EE
United States
Environmental Protection
Agency
Office of Water
Washington, DC 20460
1982
The State Role
DRAFT
-------
References
Innovative State Financing
Peterson, John and Wesley Hough
Capital Financing for State and Local Governments
Municipal Finance Officers Association, Chicago, IL., 1983
"Financing Alternatives: Creative Solutions," WPCF Highlights, V. 19,
n. 5, May 1982
Jarrett, James E. and Jimmy E. Hicks, The Bond Bank
Innovative: Maine's Experience, Council of State Governments,
Lexington, KY., 1977
State Financial Management Resource Guide, Council of State Community
Affairs Agencies, Washington, D.C., 1980
Shubnell, Lawrence D. and William Cobb, "Creative Capital Financing: A
Primer for State and Local Governments," Resources in Review, Municipal
Finance Officers Association, May 1982
Innovative Financing for the Clean Water Program, Proceedings of
Conference held in Reston, Virginia, April 7-8, 1983, prepared by
Association _of. State and Interstate Water Pollution Control
Admi nistrati-ofi, Washington, D.C.
Goldman, Harvey and Sandra Mokuvos, "Privatization: Dividing the Pie
Between Public and Private," America City and County, January 1984,
p. 70-84
Vogt, A. John and Lisa Cole, A Guide to Municipal Leasing, Municipal
Finance Officers Association, Chicago, IL., 1983
Hough, Wesley, "Creative Capital Finance for Water Related
Infrastructure," Water Journal, Fall 1983
Goldman, Harvey, "Public/Private Partnership Meet Local Needs,"
Water/Engineering and Management, February 1983
Cole, Lisa and Hamilton Brown, "Municipal Leasing: Opportunities and
Precautions for Governments," Resources in Review, Municipal Finance
Officers Association, January 1982
Cerullo, Katherine, "Leverage Lease Financing for Sewage Disposal
Facilities: Advantages, Disadvantages and Alternatives," paper presented
at Water Pollution Control Federation Conference, Atlanta, GA.,
October 1983
-------
FINANCING WATER POLLUTION CONTROL:
THE STATE ROLE
U.S. Environmental Protection Agency
Water Planning Division
Washington, D.C.
August 1982
-------
This report was prepared by the staff of the Government
Finance Research Center. Catherine L. Spain, Beverly S. Bunch,
and Hamilton Brown shared the writing responsibility and re-
ceived research assistance from Jon A. Gerson and Wendy Sullivan.
The manuscript was prepared by Jill C. Wakefield. Robbi Savage,
Linda Eichmiller and the members of the Association of State
and Interstate Water Pollution Control Administrators aided the
Government Finance Research Center in the design of this project
and the collection of information.
Funding for this report was provided in part with a grant
from the U.S. Environmental Protection Agency's Financial Manage-
ment Assistance Program. The statements, conclusions, and/or
recommendations contained herein are those of the authors and
do not necessarily reflect the views of the U.S. Government,
the U.S. Environmental Protection Agency, or the Municipal
Finance Officers Association.
Additional copies of this report may be obtained from the
Government Finance Research Center, 1750 K Street, N.W., Suite
650, Washington, D.C. 20006. (202) 466-2494.
-------
TABLE OF CONTENTS
Paqe
INTRODUCTION 1
OVERVIEW OF WATER POLLUTION CONTROL FINANCING 5
The Federal Role in Water
Pollution Control Financing 6
State Roles in Financing
Water Pollution Control 8
STATE GRANT PROGRAMS 17
Types of Grant Programs 17
Selection Criteria for Grants 22
Funding of Grant Programs 23
STATE LOAN PROGRAMS 25
Types of Loan Programs 25
Selection Criteria for Loans 27
Funding of Loan Programs 27
Security on Loans 28
Interest Rates 28
OTHER STATE ASSISTANCE PROGRAMS 31
Debt Management 31
Training 32
Technical Assistance 33
Publications 33
Special Financial Assistance Programs 34
-------
Page
_ **
STATE ROLES AND THE NEW FEDERALISM 37
Recent Changes in Grant and
Loan Programs 39
Other State Activities 42
SUMMARY 45
LIST OF TABLES
TABLE 1 Total State Spending for Water Pollution
Control, FY 1976-1980 . 11
TABLE 2 Measures of State Effort (Based on Total
State Spending, FY 1976-1980) 13
TABLE 3 State Grant Programs for Wastewater
Treatment Projects 18
TABLE 4 State Loan Programs for Wastewater
Treatment Projects 26
-------
INTRODUCTION
Federal, state, and local governments act as partners in
providing a wide range of public services. The terras of the
partnership vary by program and from state to state, depending on
political and governmental traditions which are shaped by many
factors. In financing water pollution control projects, local
governments have turned first for financial assistance to the
federal government primarily through the U.S. Environmental Pro-
tection Agency's Municipal Construction Grants Program, but also
to the U.S. Department of Agriculture's and the U.S. Department
of Housing and Urban Development's grant and loan programs. In
the area with which this report is primarily concerned, municipal
wastewater treatment, the federal government has financed eligible
project costs for the planning, design, and construction of mu-
nicipal treatment facilities under the Construction Grants Program,
with the remainder paid by the grantees, local governments.
The federal government, through a series of Clean Water
Acts, has directed huge sums of grant money into water pollution
control projects at the state level. For the most part, the
primary role played by the states has been to assume various
administrative responsibilities for the federal program. Few
financia^ strings were attached to the states' participation.
The states could, if they elected, assist their communities in
raising the local share of project costs or provide funding
for projects not eligible for federal grants. This freedom has
led to a kaleidoscopic variety of state roles under the pol-
lution control program, with some states taking a strong, pro-
-1-
-------
active approach, some neglecting the area and others falling
somewhere in-between.
What little information is available on state roles is dated
and incomplete. Data reported to the U.S. Bureau of the Census
on state intergovernmental payments for sewerage indicate that
state roles in financing municipal wastewater treatment have been
significant, providing almost 12 percent of total capital expendi-
tures for that purpose.V While we can determine the approximate
level of grant payments to local governments for local capital
expenditures in this area, the details of program structure
such as eligibility criteria, grant formulas, and sources
of funding — have been completely lacking, and other aspects
of state involvement including loan and other assistance programs
are documented in lesser detail.
This report on state roles fills, in part, the gap in infor-
mation on state financial assistance for water pollution control
projects. It/describes state grant, loan, and other assistance
programs related to pollution control projects in general and
provides a more in-depth analysis of municipal wastewater treat-
ment financing. Also included are data on state water pollution
control spending during the five-year period 1976 to 1980 in the
two major categories of state assistance — grants and loans.^
With regard to wastewater treatment facilities, much of the infor-
mation reported makes the distinction between those projects
I/ See John E. Petersen, "Projecting Local Government Sewerage
Financing in 1990," Government Finance Research Center,
Washington, D.C., 1980.
-2-
-------
eligible for federal funding under the E.P.A. Construction Grants
Program and those that are not federally funded.
