October 2020 vvEPA O o 0 o o (JO - O Drinking Water State Revolving Fund Helping Protect America's Public Health Since 1 997 2019 Annual Report ------- A Message from the Office Director % I am pleased to present the Drinking Water State Revolving Fund's 2019 Annual Report. This report is an opportunity to highlight the past year's accomplishments and share the program's priority areas for the coming years. In 2019, we funded over $2.8 billion in new drinking water infrastructure projects across communities of all sizes. These projects have led directly to public health and economic benefits for these communities. We also funded $178 million for critical activities including operator certification, water system capacity development, and source water protection. This year, we worked with our state partners to design and prepare for the 2020 Drinking Water Infrastructure Needs Survey and Assessment (DWINSA). The 2020 Survey will sample the broadest array of water systems since the 1 999 Survey and will include small, medium, and large community water systems, non-profit non-community water systems, and tribal water systems. The Survey will feature the first-ever questions regarding a system's estimate of how many lead service lines it has (in addition to their planned 20 year replacement need), operator workforce status and projections, and needs for American iron and steel components for drinking water infrastructure projects. To meet modern drinking water challenges, the Drinking Water State Revolving Fund (DWSRF) program is focused on four major national program priorities: 1. Achieve fullest utilization of funds through dynamic cash flow modeling. 2. Market DWSRF opportunities to water systems. 3. Employ both the DWSRF loan fund and set-asides as Safe Drinking Water Act (SDWA) compliance tools. 4. Safeguard the program's public trust through fiscal controls and accountability. These focus areas will help us meet the Agency's Priority Goal to reduce the number of non-compliant drinking water systems and to increase non-federal financial leveraging. Importantly, these priorities will enable the DWSRF program maximize its potential for improving public health protection. I welcome this opportunity to share our accomplishments with you. Jennifer L. McLain Ph.D., Director Office of Ground Water and Drinking Water Office of Water United States Environmental Protection Agency 2 2019 Annual Report ------- * WmP r 'l.i'J' 'tiiiB if ! 1. About the Drinking Water State Revolving Fund 4 II. Highlights From 201 9 5 III. How States Used DWSRF Infrastructure Funds 9 IV. Meeting 21 st Century Challenges 10 V. 2019 Financial Overview 13 VI. DWSRF Set-Asides 18 VII. DWSRF AQUARIUS Project Highlights 20 2019 AnnudtJ Repoi ------- I. About the Drinking Water State Revolving Fund The 1 996 Amendments to the Safe Drinking Water Act (SDWA) created the Drinking Water State Revolving Fund (DWSRF) to help communities finance infrast- ructure improvements needed to protect public health and ensure compliance with drinking water standards. Each of the 50 states and Puerto Rico operate their own DWSRF programs and receive annual grants from EPA, which in turn provide low-interest loans and other types of assistance to public water systems. The DWSRF programs are managed or co-managed by the state agencies that oversee drinking water systems and can therefore effectively prioritize infrastructure funding needs to protect public health. The SDWA directs states to give priority for the use of DWSRF project funds to: address the most serious risks to human health, ensure compliance with the requirements of the SDWA, and assist systems most in need on a per household basis according to state affordability criteria. Not all drinking water problems, however, can be solved through capital financing of infrastructure improvements. With that in mind, Congress gave states the option to take a portion of their federal capitalization grant for "set-asides". Set-asides can be used to administer state programs, provide technical assistance and training for water systems, and fund other activities that support achieving the public health protection objectives of the SDWA. The programs and activities supported by set-asides include DWSRF administration, water system capacity development, operator certification, source water protection, small system technical assistance, and the state Public Water System Supervision (PWSS) program. Each state determines the appropriate balance between water infrastructure projects and set-asides for their unique circumstances. From 1997 through June 30, 2019, more than $41.1 billion has been signed into 15,425 DWSRF loans by the state programs to water systems to fund critical infrastructure needs. Furthermore, nearly $3.5 billion has been provided to states and water systems to support the non-infrastructure set-asides programs. The DWSRF is an exceptionally versatile tool. In 2019, the DWSRF loan program improved the lives of over 58 million Americans, returning water systems to compliance and maintaining systems with aging infrastructure, while also focusing on small water systems that are most at risk. Systems serving fewer than 10,000 people accounted for 75 percent of the loans signed by state programs. 