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Clean Water
State Revolving Fund
ACTIVITY Funding Decentralized Wastewater Systems
UPDATE using the Clean Water State Revolving Fund
The Clean Water State Revolving Fund
(CWSRF) is a low-interest or no-interest
source of funding for the installation, repair, and
upgrading of "decentralized" wastewater systems in
small-town, rural, and suburban areas.
"Decentralized" wastewater systems include: on-site
disposal systems such as septic systems with
drainfields and alternative systems such as mounds
and cluster systems. Cluster systems are designed to
treat the wastewater from two or more dwellings or
businesses, but not entire communities. There are an
estimated 25 million households that use
decentralized wastewater systems. In 1995,
according to the U.S. Census Bureau, two-and-one-
half million systems malfunctioned. This estimate is
probably conservative. It is anticipated that as our
communities continue to expand into suburban and
rural areas, that the number of decentralized systems
and associated system failures will increase.
Background
In the 1970s and 1980s, large federal investments in
the construction of wastewater facilities focused
primarily on large, centralized collection and
treatment systems. This effort did not recognize the
benefits of properly managed decentralized
wastewater systems in achieving the goals of the
Clean Water and Safe Drinking Water Acts.
Problems Associated With Decentralized
Wastewater Systems
In many existing communities, the initial decision to
install a particular system (i.e., to hookup to a
centralized system or to use a decentralized system)
is primarily made in the private sector by the
^
Source: National Small Flows Clearinghouse
developer of a property, based on affordability,
profitability, and availability of a central sewer
system. In small communities with limited or no
centralized system, developers typically choose the
most common, affordable and easily installed on-site
systems. Once installed, these conventional on-site
systems are often not inspected or maintained except
in emergency situations when wastewater backs up
into homes and backyards. Malfunctioning systems
can cause contamination of groundwater and nearby
surface waters. Many state and local regulatory codes
have not been updated to discourage or eliminate
inadequate practices and/or allow the use of new
technologies with demonstrated performance. As a
result, small communities may incur significant
economic burdens where alternative wastewater
systems are not considered or permitted.
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Nationwide data show that conventional on-site
system failures can be attributed to the following:
• Improper siting and/or site evaluation
• Improper system selection and design
• Poor installation practices
• Insufficient operation and maintenance
Benefits of Properly-Managed
Decentralized Treatment Systems
Properly-managed decentralized wastewater
systems are viable, long-term alternatives to
centralized wastewater facilities, particularly in
small and rural communities.
Why install a decentralized system? Because
they:
protect public health and the
environment. Properly managed
decentralized systems can provide the
treatment necessary to protect public health
and the environment. They can be sited,
sized, designed, installed and operated to
meet all federal, state, and local water
quality requirements.
are appropriate for low density
communities. Decentralized systems are
usually the most appropriate technology
and most cost-effective option for rural
areas and much of the urban outskirts.
are appropriate for varying site
conditions. Decentralized systems can be
designed for a variety of site and soil
conditions, including shallow water tables,
bedrock and small lot sizes.
Financing Decentralized Systems ...
The Clean Water State Revolving Fund
The Clean Water State Revolving Fund (CWSRF)
programs in each state and Puerto Rico operate like
banks. Federal and state contributions are used to
capitalize or set up the programs. These assets, in turn,
are used to make low or no-interest loans for important
water quality projects. Funds are then repaid to the
CWSRFs over terms as long as twenty years. Repaid
funds are recycled to fund other water quality projects.
These CWSRF resources can help supplement the
limited financial resources currently available for
decentralized treatment systems. Projects that may be
eligible for CWSRF funding include:
1. New system installation (single and clustered
systems) to correct an existing nonpoint
source problem
2. Replacement, upgrade, or modification of
inadequate or failing systems
3. Costs associated with the establishment of a
centralized management entity* (permitting
fees, legal fees, etc.)
4. Capital associated with centralized
management programs (e.g., trucks, storage
buildings, spare parts, etc.)
* We encourage the establishment or designation of a
management entity for all decentralized projects.
Acceptable management entities include cities and
counties, special governmental units (sanitary districts,
county service districts, etc.), public or private utilities,
private corporations, and nonprofit organizations.
