A federal program created by the Clean Water Act
Amendments in 1987 that offers low interest loans for wastewater treatment projects.
Wastewater Fees Fees for residential, commercial and industrial users based upon volume of
water consumption and strength of pollutants discharged in the water.
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*pendix A
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State Grant and Loan Programs for Funding Wastewater Treatment Projects in Addition
to the State Revolving Fund (SRF) Program
State
Puerto Rico
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
State WWT Grant Program
No.
Yes. ( 1) RJ Aqua Fund. (2) Interceptor Bond Fund (3) Sewer
and Water Supply Failure Fund.
No.
Yes. In addition to the SRF program, the Consolidated Water
Facilities Construction Fund provides both loans and grants.
Yes. Approximately $4.3 million is annually appropriated by
legislature. The 20% State match is provided from this.
No.
No.
Yes. Vermont construction grant program - Title 10 V.S.A.,
Chapter 55. Section 1625
Yes. VA SRF works with other financial assistance programs
fuch as Dept. of Housing and Community Devlpmnt. block
grants, FmHA grants and loans, VA Water Projects, Inc. grams
and loans. SWCB Special Purpose State Grant Prog, and VA
Chesapeake Bay Initiative Progs.
Yes. The Centennial Clean Water Fund provides grants for
WWT and other Water Quality needs. The program is
administered by the same department as SRF.
No.
No. Previous WI fund program is being phased out
Yes. With mineral severance tax receipts the State provides
grant funds to municipalities to augment other sources of
funding for wastewater projects.
State WWT Loan Program
No.
Yes. ( \ ) RI Aqua Fund. (2) Interceptor Bond Fund (3)
Sewer and Water Supply Failure Fund
No.
Yes. The Consolidated Water Facilities Construction Fund
provides both loans and grants.
Yes. TLDA has a health loan program for sewer, water
and solid waste projects. Interest rates range from 4.5%
(interim) to 6-7% for final financing over 30 years.
Program. Loans are funded by sale of State bonds.
Program can also fund municipal solid waste disposal
projects. Repayments are used to retire debt on State bonds.
The state also has a Coknias fund that is capitalized with
$250 million in State bonds. Assistance may be 75% grant
and 25% loan.
Yes. Water Pollution Control and Drinking Water Projects
Yes. Vermont Pollution Control Revolving Fund - 24
V.S.A.. Chapter 120. Section 4753
Yes. The V A General Assembly authorized VA to issue
bonds and lend the proceeds to local govts. VA bonds are
sold to private investors on the national market, attracting
out of State funds to VA.
Yes. The Centennial Clean Water Program is anticipated
to provide loans as well as grants in the future.
Yes. WDA is charged with the responsibility of making
loans to municipalities to finance the cost of the design,
acquisition or construction of water and WW projects. AH
or a portion of project costs can be provided by WDA
through the use of bond proceeds.
Yes. The State pledges State G.O. bonds as security for a
revenue bond issuance to fund a non-SRF Wastewater
Treatment Loan Program which operates parallel with the
Federal SRF program.
Yes. WFLB extends loans to municipalities for
infrastructure improvements including wastewater
treatment.
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State Grant and Loan Programs for Funding Wastewater Treatment Projects in Addition
to the State Revolving Fund (SRF) Program
State
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
State WWT Grant Program
Yes. State grant program for I/I correction. CSO control
projects and other categories of abatement facilities projects not
typically funded by federal grant.
No.
Yes. State Independent Grants Program has 3 set-asides: capital
cost component grants, individual on-site wastewater treatment
system grants, and corrective action grants.
No.
Yes.
Yes. DNRC operates a small grant program for all types of
municipal water development projects. Intermittent funding
comes from appropriations derived from the mineral severance
tax.
Yes. Communities with populations of 800 or less with MHI of
90% or less of rural Mffi qualify for 50% matching grant. (State
annual obligation may not exceed S300.000.)
No.
Yes. 95% grants for specific projects
Yes. S11A-CSO projects (planning and design). Pinelands
(grants and loans).
