United States
                  Environmental Protection
Off ice of Water
November 2000
                  The  Drinking Water State  Revolving  Fund
                  Protecting the  Public through  Drinking
                  Water Infrastructure Improvements
The Challenge

The Nation's 54,000 community water systems must
make significant investments to install, upgrade, or
replace infrastructure to continue to ensure the
provision of safe drinking water to their 254 million
customers. Installation of new treatment facilities can
improve the quality of drinking water to comply with
national primary drinking water standards and protect
public health.  Improvements are also needed to help
those water systems experiencing a threat of
contamination due to inadequate distribution and
transmission pipes.

The Drinking Water State Revolving Fund

Many public water systems find it difficult to obtain
affordable financing for infrastructure improvements
which would enable systems to comply with national
primary drinking water standards and protect public
health.  Recognizing this fact, Congress established
the Drinking Water State Revolving Fund (DWSRF)
as part of the 1996 Safe Drinking Water Act (SOWA)
Amendments. The goal of the program is to provide
States with a financing mechanism for ensuring safe
drinking water to the public.  States can use federal
capitalization grant money awarded to them to set up
an infrastructure funding account from which
assistance is made available to public water systems.
Loans made under the program can have interest
rates between 0 percent and market rate and
repayment terms of up to 20 years.  Loan repayments
to the State will provide a continuing source of
infrastructure financing into the next century. The
program also places an emphasis on small and
disadvantaged communities and on programs that
emphasize prevention as a tool for  ensuring safe
drinking water.

Available Funding

Congress provided $1.275 billion for the DWSRF
program in fiscal year 1997.  The amount of funding
each State was eligible to receive in 1997 was based
on a formula used to award State program grants
under the Public Water System Supervision program.
Congress has provided an additional $3.145 billion
        for the DWSRF program for fiscal years 1998 through
        2001, including $825 million for fiscal year 2001. The
        amount of funding each State is eligible to receive for
        fiscal years 1998 through 2001 is based on the total
        eligible need determined for each State by the
        Drinking Water Infrastructure Needs Survey which
        the Environmental Protection Agency (EPA) released
        in January 1997.

        Eligible Systems and Projects

        Both publicly and privately owned community water
        systems and nonprofit non-community water
        systems are eligible for funding under the DWSRF
        program. Eligible projects include installation and
        replacement of failing treatment facilities, eligible
        storage facilities and transmission and distribution
        systems. Projects to consolidate water supplies may
        also be eligible.

        Determining Funding Priority

        States develop a priority system for funding projects
        based on three criteria from the Act. States rank the
        projects and then offer loans to systems based on
        their ranking order. Priority is given to those eligible
        projects that:

           (1) address the most serious risk to human health;

           (2) are necessary to ensure compliance with the
           requirements of the Safe Drinking Water Act; and,

           (3) assist systems most in need, on a per
           household basis, according  to State-determined
           affordability criteria.

        Public Involvement

        Public involvement is an important element of both
        the DWSRF program and the SDWA Amendments.
        States must provide information about their program
        and the projects they intend to  fund in an Intended
        Use Plan that is made available to the public for
        review and comment prior to award of the
        capitalization grant from EPA to the State.

Small Communities

The needs facing small communities are considerable.
However, many public water systems serving these
small communities, particularly those with
populations fewer than 10,000, often find it difficult to
obtain favorable interest rates when applying for
loans to make infrastructure improvements.  The
SDWA Amendments target small communities for
special consideration by the DWSRF program.
States must provide a minimum of 15% of the
available funds for loans to small communities.

Disadvantaged Communities

For many communities, even the lower interest rate
loans available through the DWSRF may be too high
to make loans affordable. A State has the option of
providing up to 30% of the grant awarded to the
State to provide additional assistance to these State-
defined disadvantaged communities. This assistance
can take the form of lower interest rates, principal
forgiveness, or negative interest rate loans.  The
State may also extend repayment terms of loans for
disadvantaged communities to up to 30 years.

Preventing Future Threats to Drinking Water

While it is important to take care of the infrastructure
needs facing water systems now, Congress also
recognized that it is important to establish programs
which will prevent drinking water problems in the
future.  States have the flexibility to set aside a
portion of their capitalization grant to develop
programs that encourage a strong emphasis on
preventing contamination problems through source
water protection and encourage better system
operations through enhanced water systems

Set-Asides for Other Program Management

States have the flexibility to take set-asides for
several different activities that can help develop their
drinking water programs.  A State can use up to 10%
of its capitalization grant (with a 1:1 dollar State
match) to support its State drinking water program, or
to develop and implement capacity development,
source water protection, and operator certification
programs. Up to 2% of the grant may be set aside to
provide technical assistance to systems serving
communities with populations fewer than 10,000,  and
up to 4% of the capitalization grant may be set aside
for costs associated with administering the DWSRF
Up to 15% of the capitalization grant (limited to 10%
of the grant for any one activity) is available for local
assistance and other eligible activities as described in
the law. Activities are aimed at source water
protection (including loans for land acquisition and
conservation easements), capacity development and
wellhead protection.  States could also use part of the
fiscal year 1997 appropriation to fund required source
water delineation and assessment activities.

More Information

For more information about the Drinking Water State
Revolving Fund, consult the informational page for
the program on the EPA Office of Ground Water and
Drinking Water (OGWDW) Internet website at
Information about the DWSRF and other drinking
water issues is also available from the EPA Safe
Drinking Water Hotline at 1-800-426-4791 or via email
at hotline-SDWA@epa.gov.

To get the contact for the DWSRF Manager in a
specific State, consult the contact list on the
OGWDW website or contact the Association of State
Drinking Water Administrators at (202) 293-7655
(http ://www. asdwa. org).

The EPA DWSRF program is  administered by the
Infrastructure Branch, Office of Ground Water and
Drinking Water, U.S. Environmental Protection
Agency, 1200 Pennsylvania Avenue, NW (Mailcode
4606), Washington, DC 20460, Phone: (202) 260-5526