A DRINKING WATER STATE
REVOLVING FUND:
ENSURING SAFE DRINKING
WATER FOR AMERICA
THE PRESIDENT'S PROPOSAL
In A Vision of Change for America. President Clinton proposes a new
Drinking Water State Revolving Fund (SRF) to help public water
systems comply with the Safe Drinking Water Act (SDWA). On May
28, 1993, EPA submitted the Administration's Statement of Principles
for the Drinking Water SRF to Congress. These Principles would
create a new Drinking Water SRF modeled on the successful
wastewater SRF under the Clean Water Act, but designed to meet the
infrastructure needs for safe drinking water. The Administration
supports authorizing appropriations of $599 million in fiscal year 1994,
and $1 billion annually in fiscal years 1995 through 1998 for this
critically-needed fund.
HEALTH BENEFITS OF SDWA
Compliance with SDWA will result in impressive gains in public health
protection. EPA estimates that full implementation of the Lead and
Copper Rule will reduce exposure of 156 million people to lead, and
protect an additional 600,000 children from unsafe levels of lead in
their blood. Compliance with the Surface Water Treatment Rule will
prevent at least 80,000-90,000 cases of gastro-intestinal illnesses
annually. Other EPA rules protect against cancer and a range of
chronic diseases.
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LONG-TERM CAPITAL COSTS FOR COMPLIANCE
Treatment needs to comply with SDWA regulations may include:
installation of filtration and disinfection systems to protect the public
from threats of waterborne disease; replacement of lead service lines to
reduce the exposure of customers, especially children, to lead; and
installation of treatment systems to remove cancer-causing contaminants
from drinking water.
The capital costs for compliance with current SDWA regulations total
approximately $9 billion. Overall drinking water infrastructure needs
(including SDWA compliance, rehabilitation and replacement, growth,
and financing costs) are estimated to be $120 billion over the next 20
years.
ANNUAL HOUSEHOLD COSTS
Complying with SDWA will increase household water bills.
Households served by small systems may face dramatic increases in
their water bills. For example, systems serving less than 100 persons
may need to raise annual household water bills by nearly $150 (to a
total bill of over $400). In contrast, a system serving about 100,000
people will need to raise household water bills by only $10 per year (to
a total bill of about $170).
WATER SYSTEM COMPLIANCE TRENDS
Since 1986, the compliance rate for community water systems has
remained between 70 and 73 percent. As more regulations become
effective, this picture will worsen unless public water systems
dramatically increase their infrastructure investments.
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WATER SYSTEM COMPLIANCE ISSUES
Most Water Systems Are Small
NUMBER OF SYSTEMS BY SIZE
(based on size of population served)
>3300 parsons
13%
1000-3300 persont
14%
501-1000 persons
11*
25-100 persons
30*
101-500 persons
32%
TOTAL NUMBER OF COMMUNITY WMER SVSTEMS-58,000
* There are a total of
58,000 Community
Water Systems.
* 62% of systems serve
populations of 500
persons or less.
* 87% of systems serve
populations of 3300
persons or less.
Many Small Water Systems Are Privately Owned
Ownership of Small CWS's
Mobile Home Parka (25%)
Home Owners
Associations (15%)
Publicly Owned (40%)
Other (5%)
Investor Owned (15%)
80 000 CWS'« in •"••II (s«rv» <3300 o«r»0nl)
* Only 40% of
community water
systems serving less
than 3300 persons are
publicly owned.
Mobile Home Parks
and Home Owners
Associations account
for 40% of small
community water
systems.
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Small Water Systems Lack Access To Capital
Small water systems have difficulty borrowing capital because they are
privately owned, have a low credit rating, have an inadequate customer
base, and/or have relatively low household incomes. EPA’s
Environmental Financial Advisory Board has determined that lack of
access to capital is a major problem for small water systems.
There are three major alternatives for financing small water system
projects:
1. Department of Agriculture-Rural Development Administration
Water and Wastewater Grant/Loan Program. Publicly owned and
non-profit systems serving populations of less than 10,000 people
are eligible for low-interest loans if they cannot obtain credit
elsewhere. Grants are also available to impoverished
communities if they are necessary to keep user rates equivalent
to those of similar nearby systems. RDA funding is available for
installation, repair, improvement, or expansion of water and
wastewater systems.
2. Bank financing. Commercial banks generally do not offer long-
term, fixed rate financing for water system improvements. Most
banks offer terms in the five to ten year range with fluctuating,
market-based interest rates. Even if a water system could obtain
a commercial bank loan it is unlikely that its customers could
afford the enormous rate increases that would be necessary to
service a short term loan. For example, a system serving 100
persons which needed to borrow $200,000 (at 7%) would have
to raise household water bills by $774 per year to service a ten
year loan.
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3. Bond financing. Less than 5,000 of the nation’s 58,000
Community Water Systems have established credit ratings. Bond
ratings tend to be higher for larger systems. Moody’s reports
that 90% of rated issuers with populations over 100,000 are rated
A- or better, but just 4% of rated issuers with populations under
3,300 carry A or higher ratings. Thus only a small percentage
of water systems are able to directly access the bond market at
favorable rates and terms.
A DRINKING WATER SRF ‘WILL HELP SYSTEMS
COMPLY
Provides Access to Capital
The Drinking Water SRF would offer water systems (publicly and
privately owned) access to capital at reasonable rates and terms.
Through requirements for State matching funds and through various
leveraging techniques the total amount of capital available to water
systems is substantially greater than the federal capitalization grant
investment.
Lowers Household Cost of Compliance
Low or zero interest loans reduce a water systems compliance costs
compared to market rate financing. This reduced cost is reflected in
lower household water bills than would be the case if financing was at
market rates. For example, assuming a 20 year loan, a system serving
100 people which needed to borrow $200,000 would need to raise
household water bills by $517 per year to service a loan at 7%; but
would need to increase bills by $278 per year to service the same loan
at 0%. Each family on this system could possibly save about $240 per
year if a Drinking Water SRF were available.
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Provides Incentives for Small System Restructuring
Restructuring generally involves physical or cooperative integration
with neighboring systems through a variety of approaches.
Restructuring could involve extending a water main to allow the
physical consolidation of two water systems, or it might involve the
formation of a regional public authority to manage and operate separate
water systems. EPA estimates that approximately 50% of small water
systems could improve their viability through restructuring.
Often, viable systems are reluctant to consolidate with troubled systems
because the troubled systems need substantial capital improvements.
Low interest or zero interest loans to cover the cost of these
improvements, and other restructuring costs, would be a great incentive
to promote restructuring.
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