Capacity of the CWSRF
Nationally, the CWSRF has in excess of $42 billion in
assets and has issued nearly $39 billion in loans since
1988. The CWSRF currently is funding over $4
billion worth of water quality projects annually.
Clearly, the CWSRF can be a powerful financial
resource for funding decentralized systems projects.
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Who May Qualify?
The Clean Water Act (CWA) of 1987 authorized the
CWSRF to fund point source (§212), nonpoint source
(§319), and estuary (§320) projects. Decentralized
system projects that are solutions to nonpoint source
problems may be eligible as a §319 or §320 project.
Included in a long list of eligible CWSRF loan
recipients for NFS and estuary projects are
community groups, farmers, homeowners, small
businesses, conservation districts, and nonprofit
organizations. Since the program is managed by the
states, project funding varies according to the
priorities, policies, and laws within each state.
Eligible applicants also vary by state.
Getting a Project Funded
Given that each state administers its own CWSRF
program differently, your first step in seeking a
CWSRF loan is to contact your state CWSRF
representative. The list of CWSRF state
representatives can be found on our website
(www.epa.gov/owm/cwfmance/cwsrf/index.htm).
Here are some suggested questions to ask your
representative:
1. Has the State committed to funding
decentralized systems in its CWSRF Intended
Use Plan (IUP)?
2. If not, what can I do to help get these systems
listed on the IUP?
3. Can an individual or private entity receive a
CWSRF loan for a decentralized system?
4. If not, can I receive a CWSRF loan through
my county?
Your CWSRF state representative will be able to
guide you through the proper channels. In addition,
you can refer to the Ohio case study under the
"Success Stories" section of this fact sheet for further
details on a popular approach to implementing a
CWSRF/decentralized systems state program.
Sources of Loan Repayment
Each state must approve a source of loan repayment as
part of the application process. Though finding a
source of repayment may prove challenging, it does
not have to be burdensome. Many users of the
CWSRF have demonstrated a high level of creativity
in developing sources of repayment. The source of
repayment need not come from the project itself.
Some potential repayment sources include:
• Property owner's ability to pay (determined
during loan application)
• Fees paid by developers
• Recreational fees (fishing licenses, entrance
fees)
• Dedicated portions of local, county, or state
taxes or fees
• Donations or dues made to nonprofit groups
Stormwater management fees
• Wastewater user charges
Success Stories
In August 1997, the Ohio EPA and the Mahoning
County General Health District entered into an
agreement to create a linked deposit program to make
low-interest loans available to individual homeowners
in need of upgrading or replacing their home sewage
disposal systems. The process for obtaining a CWSRF
loan is as follows:
1. The homeowner obtains a permit, which
contains specifications on the proper
installations, operation, and maintenance of
the onsite system, from the county.
2. The homeowner is then issued a certificate
that he or she can take to any bank that
participates in the Linked Deposit Program.
3. The lending institution, using its own criteria,
decides whether or not to offer the applicant a
loan and at what interest rate and term.
4. The lending institution then notifies the Ohio
EPA. The Agency then deposits the loan
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amount in the institution at a reduced interest
rate.
5. Savings from the reduced interest rate are
then passed on to the loan applicant.
Over the past four years, Ohio's EPA Water Pollution
Control Loan Fund made over a million dollars
available for use in this program. A similar program
was launched in Cuyahoga County, Ohio with
$1,950,000 earmarked for the first three years of the
program.
In June 1995, the Maine Municipal Bond Bank
(MMBB) and the Maine State Housing Authority
(MSHA) entered into a Memorandum of
Understanding (MOU) to make low-interest loans to
finance septic systems for owner-occupied, single-
family residences through the MSHA loan programs.
The funds are used for the rehabilitation or
replacement of septic systems. The interest rate is set
at one percent with a maximum term of 20 years. The
MSHA remits to the MMBB on a monthly basis any
repayments for loans received during the prior month,
which are put back in the CWSRF.
In 1994, Pennsylvania instituted a program to fund
on-site sewage disposal systems for individual
homeowners using their CWSRF. The Pennsylvania
Infrastructure Investment Authority, the Pennsylvania
Housing Finance Agency, and the Pennsylvania
Department of Environmental Protection collaborated
on the development of this special funding program,
which allows a homeowner to borrow up to $25,000 at
an interest rate of one percent per annum to fund the
rehabilitation, improvement, repair, or replacement of
an existing on-site treatment system. These loans are
processed through participating local lending
institutions.
