United States Office of Water 800B21001
Environmental Protection Washington, DC 20460 February 2022
Agency
EDA
I
Proposed 2022 Clean Water Act
Financial Capability Assessment
Guidance
February 2022
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2022 Proposed Financial Capability Assessment Guidance
February 2022
DISCLAIMER: The statements in this document are intended solely as guidance. The contents of
this document do not have the force or effect of law and are not meant to bind the public in any
way. This document is intended only to provide recommendations to the public regarding existing
legal requirements or agency policies. EPA and State officials may decide to follow the guidance
provided in this document, or to act at variance with the guidance, based on an analysis of site-
specific circumstances. This guidance may be revised without public notice to reflect changes in
EPA's strategy for implementation of the Clean Water Act and its implementing regulations, or
to clarify and update the text. Mention of trade names or commercial products in this document
does not constitute an endorsement or recommendation for use.
Questions about this document should be directed to:
U.S. EPA Office of Wastewater Management
1200 Pennsylvania Avenue NW (4201M)
Washington, DC 20460
(202)566-1000
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Table of Contents
I. Summary
II. Background on EPA's Financial Capability Assessment Guidance and Framework and
Interim Economic Guidance for Water Quality Standards
a. 1997 FCA Guidance and 2014 FCA Framework
b. 1995 Interim Economic Guidance for Water Quality Standards
III. Development of the Proposed 2022 FCA Guidance
a. Purpose of the Proposed 2022 FCA Guidance
b. Changes from September 2020 FCA Proposal
1. Consideration of Lowest Quintile Households and Poverty Indicators
2. Addition of Financial Alternatives Analysis
3. Modification of Scheduling Benchmarks
IV. Proposed 2022 Financial Capability Assessment Guidance
a. Overview of the Proposed 2022 FCA
b. Alternative 1: Critical Metrics with Established Thresholds and Instructions
1. Residential Indicator
2. Financial Capability Indicator
3. Initial Lowest Quintile Poverty Indicator Score
4. Financial Alternatives Analysis
5. Final Lowest Quintile Poverty Indicator Score
6. Expanded Financial Capability Matrix
c. Alternative 2: Critical Metrics and Instructions
1. Financial and Rate Models
2. Lowest Quintile Poverty Indicator
d. Other Metrics with Standardized Instructions
1. Drinking Water Costs
2. Potential Bill Impacts Relative to Household Size
3. Customer Assistance Programs
4. Asset Management Costs
5. Stormwater Management Costs
6. Comparisons to National Data
e. Other Metrics with Submission of Information Determined by the Community
f. Schedule Development
1. Environmental and Public Health Considerations
2. Alternative 1 Schedule Development
3. Alternative 2 Schedule Development
g. Recommended Expanded Economic Impact Matrix and Analyses for WQS Decisions
for the Public Sector
1. Use of Guidance and Additional Analyses for WQS Use Attainability Analyses as
Compared to WQS Variances
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2. WQS Decisions in Areas with Potential Environmental Justice Concerns
3. Submittal of Additional Community-Specific Information
4. Steps to Evaluate the Degree of Economic Impact from Potential WQS Decisions
5. Recommendations for Making WQS Decisions
V. Request for Public Comment
VI. Appendices
a. Appendix A - Residential Indicator Worksheets
b. Appendix B - Financial Capability Indicator Worksheets
c. Appendix C - Financing and Funding Considerations for Financial Alternatives
Analysis
d. Appendix D - Resources Related to Water Infrastructure Financing
e. Appendix E - Examples of Other Metrics Relevant to Consideration of Financial
Capability
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I. Summary
The objective of the Clean Water Act (CWA) is "to restore and maintain the chemical, physical,
and biological integrity of the Nation's waters."1 Municipal discharges that violate the CWA can
pose significant threats to public health and the environment. When a community is out of
compliance with the CWA, the Agency's expectation is that the community will achieve
compliance with the CWA as soon as practicable. Financial capability is one of many factors EPA
considers when developing schedules for implementation of long-term CWA control plans; the
Agency should also consider the need to expeditiously restore water quality in communities
that may have suffered from years of Clean Water Act violations.2 The public health and
environmental considerations that EPA assesses when developing CWA implementation
schedules include environmental justice and mitigation of environmental and public health
impacts in low-income and overburdened communities. EPA also encourages communities to
utilize integrated planning3 and innovative technologies, such as green infrastructure,4 to
achieve CWA compliance in a timely, flexible, and cost-effective manner.
Communities, in consultation with regulators and the public, are responsible for evaluating and
selecting controls that will meet CWA requirements. After controls have been selected, a
financial capability assessment (FCA) is used to aid in assessing a community's financial
capability as a part of negotiating implementation schedules under both permits and
enforcement agreements. The Proposed 2022 Financial Capability Assessment Guidance
(Proposed 2022 FCA) is intended to standardize what EPA plans to consider when determining a
community's financial capability to implement control measures needed to meet CWA
obligations. It is not a methodology for defining water affordability.
The Proposed 2022 FCA incorporates aspects of EPA's 1997 Combined Sewer Overflows -
Guidance for Financial Capability Assessment and Schedule Development (1997 FCA Guidance)
and EPA's 2014 Financial Capability Assessment Framework for Municipal Clean Water Act
Requirements (2014 FCA Framework), which are summarized in Section II.a. Going forward, the
1 33 U.S.C. § 1251.
2 The CSO Control Policy explains that NPDES authorities "should determine the appropriate vehicle (i.e., permit
reissuance, information request under CWA section 308 or State equivalent or enforcement action) to ensure that
compliance with the CWA is achieved as soon as practicable." 59 Fed. Reg. 18688,18690 (April 19,1994). The CSO
Policy also requires that "each long-term CSO control plan ... should [] include both fixed-date project
implementation schedules (which may be phased) and a financing plan to design and construct the project as soon
as practicable." 59 Fed. Reg. at 18691.
3 In 2012, EPA developed the Integrated Municipal Stormwater and Wastewater Planning Approach Framework
(Integrated Planning Framework) that offers a voluntary opportunity for a municipality to develop an integrated
plan to meet multiple CWA requirements. Integrated Planning is a process that municipalities can use to achieve
clean water and human health goals while addressing aging infrastructure, changing population and rainfall
patterns, and competing priorities for funding. On January 14, 2019, the Water Infrastructure and Improvement
Act (WIIA) (H.R. 7279) became law. WIIA added a new section 402(s) to the CWA to amend the CWA to include the
2012 Integrated Planning Framework.
4 Section 502 of the CWA defines green infrastructure as "...the range of measures that use plant or soil systems,
permeable pavement or other permeable surfaces or substrates, stormwater harvest and reuse, or landscaping to
store, infiltrate, or evapotranspirate stormwater and reduce flows to sewer systems or to surface waters."
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Proposed 2022 FCA replaces the 1997 FCA Guidance to evaluate a community's capability to
fund CWA control measures in both the permitting and enforcement context.
In addition, as described in Section II.b, the 1997 FCA Guidance is substantively identical to the
public sector sections of the 1995 Interim Economic Guidance for Water Quality Standards
(1995 WQS Guidance), which is used for evaluating water quality standards (WQS) decisions,
including revisions to designated uses, WQS variances, and antidegradation reviews for high-
quality waters. Going forward, the Proposed 2022 FCA (particularly Section IV.g) supplements,
and should be used in conjunction with, the public sector sections of the 1995 WQS Guidance
to assist states and authorized tribes in assessing the degree of economic impact of potential
WQS decisions. The Proposed 2022 FCA does not revise the recommended methodology in the
private sector sections of the 1995 WQS Guidance.
In Section IV, the Proposed 2022 FCA sets forth two alternatives for assessing financial
capability that a community could choose to employ. The first alternative adopts the
Residential Indicator (Rl) and the Financial Capability Indicator (FCI) from the 1997 FCA
Guidance and adds consideration of the lowest quintile income and poverty prevalence within a
service area. The second alternative utilizes dynamic financial and rate models that evaluate
the impacts of debt service on customer bills. Additional information such as a community's
total water costs (i.e., costs for wastewater, stormwater, and drinking water infrastructure
investment) may also be submitted and considered when negotiating the length of an
implementation schedule for a community's CWA obligations.
EPA plans to work with communities to identify funding sources and financing strategies that
can be used to reduce costs over time. As described below, the determination of availability of
such funding should be part of a community's financial capability assessment where there are
poverty concerns, and a community's decision not to use available subsidized funding should
not be a basis for a finding that a community lacks financial capability. As outlined in Section
IV.b.4, when there is a "medium" or "high" impact on a community's lowest quintile
households, the FCA recommends submittal of a Financial Alternatives Analysis documenting
that all feasible steps have been taken to mitigate impacts on the lowest quintile. This step
should be a precursor to EPA's consideration of an extended CWA schedule or WQS revisions
based on poverty considerations.
EPA has a responsibility to ensure that recipients and subrecipients of federal financial
assistance from EPAincluding states, municipalities, and other public and private entities-
comply with federal civil rights laws that prohibit discrimination on the basis of race, color,
national origin (including limited English proficiency), disability, sex, and age,5 including Title VI
of the Civil Rights Act of 1964.
5 Title VI of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000(d) et seq. (Title VI); Section 504 of the Rehabilitation Act
of 1973, as amended, 29 U.S.C., 29 U.S.C. § 794, Title IX of the Education Amendments of 1972, as amended, 20
U.S.C. §§ 1681 et seq.; Age Discrimination Act of 1975, 42 U.S.C. §§ 6101 et seq.; Federal Water Pollution Control
Act Amendments of 1972, Pub. L 92 500 § 13, 86 Stat. 903 (codified as amended at 33 U.S.C. § 1251 (1972)); 40
C.F.R. Parts 5 and 7.
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Whenever a community receives funding from EPA, including through the Clean Water Act
State Revolving Fund and the Safe Drinking Water State Revolving Fund, EPA intends to ensure
compliance with civil rights laws by recipients of such funding. It is EPA's obligation to ensure
no community is excluded from receiving or denied benefit of EPA funding based on race, color,
national origin (including limited English proficiency), age, disability, or sex.6
The Proposed 2022 FCA contains a number of questions for public comment, described
throughout Section lll.b and summarized in Section V.
