Using the Drinking Water State Revolving Fund Set-
Asides for Source Water Protection Loans
States may offer loans to community water systems to finance source water protection activities
through the Local Assistance and Other State Programs set-aside.
Source water is the water from rivers, streams, lakes,
springs and ground water aquifers that provides water
to public drinking water supplies and private wells.
Source water protection aims to safeguard, maintain,
or improve the quality of those drinking water sources
and their contributing land-areas. There is growing
recognition that protecting a source from
contamination is often more efficient and cost-
effective than treating the drinking water to remove
the contamination. Types of source water protection
measures that a community can implement include
local land use controls through land acquisition and
conservation easements, best management practices
for agricultural and forestry activities, and public
education initiatives.
Source water protection is integral to providing safe
and reliable drinking water to the nearly 300 million
people served by community water systems in the
United States. The Safe Drinking Water Act (SDWA)
Amendments of 1996 established the Drinking Water
State Revolving Fund (DWSRF) program, which
awards capitalization grants from the U.S.
Environmental Protection Agency (EPA) to each of the
50 states and Puerto Rico. A portion of the
capitalization grants can be used as "set-asides" to
support non-infrastructure activities, including source
water protection. DWSRF programs can use set-
asides to develop and implement Source Water
Protection Programs, delineate and assess source
water protection areas, and finance a variety of local
land use controls and other management tools for
source water protection. The full range of source
water protection activities eligible for DWSRF set-
aside funding is described in a separate EPA fact sheet
identified in the additional resources box below.
The Drinking Water State Revolving Fund (DWSRF)
can provide financial assistance to publicly-owned and
privately-owned community water systems, as well as
non-profit non-community water systems, for drinking
Additional Source Water Protection Resources:
EPA's Source Water Protection page:
EPA's Fact Sheet on Source Water Protection Using Set-Asides:
The Clean Water SRF Program: epa.aov/cwsrf
The Source Water Collaborative:
USDA Natural Resources Conservation Services:

EPA OGWDW | Protecting Source Water with the DWSRF Set-Aside Loans
water infrastructure projects including cybersecurity
measures. Projects must either facilitate the system's
compliance with national primary drinking water
regulations or significantly further the health
protection objectives of the Safe Drinking Water Act.
Each of the 50 states and Puerto Rico operates its
own DWSRF program. They receive annual
capitalization grants from the EPA, which in turn
provide low-interest loans and other types of
assistance to water systems. Repayments of DWSRF
loans begin one year after project completion, with
loan terms up to 30 years for most communities, or
up to 40 years for disadvantaged communities.
Additionally, states may use a portion of their
capitalization grant from the EPA as "set-asides" to
help communities build the technical, managerial, and
financial capacities of their systems. With an
emphasis on small systems, these funds help ensure
sustainable infrastructure and public health
The Local Assistance and Other State Programs set-
aside (i.e., 15%) can be used to provide loans to
water systems for source water protection.
Specifically, these loans can be used to acquire land
or conservation easements needed to protect drinking
water sources and for local planning and
implementation of voluntary, incentive-based source
water protection measures. Repaid loans may be
recycled back into the set-aside account to fund other
source water protection loans or to the state's
infrastructure loan fund. States can provide principal
forgiveness or negative interest rates for these loans
using the Congressional additional subsidy authority.
Any principal forgiveness or negative interest
provided through source water protection loans
counts toward the state's maximum allowable
additional subsidy under the DWSRF.
EPA 816-F-20-006 December 2020
For some communities, an effective way to protect
the quality of drinking water sources is through land
ownership or restricted land uses. These efforts focus
on watersheds or ground water recharge areas where
development or other activities could impair the
quality of the source water. States can use DWSRF
set-aside funds to provide loans to water systems for
the following land use controls:
	Land Acquisition: Purchase of land at or below
the fair market value to control the types of
activities that can take place.
	Conservation Easement: A Legal agreement
with a landowner that permanently protects the
land by limiting the amount and type of
development that can take place but continues to
leave the land in private ownership. Landowners
typically sell conservation easements to a land
conservation organization or government entity.
Landowners who instead donate an easement
may benefit from reduced income/estate taxes.
Land acquisition and conservation easements can
prevent activities that may degrade water quality
from occurring in critical areas. They can also provide
additional community benefits such as preserving
open space, enhancing recreational opportunities,
and reducing flood damage.
Some communities are focusing their protection
efforts on local, voluntary, and incentive-based source
water protection measures. States can use the Local
Assistance and Other State Programs set-aside to
provide loans to water systems to implement these
measures. This approach emphasizes a local
stakeholder process to produce a plan for
implementing a wide range of local land use controls
and management tools, including:
	Fencing: Building fences that keep cattle away
from the water's edge can reduce contamination
in sources of drinking water and prevent bank
	Capping Wells: Sealing abandoned ground
water wells and underground injection wells can
keep contaminants out of ground water aquifers

