^"^
-, -3
DRINKING WATER STATE
REVOLVING FUND
increasing impact
2006 ANNUAL REPORT
Ui
0
-------
in 2006, the DWSRF programs saw increases in . . .
FUND UTILIZATION A
Loan commitments and disbursements
A
Number of loans
COORDINATION WITH PRIMACY AGENCIES
Compliance assistance
Population served by systems receiving loan ensuring
compliance
Seepage 15
RETURN ON INVESTMENTS
Return on federal investment
Return on state investment
Seepage 13
BORROWER SAVINGS
Savings over the market rate
See page 6
PROGRAM MANAGEMENT EFFECTIVENESS
Ratio of disbursements to administrative costs
Seepage 12
SET-ASIDE USE
Set-aside utilization
Systems receiving technical
assistance see page 24
Small system assistance
See page 5
Disadvantaged communities assistance
See page 5
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Letter from the Assistant Administrator
2006 in Review 2
2006 Focus Overview 8
Pace & Efficiency 9
DWSRF Coordination 15
Project Priority Lists 19
Audits 21
Set-Asides in 2006 24
DWSRF Awards for Sustainable Public Health Protection 28
2006 Financial Highlights 33
2006 Financial Statements 36
DWSRF State Agencies 39
Pawtucket Tale.. .. back cover
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Administrate
Benjamin H. Grumbles
Office of Water
I am pleased to present the Drinking Water State Revolving Fund's 2006 Annual
Report. The DWSRF is now a $12.8 billion Federal/State partnership focused on
protecting human health and supporting the sustainability of our nation's drinking
water infrastructure. This report highlights the accomplishments and financial
position of this exceptional program.
Since its inception in 1997, the DWSRF has provided assistance to almost
5,000 projects improving health protection for over 100 million Americans. The
program has provided over $11 billion in assistance. Nearly 72 percent of
projects and 39 percent of assistance has been provided to small communities
(serving <10,000 people). The DWSRF Program is comprised of 51 state
and territorial programs, each tailored to meet the unique needs and goals
of its citizens. Innovation and flexibility are hallmarks of this program, as the
numerous examples in this report illustrate.
Ensuring the long term sustainability of our nation's drinking water infrastructure
is a key challenge before us. The DWSRF offers multi-faceted support for
meeting this challenge. Drinking water utilities have access to low interest loans,
and states can provide zero interest loans, principal forgiveness, and extended
repayment periods to disadvantaged communities. Through optional set-asides,
states can fund programs to protect source waters and to enhance management
and operations of drinking water utilities.
I welcome this annual opportunity to share with you the accomplishments and
growth that make the DWSRF such an important and effective program.
Sincerely,
Benjamin H. Grumbles
Assistant Administrator
Office of Water
-------
2006
m review
The performance of the DWSRF programs in
their 10th year was outstanding. Since their
launch in 1997, the increasing impact that the
DWSRF programs have had on public health
and the drinking water industry has never
been greater or more apparent. The 51 state
and territorial DWSRF programs are each
evolving to best meet the investment needs
of their systems to advance the public health
protection objectives of the Safe Drinking Water
Act (SDWA). From a national perspective,
the DWSRF meets or exceeds performance
expectations established by comparable federal
programs.
Impact of the DWSRF
Although great, the impact of the DWSRF is
not in the number of systems that received
a subsidized loan or technical assistance.
Although almost $13 billion in funds were made
available for drinking water infrastructure, the
impact of the DWSRF is not in the savings that
systems have achieved by financing critical
infrastructure projects through the DWSRF.
Although impressive, the impact of the DWSRF
is not the financial returns on sizeable federal
and state investments. Ultimately, the true
impact of the DWSRF is protecting public
health - fewer people getting dangerously
sick from waterbourne disease, fewer children
suffering from the developmental effects of
lead contamination, and fewer adults facing the
cancers caused by unsafe drinking water.
As illustrated in Exhibit 1 below, federal and state
investments are used by state DWSRF programs
to provide both subsidized financing and technical
assistance to water systems. These resources
provide water systems with the infrastructure
and support they need to achieve and maintain
compliance with the drinking water standards
established under SDWA by EPA to ensure public
health protection. The impact of the DWSRF,
therefore, lies in ensuring that people have safe
drinking water.
How is Impact Increasing?
The impact of the DWSRF increased significantly
in 2006. This increase had two components.
First, the public health benefits generated by the
DWSRF each year are cumulative. Second, states
increased the assistance they provided from 2005 to
2006.
If a DWSRF loan enables a water system to
construct a new treatment plant to ensure that
the system is in compliance, the new plant begins
generating public health benefits as soon as it
begins treating water. These health benefits do
not disappear after the first year but are generated
continuously for the life of that treatment plant. The
impact of the DWSRF accrues each year by adding
the public health benefits of any new projects with
benefits still being created by past projects. As long
as funds revolve through the DWSRFs and states
continue to make loans, the impact of the program
will continue to snowball.
EXHIBIT l
Set-Asides
EPA
Capitalization
Grant
State Match
Loan Fund
I
Assistance to
Systems for Planning
and Management
Improvements and
Support for State
Programs
Loans to Water
Systems for Drinking
Water Infrastructure
Loan Repayments
Improved
Public Health
Protection.
-------
This snowball is picking up speed as the
DWSRF programs mature. In 2006, the
DWSRF programs increased their set-aside
spending (see page 24 for more details on the
impact of set-asides), the financing assistance
provided to systems, the number of projects
financed, and assistance to ensure SDWA
compliance over 2005 levels. The number
of people served by systems receiving DWSRF
assistance to ensure SDWA compliance likewise
increased. EPA and the 51 state programs all
recognize that the funds do the most good funding
projects and set-aside activities. States' programs
have been increasing spending generally across the
board (see Exhibit 2).
EXHIBIT 2
Drinking Water State Revolving Fund
National Performance Summary Statement
Fund Activity - Estimated ($ Millions)
Annual Fund Activity
Federal Capitalization Grants
State Matching Funds
New DWSRF Funds Available for Assistance
Project Commitments (Executed Loan Agreements)
New Set-Aside Funds Available for Assistance
Project Disbursements from the Fund
Cash Draws from Federal Capitalization Grants (Fund)
Cash Draws from Set-Asides
Cumulative Fund Activity
Federal Capitalization Grants
State Matching Funds
DWSRF Funds Available for Assistance
Project Commitments (Execuited Loan Agreements)
Set-Aside Funds Available for Assistance
Project Disbursements from the Fund
Cash Draws for Fund
Cash Draws for Set-Asides
Orange text highlights 2006 increases.
Source: EPA's DWSRF National Information Management System
2006
768.2
156.7
1,642.6
1,670.2
120.6
1,472.6
749.9
118.3
7,333.4
1,751.8
12,830.8
11,029.4
1,190.0
8,480.4
4,683.5
820.8
2005
820.2
166.4
1,463.0
1,461.1
144.3
1,267.5
636.6
114.8
6,565.2
1,595.1
11,188.1
9,359.2
1,074.2
7,007.8
3,933.6
702.5
2004
757.4
218.7
1,617.8
1,610.4
147.5
1,268.9
708.9
112.4
5,745.0
1,428.7
9,725.1
7,898.1
933.2
5,740.4
3,297.0
587.7
2003
613.2
182.4
1,284.8
1,278.4
115.0
1,097.0
591.2
120.1
4,987.7
1,210.1
8,107.3
6,287.7
794.7
4,471.5
2,588.1
475.3
2002
722.6
246.4
1,565.4
1,248.6
122.1
1,070.3
692.2
118.1
4,374.5
1,027.7
6,822.5
5,009.3
689.7
3,374.5
1,996.9
355.2
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Assistance Agreements
As shown in Exhibit 3, states awarded
more loans in 2006 compared to 2005.
Since 1997, the DWSRF programs have
provided nearly 5,000 subsidized loans
to water systems. Each of these loans
helps water systems by decreasing
the cost of critical investments in their
infrastructure. These savings enable
water systems to maintain affordable
rates and free up financial resources for
other uses, such as improved operations
or increased maintenance.
"Communities have a lot of
work to do. We're making
loans because there's a lot
to be done,"
David Leland, Oregon's DWSRF
Program Manager
DWSRF Assistance Agreements
EXHIBIT 4
Providing Assistance
3,000
2005 2006
Project Completions
B1 Projects On-Going
Project Starts
EXHIBIT 5
$1,800
Value of DWSRF Loans
$1,600
$1,400
Cumulative Value of Loans
Annual Value of Loans
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Small Systems
A key aspect of the design of every
DWSRF program is an emphasis on
providing assistance to water systems that
serve 10,000 or fewer persons. These
water systems often lack the technical,
managerial, and financial capacity needed
to overcome their challenges without
assistance. Small systems struggle
because of their small rate bases and
the economies of scale inherent in the
drinking water industry. Yet small water
systems provide drinking water to millions
of Americans and these people need the
same public health protection afforded
people served by larger systems.
In 2006, 69 percent of all loans went to
small systems and the value of these
loans increased by 11 percent ($62 million)
compared to 2005. The loan assistance
provided to systems serving 3,300 people
or fewer is in-line with the percentage of
national infrastructure need that these
systems account for based on EPA's most
recent Drinking Water Infrastructure Needs
Survey.
Disadvantaged Assistance
Most states have taken advantage of
DWSRF program provisions that allow the
state to provide special financing terms on
loans to disadvantaged communities (see
Exhibit 6). As shown in Exhibit 8, states
have provided a significant amount of
assistance to disadvantaged communities
and a significant amount of assistance
with principal forgiveness and/or extended
repayment periods. Since 1997, states
have provided over $2 billion in loans to
disadvantaged communities (see Exhibit
9); these systems served a combined total
of nearly 8 million people.
EXHIBIT 6: STATES WITH A DISADVANTAGED
COMMUNITY PROGRAM
Number of Agreements by Water System Size
200
160
< 120
so
40
2005
2006
fill
2°
Water System Population (Number of Persons)
EXHIBIT 8
Assistance to Disadvantaged Communities
$7001
$600
Total Annual Assistance to Disadvantaged Communities
> 20 Year Loan Repayment
Principal Forgiveness
i ra
O) O)
O) O)
O)
O)
O)
O * CM 00 *=J- LO CO
8888888
CM CM CM CM CM CM CM
EXHIBIT 9
DWSRF Assistance to Disadvantaged Communities
35°/01 r2,500
2,000
-1,500 "5
. 1,000 =
-500
O O O O O O O
OimOOOOOOO
CM CM CM CM CM CM
Percentage of All Agreements that Go to Disadvantaged Communities
Cumulative Assistance (in millions) to Disadvantaged Communities
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Water System Savings
The weighted DWSRF interest rate dropped ii
2006 to an all-time low of 2.07 percent, more
than 2 percent below the prevailing weighted
market rate (see Exhibit 10). In 2006, water
systems saved an estimated $301 million over
the lifetime of their loans by financing their
public health infrastructure projects through
the DWSRF (assuming that all loans had a 20
year repayment period). The savings per loan
averaged more than $500,000.