The information for this report was initially collected in
the summer of 1981 prior to the implementation of the first
Reagan Administration budget and the passage of the most recent
round of amendments to the Clean Water Act. Specific federal
program changes were unknown, but it was clear that federal fi-
nancial involvement in pollution control was waning. It was
shortly thereafter that major funding reductions and programmatic
changes were enacted in December 1981. A second survey was con-
ducted in May 1982 to learn how states were reacting to these
program changes enacted in late 1981, their own fiscal constraints
and the continuing uncertainties surrounding federal funding of
t
wastewater treatment projects.
In the following section, an overview of the federal program
and state financial involvement in water pollution control fi-
nancing will be presented. Following that, the types and varieties
of programs that currently exist will be identified. As ap-
propriate, specific features of individual states' programs will
be highlighted to illustrate interesting or novel approaches.
Finally, recent programmatic changes or proposals before the
states for revising (or perhaps initiating) a wastewater treat-
ment financing program will be reviewed.
As states begin a re-evaluation of their programs and levels
of funding, this survey should prove a valuable resource. Without
a comprehensive listing of assistance offered in other states,
state agencies have had few standards to measure past performance
and few examples to guide them in making future commitments.
-3-
-------
OVERVIEW OF WATER POLLUTION CONTROL FINANCING
Over the past ten years, EPA has distributed more than $30
billion to the states for municipal wastewater treatment grants.
The states, in turn, were responsible for establishing
o state water quality standards that met or exceeded
minimum federal requirements,
o a state priority list for local projects, and
o comprehensive state and regional water quality plans.
To complement the federal program, many states adopted
grant and loan programs on a voluntary basis to assist grantees
in meeting the local share of project costs. In some instances,
the states adopted programs targeting their financial as-
sistance to projects not eligible for federal funding and for
pollution control projects that answered specific state needs,
such as agricultural pollution control.
With few exceptions, state programs were aimed at point-
source pollution, i.e. pollution discharged from discernible,
confined and discrete conveyances such as pipes, tunnels and
ditches because federal funding was also directed to this area..!/
A short description of the federal program provides the back-
drop for a discussion of current state roles in financing water
pollution control.
I/ Only six of forty-nine states responding to the survey
reported grant assistance for nonpoint source mitigation
projects such as agricultural, construction, and urban
runoff control. These programs were found in Vermont,
North Dakota, South Dakota, California, Idaho and Washing-
ton; California was the sole state offering a loan program
in this area. Since the nonpoint programs are relatively
small, the data collected in connection with this survey
on total state spending for pollution control can be viewed
as funding primarily for municipal wastewater treatment
facilities. _5_
-------
The Federal Role in Water Pollution Control Financing
Federal participation in water pollution control at the
state and local level began in 1948 with federal funding to
states for pollution studies and planning of control programs.
In 1956, federal grants became available to jurisdictions
for construction of wastewater facilities. The amount of
funding and the size of the federal matching share grew steadily
over the next decade, with program authorizations reaching
$1.25 billion by 1971.
Amendments to the federal Water Pollution Control Act in
1972 greatly changed the federal grants program by requiring
universal secondary treatment by 1977 and "fishable-swimmable"
water quality standards by 1983. The federal government was
now authorized to bear 75 percent of wastewater treatment
facilities construction costs for eligible municipal projects.
The second series of amendments to the Act passed in 1977
reaffirmed the national commitment to clean up the nation's
waters by providing for substantial annual appropriations
between 1978 and 1982. By the end of fiscal year 1981, federal
outlays for sewerage treatment had risen steadily, although
somewhat slower than expected, reaching $33.2 billion.
The federal grant program is administered by the Environ-
mental Protection Agency. Grants for municipal sewerage treat-
ment are awarded in accordance with state priority systems,
which are based primarily on the severity of pollution. The
distribution of grant allotments among the states is largely
governed by the ratio of estimated construction costs in each
-6-
-------
state to the local costs of such facilities in all states.
Computation of the ratios is based upon a "Needs Survey",
which is revised every two years by EPA.
Construction grants are available only to units following
specific technological approaches; assistance is not available
for wastewater facilities operation and maintenance costs. Six
major project categories are potentially eligible for the 75
percent federal grant: wastewater treatment plants, projects
to correct infiltration and rehabilitate major sewers, collector
sewers, interceptor sewers, projects to correct and combine
sewer overflows (CSOs), and projects for the treatment and
control of storm waters. However, storm water control is
considered to be a low priority and not eligible for grants
nor used to allocate grant funds among the states on the basis
of needs.
In December 1981, federal legislation passed which sig-
nificantly altered the federal government's role in water
pollution control. The major provisions of this most recent
round of amendments are summarized below:
1. All categories of treatment, storage and conveyance
are eligible for federal funding until October 1,
1984. After that date, only secondary and advanced
treatment, correction of infiltration/inflow and
interceptor sewers will be eligible.
2. Governors will have discretion to use up to 20 percent
of a state's allotment for ineligible categories of
need.
3. After October 1, 1984, a governor may request con-
struction grant funding for CSOs out of the state's
regular allotment at the prevailing federal share
where correcting CSO is a major state priority.
-7-
-------
4. New construction grants approved after October 1,
1984, will be eligible for no more than 55 percent
federal funding unless the governor elects to reduce
this percentage prior to that date.
5. Beginning October 1, 1984, only capacity to serve
residential and industrial flows existing on the date
of the award of a construction grant for single,
segmented or phased secondary and advanced waste
treatment facilities or interceptor sewers will be
eligible for federal assistance.
6. For fiscal years 1982-1985, $2.4 billion annually
is authorized, plus $200 million for CSOs in fiscal
years 1983, 1984 and 1985.
7. Effective on the date of enactment, costs for fa-
cilities planning and design (Step 1 and Step 2) are
to be locally financed with reimbursement from EPA
when the construction grant (Step 3) is approved,
based on EPA's determination of general experience
for such costs.
In January of this year, the future of the program became
even more uncertain. The Administration introduced a New
Federalism concept under which the Construction Grants Program
would be turned back to states along with forty other programs
with funding to be supplied, in part, by a New Federalism
trust fund. At this writing, the content and details of the
New Federalism initiative remain uncertain, as do the futures
of all the programs to be encompassed by it.
State Roles in Financing Water Pollution Control
In response to the recent changes at the federal level,
a flurry of activity has occurred in state capitols, as states
anticipated the need to shift gears on their pollution control
programs. State governments contemplating a continuing water
quality program were suddenly faced with:
-8-
-------
a) dramatic reductions in the Construction Grants Pro-
gram , i/
b) uncertainty over future appropriations for the Con-
struction Grants Program,
c) the mandatory lowering of the federal matching per-
centage from 75 percent to 55 percent on October 1,
1984 (or earlier at the governor's option), and
d) competition for state dollars from more visible pro-
grams with more politically influential constituencies.
The data on the following pages summarize how the states have
been involved in this program area in recent years and perhaps
shed some light on what may be expected in coming years as
the federal government relinquishes some of its current role
in water pollution control financing.
