United States
                 Environmental Protection
Office of Water
EPA 816-F-98-026
December 1998
4>EPA   The Drinking  Water  State Revolving Fund:
                 Protecting the Public  through Drinking
                 Water Infrastructure Improvements
The Challenge

The Nation's 55,000 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 243 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 Stale Revolving Fund: A Mew
Financing Option

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

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 SI 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
       The amount of funding available to individual States
       ranged from S12.6 to S75.7 million. The amount of
       funding available to each State in fiscal year 1998
      ' and later years is based on the total eligible need
       determined for each State by the most recent
       Drinking Water Infrastructure Needs Survey which
       the Environmental Protection Agency (EPA) released
       in January 1997  The amount of funding available
       for fiscal years 1998 and 1999 is S725 million and
       $775 million, respectively

       Eligible Systems and Projects
                          )     i
       Both publicly and privately owned community water
       systems and non-profit 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,

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

       Public Involvement

       Public involvement is an important element of both
       the DWSRF program an^ Ae SDWA Amendments
       States must provide infoMiliOTi about their program

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
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 I I 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 program
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 descnbed in
the law Activities are aimed at source water
protection (including loans for land acquisition and
conservation easements), capacity development and
welihead protection. States could also use part of the
FY 1997 appropnation 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 Internet website at
http //www epa gov/safewater/dwsrfhtml. To get the
contact for the DWSRF Manager in a specific State,
consult the contact list on the OGVvDW website or
contact the Association of State Drinking Water
Administrators at 202-293-7655
(http //www asdwa org) Information for 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 hotlme-
SDWA@epa gov
The EPA DWSRF program is administered by the
Regulatory Implementation Branch, Office of
Ground Water and Drinking Water, U S
Environmental Protection Agency, 401 M Street, SW
(Mailcode 4606), Washington, DC 20460. Phone
(202) 260-5526 Fax (202) 401-2345