EXHIBIT 10
Comparing DWSRF Interest Rates with the Market Rate
6%
5%
1%
0%
Market Rate
-Weighted Average DWSRF Rate
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System Components
As shown in Exhibits 11 and 12, the majority of
projects financed by DWSRF programs in 2006
either included a treatment plant upgrade or
improvements to the distribution system, which are
the key water system components for removing (or
inactivating) contaminants and delivering safe water
to the public. The "Other" category in the exhibits
encompasses planning and design, land acquisition,
and the purchase of systems.
EXHIBIT 11
Portion of Funding of Executed Loan Agreements
Storage
11%
Treatment
44%
Transmission &
Distribution
37%
EXHIBIT 12
Portion of Number of Executed Loan Agreements
Treatment
21%
Storage
17%
Source
12%
Transmission &
Distribution
34%
DWSRF
iverview
is were established by the SDWA
ents in 1996. The federal government annually
provides money that states can loan at below-market
interest rates to pay for qualifying improvements to
drinking water system infrastructure. Each state's grant
allotment is proportional to the total state need identified
in the most recent national assessment of drinking water
infrastructure needs. States use the principal and interest
payments received from loan recipients to provide more
loans.
Before a state can receive a capitalization grant, a state
must:
Deposit match money equal to 20 percent of the grant
Show EPA that it has the ability to manage the
program and that it will comply with the applicable
statutes and regulations
Agree to deposit all program funds, except funds used
for set-asides, into its DWSRF and agree to a timeline
for providing assistance
Agree to use generally accepted accounting principles
and to conduct an audit
Meet requirements related to state capacity
development and operator certification programs
In addition to the requirements above, states must
develop an annual Intended Use Plan (IUP), a
comprehensive list of eligible infrastructure projects, and
a list of the highest priority projects expected to receive
funding in that year. States must give priority to projects
that:
1. Address the most serious risks to public health
2. Are necessary to ensure system can meet SDWA's
drinking water health-based standards
3. Assist systems most in need on a per-household
basis
States are allowed to make loans for eligible projects
to publicly owned, privately owned, and nonprofit
community water systems (CWSs) and noncommunity
water systems. There are five basic categories of eligible
projects:
1. Treatment
2. Transmission and Distribution
3. Source
4. Storage
5. Consolidation
Items specifically excluded from DWSRF eligibility
include expenditures for monitoring, operations, and
maintenance, projects whose primary purpose is to
facilitate growth, projects to construct or rehabilitate
dams and reservoirs, projects to obtain water rights, and
projects needed primarily for fire protection.
As more fully discussed on page 24, states can set-aside
up to 31 percent of their capitalization grant for specific
activities advancing the public health protection objectives
of the SDWA.
EPA and the states work together to ensure complete
program accountability and the efficient and effective
use of public funds (for a list of specific state agencies
responsible for implementing the DWSRF, see page 40).
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2006
focus
The 2006 Annual Report focuses on four areas critical
to understanding the impact of the DWSRF programs.
PACE & EFFICIENCY
Since DWSRF public health benefits are only
created when states provide assistance, the first
step in analyzing the impact of the DWSRF is to
examine the pace of spending. Only by making
loans, implementing programs, and providing direct
technical assistance can states accomplish the
aims of the DWSRF. By lending money, states
begin a cycle that multiplies its resources as the
money revolves from borrower to lender and back
again, growing the program over time. Pace is one
key aspect of efficiency; other important aspects
are operational efficiency, return on investments,
and public health benefits created. EPA and the
states are committed to continiously improving the
DWSRF program. This commitment is paying off
in enhanced national program performance in all
aspects of efficiency.
PROJECT PRIORITY LISTS
The tangible result of the coordination of the
DWSRF and Public Water System Supervision
(PWSS) programs is each state's Project Priority
List (PPL), which serves as the DWSRF funding
agenda. In 2006, states across the country
continued to refine their PPL processes and how
the lists are presented. These efforts improved
program planning, enhanced pace, and increased
public transparency.
COORDINATION
In order to ensure that assistance is
delivered to water systems that need
it, state DWSRF programs continue to
coordinate closely with their Public Water
System Supervision (PWSS) program
counterparts at the state level. In addition,
states work to ensure coordination with
other funding programs and with water
systems themselves. State DWSRF
coordination in 2006 ensured that funds
were used efficiently to maximize the
impact on public health.
AUDITS
Integrity and full public accountability
are at the core of each state DWSRF
program. Audits provide the critical link in
the program management and oversight
process to ensure program integrity.
EPA continues to work with the states to
continuously refine and improve the scope
of, intensity of, and follow up to program
audits.
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PACE & EFFICIENCY
The public continuously receives safe drinking
water because water utilities continuously invest
in repairing and replacing their infrastructure. The
DWSRF plays an important role in helping many
water utilities finance these capital investments.
The revolving fund model is a powerful tool for
supporting the on-going infrastructure investment
needed to ensure continued provision of safe
drinking water. Since the inception of the DWSRF
program, Congress has appropriated almost $8
billion, EPA has awarded capitalization grants of
$7.3 billion, and states have invested matching
funds of $1.8 billion. With the addition of leveraging
and loan repayments, a total of almost $13 billion
has been made available for loans through 2006.
The fundamental design of each program allows
public monies to multiply as loans are made,
repaid, and made again. The systems that receive
subsidized loans benefit from the savings, and their
payments help ensure that there are resources to
assist other systems in the future. As the financial
returns of the DWSRF grow, so do the public health
returns.
EXHIBIT 13
Annual Funds Available and Assistance
Provided
Annual Funds Available for Projects
Annual Assistance Provided
* CM CO *=J- LO CO
888888
CM CM CM CM CM CM
The success of the DWSRF can be captured by
looking at four separate aspects of the programs'
efficiency:
1. Fund utilization efficiency - or pace - is a
measure of the loans a state program has
made compared to the loans the program
could have made given the resources
available.
2. Operational efficiency is a measure of
the resources used for program overhead
compared to the assistance provided.
3. Multiplier efficiency is the return on state
and federal investment and measures the
total financial resources made available by the
federal and state investments.
4. Public health efficiency captures the public
health protection (the ultimate outcome for the
DWSRF measured in terms of water system
compliance) achieved by assistance.
EXHIBIT 14: ASSISTANCE PROVIDED AS A PERCENT OF
FUNDS AVAILABLE
Fund Utilization Efficiency
Pace is the keystone to the growth and continuation
of each DWSRF and is the engine that drives
public health protection. Cycling investments,
loans, and repayments through the fund ensures
its growth and ability to finance safe drinking water
projects in perpetuity. In 2006, states continued
to aggressively increase their fund utilization, as
measured by the assistance as a percentage of
funds available, and continued to keep up with the
growth in available funds (see Exhibit 13). Over
-------
the life of the program, states have provided $11
billion in loans (a utilization rate of 86 percent) to
finance nearly 5,000 projects. As shown in the map
in Exhibit 14, most states have a cumulative fund
utilization rate that exceeds 80 percent in 2006.
In addition to increasing their pace of assistance,
states also increased the pace of disbursement
to nearly 70 percent (see Exhibit 15). Most states
increased their rate of disbursement in 2006 (see
Exhibit 15 for cumulative disbursement rates).
EXHIBIT
Disbursement as a Percentage of Total Assistance
Provided
I
What are Disbursements?
A key metric for the DWSRF program is
disbursements, or the funds disbursed to
loan recipients to reimburse invoices for
construction or other capital costs.
EXHIBIT 16: DWSRF
OF TOTAT ASSISTANf
;D AS A PERCENT
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leveraging
In order to immediately increase resources available
for assistance to better meet water system demand,
20 states have leveraged their programs by issuing
bonds. Leveraged states have more resources to
provide immediate assistance, which generates
more immediate public health protection, although
at the longer term cost of having to repay the bonds
they issued. There can be a significant difference
between leveraged and non-leveraged states in
these efficiency measures.
Exhibit 17 shows that leveraged states have a
higher cumulative fund utilization than states that
have not leveraged, showing the effectiveness of
leveraging where there is appropriate demand.
Leveraged states were also more successful in
disbursing funds, as shown in Exhibit 18.
87%
Cumulative Assistance Provided as
a Percent of Funds Available
Leveraged States
Non-Leveraged
States
Disbursements as a Percent
of Assistance Provided
70%
65%
60%
Leveraged States
The pace of loan principal and interest repayments
has also dramatically increased as fund utilization
has increased. The increase in the pace of
recycling principal and interest monies back into the
program (as shown in Exhibit 19) yields even more
resources that states can use for public health
protection. The portion of total dollars available
for assistance that comes from principal and
interest payments has steadily increased and
continued to do so in 2006 (see Exhibit 20).
EXHIBIT 19
EXHIBIT 20
DWSRF Operating Revenue
400
350
300
o 250
2 200
150
100
50
- Fees
- Interest Earnings on Investments
Principal Repayments
Interest Payments
25%
'
co
-a
c
c
c
c
o>
o
CD
CL
20%
15%
10%
5%
0%
Annual Loan Principal Repayments and Interest as
Percent Contributors to Available DWSRF Funds
01
Oi
Oi
o
o
o
CNJ
o
o
CNJ
o
o
CNJ
3- LO CD
O O O
O O O
CNJ CNJ CNJ
- Interest Payments as a % of Funds Available
-Loan Principal Repayments as a % of Funds Available
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Operational Efficiency
Multiplier Efficiency
States must devote significant staff and resources to run
a successful DWSRF program that protects public health
and meets its fiduciary responsibilities to the public. In
order to increase fund utilization, states need staff with
the time and ability to identify systems in need, assist
systems with completing loan applications, and guide
systems through the entire process. The resources that
states spend to implement and grow their programs
yield impressive returns on investment and public health
protection. States are increasing their operational
efficiency by lowering their overhead as a percentage
of assistance provided. Exhibit 21 shows the dramatic
difference in the growth rate of assistance compared
to administrative costs. Exhibit 22 shows that the slow
growth in DWSRF program administrative expenses has
been funded through fees and set-asides.
Annual Assistance Provided and Associated
Administrative Costs
Total Annual Assistance
DWSRF Administrative Costs
8 8
Breakdown of Revenue Sources to Pay DWSRF
Administration Expenses
One of the reasons for the remarkable
success of each DWSRF program is the
strong partnership between the federal
and state government to protect public
health; every DWSRF program is a true
joint venture. At the outset, the financial
investment by the federal government is
increased by each state's 20 percent match.
