United States
Environmental Protection
Agency
Office of Water (4204)
Municipal Support Division
EPA 832-B-96-005
October 1996
&EPA The Clean Water State Revolving
Fund Funding Framework
From the Beginning...
Funding To Solve
Our Nation's
Water Quality
Problems
To the End.
Moving Towards
The Watershed
Approach
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
WATER
October 21, 1996
State Environmental Agency Directors
I am pleased to forward the final SRF'FundingFramework — Policy and Guidance
document to you. The Framework is the product of a year-long dialogue between EPA and its
State partners to clarify the possible uses of SRF funds. The document also provides States with
a tool to establish relative priorities to guide the use of SRF funds to correct water quality
problems on a statewide or watershed basis. The Framework builds upon the current SRF
program, broadens the participation of nonpoint source and estuary constituent groups, and
encourages States to establish integrated water quality priorities.
The Framework is designed to help States set priorities and demonstrate the relative
importance of funded water quality projects to the public. Further, the process described in this
document will help States select certain "non-traditional" projects where the connection to water
quality improvements is critical, but more difficult to demonstrate. The Framework establishes
voluntary guidelines for funding traditional SRF projects (where the primary purpose is water
quality) and sets national policy for States that wish to make use of their SRF to fund innovative
non-traditional projects.
A series of workshops is scheduled for early 1997 to assist States in developing
integrated priority setting systems and linking their SRF programs and watershed planning
efforts. These workshops will be oriented toward State officials working on nonpoint source,
estuary, wetlands, watershed, and SRF programs and will seek to begin the process of
information sharing at the State level on these important issues. I wish to thank the many State
and EPA participants and reviewers for their helpful input and comments which allowed us to
more clearly articulate the purpose of this document.
Sincerely,
/s/
Robert Perciasepe
Assistant Administrator
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THE SRF DIALOGUE GROUP
The attached SRF Funding Framework is a policy and guidance document that is the work product of a
facilitated negotiation process involving EPA and State representatives. The Dialogue Group included
participants from EPA and a number of States who are listed below. During the process, the negotiators solicited
input from all of the States and other interested parties. The negotiations took place over the course of a year
and this document represents a balancing of interests among all consituencies.
The Framework provides States with a tool for establishing relative funding priorities on a state-wide or
watershed basis for a wide range of water quality projects. The Framework builds upon the current SRF
program, broadens the participation of nonpoint source and estuary programs and constituents, and encourages
States to establish integrated water quality priorities.
Richard T. Kuhlman, Chief
State Revolving Fund Branch
U.S. Environmental Protection Agency
Washington, B.C.
Dov Weitman, Chief
Nonpoint Source Control Branch
U.S. Environmental Protection Agency
Washington, D.C.
IS
Darrell Brown, Chief
Coastal Management Branch
U.S. Environmental Protection Agency
Washington, D.C.
Thomas E. Davenport
Watershed and NFS Branch
U.S. Enviromental Protection Agency
Region V, Chicago, IL
Jack A. Rychecky, Nanes&LExpert
SRF Program
U.S. Environmental Protection Agency
Region VIII, Denver, CO
3gey A. Jat
Roge/A. Janson, Manager
Water Quality Unit
U.S. Environmental Protection Agency
Region I, Boston, MA
Division of Environmental & Financial Assistance
State of Ohio
Paul K. Marchetti, Executive Director
PENNVEST
State of Pennsylvania
Robert ZuHmerman,\Vdministrator
DivisiorKof Water
State of Deli
Greg Swartz*, Administrator
State Revolving Fund Program
State of Arizona
William DeVille, Administrator
State Revolving Fund Program
State of Louisiana
William Campbell, Chief
Certification and Loans Unit
State of California
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THE CLEAN WATER STATE REVOLVING FUND
FUNDING FRAMEWORK
Policy and Guidance Document
Purpose of this Guidance
The purpose of this guidance is to clarify Federal policy regarding the eligibility of nonpoint
source and estuary projects for State Revolving Fund (SRF) assistance and to enhance the
process for making future eligibility decisions at the state level. The intent of the Framework is
to provide a basis for equal consideration of all eligible water quality1 projects for SRF funding.
The purpose of this guidance is to provide a framework for the states to:
1) evaluate and determine relative priorities among their water quality problems,
2) select, for SRF funding, projects and activities that address identified priorities, and
3) enhance the participation of the public in this process.