As shown in Table 1, state financial commitments to water
pollution control varied considerably from a high of $327.8
million in California for the period 1976 to 1980 to a low
of no funding in Alabama, Kentucky, Oklahoma, Utah, and Nevada._?_/
The predominant form of assistance given to local governments
in the 46 state providing data was grants, reflecting the
direct link with the federal Construction Grants Program. In
just a few states — Maryland, Wyoming, California, and Washing-
ton — both grant and loan programs were offered.
It should be noted that state loans can be significant.
For example, in the period examined, Florida has made loans
in an amount equal to $231.6 million and Ohio $116.3 million.
Other states where loan programs are important — either in
I/ A Congresssional bill appropriating $2.4 billion in waste-
water treatment grants for fiscal year 1982 became law on
July 19, 1982.
2/ Data not provided for Kansas, North Dakota, and West Virginia
Louisiana did not respond.
-9-
-------
dollar terms or because they are the only form of assistance
rendered — are Tennessee ($62.0 million), Texas ($30.4 million),
Oregon ($23.6 million), and Mississippi ($20.0 million).
In Table 2, the comparative analysis of state programs is
taken a step further by showing three measures of state effort
— per capita spending for the period 1976 to 1980, state spending
as a percentage of the federal Construction Grants allotment
for those years, and state spending as a percentage of per
capita personal income.
For the first indicator, Alaska ranks first with $94.00
per capita provided from the state's current revenues and re-
ceipts from the sale of general obligation bonds. The state
funds for local governments are available for projects receiving
federal support and those that are not eligible. Other states
with relatively strong showings are New Hampshire ($35.18),
Maine ($29.96), Vermont ($29.30), Illinois ($28.65), Wisconsin
($26.82), and Massachusetts ($25.29). State assistance was
also high in Florida ($24.66) where the program provides strictly
loan support rather than state grant payments.
The analysis of spending per capita from 1976 to 1980 for
the 49 states responding to the survey broke down as follows:
39 had data to report, 7 did not have grant or loan programs
(Alabama, Arizona, Kentucky, Nevada, New Mexico, Oklahoma,
and Utah), and data were not available from three states (Kansas,
North Dakota, and West Virginia). Louisiana did not respond
to the survey.
The second measure of state effort that has been provided
is the level of state spending compared with the amount of
-10-
-------
Table 1
TOTAL STATE SPENDING FOR WATER POLLUTION CONTROL
FY 1976-1980
(millions)
State Grants
California $324.0
Illinois 327.2
New York 242.5
Florida 0.0
Massachusetts 145.1
Wisconsin 126.2
Ohio 0.0
Maryland 98.8
New Jersey 96.1
Missouri 95.5
Washington 75.0
Minnesota 81.2
Michigan 80.3
Indiana 74.0
Tennessee 0.0
North Carolina 54.7
Connecticut 51.5
Alaska 37.6
Maine 33.7
New Hampshire 32.4
Texas 0.0
Oregon 0.0
Hawaii 21.8
Georgia 20.0
Mississippi 0.0
Idaho 17.8
Nebraska 16.7
Iowa 15.6
Vermont 15.0
Rhode Island 11.5
Colorado 10.0
Delaware 7.5
Wyoming 2.7
South Dakota 0.8
Arkansas N/A
Pennsylvania 1.7
Virginia 1.5
South Dakota 0.8
South Carolina 0.2
Montana *
Alabama 0.0
Arizona 0.0
Kentucky 0.0
* Less than $50,000
Loans
5 3.8
0.0
0.0
231.6
0.0
0.0
116.3
2.7
0.0
0.0
7.4-
0.0
0.0
0.0
62.0
0.0
0.0
0.0
0.0
0.0
30.4
23.6
0.0
0.0
20.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
4.5
0.0
N/A
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5
1
Total
$327.8
327.2
242.5
231.6
145.1
126.2
116.3
101
96
95.5
82.4
81.2
80.3
74.0
62.0
54.7
51.5
37.6
33.7
32.4
30.4
23.6
21.8
20.0
20.0
17.8
16.7
15.6
15.0
11.5
10.0
7.5
7.2
0.8
1.
1.7
1.5
0.8
0.2
*
0.0
0.0
0.0
I/ Arkansas provides grants and loans from current state reve-
nues. The type and amount of assistance given depends on abi-iitv
to repay- y
-11-
-------
Nevada 0.0 O.Oi/ 0.0
New Mexico 0.0 0.0 0.0
Oklahoma 0.0 0.0 0.0
Utah 0.0 0.0 0.0
Kansas.2./ N/A 0.0 0.0
Louisiana N/A N/A N/A
North Dakota!/ N/A N/A N/A
West Virginia N/A N/A N/A
TOTALS $2,118.6 $502.5 $2,622.7
I/ A bond bank was created in 1981 which could provide loans for
wastewater treatment.
2/ The state provides grants for planning; however, the funding
amounts were not available.
3/ Municipalities may borrow from the Bank of North Dakota which
is a state institution. Information on the amount of loans
for water pollution control projects was not available. The
state also has provided some grants for Clean Lakes projects.
-12-
-------
Table 2
MEASURES OF STATE EFFORT
(Based on Total State Spending, FY 1976-1980)
Per Capita
State
Spending!/
REGION I
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont
REGION II
New Jersey
New York
REGION III
Delaware
Maryland
Pennsylvania
Virginia
West Virginia
REGION IV
Alabama
Florida
Georgia
Kentucky
Mississippi
North Carolina
South Carolina
Tennessee
REGION V
Illinois
Indiana
Michigan
Minnesota
Ohio
Wisconsin
* Less than $50
I/ Based on U.
2/ The federal
$16.58
29.96
25.29
35.18
12.13
29.30
$13.05
13.81
$12.58
24.07
.14
.28
N/A
$ 0.00
24.66
3.66
0.00
7.94
9.31
.06
13.50
$28.65
13.48
8.67
19.92
10.77
26.82
,000 or .05%.
S. Bureau of Cei
allotment by s1
Total State
Spending as
% of Federal
Allotment!/
15.2%
18 .'6
21.4
16.0
10.2
22.1
7.7%
9.9
6.6%
15.5
0.2
0.3
N/A
0.0%
27.0
5.2
0.0
12.7
15.1
*
19.6
25.0%
12.6
6.3
18.9
9.2
31.0
Spending as
% of 1980
Per Capita
Personal
Income
,14%
38
25
39
13
37
12%
13
.12%
.23
*
N/A
0.0%
.27
.05
0.0
.12
.12
*
.17
27%
15
09
20
,11
.29
State
Per Capita
Income
Rankings
2
38
12
27
20
40
4
11
9
8
21
22
43
47
29
36
46
50
41
49
44
7
31
16
17
19
25
using a funding ratio equal to state cumulative allotments under the pro-
gram as of June 1981 divided by the U.S. total allotment for the same
period.