The multiplier effect is even greater for states
because every $1 invested by the state is
matched by $4 from EPA. This mutually
beneficial financial partnership allows states
to build drinking water programs that yield
greater public health protection than states or
the federal government could realize on their
own.
The multiplier efficiency improves as fund
utilization and subsequent principal and
interest payments increase. This cycle
creates a perpetually increasing investment
as the original federal and state investments
are recycled to provide more loans and safe
drinking water time and again.
The cumulative return on federal
investment continued to increase in 2006,
as demonstrated in Exhibit 23. For every
federal dollar invested in the DWSRF, $1.73
in assistance has been provided to water
systems to protect public health. The return
on state investment has been even more
impressive. For every state dollar invested,
state DWSRF programs have provided
$4.84 in assistance to ensure safe drinking
water (see Exhibit 24). The greatest return
on investment for both federal and state
governments was in leveraged states, where
the average return on investment was more
than double the return from non-leveraged
states.
To Leverage or Not to Leverage?
States' decisions to leverage are based
on a variety of factors, including demand
for funds and the urgency of projects.
Other State Sources
Fee Accounts
DWSRF Administration Set-Aside
12
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Public Health Efficiency
Building on Success
The DWSRF Programs directly benefit public
health by enabling water systems to invest in
critical drinking water infrastructure. Because
the benefits of drinking water infrastructure
cannot be directly measured, EPA uses the
rates of water systems' compliance with drinking
water standards as a proxy measure for public
health protection. Systems that comply with all
applicable drinking water rules are delivering
water to consumers that is safe to drink. The
vast majority of DWSRF loans fund projects that
either return a system to compliance, keep a
system from falling out of compliance, or enable
the system to comply with a new standard. These
projects directly produce public health benefits
for the life of the infrastructure, which can be
longer than 50 years for some distribution system
components.
The total population served by systems that
received a loan ensuring compliance more than
doubled in 2006 - from 20 million people in 2005
to 42 million Americans in 2006. Last year, more
than 90 percent of all assistance provided went
to projects that ensured compliance, a significant
increase over 2005 fueled by growth in the funding
of projects that return systems to compliance (see
Exhibit 25).
The flexibility of the DWSRF has allowed states to
manage their programs in ways that have increased
pace. For instance, some states are instituting
efforts to accelerate loan repayment, increasing
the speed at which money cycles back through
the program. Common practices to quicken loan
repayment include employing state construction
managers to keep projects on schedule and
implementing contractual changes to encourage
the timely receipt, use, and repayment of funds.
The case studies of Georgia, New York, and
Arizona that follow on page 14 demonstrate these
strategies.
Other state DWSRF programs have created more
attractive terms and loan packages in order to
increase fund utilization and return on investment.
Alaska, for example, previously tied the DWSRF
rate to the municipal bond index. After adjusting the
floating rate to a flat 2.5 percent, the state has seen
increased borrower enthusiasm.
'We know EPA only awards this money if it is used, and used
well, "Jason Bodwell, Georgia SRFProgram Manager
EXHIBIT 24
DWSRF's Cumulative Return on the Federal Investment
DWSRF's Cumulative Return on the State Investment
CD
CO
c
o
DWSRF Disbursements
Federal Outlays
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GEORGIA
From 2004 to 2006, nearly 100 percent of DWSRF funds available in Georgia have been utilized, a
30 percent increase from the three preceding years. Georgia's pace increased because the State:
1. Gives communities only 6 months after project approval to move forward and only 1 year to
draw the first dollar;
2. Maintains an Inactive Project List of communities that have been inactive for at least 3
months;
3. Works closely with communities that have slow moving projects; and,
4. Funds large projects through a phased approach to loan disbursement and repayment. For
example, if a community requires $30 million, the State issues 3 promissory notes of $10
million, each requiring repayment at a different time.
NEW YORK
New York has increased pace by providing borrowers with short-term (3 year) financing, for
which the application process is less onerous and quicker than that for long-term financing.
Short-term financing is most often used for planning and design and land acquisition
(water quality protection), and frequently rolls over into long-term financing. The State
has identified two key benefits of short-term financing: it moves money to borrowers more
quickly and results in more accurately-planned and budgeted long-term projects.
JUZONj
Arizona requires its DWSRF program to make a decision on a finance application within 90 days
of receiving it. Once a project has been approved, it is the ongoing objective of the Finance
Authority to circulate and obtain comments on draft loan documents within 30 days and execute
a financial assistance agreement within 75 days. For the past couple of years, the median time
from application submission to loan execution has been 95
business days. In addition, a law passed in 2006 further
increased pace by making it easier for small communities
to borrow money. Municipalities and domestic water and
wastewater districts serving fewer than 50,000 people may
now enter into a loan with the Finance Authority without
holding a bond election.
EXHIBIT 25
Assistance for Compliance as a
Percent of Total Assistance
c
S
to
'(/)
I/)
100%
80%
S 60%-
3
o
c
CD
o
CD
Q_
40%-
20%
2005 2006
Assisting Compliant Systems to Meet Future Requirements
Assisting Compliant Systems to Maintain Compliance
Assisting Non-Compliant Systems to Achieve Compliance
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COORDINATION
In each state, the DWSRF
program is one important
part, but only a part, of a
powerful suite of programs
dedicated to achieving
the "water safe to drink"
objective that drives the
national drinking water
program. States are
working to coordinate the
financial resources and financing expertise of the
DWSRF with the expertise, authority, and oversight
of the state's drinking water primacy agency. This
horizontal integration of knowledge and efforts
between the Public Water Supply Supervision
(PWSS) program and DWSRF is key to capturing
the greatest public health benefits from the nation's
investment in the DWSRF programs. In addition,
states are also tackling the important tasks of
vertically coordinating with water systems that need
assistance as well as cooperating with other funding
programs (see Exhibit 26).
Coordination between DWSRF and
PWSS programs
PWSS programs have primary enforcement
responsibility (also known as "primacy") for ensuring
that public water systems (PWSs) maintain SDWA
compliance. PWSS programs develop state
drinking water regulations, maintain inventories
of PWSs, conduct sanitary surveys, provide
technical assistance, and ensure that all systems
comply with state requirements. PWSS program
staff are best positioned to identify systems that
need funding assistance for compliance and help
these systems access the DWSRF. Primacy
agencies and DWSRF programs have continued to
strengthen their coordination to ensure that precious
loan and set-aside resources are directed to the
water systems that need them most and that set-
asides are used most effectively. This coordination
continued to pay off in 2006 as the loans that
ensured compliance with public health standards
increased by nearly $350 million.
EXHIBIT 26: COORDINATING RELATIONSHIPS
Other Federal Programs
Other
Funding Programs
TA Providers and
Other Third Parties
CD
CD
E
CD
a
CD
CD
CD
CD
3
CO
CD
cc
o
o
15 Relationships highlighted in this section are in orange.
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The following examples illustrate the variety of ways
in which states have coordinated efforts to identify
struggling systems and supply them with necessary
resources.
In California, the Drinking Water Program of the
Department of Health Services (DHS) is responsible
both for DWSRF financing and for regulatory and
compliance oversight. Having both functions
performed within the same division facilitates
coordination between the efforts.
Other states find it advantageous to divide the
primacy and financing programs among separate
agencies with specialized expertise that maintain
close communication. For example, in Oregon, the
Oregon Economic and Community Development
Department (OECD) is a central clearinghouse for
many state funding programs and benefits from the
additional resources and experience that come with
these responsibilities. Frequent communication
between the OECD and the Department of Health
Services (DHS), Oregon's primacy agency, ensures
that DWSRF loans are made to systems most in
need in order to maximize public health protection.
When OECD signs off on a project from DHS's
Project Priority List, it invites DHS to communicate
any shortcomings of the project plan, which may
then be incorporated as conditions of the loan.
Coordination between DWSRF
programs and PWSs
To efficiently target water systems most in need
of DWSRF funding there must be effective
communication between the agency providing
assistance and the systems that need help. State
DWSRF programs have used a variety of strategies
to foster communication with PWSs in order to
help systems assess their needs, understand
the benefits of financing their project through the
DWSRF, and tailor assistance to each system's
situation. It is especially critical for DWSRF
programs to focus attention on disadvantaged
communities and small systems, as these
communities typically lack the capacity to address
the challenges they face on their own.
Education and outreach activities are important
tools for DWSRF communication. Several states
use funding fairs to raise awareness of
available assistance and their application
and lending processes requirements.
Systems frequently comment that they
appreciate having multiple agencies in
one place for face-to-face communication.
Some states use Web sites to provide easily
accessible information, such as project
status updates.
The City of Pawtucket, Rhode Island, worked
closely with the State to find creative, flexible
DWSRF funding solutions that would soften
the impact of much needed infrastructure
improvements on costs to ratepayers.
(See the back cover of this report for more
details.)
In Arizona, the Rural Water Infrastructure
Committee (RWIC) is a flexible organization
that serves as a "one-stop shopping" entity
for communities and small water systems
in need of assistance. At bi-monthly
project meetings, staff of numerous funding
and technical assistance sources are on
hand, allowing system and community
representatives to explore the myriad of
technical assistance and funding options for
infrastructure projects available to them in
one place. As RWIC provides both financial
and technical assistance, meetings are
commonly followed by on-site technical
assistance visits and reviews of existing
infrastructure design plans.
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Coordinating funding with other funding agencies
Many states have found that
their DWSRF funds go furthest
when they are coordinated
with funds of other state
and federal programs with
shared or complementary
objectives. A common goal
of such coordinated efforts is
to streamline the application
process to make it easier on
water systems that need help
but are unsure about how best
to get it. As shown in Exhibit 27,
DWSRF assistance coordinated
with funding from other sources
has been increasing, both
absolutely and as a percentage
of the total coordinated
assistance that systems receive.
EXHIBIT 27
DWSRF Funding Coordinated with Other State or
Federal Funding Sources
2,000
1,800
1,600
1,400
i Total Cumulative Coordinated Funding
DWSRF Portion
EXHIBIT 28
Assistance for SDWA Compliance
2005
Compliance with Future Requirement
Maintain Compliance
Return to Compliance
2006
In Montana, the Waste,
Wastewater and Solid Waste
Action Coordinating Team
(W2ASACT) agencies use
a uniform application with
agency-specific supplements.
In California, the California
Financing Coordinating
Committee (CFCC) coordinates
the assistance of several
state agencies, including the
DWSRF. And in Kentucky, the
DWSRF program coordinates
with Rural Development and
Community Development
Block Grant (CDBG) programs
and works closely with the
Appalachian Resource
Commission (ARC) to target
disadvantage communities for
assistance.
