vvEPA
United States
Environmental Protection
Agency
Office Of Water
(WH-595)
4300991004
State Revolving Fund (SRF)
Interim Report To Congress
Financial Status And Operations
Of Water Pollution Control
Revolving Funds
Printed on Recycled Paper
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i UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
° WASHINGTON, D.C. 20460
APR I 6 1991
THE ADMINISTRATOR
Honorable Dan Quayle
President of the Senate
Washington, D.C. 20510
Dear Mr. President:
Enclosed is the Environmental Protection Agency's (EPA)
"State Revolving Fund (SRF) Interim Report to Congress." This
Report is required by Section 516(g) of the Clean Water Act
(CWA). The Report was prepared in cooperation with the States
and water pollution control planning and financing agencies.
This SRF Interim Report addresses the financial status and
operations of water pollution control revolving funds established
by the States under Title VI of the CWA, but focuses only on nine
States with SRF programs. We are submitting an interim report
because very few States had established their SRF programs in
1988 when work on this Report began and the experience of these
States with program implementation was limited. We will submit a
final report covering all SRF States later this spring.
The Report presents findings in the following areas:
funding needs for the nine study States, the available sources of
funding, the financing mechanisms used to meet their needs, how
the States administer the SRF program, and the impacts of
implementing the SRF program. The SRF program is a significant
step in restoring responsibility for financing wastewater
treatment from the Federal government to the States and
municipalities.
I would be pleased to discuss further the results of this
assessment at your convenience.
Sincerely yours,
William K. Reilly
Enclosure
Printed on Recycled Paper
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
APR 1 6 1991
THE ADMINISTRATOR
Honorable Thomas S. Foley
Speaker of the House
of Representatives
Washington, D.C. 20515
Dear Mr. Speaker:
Enclosed is the Environmental Protection Agency's (EPA)
"State Revolving Fund (SRF) Interim Report to Congress." This
Report is required by Section 516(g) of the Clean Water Act
(CWA). The Report was prepared in cooperation with the States
and water pollution control planning and financing agencies.
This SRF Interim Report addresses the financial status and
operations of water pollution control revolving funds established
by the States under Title VI of the CWA, but focuses only on nine
States with SRF programs. We are submitting an interim report
because very few States had established their SRF programs in
1988 when work on this Report began and the experience of these
States with program implementation was limited. We will submit a
final report covering all SRF States later this spring.
The Report presents findings in the following areas: funding
needs for the nine study States, the available sources of
funding, the financing mechanisms used to meet their needs, how
the States administer the SRF program, and the impacts of
implementing the SRF program. The SRF program is a significant
step in restoring responsibility for financing wastewater
treatment from the Federal government to the States and
municipalities.
I would be pleased to discuss further the results of this
assessment at your convenience.
Sincerely yours,
William K. Rei
Enclosure
Printed on Recyd&S Paper
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STATE REVOLVING FUND (SRF)
INTERIM REPORT TO CONGRESS
Financial Status and Operations of Water Pollution
Control Revolving Funds
April 1991
U.S. Environmental Protection Agency
Office of Municipal Pollution Control (WH-595)
Washington, DC 20460
Tel. (202) 382-7251
Prepared Under Contract Number 68-C8-0023
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TABLE OF CONTENTS
Page
SECTION ONE EXECUTIVE SUMMARY 1-1
1.1 Background 1-1
1.2 Status of SRF Program Implementation 1-1
1.3 Construction Needs of Wastewater Treatment Projects 1-1
1.4 Total Funds Available in SRFs and Other Programs 1-2
1.5 Comparison of Wastewater Treatment Needs to 1-3
Funds Available
1.6 SRF Program Operations 1-4
1.7 Administration of State SRF Programs 1-4
1.8 Impact of the SRF Program on User Fees 1-5
1.9 Impact of the SRF Program on Treatment Plant 1-5
Efficiency
1.10 Advantages of the SRF Program 1-6
1.11 Issues Associated With SRF Implementation 1-6
SECTION TWO INTRODUCTION 2-1
2.1 Program Background 2-1
2.2 Purpose of the Report to Congress 2-1
2.3 Status of Nationwide Implementation 2-2
2.4 Federal Funding 2-4
2.5 Scope and Organization of this Report 2-4
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TABLE OF CONTENTS (cont.)
SECTION THREE CONSTRUCTION NEEDS OF STATES FOR 3-1
COMPLIANCE WITH THE CLEAN WATER ACT
3.1 Compliance Related Needs 3-1
3.2 Additional SRF Eligibilities 3-4
SECTION FOUR AVAILABILITY OF SRF AND OTHER 4-1
FUNDING FOR ELIGIBLE PROJECTS
4.1 Availability of Funding from All Sources 4-1
4.2 Availability of SRF and Other State Program Funding 4-4
4.3 Current and Anticipated Uses of SRF Assistance 4-8
SECTION FIVE COMPARISON OF WASTEWATER TREATMENT 5-1
NEEDS TO AVAILABLE FUNDS
SECTION SIX SRF PROGRAM OPERATIONS 6-1
6.1 Structure of the Nine Study State SRF Programs 6-1
6.2 Special Programs for Small and/or Economically 6-5
Distressed Communities
6.3 Ensuring the Viability of the SRF Programs 6-6
SECTION SEVEN ADMINISTRATION OF SRF PROGRAMS 7-1
7.1 Agencies and Personnel Involved With SRF 7-1
Program Administration
7.2 Costs Associated With SRF Program Administration 7-3
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TABLE OF CONTENTS (cont)
Page
SECTION EIGHT POTENTIAL IMPACT OF THE SRF PROGRAM 8-1
ON COMMUNITY USER FEES
8.1 Scope of the Analysis 8-1
8.2 Methodology 8-2
8.3 Comparison of User Fees Under the SRF and Construction 8-4
Grants Programs
8.4 Impact of SRF Loan Interest Rate on Level of Subsidy 8-4
8.5 Summary of Key Findings 8-6
SECTION NINE POTENTIAL IMPACT OF THE SRF PROGRAM 9-1
ON FACILITY OPERATIONS
9.1 Anticipated Changes in Sizing, Design and Operation 9-1
and Maintenance Costs of New Facilities
SECTION TEN ADVANTAGES OF THE SRF PROGRAM 10-1
10.1 Federal Government 10-1
10.2 The States 10-1
10.3 Communities 10-2
SECTION ELEVEN ISSUES ASSOCIATED WITH SRF 11-1
IMPLEMENTATION
-in-
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TABLE OF CONTENTS (cont)
Page
APPENDICES
APPENDIX A SRF Report to Congress Workgroup Members A-l
APPENDIX B Needs Associated with New SRF Program B-l
Funding Eligibilities and New
Enforceable Requirements
APPENDIX C Estimated Annual Funding for SRFs and Other C-l
State Programs by State
APPENDIX D Total Annual Contributions of Federal and D-l
State Funds Available by State
APPENDIX E Distribution of Available Funds by Types of E-l
Assistance by State
APPENDIX F User Fee Calculation Model F-l
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LIST OF TABLES
Table Page
2-1 States with Approved SRF Programs in Order of First 2-3
SRF Grant Award Date
2-2 Federal Funding of SRFs 2-5
3-1 SNC Needs 3-3
3-2 Category I to V Wastewater Treatment and Conveyance Needs 3-5
for the Nine Study States
4-1 Annual New Federal and State Funding for Wastewater 4-2
Projects Aggregated for Nine Study States
4-2 Estimated Annual Contributions to SRFs and Other State 4-5
Programs Aggregated for Nine Study States
4-3 Planned Uses of SRF Assistance Aggregated for 4-9
Nine Study States
5-1 Comparison of SNC Needs to Federal and State 5-2
Funds Available
5-2 Comparison of Design Year Category I to V Wastewater 5-3
Treatment and Conveyance Needs, Federal and State Funds
Available, and Funds Needed
6-1 Uses of SRF Funds Aggregated for Nine Study States 6-3
6-2 SRF Loan Structures for Nine Study States 6-4
7-1 Employment in Administration and Operation of SRFs 7-2
7-2 Comparison of Estimated SRF Administrative Costs and 7-4
Administrative Expense Allowances for Nine Study States
8-1 User Charge Variables, Standard Values, and Range 8-3
8-2 Annual Household Wastewater Treatment Costs: Comparison 8-5
of State Revolving Fund and Construction Grants Financing
8-3 SRF Interest Rate and Construction Grant Equivalent 8-6
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LIST OF TABLES (cont)
Table
C-l Estimated Annual Funding for SRFs and Other 1
State Programs by State
D-l Total Annual Contributions of Federal and State Funds D-l
for Wastewater Projects for Nine Study States
E-l Types of SRF Assistance in Connecticut E-l
E-2 Types of SRF Assistance in Georgia E-2
E-3 Types of SRF Assistance in Minnesota E-3
E-4 Types of SRF Assistance in New Jersey E-4
E-5 Types of SRF Assistance in New Mexico E-5
E-6 Types of SRF Assistance in South Dakota E-6
E-7 Types of SRF Assistance in Tennessee E-7
E-8 Types of SRF Assistance in Texas E-8
E-9 Types of SRF Assistance in Virginia E-9
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LIST OF FIGURES
Figure
3-1 SRF-Eligible Projects of the Nine Study States: 3-7
Documented and Undocumented
4-1 Total Federal and State Funding Projected to be Available 4-3
for Wastewater Projects Aggregated for Nine Study States
4-2 Estimated Annual Contributions to SRFs and Other State 4-6
Programs Aggregated for Nine Study States
4-3 Estimated Cumulative SRF Funds Available in the Nine 4-7
Study States
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SECTION ONE
EXECUTIVE SUMMARY
1.1 Background
This Report to Congress describes the financial status and operations of State Revolving
Funds (SRFs) established pursuant to Title VI of the Clean Water Act (CWA) as amended by
the Water Quality Act of 1987 (P.L. 100-4). As funding under the CWA Title II construction
grants program is phased out, SRFs will become one of the principal funding sources for
wastewater treatment facilities, collection systems, and other water quality projects in most
States.
Because very few States had established their SRF programs in 1988 when work on this
report began and the experience of these States with program implementation was limited, EPA
is submitting an interim report at this time. This interim report addresses the informational
requirements of Section 516(g) of the CWA, (Section 516(g) is summarized on page 2-1 of this
report.) It provides a national-level overview of program implementation and detailed
information for nine States. EPA will submit a final report covering all SRF States in 1991.
The nine States covered in detail in this report are Connecticut, Georgia, Minnesota,
New Jersey, New Mexico, South Dakota, Tennessee, Texas, and Virginia. These States were
selected to provide coverage of (1) several of the more established SRF programs, (2) a range
of program operating styles (e.g., leveraged and nonleveraged programs), and (3) a mix of
geographic locations and demographics. However, the SRF programs in these States should not
he considered as representative of all State programs.
1.2 Status of SRF Program Implementation
As of June 30, 1990, forty-three States and Puerto Rico had established SRF programs
and received capitalization grants from EPA. Eighteen of these States had received second
grants, seven States had received third grants, and one State had received a fourth grant. The
remaining States that plan to establish SRF programs were expected to receive their first
capitalization grants by the end of fiscal year 1990.
1.3 Construction Needs of Wastewater Treatment Projects
Section 516(g)(A) requires EPA to identify facilities in "significant noncompliance"
(SNC) with the Act and to develop estimates of the construction costs of bringing those
facilities into compliance. The definition of SNC as used in EPA's enforcement program was
expanded for the purposes of this report because it does not include all facilities with
construction needed to attain compliance. If EPA or a delegated State enters into an
agreement to resolve the basis of noncompliance, the facility is removed from the SNC list,
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even though construction necessary to achieve physical compliance has not taken place. As a
result, the universe of facilities needing construction to achieve physical compliance is larger
than the SNC universe needing construction. This report deals with facilities which need
construction in order to achieve or return to compliance (see Section 3.1). EPA identified
1,247 facilities in the nine study States which met the definition used in this report. The cost
of construction necessary to bring these facilities back into compliance is estimated to be $4.5
billion.
Because a high level of compliance has already been achieved, the above estimate of
compliance-related construction needs represents a small percentage of the cost of constructing
all facilities eligible for SRF funding. The estimate does not include wastewater treatment and
collection costs for facilities currently in compliance, but which have major wastewater funding
needs as documented in the 1988 Needs Survey1. If all documented funding requirements in
Categories I through V of the 1988 Needs Survey are included, a total of $14.9 billion will be
needed to construct SRF-eligible projects in the nine study States. Additionally, the SNC
estimate does not include costs associated with new funding eligibilities, replacement needs, and
new enforceable requirements of the 1987 CWA Amendments. These water quality activities,
programs, and requirements, which include nonpoint source control, sludge disposal, estuary
protection, and storm sewer projects, will add significantly to the potential demand for SRF
funds. Documented estimates of the funding needs for these activities, however, are not
available.
1.4 Total Funds Available in SRFs and Other Programs
Based on data provided by the nine study States, Federal and State funds totaling
approximately $6.4 billion will be available from 1988 to 1999 to meet SRF-eligible needs. This
total includes Federal and State contributions to SRFs, EPA construction grants, other (non-
EPA) Federal grant and loan programs, other State grant and loan programs, and repayments
on SRF loans by local recipients. Local sources of funding, which were not included in the
S6.4 billion estimate, will provide additional capital for wastewater treatment and collection
projects.
'The Needs Survey is a biennial assessment of the cost of wastewater treatment and
collection systems required to meet the goals of the Clean Water Act. The survey divides
community wastewater treatment and collection needs into five categories.
Category I = Secondary Treatment
Category II = Advanced Treatment
Category IILA. = Infiltration/Inflow Correction
Category HIB = Replacement/Rehabilitation of Sewers
Category IVA = New Collector Sewers
Category IVB = New Interceptor Sewers
Category V = Combined Sewer Overflows (CSO)
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The estimate of Federal and State funding assumes that construction grants and SRFs
are funded at full, authorized amounts for FY 1990 through FY 1994. However, the
appropriated amount for FY 1990 was approximately 80 percent of the authorized amount.2
Of the $6.4 billion in Federal and State funding for SRF-eligible needs in the nine study
States from 1988 to 1999, $5.4 billion will be administered through State programs. Of this, $4.1
billion will be available through the States' SRFs. Between 1989 and 1999, the amount of SRF
funding available annually in the nine study States is projected by State officials to decrease by
about 40 percent. At this time, State funding does not appear to be increasing sufficiently to
offset the phase out of Federal SRF monies. Except for Connecticut, Minnesota, and New
Jersey, the study States did not project further capitalization of their SRFs beyond 1994.
However, historical experience indicates that local funding increases as federal funding
decreases.
It should be noted that much of the data on available funding presented in this report is
preliminary, particularly estimates of State funding for the latter half of the 1990s. The data
included in this report reflect the best estimates of State officials based on their experience and
professional judgment. However, many of these officials indicated that projections of future
State funding are highly uncertain.
1.5 Comparison of Wastewater Treatment Needs to Funds Available
For the nine study States, funding from Federal and State sources from 1988 to 1999 is
sufficient to cover all SNC needs in seven of the nine study States and nearly 90 percent of the
needs in the remaining two States. However, the SNC-related needs only represent a
"snapshot" as of June 30, 1990. While it is not possible to quantify future SNC-related needs, it
is predictable that there will be additional significant violations through 1999 that will require
construction to correct. The reasons for potential violations include population growth which
will generate flows and/or pollutant loadings in excess of design capacity. During this period,
some number of treatment plants will reach the end of their useful lives and face the need for
major rehabilitation or replacement. Finally, additional regulations in the area of toxics control,
stormwater management, and sludge disposal may result in significant new violations that might
require construction to correct.
It was possible, however, to make some additional comparisons of funding availability
and need using data contained in the 1988 Needs Survey. Federal and State funding covers an
average of only 43 percent of the $14.9 billion of Category I to V design year needs
documented for the nine study States in the 1988 Needs Survey. The 57 percent gap between
available Federal and State funds and Category I to V needs represents the amount that may
need to be funded from local sources between 1988 and 1999 if all needs are to be met. Local
sources provided approximately 40 percent of the financing for such projects in the mid 1980s.
:State funding projections for this report were received prior to final appropriation of FY
1990 Title VI funds, and therefore reflect full authorized funding amounts.
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1.6 SRF Program Operations
All nine study State SRF programs offer loans at below-market interest rates. Loan
repayments are used to fund additional loans (with the exception of renavments used to retire
SRF program debt). The key structural and operating characteristics of the nine programs
include:
Method of Obtaining Matching Funds - Five States obtain matching funds
through appropriations, two through State general obligation bond financing, one
through an SRF program revenue bond, and one by pledging the loan
repayments of an existing wastewater treatment loan program.
Use of Leveraging - SRF programs in three of the study States (Minnesota, New
Jersey, and Texas) borrow to provide additional lendable funds. The other six
States plan to consider leveraging in the future.
Types of Assistance - The study States plan to provide assistance primarily in the
form of loans. States with leveraged programs will use some funds to secure
bond issues. States plan to use only a very small portion of funds for
refinancing.
Interest Rates - All of the State programs offer loans at below-market interest
rates (typically ranging from 2 to 5-1/2 percent). Three of the nine States vary
interest rates based on a community's ability to pay.
Type of Projects Funded - States plan to use virtually all funds for sewage
treatment and collection system projects through 1990. After that year, several
States plan to use a small percentage of funds for nonpoint source control
programs.
Measures to Assure Fund Viability - States uniformly view the soundness of their
loan portfolios as the critical factor in assuring long-term viability of the SRFs.
States carefully scrutinize applicants to evaluate their creditworthiness. Many
States require that communities pledge user fees and full faith and credit as
assurance for repayment. In the event of default, several States reported that
they can intercept other State assistance to the recipient.
1.7 Administration of State SRF Programs
SRF program administration requires a mix of technical, financial, and general
administrative personnel. In the nine study States, staff size varied from four to 70 people in
FYs 1989-1990. Most of the study States anticipate significant staff expansion over the next
several years as personnel shift from the construction grants to the SRF programs and the
number of projects and the amount of money in the SRF programs increase.
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The CWA restricts the cumulative total of SRF funds used for administrative expenses
to four percent of the amount of capitalization grant awards. The adequacy of the four percent
SRF administrative expense allowance varies significantly among the nine study States. Four of
the States should not have difficulty covering their projected administrative expenses during the
1989 to 1994 time period. The remaining five States, however, report large shortfalls. In three
of the States, the projected expenses are two to three times the four percent administrative
allowance. After the allotment of the final Federal capitalization grants in 1994, States will
have to rely primarily on alternative funding sources, such as appropriated funds, or unused
allowances "banked" from previous years to cover their administrative expenses. Alternatively,
they may charge closing or loan origination fees on the loans they make.
1.8 Impact of the SRF Program on User Fees
Because construction of facilities financed with SRF loans is not yet complete and actual
data are not available, a financial model was used to assess the impact of SRF funding on user
lees. The model simulates the user fee impact of SRF funding versus construction grants
funding for a range of community sizes. In the analysis, user fees are assumed to cover all debt
service and operation and maintenance costs for a new wastewater treatment facility (excluding
land).
The analysis shows that SRF loans generally provide less of a subsidy to communities
than construction grant funding. This occurs despite the expanded eligibility of project funding
under the SRF program. If SRF loans are issued at four percent interest, the average rate
charged for SRF loans in the nine study States, user fees are expected to be approximately 20
percent higher than projects constructed with construction grants assistance.
Since the level of subsidy is generally smaller under the SRF program than under the
construction grants program, user fees will be higher at SRF financed facilities than at
construction grants financed ones. However, SRF loans still provide a substantial subsidy. On
average, user fees for treatment facilities constructed with a 4 percent SRF loan will be
approximately 14 percent lower than facilities constructed with market rate financing.
1.9 Impact of the SRF Program on Treatment Plant Efficiency
There are no actual data available on SRF-financed treatment plant efficiency because
very few SRF-financed plants have begun operating at this point in time. However, most State
officials expect that SRF-financing will lead to lower-cost facilities because communities must
finance the entire cost of the facility. Officials anticipate a reduction in the use of innovative
and alternative technologies because, unlike the construction grants program, the SRF program
offers no special incentives for such projects. The potential impact of a shift toward lower-cost,
non-innovative facilities on treatment plant efficiency is unclear. However, State officials
indicated that they expect no major changes in treatment plant efficiency.
Recently, EPA embarked on a cooperative effort in partnership with the States to
promote State-based Municipal Water Pollution Prevention (MWPP) programs. These
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programs are concerned with assessing the operations and physical capabilities of municipal
wastewater treatment facilities on a regular basis to determine their capability to meet treatment
requirements both currently and into the future. They are also concerned with getting
municipalities to take corrective action before potential pollution problems occur. The MWPP
program will help ensure that the quality of the infrastructure financed under Titles II am ST
is maintained and continued.
1.10 Advantages of the SRF Program
The SRF program offers many financial and environmental advantages to Federal, State,
and local governments. The revolving nature of the SRFs creates a perpetual source of low
cost financing. The funds invested now for the capitalization of SRFs will work for many years
to assist communities in meeting their needs, providing more money for more communities than
would one-time loans or grants.
For the Federal government, the program furthers the long-standing national policy of
assisting States and local governments in financing the construction of wastewater treatment
facilities. SRFs also facilitate the goal of restoring the responsibility for funding these activities
to the States and municipalities. In the process of resuming this responsibility, the States also
have increased flexibility to design and operate their SRFs to address the water quality concerns
most important to them and their communities.
For communities receiving SRF assistance, below market interest rates are the single
most important advantage of the program. This reduced cost of capital enables some projects
to be completed that otherwise would not be affordable and reduces the level of user fees
required to repay project debt.
1.11 Issues Associated With SRF Implementation
State officials in the nine SRF programs identified a number of areas of concern that
affect their ability to implement their programs. Many of these concerns arise from Federal
and State statutes, regulations, and policies.
Of primary concern to most officials was Federal funding of the SRF program. The
States believe that funding the program at less than the full authorized levels will reduce their
ability to accomplish the goals of the CWA, including the 1987 Amendments. They also report
that uncertainty in the level of funding due to the appropriations process makes planning
difficult for them and their communities.
The study States report that the application of "cross-cutters" (i.e., Federal laws and
authorities that exist independently of the SRF program, but apply to certain activities
undertaken under the program) adds significantly to administrative and project costs. In
addition, the States are having difficulty monitoring and assuring compliance with cross-cutters
because at any time, Federal laws can be enacted that apply to the SRF program, and a
permanent list of these authorities cannot be identified. States recommend that Congress
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consider exempting the SRF program from all Federal cross-cutters. As an alternative, some
State officials recommend that compliance with cross-cutters be based on the intent of law
rather than specific requirements, and be determined by the Governor of each State.
The States believe that Federally mandated Title II requirements on the SRF program
can also increase project costs. The most frequently mentioned requirement in this regard is
the Davis-Bacon Act.
The letter of credit payment process was also cited as an impediment. Several States
indicated that it prevents them from earning interest on Federal funds and also becomes
cumbersome because States have to comply with their own overlapping fiscal and accounting
procedures which can impede the quick transfer of funds. Thus, although the letter of credit
itself as a method of payment is not causing delays beyond the maximum of 36 hours necessary
to make the electronic transfer of funds, delays are occurring in some States due to State
processing problems associated with the cash disbursements.
Several States reported that the statutory restriction on the use of SRF funds for
administrative costs is an impediment to establishing effective SRFs. The CWA restricts the
amount of money in an SRF that can be used for administrative expenses to four percent of all
capitalization grant awards received by the fund. A number of States expect that the allowed
amount will be inadequate to cover the full costs of administering their funds during the period
of Federal capitalization.
Land eligibility was also cited as an impediment. The purchase of land for a wastewater
treatment facility is not an eligible cost under the SRF program unless the land is integral to
the treatment process or used for sludge disposal. This statutory restriction means communities
must obtain separate financing for land.
The CWA also requires that recipients of SRF assistance provide a dedicated source of
revenue to cover loan repayments. Because of this, many States reported that it may be
difficult to fund nonpoint source and estuarine activities. However, SRF funding of nonpoint
source and estuarine activities is just beginning; it is too early to determine whether this
provision will serve to reduce the amount of SRF loans for these purposes.
Finally, three of the nine study States mentioned that they anticipate difficulty in
providing SRF assistance to economically distressed communities because these communities
may be unable to repay loans even at very low interest rates. Many of these communities were
unable to accept a grant under the construction grants program because they could not finance
the local share. Similarly, they will not be able to repay a loan under the SRF program even at
low interest rates because the subsidy will be even less than it was under the construction
grants program.
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SECTION TWO
INTRODUCTION
2.1 Program Background
Title VI of the Clean Water Act (CWA), as amended by the Water Quality Act of 1987
(P.L. 100-4), authorizes the Administrator of the EPA to make capitalization grants to States
for State Water Pollution Control Revolving Funds (SRFs). The SRF program is intended to
support a long-standing national policy to provide financial assistance for the construction of
publicly owned wastewater treatment works (POTWs). This new program, however, is
fundamentally different from the Title n construction grants program that has provided financial
assistance for many years and received its last appropriation in FY 1990.
Unlike the construction grants program under which EPA provides grant assistance
directly to municipalities for wastewater treatment projects, the SRF program is designed to give
individual States the responsibility for developing and operating their own programs, including
providing financial assistance for POTW construction and other eligible activities. Financial
assistance provided by SRFs can include loans and various forms of credit enhancements, but
not grants. A key element of SRFs is their "revolving" nature-most disbursements return to
the program to provide assistance to additional recipients. SRF assistance can be used for a
broader range of water quality management activities than construction grants assistance such as
the implementation of nonpoint source management programs1, and development and
implementation of conservation and management plans under the National Estuary Program.
The SRF program is a significant step towards restoring responsibility for financing
wastewater treatment facilities from the Federal government to the States and municipalities.
The CWA allows flexibility in the program; each SRF is designed and operated to address the
water quality needs in a particular State and its communities. EPA cooperates with, and
provides technical assistance to States in establishing their programs.
2.2 Purpose of the Report to Congress
Section 516(g) of the CWA requires EPA to prepare a Report to Congress on the
financial status and operations of the State SRFs. In accordance with Section 516(g), the
report must provide:
(A) an inventory of the facilities that are in significant noncompliance with the
enforceable requirements of the CWA;
lrThe 1987 CWA amendments also authorize grants for these programs under Section
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(B) an estimate of the cost of construction necessary to bring such facilities into
compliance with such requirements;
compliance with such requirements;
(C) an assessment of the availability of sources of funds for financing such needed
construction, including an estimate of the amount of funds available for providing
assistance for such construction through September 30, 1999, from the watt
pollution control revolving funds established by the States under Title VI o, the
CWA;
(D) an assessment of the operations, loan portfolio, and loan conditions of such
revolving funds;
(E) an assessment of the effect on user fees of the assistance provided by such
revolving funds compared to the assistance provided with funds appropriated
pursuant to Section 207 of the CWA; and
(F) an assessment of the efficiency of the operation and maintenance of treatment
works constructed with assistance provided by such revolving funds compared to
the efficiency of the operation and maintenance of treatment works constructed
with assistance provided under Section 201 of the CWA.
The report was to be prepared in cooperation with the States and water pollution
control planning and financing agencies. EPA formed a workgroup of State and EPA Regional
Staff directly involved in the SRF program to assist in the development of this report. The
workgroup participated in the development of the approach and commented on draft
questionnaires and a draft of the report. Workgroup participants are identified in Appendix A.
2.3 Status of Nationwide Implementation
To initiate an SRF program, States must apply for a capitalization grant from EPA.
The capitalization grant is the Federal seed money that the State uses to establish its revolving
loan fund. To qualify for the capitalization grant, the State must provide matching funds equal
to at least 20-percent of the grant and conform to applicable Title II and Title VI program
requirements.
As of June 1990, forty-three States and Puerto Rico had received at least one
capitalization grant, eighteen States had received second grants, seven States had received third
grants, and one State had received a fourth grant (Table 2-1). The remaining States that plan
to implement SRF programs were expected to receive their first grants by the end of fiscal year
1990.
2-2
-------
TABLE 2-1
States with Approved SRF Programs
in Order of First SRF Grant Award Date*
STATE
Tennessee**
Texas**
Georgia
New Mexico
Utah
Virginia
Connecticut
Louisiana
New Jersey
Nebraska
South Carolina
Alaska
Arkansas
South Dakota
Oklahoma
Kentucky
North Carolina
Minnesota
Alabama
Florida
Kansas
Iowa
New Hampshire
Vermont
Mississippi
Maine
Illinois
Missouri
Ohio
California
Michigan
Idaho
Maryland
Colorado
Wisconsin
Pennsylvania
Massachusetts
Indiana
Hawaii
Nevada
Puerto Rico
Oregon
Washington
New York
FIRST
SRF GRANT
AWARD DATE
March 1988****
March 1988****
April 1988****
May 1988*****
June 1988****
June 1988****
September 1988****
September 1988***
October 1988***
October 1988
November 1988****
November 1988
December 1988***
March 1989***
March 1989***
March 1989***
March 1989***
April 1989
April 1989***
April 1989***
April 1989***
May 1989***
May 1989***
May 1989
June 1989***
June 1989***
June 1989***
June 1989***
June 1989
June 1989***
July 1989
August 1989
August 1989
August 1989***
September 1989
September 1989
September 1989
September 1989
September 1989
September 1989
September 1989
September 1989
September 1989
March 1990
* Status as of June 30, 1990
** Received the first grants in the program
*** State has received two capitalization grants
**** State has received three capitalization grants
***** State has received four capitalization grants
2-3
-------
2.4 Federal Funding
Federal funding for State SRFs includes both Title VI allotments and Title II transfers.
The latter category consists of funds transferred at State discretion from the construction grants
allotment to the SRF program. As of June 1990, Federal funding for the SRF programs
totaled $2.1 billion (see Table 2-2). All funds committed in FY 1988 were Title II funds
transferred at State discretion to their SRF programs; Title VI funds were not authorized until
FY 1989. Thus far, 38 percent of Federal contributions to SRF programs have come from Title
II transfers and 62 percent from Title VI allotments. Many States chose to transfer the
maximum allowable amount of their Title II funds to SRFs in FY 1989 and FY 1990.
2.5 Scope and Organization of this Report
Because fewer than twenty States had established their SRF programs in 1988 when
work on this report began and the experience of these States with program implementation was
limited, EPA is submitting an interim report at this time. This interim report addresses the
informational requirements of Section 516(g) of the CWA. It provides a national-level overview
of program implementation and detailed information for nine States. EPA will submit a final
report covering all SRF States in 1991.
The nine States covered in detail in this report are Connecticut, Georgia, Minnesota,
New Jersey, New Mexico, South Dakota, Tennessee, Texas, and Virginia. These States were
selected to provide coverage of (1) several of the more established SRF programs; (2) a range
of program operating styles (e.g., leveraged and nonleveraged programs); and (3) a mix of
geographic locations and demographics. The SRF programs in these States are not necessarily
representative of all State programs.
EPA sent a questionnaire to each of the study States and followed up with a site visit.
The questionnaire solicited information on State program financial and operating characteristics,
environmental goals, accomplishments, and problems. During the site visits, questionnaire
responses were discussed and State officials were given the chance to provide additional
observations. The information in this report is based on both the questionnaire responses and
observations -from the site visits.
This report is organized to respond to Section 516(g) of the CWA and to provide
additional information that may be of use to Congress in evaluating the SRF program.
Section Three estimates the cost of bringing facilities that are currently in
significant noncompliance into compliance with the enforceable requirements of
the CWA and discusses new enforceable requirements and new funding
eligibilities of the CWA [responsive to Sections 516(g)(2)(a) and 516(g)(2)(b)].
Section Four discusses the funds available to address these needs from State
SRFs and other sources [responsive to Section 516(g)(2)(c)].
2-4
-------
TABLE 2-2
Federal Funding of SRFs
($ Millions as of July 13, 1990)
TITLE H
TRANSFERS
STATE (FY'88, '89, and *90)
Alaska
Alabama
Arkansas
California
Colorado
Connecticut
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Missouri
Mississippi
North Carolina
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Puerto Rico
South Carolina
South Dakota
Tennessee
4.4
0.0
7.5
60.1
3.4
49.7
54.8
57.7
0.0
0.0
13.2
0.0
0.0
0.0
21.2
12.0
0.1
0.0
29.4
0.0
0.0
0.0
13.8
21.1
0.0
0.0
0.3
96.9
12.0
0.0
0.0
9.3
3.4
0.0
0.0
21.7
0.0
26.3
TITLE VI
1989 ALLOTMENT*
5.6
10.5
6.1
67.5
7.5
11.6
31.8
15.9
7.3
4.6
42.7
22.7
12.8
8.5
12.0
10.4
7.3
22.8
32.0
40.6
17.3
26.1
8.5
17.0
4.8
4.6
9.4
38.5
4.6
104.1
53.1
7.6
10.7
37.4
12.3
9.7
4.6
13.7
TITLE VI
1990 ALLOTMENT*
0.0
10.9
0.0
0.0
7.8
12.0
32.9
16.5
0.0
0.0
44.1
0.0
13.2
8.8
0.0
0.0
7.5
o'.o
0.0
0.0
0.0
27.0
8.8
17.6
0.0
0.0
9.7
0.0
4.8
107.7
0.0
0.0
0.0
0.0
0.0
10.0
4.7
0.0
TOTAL
FEDERAL
SRF GRANTS**
10.0
21.5
13.6
127.6
18.7
73.2
119.6
90.1
7.3
4.6
100.0
22.7
26.0
17.3
33.2
22.4
14.9
22.8
61.4
40.6
17.3
53.2
31.0
55.7
4.8
4.6
19.5
135.5
21.4
211.8
53.1
16.9
14.0
37.4
12.3
41.3
9.3
40.0 __
2-5
-------
TABLE 2-2 (Cont.)
Federal Funding of SRFs
($ Millions as of July 13, 1990)
STATE
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
TOTAL
TITLE n
TRANSFERS
(FY'88, '89, and '90)
173.0
12.9
75.7
0.1
1.0
0.0
781.0
TITLE VI
1989 ALLOTMENT*
43.1
4.9
19.3
4.6
16.4
25.5
877.9
TITLE VI
1990 ALLOTMENT*
44.6
5.1
20.0
0.0
0.0
0.0
413.8
TOTAL
FEDERAL
SRF GRANTS**
260.7
22.9
114.9
4.6
17.4
25.5
2,072.7
* This figure generally represents the Title VI allotment minus 1 % or $100,000, whichever is greater.
The \% or $100,000 is reserved under Section 604(b) of the CWA for planning under Sections 2050)
and 303(e).
** Totals vary due to rounding.
2-6
-------
Section Five compares available funds to the funding needs required for
compliance with the CWA [also responsive to Section 516(g)(2)(c)].
Sections Six and Seven describe the operation and administration of State SRFs
[responsive to Section 516(g)(2)(d)].
Section Eight provides an assessment of the impact of SRF funding on user fees
in comparison to construction grants funding [responsive to Section 516(g)(2)(e)].
Section Nine provides an assessment of the impact of SRF financing on the
efficiency of POTW operation and maintenance [responsive to Section
516(g)(2)(f)].
Section Ten describes the advantages of the SRF program to the Federal
government, States, and communities.
Section Eleven presents a discussion of the impediments States have encountered
in implementing their SRFs.
2-7
-------
SECTION THREE
CONSTRUCTION NEEDS OF STATES FOR
COMPLIANCE WITH THE CLEAN WATER ACT
Section 516(g)(2)(a) and (b) of the Act required EPA to prepare an inventory of
facilities currently in significant noncompliance with enforceable requirements of the Act and an
estimate of the cost of construction necessary to bring such facilities into compliance. Section
3.1 provides the required inventory and cost estimates. Section 3.2 provides estimates of SRF-
eligible construction needs for all facilities regardless of their compliance status.
3.1 Compliance Related Needs
Significant noncompliance (SNC) is a term used by EPA to identify facilities (generally
with flows greater than 1 million gallons per day (mgd)) covered under the National Pollution
Discharge Elimination System (NPDES) which are in serious and/or repeated violations of
effluent limits, compliance schedule milestones, reporting requirements or other administrative
or judicial requirements, and that require priority management attention. Some facilities in
significant noncompliance may require construction or other corrective actions in order to come
back into compliance. However, when a facility owner/operator enters into a compliance
agreement with EPA and commits to resolve the basis of noncompliance, the facility is removed
from the SNC list, even though construction necessary to achieve physical compliance has not
taken place. Thus, the universe of facilities needing construction to achieve physical compliance
is larger than the SNC universe needing construction. This report deals with facilities which
need construction in order to achieve or return to compliance.
EPA does not routinely collect data specifically on the construction-related needs to
bring SNC facilities back into compliance. As a result, EPA's estimate of "significant
noncompliance," as used in this report, and associated construction needs is based on a
compilation of data from several sources. First, EPA prepared a list of facilities in SNC with
outstanding construction needs as reported in its Permit Compliance System (PCS) national
database as of June 30, 1989. EPA then prepared a list of facilities in PCS with a "resolved
pending" (RP) enforcement status as of June 30, 1989. This second list consists of facilities that
had been classiGed as SNC but, for enforcement purposes, are no longer in SNC because they
are on construction schedules. These RP facilities were included because they were not yet
physically meeting their permitted effluent limits as of June 30, 1989.
To obtain estimates of the construction costs required to bring these facilities into
compliance, EPA matched those lists of SNC and RP facilities with its 1988 Needs Survey.
EPA sent the resulting lists of facilities and compliance cost estimates to the nine study States
to review for completeness and accuracy. States were asked to check both the compliance
status information and the construction needs required to correct significant violations as of
June 30, 1989.
3-1
-------
The SNC and RP lists do not include facilities with flows of less than 1 mgd unless
there is a significant impact on water quality. Therefore, EPA has for the purposes of this
report expanded its definition of significant noncompliance to include facilities with flows of less
than 1 mgd with Category I and/or II wastewater treatment needs based on the 1988 Needs
Survey. (See Section 1.3 for a definition of the Needs Survey categories.)
Table 3-1 shows the number of facilities in the nine study States that meet the SNC
definition used in this report. The cost of construction needed to bring these facilities into
compliance is estimated to be $4.5 billion. For the remainder of this report, the construction
needs for the three groups of facilities shown in Table 3-1 will be referred to as SNC needs.
While Table 3-1 provides an estimate of the cost of construction required to correct
significant violations -(as required under Section 516(g) of the Act), States strongly assert that a
comparison of SNC-related needs with SRF funding availability is not a reasonable measure of
the ability of SRF programs to meet current and future municipal sewage treatment
construction needs.
The Agency developed the concept of "SNC" as a method for setting priorities for its
enforcement effort. The reasons why certain types of violations are included in the definition
are based on enforcement considerations rather than on construction needs. Thus, repeated
failure to monitor or report effluent data is a significant violation but does not require
construction to correct. Conversely, major and legitimate construction needs exist independently
of significant violations. For example, Houston, Texas, is not considered to be in significant
violation, although it has been fined by the State and is under administrative order to correct its
stormwater overflow problems. Inclusion of Houston's construction needs would add about
$800 million to the estimate of Texas' SNC needs presented in Table 3-1. Further, the 1987
Amendments expanded eligibilities under the SRF program to include funding required for
compliance with new enforceable requirements of the Act (e.g., storm sewers) and for the
implementation of new programs (e.g., nonpoint source control programs). These potential
demands on SRF funds are also not included in the SNC cost estimates in Table 3-1.
However, the SNC-related needs only represent a "snapshot" as of June 30, 1990.
While it is not possible to quantify future SNC-related needs, it is predictable that there will be
additional significant violations through 1999 that will require construction to correct. The
reasons for potential violations include population growth which will generate flows and/or
pollutant loadings in excess of design capacity. During this period, some number of treatment
plants will reach the end of their useful lives and face the need for major rehabilitation or
replacement. Finally, additional regulations in the area of toxics control, stormwater
management, and sludge disposal may result in significant new violations that might require
construction to satisfy.
In order to provide additional perspective on the adequacy of SRF program funds, the
next section addresses SRF-eligible funding needs beyond those associated with the correction
of significant violations.
3-2
-------
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3-3
-------
3.2 Additional SRF Eligibilities
As described above, many communities with major construction needs have not
experienced compliance problems in the past and are, therefore, not included on EPA's S C or
RP lists. The Needs Survey, required by Sections 205(a) and 516(b)(l) of the CWA, is a
biennial assessment of the cost of constructing all publicly-owned wastewater treatment v :s
necessary to meet the goals of the CWA regardless of compliance status. The 1988 Nee
Survey showed a design year1 need of $83.5 billion to satisfy all currently documented r as:
nationwide through the year 2008. Currently documented needs for the nine study Str js total
$14.9 billion for that time period (see Table 3-2). The 1987 Amendments to the CW^ allow
SRFs to fund certain activities not eligible under the construction grants program and not
included in the $83.5 billion/$14.9 billion needs cited above. Additionally, EPA has or will soon
promulgate rules related to new enforceable requirements as specified in the 1987 Amendments.
The major categories of new eligibilities are nonpoint source control and programs for
the protection of ground-water, estuaries and wetlands. The primary programs with new
enforceable requirements are those dealing with stormwater, toxics discharges, and sludge use
and disposal. The costs of meeting the needs for these new eligibilities and enforceable
"'Design year" needs reflect the total needs for documented facilities to satisfy the design
year population. Year 2008 is used as the design year to better approximate a 20-year design
life for facilities in the 1988 Needs Survey.
:To be incorporated into the Needs Survey, an estimate of construction needs must
conform to a number of criteria, including:
The projects included in the needs estimate must address a documented public
health or water quality problem.
The projects must be required to rectify a current problem (e.g., needs solely for
future growth requirements cannot be included). However, if a project has a
legitimate current need, the cost for meeting future growth needs is included in
the survey.
The needs must be project-specific (e.g., needs for a county-wide problem are
not acceptable).
Wastewater treatment needs are reported in five categories in the 1988 Needs Survey.
Category I - Secondary Treatment
Category II - Advanced Treatment
Category IILA - Infiltration/Inflow Correction
Category IIIB - Replacement/Rehabilitation of Sewers
Category IV A - New Collector Sewers
Category IVB - New Interceptor Sewers
Category V - Combined Sewer Overflows (CSO)
3-4
-------
TABLE 3-2
Category I to V Wastewater Treatment and Conveyance
Needs for the Nine Study States
STATE
Connecticut
Georgia
Minnesota
New Jersey
New Mexico
South Dakota
Tennessee
Texas
Virginia
1988 Design
Year Needs
($ Millions, 1988)
1,392
1,007
1,106
3,754
130
87
1,467
4,975
957
TOTAL 14,875
3-5
-------
requirements (which are discussed in more detail in Appendix B) as well as the costs for
maintaining compliance at existing facilities are not included in the 1988 Needs Survey. These
new eligibilities and other requirements, however, will add substantially to SRF-eligible needs.
Figure 3-1 shows that the SNC needs, described in Section 3.1, are only a part of the SRF
eligible financing requirements in the nine study States.
3-6
-------
Figure 3-1
SRF-Eligible Projects of the Nine Study States
Documented and Undocumented
Toxics and Sludge
Estuaries, Wetlands
Ground Water
Nonpoint Source
Plant Renovation
Undocumented
Combined Sewer
Overflow (CSO)
I Undocumented
Needs
[Documented
Needs
3-7
-------
SECTION FOUR
AVAILABILITY OF SRF AND OTHER FUNDING FOR
ELIGIBLE PROTECTS
Funding for wastewater treatment, collection, and conveyance projects comes from a mix
of Federal, State, and local sources. During the mid-1980s, local sources contributed
approximately 40 percent of the financing for wastewater treatment projects.1 Prior to the 1987
CWA Amendments, the construction grants program provided the largest share of Federal
funding for these projects. With the phaseout of the construction grants program, SRFs will
shift the relative contribution for wastewater project funding away from Federal sources towards
State and local sources. In addition to changing the funding source mix for wastewater projects,
the SRF program expands the scope of wastewater and other water quality projects and
activities eligible for CWA financial assistance (see Section 3.2).
4.1 Availability of Funding from All Sources
Wastewater treatment, collection, and conveyance projects can receive funding from the
construction grants program, State SRF programs, other State programs, other (non-EPA)
Federal sources, and local sources. Other Federal sources include the Farmers Home
Administration, the Department of Housing and Urban Development, and the Economic
Development Administration. Local sources could include municipal appropriations, user fees,
impact fees, and debt financing.
Table 4-1 and Figure 4-1 show the total amount of funding for wastewater projects
coming from Federal and State sources, including CWA Title II and VI, other Federal sources,
and other State sources in the nine study States. SRF loan repayments, which come from local
sources and represent a portion of the total local source funding contribution, are included in
Table 4-1 under State funding. For the period 1988 to 1999, approximately $6.4 billion (1988
dollars) in Federal and State funding is projected to be available for wastewater treatment and
conveyance projects in the nine study States. For the study States in aggregate, CWA Title II
and VI monies contribute approximately $1.9 billion from 1988 to 1999. Other Federal sources
play a small but consistent role, contributing an additional $0.7 billion during that time period.
State funding, which is projected to decline slightly from 1988 to 1995 and then slightly increase
to 1999, contributes approximately $3.8 billion from 1988 to 1999.
The funding provided by each source varies throughout the 1988 to 1999 time period.
CWA Title H and VI funding for the nine study States declines from $469 million in 1988 to
$95 million in 1994 (the last year of capitalization grants) to zero thereafter, based on the
authorizations specified in the 1987 CWA Amendments. State funding declines from $491
million in 1988 to $366 million in 1994 because most States plan to reduce their matching fund
contributions as Federal capitalization grant contributions decline. After 1995, funding from
1U.S. EPA Environmental Investments: The Cost of a Clean Environment. Office of
Policy, Planning, and Evaluation. December 1990.
4-1
-------
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jected at authorized levels. New Jersey and Tennessee were unable to project Federal funding contribution:
eral States expressed concern about projecting available funds ten years into the future, and stated that
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State sources increases slightly as higher levels of loan repayments flow back into the SRFs and
are available for relending.
Because three of the nine study States were unable to project Heal source funding r'her
than that provided by SRF loan repayments, and because many of the study States that di'
project local funding indicated that their projections were highly uncertain. Table 4-1 doe: )t
include local funding projections. Section Five of this report provides estimates of the arr ,nt
of local funding that may be needed to meet wastewater collection and conveyance needs i the
nine study States. Funding for wastewater projects from all sources for each of the nine i.udy
States is presented in Appendix D.
4.2 Availability of SRF and Other State Program Funding
Much of the available funding detailed in Section 4.1 is administered through State
programs including SRFs, non-SRF State loan programs, and State grants. Table 4-2 shows the
amount of actual and projected funding available through SRF and other State programs
aggregated for the nine study States from 1988 to 1999. Figure 4-2 presents a graphic
illustration of these data. The States project that their programs will provide funding totalling
S5.4 billion (in 1988 dollars) from 1988 to 1999.
In most of the nine study States, the SRF programs have or will become the
predominant source of State funding for wastewater projects. The States' SRFs are comprised
of funds from Federal capitalization grants (including Title II transfers), State match and
overmatch monies, SRF leveraging, loan repayments, and interest earnings. Federal
capitalization grants contribute to SRF capitalization through 1994 and, at authorized levels,
provide more than 36 percent of all SRF funds available for the period 1988 to 1999. State
match and overmatch monies together contribute about 18 percent of SRF funds available for
this time period. Leveraging and loan repayments each contribute about 23 percent. (The
portion will be larger if more programs leverage their funds in the future; only three of the
nine States currently leverage, but the other study States plan to consider leveraging.)
Beginning in 1994 and continuing through 1999, loan repayments provide the largest annual
source of available SRF funds. Overall, new contributions to SRFs and other State programs
drop after 1994, the last year of Federal capitalization funding, and remain fairly constant
thereafter.
Figure 4-3 shows the cumulative level of funding through SRFs in the nine study States
from 1988 to 1999. Cumulative funds made available through SRFs total approximately $5
billion in 1999.
While the cumulative amount of SRF funding made available continues to increase
throughout the 1988 to 1999 time period, as shown in Table 4-2 and Figure 4-3, annual new
capitalization investments in SRFs are projected to decrease about 40 percent between 1989
and 1999. Although SRF loan repayments will increase beyond 1995, this increase is not
expected to be sufficient to offset the phase-out of Federal capitalization grants within the time
frame of this analysis. Additional State capitalization and/or leveraging may be necessary if SRF
funds are to continue to grow. Of the study States, Connecticut, Minnesota, and New Jersey
projected future capitalization of the SRF beyond 1994.
4-4
-------
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4-7
-------
In addition to SRF assistance, many of the nine study States will continue to provide
financial assistance using State grants and/or other non-SRF programs, although these programs
will provide less assistance as SRFs become more established. Appendix C shows the estimated
amount of SRF and other State program funding to be provided from 1988 to 1999 for each of
the nine study States.
4.3 Current and Anticipated Uses of SRF Assistance
State SRF programs may provide assistance for wastewater treatment projects,
wastewater collection and conveyance projects (including CSO and storm water projects),
implementation of approved NFS and ground water control activities, and planning and
implementation of approved estuary protection activities. States must, however, use SRF funds
"in the fund as a result of capitalization grants" (the capitalization grant, repayments of the first
round of loans awarded from the grant, and the State match) for wastewater treatment projects
on the National Municipal Policy (NMP) list, or otherwise satisfy the "First Use" requirements,
before these funds can be used to provide assistance for any other projects or activities. First
use requirements are satisfied by a State when all NMP facilities are in compliance, are on an
enforceable schedule, have an enforcement action filed, or have a funding commitment during
or prior to the first year covered in a State's most recent SRF Intended Use Plan.
Some of the study States are meeting First Use requirements by having some of their
NMP facilities on an enforceable schedule and having the remainder in compliance. New
Mexico reports that all of its NMP facilities are in compliance. South Dakota anticipates that
all of its NMP projects will be completed by FY 1991. Minnesota reports that it may have
difficulty completing some needed NMP projects in small communities (of less than 1,500) that
cannot afford facility construction under current programs.
The nine study States are using most of their SRF assistance for wastewater treatment
projects. Table 4-3 shows the actual and projected SRF funding used for the different types of
eligible projects and activities. In 1988, nearly 86 percent of SRF assistance went to treatment
projects. After 1995 the study States estimate that treatment projects will account for 72
percent of SRF assistance. Most of the remaining funds will be used for wastewater collection
and conveyaace projects, including CSO and storm water projects. Wastewater collection and
conveyance projects account for just over 18 percent of projected SRF assistance for 1991 to
1994 and just over 26 percent for 1995 to 1999. Beginning in 1990, the study States project
that a very small percentage of SRF assistance will be used for NFS activities. While three of
the study States have estuaries in the National Estuary Program, none of them projected using
SRF assistance for estuarine protection activities.
4-8
-------
TABLE 4-3
Planned Uses of SRF Assistance Aggregated for Nine Study States
($Millions)
TYPE OF PROJECT/ACTIVITY
Wastewater Treatment
Projects (Section 212)
(% of Total)
Wastewater Collection &
Conveyance (Section 212)
(% of Total)
Nonpoint Source & Ground
Water (Section 319)
(% of Total)
Estuarine Activities
(Section 320)
(% of Total)
TOTAL
Funds Committed
Federal Fiscal Year(s)
1988
376.2
(85.8%)
62.1
(14.2%)
0
0
438.3
(100%)
1989
420.6
(83.1%)
85.7
(16.9%)
0
0
506.3
(100%)
1990
503.3
(84.7%)
90.0
(15.1%)
1.0
(0.2%)
0
594.3
(100%)
1991-1994
Aggregated
1,443.5
(81.1%)
328.9
(18.5%)
8.0
(0.4%)
0
1,780.4
(100%)
1995-1999
Aggregated
996.6
(72.0%)
366.7
(26.5%)
21.0
(1.5%)
0
1,384.3
(100%)
Note: Funds used for administrative expenses and debt service reserves are not included in this table. The
amount of money used for funding projects in individual years may differ from SRF funding available in
those years because project funding schedules are not necessarily tied to available funds year-by-year.
4-9
-------
SECTION FIVE
COMPARISON OF WASTEWATER TREATMENT NEEDS TO AVAILABLE FUNDS
This section compares the wastewater treatment and conveyance needs of the nine study
States to the total projected funding available from Federal and State sources. The section also
estimates the amount of local funding that may be needed, in addition to Federal and State
funding, to meet documented needs in the study States.
Table 5-1 compares the needs of SNC facilities in the nine study States to funding
available during 1988-99. The SNC needs data are derived from Table 3-1 as explained in
Section 3.1. Table 5-1 shows that SRF funds are adequate to cover SNC needs in seven of the
States and nearly 90 percent of the needs in the remaining two States (Tennessee and Texas).
The need for SRF funding, however, extends far beyond the requirements of SNC facilities (see
Section Three).
Table 5-2 compares the design year Category I through V wastewater treatment needs
in the nine study States to funding available during 1988-1999. The design year needs data are
derived from the 1988 Needs Survey. The table shows the proportion of Category I to V
design year needs covered by Federal and State funds. The gap between Federal and State
funding and wastewater treatment needs, which represents the amount that may need to be
funded by local sources, is shown in the right hand column of Table 5-2.
For the nine study States in aggregate, total Federal and State funding of $6.4 billion is
sufficient to cover 43 percent of ail Category I to V design year needs, which total nearly $14.9
billion. Local funding, therefore, may need to provide $8.5 billion or 57 percent of all Category
I to V needs. The proportion of design year needs covered by Federal and State sources varies
from 27 percent in Texas to 98 percent in South Dakota. Conversely, local funding may need
to provide from 2 percent to 73 percent of Category I to V wastewater treatment and
conveyance financing for the nine study States.
In the-mid-1980s, localities typically provided approximately 40 percent of such funds.1
The approximate 57 percent local funding share for the nine State aggregate therefore
represents an increase in the level of local funding for wastewater treatment and conveyance.
Further, localities will be responsible for repaying SRF loans. Based on the final composition
of grant and loan funding, localities will ultimately be responsible for paying well over 57
percent of the cost of wastewater treatment and conveyance.
'US. EPA Environmental Investments: The Cost of a Clean Environment. Office of
Policy, Planning, and Evaluation. December 1990.
5-1
-------
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5-4
-------
SRF-eligible needs in the nine study States will greatly exceed the design year needs
presented in Table 5-2. New needs are expected to arise between 1988 and 1999 due to
economic growth and wastewater treatment plant renovation and expansion. The latter needs
are likely to be significant because many treatment plants built in the 1970s will be reaching
their design capacity during the 1990s. In addition, funding needs arising from the new funding
eligibilities and new enforceable requirements will add substantially to the documented needs.
5-5
-------
SECTION SIX
SRF PROGRAM OPERATIONS
This section discusses how the study States operate their SRF programs. Program
structure is described in Section 6.1. Section 6.2 discusses special programs for small and
economically distressed communities, and Section 6.3 describes the mechanisms used to ensure
the viability of the States' SRFs.
6.1 Structure of the Nine Study State SRF Programs
All of the nine State SRF programs offer loans at below-market interest rates. Loan
repayments, except for those required to retire program debt, are used to fund additional loans.
While the nine SRFs have some basic similarities, the programs differ in several ways, including
their manner of obtaining matching funds, their use of leveraging, and their method of
determining interest rates.
Method of Obtaining Matching Funds
The States have adopted several different approaches toward generating matching funds.
Minnesota, New Jersey, New Mexico, Tennessee, and Virginia have provided matching funds
through an appropriation. Connecticut issued a General Obligation (G.O.) bond to provide its
SRF matching funds. Texas also provides its SRF match with State G.O. bonds, and uses
interest from SRF loan repayments to repay the bond issue. South Dakota's SRF is issuing its
own revenue bonds, repaid by interest earned by the SRF, to provide the State match. Georgia
has utilized an existing loan program to provide its matching funds. Prior to the
implementation of the State's SRF program, Georgia had been issuing wastewater treatment
loans through the Georgia Environmental Facilities Authority (GEFA). To provide the SRF
match, certaia loans in the GEFA portfolio have been designated for repayment into the SRF.
The principal amount of these loans is counted toward the State match. Georgia plans to
obtain all of its SRF matching funds through this mechanism.
The method a State uses to supply the match affects the amount of lendable funds in
the SRF in the long term. Funds provided by a State G.O. bond or appropriation generally do
not need to be paid back by the SRF. Therefore, when these funds are loaned by the SRF,
the repayments are available to fund additional loans. In cases where loans are made with
matching funds provided by SRF revenue bonds or similar debt instruments, less money will be
available to fund additional loans if interest on the loan repayments is used to repay the SRF
debt.
6-1
-------
Leveraging
For most of the nine States, the SRF capitalization grant and the State match constitute
all available capitalization for program assistance. SRF programs in three of the nine study
States (Minnesota, New Jersey, and Texas) borrow to provide additional lendable funds. All of
the States that are not currently leveraging indicated that they intend to consider this option in
the future.
The States that are currently leveraging use different approaches. Minnesota uses its
capitalization grant as debt service reserve to secure larger amounts of revenue bond financing
and to provide interest subsidies; Minnesota uses the repayments on loans as debt service
reserve. Using this approach, the State secured $48 million in revenue bonds in 1989, and
plans to secure this or greater amounts annually through 1999. Proceeds from the loan
repayments go toward retiring the bond issue. (The financial practices of Minnesota's SRF
under its first capitalization grant constituted "aggressive leveraging" as defined by EPA, so the
SRF drew cash from its capitalization grant letter of credit on a more accelerated schedule than
EPA's rules would otherwise allow.)
In New Jersey, the State program consists of the New Jersey Wastewater Treatment
Fund (the "Fund") and the New Jersey Wastewater Treatment Trust (the 'Trust"). The Fund
derives its revenues principally from the Federal capitalization grant. The Trust uses some of
the State matching funds to secure revenue bond issues. For example, in 1989 the State used
$6.5 million of its $13.0 million in matching funds to secure $69.8 million in revenue bond
financing. Each revenue bond issue provides funds for specific projects, and revenues (loan
repayments) from those projects go toward bond repayment
In Texas, a portion of the State's Water Development Bonds are transferred from the
State Treasury to the SRF. The Water Development Bonds are State G.O. bonds; their
proceeds are placed in the SRF, which, in turn, provides funds for their repayment.
Types of Assistance
Table-6-1 presents the estimated distribution of available funds among the various types
of SRF assistance. The data are aggregated for the nine study States. (Appendix E provides
these data for each of the nine study States.) The nine States intend to provide most of their
financial assistance through loans. Four of the States indicated that loans would be the only
form of financial assistance provided. Five of the States plan to use a small amount of program
funds for refinancing. States that leverage through revenue bonds (Minnesota and New Jersey)
will use some funding to secure program indebtedness.
Interest Rates
All States offer loans substantially below market rates. The vast majority of SRF loans
in the nine States are issued at interest rates of from 2 to 5-V2 percent The range of interest
rates and methods of determining interest rates are presented in Table 6-2. Three of the States
adjust their interest rates based on the economic condition of the community (see discussion in
Section 6.2).
6-2
-------
TABLE 6-1
Uses of SRF Funds
Aggregated for Nine Study States
($Millions)
TYPE OF ASSISTANCE
Loans (i.e., new loans)
(% of Total)
Purchase or Refinance
Existing Debt Obligation
(% of Total)
Guarantee or Purchase
Insurance for Local Debt
(% of Total)
Revenue or Security
for SRF Debt
(% of Total)
Loan Guarantees for
"Sub-State Revolving Funds"
(% of Total)
Administrative Expenses
(max. 4% of cap grant)*
(% of Total)**
TOTAL
Funds Committed
Federal Fiscal Year(s)
1988
399.7
(87%)
37.9
(8%)
0
14.1
(3%)
0
9.9
(2%)
461.6
(100%)
1989
501.0
(95%)
3.3
(1%)
0
13.4
(2%)
0
10.3
(2%)
528.0
(100%)
1990
585.6
(94%)
7.0
(1%)
0
16.9
(3%)
0
13.0
(2%)
622.5
(100%)
1991-1994
Aggregated
1,751.4
(93%)
42.0
(2%)
0
56.3
(3%)
0
40.8
(2%)
1,890.5
(100%)
1995-1999
Aggregated
1,374.3
(96%)
10.0
d%)
0
40.0
(3%)
0
1.2
(0.1%)***
1,425.5
(100%)
Total
4,611.9
(94%)
100.2
(2%)
0
140.7
(3%)
0
75.3
(1%)
4,928.1
(100%)
* The CWA restricts the amount of SRF money that may be used for administrative expenses to 4% of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is
limited to 4% of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
** Note that this figure is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
***One State anticipates banking a portion of its 4% of capitalization grant administrative allowance for use after 1994.
6-3
-------
TABLE 6-2
SRF Loan Structures for Nine Study States
STATE
INTEREST
RATE
DISCUSSION
Connecticut
Georgia
Minnesota
New Jersey
New Mexico
South Dakota
Tennessee
Texas
Virginia
2%
2%
1% - 4.5%
Below Market
0% and
Market Rate
5%
3%
0% to
Market Rate
4% - 5.5%
0% - 7%
Funds all projects with 20 to 50% grants* and
2% interest loans for the balance.
Uses a uniform rate of 2% on all loans.
Varies rate based on considerations such as
community size, income, and ratio of user fees
to total income.
Finances projects equally from two separate
accounts. One account extends zero interest
loans; the other uses the market rate. The
result is a blended rate currently at 4.2%.
Uses a uniform rate of 5% on all loans.
Uses a uniform rate of 3% on all loans.
Varies loan interest rates based on
communities' ability to pay. Most communities
qualify for rates between 40% to 60% of the
market rate.
Varies rate from 4% to 5.5%.
Varies rate based primarily on communities'
ability to pay. Tries to maintain a portfolio
average interest rate of 4%.
*Grants are funded by other, non-SRF State programs.
6-4
-------
In setting interest rates for SRF loan recipients, States must set rates low enough to
make the program attractive to communities, but high enough to ensure the long term viability
of the fund. The differing approaches used by the States reflect their perception of this
trade-off. Some States reported that the high cost of program requirements (described in detail
in Section Eleven) had to be offset by very low interest rates to make the SRF program
attractive in their State. Various analyses have estimated that an interest rate subsidy of 2-3%
to loan recipients (compared to the rate they can obtain in the market) is necessary to offset
these costs. All of the study States have developed SRFs that appear to offer adequate
subsidies. In fact, the interest rate structure of many of the programs provides an additional
subsidy beyond that necessary to offset project cost increases for SRF loans.
These low, subsidized interest rates, however, reduce the level of funding available in
the SRF in future years. After initial capitalization, SRFs will rely to a large extent on loan
repayments to provide capital from which to make additional loans. While the initial SRF
capitalization funds will be maintained by the principal portion of the repayments, the growth or
decline of the fund depends directly on the rate of interest charged to recipients. In general,
to maintain a level amount of actual project purchasing power, an SRF would have to charge
an average interest rate equal to the inflation rate (which since 1982 has averaged 4.5 percent
per year for State and local government purchases1). There would be some fluctuation in the
amount available for loans each year, based on the repayment schedules, but an SRF charging
interest at the inflation rate would, over time, provide a steady source of loan assistance.
An SRF with a loan portfolio that has an average interest rate below the inflation rate
will lose purchasing power without additional State capitalization. A State that makes a policy
decision to provide loans below the inflation rate will need to make the financial commitment
to provide further capitalization if it desires to maintain the fund in real terms. Of course,
further capitalization would enable the SRF to grow, as would charging interest rates averaging
more than the inflation rate.
States that issue bonds to leverage their SRFs would have another concern in protecting
the long term viability of their funds. If loans are made at a rate less than that at which the
bonds are issued, loan repayments will not be adequate to provide debt service on the bonds.
Additional funds will have to be provided to make up the difference. The approach used by
Minnesota is-to use investment earnings from the debt service reserve fund for this purpose.
While leveraging an SRF provides a significantly greater amount of loan assistance in the early
years of the program than does an unleveraged fund, the use of loan repayments to retire
leverage bond debt will limit the capital growth of the fund, as well as the long-term balance of
lendable funds. Additional State capitalization in future years will be necessary if the State
wants to expand its leveraged amount.
6.2 Special Programs for Small and/or Economically Distressed Communities
State officials reported that many economically distressed communities throughout the
nine States cannot afford SRF loans even at very low interest rates. These communities include
'U.S. Department of Commerce News. U.S. Bureau of Economic Analyses.
6-5
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the colonias2 in Texas, Indian lands in South Dakota, and some very small communities in
Minnesota. Many States take the needs of these communities into account in developing and
operating the SRI7 and related programs. Three States consider the economic condition of the
community in setting interest rates for SRF loans. These States indicated that they may offer
zero interest SRF loans to economically distressed communities. In addition, several states
operate other loan or grant programs that provide additional subsidies to economically
distressed communities. The most substantial grant subsidies are provided by Connecticut r id
Minnesota.
Connecticut provides grants of 20 percent for all non-CSO projects and 50
percent for CSOs. While not a subsidy for economically distressed communities
per se, the CSO grants tend to aid the older, economically distressed urban
centers where the combined sewer problems are located. In addition,
Connecticut funds one small community project per year. Small community
projects also receive loan and grant support for lateral sewers to help offset the
high per dwelling unit costs.
Minnesota operates its own grants program, which provided $23 million in
funding for 1989. The State provides 65 percent grants to communities with
populations of 25,000 or less. (Communities with populations greater than
25,000 are eligible to receive grants of 35 percent.) The State's unified
application process channels applicants to the most appropriate loan and/or grant
program for their project
Several of the other States, including New Mexico, South Dakota, Tennessee, and
Virginia, offer some grant funding to small and/or economically distressed communities, but their
progiams provide less of a subsidy than those in Connecticut and Minnesota. South Dakota
reported that its grant and SRF loan programs are designed entirely for small, low-income
communities. In general, the principal form of subsidy for wastewater treatment in most States
for small and/or economically distressed communities is the low rate of interest offered under
the SRF program.
6.3 Ensuring the Viability of the SRF Programs
All of the nine States plan to operate their SRF programs through 1999 and beyond.
The States intend to ensure the long-term viability of their programs through sound
management of their loan portfolios. The CWA requires that all SRF loan recipients specify a
*In the area immediately adjacent to the international boundary with Mexico, there are
over 200,000 people living in small communities known as "colonias". These communities are
economically distressed and either have inadequate water and sewage service or lack these
services altogether. In the Agency's appropriation for fiscal year 1990, Congress authorized the
State of Texas to establish a special revolving fund to serve residents of these communities.
The special revolving fund has been capitalized from the construction grant allotment for Texas.
6-6
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dedicated source of revenue to repay the loan. Several other common themes are apparent
among the States.
All of the States give careful consideration to affordability before issuing a loan under
the SRF program. All nine study States either review credit information or undertake their
own financial review of applicants before issuing loans. States uniformly view the soundness of
their loan portfolio as the most important factor in the long-term viability of their programs.
In addition to financial review, States use some combination of community pledges
and/or assurances to secure loans. All States require communities to pledge user fees, the full
faith and credit of the community, or both, before issuing a loan. Some States (including
Minnesota, New Jersey, and Tennessee) require communities to pledge both user fees and full
faith and credit (the "double barrel" pledge) for every loan.
South Dakota and New Jersey purchase insurance to help protect the long term viability
of their programs. In South Dakota, the revenue bond used to provide the State match is
insured by a third party. In New Jersey, some of the revenue bonds used to acquire lendable
funds are insured. While these insurance policies add to program costs, they also lower the
interest rates paid on the bonds by providing an additional level of protection to the fund and
the bondholders.
There are several common elements in State plans for anticipating and reacting to
problems with loans:
States typically plan to review annual audited statements and/or community user
fees to'ensure that communities are operating in a fiscally sound manner and are
charging sufficient fees to cover their indebtedness.
When potential problems are spotted, States will work with the community to
rectify the problem and prevent a default. The State may encourage an increase
in user fees. Many States indicated that they would consider restructuring or
refinancing in the event of serious problems.
~ States will, in general, use all recourse allowed under State law in the event of a
default. This recourse typically includes suing the community, seeking a court
order to require the community to raise user fees, and withholding state-shared
tax revenues or other State funding to the community.
In summary, the nine States have taken'a very active approach to ensuring the financial
health of their loan portfolios and are permitted under State law to implement strong measures
of recourse in the event of problems. Because the program is so new, it is not possible to
provide any statistics concerning the frequency of late payments, default, or other loan
problems. None of the States report any problems, as yet, with their current loans.
6-7
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SECTION SEVEN
ADMINISTRATION OF SRF PROGRAMS
At the time of this study, the nine study States were making the transition from the
construction grants program to the SRF program. Many construction grants personnel were
taking on the duties associated with the SRF program and some individuals split their time
between the two programs. As a result, cost accounting for time spent on the construction
grant versus SRF program was difficult for these States. In some cases, much of the evaluation
of plans for projects receiving SRF assistance had been completed earlier as part of
construction grants program activities. Therefore, administrative costs for the SRF program in
FY 1988 and 1989 are not fully indicative of the costs States will experience once their SRF
programs are more established. As the construction grants program is phased out and the SRF
program is fully established, most of the nine study States project increasing SRF staff size and
escalating administrative costs. This section summarizes the nine study States' estimates of the
number and type of personnel and the associated cost of administering the SRF program over
the next several years.
7.1 Agencies and Personnel Involved With SRF Program Administration
Administering the SRF program requires a mix of administrative, technical, accounting,
and financial personnel. Table 7-1 shows the number and type of staff working in SRF
programs in the nine study States in FYs 1989 and 1990. For the nine States, 46 percent of
SRF personnel worked in technical support, 21 percent in financial management, 28 percent in
general administration, and the remainder in other capacities. States' technical and financial
experts often work in separate agencies. Six of the nine study States have two or three
different agencies involved in running their SRF programs. Only three of the study States, New
Mexico, Texas, and South Dakota, handle all aspects of their SRF program through a single
agency.
The total number of personnel involved in SRF programs during FYs 1989 and 1990
varies considerably among the nine study States, ranging from 4 to 70 (see Table
7-1). To a large extent, the number of SRF program personnel employed by each State
depends on SRF program variables such as the amount of SRF funding and the complexity of
the program's financial activities (e.g., whether leveraging is used). For example, in FY 1989
New Mexico and South Dakota received the two smallest capitalization grant awards and did
not leverage. During that same year, these States' SRF programs employed the two smallest
staffs. Minnesota received the sixth largest capitalization grant of the nine study States in FY
1989. Minnesota leveraged its fund, however, and actually had the fourth largest fund in dollar
terms of the study States that year. The State had a relatively large staff that year, employing
23.5 people. New Jersey, which received the second largest capitalization grant award of the
study States in FY 1989 and leveraged its fund, employed the largest staff.
7-1
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TABLE 7-1
Employment in Administration and Operation of SRFs
FY 1989-1990
State:
Agency:
Connecticut
Treasurer
Attorney General
Water Compliance
Georgia
Georgia EPA, Env. Protection Division
Georgia Environmental Facilities Authority
Minnesota
Public Facilities Authority
Pollution Control Agency
State Board of Investment
Mew Jersey
Dept. of Environmental Protection
Wastewater Treatment Trust
Slew Mexico
Health and Environment
South Dakota
Dept. of Water and Natural Resources
Tennessee
Dept. of Health & Environment
Treasury Comptroller
Local Development Authority
Texas
Water Development Board
Virginia
State Water Control Board
Virginia Resources Authority
TOTAL
(% of Total)
Annual Full Time Employee Equivalents
Staff Function
General
Admin.
4
3
2
3
19
4.5
2
1
5.5
0.5
0.1
6.5
2.8
4
57.9
(29%)
Technical
Support
12
6
1
10
33
1
2.5
6
10.8
10.5
92.8
(46%)
Financial Management
Accounting Finance
5
1
1
0.5
6.5
1.5
1.25
1
1.5
2
1.5
22.75
(12%)
1
0.25
5
1
4.5
1.5
1
0.25
1.2
3
18.7
(9%)
Other
1
5.5
0.5
0.25
1.5
8.75
(4%)
State
Total
23
10.25
23.5
70.5
4.25
11
14.6
20.5
23.3
200.9
(100%)
7-2
-------
Eight of the nine study States anticipate modest to substantial increases in both
technical and financial personnel in the near future as staff from the construction grants
program shift to the SRF program, and as the number of SRF projects and the amount of
money in the SRFs increase. The ninth State, Connecticut, expects staffing needs to remain
relatively constant After the equivalency requirements1 of the last capitalization grant are met,
States may change the nature and number of SRF program staff if the workload decreases.
Furthermore, the non-leveraged States may leverage their SRFs in the future, necessitating
additional financial expertise.
7.2 Costs Associated With SRF Program Administration
Annual administrative expenses for 1989 to 1995 for the nine study States are presented
in Table 7-2. Included in each State's estimates are all direct and indirect costs associated with
SRF program administration. Also shown are each State's SRF administrative expense
allowances. The allowance for 1989 is an amount equal to four percent of the actual
capitalization grants awarded. The allowances for 1990 to 1994 are estimated based on the
authorized capitalization grant. Program requirements limit the amount of SRF funds spent on
administrative expenses in a given year to four percent of the cumulative capitalization grant
amount, less previous expenditures of SRF funds on administration. States can accumulate or
"bank" any unused portion of their expense allowance for use in future years.
The table shows that the cumulative SRF administrative expense allowance will be
adequate in some States and not in others. Based on State estimated administrative expenses
and SRF capitalization grant awards at authorized amounts, four States ~ Georgia, New
Mexico, Texas and Virginia -- are not projected to experience any shortfall in their coverage of
administrative expenses for the 1989 to 1994 time period. South Dakota is projected to
experience a small difference between its administrative expenses and the four percent
capitalization grant allowance, while Tennessee is projected to experience a large differential of
30 percent. Minnesota, New Jersey, and Connecticut are projected to experience significant
shortfalls. Their total administrative expenses for the time period shown will be more than
double the four percent of their cumulative capitalization grant allowances. These latter
shortfalls are due to the complexity and size of their programs, and, in Minnesota and New
Jersey, their anticipated staffing increases. Connecticut has not projected any staffing increases.
It is important to note that no funds from capitalization grants are shown for 1995 or
subsequent years. After the final Federal grant allotment, States will have to rely on alternative
funding sources, such as appropriated funds, or banked allowances to cover their administrative
expenses. Projected administrative expenses for 1995 are shown in Table 7-2.
:The equivalency requirements are 16 statutory CWA Title II requirements included in
Section 602(b)(6) that cover wastewater treatment projects constructed in whole or in part with
funds "directly made available by" Federal SRF capitalization grant awards. These incorporate
requirements on the type of technologies, analyses, and issues which must be taken into account
by such projects. After States have committed funds equal to the total amount of capitalization
grant awards, additional SRF-funded wastewater treatment projects are not subject to these
requirements.
7-3
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TABLE 7-2
Comparison of
Estimated SRF Administrative Costs And
Administrative Expense Allowances For Nine Study States
($ Thousands)
STATE
Connecticut
Estimated Admin. Costs
Administrative Allowance
Georgia
Estimated Admin. Costs
Administrative Allowance
Minnesota**
Estimated Admin. Costs
Administrative Allowance
New Jersey
Estimated Admin. Costs***
Administrative Allowance
New Mexico
Estimated Admin. Costs
Administrative Allowance
South Dakota
Estimated Admin. Costs
Administrative Allowance
Tennessee
Estimated Admin. Costs
Administrative Allowance
Texas
Estimated Admin. Costs
Administrative Allowance
Virginia
Estimated Admin. Costs
Administrative Allowance
Actual
1989
1,664
892
606
1,224
1,531
693
3,650
2,603
50
344
200
187
147
608
1,000
3,308
560
1,228
Projected
1990
1,789
932
954
1,560
1,726
880
4,370
3,392
202
344
200
236
338
626
1,305
4,240
600
1,080
1991
1,923
1,196
1,240
1,624
2,253
1,760
4,570
3,724
242
344
400
472
863
1,378
2,104
4,392
600
1,924
1992
2,067
892
1,210
1,228
2,751
1,320
5,370
2,840
280
344
400
360
1,393
1,034
2,587
3,296
800
1,444
1993
2,222
596
990
812
3,094
880
5,670
1,844
320
240
400
236
1,753
689
2,871
2,196
800
960
1994
2,389
296
1,030
404
3,686
440
6,070
920
360
120
400
120
1,982
344
3,251
1,096
800
480
1989 to
1994 Projected
TOTAL 1995
12,054
4,804 *
6,030
6,852 *
15,041
5,973 *
29,700
15,323 *
1,454
1,736 *
2,000
1,611 *
6,476
4,679 *
13,118
18,528 *
4,160
7,116 *
2,568
-
990
-
3,937
-
6,070
-
400
-
400
-
2,171
-
3,532
-
800
-
Note: The administrative allowance is based on actual capitalization grants awarded for FY 1989, and on 4 percent
of the authorized capitalization grant funding for 1990 to 1994.
* Represents the total Federal source of funds available for administering SRFs.
** Excludes bond issuance costs paid from bond proceeds.
*** New Jersey's administrative costs are estimated based on 1988 cost and staffing data, and staff increase
projections, supplied by New Jersey DEP. New Jersey's 1988 costs cover most, but not all, SRF employees.
Actual costs may be higher than those estimated here.
7-4
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SRF program representatives made recommendations regarding the short-term (up to
FY 1995) and long-term (after FY 1995) funding of administrative costs. For the short term,
most States recommended increasing the four-percent ceiling or allowing four percent of the
authorized, rather than the appropriated, amount. Two States recommended a separate Federal
grant for administrative costs, and another suggested using investment earnings from the State
funds in the SRF.
For the long term, States suggested a variety of funding methods. Five of the nine
recommended instituting a closing or other type of fee to cover administrative costs. Georgia
has already implemented a loan closing fee. It should be noted that any such fees collected
should be kept out of the SRF itself so that they will not be counted towards or limited by the
four-percent ceiling. Georgia's loan closing fees are thus placed in a non-SRF account. Several
study States recommended the following administrative cost funding mechanisms, some of which
are not currently allowed or viable in the SRF program:
using fund reserves;
using State appropriations;
transferring unused 205(g) funds (Federal grant funds for States to implement
certain Title II program management activities);
using a portion of the debt service payments; and
having the Federal government provide funds matching State appropriations for
administrative costs on a dollar for dollar basis (up to 10 percent of the actual
loans made).
7-5
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SECTION EIGHT
POTENTIAL IMPACT OF THE SRF PROGRAM ON COMMUNITY USER FEES
As explained in Section Six, SRF programs offer loans at below-market rates for eligible
projects. By contrast, the construction grants program generally provided a 55 percent grant for
the eligible cost of projects1 coupled in many cases with a State grant This section examines
the impact on user fees of a shift from construction grants funding to SRF funding for a typical
facility. Because the SRF programs have been operating only a short time and data are not
yet available on SRF-financed facilities, an analytical modeling approach is used to assess the
impact of the SRF program on user fees. The sections that follow describe the scope and
methodology of the analysis and present the analytical results.
8.1 Scope of the Analysis
This analysis assesses the incremental financial burden placed on households resulting
from SRF loan financing of wastewater treatment facilities compared to construction grant
funding. It is based on theoretical typical facilities and compares user fees for identical facilities
built with SRF assistance versus construction grant funding. Although some changes in design
may occur as the source of funding assistance changes from construction grants to SRF loans,
interviews with State officials suggest these changes will be minor. One possible change is more
construction of reserve capacity.2 Reserve capacity was not eligible under the construction
grants program after 1984 except in certain grandfathered, phased, or segmented projects.
Reserve capacity is eligible for funding with SRF monies. As a result of the differing
eligibilities of reserve capacity, the analysis assumes that a slightly higher percentage of costs are
eligible under SRF financing in comparison to construction grants financing.
Land costs, except for those to acquire land that is an integral part of the treatment
process or used for sludge disposal, are ineligible under both the SRF and construction grants
programs. Since there will be no change in a community's ability to finance land costs with the
switch to SRF funding, this item is not included in the analysis. The costs assessed here are
limited, therefore, to construction and operation and maintenance (O&M) of the wastewater
treat-re"! facilities.
In conjunction with the construction grants program, States have typically provided a 10
to 15 percent State grant to municipalities. Under the SRF, States must provide a 20 percent
match to receive a capitalization grant from EPA. It is not anticipated that many States will
provide grants to municipalities as a general rule in conjunction with an SRF loan. However,
some States anticipate the continuation of separate grant programs for special circumstances,
^novative or alternative projects could receive a 75 percent grant.
2Fjrtra treatment capacity built into treatment plants and interceptor sewers to
accommodate flow increases due to future population growth.
8-1
-------
such as communities which are economically distressed. As a result, the user fee impact analysis
presented here assumes no State grants under the SRF program.
There is no provision in the analysis for existing debt, which can vary :;jn:5cantly from
one community to the next. The incremental cost calculated here for the new facility could
represent all of the financial burden for wastewater treatment in a community, or only a
fraction of that burden.
8.2 Methodology
To assess the impact of user fees under the SRF program, a model which simulates user
fees was developed. The model is structured to simulate user fees under the construction
grants program and under the SRF program. The variables which the model uses to derive the
user fees are identified in Table 8-1. The first column in Table 8-1 lists each of the different
variables. The second column presents the value for each variable most commonly found under
both the construction grants and SRF programs. The values in the second column were used
to calculate the user fees presented in this chapter. The third column presents the range of
values for the variables depending on particular conditions in a State.
Based on the input variables in Table 8-1 the model calculates other values used in the
analysis. These calculated values include facility capital cost, daily flow rate, and the number of
hook-ups. Output from the model includes the annual cost of capital financing (assuming level
debt service), the annual O&M cost, and the total annual user fees per household under the
construction grants and SRF programs. The user fee calculated by the model represents the
annual incremental costs of construction and O&M for a new facility; it does not include land
costs or costs of existing debt service.
Appendix F contains a sample input-output page from the model, the formulas used in
the model and a description of the standard variable values and their sources, including a
detailed description of the capital and O&M cost curves and their derivations. The model
presented in Appendix F is designed so the user can input any of the variables presented in
Table 8-1 and calculate the impact on user fees. The capital cost curve is an inflated version of
EPA's Construction Costs for Municipal Wastewater Treatment Plants: 1973-1978. developed
to describe construction grants-funded projects.3 The O&M cost curve is derived from a user
fee survey of 161 construction grants-funded projects in EPA Region HI. EPA is currently
undertaking a comprehensive national survey of user fees and O&M costs.
3Cost curves reflect the capital cost of the components of a secondary treatment facility for
all community size categories.
8-2
-------
TABLE 8-1
User Charge Variables, Standard Values, and Range
VARIABLE
SRF interest rate:
Market interest:
Persons/household:
STANDARD
VALUE
4%
8%*
Fixed at 2.64
ESTIMATED
RANGE
0-9%
7-11%
.
Gallons/person/day:
Loan period:
Percent total costs
eligible under a 55%
construction grant:
Percent total costs**
funded by State grant
under construction
grants program:
Percent total costs
eligible under SRF:
90-110 depending on
community size
20 yrs
90%
15%
100%
Percent total costs funded
by State grant in con-
junction with SRF loans: 0%
Population served
by facility:
Fixed at one of the
following:
1,000; 2,500;
10,000; 100,000
90-110 depending on
community size
5-20 yrs
75-100%
0-25%
0-50%
* Recent cost of borrowing funds in the municipal bond market.
** Applies to all eligible costs.
8-3
-------
8.3 Comparison of User Fees Under the SRF and Construction Grants Programs
The results of a comparison of user fees under SRF and construction grants financing
for facilities serving five community population sizes are presented in Table 8-2. The results
reflect the standard values displayed above in Table 8-1.
In Table 8-2, user fees are calculated as the household's proportional share of two cost
components: the annualized cost of the capital expenditure and the annual operation and
maintenance cost The SRF and construction grants programs subsidize only the capital
expenditure portion. But as Table 8-2 illustrates, it is the second cost, O&M, that often drives
the user fees. The O&M costs account for approximately 60 percent of user fees under the
SRF program and about 73 percent of user fees under the construction grants program.
Table 8-2 also shows that the size of the community served by a facility has a substantial
impact on user fees under both the SRF program and the construction grants program. User
fees for facilities serving communities with a population of 1,000 are over 3 times greater than
user fees for facilities serving communities of 100,000. This disparity in user fees across
community sizes is not altered significantly under the SRF loan program, due in part to the
predominance of O&M costs in the overall user fee.
Table 8-2 indicates that user fees are higher under the SRF program than under the
construction grants program. The difference in user fees under a 4 percent loan compared to a
55 percent construction grant ranges from $72 annually for facilities serving communities of
1,000 to $22 annually for facilities serving communities of 100,000. This represents a 21
percent increase for a community of 1,000 and a 19 percent increase for a community of
100,000.
8.4 Impact of SRF Loan Interest Rate on Level of Subsidy
The interest rate charged on SRF loans has a significant impact on user fees. One way
of quantifying the value of the SRF loan subsidy is by expressing the loan interest rate in terms
of a "grant equivalent." For example, a 4 percent SRF loan, the average rate charged for SRF
loans by the nine study States, is equivalent to a grant subsidy of 16 percent under the
construction jjrant program (assuming a 15 percent State grant is provided along with the
construction grant). A zero interest SRF loan is equivalent to a 42 percent construction grant,
while a 6 percent interest SRF loan is equivalent to a 1 percent construction grant. Table 8-3
shows various SRF loan interest rates and their construction grant equivalents.
Another way to quantify the value of the SRF loan subsidy is to compare projected user
fees for facilities constructed with SRF loans to facilities constructed with market rate financing.
A facility designed to serve a community of 1,000 constructed with an SRF loan using a 4
percent interest rate would have an annual user fee of $351, whereas the same facility financed
with a market rate loan charging 8 percent interest would have an annual user fee of $407.
Thus, the SRF reduces annual user fees by 14 percent. For a facility designed to serve a
community of 100,000, annual user fees would be $116 with a 4 percent SRF loan compared
with $134 for a market rate loan, a savings of 13 percent
8-4
-------
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SRF Interest Rate: 4%
Market Interest Rate: 8%
Gallons/Person/Day: 90-110 (depe;
Loan Period: 20 years
Eligible Cost SRF: 100%
Eligible Cost CG: 90%
State Grant In Conjunction with S
State Grant Under CG Program:
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TABLE 8-3
SRF Interest Rate and Construction Grant Equivalent1
Construction2
SRF Interest Grant
Rate Equivalent
0% 42%
1% 36%
2% 29%
3% 23%
4% 16%
5% 9%
6% 1%
'Ineligible costs financed at an 8% market rate.
This number represents the construction grant equivalent (assuming construction grants are
coupled with a 15% State grant) necessary to achieve the same subsidy as an SRF loan at the
interest rate shown in the same row.
8.5 Summary of Key Findings
Key findings of this theoretical analysis include:
For facilities serving the community sizes examined in this analysis, the household
user fee under a 4 percent SRF loan is approximately 20 percent greater than
the user fee under a 55 percent construction grant.*
The absolute dollar difference in user fees under a 4 percent SRF loan
compared to a 55 percent construction grant* ranges from about $22 annually
for a community of 100,000 to about $72 for a community of 1,000.
'Assuming a 15 percent State grant is provided along with the construction grant.
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A 4 percent SRF loan, the average rate charged for SRF loans by the nine study
States, provides the same financial subsidy as a construction grant* that funds 16
percent of eligible cost.
Even at zero percent interest, SRF loans cannot provide the same financial
subsidy as a 55 percent construction grant.* Therefore, user fees will generally
be higher under the SRF program than the construction grants program.
Community size has a substantial impact on user fees under both the SRF
program and the construction grants program. Because of economies of scale,
total user fees to cover operation and maintenance in addition to capital costs
are estimated to be about three times as great for a community of 1,000
compared to a community of 100,000.
While SRF loans provide less of a subsidy than construction grants, SRF loans
still provide a substantial subsidy. User fees for facilities constructed with SRF
loans charging 4 percent interest will be approximately 14 percent lower on
average than facilities constructed with market rate financing.
* Assuming a 15 percent State grant is provided along with the construction grant.
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SECTION NINE
POTENTIAL IMPACT OF THE SRF PROGRAM ON FACILITY OPERATIONS
This section summarizes the opinions of officials in the nine study States on whether the
SRF program will lead to changes in the operation of wastewater treatment facilities. Because
the SRF is a new program, program officials had minimal information about the impact of SRF
funding on facility operation. Anticipated changes in facility sizing, design, and operating
efficiency are discussed below.
9.1 Anticipated Changes in Sizing. Design, and Operation and Maintenance Costs of New
Facilities
Because communities have to pay for a larger portion of project capital costs under the
SRF program than under the construction grants program, they are likely to construct lower
cost facilities to minimize the impact on user fees. Three of the nine study States - New
Mexico, South Dakota and Virginia - specifically mentioned that they anticipate reductions in
project costs as a result of the shift to SRF financing. A fourth State, Tennessee, said that
loan applicants will try to keep their costs down, though cost reductions may not be realized
right away.
SRF officials in the study States expressed divergent views on the effect of SRF on
facility sizing. SRF officials in New Mexico and South Dakota expect that facilities will be
smaller because communities must repay the loans and will, therefore, tend to keep the size of
projects to a minimum. New Jersey and Texas expect no change in facility sizing. Georgia
anticipates that facilities will actually be larger because, unlike the construction grants program,
the SRF can be used to fund reserve capacity projects. Minnesota anticipates that new
construction will become less common, with municipalities favoring phased improvements
instead.
The SRF program provides less incentive for the use of innovative and alternative
technologies than the construction grants program. While three of the nine study States
require innovative and alternative technology projects be considered during the planning phase
of project development, none of the study States offer any direct incentive for innovative or
alternative technology projects.1 As Georgia and New Jersey pointed out, this is a change from
the construction grants program which provided direct incentives for innovative and alternative
technology projects (e.g., 75 percent grants rather than 55 percent).
^nsideration of innovative and alternative treatment technologies is one of the CWA
Title II equivalency requirements (described in Footnote 3, Section 7.1). Therefore, in all
States, projects subject to equivalency requirements must evaluate innovative and alternative
technologies.
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Four of the nine States felt that the number of innovative and alternative projects
undertaken would decrease. Because the SRF is a loan program, States assume a greater
financial risk. The added risk and uncertainty associated with innovative projects may
discourage their use. Proven alternative technologies will still be chosen, however, and might
be preferred if they have lower overall costs.
The SRF program administrators view the O&M requirements under the construction
grants program as constructive and integral to the successful operation of facilities. In the
interviews, they indicated that they did not intend to change their O&M requirements. In their
questionnaires, eight of the nine study States said they did not expect O&M requirements to
change significantly under the SRF program. The ninth State did not respond.
Most of the study State program officials anticipate little or no change in the O&M
costs of facilities built with SRF funds. While the increased debt service costs under the SRF
program are expected to increase pressure to keep O&M expenditures down, municipalities may
also wish to spend more on O&M to prolong plant life. Seven States reported that they expect
O&M costs to remain about the same under the SRF program as they were under the
construction grants program.
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SECTION TEN
ADVANTAGES OF THE SRF PROGRAM
The SRF program offers benefits to all levels of government concerned about water
quality. These benefits are both financial and environmental, helping responsible agencies and
officials to use their limited resources to achieve the gpal of clean water.
10.1 Federal Government
The SRF program provides a mechanism for the Federal government to further the
long-standing national policy of assisting States and local governments in financing wastewater
treatment and other water quality management activities. At the same time, the program
facilitates the goal of transferring the responsibility for financing water quality construction and
management from the Federal government to State and local governments.
The "revolving" nature of the SRFs developed under this program allows a limited
amount of Federal funds to satisfy many more water quality needs than would happen with
direct grants or one-time loans.
10.2 The States
The primary benefit of the SRF program to the States is that it allows flexibility in
providing financial assistance. Each State designs its SRF to address the particular water quality
concerns of that State and its communities. States can structure their SRF to meet a broad
range of needs or to focus on a limited number of needs of major concern. By varying the
types and terms of SRF assistance, States can reach "target" types of communities or projects.
Also, States can integrate or coordinate the SRF with other State programs to develop a
comprehensive system for financing water quality management, tailoring the level of subsidy to
the varying needs of their communities. The SRF loan repayment stream provides a continuing
source of funding which is not subject to annual appropriations and therefore allows for more
certain projections of the availability of funds for assistance.
Expanded eligibilities under the SRF program further increase its flexibility. In addition
to the new types of activities and facilities that can be funded, SRFs, in comparison to
construction grants, can fund a larger portion of the costs of traditional types of treatment
works. Fewer Federal requirements apply to SRF assistance than to construction grants, and
certain of the SRF funds carry none of the requirements of Title II. This reduction in
requirements can reduce the cost of facilities.
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10.3 Communities
Low interest rates are the single most important benefit to communities mentioned by
the study States. Due to the . ederal grant and State match (and in some cases leveraged
funds) that capitalize SRFs and because of the funds' fiscal strength, loan recipients can obtain
interest rates lower than they could get on their own. This reduced cost of capital enables
some projects to be completed that otherwise would not be affordable and reduces the level of
user fees required to repay project debt.
An example is provided by using the model presented in Section Eight of this report to
calculate the debt service costs for a community with a population of 10,000 people, building a
wastewater treatment plant with a capital cost of $4.56 million and borrowing the entire
amount. With a 20-year, four percent SRF loan the annual capital cost per household would
be $89. If the community borrowed the funds at a market interest rate of eight percent, the
annual capital cost per household would be $123, or 38 percent higher than capital cost per
household with an SRF loan.
Some States, such as Minnesota and Virginia, charge no interest on SRF loans during
the construction period, providing even more savings in the cost of capital. Most SRFs do not
charge closing costs, providing an additional savings over market financing for loan recipients.
Even in States that charge closing costs or administrative fees, communities experience
savings because the administrative burden of capital financing is centralized at the State level,
realizing economies of scale. State governments are more likely than municipalities to have the
management and financial institutions and expertise necessary to access the public finance
market at the most advantageous time and at lower cost. These reductions in financing costs
can result in significant overall savings to a community and the beneficiaries of its water quality
projects and activities.
Other benefits to communities mentioned by the study States include starting
construction more quickly than under the construction grants program (with resultant savings in
capital cost inflation), fewer eligibility constraints, no maximum or minimum assistance amount
(unless imposed by the State), and efficient disbursements for incurred costs.
Communities also benefit from many features of the SRF program discussed above as
benefits to the States. State-specific SRF program design and expanded eligibilities allow more
communities to meet their particular needs. The variety of assistance types (i.e., credit
enhancements) broadens the scope of the program to include communities that do not require
direct grant or loan assistance. Also, fewer Federal requirements and restrictions on the
assistance provided can reduce administrative complexities, costs, and time delays.
Finally, the SRF provides a long-term funding program to meet the water quality
management needs of many communities. The revolving nature of the fund creates a perpetual
source of affordable financing. The funds invested now for the capitalization of SRFs will work
for many years to assist communities in meeting their needs, providing more money for more
communities.
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SECTION ELEVEN
ISSUES ASSOCIATED WITH SRF IMPLEMENTATION
Officials of the nine SRF programs identified a number of areas of concern that affect
their ability to effectively implement their programs. Some of these impediments arise from
Federal and State statutes, regulations, and policies while others are inherent in a new financial
assistance program such as the SRF. This section presents the major concerns expressed by the
States and discusses the realized or potential impact of each on the program.
Federal Funding
Officials of all nine study States expressed serious concern regarding the Federal funding
of the SRF program. The FY 1989 and 1990 appropriations for Clean Water Act Title EL
(funds of which can be transferred to the SRF program) and Title VI were less than the
authorized amounts as were FY 1991 Title VI amounts. State officials believe that future
appropriations will also fall short of the authorized levels.
State officials also expressed concern about uncertainty as to what the Federal funding
level will be from year to year. Because the States must provide matching funds based on the
capitalization grant amount, such uncertainty makes planning difficult for both the States and
communities. In many States the budget process is often not coordinated with that of the
Federal budget, and if an SRF fails to obtain an appropriation or bond authorization for its
match because the State legislature goes out of session before the necessary amount can be
determined, significant delays in program implementation can occur.
Cross-Cutting Federal Laws and Authorities
The States report that the application of other (non-CWA) Federal laws and authorities
to the SRF program leads to a number of difficulties. These "cross-cutters" apply to projects
funded in whole or in part by "funds directly made available" by the Federal capitalization grant.
The States are unsure of their responsibilities for monitoring and assuring compliance with the
cross-cutters and it is therefore difficult to build the appropriate procedures into their SRFs.
This concern arises because at any time, Federal laws can be enacted that apply to the SRF
program, and a permanent list of these authorities cannot be identified. (The Agency is now
examining twenty-four cross-cutting Federal authorities and will soon distribute a handbook
describing their application in the SRF program.) In addition, once the State responsibilities
and procedures are developed, the administrative costs of the program will increase as State
officials ensure compliance. While several States indicated that cross-cutting authorities that
apply to assistance recipients will increase project costs and delay project completion, EPA was
unable to obtain descriptions of how cross-cutters affected specific projects. State officials are
also concerned about EPA's role in reviewing State project-specific compliance actions.
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In order to facilitate compliance with other Federal laws and authorities, EPA is
working with the appropriate Federal agencies to develop programmatic agreements for major
cross-cutters that outline the roles and responsibilities of the various government entities
involved. The States and their representatives have recommended another approach to
managing compliance with cross-cutters. They urge that compliance be "as determined by the
Governor" of each State and that the focus should be on certifying compliance with the intent
of law rather than adherence to project-specific requirements. States would prefer, however,
that the SRF program be exempted entirely from cross-cutters by Congress.
Effect of Program Requirements on Project Costs
Several States expressed the view that the Title VI Federal requirements associated with
the SRF program add substantially to project costs, as well as administrative costs. In
particular, the Title II "equivalency requirements" for treatment works, which apply only to
"funds directly made available" by Federal capitalization grants, are said to reduce the program's
attractiveness to communities. Texas and New Jersey officials estimate cost increases of up to
20 percent in some communities due to Federal requirements.
Tennessee SRF officials assert that prevailing wage rates mandated under the Davis-
Bacon Act (one of the equivalency requirements) alone could increase project costs by as much
as 30 percent. Studies reviewed by EPA show a wide variety of project cost increases due to
Davis-Bacon. A 1983 study by the Federal Highway Administration estimates an impact of two
to four percent, while a 1982 study by Oregon State University estimates cost increases of 26 to
38 percent in rural areas of the country. For water and sewerage systems in Utah, a 1986 study
by the State of Utah reports construction bids averaging 17.5 percent higher for projects subject
to the Davis-Bacon Act compared to those not subject to Federal wage rates.
In addition to impacts on individual projects, the above cost increases affect the SRF
itself. As Tennessee officials point out, lower interest rates must be offered in order to counter
the costs associated with program requirements and attract potential recipients. Lower interest
rates result in lower repayments to the SRF which in turn can affect the fiscal health and
perpetuity of the fund.
Some study States have chosen to apply the Federal requirements discussed above to all
projects funded by their SRFs, not only to those projects funded by an amount equal to the
"funds directly made available" by their capitalization grants ("equivalency projects"). Although
not a Clean Water Act or EPA requirement, States are using this practice to facilitate the
handling of projects and to provide for equal treatment to all assistance recipients.
Letter of Credit Process
Payment of capitalization grants to an SRF occurs through a Federal letter of credit
(LOG). No cash is transferred to the fund until the SRF requests a cash draw, up to the
amount available in the LOC, generally as a result of incurred costs. Many States indicated
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that this process is an impediment to the implementation of the SRF program for a number of
reasons.
Tennessee and New Mexico point out, for instance, that lack of cash payments to the
SRF prevents the State from earning interest on the Federal funds. Those interest earnings
would help the fund grow and increase the amount available for assistance. But in an effort to
ease the pressure of program outlays on the Federal budget deficit, the LOG payment process
was instituted to coordinate outlays with the actual expenditure of Federal funds. This process
complies with provisions of the Intergovernmental Cooperation Act (31 USC 6501; Pub. L. 97-
258) which require Federal agencies to "schedule the transfer of grant money to minimize the
time elapsing between transfer of the money from the Treasury and the disbursement by a
State."
The LOG payment schedule for refinancing was cited as unduly cumbersome with regard
to refinancing by two of the States. One State recommended dropping the 8 equal quarter
payment requirement for refinancing.
Another concern of some of the States is that the LOG adds one more level of
complexity to their programs. Under a cash payment system, cash would be available for
disbursement as costs are incurred. With the LOG payment system, however, a request for a
cash draw from the LOG must be made before that cash is available for disbursement. The
cash draw may take up to 36 hours, usually considerably less, as the funds are transferred to the
SRF. The Federal LOG system is well established, and efficient procedures are in place for the
electronic transfer of funds to State accounts.
There have been reports that the "LOG process" can take several weeks. States must
comply with their own overlapping fiscal and accounting procedures which can impede the quick
transfer of funds. Thus, although the letter of credit itself as a method of payment is not
causing delays beyond the maximum of 36 hours necessary to make the electronic transfer of
funds, delays are occurring in some States due to State processing problems associated with the
cash disbursements.
Admimstrative Fjqjenses
The CWA restricts the amount of money in an SRF that may be used for administrative
expenses to four percent of all capitalization grant awards received by the fund. The amount
available each year to cover administrative costs is four percent of all awards received up to and
including that year minus the amount of administrative expenses paid by the fund in previous
years.
A number of study States expressed concern that the allowed amount would be
inadequate to pay the full costs of administering their fund. This may be especially true of
leveraged funds. The States expressed particular concern about the administration of the fund
after FY 1994, when capitalization grants are scheduled to end. To address this concern, States
have suggested that the four percent restriction be modified or eliminated. Because Section
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603(d)(7) of the Act clearly mandates this restriction, any such change would require legislative
action.
SRF program representatives made recommendations regarding the short-term (up to
FY 1995) and long-term (after FY 1995) funding of administrative costs. For the short term,
most States recommended increasing the four-percent ceiling or allowing four percent of the
authorized, rather than the appropriated, amount Two States recommended a separate Federal
grant for administrative costs, and another suggested using investment earnings from the State
funds in the SRF.
For the long term, States suggested a variety of funding methods. Five of the nine
recommended instituting a closing or other type of fee to cover administrative costs. Georgia
has already implemented a loan closing fee. It should be noted that any such fees collected
should be kept out of the SRF itself so that they will not be counted towards or limited by the
four-percent ceiling. Georgia's loan closing fees are thus placed in a non-SRF account Several
study States recommended the following administrative cost funding mechanisms, some of which
are not currently allowed or viable in the SRF program:
using fund reserves;
using State appropriations;
transferring unused 205(g) funds (Federal grant funds for States to implement
certain Title n program management activities);
using a portion of the debt service payments; and
having the Federal government provide funds matching State appropriations for
administrative costs on a dollar for dollar basis (up to 10 percent of the actual
loans made).
Eligibility of Land
The purchase of land for a wastewater treatment facility is not an eligible cost under the
SRF program unless the land is integral to the treatment process or used for sludge disposal.
Several States recommended that this restriction be lifted because it makes the SRF less
attractive as a source of financing. Since land upon which to build a facility must often be
purchased, a community seeking assistance from an SRF may have to finance land acquisition
through another source. This increases total financing costs for the project, especially since the
land financing is unlikely to be at a subsidized interest rate. Minnesota mentioned that this
restriction is especially problematic for small communities.
The restriction on the use of SRF funds for the purchase of land is statutorily imposed
by the CWA. Therefore, legislative action would be necessary to expand the eligibility of land
under the SRF program.
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Identification of Repayment Revenue Source
The CWA requires that recipients of SRF assistance provide a dedicated source of
revenue to cover repayments. While nonpoint source, ground water, and estuarine programs
are a high water quality priority in many States and are eligible for assistance under the SRF
program (see Section 3 and Appendix B), the activities associated with such "expanded uses" do
not typically provide a source of revenue to repay loans. Because of this, many States reported
that it may be difficult to provide SRF assistance for nonpoint source and estuarine activities.
It is possible, however, to provide for repayment. Although the revenue may not be
derived directly from the funded activity itself, repayment sources are available. An assistance
recipient can dedicate the proceeds of fees (e.g., permit fees, inspection fees, impact fees), taxes
(e.g., property taxes, sales taxes, pollution taxes), or fines and penalties to the repayment of an
SRF loan. EPA is preparing a case study guidebook to present examples of how expanded use
activities may be funded under the SRF program.
Ability to Reach Communities With Assistance
A few States mentioned that they anticipate difficulty in providing SRF assistance to
particular communities. Some economically distressed communities cannot afford to pay back a
loan even at a 0 percent interest rate. An associated problem in Minnesota is that many such
communities are on the NMP list, making it difficult to meet SRF first use requirements.1
States will have to work closely with communities that have financial capability problems to
structure an assistance package that provides adequate, affordable funding to meet water quality
objectives and regulations.
Financial and Leeal Aspects of the Program
A number of States commented that SRFs involve more financial and legal complexity
than construction grants and many other funding programs. States and communities have an
increasing need for expertise in public finance and bond and tax law to effectively utilize SRFs.
While these added complexities can increase costs, they also are the elements of the program
that increase the available forms of assistance (i.e., credit enhancements) and the amount of
funds available (i.e., leveraging). Each State should determine whether or not its water quality
needs are such that its SRF should incorporate various financial complexities.
EPA is aware of the potential delays and problems that financial and legal complexities
may present to the program. In an effort to assist States to develop and implement effective
SRFs, the Agency has put in place a mission support contract for use by EPA Headquarters,
Regional Offices, and States. The contract team can provide the advice and support of
*See Section 4.3 for a discussion of "first use."
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financial managers, investment bankers, and bond attorneys during the establishment of most
SRFs.
Federal Tax Laws and Regulations
Many SRFs issue bonds to raise State match, overmatch, or leverage funds. Some
programs purchase, refinance, or provide security for local bonds issued for wastewater
treatment projects. In order to minimize the cost of capital, States and municipalities may use
tax-exempt financing in these situations. By doing so, however, SRFs become subject to the
many provisions of Federal tax laws and regulations that affect tax-exempt bonds. The statutory
and regulatory framework surrounding tax-exempt financing is very complex and cannot be
covered in this report. The intent of this section is to identify the principal provisions that
affect SRFs.
Most of the statutory provisions that affect the program are contained in the Tax
Reform Act of 1986 and the Technical Corrections and Miscellaneous Revenue Act of 1988.
They pertain to the following five areas.
Arbitrage (including yield restriction and arbitrage rebate)
Generally, arbitrage profit is the difference in the interest rate paid on
tax-exempt bonds and the rate of interest earned on investments made
with proceeds of those bonds. Yield restriction is the general prohibition
on earning such profits. Arbitrage rebate is the required payment to the
U.S. Treasury of such profits in the few cases where they are permitted.
Advance funding restrictions.
A refunding bond issue is an issue in which the proceeds are used to service or
retire the debt on previously issued bonds. The refunding issue would generally
have a lower interest rate than the issue to be refunded, thereby providing the
issuer with lower borrowing costs. An advance refunding transaction is the
issuance of the new bonds more than 90 days in advance of the retirement of
"" the existing bonds. The Tax Reform Act of 1986 limits the ability of issuers to
advance refund bonds.
Debt service reserve funds.
Many bond issues are sold with the condition that a portion of the proceeds be
used as a debt service reserve fund to assure bond purchasers that payment will
be made on the bonds for a certain period of time. Federal tax laws limit the
amount of bond proceeds that can be used for this purpose, generally require
rebate of related arbitrage profits, and, in some cases, restrict the yield of these
funds.
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Governmental use bonds/private activity bonds.
Bonds are categorized based on the purposes for which the proceeds are used
and the nature of the source of repayment or security for the bonds.
Government use bonds are generally granted tax-exempt status while interest on
private activity bonds is generally taxable but can be tax-exempt under certain
specific exceptions. Private activity bonds lose their tax-exempt status when the
proceeds are used to fund a project which violates certain private activity
restrictions.
Pooled bond restrictions.
A pooled bond issue is one in which the proceeds are distributed to multiple
entities. Pooled bonds are sometimes "blind" and the ultimate borrowers of the
proceeds are not identified when the bonds are issued. The tax code places
restrictions on the issuance of pooled bonds and the subsequent use of the
proceeds.
Although none of the tax laws or regulations prevent a State from developing an SRF
and making use of the financial mechanisms allowed under the CWA, they do restrict the
flexibility of the States in structuring their SRFs. These provisions can increase the costs of
providing assistance and administering the program. Arbitrage tracking, for example, can be an
intricate and costly process. Delays can occur during program development and implementation
as State officials and bond counsel ensure that the program follows the applicable laws and
regulations. This diligence is necessary to safeguard the tax-exempt status of SRF-related
bonds.
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APPENDIX A
SRF REPORT TO CONGRESS WORKGROUP MEMBERS
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APPENDIX A
SRF REPORT TO CONGRESS WORKGROUP MEMBERS
State Members
C.R. Miertschin
Construction Grants Division
Texas Water Development Board
P.O. Box 13231 - Capitol Station
Austin, TX 78711-3231
512-463-7853
David Hanna
Wastewater Construction Grants
Environmental Improvement Division
1190 St. Francis Dr.
Harold Runnels Bldg.
Santa Fe. NM 87504-0968
505-827-2812
Fred Esmond
Division of Construction Management
New York State Department of
Environmental Conservation
50 Wolf Road, Room 438
Albany, NY 12233
518-457-6252
Paul Zugger, Chief
Surface Water Quality Division
Department of Natural Resources
P.O. Box 30038
Corner of Pine and Allegan
Lansing, MI 48909
517-373-1949
Doug Garrett
Department of Natural Resources
Water Pollution Control Program
205 Jefferson St.
P.O. Box 176
Jefferson City, MO 65101
314-751-5723
Alternate for Doug Garrett:
Susan Hoppel
Nebraska Department of Environmental
Control
301 Central Mall South
Lincoln, NE 68508
402-471-2182
Regional Members
Roger Janson
Region I
U.S. Environmental Protection Agency
John F. Kennedy Federal Building
Rm. 2203
Boston, MA 02203
617-565-3580; 8-835-3580
Lee Murphy
Region III
U.S. Environmental Protection Agency
(3WM-20)
841 Chestnut St.
Philadelphia, PA 19107
215-597-3847; 8-597-3847
Richard Hoppers
Region VI
U.S. Environmental Protection Agency
1445 Ross Ave., 12th Floor, Suite 1200
Dallas, TX 75202
214-655-7110; 8-255-7110
Mike Muse
Region IX
U.S. Environmental Protection Agency
215 Fremont St.
San Francisco, CA 94105
415-974-8341; 8-454-8341
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APPENDIX B
NEEDS ASSOCIATED WITH NEW SRF PROGRAM FUNDING ELIGIBILITIES AND
NEW ENFORCEABLE REQUIREMENTS
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APPENDIX B
NEEDS ASSOCIATED WITH NEW SRF PROGRAM FUNDING ELIGIBILITIES
AND NEW ENFORCEABLE REQUIREMENTS
This Appendix describes the potential impact of new funding eligibilities and new
requirements under the CWA on the need for SRF financing. The discussion considers these
issues primarily from a qualitative, national perspective rather than a quantitative, State-specific
one. This approach is necessary because the cost implications of many of the new requirements
are either not available or, when available, are very preliminary.
B.I New Funding Eligibilities
Nonpoint Source Pollution Control
Congress specified in the 1987 Amendments to the CWA that States prepare
Assessment Reports to identify the significant impact that nonpoint source (NPS) pollution can
have on water bodies. These reports should identify waters unlikely to achieve water quality
standards without NPS controls as well as the sources causing the water quality impairment. In
addition, Section 319 of the CWA requires States to develop Management Programs to address
these impairments.
Almost all States have submitted their Assessment Reports and Management Programs.
EPA has approved or partially approved management programs for all but two jurisdictions.
EPA and State agencies will identify funds available to carry out the activities necessary for
meeting water quality standards. Funding is authorized in the CWA to implement these NPS
control activities, and includes grants under Section 319 and Section 201(g)(l)(B) and assistance
from the SRF program.
To be eligible for SRF financing, NPS activity must meet three threshold requirements:
the State must have SRF-authorizing legislation which makes Section 319 activities eligible for
SRF assistance, the activity must be included in the State's approved NPS Management
Program, and the activity must be on the State's SRF Intended Use Plan (IUP). Four of the
nine study States have indicated they plan to fund NPS activities through the SRF program in
the future.
Estuarine Protection
Section 320 of the CWA established the National Estuary Program to ensure protection
of estuarine areas "threatened by pollution, development, or overuse." The program calls for
the development and implementation of Comprehensive Conservation and Management Plans
(CCMPs) to achieve this protection.
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As of July 1990, 17 estuaries had been accepted for participation in the National
Estuary Program:
Buzzards Bay, Massachusetts
Narragansett Bay, Rhode Island
Long Island Sound, Connecticut and New York
Puget Sound, Washington
San Francisco Bay, California
Santa Monica Bay, California
Albemarle/Pamlico Sounds, North Carolina
New York/New Jersey Harbor, New York and New Jersey
Delaware Estuary, Delaware and New Jersey
Delaware Inland Bays, Delaware
Sarasota Bay, Florida
Galveston Bay, Texas
Casco Bay, Maine
Massachusetts Bays, Massachusetts
Indian River Lagoon, Florida
Tampa Bay, Florida
Barataria-Terrebonne, Louisiana
In coordination with the States, EPA convenes management conferences to develop
CCMPs for estuaries included in the National Estuary Program. Conference planning activities
and actions needed to implement the CCMPs are eligible for funding under the SRF program.
Since most of the management conferences are still assessing the status of their estuaries, final
CCMPs have yet to be developed. Consequently, comprehensive cost estimates for CCMP
implementation activities are not available at this time.
Of the nine study States, only three (Connecticut, New Jersey, and Texas) have
approved estuaries under the National Estuary Program. While none of the States have
indicated they intend to fund CCMP activities with SRF funds, Connecticut reported that it
intends to make loans for wastewater treatment and CSO projects that are closely tied to the
nutrient reduction strategy being developed for the Long Island Sound CCMP.
Ground-Water Protection
Section 319 of the CWA emphasizes ground-water protection by encouraging States to
assess the impact of NPS problems on ground-water quality and by authorizing grants for
ground-water protection activities related to nonpoint source problems. As an ongoing effort
under Section 106 of the CWA, EPA provides grant money to States to support the
development of State Ground-Water Protection Strategies. Most States have submitted
Ground-Water Protection Strategies to EPA. The Agency encourages States to keep the
Strategies current
The CWA provides a mechanism for using SRF monies for ground-water protection
under the NPS program. For ground-water protection activities to be eligible, they must be
B-2
-------
identified in the State's EPA-approved NFS Management Program through direct identification
or incorporation by reference to the State's Ground-Water Protection Strategy. State Ground-
Water Protection Strategies do not generally include cost estimates. Therefore, it is not
possible at this time to determine the extent to which ground-water protection activities will add
to the total cost of SRF-eligible water pollution control activities.
Wetlands Protection
EPA encourages states to coordinate planning and implementation of programs for
nonpoint source pollution control, ground-water protection and estuarine protection. Although
no new program efforts were established for wetlands protection in the 1987 Amendments,
wetlands protection is also a priority concern. Implementation of wetlands protection activities
is SRF-eligible to the extent that the activities are included as part of approved State Nonpoint
Source Management Programs or estuary CCMPs.
Maintaining Permit Compliance
Traditional Needs Surveys have not captured the needs associated with wastewater
treatment facilities which are compliant at the time of the survey, but in need of near term
improvements, because they are at a design capacity, near retirement, or in an area where
stream standards will be upgraded. This is particularly critical in areas which are experiencing
population growth. These needs are eligible for funding from SRFs and will add substantially
to States' total needs for wastewater funding.
B.2 New Enforceable Requirements
Separate Storm Sewers
The 1987 Clean Water Act Amendments expand the permitting program for discharges
from municigal separate storm sewers to include comprehensive storm water quality
management programs to reduce the discharge of pollutants. Section 402(p) of the CWA
provides deadlines for EPA to establish permit application requirements for discharges from
large municipal separate storm sewer systems (systems serving a population of 250,000 or more)
and discharges from medium municipal separate storm sewer systems (systems serving a
population between 100,000 and 250,000). EPA is to study discharges from other municipal
separate storm sewers and issue regulations based on the results of these studies.
On November 16, 1990, EPA published a final rule on permit application requirements
in the Federal Register. The rule covers permit application requirements for discharges from
large and medium municipal separate storm sewers. The requirements are sufficiently flexible
to allow the development of site-specific permit conditions. Under the requirements, municipal
applicants will be required to submit proposed storm water management programs as part of
their permit application.
B-3
-------
The proposed management programs will address a wide range of structural and
nonstructural controls. Structural controls include the removal of illicit connections, regional
storm water management basins, retention and infiltration basins, and other retrofit projects.
Nonstructural controls include developing and implementing an ordinance to control
construction site runoff, street sweeping, operation and maintenance improvements, public
education programs, and waste collection programs to discourage illegal dumping.
Structural improvements to municipal separate storm sewer systems qualify for assistance
from Federal funds authorized after FY 1990 for the SRF program. Activities for storm water
pollution control are also eligible for SRF assistance if they are part of approved Section 319
State Nonpoint Source Management Programs or Section 320 estuary Comprehensive
Conservation and Management Plans. Structural improvements and control activities for storm
sewers that are part of these programs will, therefore, increase SRF-eligible needs. Estimates
of the dollar amount of the increase are not yet available. Initial cost estimates should be
available after municipal applicants submit cost analyses of implementing municipal storm water
management programs. These cost analyses are required as part of the permit application for
large and medium-sized municipal systems.
Discharge of Toxic Pollutants
Section 304(1) of the CWA requires EPA and the States to address the reduction of
toxics from point source discharges. EPA promulgated requirements to implement Section
304(1) in June 1989. Section 304(1) required States to prepare lists of water bodies not meeting
water quality standards because of point source discharges of one or more of the 126 priority
toxic pollutants. Section 304(1) also required States to prepare lists of point sources discharging
these pollutants and to develop control strategies to reduce these discharges.
As of July 1990, the States and EPA had identified 193 municipal facilities and 53 CSOs
or storm water drains that are discharging toxic pollutants into impaired waters. To comply
with new, more stringent limits on toxic pollutants, the treatment facilities will have to choose
between either enforcing more stringent pretreatment requirements or installing more advanced
technology within the facility. Communities with CSO and storm sewer problems will have a
choice of adopting either nonstructural (e.g., street cleaning) or structural (e.g., separation of
sanitary and storm sewers) controls. With certain restrictions, these options are eligible for
assistance from SRFs.
EPA and the States have completed identifying impaired waters and point sources of
toxic discharges and are now completing control strategies. After public comment, additional
water bodies and facilities have been added to States' lists, while others have been deleted.
After the control strategies become incorporated into final permits, facilities will have three
years to comply with their new effluent limits. Because most facilities have yet to determine
necessary treatment modifications, it is not possible to assess the cost of these new controls at
this time.
B-4
-------
Sludge Use and Disposal Regulations
Sludge is a byproduct of the wastewater treatment process. Treatment facilities bear the
responsibility for disposing of sludge, which can contain toxic components. The 1987 CWA
Amendments require EPA to identify toxic pollutants of concern in sludge, establish numerical
limits for each pollutant, and determine appropriate use and disposal practices to protect human
health and the environment.
EPA proposed regulations in February 1989 that address five sludge use and disposal
practices: incineration, land application, monofill (sludge-only), distribution and marketing, and
surface impoundments. These new requirements may generate additional costs for treatment
facilities. SRF programs can provide financial assistance for the capital costs of POTW
investments. Eligible capital costs might include upgrades for an existing treatment process,
hardware purchases for sludge disposal (e.g., a truck to transport the material to a landfill), or
engineering costs associated with a capital investment project.
As part of its regulatory development process, EPA prepared a regulatory impact
analysis estimating the costs to treatment works of complying with the proposed regulations.
Data in the record provide a basis for estimating capital costs. The total capital costs (including
engineering costs) associated with POTW compliance with the proposed sludge regulations are
estimated to be $408.3 million (1988 dollars). This cost estimate is for the proposed regulation;
the cost associated with the final regulation may differ substantially.
Ocean Dumping Ban Act
The Ocean Dumping Ban Act of 1988 affects the State Revolving Fund program in
New York and New Jersey. The Act requires these states to commit ten percent of their
capitalization grants awarded for fiscal years 1990 and 1991, and ten percent of their State
match associated with those grants, to provide assistance authorized under Title VI for
identifying, developing, and implementing alternatives to ocean dumping of sewage sludge.
Summary
Sludge use and disposal, new toxics requirements, separate storm water sewers, NPS
pollution control, and ground-water, estuary, and wetlands protection activities all could add
substantially to SRF-eligible activities. With the exception of the estimated $408 million for
compliance with proposed sludge use and disposal regulations, comprehensive estimates of the
financing needs for these new eligibilities and requirements are not available. It is anticipated
that costs associated with new funding eligibilities and new requirements will substantially exceed
the Category I through V needs estimated in the 1988 Needs Survey.
B-5
-------
APPENDIX C
ESTIMATED ANNUAL FUNDING FOR SRFS AND OTHER
STATE PROGRAMS BY STATE
-------
TABLE C-l
Estimated Annual Funding for SRFs and Other State Programs by State
($ Millions)
Funding Source
Connecticut
SRF Cap Grant
State Match
Overmatch
Leveraged Funds
Loan Repayments
SRF Sub-total
SRF Debt Service Reserve
SRF Available
State Grant Program(s)
Other State Sources
TOTAL
Georgia
SRF Cap Grant
a State Match
Overmatch
Leveraged Funds
Loan Repayments
Actual
1988 1989
28.1 22.3
5.6 4.4
52.8 23.2
0 0
86.5 49.9
0 0
86.5 49.9
21.6 12.4
108.1 62.3
28 0 30.6
(56) (6.1)
0 0.2
SRF Sub-total: 28.0 30.8
SRF Debt Service Reserve
SRF Available
State Grant Prograra(s)
Other State Sources
TOTAL
Minnesota
SRF Cap Grant
State Match
Overmatch
Leveraged Funds
b Loan Repayments
SRF Sub-total
SRF Debt Service Reserve
SRF Available
State Grant Program(s)
Other State Source*
TOTAL
0 0
28.0 30.8
6.0 6.0
20.0 20.0
54.0 56.8
0 17.3
0 3.4
46.0
0 66.7
0 -17.3
0 49.4
23.0 24.0
6.8 9.8
29.8 83.2
Projected
1990
23.3
4.6
70.8
0
98.7
0
98.7
24.6
123.3
39.0
(7.8)
2.0
41.0
0
41.0
6.0
20.0
67.0
22.0
4.4
48.0
74.4
-22
52.4
9.0
6.8
68.2
1991
29.9
6.0
35.2
5.2
76.3
0
76.3
18.8
95.1
40.6
(8.1)
3.9
44.5
0
44.5
6.0
20.0
70.5
44.0
8.8
48.0
100.8
-44
56.8
21.7
6.8
85.3
1992
22.3
4.4
37.6
8.2
72.5
0
72.5
18.0
90.5
30.7
(6.1)
5.2
35.9
0
35.9
6.0
20.0
61.9
33.0
6.6
48.0
87.6
-33
54.6
20.2
6.8
81.6
1993
14.9
3.0
38.0
14.2
70.1
0
70.1
19.0
89.1
20.3
(4-1)
7.9
28.2
0
28.2
6.0
20.0
54.2
22.0
4.4
48.0
74.4
-22
52.4
18.6
6.8
77.8
1994
7.4
1.5
41.3
18.7
68.9
0
68.9
17.2
86.1
10.1
(2.0)
10.1
20.2
0
20.2
6.0
20.0
46.2
11.0
2.2
48.0
61.2
-11
50.2
17.0
6.8
74.0
1995
43.4
23.0
66.4
0
66.4
16.6
83.0
11.8
11.8
0
11.8
6.0
20.0
37.8
48.0
48.0
0
48
15.5
6.8
70.3
1996
42.6
27.4
70.0
0
70.0
17.4
87.4
12.9
12.9
0
12.9
6.0
20.0
38.9
48.0
48.0
0
48
16.3
64.3
1997
41.9
30.9
72.8
0
72.8
18.1
90.9
13.6
13.6
0
13.6
6.0
20.0
39.6
48.0
48.0
0
48
17.1
65.1
1998
41.0
34.9
75.9
0
75.9
19.0
94.9
14.3
14.3
0
14.3
6.0
20.0
40.3
48.0
48.0
0
48
18.0
66.0
1999
40.4
38.5
78.9
0
78.9
19.6
98.5
14.9
!4.9
0
14.9
6.0
20.0
40.9
48.0
48.0
0
48
18.9
66.9
Note: Numbers in parentheses indicate monies not considered available for wastewater project funding and are not
included in the State totals. The table projects SRF capitalization grant funding at authorized levels.
a Georgia's State match comes from non-SRF State loans that are designated for repayment into the SRF.
The repayments on Georgia's State match loans are included with the State's SRF loan repayments.
b Minnesota's loan repayments are used to repay State bond issues.
C-l
-------
TABLE C-l continued
Estimated Annual Funding for SRFs and Other State Programs by State
($ Millions)
Funding Source
New Jersey
SRF Cap Grant
State Match
Overmatch
Leveraged Funds
Loan Repayments
SRF Sub-total
SRF Debt Service Reserve
SRF Available
State Grant Program(s)
Other State Sources
TOTAL
>Iew Mexico
SRF Cap Grant
State Match
Overmatch
Leveraged Funds
Loan Repayments
SRF Sub-total
SRF Debt Service Reserve
SRF Available
State Grant Program(s)
Other State Sources
TOTAL
South Dakota
SRF Cap Grant ~
State Match
Overmatch
Leveraged Funds
c Loan Repayments
SRF Sub-total
SRF Debt Service Reserve
SRF Available
d State Grant Program(s)
e Other State Sources
TOTAL
Actual
988
70.3
14.1
67.0
0
151.4
-14.1
137.3
0
56.6
193.9
5.8
1 1
1.7
0
8.6
0
8.6
4.2
0.2
13.0
0
0
0
0
0
0
0.4
0
0.4
1989
65.1
13.0
69.8
0.2
148.1
-6.5
141.6
19.6
44.4
205.6
8.6
1.8
0
0
10.4
0
10.4
3.5
0
13.9
4.7
0.9
0
5.6
0
5.6
0.6
(1.2)
6.2
990
84.8
17.7
94.3
0.7
197.5
-8.9
188.6
188.6
8.6
1.1
0
0.1
9.8
0
9.8
1.0
0
10.8
5.9
1.2
0
7.1
0
7.1
7.1
1991
93.1
19.4
104.9
2.1
219.5
-9.7
209.8
209.8
8.6
1.7
0.9
0.6
11.8
0
11.8
1.0
0
12.8
11.8
2.4
0.4
14.6
0
14.6
14.6
1992
71.0
14.8
84.0
5.6
175.4
-7.4
168.0
168.0
8.6
1.7
0.3
1.0
11.6
0
11.6
0.5
0
12.1
9.0
1.8
0.8
11.6
0
11.6
11.6
1993
46.1
9.6
61.0
10.1
126.8
4.8
122.0
122.0
6.0
1.7
0.8
2.3
10.8
0
10.8
0.5
0
11.3
5.9
1.2
1.6
8.7
0
8.7
8.7
Projected
f994 1995 1996
23.0
4.8
40.6 20.2 24.2
15.2 20.2 24.2
83.6 40.4 48.4
-2.4 0 0
81.2 40.4 48.4
81.2 40.4 48.4
3.0
0.6
1.4
3.1 3.9 4.5
8.1 3.9 4.5
000
8.1 3.9 4.5
0.5 0.5 0.5
0.3 0.5 0.5
8.9 4.9 5.5
3.0
0.6
2.2 2.6 3.7
5.8 2.6 3.7
000
5.8 2.6 3.7
5.8 2.6 3.7
1997 1998 1999
26.7 27.9 28.1
26.7 27.9 28.1
53.4 55.8 56.2
000
53.4 55.8 56.2
53.4 55.8 56.2
5.0 6.0 8.0
5.0 6.0 8.0
000
5.0 6.0 8.0
0.5 0.5 0.5
0.5 0.5 0.5
6.0 7.0 9.0
5.0 5.0 5.1
5.0 5.0 5.1
000
5.0 5.0 5.1
5.0 5.0 5.1
Note: Numbers in parentheses indicate monies not considered available for wastewater project funding and are not
included in the State totals. The table projects SRF capitalization grant funding at authorized levels.
c The interest portion of South Dakota's loan repayments goes to pay off State Match bonds and is therefore not
included here as it is not available to the SRF.
d The amount of State grant funds available in South Dakota for 1990 to 1999 is unknown.
e The $ 1.2 million included under 1989 "Other State Sources* represents a State appropriation used to guarantee
State match bonds - when no longer necessary this will be deposited into South Dakota's SRF.
C-2
-------
TABLE C-l continued
Estimated Annual Funding for SRFs and Other State Programs by State
($ Millions)
Funding Source
Tennessee
SRF Cap Grant
State Match
Overmatch
Leveraged Funds
Loan Repayments
SRF Sub-total
SRF Debt Service Reserve
SRF Available
State Grant Program(s)
Other State Sources
TOTAL
Texas
SRF Cap Grant
State Match
Overmatch
Leveraged Funds
f Loan Repayments
SRF Sub-total
SRF Debt Service Reserve
SRF Available
State Grant Program(s)
Other State Sources
TOTAL
Virginia
SRF Cap Grant ~*
State Match
Overmatch
Leveraged Funds
Loan Repayments
SRF Sub-total
SRF Debt Service Reserve
SRF Available
State Grant Program(s)
Other State Sources
TOTAL
Actual
1988
24.8
5.0
0.3
30.1
0
30.1
8.1
69.3
107.5
105.2
21.0
0
0
126.2
0
126.2
32.7
158.9
39.9
8.0
1.9
0
49.8
0
49.8
0.4
77.6
127.8
1989
15.2
2.7
17.9
0
17.9
7.9
9.6
35.4
82.7
16.6
66.1
0.8
166.2
0
166.2
0
166.2
30.7
6.1
-
0.2
37.0
0
37.0
0.2
33.2
70.4
Projected
1990
15.6
3.1
0.7
19.4
0
19.4
8.6
6.5
34.5
106.0
21.2
4.7
131.9
0
131.9
0
131.9
27.0
6.0
20.0
1.8
54.8
0
54.8
0.2
80.0
135.0
1991
34.5
6.9
2.0
43.3
0
43.3
8.2
6.5
58.0
109.8
22.0
11.5
143.3
0
143.3
25.0
168.3
48.1
10.0
-
5.0
63.1
0
63.1
0.2
63.3
1992
25.8
5.2
3.2
34.2
0
34.2
4.5
6.5
45.1
82.4
16.5
24.8
123.7
0
123.7
25.0
148.7
36.1
7.2
2.8
6.6
52.7
0
52.7
0.2
52.9
1993
17.2
3.5
5.8
26.4
0
26.4
6.2
6.5
39.1
54.9
11.0
34.1
100.0
0
100.0
25.0
125.0
24.0
8.8
32.8
0
32.8
32.8
1994 1995 1996 1997
8.6
1.7
3.8 11.3 13.3 14.9
19.1 11.3 13.3 14.9
0000
19.1 11.3 13.3 14.9
7.9 9.6
6.5 6.5 6.5 6.5
33.5 27.4 19.8 21.4
27.4
5.5
41.6 47.0 50.2 52.5
74.5 47.0 50.2 52.5
0000
74.5 47.0 50.2 52.5
25.0 6.0
99.5 53.0 50.2 52.5
12.0
13.3 16.8 19.4 22.5
25.3 16.8 19.4 22.5
0000
25.3 16.8 19.4 22.5
25.3 16.8 19.4 22.5
1998 1999
15.8 16.9
15.8 16.9
0 0
15.8 16.9
6.5 6.5
22.3 23.4
54.9 57.4
54.9 57.4
0 0
54.9 57.4
54.9 57.4
23.0 23.7
23.0 23.7
0 0
23.0 23.7
23.0 23.7
Note: The table projects SRF capitalization grant funding at authorized levels.
f Only the portion of Texas' loan repayments which are available to the SRF are shown here. The interest portion of
Texas' loan repayments go to pay off State Match bonds and some repayment funds are used to pay off overmatch
or leveraged bonds; these portions are not included here as they are not available to the SRF.
C-3
-------
APPENDIX D
TOTAL ANNUAL CONTRIBUTIONS OF FEDERAL AND STATE FUNDS
AVAILABLE BY STATE
-------
TABLE D-l
Total Annual Contributions of Federal and State Funds For Wastewater Projects
for Nine Study States
($ Millions)
Funding Source
Connecticut
CWA Title II and VI
! Other Federal
State
Total
Georgia
CWA Tide II and VI
Other Federal
State
i Total
] Minnesota
CWA Title 11 and VI
' Other Federal
State**
i Total
i New Jersey
i CWA Title II and VI
Other Federal
State"
Total
New Mexico
CWA Tide II and VI
j Other Federal
State
Total
| South Dakota
| CWA Tide 11 and VI
! Other Federal
! State**
Total
Tennessee
CWA Tide II and-VI
Other Federal
State
Total
Texas
CWA Title II and VI
Other Federal
State
Total
Virginia
CWA Title II and VI
Other Federal
State
Total
Actual
1988 1989
28.1 22.3
0 0
80.0 40.0
108.1 62.3
36.5 30.6
26.9 24.8
26.0 26.2
894 81.6
42.2 17.2
8.6 9.1
29.8 83.2
Projected
1990
23.3
0
100.0
123.3
39.0
25.0
28.0
92.0
22.3
10.9
68.2
80.6 109.4 1 101.4
87.9 74.0
NA* NA
123.6 140.5
211.5 214.5
10.8 8.6
1.0 1.0
7.2 5.3
19.0 14.9
11.3 9.3
0.8 0.5
0.4 1.5
12.5 11.3
38.4 23.5
17.6 17.6
82.7 20.2
138.7 61.3
165.3 96.0
23.1 23.1
53.7 83.5
242. 1 202.6
48.3 42.4
14.7 12.0
87.9 39.7
150.9 94.1
93.4
NA
103.9
197.3
8.6
1.5
2.2
12.3
7.9
0.9
1.2
10.0
19.0
4.6
18.9
42.5
106.0
23.1
25.9
155.0
27.0
12.5
108.0
147.5
1991
29.9
0
65.2
95.1
40.6
25.0
29.9
95.5
+*
4.6
85.3
89.9
93.1
NA
116.7
209.8
8.6
1.0
4.2
13.8
11.8
0.9
2.8
15.5
34.5
4.6
23.6
62.6
109.8
23.1
58.5
191.4
48.1
12.5
15.2
75.8
1992
22.3
0
68.2
90.5
30.7
25.0
31.2
86.9
* +
4.6
81.6
86.2
71.0
NA
97.0
168.0
8.6
1.0
3.5
13.1
9.0
0.9
2.6
12.5
25.8
4.6
19.3
49.7
82.4
23.1
66.3
171.8
36.1
12.5
16.8
65.4
1993
14.9
0
74.2
89.1
20.3
25.0
33.9
79.2
**
4.6
77.8
82.4
46.1
NA
75.9
122.0
6.0
1.0
5.3
12.3
5.9
0.9
2.8
9.6
17.2
4.6
21.9
43.7
54.9
23.1
70.1
148.1
24.0
12.5
8.8
45.3
1994
7.4
0
78.7
86.1
10.1
25.0
36.1
71.2
**
4.6
74.0
78.6
23.0
NA
58.2
81.2
3.0
1.0
5.9
9.9
3.0
0.9
2.8
6.7
8.6
4.6
24.9
38.1
27.4
23.1
72.1
122.6
12.0
12.5
13.3
37.8
1995
0
83.0
83
25.0
37.8
62.8
4.6
70 3
74.9
NA
40.4
40.4
1.0
4.9
5.9
0.5
2.6
3.1
46
27.4
32.0
23.1
53.0
76.1
NA
16.8
16.8
1996
0
87.4
87.4
25.0
38.9
63.9
4.6
64.3
68.9
NA
48.4
48.4
1.0
5.5
6.5
0.5
3.7
4.2
4.6
19.8
24.4
23.1
50.2
73.3
NA
19.4
19.4
1997
0
90.9
90.9
25.0
39.6
64.6
4.6
65.1
69.7
NA
53.4
53.4
1.0
6.0
7 0
0.5
5.0
5.5
4.6
21.4
26.0
23.1
52.5
75.6
NA
22.5
22.5
1998
0
94.9
94.9
25.0
40.3
65.3
4.6
66.0
70.6
NA
55.8
55.8
1.0
7.0
8.0
0.5
5.0
5.5
4.6
22.3
26.9
23.1
54.9
78.0
NA
23.0
23.0
1999
0
98.5
98.5
25.0
40.9
65.9
4.6
66.9
71.5
NA
56.2
56.2
1.0
9.0
10.0
0.5
5.1
5.6
4.6
23.4
28.0
23.1
57.4
80.5
NA
23.7
23.7
Note: Table projects Federal Title II and VI funding at authorized levels.
* NA = Not Available
**Excludes funds considered not available for wastewater project funding, including debt service reserves and
monies used to repay State bonds.
D-l
-------
APPENDIX E
DISTRIBUTION OF AVAILABLE FUNDS BY
TYPES OF ASSISTANCE BY STATE
-------
TABLE E-l
Types of SRF Assistance in Connecticut
(SMillions)
TYPE OF ASSISTANCE
Loans (i.e., new loans)
(% of Total)
Purchase or Refinance
Existing Debt Obligation
(% of Total)
Guarantee or Purchase
Insurance for Local Debt
( % of Total)
Revenue or Security
for SRF Debt
(% of Total)
Loan Guarantees for
"Sub-State Revolving Funds"
(% of Total)
Administrative Expenses
(max. 4% of cap. grant)*
(% of Total)**
TOTAL
Funds Committed (millions of $)
Federal Fiscal Year(s)
1988
86.5
(99.1%)
0
0
0
0
0.8
(0.9%)
87.3
(100%)
1989
50.9
(98.3%)
0
0
0
0
0.9
(1.7%)
51.8
(100%)
1990
98.7
1991-1994
Aggregated
281.8
1995-1999
Aggregated
364.0
(98.9%) (99.7%) (100%)
0
0
0
0
0
0
0 1 0
1.1
(1.1%)
99.8
(100%)
0.8
(0.3%)
282.6
(100%)
0
0
0
0
0
364.0
(100%)
*The CWA restricts the amount of SRF money that may be used for administrative expenses to 4% of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is limited
to 4% of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
** Note that this number is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
E-l
-------
TABLE E-2
Types of SRF Assistance in Georgia
(SMillions)
TYPE OF ASSISTANCE
Loans (i.e., new loans)
(% of Total)
I
Purchase or Refinance
Existing Debt Obligation
(% of Total)
Guarantee or Purchase
Insurance for Local Debt
( % of Total)
Revenue or Security
for SRF Debt
(% of Total)
Loan Guarantees for
"Sub-State Revolving Funds"
(% of Total)
Administrative Expenses
(max. 4% of cap. grant)*
(% of Total)**
TOTAL
Funds Committed (millions of $)
Federal Fiscal Year(s)
1988
26.0
(95.9%)
0
0
0
0
1.1
(4.1%)
27.1
(100%)
1989
29.0
(96.0%)
0
0
0
0
1.2
(4.0%)
30.2
(100%)
1990
32.8
(83.5%)
5.0
(12.7%)
0
0
0
1.5
(3.8%)
39.3
(100%)
1991-1994
Aggregated
68.7
(65.0%)
33.0
(31.2%)
0
0
0
4.0
(3.8%)
105.7
(100%)
1995-1999
Aggregated
67.5
(100%)
0
0
0
0
0
67.5
(100%)
*The CWA restricts the amount of SRP money that may be used for administrative expenses to 4% of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is limited
to 4% of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
** Note that this number is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
E-2
-------
TABLE E-3
Types of SRF Assistance in Minnesota
(SMillions)
TYPE OF ASSISTANCE
Loans (i.e., new loans)
( % of Total)
Purchase or Refinance
Existing Debt Obligation
( % of Total)
Guarantee or Purchase
Insurance for Local Debt
(% of Total)
Revenue or Security
for SRF Debt*
(% of Total)
Loan Guarantees for
"Sub-State Revolving Funds"
(% of Total)
Administrative Expenses
(max. 4% of cap. grant)**
(% of Total)***
TOTAL
Funds Committed (millions of $)
Federal Fiscal Year(s)
1988
0
0
0
0
0
0
0
1989
47.0
(83.4%)
1.8
(3.1%)
0
6.9
(12.2%)
0
0.7
(1.2%)
56.4
(100%)
1990
48.0
(81.8%)
2.0
(3.4%)
0
8.0
(13.6%)
0
0.7
(1.2%)
58.7
(100%)
1991-1994
Aggregated
192.0
(81.6%)
8.0
(3.4%)
0
32.0
(13.6%)
0
3.3
(1.4%)
235.3
(100%)
1995-1999
Aggregated
240.0
(82.8%)
10.0
(3.4%)
0
40.0
(13.8%)
0
0
290.0
(100%)
*!n addition to the Debt Service Reserve Fund, loan repayments are also pledged to bond holders as a moral
obligation of the State.