Yes. Based on state appropriation for individual projects.
Management done by Rural Infrastructure / Special
Appropriations Section boused in same quarters.
No
Yes. High unit cost grant program - Eligibility based on
average residential water and sewer bill exceeding 1 .5% of the
median household income of county. Funded by State
appropriations.
No.
Yes. OWDA may make grants to governmental agencies for
construction of wastewater or water treatment facilities.
Yes. OWRB administers the State grants program which is an
emergency grant program.
No.
Yes. PENNVEST has authority to award grants when the
community's financial condition indicates loan repayment is
unlikely and community would be unable to proceed with
project. PENNVEST considers the effect of its project
financing on rates of customers.
State WWT Loan Program
Yes. (a) Commonwealth SRF Program separate from
federaf SRF. Projects not subject to federal regulations, (b)
Ineligible cost SRF Program - in conjunction with loans
made under one of the other SRF's.
No.
No.
No.
No.
Yes. DNRC offers a loan program for all types of
municipal water development projects. Funding comes
from the mineral severance tax.
No.
No.
No.
Yes. Same type program as me SRF with me exception of
some Title II requirements and crosscutten (includes CSO
and stonnwater).
No.
No.
Yes. S3.0 million per year of State appropriatkxu. interest
rate not to exceed the lesser of 4% or one-half the
prevailing national market rale.
No.
Yes. OWDA may make loans to governmental agencies
for construction of wastewater or water treatment facilities.
Yes. The loan program is administered by the OWRB.
No.
Yes. Subject to any agreements with bond holders,
PENNVEST sets loan terms after considering current
market interest rates, financial and economic distress of the
project service area, and the necessity to maintain
PENNVEST in a financially sound manner.
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State Grant and Loan Programs for Funding Wastewater Treatment Projects in Addition
to the State Revolving Fund (SRF) Program
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
State WWT Grant Program
No.
No.
No.
No.
Yes. The voters approved $25 million in November 1988 for
state grant assistance for communities with less than 3.500
people. The maximum grant amount is S2.0 million per project.
Yes.
Yes. 20% Grants for Projects: 50% Grants for CSO Projects
No.
No.
Yes. Stale grant program for WWT and water supply in
conjunction with GEFA loans. (See Other State Loan Program
below.)
Ye*. State grants 25 percent of eligible project cost for every
SRF project.
Yes. Step 1 Grants
Yes. Noo-Federally Funded Construction grant WWT program
is called "Build Illinois." funded through State appropriations.
Illinois General assembly authorized $70 million in Jury, 1988 to
fund "Build Illinois."
No. Pending: 1994
No.
No.
No.
No.
Yes. State grant program is used in conjunction with title II and
VI projects and can fund from 0% to 80% of eligible costs.
Yes. Maryland has a very small grant and loan program funded
by proceeds from general obligation bonds and PAGO funds for
diso~essed communities
State WWT Loan Program
No.
No.
No.
No.
Yes. Loan program provides 12.5 percent slate loans to
communities receiving less than 75 percent federal grants.
a Water Quality Control fund loan program for financially
destitute small communities and a low interest water
reclamation loan program.
Yes.
Yes. Additional State Funds in separate account (Long
Island Sound Program and State Loan Program)
No.
Yes. Double barrel bonds carrying Florida's credit rating.
No interest rate subsidy. Lower cost to issue. Available for
all kinds of pollution control facilities.
Yes.
Yes. State has appropriated S50 million for SRF program.
Yes. Water Pollution Control Account
No.
No. Pending; 1994
No.
No.
Yes. Under the Kermiclcy mfirmstructure Authority, the
State legislature has provided funding for other revolving
loan and grant programs to be used for various
infrastructure needs.
No.
Yes.
Yes. Maryland has a very small grant and torn program
ftmrlarl ttii — '- {Wuii ••••!«• ml nkli«**UM Iuwu4* mv*A
PAGO funds for distressed cotnrnun
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