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LONTANA
it of Environmental Quality (DEQ) administers the DWSRF and
PWSS programs, and the Department of Natural Resources and Conservation
(DNRC) issues the State's general obligation bonds and makes loans to project
borrowers. The DWSRF and PWSS programs communicate closely about rule
implementation and project development and funding. For example, PWSS
program staff alert DWSRF program staff to projects with critical needs, and
frequently refer permit applicants directly to the DWSRF when they identify
deficiencies in their systems.
The location of Montana's DWSRF and PWSS programs within the same
building also facilitates coordination. Mark Smith (DEQ): "I can always run
downstairs and look at a file for a particular system. Hard copies on hand and
face-to-face contact makes for timeliness."
CALIFORNIA
The Drinking Water Program within the Department of Health Services (DHS) is responsible both
for DWSRF financing and for SDWA regulatory and compliance oversight. California has found
that increasing PWSS attention to enforcement and compliance has increased systems' interest
in DWSRF assistance. Systems that would
otherwise prefer to wait for grant money are
more inclined to take immediate advantage of
DWSRF loans following documentation of a
problem.
The California Financing Coordinating
Committee (CFCC) facilitates coordination
of the funds of several state agencies,
including the DWSRF. Agencies review each
other's priority lists and compare fundable
components. The CFCC decreases the
application burden wherever possible. A
common inquiry form is accepted by all
agencies, and an environmental review
conducted by the DHS is accepted by other
agencies.
Coordination through CFCC improves the
pace and efficiency of California's DWSRF.
Because the DWSRF has extremely
competitive interest rates, it rarely loses
eligible projects to other agencies. "We can
help extend others' funds, and they help us
by funding lower ranked projects," says Steve
Woods of DHS.
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PROJECT PRIORITY LISTS
Project Priority Lists (PPLs) are the operational
cornerstone of a state's DWSRF program.
The list includes all the projects that the
state DWSRF program could potentially fund
and orders them according to established
criteria reflecting program priorities. One key
project characteristic a project applicant's
readiness to proceed is not reflected in the
projects' ranking on the comprehensive list.
"Ready to proceed" projects are those that
can begin work when a loan is signed or even
sooner, depending on the project and finance
vehicle.
Under the 1996 Amendments to the SDWA,
states are required to use their DWSRF funds
to assist the highest priority projects. To
determine this order, each state has developed
a ranking system, which must give priority to
projects that:
Address the most serious risk to human
health;
Are necessary to ensure compliance with
the requirements of the SDWA; and
Assist systems most in need (on a per
household basis).
States are allowed to give consideration to other
factors such as whether the project includes
other priority elements such as consolidation,
water efficiency, and security. These additional
considerations can create a more robust PPL
and can further the goals of the Four Pillars of
Sustainability.
There are several reasons why a state's PPL
might not accurately represent the projects that
receive loans in a given year. For instance,
states may lack the funds to award loans to all
the projects, or litigation issues may arise that
delay top projects. Sometimes higher priority
projects do not receive funding because they
are not "ready to proceed" due to incomplete
paperwork, engineering plans, or environmental
impact reviews.
Several states are implementing innovative
programs to improve the transparency and
effectiveness of their PPLs. Arizona, Georgia,
Ohio, and Indiana, among others, are creating
supplemental lists or delineating within the PPL
the projects that are within the "fundable range"
for the coming year. States are also actively
helping systems with the loan application
process, further ensuring that all projects on the
PPL are indeed ready to proceed. Updating
the PPL multiple times a year has proven to
be another effective tool to improving the state
PPLs.
Maintaining a PPL sublist of only projects ready
to proceed is essential to ensuring that DWSRF
programs maintain pace while still funding the
highest priority projects. EPA expects all states
to continue to improve their priority lists in
2007 so that the projects that
receive funding are those at
the top of the priority list.
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project priority list case studies
OHIO
In 2005, out of frustration that high-priority projects were not being funded, Ohio began grouping projects on
its PPL into three categories. Those projects that are "ready to proceed" are labeled as either "fundable" or
"contingency" projects, depending on whether they are high enough priority to receive funds available in the given
program year. The fundable projects for a given year comprise Ohio's Intended Project List, which supplements
its PPL.
Projects that will not be ready to receive funding during the year are assigned "bypass"
status. Ohio has made its bypass procedure aggressive in order to ensure that projects on
the Intended Project List are truly ready to proceed. For example, projects that do not have
have detailed engineering plan approval within certain timeframes are bypassed.
Ohio also requires systems that did not receive a loan in the previous year to resubmit the
pre-application materials, including a new project schedule. If a system does not re-submit
the pre-application, the project is removed from the PPL. This helps Ohio ensure that the
systems on its PPL are ready to move forward.
GEORGIA
To prevent its PPL from being encumbered by projects that are not ready to proceed,
Georgia moves projects on the PPL that have been inactive for more than three months to
an "Inactive Project List."
IZONA
its PPL process so that the PPL can be amended up to six times a
year. To ensure that the borrower is committed to receiving a loan, and to help better
allocate state resources, Arizona has a set of "readiness to proceed requirements" for
which projects receive prioritization points. Projects receive Readiness to Proceed
points for having:
1. Debt Authorization (40 points)
2. Solicited Bidding (30 points)
3. Plans and Specifics Approval (20 points)
4. Project Design Completed (10 points)
Only projects that have at least 40 Readiness to Proceed points are placed in the
Fundable Range of the PPL. When a project is put in the Fundable Range, the State
sends the system a set of application materials. Once the system has had the materials
for a week, State staff visit the system to assist them with completing the required
paperwork. During this visit, State staff may take photos, ask questions, and make
suggestions on what documentation should be included to complete the application.
INDIANA
To prevent projects from being prematurely added to the PPL and to gauge a system's commitment to accepting a
DWSRF loan, Indiana only adds projects for which a preliminary engineering report has been submitted. Indiana
also demarcates the top portion of its PPL as being within the coming year's fundable range. For the first 4
months of the fiscal year, only projects within the fundable range can receive loans. After 4 months, the funds are
made available to all projects on the PPL. Indiana notes that creating these windows has benefited small and
disadvantaged systems and encouraged more systems to apply for loans.
20
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AUDITS
As DWSRF programs continue their
rapid growth, the importance of reliable
accounting and regular independent audits
increases. The public has invested billions
of dollars in the DWSRF programs, and
the programs must preserve this protect
public trust. In addition to providing
accountability, audits can help states
improve their program management.
Benefits of Audits
Audits benefit the managers of DWSRF
programs, the water systems relying
on the DWSRF programs for low-cost
infrastructure financing, and the public that
has funded the programs to ensure that
they have access to safe drinking water.
DWSRF program managers need to be
able to have total trust in the accounting of
their programs and know that the internal
controls are functioning properly. From an
external perspective, independent audits
give both the public and elected leaders
assurance that the finances of the program
are being managed properly and will exist
in perpetuity.
Separate financial statements are
necessary to determine how state and
federal capital invested in DWSRF
programs are managed, and to be
confident of this accounting, these
statements must be audited. Wthout
confidence from regular and thorough
auditing, the historical record of program
performance is suspect. As a result,
program managers cannot judge whether
the fiduciary aspects of the program are
being managed adequately and cannot
plan for the future.
Worse, without good accounting, decisions
can be made based on faulty information,
as was the case in one state, which relied
only on its Single Audit. Unbeknownst
to program managers (and undetected by the
Single Audit), a non-SRF loan had been booked to
the DWSRF. The error was only uncovered after
EPA's Office of Inspector General (OIG) audited the
DWSRF program.
As the DWSRF programs have grown, the
importance of separate accounting and auditing
of DWSRF programs has only increased. Doug
Garrett, Deputy Director of the Financial Assistance
Center for the Missouri Department of Natural
Resources puts it this way, "Missouri's Drinking
Water and Clean Water SRFs combined have
oversight of over $1.6 billion in loans that's more
than some banks in Missouri handle. We've got to
make sure those funds are being used as intended."
States Take the Lead
Many states have long recognized that Single
Audits, unless significantly modified, lack the
detail on program finances, internal controls, and
compliance needed to run a responsible program.
Before OIG began regular auditing of states that did
not already conduct their own independent audits,
22 states were already conducting independent
audits of their DWSRFs. This group of pioneers
included all leveraged states (an audit was
necessary to assure parties in the bond market that
their interests were protected) and several non-
leveraged states, which were voluntarily auditing
as part of their commitment to responsibly manage
the public investment and in order to capture the
benefits of an audit.
When OIG initiated audit oversight, 21 more
states decided to conduct their own independent
audits rather than rely on EPA. In 2006, 42 of 50
states and Puerto Rico were conducting regular,
independent audits of their DWSRF programs, and
one additional state has agreed to perform a first-
ever independent audit in 2007. The seven prgrams
that did not conduct their own audits often cited a
lack of resources or pointed to the Single Audit Act
provision.
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The Future of DWSRF Auditing
With the change in policy for 2007 that removes the OIG
as an audit option for the few states not yet conducting
their own independent audits, EPA expects these states
to join the other 44 programs in meeting the DWSRF audit
requirements. The DWSRF programs have sustained
impressive growth while meeting high accounting standards
and maintaining the program's strong standing in the eye
of the public and financial community. Demonstrating
accountability and stewardship of the Fund is essential as
the importance of reliable accounting continues to increase
as the DWSRF programs grow.
^H
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Audit Benefit Case Study
In 2000, a state discovered that the trial balance (the listing of all accounts to ensure that debts are equal
to the sum of all liabilities plus equity and capital) for its DWSRF account was out of balance. A thorough
audit by the OIG was able to determine what had gone wrong and how to fix the problem. Findings
revealed problems with compliance and a lack of internal controls. The state's Single Audit had missed
the problem because it highlighted only federal money and state match funds in reserve and ignored
bond money and loan repayments, which account for the majority of the activity of the DWSRF.
With the help of an auditor, the state was able to use the findings to make real improvements to its
DWSRF program. A new accounting system was implemented, and a 2003 audit revealed significant
improvement in funds management. Having concluded that its Single Audit does not review the DWSRF
program in sufficient detail, the state is working hard, with support from its EPA Region, to secure funding
for regular independent audits of its DWSRF program.
Single Audits:
Relying on a Single Audit for DWSRF oversight
decreases the burden to a state, but when
it comes to providing confidence in DWSRF
financial information, Single Audits are
inadequate without significant modification.
The Single Audit Act stipulates that States
can conduct (at a minimum) a single state-
wide audit for review by the OIG. The goal of
such a broad audit is to ensure that federal
money is used properly, and that a uniform set
of accounting standards is adhered to at an
entity-wide level. However, single audits are
not intended to provide detailed audit coverage
of all federal awards made to the auditee or to
provide detailed information about individual
awards.
A Single Audit depends on the professional
judgment of an auditor who must decide which
programs should be audited. As the auditor
cannot audit and conduct risk evaluations for
every program, this decision is not made in
a vacuum but under pressure and within the
context of a complicated set of rules. The end
result is that the DWSRF financial statements
and internal controls may entirely escape
review under a Single Audit.
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set-asides
IN 2006
The four DWSRF
set-asides together
constitute a rich,
flexible package of
tools that states use
to run their critical
*f.*i^^ i i
drinking water
programs and provide
assistance to water
systems. Inherent in the design of the DWSRF set-
asides is the ability of states to innovate within their
programs so that the solutions and assistance they
offer are tailored to the needs of their systems. In
most states, the resources from the set-asides are
the lifeblood of state programs that directly ensure
public health is protected.
Big Changes in 2006
Since the early years of the DWSRF programs,
states have been aggressively spending their
set-aside resources to aid water systems and
protect public health. Over the years, however,
states set aside tens of millions of dollars more
than they spent, swelling the balances of state
set-aside accounts. In 2006, states reversed this
trend and reduced the amount of dollars set aside
(leaving more in the loan fund for financing critical
infrastructure) while still increasing the amount of
set-aside spending; the net result was that states
began to spend from their accumulated set-aside
balances as EPA had requested. The simultaneous
increase in set-aside spending and increase in
available funds for loans increases the impact
of both aspects of the program as states show
determination to use resources now rather than
stash them away for the future.
Benefits Increasing
Like the compounding of benefits generated by
the infrastructure built with DWSRF loans, the
technical, managerial, and financial expertise
built from set-aside-funded technical assistance
accrues each year in other words, the
knowledge and tools provided to system staff
in 2005 continue to benefit their consumers in
2006. The impact, therefore, comes from the
continuance of the public health improvements
created by set-aside utilization prior to 2006; these
benefits are increased as states ramp up spending
from their set-asides to protect public health (set-
aside funds only produce benefits when spent), as
shown in Exhibit 29.
EXHIBIT 29
Annual Set-Asides Awarded and Expended
400 ~
350
Cumulative Set-Aside Reserve
Total Annual Set-Aside Activity Dollars Expended/Committed
Annual Net Total Amount Awarded for Set-Asides
EXHIBIT 30: CUMULATIVE SET-ASIDE SPENDING
RATES
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SET-ASIDE BASICS
A oi
25
Each state reserves a portion of its
capitalization grant to support the
core drinking water programs of their
state drinking water programs. These
programs, which can include the Public
Water System Supervision (PWSS)
program, Capacity Development,
Operator Certification, Source Water
Protection, and the DWSRF itself,
improve the technical, managerial,
and financial capacity of drinking
water systems. These set-aside funds
particularly benefit people served by
small or struggling systems. Set-aside
spending enables thousands of drinking
water systems to sustainably provide
adequate amounts of safe water to
millions of people.
The DWSRF is unique because of
the four set-asides which target key
underlying conditions that affect drinking
water systems' abilities to protect
public health. States elect to reserve
a portion of their federal capitalization
grants (from zero percent to the
maximum allowable percentage in each
category) and apply these funds as
direct assistance to improve systems'
institutional capabilities. Each state
uses a blend of set-aside spending that
is designed to meet the needs of its
drinking water programs and drinking
water systems.
The map in Exhibit 30 shows the cumulative
set-aside spending rates by states. As
shown in Exhibits 29 and 31, states
continued to increase the cumulative
rate of DWSRF set-aside spending from
2005 to 2006. They increased the annual
spending rate of set-asides from 81 percent
of funds available in 2005 to 102 percent
in 2006 by spending down their set-aside
reserves. Overall, states have reserved
approximately $1.2 billion in set-asides and
have already spent 70 percent of those
funds, $828 million, helping water systems.
After several years of decline, the number
of systems directly assisted by state set-
aside spending increased by 8 percent from
2005 to 2006. This means that thousands
more systems now provide more effective
protection of health for their consumers.
Administration and Technical Assistance (4%):
Administer the DWSRF program and provide
technical assistance to public water systems
Small System Technical Assistance (2%):
Provide technical assistance to small systems
serving no more than 10,000 people
State Program Management
(10%, requires dollar-for-dollar match):
Administer the state PWSS program
Administer and provide technical assistance through
source water protection programs
Develop and implement a capacity development
strategy and/or operator certification program
Local Assistance and Other State Programs
(15%, no more than 10% per any one activity):
Implement broad range of programs including source
water protection, wellhead protection, and capacity
development.
* These set-aside percentages are the maximums of the federal
grant that can be taken, but each state has the discretion as to
how much to set aside (up to the allowed amount).
EXHIBIT 31
Cumulative Set-Asides Awarded and Expended
Cumulative Net Total Amount Awarded for Set-Asides
Cumulative Set-Aside Activity Dollars Expended/Committed
Cumulative Spending Rate
State DWSRF programs increased the impact of their
set-aside spending in 2006 and can use set-aside
balances to do even more in 2007. The national set-aside
balance is still $362 million. As states continue to focus on
immediately improving the capacity of struggling systems
and work with systems to comply with the new drinking
water rules Ground Water Rule, Stage 2 Disinfectants
and Disinfection Byproducts Rule (Stage 2 DBPR), and
Long Term 2 Enhanced Surface Water Treatment Rule
EPA expects states to continue increasing the pace of
set-aside spending in 2007.
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w
HH
H
HH
fc
H
w
Q
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w
on
w
on
State Program Implementation 4% 2% 10% 15%
Capacity assessments I^H^BI * *
Circuit riders ^^Hl * *
Community outreach
Compliance determination and
evaluation
Construction inspections
Enforcement
Lab certification
Monitoring waiver program
Operating permits and monitoring
compliance
Operator certification
Oversight of contamination clean-up
Regulation of water withdrawal
Rule implementation
Sanitary surveys ^^Hl * *
Significant non-compliance assistance
Software and data system upgrades
Staff I^B^BI
Standard operating procedure
manuals
Training ^^Hl * *
Unregulated Contaminant Monitoring
Water quality alerts
Waterborne disease surveillance
4% Administration & Technical Assistance Set-Aside
States: 47 spent and 40 set aside*
Set aside: $26 million ($6 million decrease)
Spent: $30 million ($1.5 million increase)
Note: 98% spent on running state DWSRF programs
Set aside: $281 million
Spent: $216 million
Spending Rate: 75%
Remaining Balance: $64 million
*i.e., 47 states spent funds under this set-aside, either from this year's
set-aside or from reserves from previous years' set-asides. 40 states
set aside a portion of their 2006 capitalization grants.
EXHIBIT 32
Administrative Set-Aside
Amount Annually Awarded and Expended
90%
Water System Assistance
Area-wide optimization (AWOPs)
Asset inventories
Backflow and cross-connection
prevention
Board member training
Comprehensive performance
evaluations (CPEs)
Consolidation and regionalization
Consumer Confidence Reports
Contaminant inventory
DWSRF loan application
Emergency infrastructure upgrades
Financial planning and business
plans
Hydrologic studies
Land and easement acquisition
Leak detection programs
Legal Assistance
Local/regional land use planning
Mentoring and peer assistance
Monitoring plans and schedules
Pilot studies for disinfection
byproducts and arsenic
Plugging abandoned wells
Pollution prevention program
Public outreach tools
Rate setting and reviews
Receivership program
Regional water feasibility studies
Sanitary survey deficiencies
Security and emergency response
Smart growth guidelines
System partnerships and mutual aid
networks
Tracer studies and engineering
services
Treatment and distribution system
evaluations
Vulnerability assessments
Water conservation and drought
tracking
Water quantity modeling
Wellhead protection plans and
source water protection
4% 2% 10% 15%
Cumulative Set-Aside Reserve
Total Annual Set-Aside Activity Dollars Expended/Committed
Annual Net Total Amount Awarded for Set-Asides
Cumulative Spending Rate
2% Small System Technical Assistance Set-Aside
States: 46 spent and 37 set aside
Set aside: $12 million ($5 million decrease)
Spent: $13.9 million (no change)
Note: number of systems receiving technical
[assistance increased by 14%
Set aside: $123 million
Spent: $84 million
Spending Rate: 69%
Remaining Balance: $39 million
EXHIBIT 33
Small System Technical Assistance Set-Aside
Amount Annually Awarded and Expended
80%
Cumulative Set-Aside Reserve
Total Annual Set-Aside Activity Dollars Expended/Committed
Annual Net Total Amount Awarded for Set-Asides
Cumulative Spending Rate
26
-------
10% State Program Management Set-Aside
States: 44 spent and 33 set aside
Set aside: $43 million ($7 million decrease)
Spent: $45 million ($2 million increase)
Note: states spent more for PWSSs and Capacity
Development programs
Set aside: $372 million
Spent: $271 million
Spending Rate: 70%
Remaining Balance: $100 million
Note: 60% of spending on PWSSs
EXHIBIT 35 2006 Annual Program Management
Set-Aside Expenses
PWSS Administration
Source Water Protection
Capacity Development
Operator Certification
EXHIBIT 34
State Program Management Set-Aside
Amount Annually Awarded and Expended
Cumulative Set-Aside Reserve
Total Annual Set-Aside Activity Dollars Expended/Committed
Annual Net Total Amount Awarded for Set-Asides
Cumulative Spending Rate
15% Local Assistance and Other State Programs Set-Aside
States: 39 spent and 29 set aside
Set aside: $35 million ($6.5 million decrease)
Spent: $30 million (no change from 2005)
Note: technical and financial assistance provided
to nearly 5,000 systems
Set aside: $415 million
Spent: $256 million
Spending Rate: 62%
Remaining Balance: $159 million
Note: spending rate has decreased as spending
on source water protection has dropped
EXHIBIT 37
Local Spending by Category of the
Local Assistance and Other State Programs Set-Aside
501
40
30
20
10
.ilHln
EXHIBIT 36
Local Assistance and Other State Programs Set-Aside
Amount Annually Awarded and Expended
Cumulative Set-Aside Reserve
Total Annual Set-Aside Activity Dollars Expended/Committed
Annual Net Total Amount Awarded for Set-Asides
Cumulative Spending Rate
Technical or Financial Assistance to
PWSs for Capacity Development
Wellhead Protection Programs
SWPArea Delineation & Assessment
Loans for Incentive-Based SWP
Measures
Loans for Land Acquisition &
Conservation Easements
27
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DWSRF
awards for sustainable
PUBLIC HEALTH PROTECTION
The 2006 Drinking Water State Revolving Fund
Awards for Sustainable Public Health Protection
recognize projects that exemplify exceptional
creativity, effectiveness, and dedication to public
health protection. Program flexibility and innovation
are central to the DWSRF, and since the program's
inception in 1997, borrowers and their supporters
have continually impressed EPA with their creative
and innovative approaches to protecting public
health.