4 2019 Annual Report ------- II. Highlights From 2019 A. Continued Demand, Making Loans of All Sizes In 2019, states provided more than $2.8 billion in new infrastructure loans, matching the program's total in 2018. This follows an upward trajectory over recent years, as states maximize utilization of funds through dynamic cash flow modeling and conduct more effective outreach to water systems. Exhibit 1 demonstrates this trend. The DWSRF supports water systems and projects of all sizes across the country. While the median loan size was about $1 million this year, the program's loans ranged from less than a thousand dollars to hundreds of millions of dollars (see Exhibit 2). The State of California made the nation's smallest loan for $825 to the Mettler Valley Mutual Water for compliance issues. California also made the nation's largest loan, a $158 million agreement, to the Los Angeles Department of Water and Power for the removal of uncovered reservoirs and construction of a buried storage unit. This project will serve nearly 4 million people. The nation's most commonly- occurring DWSRF loan amount (or mode) was $20,000 in 2019 (see Exhibit 2). Visually demonstrating the DWSRF program's broad, nationwide reach, Exhibit 3 shows counties with DWSRF-funded projects in this past state fiscal year (SFY; the state FY runs June to June) (in blue) and between March 2010 and SFY 201 9 (in gray). Exhibit 1: DWSRF National Assistance Provided (Signed Loans Only) $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 2014 2015 2016 2017 2018 2019 2019 Annual Report ------- Exhibit 2: Distribution of DWSRF Loan Amounts in SFY 201 9 In 2019, states provided 12 loans of $10,000 or less to small communities for asset management planning. Average: $3,000,000 Mode: $20,000 3 Largest: $158,000,000 -Median: $1,000,000 Smallest: $825 Of the 38 loans reflected in the mode, 24 are from the State of Oregon. These loans funded a variety of studies, including those for consolidation alternatives, leak detection, and water feasibility. Exhibit 3: Map of Counties with DWSRF Projects in SFY 2019 and from March 2010 to SFY 201 8 , * *2* -tc-i AK Data Source March 2010 to 12/30/2018 DWSRF Database, data pull 3/7/19 Data Source: 7/1/18 - 6/30/19 projects: NIMS Database, data pull 2/6/20 (7/1/18 - 6/30/19) Data includes projects that have location information. Additional projects not incorporated. North_America_Equidstant_Conic Map produced on 3/24/20 EPA OW-OGWOW - DWPD Counties with DWSRF Projects in SFY 2019 I I Counties with DWSRF Projects from SFY 2010 to SFY 2018 6 2019 Annual Report ------- Exhibit 4 below shows leveraging in the past six years. Note the significant increase in the last three years. Leveraging is at a state's discretion and should be paired with an effective outreach strategy to increase customer demand. After evaluating cash needs, some states choose to leverage nearly every year, and others episodically. Regardless of approach, state managers must carefully design their leveraging structure to minimize idle funds. Optimally, states will leverage when the amount of cash needed to pay construction invoices is greater than actual available cash on hand. With the ability to access the bond market when cash is needed in the future, states can confidently make more loans to communities in the near-term, expanding the reach of public health protection from the program. Another way to expand the DWSRF's reach and benefits is through co-funding. Approximately one- quarter of the 2019 projects were co-funded with another source, including funds from the United States Department of Agriculture's Rural Utilities Service Water and Environmental Programs and other state and private sources. Exhibit 4: Annual Net Leveraged Bonds Issued $1,200 Si,ooo $800 $600 $400 $200 B. Leveraging and Co-Funding Expand Program's Reach Increasing the amount of money available through the DWSRF is important to meeting our nation's drinking water needs. The state DWSRFs have two ways to quickly raise additional money to meet immediate needs where there are more projects than funds available. The first is to borrow money on the bond market. In 2019, eleven state DWSRF programs borrowed a record $1.04 billion to assist projects with immediate financing. The second is to borrow money from EPA's Water Infrastructure Finance and Innovation Act (WIFIA) program. The Indiana Finance Authority, the WIFIA program's first SRF borrower, closed its $436 million WIFIA loan in 2019. The creation of the State Water Infrastruc- ture Finance and Innovation Act (SW|FIA) under the America's Water Infrastructure Act (AWIA) of 2018, creates a more direct way for states' DWSRF programs to access WIFIA funding. Record $1,038 billion in bonds issued in 2019 2014 2015 2016 2017 2018 2019 2019 Annual Report ------- American Iron and Steel Requirement DWSRF programs continue to successfully implement and oversee the American Iron and Steel (AIS) requirements. These statutory requirements have been extended through fiscal year 2023 and require assistance recipients to use iron and steel products that are produced in the United States. For details about the AIS requirements, products that are covered, how to document compliance and how to apply for a waiver, visit the EPA's AIS website. C. Helping Water Systems Achieve Compliance The DWSRF has been instrumental in helping the nation's community water systems achieve and maintain compliance with health-based standards under the SDWA. Of the water systems receiving DWSRF loans in 2019, nearly one-fifth (168) were out of compliance with a health-based SDWA standard in the previous five years. Exhibit 5 below maps the locations of these 168 water systems. State DWSRF managers, partnering with their state PWSS program colleagues, can utilize the program's extraordinary flexibility to tailor assistance through the loan and set-aside portions of the Fund to address a broad array of local needs. Exhibit 5: Public Water Systems with SFY 201 9 Loans that had a Health-Based Violation in the Past 5 Years PWSs by Population <=500 501 - 3,300 3,301 - 10,000 10,001 - 100,000 >=100,001 2019 Annual Report ------- III. How States Used DWSRF Infrastructure Funds In 2019, the DWSRF provided more than $2.8 billion in assistance and entered into 897 loans. Since 1997, the DWSRF has provided more than $41 billion in assistance, and 35 percent of this assistance has been directed to communities with populations of 1 0,000 or fewer. For the second consecutive year, nearly half of the DWSRF's funding went to transmission and distribution projects (Exhibit 6). This closely aligns with water systems' needs demonstrated in the Sixth Drinking Water Infrastructure Needs Survey and Assessment (DWINSA). The Survey confirmed that nearly two-thirds of the nation's drinking water infrastructure needs over the next two decades are for these types of projects. EPA anticipates sustained, growing demand in distribution system projects over the coming years. In 2019, the