II. Background on EPA's Financial Capability Assessment Guidance and Framework
and Interim Economic Guidance for Water Quality Standards
a. 1997 FCA Guidance and 2014 FCA Framework
EPA's 1997 FCA Guidance sets forth a two-phased approach for evaluating a National Pollutant
Discharge Elimination System (NPDES) permittee's financial capability to fund CSO controls in
accordance with the CSO Policy.7 In the first phase, the Rl calculates the cost per household as a
percentage of median household income (MHI) for the service area of the permittee using data
collected by the U.S. Census Bureau. In the second phase, the FCI evaluates the municipality or
wastewater utility's overall fiscal health and local demographics relative to national norms. The
Rl and FCI results are brought together in a matrix that evaluates the impact ("high," "medium,"
or "low") a proposed CWA program imposes on the municipality or utility. This two-phased
approach is referred to as the Financial Capability Assessment (FCA). While developed for use in
assessing a community's capability to fund CSO controls, EPA has also used the 1997 FCA
Guidance to inform schedules to implement SSO and other CWA control measures.
EPA developed the 2014 FCA Framework to encourage the use of the flexibility available under
the 1997 FCA Guidance. Both the 1997 FCA Guidance and the 2014 FCA Framework were
developed with extensive public input and the Rl and FCI are based on factors for consideration
of financial capability8 as identified in the CSO Policy. The results of the FCA analyses provide an
important benchmark for EPA decision-makers to consider in CWA permitting and enforcement
actions to support consistency across the country. EPA has used both the 1997 FCA Guidance
and the 2014 FCA Framework to support consent decree negotiations with over 100
wastewater utilities throughout the United States and U.S. territories.
6 For more information about the federal civil rights laws enforced by EPA, including Title VI, please visit:
https://www.epa.gov/ocr/title-vi-laws-and-regulations and https://www.epa.gov/ogc/external-cjvil-rights-
compliance-office-title-vi.
7 CWA § 402(q) requires that each permit, order, or decree for a discharge from a municipal combined storm and
sanitary sewer shall conform with the CSO Policy.
8 These factors are: i) Median household income; ii) Total annual wastewater and CSO control costs per household
as a percent of median household income; iii) Overall net debt as a percent of full market property value; iv)
Property tax revenues as a percent of full market property value; v) Property tax collection rate; vi)
Unemployment; and vii) Bond rating. 59 Fed. Reg. 18688,18894.
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EPA does not view or use the 1997 FCA Guidance as a rigid metric that points to a given
schedule length or threshold over which the costs are deemed unaffordable. It is a common
misconception that the FCA can be used to cap spending on CWA programs or projects at a
percentage of MHI. The FCA does not remove obligations to comply with the CWA nor does it
reduce regulatory requirements. Rather, EPA uses the FCA to assess a community's financial
capability for the purpose of developing a reasonable implementation schedule for necessary
improvements that will not overly burden the community. In practice, EPA considers each
community's financial capability on a holistic case-by-case basis, and MHI is only one of the
metrics that EPA evaluates. Where appropriate, EPA has considered supplemental information
submitted by the community (as encouraged by the 2014 FCA Framework) and approved
implementation schedules that are longer than the schedules suggested by the 1997 FCA
Guidance baseline analysis.
b. 1995 Interim Economic Guidance for Water Quality Standards
The 1995 WQS Guidance is used for developing supporting analyses for revisions to designated
uses, justifications for WQS variances, and for making decisions to allow a discharge that will
use the assimilative capacity in a high-quality water. The public sector portion of the 1995 WQS
Guidance uses a substantively identical two-phased approach, data, and metrics as the 1997
FCA Guidance. However, the terminology used in the two guidance documents is different.
The first step of the public sector analysis of the 1995 WQS Guidance involves determining a
Municipal Preliminary Screener Score (MPS) to assess the impact of the cost to households of
the pollution control technology needed to meet water quality-based requirements. The MPS is
the cost as a percentage of the median household income (i.e., the ratio of the total per-
household costs and the median household income). In the 1997 FCA Guidance, this same ratio
is called the Residential Indicator.
The second step of the public sector analysis of the 1995 WQS Guidance involves determining
the Secondary Score to evaluate the community's financial capability, using six measures of a
community's financial health - bond rating, net debt as a percent of the full market property
value, unemployment rate, median household income, property tax revenues as a percent of
full market property value, and property tax collection rate. In the 1997 FCA Guidance, these
same six measures are used to calculate the Financial Capability Indicator.
In the 1995 WQS Guidance, these two indicators are brought together into a matrix to
determine the degree of economic and social impact for a WQS decision, whereas the matrix in
the 1997 FCA Guidance is used to determine a community's financial capability to support
schedule negotiations.
Because the 1995 WQS Guidance and the 1997 Guidance are so aligned, the Proposed 2022
FCA supplements the public sector sections of the 1995 WQS Guidance to assist states and
authorized tribes in assessing the degree of economic and social impact of potential WQS
decisions. The Proposed 2022 FCA does not revise the recommended methodology in the
private sector sections of the 1995 WQS Guidance. Section IV.g of the Proposed 2022 FCA
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applies to the consideration of economic impacts to public entities when evaluating WQS
variances and antidegradation reviews. In appropriate cases, these methodologies also inform
decisions about revisions to designated uses, subject to the additional analyses described in
Section IV.g.
III. Development of the Proposed 2022 FCA Guidance
a. Purpose of the Proposed 2022 FCA Guidance
The Proposed 2022 FCA advances the ability of communities to demonstrate the financial
impacts they face and increases the transparency of EPA's considerations as it endeavors to
consistently apply FCA methodologies across the country. The Proposed 2022 FCA allows
communities to submit more consistent and comprehensive information relevant to the entire
community's capability to fund CWA control measures and programs. Specifically, the Proposed
2022 FCA includes templates and calculations that communities can use to submit information
regarding lowest quintile income (LQI), drinking water costs, financial models or studies, and
other relevant information. The templates and calculations include references to applicable
publicly available data sources that can be used in compiling this information.
The Proposed 2022 FCA sets forth two alternative recommended approaches for assessing a
community's financial capability to be used in CWA schedule development. The first alternative
is the existing 1997 FCA methodology with expanded consideration of lowest quintile income
and poverty in the service area. The second alternative is the development of a dynamic
financial and rate model that looks at the impacts of rate increases over time on utility
customers.
Additionally, EPA recommends the application of the methodologies from Alternative 1 of the
Proposed 2022 FCA to the consideration of economic impacts to public entities when making
decisions on WQS variances and antidegradation reviews. In appropriate cases, these
methodologies also inform decisions about revisions to designated uses, subject to additional
analyses.
Relevant portions of the 1997 FCA Guidance for calculation of the Rl and FCI are included as
Appendices A and B. The structure of these Appendices generally follows the 1997 FCA
Guidance worksheets and adds standardized instructions and practice tips to define and
incorporate certain additional costs into the Rl calculation, i.e., total CWA costs per household
as a percent of MHI. MHI represents the mid-point of income in a geographical area
determined by the American Community Survey (ACS). The median is generally used to derive a
central tendency since it is not largely affected by outlier values. However, EPA recognizes that
many communities have customers at either end of the income spectrum. For communities
with households that have difficulty paying for their water services, these challenges can be
indicated by looking at the community's LQI along with its MHI. As such, EPA has incorporated
LQI into the FCA methodology.
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The Proposed 2022 FCA can help to ensure that local challenges related to low-income
households are more fully considered. The addition of consideration of lowest income
households and poverty prevalence in a service area may identify some communities as having
a "high" impact under the new Expanded FCA Matrix that may have been a "medium" impact
under the 1997 FCA. In such an example, the community's Rl and FCI may show that the
community as a whole has the resources to invest in water infrastructure, but that those
investments could potentially impose a significant burden on lower-income households unless
steps are taken to avoid that result. In such cases, Appendix C of this guidance describes
measures communities can implement to reduce that burden, and Section IV.b.4 describes the
approach EPA intends to take to address any remaining impacts to lower-income households
after the community has done what it can. Where communities seek to extend compliance
schedules based on an updated FCA, the environmental, public health, environmental justice,
and additional financial considerations discussed in Sections IV.b.4 (Financial Alternatives
Analysis) and IV.f (Schedule Development) should be key elements of any such updated
analysis. In addition, reopening a previously approved compliance schedule to seek a schedule
extension also involves consideration of whether additional control measures may be required
for compliance with the CWA.
As with the 1997 FCA Guidance, showing a "medium" or "high" impact in the new Expanded
FCA Matrix does not mean that capital investments in critical infrastructure projects should
stop. Communities should continue to make capital investments to meet water quality
standards even where the Expanded FCA Matrix results indicate a "medium" or "high" impact,
though extended schedules may offer flexibility for communities. While EPA is committed to
ensuring that financial capability is taken into consideration, it is also critically important that all
communitiesincluding lower-income communitiesare ensured the protections of the Clean
Water Act and the benefits of safe, clean water. To achieve both goals, communities and
regions could work to sequence projects within an extended schedule of up to 20 years, or 25
years for unusually high impacts, where the community shows these impacts cannot be
addressed through measures such as alternative rate structures, assistance programs, or other
sources of funding.9 Where schedules of work are phased, the goal should still be to complete
the project within the recommended time frames and prioritize the most environmentally
important projects as early as possible. As noted above, an FCA should not be used to cap
spending on CWA programs or projects at a percentage of MHI or LQI. The types of data
provided in the Proposed 2022 FCA are not exhaustive. Consistent with previous policy, EPA
plans to consider any relevant financial or demographic information presented that illustrates
unique or atypical circumstances faced by a community.
EPA is committed to working with state, tribal, local, and non-government partners to assist
communities in meeting CWA obligations in a manner that recognizes unique local financial
9 The length of financing can be just as important as the length of a construction implementation schedule when
trying to keep rates low for a community's lowest quintile households. For instance, a community could fund a 20-
year implementation schedule with a 30-year or more loan, and in some cases, with low interest or negative
interest loans and debt forgiveness from state revolving funds.
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challenges. We strongly encourage additional subsidy or grant consideration from
governmental funding sources for entities that are considering application for extended
schedules because of financial capability constraints. Federal funding initiatives and programs
such as the Bipartisan Infrastructure Law (BIL), American Rescue Plan Act (ARPA), State
Revolving Loan Funds (SRFs), Water Infrastructure Finance and Innovation Act (WIFIA), and
others provide billions of dollars for state, local, territorial, and tribal governments. The BIL has
provided $11.7 billion in additional funds to the Clean Water State Revolving Fund (CWSRF).