Projects were nominated by states and were
required to meet several criteria to be eligible for
an award. To further the public health goals of the
DWSRF program and to encourage transparency,
three criteria were mandatory for project elligibility:
Compliance with the Safe Drinking Water Act
Financial integrity, demonstrated by audits or
financial reviews
High ranking on the state's Project Priority List
In addition, leadership was required in at least one
of the following four criteria: innovative financing,
innovative approach to planning and/or project
implementation, creative use of partnerships, and
promotion of sustainable infrastructure.
The winners were acknowledged at the national
Council for Infrastructure Finance Authorities
(CIFA) meeting in Philadelphia, PA in November
2006. Information highlighting these programmatic
successes is available on EPA's DWSRF Web site
and has been distributed to DWSRF loan recipients
around the country.
-------
award recipients
region 8
MAGNA WATER COMPANY
FORT PECK/DRY PRAIRIE
RURAL WATER AUTHORITY
MT
UT
Problem: High levels of arsenic and perchlorate in the ground
water.
DWSRF Assistance: $6 million DWSRF loan in combination
with $12 million in grants.
Solution: A new treatmet plant that employs electrodialysis
reversal to reduce arsenic and perchlorate and a fixed-bed
bioreactorto further minimize perchlorate.
Problem: High IDS, sulfates, iron, and manganese in water supplies on the
Fort Peck Indian Reservation.
DWSRF Assistance: $10.7 million DWSRF loan.
Solution: A centralized water treatment plant and 3,200 miles of pipeline to
deliver the treated water to customers.
CITY OF PvIVERTON
WY
region 9
CITY OF SANTA BARBARA
CA
Problem: Inability to keep pace with new surface water
treatment requirements.
DWSRF Assistance: $1.49 million DWSRF loan.
Solution: A water treatment plant rehabilitation that included
replacing and upgrading filters, replacing air actuated valves,
improving the waste handling system, and equipping the
plant with corrosion and pH control capabilities.
Problem: An uncovered reservoir susceptible to wind-blown contaminants
and post-storage chlorination that resulted in high levels of disinfection
byproducts.
DWSRF Assistance: $20 million DWSRF loan.
Solution: Sheffield Water Quality Project replaced the open storage
reservoir with two, 6.5 million gallon buried storage reservoirs.
TRUCKEE MEADOWS WATER AUTHORITY
NV
Problem: Untreated wells with high arsenic levels.
DWSRF Assistance: A nearly $4.7 million DWSRF loan.
Solution: A conveyance system that transports well water to the Authority's
existing surface water treatment facility.
FLOWING WELLS IRRIGATION DISTRICT
AZ
Problem: Arsenic levels in excess of the new 10ppb standard.
DWSRF Assistance: $1 million DWSRF loan. ^
Solution: Treatment plant that uses granular iron media in pressure vessels
and a backwash tank to remove the naturally-occurring arsenic.
CITY AND COUNTY OF HONOLULU
HI
Problem: High nitrate and agricultural pesticides levels, an alachlor-
contaminated well, and a deteriorating distribution system.
DWSRF Assistance: $21 million DWSRF loan.
Solution: Oahu constructed new water treatment facilities to remove
nitrate and agricultural pesticides; the State's largest PWS, Weimanalo,
replaced the alachlor-contaminated well; and Ewa Beach and Wahiawa
made distribution system improvements.
29
-------
region 1
CARIBOU UTILITIES
ME
region 5
CITY OF THORP
wi
Problem: Low capacity wells with bacteriological and radionuclide
contamination.
DWSRF Assistance: $1.2 million DWSRF loan.
Solution: New wells, a water storage facility, a water pressure boosting
station, and upgraded water treatment processes to reduce radon and
uranium levels.
Problem: Threat of surface water contamination and high levels of disinfection
byproducts.
DWSRF Assistance: $1.8 million DWSRF loan combined with $1.2 million
in USDA Rural Development Program funds and $300,000 from the Maine
Community Development Block Grant (CDBG) Program.
Solution: Two gravel packed water wells, a new pump station, and new water
mains to replace the surface water source, and a new disinfection/treatment
facility to reduce the use of treatment chemicals.
WATERVILLE FIRE DISTRICT
VT
CITY OF HUTCHINSON
MN
Problem: High ammonia levels in drinking water that caused the
water to be corrosive and leach copper from household plumbing
into drinking water.
DWSRF Assistance: DWSRF loans totaling $14 million.
Solution: A new membrane softening and biological filtration
treatment plant to remove ammonia from the water, thereby
reducing copper leaching.
Problem: Bacteriological contamination due to insufficient disinfection
capacity and discharge of chlorinated water from storage tank
overflow.
DWSRF Assistance: $425,000 DWSRF loan.
Solution: A new control building to house disinfection and corrosion
control equipment, meters, and alarm/control systems, and two new
4,500 gallon distribution storage reservoirs.
GREEN TOWNSHIP, BROWN COUNTY OH
Problem: Positive bacteria samples in Green Township's
groundwater supply.
DWSRF Assistance: $397,188 DWSRF loan combined with a
$210,000 Brown County CDBG.
Solution: Highland County Water Company extended 13.8 miles of
water lines to serve the residents of Green Township.
region 4
GRAND BAY WATER WORKS
AL
r
Problem: Limited storage capacity and several failing private wells.
DWSRF Assistance: Approximately $1 million in DWSRF loans.
Solution: 5 miles of water line to reach residents that had relied on
the failing wells and a new, one million gallon elevated water tank.
CULKIN WATER DISTRICT
1 ^
MS
Problem: Filter backwash facility that was discharging effluent that
exceeded National Pollutant Discharge Elimination System (NPDES)
limitations.
DWSRF Assistance: $825,878 DWSRF loan.
Solution: Modifying the District's water treatment to minimize water
wasted through the filter backwash process and new facilities that
recycle clarified filter backwash.
JEFFERSON COMMUNITIES WATER SYSTEM,
JEFFERSON COUNTY, FL
Problem: Several contaminated private wells and non-community
water systems in Jefferson County in close proximity to pollution point
sources.
DWSRF Assistance: DWSRF loan.
Solution: A regional water system consisting of wells, elevated tanks,
distribution facilities, controls, and services.
30
-------
more ,
award recipients
region 10
MUD BAY WATER SYSTEM
CITY OF HOMER
Problem: Risk of microbial contamination in surface springs and an
aging distribution system.
DWSRF Assistance: $931,779 DWSRF loan combined with a
$440,000 CDBG.
Solution: A new well to replace the GWUDI-classified spring source
and distribution system improvements.
CITY OF MCCOOK
NE
Problem: Elevated uranium, nitrate, and arsenic levels in the
ground water supply, and a reservoir contaminated by a diesel
spill.
DWSRF Assistance: $9.9 million DWSRF loans in combination
with a $3.3 million settlement from a diesel spill lawsuit.
Solution: Two new wells, a new water treatment facility that
removes uranium, nitrates, and arsenic from the groundwater, a
new 4 million gallon reservoir, and a booster pump station.
CITY OF CHEROKEE
OK
AK
Problem: Private wells providing poor quality water and at
risk of contamination from nearby septic systems.
DWSRF Assistance: $4,386,603 DWSRF loan.
Solution: The City of Homer extended its drinking water
distribution system to the residents served by the private
wells.
Problem: High nitrate levels.
DWSRF Assistance: $1.46 million DWSRF loan; $250,000
CDBG; $65,000 OWRB Emergency Grant; $99,999 REAP
Grant; and $44,000 in local funds.
Solution: A reverse osmosis water treatment plant to treat
the water supply and reduce nitrates in finished water.
CITY OF BLOOMFIELD
NM
Problem: Inability to meet federal standards for drinking
water turbidity.
DWSRF Assistance: $3,737,000 DWSRF loan.
Solution: The construction of a new filtration system to
meet turbidity requirements.
31
-------
region 3
EASTERN WYOMING PSD/
LOGAN COUNTY PSD
region 2
WASHINGTON TOWNSHIP
MUNICIPAL UTILITIES AUTHORITY
Problem: Elevated radium contamination.
DWSRF Assistance: Two DWSRF loans totaling $3.9 million.
Solution: A new water treatment plant consisting of iron sequestration,
radium removal by DOWEX Radium Selective Complexer (RSC), pressure
filtration, packed column aeration, pH adjustment, fluoridation, and
disinfection.
wv
Problem: Eleven flooded, failing, or abandoned water
systems, unable to consistently provide safe drinking water
to area residents.
DWSRF Assistance: $3.5 million DWSRF loan.
Solution: Consolidate and upgrade the failing water
systems and build a new regional water treatment plant,
three 300,000 gallon storage tanks, approximately 106,000
feet of water lines, 84 fire hydrants, valves, and individual
customer service meters.
AR
Problem: The lack of technical, managerial, and financial capacity to
meet requirements of the SDWA at two wholesale systems.
DWSRF Assistance: $6 million in DWSRF loans.
Solution: Texarkana bought the wholesalers and made $3.8 million in
upgrades to bring the systems into SDWA compliance.
POSSUM KINGDOM WATER
SUPPLY CORPORATION
Problem: Multiple noncompliant, private small systems without
disinfection using source water containing high levels of chlorides,
sulfates, and total dissolved solids (TDS).
DWSRF Assistance: $4.7 million DWSRF loan and $6.5 million in
USDA Rural Development funds.
Solution: Possum Kingdom purchased and consolidated the small
systems. Possum Kingdom installed a new water intake plant and a
water filtration plant to remove chlorides, sulfates, and TDS.
AQUA PENNSYLVANIA
BRISTOL BUREAU
PA
Problem: A 120 year-old, structurally unstable, and unreliable
water treatment facility.
DWSRF Assistance: An approximately $6 million DWSRF loan.
Solution: Aqua Pennsylvania purchased the old facility and made
upgrades that include: solids removal equipment installation,
chlorination and electrical system upgrades, automated filters and
controls, a central computer system, and roof replacement.
TOWN OF BOONSBORO
MD
Problem: The threat of surface water contamination in
Boonsboro and neighboring Keedysville.
DWSRF Assistance: $1.4 million DWSRF loan in
combination with $1.5 million in state grants.
Solution: A new regional water treatment plant to serve
both affected communities and new water filtration plants
in Boonsboro and Keedysville interconnected with a new
12-inch water line.
RER ENVIRONMENTAL ENGINEERING
SERVICES, CITY OF SAN JUAN
PR
Problem: Small communities that lack the managerial, technical,
and financial capacity to comply with the SDWA.
DWSRF Assistance: $160,000 DWSRF loan.