DWSRF facilitated loans with a broad diversity of communities, emphasizing a strong focus on communities serving 10,000 individuals or fewer. Approximately 75 percent of the 2019 loans provided were given to these smaller water systems. Principal forgiveness was a key tool utilized in these agreements; 69 percent of water systems serving populations of 500 or fewer received principal forgiveness, with 44 percent of those water systems receiving principal forgiveness for the full loan amount. As the charts in Exhibit 7 show, the proportion of assistance going to small systems in 201 9 is similar to historic program values. Exhibit 6: Assistance by Project Type (Millions of Dollars) SFY 2019 $192 (Source) $432 (Storage) $755 (Treatment) $163 (Other) SFY 1997-2019 -$2,345 (Source) L (Transmission . r~ 1 and Distribution) / i / $15,406 LI (Treatment) $4,292 (Storage) $1,282 (Other) Transmission and Distribution Source Storage Other Exhibit 7: Assistance by Community Size Millions of Dollars Number of Loans 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% S11,826 S1,009 $788 $14,973 $6,144 $368 $6,231 $497 I S175 SFY 1997-2019 SFY 2019 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1.073 3,424 4,99 2,872 SFY 1997-2019 312 SFY 2019 | >100,000 | 10,001 to 100,000 3,301 to 10,000 501 to 3,300 | <501 2019 Annual Report ------- IV. Meeting 21 sf Century Challenges Water Reuse In February 2020, EPA and its partners announced the National Water Reuse Action Plan. The actions that are committed to in the Action Plan will help strengthen the sustainability, security, and resilience of our nation's water resources by creating new partnerships, providing accountability, and promoting communication and transparency with an online platform. The Action Plan's holistic and integrated approach can include a combination of water management strategies, many of which may be eligible DWSRF projects. Given the program's size and flexibilities, there is tremendous opportunity to maximize the use of DWSRF funds to meet the drinking water- related public health needs across the United States. The most recent DWINSA shows that $472 billion is needed over the next two decades for DWSRF- eligible infrastructure. The DWSRF must be managed in a way to maximize the availability of funding to meet ready-to-proceed, documented water system needs. Financial forecasting, including cash flow management, is essential to the program's success. The DWSRF must also be operated in a way to help water systems achieve and maintain SDWA compli- ance. In 2019, approximately 3,500 community water systems had health-based SDWA violations. As part of EPA's Fiscal Year (FY) 2018-2022 Transf- ormation Strategy, the Agency aims to reduce this total by 25 percent by 2022. Each non-compliant water system has different challenges; some water systems may need infrastructure investment, some may need capacity-building resources, and others may need to partner with a neighboring water syst- em through consolidation or other partnerships means. The DWSRF can and should be a part of the solution for many of these water systems. The program can also help SDWA-compliant water systems maintain their ability to provide safe drinking water. Through a successful marketing and outreach strategy, DWSRF programs will help communities understand how the DWSRF can meet their water system-specific needs this decade. As shown below in Exhibit 8, financial forecasting and marketing/demand management form two major structural elements for the program's success. Exhibit 8: DWSRF Flexibilities Bridge DWSRF Flexibilities Bridge Financial/ Forecasting Marketing/ Demand Understand system needs Cash flow modeling Maximize utilization of funds from all Have ongoing outreach plan F exib e oan terms and rates Funding for non-infrastructure needs via set-asides: CapDev, OpCert, SWP 10 2019 Annual Report ------- A. Using Cash Flow Modeling A revolving fund, with its dynamic inflows and outflows of funds, is different than a traditional grant program and therefore must be managed in a different way. By design, the program grows larger each year with infusion of federal capitalization grants and interest earnings from past loans. Cash flow management involves modeling inflows and outflows of monies in federal capitalization grants, state match, principal repayments, interest earnings, and leveraged funds. Such cash flow management informs sound financial decisions for the program and empowers DWSRF managers to maximize the availability of resources for communities. Using the DWSRF administrative set-aside, many states have successfully built financial modeling tools that accurately predict the revolving fund's cash availability over time. These cash flow analysis tools help state managers evaluate the "supply side" of funding sources: the amount of money that is potentially available to lend for drinking water infrastructure construction. States should also consider engaging in financial leveraging through the bond market and/or WIFIA to expand the reach of DWSRF program benefits. With financial management based upon cash flow, DWSRF managers can confidently market the program to water systems, because they have a detailed understanding of how much funding is available to communities in the short, medium, and long-term. Control & Accountability National Program Priorities Marketing SWDA Compliance Funds Utilization The PWSS sanitary surveys can provide a wealth of information about drinking water systems that can be used to seek potential DWSRF customers. A sanitary survey is a review of a public water system to assess its capability to supply safe drinking water. The DWSRF can be a resource to address deficiencies found during the sanitary surveys. If a water system currently lacks the technical capacity to develop these capital improvement projects, DWSRF set-asides could be used to provide technical assistance, such as planning and design development. Reaulatorv Deviation for Water Riahts B. Marketing DWSRF Opportunities to Water Systems The most successful DWSRF programs pair financial projections with dynamic outreach to water