The state match requirement has been reduced to 10% for the first two years and 49% of the
money will be provided as grants or principal forgiveness loans to communities. These
resources create a historic opportunity for communities to address long-standing clean water
needs.
State, local, and tribal governments' equitable support of communities with limited resources
can help those communities meet the challenges of funding necessary water infrastructure
improvements, especially where there are disadvantaged and lower income communities with
environmental justice, compliance, enforcement, and other concerns. EPA's review of our SRFs
and WIFIA, for example, indicate that disadvantaged community funding can make a substantial
difference in terms of improving compliance and mitigating environmental pollution by getting
needed projects underway and maintaining affordable water service. EPA, in accordance with
Executive Order 14008, is working towards a goal that 40 percent of the overall benefits of
federal investments in the development of critical clean water infrastructure flow to
disadvantaged communities.
Appendices C and D provide information related to water infrastructure financing. These types
of programs can help a community come into compliance more quickly and to reduce the
financial impacts on a community's lowest quintile households. EPA's Water Finance
Clearinghouse (https://clearinehouse.epa.eov/wfc) can also be used to pinpoint federal, state,
and non-governmental sources of funding and financing that may help communities access
capital to meet their water infrastructure needs. The WFC can also provide information on rate
structures, financial plans, and customer assistance programs. In addition, EPA's Municipal
Ombudsman (https://www.epa.eov/ocir/municipal-ombudsman) serves as a resource for
communities seeking to comply with the Clean Water Act and will coordinate with the
appropriate EPA offices to assist communities with information on federal financial assistance,
technical assistance, and integrated planning.
b. Changes from September 2020 FCA Proposal
On September 18, 2020, EPA published a Proposed 2020 Financial Capability Assessment for
Clean Water Act Obligations (Proposed 2020 FCA) in the Federal Register for notice and public
comment.10 On January 12, 2021, EPA posted a pre-publication version of the FCA Guidance on
the Agency website. The pre-publication FCA was never published in the Federal Register and
was withdrawn for review and approval in accordance with the January 20, 2021 White House
10 See 85 Fed. Reg. 58352 (Sept. 18, 2020).
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Memorandum, Regulatory Freeze Pending Review.11 The Proposed 2022 FCA reflects EPA's
consideration of public comments received in response to its September 2020 Federal Register
notice, as well as feedback received through various stakeholder outreach sessions since then.
The three major changes from the Proposed 2020 FCA are outlined below.
1. Consideration of Lowest Quintile Households and Poverty Indicators
EPA originally proposed to supplement the Rl and FCI metrics with two new metrics, the Lowest
Quintile Residential Indicator (LQRI) and the Poverty Indicator (PI). The LQRI was intended to
evaluate the financial impact of CWA costs on lowest quintile households in a community by
calculating the ratio of adjusted costs per lowest quintile household to the service area's lowest
quintile income. EPA sought comment on whether the same benchmarks for assessing the
Residential Indicator should be used for assessing the LQRI (i.e., 2% to indicate a "high" impact)
or if a different benchmark should be used.
While commenters from local governments, the wastewater sector, and environmental
organizations were supportive of the new poverty measures, some of these commentors also
expressed concerns about the methodology proposed to scale the costs for lowest quintile
households and the proposed LQRI thresholds. A number of community-specific factorssuch
as age of infrastructure, housing type, and efficiency of water appliancesmay impact water
usage and costs to lowest quintile households. In addition, if the community charges residential
customers on a fixed rate structure, i.e., low-volume households receive the same bill as high-
volume households, a metric that scales down estimates of cost based on projected water use
would likely not be appropriate.
EPA recognizes that considering lowest quintile income is an important measure to supplement
existing FCA metrics. MHI does not account for the variability of income distribution from
community to community. Even when communities have a similar MHI, infrastructure
investments could have a greater financial impact on low-income households in certain
situations, such as when there is a wide distribution between the highest and lowest income
customers. For this reason, EPA is proposing two simplified Proposed Options to assess the
severity and prevalence of poverty in a community's service area. EPA is seeking comment on
both Proposed Options, but only one of the Proposed Options will be included in the final 2022
FCA Guidance. Both Options consider the community's lowest quintile income as benchmarked
against the national lowest quintile income, as well as five poverty indicators:12
11 See httpsi//www,whitehouse,gov/briefing-room/presidential-actions/2021/01/20/regulatorv-freeze-pending-
review/.
12 As compared to the September 2020 FCA Proposal, EPA eliminated two poverty indicators and added three
indicators to help make a better assessment of the prevalence of poverty. One of the eliminated indicators,
"percent under federal poverty level," was redundant of "percent under 200% of federal poverty." The second
eliminated indicator, "lowest quintile income as percent of aggregate income," did not help us differentiate
between communities with substantial numbers of low-income residents and those with fewer low-income
residents. We added three factors that help with that differentiation: "unemployment," "percent of vacant
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Percentage of Population with Income Below 200% of Federal Poverty Level;
Percentage of Population Receiving Food Stamps/SNAP Benefits;
Percentage of Vacant Households;
Trend in Household Growth; and
Percentage of Unemployed Population 16 and Over in Civilian Labor Force.13
EPA has determined that the methodology of either Option 1 or 2 would enable EPA to
distinguish between two communities with similar MHI but different prevalence or severity of
poverty.
Proposed Option 1 for Comment: This Option would add a single new metric, the Lowest
Quintile Poverty Indicator (LQPI), to be considered with the Rl and FCI. The LQPI would combine
a lowest quintile income element with poverty indicator elements. To ensure that both the
severity and prevalence of poverty are reflected in the LQPI metric, EPA would give equal
weight to the LQI (50%) and the five prevalence of poverty indicators (weighted at 10% each for
a total of 50%).
Under Proposed Option 1, Rl and FCI would be combined in a matrix to determine an FCA
Score. An Initial LQPI Score would be calculated, and adjusted based on a Financial Alternatives
Analysis, if appropriate. Finally, the FCA Score and Final LQPI Score would be combined in the
Expanded FCA Matrix to provide the final FCA result.
Proposed Option 2 for Comment: This Option would add two new metrics, the Lowest Quintile
Income Indicator (LQII) and the Poverty Indicator (PI) to be considered with the Rl and FCI. The
LQII is the lowest quintile income metric; and the PI is a separate metric based on the average
scores of the five prevalence of poverty indicators.
Under Proposed Option 2, Rl and FCI would be combined in a matrix to determine an FCA
Score. Then, LQII and PI would be each calculated and combined in a matrix to determine an
Initial LQPI Score. The Initial LQPI Score would be adjusted based on a Financial Alternatives
Analysis, if appropriate. Finally, the FCA Score and Final LQPI Score would be combined in the
Expanded FCA Matrix to provide the final FCA result. See Section IV.b.3 for an explanation of
the calculations for Option 1 (Exhibit la) and Option 2 (Exhibit lb).
households," and "trend in household growth." We retained "percent living under 200% of the federal poverty
level" and "percent receiving food stamps or SNAP benefits."
13 The FCI and Poverty Indicators both evaluate unemployment rate for the population in the civilian labor force,
although using two different standards for evaluation. The FCI bounds for unemployment rate are +/-1 percentage
point of the national average (i.e., for a national average of 4 percent, the lower bound would be 3 percent and the
higher bound would be 5 percent). The Poverty Indicator bounds for unemployment rate are +/- 25% of the
national average. In EPA's view, it can be useful to evaluate the same variable with different bounding methods,
especially for years when unemployment rates spike across the country. On the other hand, when unemployment
rates are low, the two should have a similar result. In addition, the unemployment rate is relevant to the general
economic well-being of residential users in the permittee's service area (FCI). It is also relevant for benchmarking
the prevalence of poverty within the service area (PI).
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Question for Public Comment #1: Should the Final 2022 FCA
incorporate a single new metricLQPIthat considers lowest
quintile income and poverty indicators together? Or should the
Final 2022 FCA incorporate two new metrics (a lowest quintile
income indicator and a poverty indicator) to be calculated
separately and combined in a matrix?
2. Addition of Financial Alternatives Analysis
Where CWA compliance costs may impact on residents with incomes in the lowest quintile, a
longer schedule may not always be the best solution to address impacts to those residents. In
particular, if a community shows strong economic indicators in other categories, there may be
better options for the community to address the potential financial burden faced by its lowest
quintile residents.14 If the intended goal is to help a community's lowest income residents, an
extended CWA schedule may, in fact, have the opposite effect if it delays addressing pollution
in the neighborhoods where they live.15
Use of variable rate structures, customer assistance programs (CAPs), and applications for
grants or subsidies from the CWSRF are all potential tools to enable shorter compliance
schedules by allowing increased total spending on compliance without burdening low-income
customers. In addition, shorter compliance schedules provide water quality and public health
improvements that deliver important social, environmental, and economic benefits to the
community. For these reasons, as discussed below in Section IV.b.4, EPA does not intend to
provide extended CWA compliance schedules or greater consideration for WQS decisions for
communities with a "medium" or "high" Initial LPQI Score unless the community demonstrates
that it has taken all feasible steps to reduce or mitigate the financial impact of water service
costs on the lowest quintile households and to achieve compliance as expeditiously as possible.
In evaluating this demonstration, EPA expects to look comprehensively at the community's
financial strategy, including, but not limited to, an analysis of the community's approach to
covering costs through rate structure and design as well as its other initiatives to assist low-
income customers while assuring necessary and timely compliance with environmental
requirements. Examples of these types of tools are included in Appendix C.
Question for Public Comment #2: EPA is seeking additional
examples or case studies of funding and financing considerations
to add to Appendix C.
The goal of this revised approach is to seek ways to minimize financial impacts on the lowest
income households while ensuring they also enjoy the benefits of infrastructure investments
14 The CSO Policy identifies three additional financial considerations for negotiating implementation schedules:
grant and loan availability; previous and current residential, commercial, and industrial sewer user fees and rate
structures; and other viable funding mechanisms and sources of financing. See 59 Fed. Reg. at 18694.
15 In addition, in an inflationary environment, the costs of delayed work can be higher where community growth is
stagnant.