Solution: A Capacity Development pilot project that includes a
Comprehensive Performance Evaluation (CPE) to measure
community water systems' capacity to comply with the SDWA.
Participating communities subsequently develop an action plan, and
circuit riders facilitate follow-up actions.
32
-------
FINANCIAL
highlights
Each of the 51 DWSRF programs produces its
own financial reports and statements. EPA has
produced financial statements for the DWSRF
program nationally based on data reported by
the states to EPA's National Drinking Water
Information Management System. For the
national DWSRF program (representing all 51
separate DWSRFs), EPA provides:
A Statement of Net Assets
A Statement of Revenues, Expenses,
and Earnings
A Statement of Cash Flow
These statements are best thought of as non-
audited financial reports. Page 35 showcases
some highlights of the 2006 financial statements
for the DWSRF programs.
Statement of Net Assets
This statement (Exhibit 41) describes the fund's
assets and liabilities as of the end of the fund's
fiscal year. Assets include both financial and
capital assets. Liabilities include both current and
long-term liabilities. The DWSRF assets include
grant funds that have been drawn from the federal
treasury but do not include total grant awards.
Total assets of the loan funds were $11 billion
in 2006, an increase of 15 percent over 2005.
Outstanding loans account for 68 percent of
the funds' assets. Cash and cash equivalents
account for the remaining 32 percent of the funds'
assets. The funds' liabilities consist of leverage
bonds and match bonds. Outstanding leverage
bonds increased by 13 percent, to $4 billion, in
2006. Match bonds were $321 million in 2006, an
increase of 11 percent over 2005. State and federal
contributions comprise over 90 percent of the $6.7
billion in net assets.
The set-aside funds had total assets of $6.9 billion
in 2006. This is an increase of 7 percent over 2005.
They have no liabilities.
DWSRF ASSETS
10.0
8.0
>
6.0
/)
4.0
2.0
0.0'
I Total Assets
Unamortized Bond Issuance Expenses
Loans Outstanding
Leveraged Bonds
Cash and Cash Equivalents
O5
O5
co
O5
O5
O5
O5
O5
O
o
O
CM
O
o
CXI
CXI
o
o
CXI
ro
o
o
CXI
o
o
CXI
LO
o
o
CXI
CD
o
o
CXI
-------
EXHIBIT 39
DWSRF Assets and Liabilities
12.0
10.0
v> 8.0
"5
0.0
I Total Liabilities and Net Assets
-Total Liabilities
Total Net Assets
Statement of Revenue, Expenses,
and Net Earnings
This statement (page 36) describes the performance
of the funds over the reporting period. Annual
operating revenues of the loan funds increased by
$67.3 million between 2005 and 2006, an increase
of more than 31 percent; 60 percent of this increase
came from interest on fund investments and the
remainder from interest on DWSRF loans. Annual
operating expenses rose $21.9 million to $176
million, a 14 percent increase over 2005. Net non-
operating revenue rose by $74.1 million, due largely
to an 18 percent increase in federal contributions
between 2005 and 2006. Total revenue of the loan
fund exceeded total expenses in 2006 by $997
million, a 14 percent increase over 2005.
The operating revenues and expenditures of the
set-aside funds had only minor changes between
2005 and 2006. Small system technical assistance
remained steady at $13.9 million. Administrative
assistance increased by 5 percent to $29.8
million. State program management assistance
increased by 4.5 percent to $45.3 million. Grants
made under the set-aside programs increased
slightly by $140,000, or less than 1 percent. The
federal contribution increased 3 percent to $118
million. Revenues exceeded expenditures by only
$400,000.
This statement (Exhibit 41) provides a detailed
accounting of the flow of cash into and out of
the DWSRF programs. For the loan fund, loan
disbursements to be repaid totaled $1.4 billion in
2006, a 16.3 percent increase over 2005. Cash
draws from the federal capitalization grants rose
by $113 million over 2005; state contributions fell
by $8.6 million. Gross leveraged bond proceeds
rose by $54.7 million. Overall, cash and cash
equivalents increased by $257 million as
compared to an increase of $139 million in 2005.
Total cash flows for operating expenses were
$200,000 higher in 2006 than 2005. The federal
contribution increased by $3.6 million (or 3
percent), while the net grants from 1452(k) set-
asides were higher.
EXHIBIT 40
Annual Operating Revenues
400
350
300
t&
"5 250
in
I 200
2 150
100
50
I Total Operating Revenues
Interest on DWSRF Loans
Interest on Fund Investments
-------
6 FINANCIAL STATEMENT IlIGt JGHTS
Statement of Net Assets
Total assets increased by $1.5 billion between 2005 and 2006;
DWSRF program equity (also called net assets) totals $6.7 billion.
Program liabilities increased by $477 million, reflecting the net growth
in DWSRF bonds outstanding for state matching funds and leveraged
program financing.
Statement of Revenues, Expenses, and
Earnings
Total program revenues exceed expenses by $997 million, a 14
percent increase from 2005.
Interest earnings from loans and investments totaled more than $67.3
million.
Administrative expenses were 8.6 percent of operating revenues.
Statement of Cash Flows
Loan principal repayments to DWSRF
programs were $353.4 million.
Leveraged bond proceeds added $563.8
million to program cash flow
*,-
-------
FINANCIAL
statements
EXHIBIT 41
Balance Sheet (Loan Funds) in $ Millions
Assets
Cash and Cash Equivalents
Debt Service Reserve - Leveraged Bonds
Loans Outstanding
Unamortized Bond Issuance Expenses
Total Assets
Liabilities
Match Bonds Outstanding
Leveraged Bonds Outstanding
Total Liabilities
Net Assets
Federal Contributions
State Contributions
Transfers - Other SRF Funds
Other Net Assets
Total Net Assets
Total Liabilities and Net Assets
Balance Sheet (Set-Aside Funds) in $ Millions
Assets
Cash and Cash Equivalents
Loans Outstanding
Total Assets
Liabilities
Total Liabilities
Net Assets
Federal Contributions
Other Net Assets
Total Net Assets
Total Liabilities & Net Assets
2006
2,790.8
1,227.1
6,921.9
53.0
10,992.8
321.1
3,960.7
4,281.8
4,683.5
1,367.8
374.1
285.6
6,710.9
10,992.8
2006
2.2
4.7
6.9
0
820.8
(813.9)
6.9
6.9
2005
2,533.4
1,087.7
5,850.1
48.0
9,519.2
290.1
3,514.7
3,804.8
3,933.6
1,260.4
354.8
165.5
5,714.4
9,519.2
2005
1.5
4.9
6.4
0
702.5
(696.0)
6.4
6.4
2004
2,394.7
865.2
4,897.3
44.2
8,201.5
256.6
3,107.7
3,364.2
3,297.0
1,144.4
310.1
85.7
4,837.3
8,201.5
2004
1.1
4.9
6.1
0
587.7
(581 .6)
6.1
6.1
2003
1,976.9
628.6
3,913.9
34.6
6,553.9
194.7
2,387.9
2,582.6
2,588.1
1,001.1
318.4
63.7
3,971.3
6,553.9
2003
0.9
2.4
3.3
0
475.3
(472.0)
3.3
3.3
2002
1,757.4
520.9
3,012.8
31.5
5,322.6
174.4
2,012.5
2,186.9
1,996.9
847.8
231.6
59.4
3,135.7
5,322.6
2002
0.5
2.5
2.9
0
355.2
(352.2)
2.9
2.9
36
-------
EXHIBIT 41 CONTINUED
Income Statement (Loan Funds) in $ Millions
Operating Revenues
Interest on Fund Investments
Interest on DWSRF Loans
Total Operating Revenues
Operating Expenses
Bond Interest Expense
DWSRF Funds Used for Refunding
Amortized Bond Issuance Expense
Total Operating Expenses
Nonoperating Revenues and Expenses
Federal Contribution
State Contributions
Loan Forgiveness Expenses
Transfers from (to) CWSRF
Total Nonoperating Revenues and Expenses
Increase (decrease) in Net Assets
Net Assets
Beginning of Year
End of Year
Income Statement (Set-Aside Funds) in $ Millions
Operating Revenues
Interest on 1452(k) Loan Account Investments
Interest on 1452(k) Loans
Total Operating Revenues
Operating Expenses
Administrative Expenses Under the 4% Set-Aside
Expenses Under the 2% Set-Aside,
Small Systems Technical Assistance
Expenses Under the 10% Set-Aside,
State Program Management
Grants made under the 1452(k) Set-Aside
Total Expenses
Nonoperating Revenues and Expenses
Federal Contribution
Total Nonoperating Revenues (Expenses)
Increase (decrease) in Net Assets
Net Assets
Beginning of Year
End of Year
2006
145.5
198.0
343.5
169.7
3.9
2.4
176.1
749.9
107.4
(47.4)
19.3
829.1
996.6
5,714.4
6,710.9
2006
0.06
0.08
0.14
29.8
13.9
45.3
29.1
118.0
118.3
118.3
0.4
6.4
6.9
2005
105.0
171.2
276.2
149.8
2.1
2.2
154.2
636.6
116.0
(42.2)
44.7
755.0
877.1
4,837.3
5,714.4
2005
0.02
0.03
0.06
28.3
13.9
43.3
28.9
114.4
114.8
114.8
0.4
6.1
6.4
2004
67.9
148.5
216.4
116.1
31.1
1.7
148.9
708.9
143.3
(45.5)
(8.3)
798.4
866.0
3,971.3
4,837.3
2004
0.01
0.04
0.05
26.8
11.5
38.9
32.4
109.7
112.4
112.4
2.8
3.3
6.1
2003
74.3
115.5
189.8
96.1
47.1
1.6
144.8
591.2
153.4
(40.7)
86.8
790.7
835.7
3,135.7
3,971.3
2003
0.01
0.04
0.04
27.8
10.7
40.5
40.9
119.8
120.1
120.1
0.4
2.9
3.3
2002
72.4
86.5
158.9
75.2
0.8
1.3
77.3
692.2
180.4
(47.8)
75.9
900.8
982.3
2,153.3
3,135.7
2002
0.01
0.03
0.04
28.5
10.2
35.6
42.7
117.0
118.1
118.1
1.1
1.8
2.9
-------
Cash Flows (Loan Funds) in $ Millions
Operating Activities
Cash Draws from Federal Capitalization Grants
Contributions from States
Loan Disbursements to be Repaid
Loan Principal Forgiven
Loan Principal Repayments
Interest Received on Loans
Total Cash Flows from Operations
Noncapital Financing Activities
Gross Leveraged Bond Proceeds
Bond Issuance Expense
State Match Bond Proceeds
Cash Received from Transfers with CWSRF
Interest Paid on Leveraged and State Match Bonds
DWSRF Funds Used for Refunding
Principal Repayment of Leveraged Bonds
Principal Repayment of State Match Bonds
Total Cash Flows from Noncapital Financing Activities
2006
749.9
107.4
(1,425.2)
(47.4)
353.4
198.0
(64.0)
563.8
(7.4)
49.3
19.3
(169.7)
(3.9)
(117.7)
(18.4)
315.2
Cash Flows from Capital and Related Financing Activities 0
Investing Activities
Interest Received on Fund Investments
Deposits to Debt Service Reserve for Leveraged Bonds
Total Cash Flows from Investing Activities
Net Increase (Decrease) in Cash and Cash
Equivalents
Beginning Balance (Cash and Cash Equivalents)
Ending Balance (Cash and Cash Equivalents)