systems throughout their state, supporting the "demand side" of the program. This is accomplished by working with the state PWSS program, the water industry, and associations. Talking to water systems of all sizes to understand their needs and to convey the opportunities available through the DWSRF will build demand. mrnmmmmwm rights (40 CFR 35.3520(e)(2)). This class deviation allows DWSRF funds to be used for the purchase of water rights under certain circumstances. As detailed at the beginning of this section, the DWINSA showed that $472 billion is needed in the next two decades for DWSRF-eligible infrastructure. The DWINSA contains a wealth of documented water system-level needs information useful for directly marketing the program. These data can be used as conversation starters with drinking water systems. With this change, public water systems may switch water sources in the event of contamination or obtain rights to additional water sources in the event of drought to meet current water needs. 1 1 2019 Annual Report ------- DWSRF Eligibility Highlights Lead service line replacement Drinking water treatment for harmful algal blooms (cyanotoxins) and per- and polyfluoroalkyl substances (PFAS) Cybersecurity measures Water reuse and recycling For more information and resources, visit the DWSRF Eligibility Handbook. C. Employing the DWSRF as a SDWA Compliance Tool In recent years, Congress has signaled continued strong support for the program, such as the recent reauthorization of the DWSRF via America's Water Infrastructure Act (AWIA) of 2018. Congress has also recently added new program flexibilities for state managers to consider, in addition to existing options. States may offer loan repayment terms up to 30 years to any DWSRF-eligible recipient, or up to 40 years for disadvantaged communities. These flexibilities enable states to reduce annual repayment costs for communities. States may provide a portion of their annual federal capitalization grant as additional subsidy to those disadvantaged communities, further lowering the cost of critical public health infrastructure. Congress also recently expanded the source water protection-related eligibilities under the Local Assistance Set-Aside, giving states and communities additional resources to promote preventative activities to protect the water supply. The DWSRF program works hand-in-hand with state PWSS programs to prioritize loan and/or set-aside assistance to water systems out of compliance with the SDWA as well as to ensure that compliant water systems maintain their status. D. Safeguarding Public Trust Through Fiscal Controls & Accountability Congress entrusted the DWSRF program with critical financial resources and programmatic flexibility to target those resources. EPA and state partners are accountable for the effective use of these resources and flexibilities. Therefore, program managers must safeguard the program's trust through fiscal controls and accountability. To achieve this goal, we will continue to ensure that proper internal financial controls remain in place through regular reviews and audits and ensure that these controls address a broad array of financial risks while communicating the program's financial integrity and public health results to the public. Water Workforce In 2019, EPA launched the American Water Sector Workforce Initiative as a collaborative effort between EPA, states, and other federal agencies. The three goals of the initiative are: Provide federal leadership to create national momentum and coordinate efforts, Partner to build the water workforce of the future, and Bolster water careers through outreach- making water a career of choice. 12 2019 Annual Report ------- V. 2019 Financial Overview A. Financial Success The fundamental purpose of the DWSRF is to provide low-cost capital to finance sustainable, long-term public health protection. The Fund's ability to assist projects that protect public health is dependent on three pillars: continued federal capitalization; innovative, intelligent, and effective state management; and maintaining the Fund's growth and revolving nature. Since the DWSRF's inception, Congress has appropriated more than $20 billion into the Fund. These funds have gone both to the revolving loan fund and the state set-asides. Together, the 51 state DWSRF programs have effectively leveraged these funds to provide $41.1 billion in loans to the nation's water utilities and nearly $3.5 billion to both states and utilities for set-aside programs to support capacity development, source water protection, and operator training and certification. For the loan program, this translates into $2 in disbursements for every $1 drawn from the U.S. Department of Treasury. From the 2010 appropriation onward, Congress mandated that a certain portion of the federal capitalization grant be provided to borrowers as additional subsidy. This change allowed states to aid communities most in need and incentivize particular types of projects. Because this subsidy comes from the federal dollars, continued federal support is needed to maintain this benefit and continue growing the Fund. B. Financial Reports The Single Audit Act designates the threshold for auditing federal programs. Most DWSRF programs receive a program-specific audit in addition to auditing required under the Single Audit Act. Because the 51 DWSRF programs are independent state-level entities, no nationally-audited DWSRF program financial reports are available. Developed using EPA's National Information Management System, national aggregate financial statements, best viewed as non-audited cash flow-based reports, are shown on the following pages. 