EPA OGWDW | Protecting Source Water with the DWSRF Set-Aside Loans
	Riparian Buffers: Strips of vegetation along
streams and around reservoirs can significantly
reduce the amount of sediment and
contamination entering the source water. The
vegetation serves as natural filters, and the tree
and shrub roots hold stream banks in place to
prevent soil erosion.
DWSRF set-aside loans for land acquisition,
conservation easements, and other source water
protection measures can only be made to public water
systems. An organization such as a watershed
association or land conservancy can become a co-
signatory to the loan agreement with the water
system. In this arrangement, the organization could
help implement the land use control measures around
the water sources and take over the responsibility for
loan repayment. The loan agreement would describe
the specific responsibilities of the organization and the
water system with respect to the financial assistance
provided by the state. Such partnerships may
complement ongoing work of the organization to
preserve parts of a watershed or aquifer recharge
area for other purposes.
Additionally, these source water protection loans can
leverage other sources of funding. These include the
2018 Farm Bill, EPA's 319 program, and private
lending. There are often partnership opportunities
available with land trusts, nonprofit organizations,
and others with expertise in land protection issues
that could work closely with the water systems.
The following are some examples of the types of
activities that land trusts and other organizations can
do to facilitate source water protection (eligible
activities under other parts of the 15% set-aside):
	provide technical assistance to water systems in
identifying properties that qualify for funding;
	offer expertise in negotiating land acquisitions or
conservation easements with willing sellers;
	manage land trusts or conservation easements
once they are acquired from a willing seller; and
EPA 816-F-20-006 December 2020
	assist with public outreach efforts to demonstrate
the benefits of protecting water supplies within a
Each state must include approval of a source of loan
repayment as part of the application review and
approval process. Although finding a source of
repayment can prove challenging, it is possible. The
source of repayment need not come from the project
itself. Loan recipients can be creative in developing
sources of repayment.
Some potential repayment sources include:
	Drinking water user fees.
	Dedicated portions of local, county, or state taxes
or fees.
	State or local government grants.
	Fees paid by developers.
	Recreational use fees.
	Revenue from sustainable timber harvest or other
forest products.
	Nutrient credits.
	Donations made to nonprofit groups (in cases
when a nonprofit is a co-signatory on a loan).
Each state that establishes a loan program for land
acquisition or conservation easements and source
water protection measures must develop a
priority-setting process to determine which
projects to fund. An important consideration for
the priority-setting process would be an evaluation
of how the land, easement, or measure to be
funded will protect the water supply from
contamination and help ensure compliance with
national drinking water regulations.
Each state that has established a loan program has
developed a unique priority system for ranking
projects. Many of these priority systems include
the requirement that the land be within a
delineated source water or wellhead protection

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DWSRF Case Studies: Source Water Protection Loams
Under the DWSRF Set-Asides
How states and communities are using the DWSRF Local Assistance and Other State Programs
set-aside loans to safeguard sources of drinking water.
The Auburn Water Department received a loan for
$570,000 to acquire 434 acres of land in the
watershed of the "Basin," a small pond which drains
directly into Lake Auburn. Lake Auburn serves as a
source for two water systems. The systems
collaborated with the Lewiston-Auburn Watershed
Commission and the Androscoggin Land Trust (ALT)
and negotiated a joint easement. Under this
easement, the Commission reviews the landowner's
forest management plan to ensure that best
management practices for water quality are used and
ALT shares overall easement monitoring
responsibilities. By protecting land around Lake
Auburn, the water systems have been able to
maintain their source water quality.
The York Water District in Maine has used the loan
program four times since 2007 to achieve its long-
term goal of protecting the Chase's Pond watershed.
Chase's Pond is a long, narrow, and shallow pond that
has served as the sole drinking water source for the
Town of York since 1896. The District determined that
ownership of this 2,090-acre watershed is critical to
protecting its water quality. In 2014, the District was
awarded a loan through the state's land acquisition
loan program for $249,000 to acquire 2.23 acres of
land. The loan term is 10 years and has a 0% interest
rate. The acquired land is adjacent to parcels
previously acquired in 2007 and 2010, increasing the
extent of protected land in the watershed.
Additionally, the property acquired in 2014 included a
single-family residence, which has been repurposed
for the Town of York Natural Resource Protection
Patrolling Program office. This program partners the
York Water District and its police department with two
bordering areas, the Kittery Water District and the
Mount Agamenticus Conservation Region. The land
acquisition resulted in lasting improvements to both
water quality and local land management
The Town of Bradford received a $140,000 loan to
purchase a tract of farmland within Zone I of the
system's source protection area. The purchase was a
high priority because the Town's source protection
plan identified high-risk land use activity on the

EPA OGWDW | DWSRF Case Studies: Source Water Protection Loans Under Set-Asides
EPA 816-F-20-006 December 2020
The Contra Costa Water District relies on the Contra
Loma Reservoir to supply drinking water to its
community. The community has historically enjoyed
the reservoir for swimming and recreation, but the
human contact was associated with increased
coliform levels in the reservoir. To improve water
quality for the drinking water supply and to preserve
the enjoyment of the reservoir for swimming, the
Contra Costa Water District received a loan through
the Local Assistance and Other State Programs set-
aside for $2 million to build the Contra Loma Reservoir
Swim Lagoon. A concrete-covered earthen berm was
buiit to separate the water supply from all human
contact. The project was completed as one of many
projects to address the challenges facing the Bay-
Delta in California. The loan term was 20 years and
had an interest rate of 2.39%. The project will protect
both the water quality and the community's
enjoyment of the Contra Loma Reservoir for years to
The Nebraska DWSRF made a $1 million loan to the
City of Syracuse for a land purchase of 637 acres from
a group of private owners. This land will protect the
City's wells (built in the 1950s) from nitrate
contamination. The loan was paired with the
development of a Drinking Water Management
Protection Plan for the City. The plan will develop a
groundwater model to delineate the 50-year well
head protection area and establish a robust Nebraska
Department of Environmental Quality and EPA
approved Drinking Water Protection Management
Plan that includes all elements of a Well Head
Protection Plan. This project identifies water quality
issues and opportunities for improving water quality,
and it and engages the community in planning and
The Nebraska DWSRF makes protection plans a
requirement of any land loan agreements, under the
15% set-aside, and it will serve as the guide for the
City to protect its well field source, and will make
them eligible for CWA Section 319 assistance in the
DWSRF assistance is distributed directly from state
agencies. Each state has its own funding procedure.
Contact information for each state is posted at
For more information, visit: