United States                  Office of Water                EPA816-F-00-026
                          Environmental Protection         (4606)                      June 2000
                          Agency
Drinking  Water  State  Revolving  Funds
Interim  Final  Rule
The U.S. Environmental Protection Agency (EPA) is releasing an interim final rule for the Drinking Water State
Revolving Fund (DWSRF) program. This rule applies to States that implement DWSRF programs through the receipt
of Federal capitalization grants. This interim final rule is effective on the date of publication in the Federal Register.
EPA will seek comment on the rule for a 60 day public comment period.  If EPA makes a determination that changes
are needed based on the comments received, the Agency will revise the rule and publish it as final at a later date.

WHAT IS THE DWSRF PROGRAM?

The DWSRF program was established under the Safe Drinking Water Act (SDWA) Amendments of 1996 which
authorizes the Agency to award capitalization grants to States, which in turn are authorized to provide low-cost loans
and other types of assistance to public water systems to finance the costs of infrastructure projects needed to achieve
or maintain compliance with SDWA requirements. States are also authorized to use a portion of their capitalization
grants to fund a range of set-aside activities  including source water protection, capacity development, and operator
certification.  The DWSRF program helps to ensure that the nation's drinking water supplies remain safe and affordable
and that public water systems that receive funding are properly operated and maintained.

After extensive input from stakeholders, including solicitation of comments on Interim Guidelines published in the
Federal Register, EPA released the DWSRF Final Guidelines (EPA 816-R-97-005) in February 1997 to allow States
to move forward in implementing their programs. The first capitalization grants were awarded to States in March 1997.
More than $2.5 billion of the $3.6 billion that has been appropriated for the program has been awarded to States.
States have provided more than $1.9 billion  for loans to public water systems using Federal funds as well as State funds
from a required 20% match. Several States  have also increased the amount of funds available for providing assistance
by issuing bonds secured by capitalization grant funds.

WHAT IS THE PURPOSE OF THIS RULE?

This rule primarily codifies the DWSRF program Final Guidelines and explains:
    •   what States must do to receive a DWSRF program capitalization grant;
    •   what States may do with capitalization grant funds intended for infrastructure projects;
    •   what States may do with funds intended for set-aside activities; and
    •   the roles of both the States and EPA in managing and administering the program.
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This rule also includes several modifications and
additions to the Final Guidelines based on policies that
have evolved as the DWSRF program has been
implemented.  These additions and modifications went
through rounds of comment in memoranda or guidance
documents, or were published in the Federal Register
for public comment.

This rule will be codified in the  Code of Federal
Regulations (40 CFR Part 35 Subpart L) and
supplements requirements regarding Grants and
Cooperative Agreements to State and Local
Governments contained in 40 CFR Part 31.

HOW WILL  THIS RULE AFFECT STATE
PROGRAMS?

The DWSRF program is a continuing program that has
been awarding capitalization grants to States under the
Final Guidelines for more than three years. This rule
will not result in any significant changes in program
operations or award criteria.

This rule gives each State considerable flexibility to
determine the design of its DWSRF program and to
direct funding toward its most pressing compliance and
public health protection needs.  States can fund the
operational costs of DWSRF programs from
capitalization grant funds, provided that the amount
does not exceed four percent of the allotment.

HOW WAS THIS RULE DEVELOPED?

As a rule implementing  a grant program, this rule is
exempt from notice and comment rulemaking
requirements under the  Administrative Procedures Act.
However, due to the nature of the program, EPA
believed it was important to consider the comments of
affected parties when developing this rule.

A work group of State and EPA staff members
working in state revolving fund  (SRF) programs were
given the opportunity to comment on an outline and first
draft of the rule that was based on the Final Guidelines.
State staff were encouraged to share the rule with other
State colleagues.  A second draft of the rule was
posted on the Internet on April 12, 1999, for a 45 day
public comment period to give all interested parties an
opportunity to comment.

National stakeholder organizations, members of the
State/EPA SRF Work Group, and State DWSRF
managers were notified by EPA when the rule was
posted. Comments that were received were
considered in developing this rule.

HOW CAN I COMMENT ON THIS RULE?

EPA is soliciting public comment on this interim final
rule. A copy of the Federal Register notice for this
rule is available on EPA's website at
www.epa.gov/safewater/dwsrf.html.  It can also be
obtained by contacting the Safe Drinking Water Hotline
at (800) 426-4791.

EPA must receive comments, in writing, by 60 days
after the publication of this rule in the Federal Register.
For specific instructions, see the Federal Register
notice's "Addresses" section.

HOW CAN I OBTAIN ADDITIONAL
INFORMATION?

For general information about the DWSRF program,
contact the Safe Drinking Water Hotline at (800)
426-4791,  or visit EPA's website at
www.epa.gov/safewater/dwsrf.html.  The Safe
Drinking Water Hotline is open Monday through
Friday, excluding Federal holidays, from 9:00 a.m. to
5:30 p.m. Eastern Time.

For technical inquiries regarding the DWSRF rule,
contact Kimberley Roy, U.S. Environmental Protection
Agency, Office of Ground Water and Drinking Water
(MC 4606), 1200 Pennsylvania Avenue NW,
Washington, DC 20460. The telephone number is
(202) 260-2794 and the e-mail address is
roy.kimberley@epa.gov.

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