2019 Annual Report ------- 1. Statement of Fund Activity As shown in Exhibit 9 in SFY 2019, DWSRF programs executed approximately $2.8 billion worth of loans. Overall for SFY 2019, assistance provided as a percent of funds available ("pace of funds provided") was nearly 100 percent, indicating that states have successfully directed federal funding to drinking water infrastructure projects. This robust percentage of funds utilization also demonstrates a high demand for DWSRF funding. A portion of the disbursed funds are used to provide principal forgiveness to disadvantaged communities or to help finance specific water systems meeting the criteria for state priority funding; in SFY 2019, more than $321 million was provided in the form of principal forgiveness. The amount of new funds includes new investments, net leveraged bonds, and loan principal and interest repayments. Exhibit 9: Statement of Fund Activity (Millions of Dollars) Annual Fund Activity SFY 2018 SFY 2019 Federal Capitalization Grants 794.2 1,068.5 State Matching Funds 179.9 201.0 New DWSRF Funds Available for Assistance 2,705.6 3,242.3 Project Commitments (Executed Loan Agreements) 2,814.4 2,836.7 New Set-Aside Funds Available for Assistance 180.7 241.8 Project Disbursements from the Fund 2,534.7 2,707.2 Cash Draws from Federal Capitalization Grants (Fund)1 643.4 806.2 Cash Draws from Set-Asides1 193.8 178.6 Cumulative Fund Activity2 Federal Capitalization Grants 1 9,976.6 21,061.2 State Matching Funds 3,906.2 4,107.5 DWSRF Funds Available for Assistance 39,832.2 43,138.6 Project Commitments (Executed Loan Agreements) 38,221.1 41,106.0 Set-Aside Funds Available for Assistance 3,223.1 3,461.9 Project Disbursements from the Fund 33,403.1 35,978.4 Cash Draws for Fund 16,518.3 17,324.5 Cash Draws for Set-Asides 2,968.4 3,147.0 Loan Principal Forgiven (263.7) (321.2) 1 This includes funds drawn from previous grants. 2 Cumulative numbers may not sum due to rounding. 14 2019 Annual Report ------- 2. Statement of Revenues, Expenses, and Earnings Exhibit 10, shows the sources of funds and the expenses of the DWSRF program nationally and how they impact net assets. For 2019, interest earnings exceeded expenses, adding to the growth of the program. From 2018 to 2019, operating expenses increased by $25.9 million, with an increase in DWSRF funds used for refunding. DWSRF net assets increased by approximately $1.5 billion, reflecting the steady increase in assets since the program's inception. 3. Statement of Cash Flow Exhibit 1 1 shows the impact of DWSRF activities on cash on hand. DWSRF programs require a reserve to maintain their programs. State programs have successfully reached a first milestone under the Unliquidated Obligation (ULO) strategy of spending down built up federal funds. It is expected that states will need to draw heavily from state cash reserves in the near future to pay invoices from the high level of lending at which they are operating. States have positioned their programs well by increasing their state match bond proceeds by $2 million while gross leveraged bond proceeds added $985 million to program cash flows. In SFY 201 9, states paid $601.8 million in principal and interest on leveraged bonds and state match bonds, demonstrating an increase of $65.9 million from the previous year. Bond issuance is one method by which states may balance their loan demand with the need to maintain the long-term sustainability of their revolving funds. Exhibit 1 0: Statement of Revenues, Expenses, and Earnings (Millions of Dollars) Operating Revenues Interest on Fund Investments Interest on DWSRF Loans Total Operating Revenues Operating Expenses Bond Interest Expense DWSRF Funds Used for Refunding1 Amortized Bond Issuance Expense Total Operating Expenses Non-Operating Revenues and Expenses Cash Draws from Federal Capitalization Grants2 State Contributions3 Loan Principal Forgiven Transfers from (to) CWSRF Total Non-Operating Revenues (Expenses) Increase (Decrease) in Net Assets Net Assets Beginning of Year End of Year 1 Refunding occurs when outstanding bonds are retired with newly-issued bonds. 2 This includes funds drawn from previous grants. 3 This includes state match but excludes state match bonds. SFY 2018 102.3 301.8 404.1 157.3 0 5.7 163.0 836.1 103.5 (263.7) 66.4 742.2 983.3 20,677.1 21,660.5 SFY 2019 140.2 315.3 455.5 163.1 21.3 4.5 188.9 806.2 122.5 306.1 (2.0) 1,232.7 1,499.3 21,660.5 23,159.8 15 2019 Annual Report ------- Exhibit 1 1: Statement of Cash Flow (Millions of Dollars) Operating Activities SFY 2018 SFY 2019 Loan Disbursements to be Repaid (2,534.7) (2,401.1) Loan Principal Forgiven 263.7 306.1 Loan Principal Repayments 1,200.1 1,280.9 Interest Received on Loans 301.8 315.3 State Contributions1 103.5 122.5 Cash Draws from Federal Capitalization Grants2 836.1 806.2 Total Cash Flows from Operating Activities 170.5 429.8 Non-Capital Financing Activities Bond Issuance Expense (7.1) (7.8) Interest Paid on Leveraged and State Match Bonds (157.3) (163.1) DWSRF Funds Used for Refunding3 0 (21.3) Principal Repayment of Leveraged Bonds (329.5) (382.4) Principal Repayment of State Match Bonds (49.1) (56.3) State Match Bond Proceeds 76.5 78.5 Cash Received from Transfers with Clean Water State Revolving Fund (CWSRF) 66.4 (2.0) Gross Leveraged Bond Proceeds 671.9 985.5 Total Cash Flows from Non-Capital Financing Activities 271.7 431.1 Investing Activities Cash Flows from Capital and Related Financing Activities 0 0 Interest Received on Fund Investments 102.3 140.2 Deposits to Debt Service Reserve for Leveraged Bonds 45.3 50.6 Total Cash Flows from Investing Activities 147.6 190.8 Net Increase (Decrease) in Cash and Cash Equivalents 589.8 1,051.8 Cash and Cash Equivalents Beginning of Year 7,488.3 8,078.1 End of Year 8,078.1 9,129.9 1 This includes state match but excludes state match bonds. 2 This includes funds drawn from previous grants. 3 Refunding occurs when outstanding bonds are retired with newly-issued bonds. 