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and improved water quality. Extended CWA compliance schedules or WQS revisions that lower
the goals for a water body potentially widen water quality and health disparities among
communities, creating environmental justice concerns. On one hand, low-income households
may be paying a higher percentage of their total income for basic services and clean water, but
on the other hand, if the community is out of compliance with the CWA, overburdened and/or
low-income neighborhoods will likely continue to suffer impacts to human health and the
environment from raw sewage overflows and inadequately controlled stormwater discharges.
Residents in low-income communities also may be more dependent on nearby waters for
recreation, fishing, and drinking water. In EPA's view, the first-line responsibility for balancing
the financial impact and local clean water improvements rests with the local community.
However, EPA is committed to carefully reviewing financial impacts and using the tools and
technical assistance at the Agency's disposal to help local communities mitigate
environmentaland related financial and societalimpacts for low-income households.
3. Modification of Scheduling Benchmarks
The Proposed 2020 FCA provided that communities with "medium" FCA impacts could qualify
for compliance schedules up to 15 years. "High" impact communities could receive compliance
schedules up to 25 years, or up to the useful life of the CSO controls if they demonstrate an
unusually high impact. For users of the 2022 FCA, it is more transparent and consistent to
define a recommended scheduling boundary rather than retain the "useful life" schedule
benchmark. It is important to consider human health and environmental impacts as well as cost
when determining compliance schedules. EPA is also mindful that prolonging water quality
impairments could exacerbate environmental justice concerns. EPA believes that, for
communities that demonstrate unusually high impacts, 25 years is a reasonable recommended
scheduling benchmark that is more consistent with environmental protection and past FCA
practice.
The Proposed 2022 FCA keeps 15 years as the outer recommended boundary for "medium"
impact communities but changes the benchmark for "high" impact communities to 20 years, or
up to 25 years for communities that demonstrate unusually high impacts, as shown below.
However, EPA is seeking comment on whether the 20 years for "high" impacts, and 25 years for
unusually high impacts, are appropriate recommended scheduling boundaries.
Expanded FCA
Matrix Results
Proposed 2020 FCA
Recommended Implementation
Schedule Benchmarks
Proposed 2022 FCA
Recommended Implementation
Schedule Benchmarks
Low Impact
Normal Engineering/Construction
Schedule
Normal Engineering/Construction
Schedule
Medium
Impact
Up to 15 Years
Up to 15 Years
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Up to 25 years (or up to useful life of
Up to 20 years (or up to 25 years
High Impact
CSO controls based on additional
based on additional considerations)
considerations)
Question for Public Comment #3: EPA is seeking feedback on
the current proposed scheduling benchmarks of 20 years for
"high" Expanded FCA Matrix impacts, or 25 years for unusually
high impacts. If commentors propose different benchmarks, EPA
is requesting examples to support the basis for such
benchmarks.
IV. Proposed 2022 Financial Capability Assessment Guidance
a. Overview of the Proposed 2022 FCA
The Proposed 2022 FCA allows communities to provide information under either Alternative 1
or Alternative 2 to establish financial capability for CWA implementation schedules. Alternative
1 of the Proposed 2022 FCA involves analyzing both the first phase (Rl) and the second phase
(FCI) of the two-phased approach in the 1997 FCA Guidance as critical metrics and adds a new
critical metric: the Lowest Quintile Poverty Indicator (LQPI) Score.16 These three critical metrics,
along with a Financial Alternatives Analysis in appropriate circumstances, are considered in
accordance with the Expanded FCA Matrix (Exhibit 4). The Proposed 2022 FCA includes
recommended implementation schedule benchmarks applicable to Alternative 1 (Exhibit 8).
Alternative 2 of the Proposed 2022 FCA involves analyzing financial and rate models in addition
to calculating the LQPI Score.
It should be emphasized that these alternatives might not present the most complete picture of
a community's financial capability to fund its CWA requirements. However, these metrics do
provide a common basis for financial impact discussions among the community, the state or
tribe, and EPA. Since flexibility is an important aspect of the CWA, communities are encouraged
to submit any additional documentation (Other Metrics) for consideration that would create a
more accurate and complete picture of their financial capability. The Proposed 2022 FCA
includes Other Metrics with Standardized Instructions and Other Metrics with Submission of
Information to be Determined by the Community. Both alternatives permit consideration of
Other Metrics and may support an extended implementation schedule, not to exceed 25 years.
See Sections IV.d and IV.e for more information on additional metrics.
Alternative 1: Critical Metrics with Established Thresholds and Instructions
Residential Indicator - cost per household as a percentage of MHI
16 As discussed throughout this Proposed 2022 FCA, the "LQPI Score" represents the result from either the LQPI
under Proposed Option 1 or the matrix score after combining the LPII Score and PI Score under Proposed Option 2.
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Financial Capability Indicator- six socioeconomic, debt, and financial indicators used to
benchmark a community's financial strength
Lowest Quintile Poverty Indicator Score -
o Under Proposed Option 1 for Comment:
¦ Final Lowest Quintile Poverty Indicator: one lowest quintile income element
(weighted at 50%) and five poverty elements (weighted at 10% each) used to
benchmark the severity and prevalence of poverty within the community's
service area
o Under Proposed Option 2 for Comment:
¦ Lowest Quintile Income Indicator: community's lowest quintile income
benchmarked against national lowest quintile income
¦ Poverty Indicator: five poverty indicators used to benchmark the prevalence
of poverty in a community
Alternative 2: Critical Metrics
Financial and Rate Models
Lowest Quintile Poverty Indicator
Other Metrics with Standardized Instructions
Drinking Water Costs
Potential Bill Impact Relative to Household Size
Customer Assistance Programs
Asset Management Costs
Stormwater Management Costs
Examples of Other Metrics with Submission Information Determined by the Community
Unemployment Rates
Debt Service Coverage Ratio
Debt to Income Ratio
Percent Population Decline, or Other Population Trends
Locality Specific Information on Household Size, Including the Size of Households with
Incomes in The Lowest Quintile
State or Local Legal Restrictions or Limitations on Property Taxes, Other Revenue Streams,
or Debt Levels
Other Metrics as Determined by the Community
b. Alternative 1: Critical Metrics with Established Thresholds and Instructions
1. Residential Indicator
The first step of Alternative 1 is to calculate the Residential Indicator by following the
instructions for Worksheets 1 and 2 in Appendix A to determine the Residential Indicator
Financial Impact of "low," "mid-range," or "high."
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Residential Indicator
Financial Impact
Residential Indicator (CPH as % MHI)17
Low
Less than 1.0 Percent of MHI
Mid-Range
1.0-2.0 Percent of MHI
High
Greater than 2.0 Percent of MHI
2. Financial Capability Indicator
The second step of Alternative 1 is to calculate the Financial Capability Indicators by following
the instructions for Worksheets 3 to 9 in Appendix B and use the results to determine the
Financial Capabilities Indicators Score ("weak," "mid-range," or "strong").
Financial Capability
Indicators Score
Socioeconomic, Debt, and Financial Indicators
Weak
Below 1.5
Mid-Range
Between 1.5 and 2.5
Strong
Above 2.5
3. Initial Lowest Quintile Poverty Indicator Score
The third step of Alternative 1 is to calculate an Initial Lowest Quintile Poverty Indicator Score
by using the list of indicators in Exhibit 1 to benchmark the severity and prevalence of poverty
within the community's service area. These indicators (other than "Trend in Household
Growth") are evaluated using a ±25% benchmark to national values, like the methodology used
to calculate the FCI. For instance, if the national Percentage of Population with Income Below
200% of Federal Poverty Level is 32%, then a community with a value less than 24% would
equal a "strong" score for this indicator, a value between 24% to 40% would equal a "mid-
range" score, and a value above 40% would equal a "weak" score. Using a ±25% benchmark
closely aligns with the middle quintile of data for the parameter, which can characterize the
"middle class" of Americans. This bracketing of the middle 50% is a common methodology of
identifying outliers on either end of the data distribution.
17 In the mid-1990s EPA developed the 1% and 2% Residential Indicator benchmarks after conducting an analysis of
the costs of wastewater services as a percentage of household income using EPA's Municipality's Ability to Pay
Model (MABEL) database. The analysis also examined the National Wastewater User Fee Study of the Construction
Grants program database, which captured the annual residential expenditures as a percentage of median
household income. The 2% benchmark was calculated to be two standard deviations above the average
expenditure per household.
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"Trend in Household Growth," the fifth indicator, is evaluated using >1%, 0-1%, and <0%
benchmarks.18 To calculate "Trend in Household Growth":
Collect total number of occupied housing units (i.e., households) data, based on the 5-
year ACS, for the most recent year and five years earlier from Census Table B25002.
o Refer to https://data.census.gov/cedsci/all?q=B25002.
Enter historical household data into the Geometric Average Growth Rate formula below
to calculate the five-year trend
5 Year Geometric Average Growth Rate = ((1 + (HHn HHn_5 )/HHn_5)~)1/5 1
HH = Number of Occupied Housing Units
n = Most Recent Census Data Year
5 Year Geometric Average Growth Rate = ((1 + (15,500 15,000)/15,000))1/5 1 = 0.66%
If the community's service area includes more than one jurisdiction, the LQPI indicators should
be weighted based the number of households in each jurisdiction throughout the community's
entire service area.
18 This indicator is "strong" if the five-year average household growth is greater than 1 percent. The indicator is
"weak" if the five-year average household growth is negative (less than 0 percent). The indicator is "mid-range" if
the five-year average household growth is between 0 percent and 1 percent.
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Exhibit la: Instructions for Calculation of the Initial Lowest Quintile Poverty Indicator Score
Under Proposed Option 1
Proposed Option 1: Determine Initial Lowest Quintile Poverty Indicator Score using the template
below.