**The CWA restricts the amount of SRF money that may be used for administrative expenses to 4% of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is limited
to 4% of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
***Note that this number is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
E-3
-------
TABLE E-4
Types of SRF Assistance in New Jersey
(SMillions)
TYPE OF ASSISTANCE
Loans (i.e., new loans)
(% of Total)
Purchase or Refinance
Existing Debt Obligation
(% of Total)
Guarantee or Purchase
Insurance for Local Debt
(% of Total)
Revenue or Security
for SRF Debt
(% of Total)
Loan Guarantees for
"Sub-State Revolving Funds"
( % of Total)
Administrative Expenses
(max. 4% of cap. grant)*
(% of Total)**
TOTAL
Funds Committed (millions of $)
Federal Fiscal Year(s)
1988
134.0
(88.9%)
0
0
14.1-
(9.4%)
0
2.7
(1.8%)
150.8
(100%)
1989
139.6
(93.9%)
0
0
6.5
(4.4%)
0
2.6
(1.7%)
148.7
(100%)
1990
188.6
(93.8%)
0
0
8.9
(4.4%)
0
3.5
(1.7%)
201.0
(100%)
1991-1994
Aggregated
581.0
(94.1%)
0
0
24.3
(3.9%)
0
12.1
(2.0%)
617.4
(100%)
1995-1999
Aggregated
254.2
(100%)
0
0
0
0
0
254.2
(100%)
*The CWA restricts the amount of SRF money that may be Used for administrative expenses to 4% of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is limited
to 4 % of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
** Note that this number is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
E-4
-------
TABLE E-5
Types of SRF Assistance in New Mexico
(SMillions)
TYPE OF ASSISTANCE
Loans (i.e., new loans)
(% of Total)
Purchase or Refinance
Existing Debt Obligation
( % of Total)
Guarantee or Purchase
Insurance for Local Debt
( % of Total)
Revenue or Security
for SRF Debt
(% of Total)
Loan Guarantees for
"Sub-State Revolving Funds"
(% of Total)
Administrative Expenses
(max. 4% of cap. grant)*
(% of Total)***
TOTAL
i
Funds Committed (millions of $)
Federal Fiscal Year(s)
1988
2.8
(100%)
0
0
0
0
0
2.8
(100%)
1989
16.0
(100%)
0
0
0
0
0
16.0
(100%)
1990
9.3
(95.9%)
0
0
0
0
0.4
(4.1%)
9.7
(100%)
1991-1994
Aggregated
33.8
(97.1%)
0
0
0
0
1.0
(2.9%)
34.8
(100%)
1995-1999
Aggregated
27.4
(95.8%)
0
0
0
0
1.2**
(4.2%)
28.6
(100%)
*The CWA restricts the amount of SRF money that may be used for administrative expenses to 4% of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is limited
to 4% 'of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
**New Mexico anticipates that it may bank a portion of its 4% of cap. grant administrative allowance for use after 1995.
***Note that this number is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
E-5
-------
TABLE E-6
Types of SRF Assistance in South Dakota
(SMillions)
TYPE OF ASSISTANCE
Loans (i.e., new loans)
(% of Total)
, Purchase or Refinance
Existing Debt Obligation
| ( % of Total)
Guarantee or Purchase
; Insurance for Local Debt
[ ( % of Total)
i
I Revenue cr Security
1 for SRF Debt
! ( % of Total)
i
i Loan Guarantees for
; "Sub-State Revolving Funds"
(% of Total)
i
i Administrative Expenses
1 (max. 4% of cap. grant)*
(% of Total)**
TOTAL
Funds Committed (millions of $)
Federal Fiscal Year(s)
1988
0
0
0
0
0
0
0
1989
5.7
(96.9%)
0
0
0
0
0.2
(3.1%)
5.9
(100%)
1990
7.1
(97.5%)
0
0
0
0
0.2
(2.5%)
7.3
(100%)
1991-1994
Aggregated
39.6
(94.8%)
1.0
(2.4%)
0
0
0
1.2
(2.8%)
41.8
(100%)
1995-1999
Aggregated
22.7
(100%)
0
0
0
0
0
22.7
(100%)
The CWA restricts the amount of SRF money that may be used for administrative expenses to 4% of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is limited
to 4 % of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
** Note that this number is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
E-6
-------
TABLE E-7
Types of SRF Assistance in Tennessee
(SMillions)
! TYPE OF ASSISTANCE
Loans (i.e., new loans)
( % of Total)
Purchase or Refinance**
Funds Committed (millions of $)
Federal Fiscal Year(s)
1988
19.1
(96.7%)
Existing Debt Obligation j
(% of Total)
Guarantee or Purchase
Insurance for Local Debt
| ( % of Total)
I
Revenue or Security
; for SRF Debt
( % of Total)
Loan Guarantees for
"Sub-State Revolving Funds"
i ( % of Total)
Administrative Expenses
(max. 4% of cap. grant)***
| (% of Total)****
! TOTAL
i
NA
NA
NA
NA
0.7
(3.3%)
19.8
(100%)
1989
15.9
(96.7%)
NA
NA
NA
NA
0.5
(3.3%)
16.4
(100%)
1990
18.1
(96.7%)
NA
NA
NA
NA
0.6
(3.3%)
18.7
(100%)
1991-1994
Aggregated
99.9
(96.7%)
NA
NA
NA
NA
3.4
(3.3%)
103.3
(100%)
1995-1999
Aggregated
95.0*
(100%)
NA
NA
NA
NA
0
95.0**
(100%)
*Does not include loans from non-SRF State loan program.
** Refinancing may be done under Tennessee's SRF law.
***The CWA restricts the amount of SRF money that may be used for administrative expenses to 4% of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is limited
to 4% of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
****Note that this number is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
E-7
-------
TABLE E-8
Types of SRF Assistance in Texas
(SMillions)
TYPE OF ASSISTANCE
Loans (i.e., new loans)
( 7c of Total)
Purchase or Refinance
Existing Debt Obligation
( crc of Total) j
Guarantee or Purchase
Insurance for Local Debt
(% of Total)
Revenue or Security
for SRF Debt
(% of Total)
Loan Guarantees for
"Sub-State Revolving Funds"
( % of Total)
Administrative Expenses
(max. 4% of cap. grant)*
(% of Total)**
TOTAL
Funds Committed (millions of $)
Federal Fiscal Year(s)
1988
96.3
(76.3%)
25.7
(20.4%)
0
0
0
4.2
(3.3%)
126.2
(100%)
1989
162.0
(97.9%)
0
0
0
0
3.4
(2.1%)
165.4
(100%)
1990
123.0
(96.7%)
0
0
0
0
4.2
(3.3%)
127.2
(100%)
1991-1994
Aggregated
318.5
(96.7%)
0
0
0
0
11.0
(3.3%)
329.5
(100%)
1995-1999
Aggregated
303.5
(100%)
0
0
0
0
0
303.5
(100%)
*The CWA restricts the amount of SRF money that may be used for administrative expenses to 4 % of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is limited
to 4% of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
** Note that this number is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
E-8
-------
TABLE E-9
Types of SRF Assistance in Virginia
(SMillions)
TYPE OF ASSISTANCE
Loans (i.e., new loans)
( % of Total)
Purchase or Refinance
Existing Debt Obligation
(% of Total)
Guarantee or Purchase
Insurance for Local Debt
(% of Total)
Revenue or Security
for SRF Debt
( % of Total)
Loan Guarantees for
"Sub-State Revolving Funds"
(% of Total)
Administrative Expenses
(max. 4% of cap. grant)*
(% of Total)**
TOTAL
Funds Committed (millions of $)
Federal Fiscal Year(s)
1988
34.9
(13.4%)
12.2
(25.6%)
0
0
0
0.5
(1.0%)
47.6
(100%)
1989
34.9
(93.7%)
1.5
(4.0%)
0
0
0
0.8
(2.2%)
37.2
(100%)
1990
60.0
1991-1994
Aggregated
136.0
(98.7%) (97.1%)
0
0
0
0
0.8
(1.3%)
60.8
(100%)
0
0
0
0
4.0
(2.9%)
140.0
(100%)
1995-1999
Aggregated
0
0
0
0
0
0
0
"The CWA restricts the amount of SRF money that may be used for administrative expenses to 4 % of all capitalization
grant awards received by the fund. The amount of SRF money available each year for administrative expenses is limited
to 4% of all grant awards minus the amount of administrative expenses paid by the SRF in previous years.
** Note that this number is a percentage of total SRF funds available, not a percentage of capitalization grant awards.
E-9
-------
APPENDIX F
USER FEE CALCULATION MODEL
-------
APPENDIX F
USER FEE CALCULATION MODEL
Variable List and Description
Community size: This is a basic input whose value for each model run is set at either 1,000,
2,500, 10,000 or 100,000 by the user.
SRF interest rate: Another critical input that the user adjusts for each model run. The value
can vary between zero and the market rate. The base value is four percent, a "typical" value
for existing SRF programs.
Market interest rate: This variable changes with time and financial market conditions. Also,
different States define market rate differently in their Capitalization Grant Applications. The
base value used in the analysis, eight percent, is the value that best reflects recent costs of
borrowing capital in the municipal bond market.
Persons/Household: This is an integral part of the analysis since we are attempting to assess
impacts on households in a community, not on individuals. The number included here, 2.64, is
the national average value released by the Bureau of the Census in the Spring of 1989. It is
the best information available.
Gallons/Person*Day: Analyses of this type usually assume a value of about 100. The value
varies somewhat depending on geographical location (rural versus urban), age and condition of
the system (which affects losses because of leaks), and, most importantly, community population.
This analysis assumes a value 90 for communities sizes 0-1,000; 100 for 1,000-5,000; and 110 for
5,001+.
Loan period: This is the maximum loan period allowed under SRF regulations. Most States
have indicated they intend to make 20-year loans, so this analysis assumes a base loan duration
of 20 years.
Cost eligible SRF(%^: This is the percentage of total capital costs eligible for loans under the
SRF program. Since this analysis ignores land costs, typically the largest ineligible cost, and
since the flexibility of the SRF program allows expanded eligibility, the analysis assumes all costs
(100 percent) are SRF-eligible.
Cost eligible CG (%): This is the percentage of total capital costs eligible for grants under the
Construction Grant program. EPA staff familiar with the Construction Grants program
recommended a base value of 90 percent.
State grant (%): The State grant is the percentage of total capital costs funded through a
State construction grant program. It is independent of any Federal financial assistance. The
base value is zero for the SRF program and 15 percent for the Construction Grants program.
F-l
-------
Flow rate (mgd'>: In millions of gallons per day, it equals the number of persons in the
community multiplied by the daily water usage per person.
Capital cost; Derived according to updated EPA construction cost curves. The original cost
curve comes from EPA's Construction Costs for Municipal Wastewater Treatment Plants: 1973-
78. The curve in this document was updated according to EPA's inflation index for
construction of wastewater treatment plants. The costs in EPA's report were January, 1979
dollars. These were assumed to be the same as March, 1979 dollars (the EPA inflation index is
keyed to March each year). A factor of 1.602 was used to bring March, 1979 dollars up to
March, 1989 dollars.
Eligible: The total capital cost multiplied by the percent eligible under SRF.
Ineligible: The total capital cost less the eligible costs. This is the amount of funds the
community must raise from the State or from other sources outside the SRF.
O&M cost: Derived from composite data provided by EPA Region III staff who had done a
rate study of 161 wastewater treatment plants built under the Construction Grants program.
The curve was assumed to flatten out at either end, beyond the range of the composite data.
The cost curve derived from the data was inflated using the GNP deflator from the Economic
Report of the President. The shape of the curve was compared with that of an O&M cost
curve developed by EPA in 1981 to confirm that the economies of scale implied by the model's
O&M cost curve are reasonable. Also to ensure reasonableness, the values derived from the
model's cost curve were compared with unit, average values calculated in studies undertaken by
California and Pennsylvania. A comprehensive national study of user charges and O&M costs is
now underway at EPA; the results of this study will provide an updated source for O&M costs.
Number of hookups: The number of households served by the wastewater treatment plant. It
is equal to the community population divided by the number of persons per household.
F-2
-------
MODEL OUTPUT ILLUSTRATING THE EFFECTS OF
CERTAIN VARIABLES ON USER FEES
-------
USER CHARGE CALCULATION MODEL'
INPUT SECTION
I. USER SUPPLIED INPUTS
Community Size: 1,000
SRF Interest Rate: 4.0
Market Intrst Rate: 8.0
Persons/Household: 2.64
Gallons/Person'Day: 90
Loan Period:
Cost Eligible SRF(%):
Cost Eligible CG(yo):
State Grant/SRF (%):
State Grant/CG (%):
20
100
90
0
15
I. MODEL CALCULATED INPUTS
Flow Rate (mgd):
Number of Hookups:
Capital Cost:
Eligible:
Ineligible:
Annual O & M Cost:
0.090
379
$752,427
$752,427
$0
$77,427
OUTPUT SECTION'
I. CAPITAL COST RNANCING
No grant or loan:
With SRF Loan:
With 55% CG:
With SRF Loan
and State Grant:
With 55% CG
and State Grant:
II. 0 & M COST FINANCING
Cost of financing
capital portion
per household
$202
$146
$102
$146
$75
Cost of financing
O & M portion
per household:
Savings realized
using program
option
N/A
28%
50%
28%
63%
$204
F-3
-------
I. TOTAL ANNUAL COST FINANCING
Total annual cost
of financing
per household
No grant or loan:
With SRF Loan:
Savings realized
using program
option
$407
$351
N/A
14%
With 55% CG:
With SRF Loan
and State Grant:
$307
$351
25%
14%
With 55% CG
and State Grant:
$279
31%
A Construction Grant mat equaled 31 % of eligible costs would
provide savings equivalent to those provided by the SRF loan (this
does not include the effects of any state grant)
A Construction Grant that equaled 31 % of eligible costs would
provide savings equivalent to those provided by the SRF loan (this
does include the effects of any state grant)
A Construction Grant, after including the effects of a Construction
Grant State Grant, that equaled 16% of eligible costs would
provide savings equivalent to those provided by the SRF loan (this
does not include the effects of any SRF state grant)
A Construction Grant, after including the effects of a Construction
Grant State Grant, that equaled 16% of eligible costs would
provide savings equivalent to those provided by the SRF loan (this
does include the effects of any SRF state grant)
F-4
-------
CONTENTS OF USER CHARGE MODEL CELL BY CELL
-------
The user charge model runs on Lotus 123 software
A1: [V191
A2: CW19]
AS: OI19J
A7: CW191
A9: [W191
'USER CHARGE CALCULATION MODEL*
*******INPUT SECTION*"1*
I. USER SUPPLIED INPUTS
Community Size:
89: (.0) [W15] 1000
D9: [W21] 'Loan Period:
E9: 20
A10: CW193 'SRF Interest Rate:
810: 5,0.68-(0.0018*C18),1.189*C18A-0.342))*365000*B18
023: (H) [W21] 3IF(D22>0,022,0)
825: (CO) [W151 '
A26: W19] '*******OUTPUT SECTION**********
A28: CU19] 'I. CAPITAL COST FINANCING
830: [W15] 'Cost of financing
D30: CW21] ' Savings realized
B31: CW15] 'capital portion
031: [W21] ' using program
832: CW15] 'per household
032: CW211 ' option
A34: [U19] ' No grant or loan:
834: (CO) CU15] (3PMT(820,B11/100,E9)/B9)*B12
034: [W21] "N/A
A36: CU19] ' With SRF Loan:
B36: (CO) CW151 ((aPMT(B22.B11/100,E9)+aPMT(B21,810/100,E9))/B9)*B12
036: (PO) [W21] (B34-B36)/B34
A38: CU19] ' Ufth 55X CC:
B38: (CO) [U15] (aPMT(B20*E15,B11/100,E9)/B9)*B12
038: (PO) [U211 (B34-B38)/B3A
A40: [U19] ' With SRF Loan
A41: [U19] ' and State Grant:
B41: (CO) [W151 ((aPKT(D23,B11/100,E9)+aPMT(D21,B10/100,E9))/B9)*B12
041: (PO) CW211 (+B34-B4D/B34
A43: [U19] ' With 55X CC
A44: [U19] ' and State Crant:
844: (CO) [U15] (aPMT(B20*E16,B11/100,E9)/B9)*B12
044: (PO) [W21J (+B34-B44)/B34
A46: [W19] MI. 0 & H COST FINANCING
848: CW15] 'Cost of financing
B49: CU15] '0 & M portion
B50: CU15J 'per household:
CSO: (CO) (B23/B9)*B12
A53: CU191 Mil. TOTAL ANNUAL COST FINANCING
B55: CU15] 'Total annual cost
055: [W21] ' Savings realized
B56: [U15] 'of financing f-5
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357: [W15] 'per household
057: [W21] ' option
A59: CW19] ' No grant or loan:
B59: (CO) [U153 +B34+C50
D59: [W21] "N/A
A61: CW191 ' With SRF Loan:
B61: (CO) W15] +C50+B36
061: (PO) [W21] (B59-B6D/B59
A63: W19: ' With 55X CG:
363: (CO) W15] +B38+C50
063: (PO) [W21] (B59-B63)/B59
A65: W191 ' With SRF Loan
A66: [U19] ' and State Grant:
366: (CO) [U15] +S41+C50
066: (PO) CW21] (B59-B66)/B59
A68: [W197 ' With 55X CG
A69: [W19] ' and State Grant:
869: (CO) [U151 +B44+C50
D69: (PO) [U21] (B59-B69)/B59
A71: W19] 'A Construction Grant that equaled
C71: (PO) +036/(E11/100)
071: [W21J ' of eligible costs would
A72: W19] 'provide savings equivalent to those provided by the SRF loan (this
A73: [U19] 'does not include the effects of any state grant)
ATS: [V19) 'A Construction Grant that equaled
C75: (PO) +D41/(E11/100)
075: [U21] ' of eligible costs would
A76: [W19] 'provide savings equivalent to those provided by the SRF loan (this
A77: [U191 'does include the effects of any state grant)
A79: W19] 'A Construction Grant, after including the effects of a Construction
A80: [U19] 'Grant State Grant, that equaled
C80: (PO) (D36-(E13»E14)/100)/(E11/100)
080: [W21] ' of eligible costs would
A81: [U19] 'provide savings equivalent to those provided by the SRF loan (this
A82: [U19] 'does not include the effects of any SRF state grant)
ASA: [W19] 'A Construction Grant, after including the effects of a Construction
ASS: [U191 'Grant State Grant, that equaled
C85: (PO) (DA1-(E13*EH)/100)/(E11/100)
085: [U21] of eligible costs would
A86: [V19] 'provide savings equivalent to those provided by the SRF loan (this
A87: CW19] 'does include the effects of any SRF state grant)
F-6
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