16 2019 Annual Report ------- 4. Statement of Net Assets In SFY 2019, total assets increased by $2.76 billion, while total liabilities increased by $1.1 billion; therefore, net assets increased by $1.5 billion, or 6.9 percent of total 201 8 net assets. This increase reflects the overall health of the DWSRF program, which has shown a net asset growth of at least 5 percent per year over the past 1 0 years (Exhibit 1 2). Exhibit 1 2: Statement of Net Assets (Millions of Dollars) Assets SFY 2018 SFY 2019 Cash and Cash Equivalents 7,440.7 9,1 29.9 Debt Service Reserve - Leveraged Bonds 595.8 545.2 Loans Outstanding 18,133.3 19,253.5 Unamortized Bond Issuance Expenses' 65.1 68.3 Total Assets 26,234.9 28,997.0 Liabilities Match Bonds Outstanding 278.7 302.2 Leveraged Bonds Outstanding 4,334.4 5,410.1 Total Liabilities 4,613.1 5,712.3 Net Assets Federal Contributions 1 9,474.9 20,281.1 State Contributions 2,876.5 2,999.0 Transfers - Other SRF Funds 595.6 (2.0) Other Net Assets (1,286.6) (1 18.2) Total Net Assets 21,660.5 23,159.8 Total Liabilities & Net Assets 26,273.6 28,872.1 1 Unamortized bond issuance expenses are costs that have been incurred but have not been fully recognized (amortized). These costs will be recognized (amortized) over time over the remaining life of the bonds outstanding, similar to a pre-paid expense. 2019 Annual Report ------- VI. DWSRF Set-Asides States may reserve a portion of their annua! capitalization grants to fund non-infrastructure programs supporting safe drinking water. Set-asides expand the impact of DWSRF by helping to ensure that water systems have the necessary technical, managerial and financial capacity to get the greatest public health protection from their drinking water infrastructure investments. Each of the four DWSRF set-aside categories has a different focus. Upon receiving capitalization grants, states may reserve funds under each of the four categories at their discretion and up to the maximum allowable limit. This section provides an overview of the four set- asides and a breakdown of set-aside usage in 2019 and cumulatively. Administration and Technical Assistance (4% Set-Aside) States may set aside the greatest of $400,000, 0.2 percent of the current Fund value, or 4 percent of the capitalization grant to administer their DWSRF programs and to provide technical assistance to water systems of any size. For example, states may use these funds to hire staff or to assist water systems with project plans or loan applications. Small Systems Technical Assistance (2% Set-Aside) States may reserve up to 2 percent of their annual capitalization grant to fund programs providing assistance to drinking water systems serving 1 0,000 people or fewer. Small water systems often face greater challenges than larger systems, and they frequently have difficulty obtaining funding. This set- aside helps build the capacity of small systems and better align operations with drinking water system demand. State Program Management (10% Set-Aside) This set-aside may be used to fund PWSS programs overseeing all drinking water programs in individual states. Funding from this set-aside can be used for source water protection, capacity development, operator certification programs, and other activities. Local Assistance and Other State Programs (15% Set-Aside) States can use up to 15 percent of their capitalization grant (but no more than 10 percent for any single activity) to provide loans for the purchase of land, to support source water protection, to implement voluntary water quality protection activities, or to assist water systems with their capacity development. 18 2019 Annual Report ------- Recent Set-Aside Usage In 2019, states took a higher percentage of set- asides than their historical average in all four categories (Exhibit 1 3). Exhibit 14 shows how states used each set-aside account in 2019 and cumulatively since the DWSRF program inception in 1997. Exhibit 1 3: Set-Asides Taken as a Percentage of Capitalization Grants 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 9.2% 3.8% 3.2% 1 1 1.8% 1.4% Admin & Technical Assistance Small Systems Technical Assistance State Program Management Local Assistance SFY 1997 -2019 SFY2019 Exhibit 14: Set-Aside Expenditures (Millions of Dollars) Set-Aside Category Sub-Category SFY2019 Cumulative (1997-2019) Small Systems State Program Management PWSS Administration $ 59.19 $ 875.53 SWP Technical Assistance $ 2.55 $ 99.90 Capacity Development $ 10.47 $ 177.77 Operator Certification Programs $ 2.35 $ 45.04 Local Assistance & Other State Programs Loans for SWP Land Acquisition $ 0.00 $ 8.95 Loans for Incentive-Based SWP Measures $ 0.00 $ 7.75 SWP Area Delineation/ Assessment $ 3.65 $ 128.50 Wellhead Protection $ 20.45 $ 339.06 Technical or Financial Assistance $ 35.73 $ 501.66 All TOTAL $ 177.97 $ 3,145.19 19 2019 Annual Report ------- VII. DWSRF AQUARIUS Project Highlights The DWSRF AQUARIUS Recognition Program nationally recognizes DWSRF-funded projects for exceptional focus on sustainability and protection of public health, The projects listed below were recognized as "Exceptional" and are examples of the impact and innovation possible with the DWSRF. To learn more about the projects recognized in 201 9, visit the 2019 AQUARIUS Recognition Program website. Region 1 Woodland Summit Community Water Association (WSCWA), CT Loan Amount - $280,000: WSCWA's wgter system wgs built prior to the SDWA and was in poor condition due to lack of maintenance and capital investment. Iron and manganese concentrations exceeded maximum contaminant levels (MCLs), and radon levels were high. The 50-year old storage tank was never inspected and exceeded the state's 10-year inspection requirement. WSCWA worked with the Rural Community Assistance Partnership (RCAP) to utilize Check Up Program for Small Systems (QJPSS) and implement an Asset Management Plan (AMP). The WSCWA's project resulted in several improvements, including the replacement of the iron/manganese filtration systems and installation of a new radon treatment system. The WSCWA, under volunteer leadership, worked together to adjust water rates, make this project possible, and plan for the future. Region 2 Long Beach Township, NJ Loan Amount - $1,250,000: The Brant Beach Water Treatment Plant (WTP) was built without any flood protection and was severely flooded during Superstorm Sandy in 2012. The project included demolition and reconstruction of the existing well building and generator room to comply with 500-year flood elevation requirements and installing new equipment. The pump station now complies with Federal Emergency Management Agency (FEMA) flood zone regulations and SDWA. As a result of DWSRF funds, the WTP is better protected against flooding and sustained power loss and more resilient to future storms. 