Indicator (Census Data Code)
Strong
(Score = 3)
Mid-Range
(Score = 2)
Weak
(Score = 1)
Weight
Actual
Value
Score
LQPI #1
Upper Limit of Lowest Quintile
Income (B19080)
More than
25% above
national LQI
±25% of
national LQI
More than
25% below
national
LQI
50%
LQPI #2
Percentage of Population with
Income Below 200% of
Federal Poverty Level (S1701)
More than
25% below
national
value
±25% of
national
value
More than
25% above
national
value
10%
LQPI #3
Percentage of Population
Receiving Food Stamps/SNAP
Benefits (S2201)
More than
25% below
national
value
±25% of
national
value
More than
25% above
national
value
10%
LQPI #4
Percentage of Vacant
Households (B25002)
More than
25% below
national
value
±25% of
national
value
More than
25% above
national
value
10%
LQPI #5
Trend in Household Growth
(B25002)
>1%
0%-l%
<0%
10%
LQPI #6
Percentage of Unemployed
Population 16 and Over in
Civilian Labor Force (DP03)
More than
25% below
national
value
±25% of
national
value
More than
25% above
national
value
10%
Score for LQPI #1
Average Score for LQPI #2 to #6 (Sum of 2 through 6 divided by 5)
Initial Lowest Quintile Poverty Indicator Score (Sum of two lines above divided by 2)
Initial Lowest Quintile Poverty Indicator Benchmarks
Low Impact (Above 2.5)
Medium Impact (1.5 to 2.5)
High Impact (Below 1.5)
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Exhibit lb: Instructions for Calculation of Initial Lowest Quintile Poverty Indicator Score
Under Proposed Option 2
Proposed Option 2, Step 1: Determine Lowest Quintile Income Indicator Score using benchmarks
below.
Score
Lowest Quintile Income Indicator
Weak
More than 25% below National LQI
Mid-Range
±25% of National LQI
Strong
More than 25% above National LQI
Proposed Option 2, Step 2: Determine Poverty Indicator Score using template below.
Strong
Mid-Range
Weak
Actual
Indicator (Census Data Code)
(Score = 3)
(Score = 2)
(Score = 1)
Value
Score
PI #1
Percentage of Population with
Income Below 200% of Federal
Poverty Level (S1701)
More than
25% below
national value
±25% of
national
value
More than
25% above
national value
PI #2
Percentage of Population Receiving
Food Stamps/SNAP Benefits (S2201)
More than
25% below
national value
±25% of
national
value
More than
25% above
national value
PI #3
Percentage of Vacant Households
(B25002)
More than
25% below
national value
±25% of
national
value
More than
25% above
national value
PI #4
Trend in Household Growth (B25002)
>1%
0%-l%
<0%
PI #5
Percentage of Unemployed
Population 16 and Over in Civilian
Labor Force (DP03)
More than
25% below
national value
±25% of
national
value
More than
25% above
national value
Poverty Indicator Score (Sum of lines above divided by 5)
Poverty Indicator Benchmarks
Strong (Above 2.5)
Mid-Range (1.5 to 2.5)
Weak (Below 1.5)
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Proposed Option 2, Step 3: Determine Initial Lowest Quintile Poverty Indicator Score using
matrix below.
Initial Lowest Quintile Income Indicator
Poverty Indicator
I
Strong (More than
25% above National
LQI)
Mid-Range (±25% of
National LQI)
Weak (More than 25%
below National LQI)
Strong (Above 2.5)
Low Impact
Low Impact
Medium Impact
Mid-Range (1.5 to 2.5)
Low Impact
Medium Impact
High Impact
Weak (Below 1.5)
Medium Impact
High Impact
High Impact
4. Financial Alternatives Analysis
The fourth step of Alternative 1 is to perform a Financial Alternatives Analysis if the
community's Initial LQPI Score equals a "medium" or "high" impact. A Financial Alternatives
Analysis should document whether the community has considered all feasible steps to address
impacts to the lowest quintile as identified in Appendix C, including use of variable rate
structures, CAPs, and applications for grants or subsidies from the CWSRF.
The demonstration should provide the results of the "checklist" of financing and funding
considerations in Appendix C and describe the specific programs being implemented to reduce
financial burdens on the community's lowest income residents. EPA would expect to see a list
of the programs or steps considered, the actions that would be necessary to put such measures
into place, and the plan for taking those actions. Where available tools are not included in the
community's plans to mitigate financial impacts on its low-income residents, EPA would expect
an explanation of why those approaches are not being pursued.19 In addition, we strongly
encourage additional subsidy or grant consideration from governmental funding sources for
entities that show a "medium" or "high" impact Initial LQPI Score.
5. Final Lowest Quintile Poverty Indicator Score
The Final LQPI Score may be different from the Initial LQPI Score depending on the results of
the Financial Alternatives Analysis, as shown in Exhibit 2 below, for communities with an Initial
LQPI Score of "medium" or "high" impact. For an Initial LQPI Score of "low" impact, the Final
LQPI Score would remain "low" impact.
19 EPA recognizes that not all communities have the expertise to fully evaluate the tools identified in Appendix C.
For those that seek support in this effort, EPA's Environmental Finance Centers can provide targeted technical
assistance in evaluating environmental financing and program management strategies. See
https://www.epa.gov/waterfinancecenter/efcn.
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Exhibit 2: Adjustment of Initial Lowest Quintile Poverty Indicator Score Based on Financial
Alternatives Analysis
Result of Financial
Alternatives Analysis
Adjustment to Initial LQPI
Score
Rationale
Community:
Does not perform the
analysis,
Does not consider all
alternatives in
Appendix C (or as
identified by EPA), or
Finds financial
alternatives to lessen
impact on lowest
quintile households
but does not commit
to pursue alternatives.
Initial LQPI Score is adjusted
down, potentially limiting
flexibility in schedule
decisions:
"Medium" Initial LQPI
Score is adjusted to
"low" Final LQPI; and
"High" Initial LQPI
Score is adjusted to
"medium" Final LQPI
Score.
Community can do more to assist
its lowest quintile households, so
poverty concerns should not be
used to justify a longer schedule.
Community performs a
Financial Alternatives Analysis
and commits to pursuing
feasible financial alternatives
to reduce the impact on
lowest quintile households.
Depending on negotiations
with EPA and EPA's
consideration of likelihood of
remaining impacts, the Initial
LQPI Score may be adjusted or
stay the same.
Community commits to taking
additional actions to help its
lowest quintile; as a result, the
lowest quintiles may or may not
continue to be significantly
impacted.
Community performs a
Financial Alternatives Analysis
and EPA determines that
community has taken all
feasible steps20 to help lowest
quintile households, but there
are still significant impacts on
the lowest quintile.
Initial LPQI Score stays the
same, potentially providing
increased flexibility in
schedule decisions:
"Medium" Initial LQPI
Score stays "medium"
Final LQPI Score; and
"High" Initial LQPI
Score stays "high"
Final LQPI Score.
Community has taken all feasible
steps to help its lowest quintile,
so impacts to lowest quintile
households may be used to
justify a longer schedule.
6. Expanded Financial Capability Assessment Matrix
The Expanded FCA Matrix, which incorporates the three critical metrics described above,
provides a framework for understanding the overall financial impact to the community's service
area. First, combine the Rl and FCI in the Financial Capability Matrix (Exhibit 3) to determine an
FCA Score, then combine FCA Score and Final Lowest Quintile Poverty Indicator Score in the
Expanded FCA Matrix (Exhibit 4). As explained above, a "high" impact or "medium" impact
20 For purposes of the Financial Alternatives Analysis, "feasible" steps should include the financial and funding
considerations listed in Appendix C, whether or not they are prohibited by state law.
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Expanded FCA Matrix result does not mean that CWA compliance is unaffordable; rather, it
means that EPA intends to offer schedule flexibilities as described in the recommended
implementation schedule benchmarks in Exhibit 8.
Financial Capability Matrix
The Financial Capability Matrix determines the FCA Score by combining Rl and FCI. The matrix is
included below as Exhibit 3.
Exhibit 3: Financial Capability Matrix
Financial Capability
Indicator
Residential Indicator
Low Impact (Below
1.0%)
Mid-Range (1.0% to
2.0%)
High Impact (Above
2.0%)
Strong (Above 2.5)
Low Impact
Low Impact
Medium Impact
Mid-Range (1.5 to 2.5)
Low Impact
Medium Impact
High Impact
Weak (Below 1.5)
Medium Impact
High Impact
High Impact
Expanded FCA Matrix
The Expanded FCA Matrix determines the community's overall impact level when combining
the FCA Score (from Exhibit 3) and the Final LQPI Score (from Section IV.b.5). The Expanded FCA
Matrix is included below as Exhibit 4.
Exhibit 4: Expanded Financial Capability Assessment Matrix
FCA Score
(Rl and FCI)
Final Lowest Quintile Poverty Indicator Score
Low Impact
Medium Impact
High Impact
Low Impact
Low Impact
Low Impact
Medium Impact
Medium Impact
Low Impact
Medium Impact
High Impact
High Impact
Medium Impact
High Impact
High Impact
The results of the Expanded FCA Matrix correspond to the recommended implementation
schedules in Exhibit 8. See Section IV.f (Schedule Development) to see how the Expanded FCA
Matrix score is used in the CWA compliance schedule development process. See Section IV.g for
equivalent tables for WQS decisions.
c. Alternative 2: Critical Metrics and Instructions
1. Financial and Rate Models
Alternative 2 provides an opportunity for communities that wish to use financial and rate
model analyses to submit this more detailed information to assist in developing an appropriate
schedule for implementing CWA control measures.
Cash flow forecasting is a useful tool that allows communities to determine, on an annual basis,
the revenue necessary to cover costs (including the costs of compliance projects) and to meet
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debt covenants over the implementation period. The community should plan and allow for
uncertainty in deciding how to adjust water and sewer rates to finance its major capital
improvements. As mentioned above, communities should decide how much should be financed
through debt and how much should be directly paid for by sewer rates as the costs are
incurred. In evaluating potential rate increases, communities should also balance revenue
requirements against the likelihood that users will reduce usage or cease paying utility bills,
causing the yield of the revenues from the rate increase to be less than expected or desired,
potentially causing the community to experience "rate shock."21 In addition, within limits,
communities have significant discretion regarding the timing of sewer rate increases. For
example, communities may elect to raise rates more than the absolute minimum necessary in
early years, thereby creating a cushion against economic uncertainties in later years and
providing a strong financial base for bond financing. These model calculations inform the
annual rate increases and can help a community evaluate a suite of potential compliance
schedules. EPA has provided a list of resources related to water infrastructure financing and
rate setting in Appendix D.