-13-
-------
Table 2 (continued)
Per Capita
State
Spending^/
Total State
Spending as
% of Federal
Allotment!/
Spending as
% of 1980
Per Capita
Personal
Income
State
Per Capita
Income
Rankings
REGION VI
Arkansas
Louisiana
New Mexico
Oklahoma
Texas
$ .79
N/A
0.00
0.00
2.14
1.3%
N/A
0.0
0.0
4.0
N/A
0.0%
0.0
.02
48
35
39
28
18
REGION VII
Iowa
Kansas!/
Missouri
Nebraska
$ 6.60
N/A
19.42
10.64
5.81
N/A
21.1
14.8
.07%
N/A
.22
.11
24
15
30
23
REGION VIII
Colorado
Montana
North Dakota!/
South Dakota
Utah
Wyoming
REGION IX
Arizona
California
Hawaii
Nevada
REGION X
Alaska
Idaho
Oregon
Washington
$ 3.46
.06
N/A
1.16
0.00
15.20
$ 0.00
13.85
22.59
0.00
$94.00
18.83
8.97
19.95
* Less than $50,000 or .05%.
6.3%
*
N/A
1.2
0.0
16.0
0.0%
15.6
13.8
0.0
41.8^
27.0
9.5
24.3
.03%
*
N/A
-01
0.0
.14
0.0%
.13
.22
0.0
73%
23
10
19
14
34
33
42
45
5
32
3
13
6
1
37
26
10
SOURCE: Population based on the 1980 Census provisional numbers.
V Based on U.S. Bureau of Census 1980 residential population counts.
\/ The federal allotment by state for fiscal years 1976-1980 was calculated
using a funding ratio equal to state cumulative allotments under the
program as of June 1981 divided by the U.S. total allotment for the same
period.
V The State provides grants for planning; however, the funding amounts
were unavailable.
4/ Municipalities may borrow from the Bank of North Dakota, which is a
~~ state institution. Information on the amount of loans for water pol-
lution control projects was not available. The State also has provided
some grants for Clean Lakes projects.
-14-
-------
federal funding provided. The state allotments for the Con-
struction Grants Program from 1976 to 1980 were estimated
and the percentage of this amount the states provided on their
own was calculated to provide a rough estimate of state com-
mitments to water pollution control. High marks go to Alaska
and Wisconsin with state spending equal to 41.8 and 31.0 per-
cent, respectively, of their federal allotment. The strength
of this commitment is illustrated by the fact that the national
average, again for the thirty-nine states that have such data,
is 13.6 percent. Other states showing a high level of involve-
ment were Idaho (27.0 percent), Florida (27.0 percent), Illinois
(25.0 percent), and Washington (24.3 percent).
It would appear from the survey that state involvement is
highly correlated with states' recognition of the importance of
the water resource to their economy. For example, states like
Wisconsin, Maine, New Hampshire, and Florida that rely heavily
on their tourist trade have outstanding records in the water
pollution control area.
In an attempt to ascertain states' ability to pay for
pollution control programs, per capita state spending for
1976 to 1980 is compared with the state's 1980 per capita
personal income. It would seem from the data that the availa-
bility of financial resources is not the major determining
factor in the amount spent by states for water pollution control
For example, the four states listed above do not rank very
high in state per capita income: Wisconsin (25th), Maine (38th),
New Hampshire (27th), and Florida (29th). On the other hand,
many of the states with very high per capita personal incomes
-15-
-------
have spent a relatively small portion of personal income on
water pollution control. Some examples are Connecticut (2nd),
California (3rd), New Jersey (4th), and Wyoming (5th).
In the next two sections, existing state programs are
summarized and compared with respect to such criteria as eli-
gibility, funding sources, and program structure. The details
of each program vary to some degree, suggesting that there is
no one "model" state program, but some common elements recur.
-16-
-------
STATE GRANT PROGRAMS
Grant programs are the most common form of state financial
assistance to local governments for wastewater treatment
projects. Table 3 identifies the 32 states that currently
sponsor grant programs to cover some percentage of the costs
of projects receiving funding under the Construction Grants
Program, and projects not receiving federal assistance.
Types of Grant Programs
The majority of states, twenty-seven, give grants to help
local governments finance their share of the costs for projects
funded through the federal Construction Grants Program. Most
states contribute between 10 and 15 percent of the total
eligible project costs. However, a few states will, under
certain circumstances, finance as much as 25 percent of the
these costs (Arkansas, Maine).
Several states have structured their matching programs a
little differently in order to help jurisdictions pay for
ineligible costs. In Vermont, local governments may receive up
to 35 percent of total project costs in state grants; however,
the combined total of federal and state grants cannot exceed 90
percent of total project costs. The state of North Carolina
will finance one-half the non-federal share up to a maximum of
25 percent of the total construction costs or 50 percent of
the nonfederal share, whichever is less. It follows that
if the level of federal funding were reduced to fifty percent,
-17-
-------
Table 3
STATE GRANT PROGRAMS
FOR WASTEWATER TREATMENT PROJECTS
Type of State Program
Funding Sources
Receive Not
Federal % Federally % Current State
Funding Match Funded Match Revenues Bonds Other
ALASKA
ARKANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
GEORGIA
HAWAII
IDAHO
ILLINOIS
INDIANA
IOWA
MAINE
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSOURI
NEBRASKA
NEW HAMPSHIRE
X 12.5 X
X 25max.
X 12.5 X
X
X 15 X
X 10
X
X 10 X
X 15 X
X
X 10
X 5
X 15-25 X
X 12.5 X
(I&A=11.25)4./
X 15 X
(ISA-9)!/
X 5
X 15 X
X 15 X
X 12.5
X 20
(I&A=12)1/
50.0 X X
X
50-100 X
80max. X
30 X
X
Varies!/ X
lOOmax. X
90max. xV
75 X
X
X
15-25V X
87.5 X
40V X
X
15 X X
50i/ X X
X
X
I/ Usually 50 percent.
I/ Inheritance and tobacco tax revenues.
3/ Maximum 90 percent for small projects eliminating point source pollution
in shellfish areas not to exceed $100,000 per project.
4/ I&A = Innovative/Alternative treatment projects.
5/ 40 percent not to exceed $1.0 million.
6/ State grant is limited to a maximum of $600 per connection.
-18-
-------
Table 3 (continued)
Type of State Program
Funding Sources
NEW JERSEY
NEW MEXICO
NEW YORK
NORTH CAROLINA
PENNSYLVANIA
RHODE ISLAND
SOUTH CAROLINA
VERMONT
WASHINGTON
WEST VIRGINIA
WISCONSIN
WYOMING
Receive
Federal %
Funding Match
Not
Federally %
Funded Match
X 8
X 12.5 X
X 12.5l/
(i&A=7.5)y
X 12.5 X
X 5 or 12.5V
X 15
X
X 35max.V X
X 15 X
(I&A=9)
X 5 or 156/
20max.
X
X
100
25
Varies!/
35max.V
50
60-75
VariesZ/
Current
Revenues
X
X
X
X
State
Bonds
X
X
X
X
X
X
X
Other
X.!/
Xl/
TOTAL
27
20
15
20
I/ A funding pool was established by the Legislature in 1972 and approved
by the voters. Environmental Quality Bonds — backed by the full faith
and credit of the State — are sold at least once a year.
2/ I&A = Innovative/Alternative projects.
_3/ 5 percent for communities with financial hardship; 12.5 percent for
preparation of facility plans.