20 2019 Annual Report ------- Region 3 Allegany County, MD Loan Amount - $300,000: 61 Households in rural Allegany County had no access to the public water supply. They received drinking water from private wells or the local creek (when not frozen or affected by high turbidity). Mining activity led to a discolored water supply. Nitrates and fecal coliform bacteria were also found during well testing. Households without wells were taking water from local streams and disinfecting it with their own chlorine supplies. The Maryland SRF program, partnering with other funding agencies, installed 1 2,400 feet of PVC water line and 25 hydrants. These households now have drinking water service through connection to Frostburg's drinking water system. Region 4 City of Danville, KY Loan Amount - $12,500,000: The City's primary raw water source, Lake Herrington, is a deep lake with a modest surface area and is prone to seasonal total organic carbon spikes, manganese events, and lake turnover. Even though the City's WTP performance was steady, they under- took this capital improvements project to proactively address concerns about meet- ing the requirements of the Stage 2 Disinfection Byproducts (DBF) Rule. Chal- lenges included: expanding and up- grading the WTP on the existing site while maintaining constant water production, re- purposing the existing historic structures, and incorporating cutting edge treatment technologies. The project consisted of sev- eral components including: new filtration, chemical feed, operations laboratories at the existing WTP; a new chemical building; six new granular filters, eight new pumps, four granular activated carbon (GAC) contactors, Supervisory Control and Data Acquisition (SCADA) improvements, and upgrades to an 80-year old raw water intake facility. This project provided 60,000 residents throughout four counties with improved drinking water quality. 21 2019 Annual Report ------- Region 5 City of Ashland, Wl Loan Amount - $300,000: The City of Ashland replaced 1 61 residential lead service lines (LSL) and covered 1 00 percent of the replacement costs. The City prioritized households with children under the age of 6, high risk groups based on socioeconomic factors, as well as schools and daycares. This project is an example of innovative financing, as the City provided 1 00 percent principal forgiveness, which was necessary to comply with state laws, since no public debt can be incurred for costs of work done on private property. Region 6 Saint Bernard Parish (SBP) Waterworks, LA Loan Amount - $11,000,000: The Saint Bernard Parish Waterworks was losing a large amount of water pumped (43%) due to leaks in the cast iron mains. Through support from the DWSRF, the project reduced and eliminated leakage and water main failures by replacing aged and deteriorated cast iron waterline segments; adding fire hydrants, valves, service lines, meters, fittings; replacing asphalt pavement; and addressed issues with inadequate chlorine residuals. The project met EPA's 100 percent Green Project Reserve, in total, 61,050 feet of waterline was replaced/added to the system. 22 2019 Annual Report ------- Region 7 Public Wholesale Water Supply District No. 27, KS Loan Amount - $3,800,000: Four water systems in the area, that had consistently exceeded the MCL for nitrate for four years, worked together to form the Public Wholesale Water Supply District (PWWSD) and find a new water source. The project included the creation of a new Public Water System (PWS) through construction of public water supply wells, a disinfection treatment facility, an elevated storage tank, and connecting transmission pipelines. The treatment facility was constructed to allow expansion of the treatment process if nitrate removal becomes necessary in the future. This new system now provides water that is below the MCL for nitrate for the City of Powhattan, the City of Robinson, Brown County Rural Water District No. 2, and Doniphan County Rural Water District No. 6. The PWWSD is actively planning to connect other area public water supply systems that are trying to resolve nitrate MCL violations. Region 8 East Rapid City, SD Loan Amount - $5,000,000: This project is the largest water regionalization project the City has completed and included a major expansion of the municipal water distribution system to serve those located east of the current city limits. These residents were previously served by individual wells and small private or public water systems that were inadequate, unreliable, and failed to meet EPA's safe drinking water standards. Over five miles of public water mains and a master pressure reducing valve (PRV) facility were constructed. There are currently 179 new active service connections (433 people) in the project area that are now being provided a consistent, safe drinking water supply. 23 2019 Annual Report ------- Region 9 Valley Center Municipal Water District, CA Loan Amount - $4,200,000: The project included designing and installing a geomembrane liner with a geotextile underlayrnent and replacing a Hypalon floating cover with a new chiorosulfonated polyethylene (CSPEj floating cover. The Reservoir's concrete liner was showing signs of movement and cracking at the expansion joints, as well as leakage through the underdrain system. The concrete liner also served as a medium for bacterial growth, increasing chlorine demand with corresponding chemical and operational costs. The Reservoir's cover had reached the end of its service life, and tears in the cover could no longer be repaired. The new liner will prevent leakage from the Reservoir and reduce bacteria by creating a barrier between the finished drinking water and the concrete liner. This will reduce chemical and energy use to maintain chlorine residuals. Region 10 Liberty Lake Sewer and Water District (LLSWD), WA Loan Amount - $905,000: In 2014, Eastside Liberty Lake Improvement Club (ESLLIC) received a DWSRF loan for water system improvements, including replacement of 50-plus year-old well pumps, booster pumps, and reservoir. In 2016, this project was converted to a consolidation project between LLSWD and ESLLIC and was then eligible for 50 percent principal forgiveness. The revised project included transferring ownership of ESLLIC to LLSWD, abandoning the existing wells serving ESLLIC that needed major upgrades, utilizing the existing intertie as the main water source to ESLLIC, and conducting needed improvements to ESLLIC's distribution system to address leaks. ESLLIC's volunteer board is now replaced by LLSWD as the owner responsible for operation and maintenance of the entire water system, providing long-term technical, managerial, and financial (TMF) capacity for the customers within ESLLIC. Water rates for ESLLIC customers dropped from $50.76, which included the surcharge for the DWSRF loan, to $18.52 upon consolidation. 