While useful, financial and rate models may be complicated or costly to develop, particularly for
mid-size or small communities, and may be difficult for a regulator to evaluate. For this reason,
EPA proposes that submission of this information is at the discretion of a community. This type
of information can be used as an analytic tool to assist in developing schedules for
implementing CWA control measures in lieu of the critical metrics and schedule benchmarks set
forth under Alternative 1. Alternative 2 may be particularly useful in situations where the
community already uses such modeling for its internal financial planning or where multiple
constraints affect the community's ability to achieve compliance with the CWA (in terms of
costs or timing). However, EPA does not recommend the use of financial and rate model
analysis under Alternative 2 in lieu of Alternative 1 for WQS decisions. Instead, for WQS
decisions, the use of financial and rate models could be used in a manner similar to the Other
Metrics in Sections IV.d and IV.e of the Proposed 2022 FCA, i.e., as additional information for
consideration in conjunction with the use of the Alternative 1 critical metrics.
Communities can provide forward-looking, year-by-year financial modeling of capital
expenditures to support a proposed schedule for completing projects necessary to come into
compliance with the CWA. Such modeling is commonly used to determine the revenues and
rate increases necessary to support the financing of operations and major projects. The typical
steps in this process include:
Determining revenue requirements based on operating costs, debt service payments,
asset management, and necessary capital expenditures;
Allocating the costs of service to customer classes; and
Developing a schedule of rates and charges necessary to meet revenue requirements.
21 Rate shock increases the difficulty of managing program implementation schedules, because financing is
contingent on an adequate revenue stream to support the debt service and additional coverage.
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Financial and rate models provided in the context of CWA compliance are normally in
spreadsheet form with multiple tabs, including inputs and assumptions, debt service schedules,
operations and maintenance costs, and schedule of necessary capital improvements. The model
then determines the "revenue requirements" necessary to support the proposed or alternative
compliance plans, including financing and rate increases. The models are set up so that it is
possible to evaluate alternative scenarios in terms of cost, length of time to complete a
program, or assumptions related to financing strategies. Simpler modeling for smaller
communities is possible based on the same concepts, if percentage revenue increases will be
passed through to a typical residential customer bill at the same rate of increase.
To assist EPA's review of modeling analyses, EPA recommends that communities submit the
following supporting data and documentation:
The last three years of financial reports for the wastewater system.
A summary of historical rate increases for the past five years.
The most recent approved Budget and Capital Improvement Plan for the wastewater
system.
Model documentation (e.g., creator, peer review status, version).
A summary of all model input assumptions and their bases, for example: bond rating,
ability to borrow, legislative caps on ability to borrow, selected funding mechanism,
access to CWSRF financing, ability to pay back debt, the current operating cost and debt
service baseline, current revenue, growth in customers, and inflation in costs and
household income.
An identification of dollarvalues as either constant (year) or nominal dollars.
A summary of the model results, explaining the community's view of the conclusions
relevant to its financial capability to implement the necessary work to achieve
compliance.
A fully functional model of the scenarios presented, with all formulas and interactions
among separate worksheets intact. The model should include a tab that clearly lays out
the input assumptions used.
A clear description of the baseline financial status and data in terms of year and source
documents that the modeling is built from. This should include the basis for the current
residential bill that is used to evaluate impacts on households with median income
levels. In general, this will be similar to the results in the Rl analysis but analyzes only
current costs.22
All source and supporting documentation that was relied upon when developing the
model, including certified financial statements.
22 In general, EPA is finding that per household billed usage is in the range of 5 to 6 CCF (centum cubic feet, or one
hundred cubic feet). If the community serves a significant number of households in multi-family structures, then
the usage will likely be lower. EPA intends to accept the community's current "typical bill" usage assumption, if
consistent with nationwide averages, or real information on usage from actual billing. A community's inability to
obtain per household usage information for families living in multi-family structures that are not billed separately
for utilities does not preclude consideration of usage information from actual billing.
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Evaluation of multiple scenarios in terms of program length or other key assumptions
and uncertainties.
Communities and EPA have found a summary of scenarios such as the example shown below in
Exhibit 5 to be useful. Other examples would yield different results. To develop year-by-year
forward-looking rate model scenarios, such as those shown in Exhibit 5, a community should:
1. Include calculation of the service area Rl based on the percentage of residential flow and
households (not the number of accounts). Current costs (operations and maintenance
expenses, debt service at present time, and other recurring asset management costs)
should be included and consistent with the model inputs for the current year. Future costs
should include the total capital expenditures and changes in operations and maintenance
costs as a result of the required work, and also reflect the community's financing plan, again
consistent with model assumptions.
2. Determine whether the modeling will be in current dollars or inflated dollars. If inflated, the
modeled costs, including proposed capital expenditures, should be adjusted overtime. In
addition, MHI values should be escalated using the historic rate of increase of MHI or the
Consumer Price Index (CPI). The community should provide the basis for all escalation factor
assumptions applied in the model.
3. Define a proposed end year for the completion of investments needed to meet CWA
obligations. Examining several alternative scenarios is preferred to better understand the
impact of various program lengths.
4. Incorporate existing debt service schedules as well as the assumed financing approach for
the proposed program costs. This would likely include a mix of already available reserves,
cash from incoming revenues, and new debt financing from either the municipal bond
market or state-subsidized funding sources.
5. Iterate through proposed capital investment schedules to develop model scenarios and
related revenue requirements.
6. Translate the revenue requirements into annual increases in rates and bills for customers.
Apply the annual percentage increases to the baseline or current average household bill.
Where local data is available, communities are encouraged to implement Alternative 2 using
local data. For EPA to consider this information, a community should submit all supporting data
and documentation, as described above.
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Exhibit 5: Examples of Rate Increase Scenarios and Median Household Impacts for Each
Scenario
Scenario:
Community Proposed Scenario
Other Scenarios
End Year:
2047
2036
2041
Rate
CPH
MHI
Rate
CPH
MHI
Rate
CPH
MHI
Measure:
Inc.
(S)
(S)
Rl
Inc.
(S)
(S)
Rl
Inc.
(S)
(S)
Rl
2016
0%
566
64,814
0.9%
0%
566
64,814
0.9%
0%
566
64,814
0.9%
2017
7.5%
605
66,267
0.9%
5%
593
66,267
0.9%
5%
593
66,267
0.9%
2018
7.5%
647
67,753
1.0%
8.4%
639
67,753
0.9%
6.5%
629
67,753
0.9%
2019
7.5%
588
69,272
0.8%
8.4%
584
69,272
0.8%
6.5%
566
69,272
0.8%
2020
7.5%
629
70,825
0.9%
8.4%
630
70,825
0.9%
6.5%
601
70,825
0.8%
2021
7.5%
672
72,413
0.9%
8.4%
678
72,413
0.9%
6.5%
637
72,413
0.9%
2022
7.5%
719
74,037
1.0%
8.4%
731
74,037
1.0%
6.5%
675
74,037
0.9%
2023
7.5%
770
75,697
1.0%
8.4%
789
75,697
1.0%
6.5%
716
75,697
0.9%
2024
7.5%
824
77,394
1.1%
8.4%
850
77,394
1.1%
6.5%
760
77,394
1.0%
2025
7.5%
882
79,129
1.1%
8.4%
917
79,129
1.2%
6.5%
806
79,129
1.0%
2026
7.5%
944
80,903
1.2%
8.4%
990
80,903
1.2%
6.5%
856
80,903
1.1%
2027
5%
989
82,717
1.2%
8.4%
1,069
82,717
1.3%
6.4%
907
82,717
1.1%
2028
5%
1,037
84,572
1.2%
8.4%
1,154
84,572
1.4%
6.4%
962
84,572
1.1%
2029
5%
1,086
86,468
1.3%
8.4%
1,246
86,468
1.4%
6.4%
1,020
86,468
1.2%
2030
5%
1,138
88,407
1.3%
8.4%
1,345
88,407
1.5%
6.4%
1,082
88,407
1.2%
2031
5%
1,193
90,389
1.3%
8.4%
1,453
90,389
1.6%
6.4%
1,148
90,389
1.3%
2032
5%
1,251
92,416
1.4%
8.4%
1,570
92,416
1.7%
6.4%
1,218
92,416
1.3%
2033
5%
1,311
94,488
1.4%
8.4%
1,697
94,488
1.8%
6.4%
1,292
94,488
1.4%
2034
5%
1,374
96,607
1.4%
8.4%
1,834
96,607
1.9%
6.4%
1,372
96,607
1.4%
2035
5%
1,440
98,773
1.5%
8.3%
1,980
98,773
2.0%
6.4%
1,456
98,773
1.5%
2036
5%
1,510
100,988
1.5%
8.3%
2,139
100,988
2.1%
6.4%
1,545
100,988
1.5%
2037
5%
1,582
103,252
1.5%
0%
2,141
103,252
2.1%
6.4%
1,640
103,252
1.6%
2038
5%
1,659
105,567
1.6%
0%
2,144
105,567
2.0%
6.4%
1,741
105,567
1.6%
2039
5%
1,739
107,934
1.6%
0%
2,146
107,934
2.0%
6.4%
1,848
107,934
1.7%
2040
1.39%
1,764
110,354
1.6%
0%
2,148
110,354
2.0%
6.4%
1,962
110,354
1.8%
2041
1.39%
1,790
112,828
1.6%
0%
2,151
112,828
1.9%
6.4%
2,084
112,828
1.8%
2042
1.39%
1,816
115,358
1.6%
0%
2,153
115,358
1.9%
0%
2,086
115,358
1.8%
2043
1.39%
1,842
117,944
1.6%
0%
2,156
117,944
1.8%
0%
2,089
117,944
1.8%
2044
1.39%
1,869
120,588
1.5%
0%
2,158
120,588
1.8%
0%
2,091
120,588
1.7%
2045
1.39%
1,896
123,292
1.5%
0%
2,161
123,292
1.8%
0%
2,094
123,292
1.7%
2046
1.39%
1,923
126,056
1.5%
0%
2,164
126,056
1.7%
0%
2,097
126,056
1.7%
2047
0%
1,926
128,882
1.5%
0%
2,166
128,882
1.7%
0%
2,099
128,882
1.6%
Key: Rate Inc. = Annual Rate Increase for Wastewater
CPH = Annual Cost per Household for Wastewater and Stormwater Combined
MHI = Median Household Income
Rl = Residential Indicator (i.e., CPH as a percent of MHI)
EPA intends to use this information when developing schedules for implementing control
measures to work with communities to reduce rate shock and to avoid water utility rates that
represent an overly burdensome percentage of household income. Unlike Alternative 1, EPA
has not established benchmark percentages of household income for Alternative 2. However,
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EPA intends to keep the percentage of household income spent on wastewater utility bills
within reasonable bounds when establishing compliance schedules. Where drinking water costs
are substantial and impacting households, a community may submit information as part of its
financial and rate model. See Section IV.d.l for more direction. EPA does not intend for
schedules to exceed 20 years (or 25 years based on unusually high impacts after consideration
of Other Metrics). Communities are encouraged to provide local information to EPA to support
any predictions of a likely occurrence of rate shock. Other Metrics, such as drinking water costs,
may also impact rate shock.