4/ Under the State Rural Water and Sewer Grants Program limited supplemental
funding assistance is provided for rural water and sewer expansions. The
funding limitation is $300 for each new service.
5_/ Combined federal and state cannot exceed 90 percent of total project costs.
<>/ Step 3 grants are for 5 percent or $300,000, whichever is less. A community
is eligible for a hardship grant (15 percent or $400,000, whichever is
less, if the community has a high public utility cost per connection ex-
pressed as a percent of median family income.
]_/ Usually 50 percent.
8/ Mineral royalty and coal impact taxes.
-19-
-------
the state program could contribute 25 percent.
To assure some minimum level of local participation in the
financing of projects, a number of states have enacted limitations
on their participation, such as:
1) limiting the combined state and federal funding to some
percentage of the project costs (Vermont); and
2) reducing the state's contribution for innovative and
alternative projects which is eligible for an additional
10 percent (85 percent total) of federal funding
(Maryland, Massachusetts, Missouri, New Hampshire,
New York, Washington).
In some states, the state's share is directly proportional to
the federal government's share. For example, when the federal
share is reduced from 75 percent to 55 percent, Connecticut
state law provides for the state share to increase from 15
percent to 30 percent automatically. Therefore, the recent
change in federal legislation might prompt Connecticut (and
other states with similar provisions) to reassess its willing-
ness and ability to provide increased funding.
As Table 3 shows, 15 of the 27 states providing grants to
local governments for projects funded by EPA, also offer grants
to localities for projects which have not received federal
funds because they are ineligible or too low on the state priority
list. This leaves five states on the list (Georgia, South
Carolina, Illinois, Wisconsin, and Colorado) which only give
grants to localities that are not eligible for federal assistance.
-20-
-------
The percentage of the total project costs the state programs
contribute for non-federally financed projects ranges from 15
percent in Minnesota to a 100 percent maximum in New Mexico,
California, and Hawaii. Many states vary the level of state
funding depending on the project, and several states have estab-
lished a dollar amount ceiling. Massachusetts, for example,
limits funding per project to $1 million, and Missouri holds
grants to 50 percent of the total project costs or $600 per
connection, whichever is less,.
The type of projects eligible for state grants for non-
federally financed projects varies from state to state. For
example, Missouri, North Carolina, and Massachusetts only fund
collection sewers, whereas Connecticut will fund most types of
water pollution control projects except for new collectors.
Wisconsin, on the other hand, will finance collection sewers,
but only when the municipality is also constructing a treatment
plant.
Although the majority of states with grant programs limit
their funding to point source projects, six states have programs
which fund or have funded nonpoint source projects:
1) clean lakes projects — North Dakota, South Dakota,
Vermont, and Washington;
2) agricultural runoff control — Idaho and Washington;
and
3) wastewater reclamation and water conservation fa-
cilities — California.
North Dakota and South Dakota are not listed on Table 3 because
-21-
-------
they do not fund wastewater treatment, but they each have a
program to fund clean lakes projects.
The amount of the state share for nonpoint source projects
varies considerably- For example, Vermont provides a grant for
up to 75 percent of project costs for aquatic nuisance control,
whereas South Dakota provides grants up to 25 percent for clean
lakes projects which receive federal funding, up to 60 percent
when no federal funds are received, and up to 100 percent for
lakes which are primarily surrounded by state-owned land.
Selection Criteria for Grants
The selection criteria cited for the state grant programs
are similar or equivalent to the criteria for the Construction
Grants Program. Ten states indicated that, for the most part,
they adhere to the federal criteria (Massachusetts, Delaware,
Pennsylvania, Indiana, Minnesota, Alaska, New Mexico, Iowa,
California, and Idaho), and ten states noted that they follow
the state priority list (Massachusetts, Delaware, Maine, Michigan,
Wisconsin, Missouri, Nebraska, South Dakota, Hawaii, Washing-
ton) . Approximately one-third of the states with a grant program
for non-federally funded projects indicated that in order to
receive a state grant, the project must be eligible for federal
funding, but too low on the priority list to receive a federal
grant.
In addition to "federal criteria" or EPA-related "state
priority lists," numerous other factors were named. Among the
most common factors mentioned were:
-22-
-------
1) financial need or hardship — Alaska, Colorado, Wyoming,
Idaho, Washington, Pennsylvania, West Virginia;
2) health and water quality — Maryland, West Virginia,
Georgia, Iowa, Colorado, Illinois, Idaho; and
3) readiness to proceed with a project — Michigan, New «
Mexico, Idaho, Washington.
Several other criteria identified were: first come-first serve
(Connecticut, Alabama); population affected (Maryland, Washington);
population of 5000 or less (Colorado); violation of NPDES permit
(Nebraska); communities experiencing the impacts of mineral
mining projects (Wyoming); an emergency situation (Georgia);
and problem prevention (Washington).
Funding of Grant Programs
As Table 3 shows, the most popular means of financing
state grant programs are as follows:
1) state current revenues — New Hampshire, West Virginia,
Georgia, South Carolina, Indiana, Arkansas, Iowa,
Nebraska);
2) state general obligation bond proceeds -- Connecticut,
Maine, Massachusetts, Rhode Island, Vermont, New
Jersey, Delaware, Maryland, North Carolina, Illinois,
Michigan, California, Hawaii, Washington; and
3) a combination of state current revenues and state
general obligation bond proceeds — Pennsylvania,
Minnesota, Wisconsin, New Mexico, Missouri, Alabama.
Three states use other methods for financing their programs.
In New York, the grants are financed through a funding pool
which was established in 1972 by the Environmental Quality Bond
Act; Idaho has a special fund, the Water Pollution Control
Fund, which receives revenue from inheritance taxes and tobacco
-23-
-------
taxes; and Wyoming funds its program through mineral royalty
and coal impact taxes. This special funding source in Wyoming
is in congruence with one of the selection criteria for Wyoming
state grants — the impacts of mineral mining on local com-
munity services.
-24-
-------
STATE LOAN PROGRAMS
State loan programs for local government water pollution
control projects are much less common than state grant programs
for the same purpose. Thirteen states have a loan program
which is designed specifically to assist local governments with
wastewater treatment projects or has a significant impact on
these types of projects. Nine of these programs provide loans
for both federally funded point source projects and point source
projects not eligible for federal assistance. Only California
extends its loan program to nonpoint source projects.
Types of Loan Programs •
In most of the states with a loan program, the percentage
of project costs which is eligible for a state loan is 25 percent.
As Table 4 shows, the percentage varies in some states (California
and Florida) and may be limited to a maximum of 25 percent
in others (Arkansas, Oregon, and Texas). Non-federally funded
projects are typically eligible for larger loans of up to 100
percent of project costs (Maryland, Tennessee, Ohio, Texas,
Oregon). The state of Maryland has a restriction that limits
the amount of funding for non-federally financed projects to
a maximum of $500,000 per project.