This Framework is intended to enhance the existing SRF planning and priority setting process,
including the development of the Intended Use Plan (IUP), by utilizing existing water quality
and watershed information. This analysis of a state=s water quality problems would be described
in or accompany the annual IUP with the intent of demonstrating progress toward meeting water
quality goals. Public review procedures are enhanced through development of better information
on the state=s water quality problems and the intended use of the SRF to help address those
problems. This process will be further enhanced by the expanded participation of the nonpoint
source and estuary communities.
Background
Over the first seven years of the State Revolving Fund program, state interest and innovation in
addressing and funding projects to address nonpoint sources of pollution has increased
1 "Water Quality" - in this document, refers to both surface and ground water resources. Project may be
designed to address threats to the chemical, physical and biological integrity of surface waters. The SRF is also
available to address threats to ground water if such activities or projects are included in a state=s nonpoint source or
estuary management plans. State comprehensive groundwater protection plans may be incorporated into the
planning and priority setting processes described in this document.
The Clean Water State Revolving Fund Funding Framework page 1
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substantially. As the program moves toward funding a greater variety of projects2, including
nonpoint source and estuary management activities, as well as municipal wastewater projects,
SRF managers will need to ensure that the substantial but still limited resources of the fund are
directed to the highest priority projects.
Under the current framework of legislation, regulations, and policies, both at the federal and
state level, the 51 SRF programs have planning procedures that are adequate to successfully
direct funds to traditional wastewater projects. The current procedures generally allow states to
identify relatively important wastewater projects and then to select relatively low-risk projects
from among those priorities.
As the universe of potential loan applicants (farmers, conservation groups, citizen action groups,
gas station owners, other businesses, etc.) seeking funding for a wider variety of nonpoint source
and estuary projects expands, the need to effectively evaluate the potential environmental
importance and the financial risk of projects increases and grows in complexity. The planning
and priority setting procedures in place in many of the 51 SRF programs were not designed to
determine priorities within a greatly expanded universe of potential projects that include
nonpoint source and estuary activities. EPA believes that improvements must be made to these
procedures to ensure that SRF funds continue to be directed to the highest priority projects
without jeopardizing the long-term health of the SRFs.
Based on this situation, EPA has engaged in a policy setting dialogue with the states, as co-
regulators. State and federal representatives have been meeting since June 1995 with the goal of
reaching a consensus on a policy framework that contains two alternatives. These alternatives,
which are outlined in this document, suggest ways that states (that are not already doing so) can
evaluate current environmental priorities and develop a list of priority projects or
geographically-specific activities (including wastewater, nonpoint source and estuary)
appropriate for SRF funding. Both alternatives are intended to enhance states= planning and
priority setting efforts and to utilize existing sources of information. Deciding which projects
and activities will receive funding within the policy framework remains a state responsibility.
Overview
The states and EPA have identified some common principles which have served as the basis for
this policy.
• The definition of what is eligible for SRF funding needs to be clarified, so
project-by-project review by EPA in the future will not be necessary.
• The range of SRF eligibilities should remain broad to support achievement of the
goals of the Clean Water Act.
All SRF projects must be "capital" type projects, such as constructing treatment facilities, planting trees
and shrubs, purchasing equipment, and environmental cleanups. The SRF cannot fund operations and maintenance
costs of sewage treatment facilities or general O&M costs such as staff salaries and fuel for equipment that are
outside the scope of a project.
page 2 The Clean Water State Revolving Fund Funding Framework
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Responsibility for setting priorities and allocating resources must remain at the
state level. EPA serves to facilitate the use of SRF funds to meet priority water
quality needs.
The SRF should be managed as an integral part of each state=s overall water
quality program.
The participation of the nonpoint source and estuary (Clean Water Act Sections
319 and 320) programs and constituents in the SRF planning and priority setting
process should be broadened.