As mentioned above, EPA does not recommend the use of financial and rate model analysis
under Alternative 2 in lieu of Alternative 1 in WQS decisions. Instead, for WQS decisions, the
use of financial and rate models could be used in a manner similar to the Other Metrics in
Sections IV.d and IV.e of the Proposed 2022 FCA, i.e., as additional information for
consideration in conjunction with the use of the Alternative 1 critical metrics.
2. Lowest Quintile Poverty Indicator
In addition to the Financial and Rate Model analysis, a community or EPA should calculate a
Final LQPI Score to benchmark the severity and prevalence of poverty within the service area. If
a community's Initial LQPI Score (using Exhibit l.a or l.b) shows a "medium" or "high" impact,
its FCA should include a Financial Alternatives Analysis documenting whether the community
has taken all feasible steps to address impacts to the lowest quintile before seeking an
extended schedule based on poverty considerations. The Initial LQPI Score may change
depending on the results of the Financial Alternatives Analysis, as shown in Exhibit 2 above.
d. Other Metrics with Standardized Instructions
The Proposed 2022 FCA provides standardized instructions to increase transparency and clarity
regarding how EPA considers the following factors, discussed in detail below: drinking water
costs, potential bill impacts relative to household size, a community's customer assistance
program, asset management costs, and stormwater management costs. As noted above, Other
Metrics may be considered under Alternative 1 or Alternative 2 and may support an extended
implementation schedule, not to exceed 20 years for "high" impacts, or up to 25 years for
unusually high impacts. Additionally, use of these Other Metrics may be considered in WQS
decisions.
1. Drinking Water Costs
EPA recognizes that both clean water and drinking water costs are often paid for through
charges on a single bill. For this reason, the Proposed 2022 FCA more explicitly provides
guidance on incorporating a community's drinking water obligations into an FCA evaluation.
Given the widespread, increasing costs of delivering reliable drinking water in communities,
EPA is providing standardized instructions along with an explanation of how it intends to
develop implementation schedules that will account for impacts of drinking water obligations,
when significant.
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Consideration of Drinking Water Costs under Alternative 1
Drinking water information can be used in Alternative 1 to supplement the three critical metrics
and the results of the Expanded FCA Matrix. If information on significant drinking water costs is
submitted and supported by the documentation detailed below, under Alternative 1, EPA in its
discretion may permit a community to move from a "low" impact to a "medium" impact, or
from a "medium" impact to a "high" impact in the Proposed 2022 FCA Implementation
Schedule Benchmarks (Exhibit 8). Or, if a community is already experiencing a "high" impact,
EPA may use this additional information to support a schedule beyond the schedule
benchmarks in Exhibit 8, up to 25 years for unusually high impact situations. Similarly,
significant drinking water costs may be taken into account in WQS decisions.
If a community submits information on drinking water costs under Alternative 1, EPA requests
that the community provide detailed descriptions and cost estimates for the drinking water
requirements. The community should submit the following supporting documentation:
1. Describe the specific improvements and costs required.
2. Describe the underlying requirements for the drinking water improvements (for example,
whether the drinking water improvements are required by a state or federal permit,
regulation, or enforcement action).
3. Describe the relationship of the wastewater system service area to the drinking water
system service area(s) geographically and in terms of households served, specifically the
overlap of drinking water system service area relative to wastewater system service area.
4. If the drinking water system and wastewater system are operated by the same utility,
identify and explain any issues related to future financing and financial capability expected.
5. Provide the last three years of financial reports for the drinking water system.
6. Provide the current and approved future rate schedules for the drinking water system.
7. In addition to the Rl for wastewater costs, provide a cost per household analysis for drinking
water costs following the Rl worksheets in Appendix A.
8. Propose an implementation schedule that integrates the CWA improvements and drinking
water improvements, including a detailed description of the proposed sequencing of the
improvements.
Consideration of Drinking Water Costs under Alternative 2
Drinking water information can be used in Alternative 2 to evaluate the impacts of rates for
both wastewater and drinking water on household bills. EPA does not intend for such a
schedule to exceed 20 years, or up to 25 years based on unusually high impacts after
consideration of Other Metrics. If a community submits information on drinking water costs as
part of its financial and rate model, EPA requests that the community provide detailed
descriptions and cost estimates for the drinking water requirements. The community should
submit the following supporting documentation:
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1. Describe the specific improvements and costs required.
2. Describe the underlying requirements for the drinking water improvements (for example,
whether the drinking water improvements are required by a state or federal permit,
regulation, or enforcement action).
3. Describe the relationship of the wastewater system service area to the drinking water
system service area(s) geographically and in terms of households served, specifically the
overlap of drinking water system service area relative to wastewater system service area.
4. If the drinking water system and wastewater system are operated by the same utility,
identify and explain any issues related to future financing and financial capability expected.
5. Provide the last three years of financial reports for the drinking water system, the current
approved budget, and the most recent approved Capital Improvement Program budget.
6. Provide the current and approved future rate schedules for the drinking water system.
7. Provide a drinking water rate model analysis.
8. Provide all source and supporting documentation that was relied upon when developing the
drinking water rate model, including certified financial statements.
9. Propose an implementation schedule that integrates the CWA improvements and drinking
water improvements, including a detailed description of the proposed sequencing of the
improvements.
2. Potential Bill Impact Relative to Household Size
Another analysis that EPA and communities have found helpful, shown below by example in
Exhibit 6, evaluates the maximum potential bill impact relative to household size. Typically, as
household size increases, monthly water usage increases.23 One-person households generally
use significantly less water than three- or four-person households, but also have on average
fewer financial resources. Displaying data in this manner (i.e., by household size) provides a
more nuanced view of the impact of costs based on likely usage.
The data in Exhibit 6 is an example of how a community can evaluate the feasibility of a capital
improvement program relative to various household sizes, using the results of a modeling
program. This information allows EPA to understand the specific impact of program costs
relative to household size by comparing a table that shows the impacts of current rates on
various household sizes to a table that shows the impacts of future rates (incorporating
required program costs) on various household sizes. Tables like the ones shown in Exhibit 6 can
be created by following the below steps:
To develop a table showing current rate impacts (see example in Exhibit 6.a):
o Obtain current data for Percent of Service Area per household size (column 2) and
MHI by household size (column 3), available in the ACS database.
23 A Water Research Foundation study found that as of 2016 the average household (2.65 people) daily water use
was 138 gallons, while the average per capita usage was 58.6 gallons. The report notes that there is considerable
range in usage across the United States due to the influence of climate and weather patterns. See, Water Research
Foundation, Residential End Uses of Water, Version 2: Executive Report, April 2016. Accessed at
https://wyyyy.yyaterrf.org/research/proiects/residential-end-uses-water-version-2.
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o Using current rates, calculate the monthly household bill for each CCF usage column
(top portion of each row),
o Calculate impact for each CCF usage column (bottom portion of each row) by
multiplying the household bill by 12 to arrive at an annual bill, then dividing the
annual bill by the MHI for each household size.
To develop a table showing modeled future rate impacts (see example in Exhibit S.b):
o As part of the community's modeling, escalate MHI based on an inflationary
adjustment to the year at the end or highest point of the model (in the example in
Exhibit 6.b, this is 2047).
o Calculate the monthly household bill for each CCF usage column based on the rates
at the end or highest cost point in the community's model (in the example in Exhibit
S.b, this is the example community's 2047 modeled rates),
o Calculate impact for each CCF usage column by multiplying the household bill by 12
to arrive at an annual bill, then dividing the annual bill by the MHI for each
household size.
Exhibit 6: Example Showing Projected Impact of Program Costs by Household Size
6. a - Table Showing Impacts of Current Wastewater Rates on MHI
CCF
Household
Size
% of SA HHs
MHI (current)