Although most loan programs have provisions to allow a
locality to borrow an amount equal to the total local share
under the federal Construction Grants Program, three states
have limits which are below the total local share. Washington
-25-
-------
Table 4
STATE LOAN PROGRAMS
FOR WASTEWATER TREATMENT PROJECTS
Type of State Program
Funding Sources
ARKANSAS
CALIFORNIA
FLORIDA
MARYLAND
MISSISSIPPI
NEVADA
OHIO
OREGON
TENNESSEE
TEXAS
WASHINGTON
WEST VIRGINIA
WYOMING
Receive
Federal %
Funding Match
X
X
X
X
X
X
X
X
X
X
X
X
X
25max.
Varies
Varies
2 5V
12.5
25
25
25max.
25
25max.
10
25
15max.
Not
Federally %
Funded Match
Current
Revenues
X
X
X
X
xV
X
X
X
Varies
lOOinax.
10 0V
Varies
100
lOOmax.
100
lOOmax.
Varies
X
X
State
Bonds
X
X
X
X
X
X
X
X
X
Other
Xl/
Xl/
TOTAL
33
I/ The state created a revolving fund in 1949 with a $1.0 million ap-
propriation. It is augmented by tideland oil and gas revenues.
2/ A maximum of $500,000 per project is set.
3/ Three separate loan programs currently exist. The Ohio Water De-
velopment Authority provides financing to municipalities and industries
for the construction of wastewater, solid waste and water treatment
facilities. Another program gives interest-free loans to county
commissioners so that they may grant agricultural deferments on high
property tax assessments. The third program aids villages in financing
the preparation of preliminary or detailed engineering plans and
feasibility studies for sewerage and public water supply systems.
4/ Revenue bonds are issued by the State and the revenues of local govern-
ment are pledged to payback the state loans provided by the Ohio Water
Development Authority.
5/ Mineral royalty severance tax.
-26-
-------
limits state loans for federally funded projects to 10 percent,
Mississippi to 12.5 percent, and Wyoming to 15 percent.
Selection Criteria for Loans
In general, the selection criteria for the state loan
programs (as reported in the survey responses) is less extensive
and specific than the criteria for state grant programs. Among
the most common criteria mentioned were:
1. receipt of federal funding -- Arkansas, Mississippi,
West Virginia; and
2. financial need or hardship — California, Texas,
Wyoming, Oregon, Washington.
Other criteria mentioned were: composition of the population
affected (Arkansas), seriousness of the problem (Texas), state
priority list (Tennessee, Oregon), and impacts of mineral mining
on local community services (Wyoming).
Funding of Loan Programs
The use of bond proceeds is the most common means of fi-
nancing state loan programs. Six states fund their program
through the use of state general obligation bond proceeds (Mary-
land, Florida, Mississippi, Texas, Oregon, Washington), and
three states use revenue bond proceeds (West Virginia, Tennessee,
Ohio). Three states rely on current state revenues (Arkansas,
Mississippi, Nevada) to finance loans to localities.
-27-
-------
Wyoming and California fund their programs from the reve-
nues of specific taxes. Wyoming relies on revenues from the
mineral royalty severance tax, while California partially fi-
nances its program through tideland oil and gas revenues. Cali-
fornia has also established a revolving fund for its loan program.
Security on Loans
Most state loans to localities are secured by:
1) local taxes — Arkansas, Tennessee, North Dakota,
Mississippi, Florida, Texas, Wyoming; and/or
2) local sewer charges and fees — West Virginia, Ohio,
Tennessee, California, North Dakota, Florida, Texas,
Wyoming.
Wyoming and Florida indicated that future state aid payments
to localities also may be used for security. Among other types
of security mentioned were: 1) promissory notes (Maryland); 2)
project capital used as collateral (Wyoming); and 3) local bond
issues backed by taxes or revenues from users (Oregon).
Interest Rates
The majority of the states with a loan program charge
local governments an interest rate which is based on the rate
the state pays on bonds used to finance the loan program (Tennes-
see, California, Maryland, Florida, West Virginia, Oregon,
Texas). Various methods exist for calculating the interest
rate. For example, Texas takes a weighted average ofvthe net
-28-
-------
effective interest rate on the three most recent state bond
issues and adds one-half of one percent. California charges a
rate equal to the net interest cost to the state on the sale of
general obligation bonds during the previous five calendar
years, rounding-up to the nearest one-tenth of one percent.
Two other states specifically mentioned that they add on an
administrative fee when calculating the interest rate charged
to localities (West Virginia, Oregon).
Three states reported that the local interest rate is
based on the "current interest rate" (Washington, North Dakota,
Ohio). Although two of these states did not elaborate on how
this rate is determined, Ohio indicated that it uses a rate
equal to 50 basis points above the Bond Buyer's 20 Bond Index.
Arkansas' local interest rate is equal to the set amount of 5
percent, and Ohio and Mississippi each have programs with interest-
free loans. (Ohio has two separate interest-free loan programs.)
For all the programs identified, the interest rate charged
localities ranged from zero to 13.4 percent (Ohio) during the
summer of 1981. The majority of states responding to this
question on the survey were charging an interest rate in the
range of 7.0 to 9.9 percent (West Virginia, Tennessee, Florida,
Wyoming, Maryland). California and Arkansas were somewhat
below this rate at 5.5 percent and 5.0 percent, respectively.
-29-
-------
OTHER STATE ASSISTANCE PROGRAMS
Besides grant and loan programs, states engage in numerous
other activities related to project financing and financial
management that qualify as state assistance programs. Typically,
these service-type activities include
1. assistance in debt management,
2. training,
3. technical assistance,
4. publications, and
5. special financial assistance programs.
Debt Management
In the debt management area, states assist communities in
raising capital funds for wastewater treatment projects by
assisting in the issuance and marketing of debt. Some specific
examples noted are:
1. requiring notification and/or approval of a debt
issuance — Arkansas, Connecticut, Florida, Michigan,
Missouri, New Jersey, New Mexico, New York, North
Carolina, South Carolina, Texas;
2. setting bond issuance procedures — Indiana, Tennessee;
3. providing a bond bank — Maine, Nevada, New Hampshire,
Vermont; and
4. assisting in the selling or marketing of bonds —
Alaska, Maryland, North Carolina.
-31-
-------
Three other programs cited by survey respondents that have
the potential for assisting local governments in obtaining
needed capital funds and equipment are found in
1. North Dakota — where a state bank makes loans to
communities for various purposes;
2. New Hampshire — where 'the state will guarantee the
interest and principal on bonds of grantees with its
full faith and credit, limited by statute to $190
million outstanding at any one time; and
3. West Virginia — where the Water Development Authority
has the power to lease wastewater collection and
treatment facilities to privately owned businesses.
(Program is not currently active.)
Training
A number of states have offered training programs through
the state department of community affairs, the state agency
responsible for regulating and/or overseeing the wastewater
treatment function, and other state departments involved in
some way with local financial management. The training programs
that currently exist -focus on a variety of topics, including:
1. general local financial management — Arkansas, New
Mexico, North Carolina, New York;
2. grant accounting — Idaho;
3. financial and institutional planning for wastewater
treatment — Wyoming; and
4. financial aspects of treatment facilities operations
— New Jersey, Pennsylvania.