2019 Annual Report ------- State Agencies Managing the DWSRF EPA Region 1 Connecticut Department of Public Health Connecticut Office of the Treasurer Maine Department of Human Services Maine Municipal Bond Bank Massachusetts Clean Water Trust Massachusetts Department of Environmental Protection Massachusetts Executive Office of Administration and Finance New Hampshire Department of Environmental Services Rhode Island Infrastructure Bank Rhode Island Department of Health Vermont Department of Environmental Conservation EPA Region 2 New Jersey Environmental Infrastructure Bank New Jersey Department of Environmental Protection New York State Department of Health New York State Environmental Facilities Corporation Puerto Rico Department of Health Puerto Rico Infrastructure Financing Authority EPA Region 3 Delaware Department of Health and Social Services Maryland Water Quality Financing Administration Maryland Water and Science Administration Maryland Department of the Environment Pennsylvania Infrastructure Investment Authority Pennsylvania Department of Environmental Protection Virginia Department of Health Virginia Resources Authority West Virginia Department of Health and Human Resources West Virginia Water Development Authority 25 EPA Region 4 Alabama Department of Environmental Management Florida Department of Environmental Protection Georgia Environmental Finance Authority Georgia Department of Natural Resources Kentucky Infrastructure Authority Kentucky Department of Environmental Protection Mississippi State Department of Health Mississippi State Tax Commission North Carolina Department of Environmental Quality South Carolina Department of Health and Environmental Control South Carolina Budget and Control Board Tennessee Department of Environment and Conservation Tennessee Division of Fiscal Services Tennessee Comptroller of the Treasury EPA Region 5 Illinois Environmental Protection Agency Indiana Finance Authority Indiana State Revolving Fund Loan Program Michigan Department of Environmental Quality Michigan Municipal Finance 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 2019 Annual Report ------- EPA Region 6 Arkansas Natural Resources Commission Arkansas Department of Health Arkansas Development Finance Authority Louisiana Department of Health New Mexico Finance Authority New Mexico Environment Department Oklahoma Department of Environmental Quality Oklahoma Water Resources Board Texas Water Development Board Texas Commission on Environmental Quality EPA Region 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 Missouri Environmental Improvement and Energy Resources Authority Nebraska Department of Environmental Quality o EPA Region 8 Colorado Water Resources and Power Development Authority Colorado Water Quality Control Division Colorado Department of Local Affairs 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 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 State Water Resources Control Board Hawaii Department of Health Nevada Division of Environmental Protection Nevada Office of Financial Assistance EPA Region 10 Alaska Department of Environmental Conservation Idaho Department of Environmental Quality Oregon Health Authority Oregon Infrastructure Finance Authority, Business Oregon Oregon Department of Environmental Quality Washington State Department of Health Washington Department of Commerce 26 2019 Annual Report ------- DWSRF At-a-Glance Assistance Provided for Projects (Millions of Dollars) 2019 1997-2019 Total, by Project Type 2,836.7 41,083.6 Planning and Design Only 46.1 466.2 Construction Treatment 755.0 15,405.6 Transmission & Distribution 1,321.6 16,747.4 Source 192.0 2,345.0 Storage 431.6 4,292.8 Purchase of Systems 1.8 296.2 Restructuring 23.4 153.6 Land Acquisitions 2.6 94.9 Other 62.6 1,281.9 Total, by Population Served Less than 501 174.9 1,886.9 501 to 3,300 496.8 6,231.3 3,301 to 10,000 367.8 6,144.1 10,001 to 100,000 788.4 14,973.4 100,001 and Above 1,008.8 11,826.4 # of Loans, by Population Served Less than 501 201 3058 501 to 3,300 312 4998 3,301 to 10,000 165 2872 10,001 to 100,000 168 3424 100,001 and Above 51 1073 Funds Available for Projects (Millions of Dollars) 2019 1997-2019 Total Funds 3,242.3 43,138.6 Federal Capitalization Grants 1,068.5 21,061.2 State Match 201.0 4,107.5 Net Leveraged Bonds 1,067.2 9,881.3 Net Loan Principal Repayments 898.6 8,643.0 Net Interest Earnings 236.1 2,459.0 Net Transfers with CWSRF 12.7 448.5 Less Set-Asides (241.8) (3,461.9) Other Key Statistics In 2019, every $1 federal drawn to DWSRF programs resulted in $2 disbursed. The DWSRF average interest rate in 201 9 was 1.6%, compared to 3.5% market-value interest rate. This lower interest rate results in over $500 million in savings to local community ratepayers over the life of these loans. States also awarded $321 million as principal forgiveness to communities in 2019. These grant-like funds help keep water rates affordable for communities. 24 states sell bonds to further leverage their DWSRF programs. For more information about the Drinking Water State Revolving Fund, please contact us at: Drinking Water State Revolving Fund Program U.S. Environmental Protection Agency 1201 Constitution Avenue, NW (Mail code 4606M) Washington, DC 20460 www.epa.gov/dwsrf Office of Ground Water and Drinking Water October 2020 EPA 816-R-20004 2019 Annual Report ------- |