Applicability of the Framework Process
In order for a state to fund a "non-traditional" water quality project with SRF funds, it must use
an integrated planning and priority setting system, such as the two alternatives described in this
document, to establish for the public that "non-traditional" projects are a priority within the
context of a state=s water quality problems as a whole. In this guidance, the term "traditional"
refers to both wastewater projects and nonpoint source and estuary projects. A traditional water
quality project is one for which the primary purpose is water quality protection. A "non-
traditional" project is one for which the primary purpose is other than water quality, but which
has an additional purpose which is clearly related to the improvement or protection of water
quality (for instance, the primary purpose of a new landfill is solid waste disposal). Non-
traditional estuary and nonpoint source projects are eligible for SRF loans and states may use
their SRFs to fund only the portion of the project that is related to water quality (see Appendix
for examples). This policy becomes effective when a state prepares its 1998 IUP.
EPA strongly encourages all states to enhance their SRF planning and priority setting systems
according to the principles contained in this Framework.
The Clean Water State Revolving Fund Funding Framework page 3
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Alternative One: Integrated State Priority System for Wastewater,
Nonpoint Source and Estuary Projects
State3 Roles and Responsibilities
Step 1: Review Existing Water Quality Information and Determine Priorities
• The state reviews existing water quality information from its water quality inventory
(CWA Section 305(b) report), nonpoint source management plan ('319), estuary
management plan ('320), watershed plans, comprehensive groundwater protection plan,
and other sources to determine its overall water quality priorities. The purpose of this
review is to identify where efforts to protect or improve a state=s water resources are
needed.
Step 2: Determine Priorities for SRF Funding
• The state evaluates its water quality needs and develops its priorities for SRF funding for
the time period in question. States may develop their own prioritization systems.
Options could include the following:
— Identify priority waters according to the needs within these waters.
— Identify priority problems or needs at the state level.
— Use priorities generated by a state=s watershed management program, if available.
Step 3: Select Proposed Projects/Activities for Inclusion in the Intended Use Plan
• The state chooses the projects and activities it proposes to fund for the time period of the
IUP. These selections will be consistent with the state=s priorities determined in Step 2,
and will also reflect appropriate fund management considerations, including readiness to
proceed, legal/institutional limitations, credit worthiness, financial risk to the SRF,
relative costs and benefits, availability of alternative funding sources, etc.
Step 4: Public Review of the Intended Use Plan
• The state explains the evaluations it made in the previous steps to the public through an
inclusive public process that includes a public meeting or hearing. In particular, major
public and private stakeholders representing relevant interests in the state=s water quality
programs are invited to review and comment on the proposed IUP. (Stakeholders would
include government agencies (at all levels) and representatives of environmental and
citizen action groups, businesses and constituents in targeted watersheds who are
3 It is intended that the entire planning and priority setting process for the SRF be conducted in a
cooperative manner and include the participation of the nonpoint source and estuary programs and any others the
state deems relevant.
page 4 The Clean Water State Revolving Fund Funding Framework
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interested in point sources, nonpoint sources, estuaries, wetlands, and watersheds, as well
as solid waste, underground storage tanks,4 and other relevant issues.)
Step 5: Finalization of the Intended Use Plan
• After taking into account all comments and suggestions and making appropriate
revisions, the state finalizes its IUP.
Step 6: Annual Report
• As part of the state=s existing annual report process, the state reports progress toward
meeting the priorities identified above.
EPA Roles and Responsibilities
Over the long term, EPA=s role will evolve from one of policy development and guidance to one
of support, training, technical assistance and continuing oversight to assure the integrity of the
assets and the long-term viability of the 51 SRF programs. In this context EPA will:
• Provide program support to the states and promote communication among states
regarding planning and priority setting systems.
• Identify national policy objectives. EPA will assist states in meeting these objectives
through training and other forms of assistance. Training and assistance could cover all
aspects of program management and administration.
• Review state progress on an annual basis, including assessment of fund performance,
compliance with statutory requirements, and the fiscal health of the program, and provide
appropriate assistance and guidance.
• Develop and maintain the national SRF information system. Facilitate the dissemination
of information regarding financing of nonpoint source and estuary projects.
• Work with the states to implement this policy and provide assistance as needed.
4 With regard to underground storage tanks, EPA policy allows SRF loans to be issued for removal and
cleanup associated with leaking underground storage tanks, however, SRF loans may not be used for the purchase or
installation of new tanks. Any project that is not a Section 212 treatment works (such as underground storage tanks,
landfills, manure storage facilities, etc.) must be included on a state=s approved nonpoint source or estuary
management plan.