-32-
-------
Technical Assistance
Technical assistance, particularly through on-site visits,
is a major area of state involvement in local wastewater con-
struction projects. Four states surveyed indicated the availa-
bility of on-site training under the general heading of fi-
nancial management (Maryland, North Carolina, Pennsylvania,
Oklahoma). Five additional states offer grant management as-
sistance specifically to small communities (New Hampshire,
Tennessee, Texas, Utah, Washington). New Mexico's on-site
training stresses the development of local plans of operation
and sewer use ordinances, while South Carolina offers on-site
training for plant operators, managers, and engineers, as well
as local officials.
Publications
New York and New Jersey, two states offering training at
the state level, have developed training manuals for local
administrators on financing wastewater projects (New York) and
publications on a wide range of funding and financial manage-
ment issues (New Jersey). The Wyoming Department of Environ-
mental Quality has published a series of training manuals on
burden analysis, financial capability, and risk analysis for
municipalities, consultants, and other interested parties.
Seminars were also held for local officials to introduce and
explain the documents. In California, the State Water Resources
-33-
-------
Control Board distributes a user charge manual to grantees and
consultants, but offers no training at present.
Special Financial Assistance Programs
Three states provide financial subsidies to cover the
local costs of operations and maintenance (O&M). The program
in New York State is potentially the most beneficial, offering
up to one-third reimbursement of local O&M costs. Massachusetts
pays for 50 percent of local chemical costs for wastewater
treatment while Pennsylvania subsidizes two percent of local
O&M expenses based on the construction costs of the original
facilities.
Six states provide grants and loans for special purposes
or from sources other than general state revenues and bond
issues. Income from energy sources accounts for these ad-
ditional revenues in three states. Alaska provides a minimal
$2 per capita to local governments for wastewater pollution
control; however, each municipality also receives an unrestricted
grant of $530 per capita for capital improvement projects. On
a more modest level, Minnesota uses coal taxation revenues to
partially finance wastewater pollution control facilities in
"coal impact" areas, and Utah targets limited "community impact"
funds for wastewater treatment generated from state energy
resource leases.
Several states have special assistance programs for small
communities. South Carolina provides limited supplemental
-34-
-------
funding of $300 per new service to assist in line extensions in
small and rural communities. Ohio has established the Emergency
Village Capital Improvement Fund, a revolving interest-free
source of planning funds for villages and rural communities.
Finally, Vermont has allocated state funds to maintain
local household sewer charges at a maximum of $150 annually.
Because of fiscal constraints, state officials anticipate a
cutback in this state subsidy either by raising the ceiling or
by targeting the funds to the neediest households.
-35-
-------
STATE ROLES AND THE NEW FEDERALISM
Anticipating a larger role in the funding of local waste-
water pollution control projects, a number of states originally
reported in August 1981 that they were considering new fi-
nancing mechanisms or strengthening programs currently in ex-
istence in response to the cutbacks in federal funding.
Four states responding to a question on financial con-
tingency plans expected to increase their match or loan amounts
(Washington, Connecticut, Maine, Alabama), while one state
(North Carolina) said it would consider an immediate reduction
in the federal percentage to stretch currently available funds _
over a larger number of projects.I/ Three states lacking con-
tingency plans felt confident that the federal program would
provide sufficient support for the coming year (South Carolina,
Delaware, Florida).
Several months later, at the end of many states' 1982
legislative session, the states were again contacted to de-
termine if legislation had been proposed, defeated, or enacted
that would provide additional state assistance or if the states
had undertaken any other actions that might affect their in-
volvement in financing local wastewater treatment projects.
The follow-up survey results reveal considerable state
activity to sustain local construction projects in the face
I/ As noted earlier, Governors may elect to reduce the per-
~ centage of federal funding below 75 percent before October
1, 1984.
-37-
-------
of the reduction or elimination of federal grants and mounting
pressure on state financial resources. More and more states
are turning to loans and loan guarantees as a means of augmenting
the funds available for wastewater pollution control. As of
this writing, the level of future funding for the Construction
Grants Program remains uncertain. This is a a major reason why
29 states have not developed more specific guidelines for al-
locating current state funds or new programs to replace the
possible loss of federal funds. A number of states surveyed
are confident that a reduced, but still sizeable, federal com-
mitment to water quality will continue. If it does not, more
and more states will move towards alternative funding mecha-
nisms just now being introduced in the area of wastewater treat-
ment, and increased emphasis on less expensive, alternative
technologies.
There is no evidence that states have the capacity to
match the anticipated reduction in federal funding, even if the
Construction Grants Program is funded through 1985 at the levels
recommended by the current Administration. Texas, Colorado,
and Florida turned down legislative initiatives that would have
utilized additional state tax or bond revenues to increase the
level of state participation. Recently approved bond issues in
North Carolina a,nd Washington have been in the legislative
process for several years and cannot be considered a response
to recent changes. In addition, both states have traditionally
provided substantial state assistance. While Nebraska and
-38-
-------
Alaska are considering increases in the state share of non-
federally financed projects, no state has actually passed legis-
lation that would increase the percentage of outright state
grants to localities. In attempting to accomplish more with
limited resources, ten of the states that responded are planning
to increase the size and flexibility of their loan and loan
guarantee programs. Many of these initiatives are at the pro-
posal stage and will face severe competition from other programs
during state budget deliberations in the coming years.
Recent Changes in Grant and Loan Programs
Twenty of 49 states surveyed have undertaken some initi-
ative since August 1981 that may influence their involvement
in local wastewater projects. Nineteen of these initiatives
involve legislation affecting state grants, loans, or loan
guarantees. Only a few proposals, however, have actually been
enacted by the legislatures and approved by voters (when re-
quired) in this relatively brief period.
The voters in two states have approved bond issues whose
proceeds may be used wholly or in part to finance local waste-
water construction projects. North Carolina's $300 million
bond issue is the third in a series passed since 1972 that
provides funds for half of the local share, or 12 1/2 percent
of the total costs, to local Construction Grants recipients. A
$450 million bond issue in Washington State will provide grants
and loans to localities over the next eight years for a number
-39-
-------
of capital projects including wastewater treatment, solid waste
reclamation., and lake rehabilitation.
Three other states have taken legislative action that did
not require voter approval. The Arizona State Legislature has
established a Water Treatment Study Commission to conduct a
needs survey for new and renovated facilities and a review of
federal, state, and local revenue sources. Similarly, the
State of Georgia has passed legislation creating the Environ-
mental Facilities Study Commission to develop alternative sources
of local and state funding. The Hawaiian State Legislature has
voted to provide state loans for up to 75 percent of the costs
for the planning and design stages, Step 1 and Step 2, of waste-
water treatment projects. Under the revised federal Construction
Grants legislation, most applicants will be reimbursed for a
percentage of planning and design costs a€ the time the Step
3 grant for construction is approved, not when these costs are
incurred.
In three states, proposals to provide additional waste-
water financing were defeated either in the legislature or by
the voters. Colorado's governor proposed an increase in state
taxes to fund a Capital Improvement Budget for water and waste-
water projects, but the proposal was voted down by the legis-
lature. In Florida, a bill to provide state grants in addition
to the currently funded state loans was not reported out of
committee. Texas voters defeated a referendum that would have
set aside up to one-half of any excess tax revenues to establish
-40-
-------
a Water Assistance Fund for local water and wastewater projects.
