United States
Environmental Protection
Office Of Water
EPA 832-B-95-007
August 1995
Combined Sewer Overflows
Guidance For Funding Options

                             August  1995
    U.S. Environmental Protection Agency
      Office of Wastewater Management
        Municipal Support- Division
            Washington, D.C.

                       WASHINGTON, D.C. 20460
                                                         OFFICE OF

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.


     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.

       Background 	  1
       Evolution/History of the Policy	2
       Guidance	4
       Purpose	 5
       Audience	 6
       Guide Organization 	 6

       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

      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

      Case: Western Port, Maryland	50


APPENDIX A - State Grant a»d Loan Program!


     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
    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



     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

    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

    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

    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
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)
Pr*vtdtt reduce «• d>v»iipl«g«fcm 1mm CSO
PrevMet jridtact o* tmf\fmmiamg1k9 mm*
vMmmm cratrob
Provide, critwte far «t*btt*tagprtafM« tor CSO
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

     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

*•    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

     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.
    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
    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
                                                           CSO Funding Options
                                Page 6

verview of

                  verview of
    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


     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

     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
                                                          CSO Funding Options     Page 10

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.


»    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

    Use of revenue bonds is not usually
    affected by local debt limits or voter
    approval requirements.
    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
Page 11     CSO Funding Options

    'ASE: Revenue Bonds - Atlanta,


    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

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.


>    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.
    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

    -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

     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

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

     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.


»    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.
    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

    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.


»   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.


»   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


»   Bond banks lower interest and
    issuance costs associated with
    funding projects with bonds.

»   Pooling bonds allows smaller
    communities access to bond market.


»   Generally bond banks do not benefit
    larger communities.

*•   Involves underwriting and
    administrative fees.
                                                           CSO Funding Options     Page 16

                                                              ( FilbfcflrM***]
                                                              L  "•*•    J
     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
                                                  Commercial lending institutions
                                              Each source has different requirements,
                                              benefits and limitations.
Page 17     CSO Funding Options

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.


»   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.
    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
                                                         CSO Funding Options     Page 18

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
    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

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

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


»   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.
    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

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

»   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.

»   RUS offers low interest rates when
    compared to commercial loans or

»   Repayment terms may be longer
    than 20 years.


»   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

CoBank Loan Program
     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

    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

    Because CoBank operates as a
    cooperative, the bank's earnings are
    distributed to its customer-owners.
    Loan applicants can not be over
    20,000 in population.

    Other programs for small
    communities may offer lower loan
    rates than those available from
Page 23     CSO Funding Options

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
    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.
    Commercial loans generally have
    higher rates than other loans.

    Commercial loans may be difficult to
    obtain without adequate collateral.
                                                           CSO Funding Options     Page 24

    This section groups grants into two
categories, federal grants and state
     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
                                                  Grants do not have to be repaid.

                                                  Grants help reduce user fees.
                                                  Grants are not a reliable source of

                                                  Application process can be complex,
                                                  lengthy and not result in a grant.

                                                  Grant conditions add to project
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.


»   Grants are only available for
    communities with populations under
»   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


 *•    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
    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.


*•   Communities must be lower-to-
    moderate income areas.

*•   Local matching funds are generally
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.
    Many state programs are limited to
    small, economically disadvantaged

    Many state grant programs are small
    and dont have the resources to fund
    CSO controls.
                                                         CSO Funding Options     Page 26

     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
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.


>   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

*•   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
Page 29     CSO Funding Options

    Privatization reduces the permittee's
    direct operational control over the

    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



     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


»    Funds are immediately available for use.
»   Using reserves avoids the cost of
    issuing bonds or paying interest on
    bonds or loans.


»   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

    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.


»•   Costs are borne by the beneficiaries.

"   Special assessment districts can use
    bonds, SRF loans, or other capital
    funding options.


»   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.

    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


»   Avoids long-term debt.

*•   Eliminates interest cost and cost of
    debt issuance.


»   Meeting state water quality
    standards may require projects that
    involve large initial capital
                                                           CSO Funding Options     Page 32

verview of

                verview  of
    Permittees should consider various
options to fund annual CSO-related cost that

»   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

    There are various funding options that
could generate revenues to cover these

    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

     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.

     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

     In most cases, the annual costs
associated with CSO controls can be funded
by user fees.


»    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.


»   When permittees1 user fee systems
    do not equitably allocate costs or do
    not fully recover annual system
    costs, users frequently resist rate

*•   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

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.


»   Covering a portion of the CSO control
    costs with connection fees will help to
    reduce the rate impact of other user


»   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

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
    Facility permit fees
    Application processing fees
    Inspection/certification fees
    Septic tank fees
    Impact fees
    Drainage area fees

»   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...
    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

     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
    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

    Projects funded with other sources
such as local bonds, state loans, etc. do
not have these restrictions.
                                                           CSO Funding Options     Page 40

Income Taxes
     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.