The Clean Water State Revolving Fund Funding Framework page 5
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Alternative Two: Goals Approach (Statewide or Watershed)
State5 Roles and Responsibilities
Step 1: Statewide or Watershed Problem Identification
• The state develops a description of the potential uses of SRF funds that meet the broad
goals of the Clean Water Act, in accordance with state requirements. This discussion
provides a basis for identification of projects and activities in the IUP.
• The state identifies priority water quality problems, integrating information from the
state=s water quality inventory (CWA Section 305(b) report), nonpoint source
management plan ('319), estuary management plans (' 320), comprehensive
groundwater protection plan, watershed plans, if available, and any other sources of
relevant information. The format utilized could be similar to the executive summary of
the ' 305(b) report and would refer to more detailed information as appropriate. This
information is included in the draft IUP as part of the public review process.
Step 2: Statewide or Watershed Evaluation of Problems
• The state articulates and answers the broad policy questions that should be considered in
allocating resources across wastewater, nonpoint source and estuary categories.
Questions to consider might include:
- Are there other significant sources of funding (federal, state or local)?
- Is there a regulatory solution that would remedy the problem?
- What are the environmental benefits?
- What is the likely response of recipients to an interest rate subsidy?
- Is this class of activities eligible for funding (e.g., there may be state level restrictions)?
Step 3: Establishment of Statewide or Watershed Funding Goals
• Based upon the analysis in Steps 1 and 2, the state establishes broad funding goals for the
categories (i.e., wastewater, nonpoint source, estuary) of SRF funds. The state might set
quantitative or qualitative objectives for allocating funds among categories. The state
retains flexibility to make adjustments in meeting these goals. Examples of goal setting
options include:
— set funding goals for targeted watersheds (percentages)
— set funding goals for statewide activities (percentages)
— set goals based on performance objectives (i.e., reduce nutrient loads from
agricultural sources in watersheds x, y and z)
5 It is intended that the entire planning and priority setting process for the SRF be conducted in a
cooperative manner and include the participation of the nonpoint source and estuary programs and any others the
state deems relevant.
page 6 The Clean Water State Revolving Fund Funding Framework
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— set goals based on relative priorities
— other
Step 4: Select Proposed Projects/Activities for Inclusion in the Intended Use Plan
• Based upon the broad goals established, the state chooses the traditional and non-
traditional projects and activities it proposes to fund for the time period of the IUP. These
selections will be consistent with the state=s priorities and funding goals, and will also
reflect appropriate fund management considerations, including projects: readiness to
proceed, legal/institutional limitations, credit worthiness, financial risk to the SRF,
relative costs and benefits, availability of alternative funding sources, etc.
Step 5: Public Review
• The state explains the evaluations it made in the previous steps to the public through an
inclusive public process that includes a public meeting or hearing. In particular, major
public and private stakeholders representing relevant interests in the state=s water quality
programs are invited to review and comment on the proposed IUP. (Stakeholders would
include government agencies (at all levels) and representatives of environmental and
citizen action groups, businesses and constituents in targeted watersheds who are
interested in point sources, nonpoint sources, estuary, wetlands, and watersheds, as well
as solid waste, underground storage tanks and other relevant issues.)
Step 6: Finalization of the Intended Use Plan
• After taking into account all comments and suggestions and making appropriate
revisions, the state finalizes its IUP.
Step 7: Annual Report
• As part of the state=s existing annual report process, the state reports progress toward
meeting the broad funding goals identified above.
Step 8: Self-Assessment
• Periodically (at least every five years), the state reviews progress toward goals and adjust
accordingly. In conducting such a review, the state will utilize a multi-year perspective.
This self-assessment could be incorporated into the annual report or could be prepared
concurrently with the 305(b) Report.
EPA Roles and Responsibilities
Same as for Alternative One.
The Clean Water State Revolving Fund Funding Framework page 7
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De Minimus Pilot Process for Documenting Non-traditional SRF
Projects
States suggested that an intermediate, less complex procedure (hence de minimus) — less
comprehensive than Alternatives 1 or 2 - could serve as an incentive for states to consider a
broader range of potential SRF projects. This process permits a state to fund a limited number of
non-traditional pilot projects without having to fully comply with the Framework requirements.
The de minimus option is intended to serve as a pilot program for states that wish to explore
"non-traditional" SRF funding. It also provides a transition to full use of the concepts outlined
in the Framework for states which have significant water quality problems in "non-traditional"
areas. When states fund non-traditional projects under the de minimus option, they must show
how these projects meet the documented water quality needs of the state in their lUPs.