In 1995, Minnesota created several sub-programs
within its CWSRF to address nonpoint source
pollution. Once such program is the Tourism Loan
Program, administered through the Department of
Trade and Economic Development, which loans
CWSRF funds to private owners of small lake resorts
for replacement or upgrade of onsite treatment
systems. The loans are made in participation with a
local bank, with the state financing 50 percent of the
costs at two percent interest and the bank financing the
remaining 50 percent at a market rate. The
Department also administered the Small Cities Loan
Program, which provided CWSRF loans at zero
percent to small, unsewered communities to upgrade
or replace all failing on-site systems. The Small Cities
program has since been replaced by other funding
mechanisms for small, unsewered areas.
Challenges Ahead
The EPA encourages states to open their CWSRFs to
the widest variety of water quality projects while still
addressing their highest priority projects. Those
interested in implementing or upgrading an
decentralized treatment system should seek out their
CWSRF program, learn how their state program
works, and participate in the annual process that
determines which projects are funded.
* 2002 *
THE YEAR OF
CLEAN WATER
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State Revolving Fund
Other Federal funding sources for
decentralized systems ...
EPA 319 Grants
Section 319 of the Clean Water Act provides the
statutory authority for EPA's Nonpoint Source
Program. This program provides funds to states to
restore waters adversely affected by nonpoint source
pollution, and to protect waters endangered by such
pollution. Most states have nonpoint source
management plans that allow for the use of section
319 funds for decentralized wastewater system
projects. The program has provided money to small
communities and state agencies to construct
decentralized wastewater systems in areas where these
systems are more cost effective than centralized
systems. Nonpoint Source Program funds have also
been used to repair decentralized systems where such
systems are common. Finally, these funds have been
and will continue to be used for decentralized system
technology demonstration projects. For more
information visit their web site at:
www.epa.gov/owow/nps/cwact.html
USDA Rural Utilities Service (RUS)
Water and Waste Disposal Loans and Grants are
available to develop water and waste disposal
(including solid waste disposal and storm drainage)
systems in rural areas and towns with a population not
in excess of 10,000. The funds are available to public
entities such as municipalities, counties, special-
purpose districts, Indian tribes, and nonprofit
organizations. Grant funds are available to reduce
water and waste disposal costs to a reasonable level
for rural users. Grants may be made for up to 75
percent of eligible project costs in some cases. RUS
also guarantees water and waste disposal loans made
by banks and other eligible lenders. The facilities
financed must be owned and controlled by the
borrower/grantee. Financed decentralized systems
would have to be owned and managed by the RUS
borrower/grantee.
USDA Rural Development offices located throughout
the country administer the programs. Additional
information including local contacts may be found by
visiting their web page: www.usda.gov/rus/water.
HUD Community Development Block Grant
The state administered Community Development
Block Grant program (State CDBG) provides annual
grants to 48 states and Puerto Rico. The states and
Puerto Rico in turn, use the funds to award grants for
community development purposes to smaller cities
and counties. The states of Hawaii and New York
have not chosen to administer the program. As a
result, in those two states HUD directly administers
the awarding of CDBG grants to smaller cities and
counties.
CDBG grants can be used for numerous activities,
including rehabilitation of residential and non-
residential structures, construction of public facilities,
and improvements to water and sewer facilities. For
more information, visit their web site at:
www.hud.gov/cpd/cdbg.html
Non-Federal Assistance
In addition to funding available from the federal
government, several states have created infrastructure
funds, which can fund the development of local on-site
infrastructure. State-funded programs supporting
decentralized systems are ongoing in several states
including Massachusetts, North Carolina,
Pennsylvania, and Virginia.
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For more information about the Clean Water Revolving Fund, or for a program representative in your state,
please contact:
Clean Water State Revolving Fund Branch
U.S. Environmental Protection Agency
1201 Constitution Avenue, NW (Mailcode 4204M)
Washington, DC 20004
Phone: (202) 564-0752 Fax: (202) 501-2403
Internet: www.epa.gov/owm/cwfmance/index.htm
Clean Water
State Revolving Fund
Office of Water January 2003 EPA 832-F-03-003
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