Cash Flows (Set-Aside Funds) in $ Millions
Operating Activities
Federal Contribution
1452(k) Loan Disbursements Made to Borrowers
1452(k) Loan Principal Repayments
Interest Received on 1452(k) Loans
Administrative Expenses Under the 4% Set-Aside
Expenses Under the 2% Set-Aside,
Small Systems Technical Assistance
Expenses Under the 10% Set-Aside,
State Program Management
Grants made under the 1452(k) Set-Aside
Total Cash Flows from Operating Activities
Noncapital Financing Activities
Net Cash Provided by Noncapital Financing Activities
145.5
(139.3)
6.2
257.5
2,533.4
2,790.8
2006
118.3
(0.3)
0.5
0.1
(29.8)
(13.9)
(45.3)
(29.1)
0.6
0
Cash Flows from Capital and Related Financing Activities 0
Investing Activities
Interest Earnings on 1452(k) Loan Account Investments
Net Cash Provided by Investing Activities
Net Increase (Decrease) in Cash and Cash
Equivalents
Beginning Balance (Cash and Cash Equivalents)
Ending Balance (Cash and Cash Equivalents)
0.06
0.1
0.7
1.5
2.2
2005
636.6
116.0
(1,225.2)
(42.2)
272.5
171.2
(71.2)
509.0
(6.0)
50.4
44.7
(149.8)
(2.1)
(102.0)
(16.9)
327.3
0
105.0
(222.5)
(117.5)
138.6
2,394.7
2,533.4
2005
114.8
(0.3)
0.4
0.0
(28.3)
(13.9)
(43.3)
(28.9)
0.4
0
0
0.02
0.0
0.4
1.1
1.5
2004
708.9
143.3
(1,223.4)
(45.5)
240.0
148.5
(28.2)
800.7
(11.4)
75.4
(8.3)
(116.1)
(31.1)
(80.9)
(13.5)
614.8
0
67.9
(236.6)
(168.7)
417.8
1,976.9
2,394.7
2004
112.4
(2.7)
0.2
0.0
(26.8)
(11.5)
(38.9)
(32.4)
0.2
0
0
0.01
0.0
0.2
0.9
1.1
2003
591.2
153.4
(1,056.3)
(40.7)
155.2
115.5
(81.7)
433.4
(4.6)
29.0
86.8
(96.1)
(47.1)
(58.0)
(8.6)
334.6
0
74.3
(107.7)
(33.4)
219.5
1,757.4
1,976.9
2003
120.1
(0.3)
0.4
0.0
(27.8)
(10.7)
(40.5)
(40.9)
0.4
0
0
0.01
0.0
0.4
0.5
0.9
2002
692.2
180.4
(1,022.5)
(47.8)
116.4
86.5
5.3
587.9
(6.6)
65.9
75.9
(75.2)
(0.8)
(46.1)
(4.1)
596.9
0
72.4
(83.2)
(10.9)
591.4
1,166.0
1,757.4
2002
118.1
(1.1)
0.1
0.0
(28.5)
(10.2)
(35.6)
(42.7)
0.2
0
0
0.01
0.0
0.2
0.3
0.5
38
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DWSRF
Istate agencies
w-
EPA REGION 1
Connecticut Department of Public Health
Connecticut Department of Environmental Protection
Connecticut Office of the Treasurer
Connecticut Department of Public Utility Control
Maine Department of Human Services
Maine Municipal Bond Bank
Massachusetts Water Pollution Abatement Trust
Massachusetts Division of Municipal Services
Massachusetts Division of Watershed Management- Drinking Water Program
New Hampshire Department of Environmental Services
Rhode Island Clean Water Finance Agency
Rhode Island Department of Health
Vermont Water Supply Division
Vermont Facilities Engineering Division
EPA PvEGION 2
New Jersey Department of Environmental Protection
New Jersey Environmental Infrastructure Trust
New York State Department of Health
New York State Environmental Facilities Corporation
Puerto Rico Department of Health
Government Development Bank for Puerto Rico
Puerto Rico Infrastructure Financing Authority
EPA PvEGION 3
Delaware Department of Health and Social Services
Delaware Department of Natural Resources and Environmental Control
Maryland Water Quality Financing Administration
Maryland Water Management Administration
Pennsylvania Infrastructure Investment Authority (PENNVEST)
Pennsylvania Department of Environmental Protection
Virginia Department of Health - Office of Drinking Water
Virginia Resources Authority
West Virginia Department of Health and Human Resources
West Virginia Water Development Authority
EPA REGION 4
Alabama Department of Environmental Management
Florida Department of Environmental Protection
Georgia Environmental Facilities Authority
Georgia Environmental Protection Division
Kentucky Infrastructure Authority
Kentucky Division of Water, Drinking Water Branch, Environmental and Public Protection Cabinet
Mississippi State Department of Health
Mississippi Department of Environmental Quality
Mississippi State Tax Commission
North Carolina Department of Environment and Natural Resources
South Carolina Department of Health and Environmental Control
South Carolina Budget and Control Board
Tennessee Department of Environment and Conservation
Tennessee Comptroller of the Treasury
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EPA REGION 5
Illinois Environmental Protection Agency
Indiana Department of Environmental Management
Indiana Finance Authority
Indiana State Revolving Fund Loan Program
Michigan Department of Environmental Quality
Michigan Municipal Bond Authority
Minnesota Public Facilities Authority
Minnesota Department of Health
Ohio Environmental Protection Agency
Ohio Water Development Authority
Wisconsin Department of Natural Resources
Wisconsin Department of Administration
EPA PvEGION 6
Arkansas Natural Resources Commission
Arkansas Department of Health
Louisiana Department of Health and Hospitals
Louisiana Department of Environmental Quality
Oklahoma Department of Environmental Quality
Oklahoma Water Resources Board
New Mexico Finance Authority
New Mexico Environment Department
Texas Water Development Board
Texas Commission on Environmental Quality
EPA PvEGION 7
Iowa Department of Natural Resources
Iowa Finance Authority
Kansas Department of Health and Environment
Kansas Department of Administration
Kansas Development Finance Authority
Missouri Department of Natural Resources
Nebraska Department of Environmental Quality
EPA REGION 8
Colorado Water Resources and Power Development Authority
Colorado Water Quality Control Division
Colorado Department of Local Affairs - Division of Local Government
Montana Department of Environmental Quality
Montana Department of Natural Resources and Conservation
North Dakota Department of Health
North Dakota Public Finance Authority
South Dakota Department of Environment and Natural Resources
Utah Department of Environmental Quality - Division of Drinking Water
Wyoming Office of State Lands and Investments
Wyoming Department of Environmental Quality
Wyoming Water Development Office
EPA REGION 9
Arizona Water Infrastructure Finance Authority
California Department of Health Services
Hawaii Department of Health
Hawaii Safe Drinking Water Branch
Hawaii Wastewater Branch
Nevada Division of Environmental Protection
Nevada Office of Financial Assistance
EPA REGION 10
Alaska Department of Environmental Conservation
Alaska Department of Environmental Conservation - Division of Environmental Health
Idaho Department of Environmental Quality
Oregon Department of Human Services
Oregon Economic and Community Development Department
Oregon Department of Environmental Quality
Washington State Department of Health
40
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"The key to development is infrastructure. Pawtucket has
had the foresight to undergo aggressive redevelopment of
the infrastructure to revitalize the city."
Despite over $27 million
in existing debt and
substantial districting
obstacles, the City of
Pawtucket is using
a nearly $75 million
DWSRF loan to complete
an exhaustive, source-
to-tap overhaul of the
City's water system.
Cooperation at the
community and State
level was essential in
securing the loan and
helping the project achieve its potential to positively impact
public health.
Pawtucket's water treatment plant dated back to 1938, and
some of the system's distribution system pipes back to the
1800s. The old pipes, made of unlined cast iron, caused
discoloration and rusty water resulting in taste and odor
problems. Excessive pipe biofilm required the system to
use high levels of chlorine to disinfect, and subsequently
resulted in the formation of disinfection by-products (DBPs).
The old pipes were also subject to breaks that disrupted
service and made water susceptible to contamination. DBP
levels were exacerbated by Pawtucket's source water, which
has high levels of total organic carbon (TOC), a precursor to
DBPs. Therefore, the impending Stage 2 DBPR presented
significant compliance challenges.
Pawtucket's first step to improving its water quality
was to work with the state DWSRF to find a way
to restructure its existing debt outside the DWSRF.
This restructuring enabled Pawtucket to take on the
DWSRF loans needed to make the complete source-
to-tap overhaul. The first DWSRF loan, made in
2004, was for $41,875,000 at 2.4 percent interest,
and the second, borrowed in 2005, was $31,909,000
at 2.8 percent interest.
Pawtucket is building a new 25 million gallon a
day (MGD) treatment plant with the first loan. The
plant employs granulated activated carbon (GAG)
media to lower turbidity levels and extract particles
to resolve the problematic taste and odor issues,
DBPs, and synthetic organics. UV technology will
be used to protect the system against pathogens.
The loan is also financing a pump station, residual
lagoons, and a 5-million-gallon storage tank that
will bring the system to full operating capacity. The
State demonstrated its dedication to this project by
donating the land on which Pawtucket is building its
treatment plant.
The second loan is enabling Pawtucket to update
its out-dated distribution system, financing the
replacement of more than 160 miles of 6- and 8-inch
mains. Since the beginning of the rehabilitation,
DBPs have dropped by 60 percent and there have
been no total coliform-positive results.
"The good thing about the DWSRF was
the flexibility the state was able to
demonstrate to help stabilize the rates
and minimize rate shock."
- Pawtucket Water Supply Board
>tate Revolving Fund, please contact
Drinking Water State Revolving Fund Program
U.S. Environmental Protection Agency
1201 Constitution Avenue, NW (Mailcode 460i
Washington, DC 20004
Phone: (202) 564-2051
Fax: (202) 564-3757
Internet: www.epa.gov/safewater/dwsrf
Office of Ground Water and Drinking Water
June 2007
EPA816-R-07-002
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