>    Income taxes provide a stable source of

»    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

     Fertilizer Tax - Kansas charges a tax on
the sale of fertilizer to fund water quality

     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.
    Sales taxes can be targeted to
    products that contribute to water

    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
    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

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

     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

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.


»    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.


»    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



     Permittees may wish to consider other
funding sources that can help offset
increasing annual costs. These options are
proffers, capacity credits, and fines and

     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
    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
    Proffers and capacity credits work
    best in growth communities.

    Revenues are difficult to predict.
Page 45     CSO Funding Options


     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

 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

 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

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

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

*   Public meetings

»   Feature stories in newspapers

*   Mailing of planning documentation to
    civic leaders
»•   Newsletters

»•   Paid advertisements

*•   Public service announcements

»   Hotline telephone information

    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
                                                          CSO Funding Options     Page 46

••    Public hearings to provide formal input
     into the decision making process

+    Surveys or polls to determine public

     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
Page 49     CSO Funding Options

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
    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
                                                          CSO Funding Options     Page 50

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.

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
Programs, State Capacity Task Force, Washington, D.C. EPA, 1992

U.S. Environmental Protection Agency. Assessing and Improving Your Community's
Creditworthiness. Washington, D.C., 1992.

U.S. Environmental Protection Agency. Building Support for Increasing User Fees. Washington,
D.C., 1989.

U.S. Environmental Protection Agency. Combined Sewer Overflows-Guidance for Financial
Capability Assessment and Schedule Development - Washington, D.C., 1995.

U.S. Environmental Protection Agency. Combined Sewer Overflow Control Policy, Washington,
D.C., 1994.

U.S. Environmental Protection Agency. Financing Models for Environmental Protection -
Helping Communities Meet Their Environmental Goals, Washington, D.C., 1992.

U.S. Environmental Protection Agency. Funding of Expanded Uses Activities by State Revolving
Fund Programs: Examples and Program Recommendations, August, 1990.

U.S. Environmental Protection Agency. Office of Water, Reference Guide on Financial
Assistance Programs, Washington, D.C., 1988.

U.S. Environmental Protection Agency. Public Meeting on Private Investment in Municipal
Wastewater Treatment Facilities (Meeting Summary), Washington, D.C., 1992.

U.S. Environmental Protection Agency. Public-Private Partnership  Case Studies - Profiles of
Success in Providing Environmental Services, Washington, D.C., 1989.

U.S. Environmental Protection Agency. Sites for Our Solid Waste, A Guidebook for Effective
Public Involvement, Washington, D.C., 1990.

U.S. Environmental Protection Agency, SRF Report to  Congress: Financial Status and
Operations of Water Pollution Control Revolving Funds, Washington, D.C., 1991.

U.S. Government Printing Office, Catalog of Federal Domestic Assistance, Washington, D.C.,

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.,

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.

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

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.

*pendix A

State Grant and Loan Programs for Funding Wastewater Treatment Projects in Addition
                    to the State Revolving Fund (SRF) Program

Puerto Rico
Rhode Island
South Carolina
South Dakota
West Virginia

State WWT Grant Program

Yes. ( 1) RJ Aqua Fund. (2) Interceptor Bond Fund (3) Sewer
and Water Supply Failure Fund.
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.
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. 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

Yes. ( \ ) RI Aqua Fund. (2) Interceptor Bond Fund (3)
Sewer and Water Supply Failure Fund
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

State Grant and Loan Programs for Funding Wastewater Treatment Projects in Addition
                    to the State Revolving Fund (SRF) Program

New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
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.
Yes. State Independent Grants Program has 3 set-asides: capital
cost component grants, individual on-site wastewater treatment
system grants, and corrective action grants.
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
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.)
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.
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
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.
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.
Yes. DNRC offers a loan program for all types of
municipal water development projects. Funding comes
from the mineral severance tax.
Yes. Same type program as me SRF with me exception of
some Title II requirements and crosscutten (includes CSO
and stonnwater).
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.
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.
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.

State Grant and Loan Programs for Funding Wastewater Treatment Projects in Addition
                    to the State Revolving Fund (SRF) Program

State WWT Grant Program

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. 20% Grants for Projects: 50% Grants for CSO Projects
Yes. Stale grant program for WWT and water supply in
conjunction with GEFA loans. (See Other State Loan Program
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
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

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. Additional State Funds in separate account (Long
Island Sound Program and State Loan Program)
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. State has appropriated S50 million for SRF program.
Yes. Water Pollution Control Account
No. Pending; 1994
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.
Yes. Maryland has a very small grant and torn program
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PAGO funds for distressed cotnrnun