Although most of the states surveyed now expect reductions
•in state spending as well as federal funds, a number of pro-
posals have been initiated by state water quality agencies that
would assist localities in continuing their construction efforts.
Some of the proposals are being considered by state legis-
latures while others are still being developed within the agencies,
These proposals are divided between grant, loan, and loan guaran-
tee programs as a means of providing assistance to localities.
Arkansas, Oklahoma, South Carolina, and Utah are considering
various loan guarantee proposals at the departmental or legis-
lative level. To conserve state funds, Minnesota is weighing
the options of reducing state grants from the current level of
15 percent or converting from a grant to a loan program. Massa-
chusetts' Department of Environmental Quality Engineering has
requested legislation permitting the state to provide 90 percent
pre-financing of local Construction Grants projects with funds
to be repaid through the 75 percent federal match and a 15
percent state grant.
A number of states are considering legislative proposals
to increase state funding levels. Energy-rich Alaska has ap-
proved a proposal that would increase funding from 50 percent
to 70 percent of the cost for non-federally assisted projects.
Appropriation, however, is not anticipated this session. The
Nebraska legislature is considering a similar increase from 50
percent to 75 percent. Both Connecticut and Missouri have
-41-
-------
proposed increases in bond revenues for fiscal 1983 that await
voter approval. Missouri is also considering legislation that
would transfer $200 million in future bond issues earmarked for
Construction Grants matching funds to be used to finance up to
55 percent of non-federally financed projects.
West Virginia, Wisconsin, and North Dakota indicated that
all legislative initiatives in their states await resolution of
the Construction Grants appropriation bill, while all state
grants in Illinois have been suspended temporarily because of
financial shortfalls. The suspension will be reevaluated in
August 1982.
Other State Activities
No state has reduced the federal matching percentage below
75 percent, although 12 states indicated that this alternative
has been considered. The survey revealed that many water
quality administrators favor a reduction, but there is sub-
stantial political opposition in a number of states. The
governor of Kentucky, for instance, has indicated that funding
will remain at 75 percent during his administration. Another
stated/ has discussed the reduction with state organizations
representing both communities and architectural and engineering
]./ This state asked not to be identified, since it is con-
sidering the political, financial, and administrative
feasibility of several alternatives.
-42-
-------
firms and has encountered strong resistance from the state's
Municipal League.
Three states will not reduce the federal percentage before
it becomes mandatory in 1984 for diverse reasons. Alaska indi-
cated that even at the 75 percent level, it will not exhaust
appropriated federal funds on current projects. As mentioned
earlier, the state has a substantial capital improvement fund
available to localities. Oregon has considered the reduction,
but the state has concluded that all eligible funds through
1984 are committed to projects approved at the 75 percent level.
New Mexico indicated that a reduction will not be considered
until several small communities have completed projects that
would otherwise not be finished without 75 percent federal
support.
The following seven states have considered a percentage
reduction to fund more projects with federal dollars. State
agencies in Arizona, Colorado, and Florida are preparing re-
quests for their respective governors to reduce funding levels
to either 50 or 55 percent of total costs. California, Hawaii,
Iowa, and North Carolina have discussed the issue at the agency
level and expect to further explore the option as their FY'83
budgets are more carefully considered.
While states have provided varying levels of technical
assistance to localities in the past, several states indicated
new initiatives in this area. The Mississippi Division of
Water is providing increased assistance to local governments in
-43-
-------
such areas as financial management and user charge development.
The Oregon Water Quality Division of the Department of Environ-
mental Quality is stressing the importance of the self-sustaining
utility concept to localities, anticipating further constraints
on federal and state funds for local projects. The department
may propose legislation requiring local utilities to operate on
an enterprise basis. The Oklahoma Water Facilities Engineering
Division, as well, is encouraging the use of own-source fi-
nancing for partially completed projects or for new projects
that are far down the list of state funding priorities. The
Division is also circulating its priority list among other
funding agencies in order to encourage cooperation on projects
where joint funding is necessary and possible.
-44-
-------
SUMMARY
This summary of state assistance to local governments in
financing water pollution control projects fills an inform-
ational gap that currently exists regarding the varieties of
state programs. It also offers some comments on the future
direction of these programs in the wake of a diminished federal
financial presence in the area of water pollution control.
The major findings of this report, which are based on
research and surveys of state water pollution control admin-
istrators, are as follows:
State grant payments to local governments for sewerage
projects indicate that state financing of municipal
wastewater treatment has been significant, providing
almost 12 percent of total capital expenditures.
The information available on state grant and loan
programs does not provide a comprehensive compilation
of state programs nor does it give details of program
structure such as eligibility criteria, grant formulas,
sources of funding, interest paid on loans, and
methods of securing loans.
Per capita spending for water pollution control has
fluctuated considerably from state-to-state. Data
collected for the period 1976 to 1980 showed Alaska
spending the most, $94.00 per capita. Several states
made no financial contribution, and some had relatively
new programs accounting for their low level of effort.
If total state spending from 1976 to 1980 is compared
with each state's construction grant allotment for
the same years, Alaska and Wisconsin are most committed
with 41.8 and 31.0, respectively, spent from state
sources for water pollution control.
Thirty-two states currently sponsor grant programs.
Of these, 27 states give grants to EPA grant recipients
to assist them in funding their share of project costs.
State loan programs are much less popular — only 13
were identified.
-45-
-------
o An inventory of other state assistance programs in
the financial area includes training, publications'
development, direct on-site technical assistance,
special financial assistance programs, and assistance
in issuing and marketing debt.
Looking to the future, the research and responses from
those in the field at the state level suggests that:
States will attempt to sustain local construction
projects in the face of the reduction and/or elimination
of federal grants; however, there is little evidence
that states have the capacity to fully replace di-
minished federal funding.
Funding cutbacks at the federal level and little
or no growth in resources from state governments will
force local governments to turn to small and alterna-
tive wastewater treatment systems and seek to have
water quality standards downgraded.
Greater reliance will be placed on loan, loan guarantee,
and support-type assistance programs rather than grant
programs because of the mounting pressures on state
financial resources.
Greater emphasis will be placed on having those who
benefit from pollution control expenditures pay for
the projects more directly through more and higher
user charges, fees, and assessments. For example,
the emphasis on the self-sustaining utility concept
noted in Oregon is already a step in this direction.
Another likely occurrence will be the funding of
state programs through the adoption of state taxes,
charges, and fees levied on those entities that
cause pollution or create a need for pollution control
projects.
Critics of the administration's current proposals
for the Construction Grants Program will still see
the need for a program which is national in scope
because of the unevenness in states' commitment to
water pollution control and program performance. States
that have traditionally had limited roles have not
been aggressive in taking on new responsibilities.
-46-
-------
Other spending priorities at the state and local
levels will be addressed before pollution control
because it lacks the visibility and political punch
of other, more people-oriented programs.
* U. S. GOVERNMENT PRINTING OFFICE 1982 361-085/4477
-47-
------- |