Examples of traditional and non-traditional water quality projects and a diagram of the decision
process for determining whether a project is traditional or non-traditional, or whether the de
minimus option applies, are provided in the Appendix.
Applicability
The de minimus or intermediate procedure is available only to those states which have yet to
fund non-traditional projects. Recognizing that the de minimus provision is provided as a
transition to full use of the Framework, specific caps on its use are provided.
The National Caps Are:
3 Projects in an Activity Category, and
$500,000 = Total Value of All Non-Traditional Projects Funded
The project cap applies to 3 projects in the same activity category (i.e., agriculture, landfill, salt
storage), as determined between a state and its Region. Thus, the state could fund three salt
storage projects, three landfill projects, etc. If these initial projects are successful and the state
wishes to fund additional projects in one or more of these categories, it would need to implement
one of the Alternatives mentioned earlier in this document.
The dollar cap applies to the cumulative amount of all non-traditional projects funded in all
categories in all years. Thus, if a state funded two salt storage projects at $20,000 each in one
year and a landfill project at $460,000 the next year, it would have reached the dollar cap. In
order to fund any additional non-traditional projects, the state would need to implement either of
the alternatives contained in this document. Unless the caps have been reached sooner, the de
minimus option expires upon preparation of the 2004 IUP. By then, any state interested in
continuing to fund non-traditional water quality projects must implement one of the Framework
alternatives.
page 8 The Clean Water State Revolving Fund Funding Framework
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State Roles and Responsibilities
• A decision process would be documented setting forth the rationale for entering into the
de minimus process and selecting the project(s) to be funded with SRF resources. The
state must demonstrate the connection between the project(s) selected and significant
water quality problems. The resulting documentation would be incorporated into the IUP
and would be part of the public review but would not otherwise affect the planning and
priority setting procedures.
• As part of the state=s existing annual report process, a state would report its
accomplishments, including those non-traditional projects funded under the de minimus
process.
• Periodically the state would review progress and effectiveness of the de minimus projects
to determine whether to continue funding non-traditional projects using the Framework.
The state could terminate the de minimus process at any time.
EPA Roles and Responsibilities
Same as for Alternative 1.
QQQ
The Clean Water State Revolving Fund Funding Framework page 9
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APPENDIX
Decision Tree - SRF Funding Framework Process
Examples of SRF Traditional and Non-Traditional Projects
page 10 The Clean Water State Revolving Fund Funding Framework
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SRF Funding Framework
Decision Tree
For each project or activity
to be included on a State's
Intended Use Plan
Is the primary purpose
water quality?
No
The Framework
is optional and
encouraged.
\
Some aspect of the
Framework is required.
Use Alternative I or
Alternative II to determine
relative priority among all
projects under consideration.
Use the De Minimis
option, if available, and
document the relationship
of these "non-traditional"
projects to established wate
quality problems.
The Clean Water State Revolving Fund Funding Framework
page 11
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EXAMPLES OF SRF TRADITIONAL
AND NON-TRADITIONAL PROJECTS
TRADITIONAL
Activity
Manure storage facility
No-till equipment
Remediate existing landfill
water quality impacts
Remediate existing UST
water quality impacts
Installation of vegetative
buffers on stream banks &
shoreline (grass, shrubs, trees)
Re-channelizing or altering
streams (restore pools & riffles)
Primary Benefit
Prevent manure from contaminating
groundwater & surface water
Reduce erosion entering waterways
Eliminate water quality
problems
Eliminate water quality
problems
Protect against stream bank
erosion & to buffer upland runoff
Enhance in-stream habitat for fish
Activity
New landfills
Salt storage sheds
Smokestack scrubbers
Bird sanctuaries or other
wildlife enhancements
Street sweepers, leaf-
removal equipment, etc.
NON-TRADITIONAL
Primary Benefit
Solid waste disposal
Store salt
Reduce air pollution
Provide viable habitat for wildlife
Solid waste collection
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For more information about the Clean Water
State Revolving Fund Program, please contact:
State Revolving Fund Branch (4204)
U.S. Environmental Protection Agency
401 M Street, SW
Washington, DC 20460
Telephone: (202) 260-7359
or visit EPA's Internet web site at:
http://www.epa.gov
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