July 16, 2014
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*	• U.S. Environmental Protection Agency
mm "z Office of Inspector General
® I
At a Glance
Why We Did This Review
We performed this audit to
determine whether the
U.S. Environmental Protection
Agency (EPA) has been
effective in identifying and
deobligating unneeded
Drinking Water State Revolving
Fund (DWSRF) assistance
agreement funds and
preventing unwarranted
accumulations of unliquidated
obligations. Our objectives
were to determine whether
(1)	EPA and state actions
taken to address large
balances of DWSRF
unliquidated obligations
reduced such obligations, and
(2)	state lists of projects to be
funded by capitalization grants
realistically reflect the projects
that may be funded.
This report addresses the
following EPA goals and
cross-agency strategies:
•	Working to make a visible
difference in communities.
•	Protecting America's
Unliquidated Obligations Resulted in
Missed Opportunities to Improve
Drinking Water Infrastructure
When hundreds of millions of
DWSRF dollars remain idle, states
miss opportunities to improve the
health of their communities'
drinking water infrastructure and
the opportunity to infuse funds
into the economy and create jobs.
What We Found
We found that the EPA and the five states
we reviewed took many actions to reduce
DWSRF unliquidated balances, but those
actions have not reduced DWSRF
unliquidated balances to the goal of below
13 percent of the cumulative federal
capitalization grants awarded. For the
period we examined the five states
reviewed—California, Connecticut, Hawaii, Missouri and New Mexico—executed
small numbers of loans each year and did not maximize the use of all DWSRF
resources, including capitalization grant awards. State programs reviewed were
not adequately projecting the DWSRF resources that would be available in the
future to enable the states to anticipate the amount of projects needed to be
ready for loan execution in a given year. As a result, $231 million of capitalization
grant funds remained idle, loans were not issued, and communities were not able
to implement needed drinking water improvements.
We also noted that states' project lists included in the capitalization grant
application—called fundable lists—did not reflect projects that would be funded in
the current year and overestimated the number of projects that will receive
funding. Less than one-third of the projects on the fundable lists we reviewed
resulted in executed DWSRF loans during the current grant year. We found that,
generally, these states did not have a consistent "ready-to-proceed" definition.
When projects are not ready to proceed, expected environmental benefits are
delayed. Because states use the fundable lists to justify their annual
capitalization grants, the fundable lists should communicate to the EPA and the
public the projects that will be funded with taxpayer money.
Recommendations and Planned Corrective Actions
For further information,
contact our public affairs office
at (202) 566-2391.
The full report is at:
We recommend that the Assistant Administrator for Water require states with
unliquidated obligations that exceed the Office of Water's 13-percent-cutoff goal
to project future cash flows to ensure funds are expended as efficiently as
possible. We also recommend that the Assistant Administrator develop guidance
for states on what projects are to be included on the fundable lists and require
regions, when reviewing capitalization grant applications, to ensure states are
complying with the guidance. The EPA agreed to take sufficient corrective
actions on most of the recommendations. The EPA still needs to take steps to
ensure states have adopted the EPA's guidance on the definition of "ready to