per HH Size
2
3
4
5
6
7
8
9
1
26.83%
$30,540
$19.08
$26.10
$33.12
$40.14
$47.16
$54.18
$61.20
$68.22
0.75%
1.03%
1.30%
1.58%
1.85%
2.13%
2.40%
2.68%
2
33.76%
$64,063
0.36%
0.49%
0.62%
0.75%
0.88%
1.01%
1.15%
1.28%
3
16.33%
$72,063
0.32%
0.43%
0.55%
0.67%
0.79%
0.90%
1.02%
1.05%
4
13.37%
$87,972
$26.10
$40.1^
0.26%
0.36%
0.45%
0.55%
0.64%
0.74%
0.83%
0.93%
5
6.37%
$88,630
0.26%
0.35%
0.45%
0.54%
0.64%
0.73%
0.83%
0.92%
6
2.22%
$63,028
$19.08
$26.10
$33.12
$40.14
$47.16
$54.18
$61.20
$68.22
0.36%
0.50%
0.63%
0.76%
0.90%
1.03%
1.17%
1.30%
7
1.11%
$48,621
$19.08
$33.12
$40.14
$54.18
$68.22
0.47%
0.64%
0.82%
0.99%
1.16%
1.34%
1.51%
1.68%
Low
Medium
High
Impact
Impact
Impact
24 SA = Service Area; MHI = Median Household Income; CCF = Centum Cubic Feet.
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6.b- Table Showing Modeled Impacts of 2047 Wastewater Rates on MHI
CCF
Household
Size
% of SA HHs
MHI
(escalated to 2047)
per HH Size
2
3
4
5
6
7
8
9
1
26.83%
$51,188
$70.33
$100.38
$130.43
$160.48
$190.53
$220.58
$250.63
$280.68
1.65%
2.35%
3.06%
3.76%
4.47%
5.17%
5.88%
6.58%
2
33.76%
$107,376
$70.33
$100.38
$130.43
$160.48
$190.53
$220.58
$250.63
0.79%
1.12%
1.46%
1.79%
2.13%
2.47%
2.80%
3.14%
3
16.33%
$120,786
$70.33
$100.38
$130.43
$160.48
$190.53
$220.58
$250.63
$280.68
0.70%
1.00%
1.30%
1.59%
1.89%
2.19%
2.49%
2.79%
4
13.37%
$147,450
$70.33
$100.38
$130.43
$160.48
$190.53
$220.58
$250.63
$280.68
0.57%
0.82%
1.06%
1.31%
1.55%
1.80%
2.04%
2.28%
5
6.37%
$148,553
$70.33
$100.38
$130.43
$160.48
$190.53
$220.58
$250.63
$280.68
0.57%
0.81%
1.05%
1.30%
1.54%
1.78%
2.02%
2.27%
6
2.22%
$105,642
$70.33
$100.38
$130.43
$160.48
$190.53
$220.58
$250.63
$280.68
0.80%
1.14%
1.48%
1.82%
2.16%
2.51%
2.85%
3.19%
7
1.11%
$81,494
$70.33
$100.38
$130.43
$160.48
$190.53
$220.58
$250.63
$280.68
1.04%
1.48%
1.92%
2.36%
2.81%
3.25%
3.69%
4.13%
Low
Medium
High
Impact
Impact
Impact
EPA views this data as an additional way for communities to demonstrate the impacts of
program costs on various sizes of households. If the table with modeled future wastewater
rates shows most cells in the "low" impact CPH category, then the program has relatively low
impacts at the household level, as opposed to having most cells in the "high" impact CPH
category. Based on the extent of "high" impact cells, EPA may use this information to justify an
extended implementation schedule under Alternative 1 or Alternative 2. EPA does not intend
for schedules to exceed 25 years based on unusually high impacts after consideration of Other
Metrics, Additionally, use of this additional analysis may be considered in WQS decisions.
3. Customer Assistance Programs
Households on fixed or lower incomes, as well as households that face a temporary crisis such
as a job loss or illness, may have difficulty paying water and sewer bills. Many wastewater and
drinking water utilities have seen an opportunity to meet specific customer needs, along with
the needs of meeting their own operational and capital costs to provide drinking water delivery
and/or wastewater management services, through developing CAPs. These programs can
provide households short-term or long-term reductions through a Bill Discount, Flexible Terms,
Lifeline Rate, Temporary Assistance, and Water Efficiency assistance programs. See Appendix C
for a more detailed description of these types of programs.
Numerous drinking water and wastewater utilities have developed CAPs to help financially
constrained customers maintain access to drinking water and wastewater services. These
programs typically determine eligibility of individual households relative to a percentage of the
Federal Poverty Level. These programs help households address issues with affordability and
help protect public health throughout the community. They also help ensure the utility can
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sustainably provide its core services, price services appropriately, and preserve a broad
customer base. However, these programs have costs for the community.
If a community has developed a CAP to assist individual households, the community may
provide information on both the costs needed to administer the program as well as the revenue
lost from the assistance provided (discounted rates, collection fees foregone, improved water
efficiency, etc.).
EPA intends to consider the following information if provided:
Type of program,
Program eligibilities,
Number of customers participating in the program,
Number of customers eligible for the program (if known),
Program costs,25
Revenue lost,
How the program is funded,
Program benefits, and
Number of disconnections prevented (if known).
Submission of the above information should allow EPA to confirm that the appropriate CAP
costs are being included as part of a community's FCA. Such costs can be included in the
calculation of the Rl26 under Alternative 1 and as part of a Financial and Rate Model analysis
under Alternative 2. To be considered, EPA requests that the community clearly identify if CAP
costs have been included in these sections of the FCA, the line items in which these costs
appear, and the amounts. Additionally, use of this additional analysis in the same manner may
be considered in WQS decisions.
4. Asset Management Costs
Asset management is a critical foundation for understanding near- and long-term operational
and capital needs. This information forms the basis for capital planning and a capital funding
strategy. Asset management is the practice of managing infrastructure capital assets to
minimize the total cost of owning and operating them, while delivering the service level
required. It helps answer the following three core questions for long-term infrastructure
planning:
1. What assets do you have and where are they located?
2. When do your assets need to be repaired or replaced?
25 The University of North Carolina Environmental Finance Center's Water Utility Customer Assistance Program
Cost Estimation Tool is designed to help water utilities estimate the costs of implementing a customer assistance
program. See httpsi//efc,sog,unc,edu/resource/bill-payment-assistance-program-cost-estimation-water-utilities.
26 As current and projected Clean Water Act related expenses. See Appendix A, Worksheet 1, Lines Number 100
and 103.
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3. How much is each asset going to cost you in the near-term and the long-term?
By implementing asset management practices, a community should have a clearer picture of
infrastructure-related expenses and future investment needs, which should inform the financial
planning process.
A community may provide the following information on its asset management costs if the
community can verify that asset management practices are being implemented. These include:
Implementing projects in the community's Capital Improvement Program,
Inventorying assets,
Linking maintenance schedules to the asset inventory,
Assessing the condition and remaining useful life of the assets in the inventory,
Determining the capital expenditures needed to replace assets, and
Planning a funding and financing strategy for operation and maintenance and capital
expenditures.
Submission of information verifying the above practices should allow EPA to confirm that the
appropriate asset management costs are being included as part of a community's FCA. Such
costs may be reflected in the Rl under Alternative 1 and as part of a Financial and Rate Model
analysis under Alternative 2. To be considered, EPA requests that the community clearly
identify when asset management costs have been included in these sections of the FCA, the line
items in which these costs appear, and the amounts. Additionally, use of this additional analysis
in the same manner may be considered in WQS decisions.
5. Stormwater Management Costs
EPA's continued commitment to Integrated Planning recognizes that many local governments
and authorities have increased investments in their stormwater infrastructure through capital
projects to rehabilitate existing systems, improve operation and maintenance, reduce
impermeable surfaces, make use of green infrastructure, and address additional regulatory
requirements. As programs are implemented to improve water quality and attain CWA
objectives, many state and local government partners find themselves facing difficult economic
challenges with limited resources and financial capability.
To be considered by EPA, the following information should be submitted for verification of
stormwater costs that are not within a community's wastewater-related funds:
Identify the municipal fund that the stormwater activity is conducted within (for example,
identify whether stormwater management is in a separate stormwater enterprise fund,
incorporated into the wastewater enterprise fund, or conducted within the general fund).
Describe the specific stormwater activities and associated costs (for example, provide costs
for stormwater program development, implementation, and enforcement as well as costs
for designing, building, and maintaining stormwater infrastructure).
Include supporting documentation for cost estimates.
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Describe the underlying requirement for the stormwater activities and costs (for example,
whether it is required by a state or federal permit, regulation, or enforcement action).
Identify projected, current, and historical stormwater fees.
Submission of the above information should allow EPA to confirm that the appropriate
stormwater costs are included as part of a community's FCA and provide EPA with the
appropriate assurances that those expenditures will be made. Such costs may be incorporated
in the Rl under Alternative 1 and as part of a Financial and Rate Model analysis under
Alternative 2. To be considered, EPA requests that the community clearly identify when
stormwater management costs have been included in these sections of the FCA, the line items
in which these costs appear, and the amounts. Additionally, use of this additional analysis in the
same manner may be considered in WQS decisions.
6. Comparisons to National Data
For any of the Other Metrics submitted by a community, the community can provide a graphic
or chart that shows the community's data compared with county, state, and national data. An
example is shown below in Exhibit 7. This information could be used to assist EPA in assessing a
community's circumstances in relation to national averages and as compared to other
benchmark communities. Such a comparison can be used to highlight a community's unique or
atypical circumstances. Additionally, use of such comparisons in the same manner may be
considered in WQS decisions.
Exhibit 7: Graph comparing quintile distribution in city, county, state, and nationally
City
County
State
United States
$13,000 $51,000
$29,000
$89,000
$21'°00 $42,000 $70>000 $115,000
$23,000 $43,000 $68,000 $107,000
$24,718 $47,229 $75,648 $121,613
$187,000
$222,000
$191,000
$229,035
$0
$50,000 $100,000 $150,000 $200,000 $250,000
Lowest Quintile
Third Quintile
Lower Limit of Top 5 Percent
Second Quintile
Fourth Quintile
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EPA continues to encourage communities to provide additional financial and demographic
information regarding the community's financial capability to implement CWA obligations or to
evaluate WQS decisions. This information would supplement the information provided under
either Alternative 1 or Alternative 2. Examples of Other Metrics include:
Unemployment Rates
Debt Service Coverage Ratio
Debt to Income Ratio
Percent Population Decline, or Other Population Trends
State or Local Legal Restrictions or Limitations on Property Taxes, Other Revenue Streams,
or Debt Levels
Other Metrics as Determined by the Community
e. Other Metrics with Submission of Information Determined by the Community
Additional examples of Other Metrics that may be submitted are listed in Appendix E. The
examples described in Appendix E are not intended to be a complete list, nor a list of factors
that will be relevant in every community. Rather, it provides an illustration of information that
may prove useful in some instances. For such information to adequately illustrate that a
community's situation is atypical, EPA encourages communities to compare any additional
information on their circumstances to national averages or to that of other communities.
f. Schedule Development
When developing implementation schedules to construct control measures to meet CWA
obligations, a community should consider public health, environmental justice, and
environmental impacts as well as financial capability. In addition to completing an analysis
under Alternative 1 or 2, a community should consider the following public health and
environmental impacts when determining the sequencing and priority of projects.
1. Environmental and Public Health Considerations
Discharges to Sensitive Areas: The CSO Policy states that a community's long-term control plan
(LTCP) should give the highest priority to "sensitive areas." Sensitive areas, as determined by
NPDES permitting authorities in coordination with state and Federal agencies, as appropriate,
include the following: Outstanding National Resource Waters; National Marine Sanctuaries;
waters with threatened or endangered species and their habitat; waters with primary contact
recreation; public drinking water intakes and their designated protection areas; and shellfish
beds. For discharges to sensitive areas, the CSO Policy states that LTCPs should: prohibit new or
significantly increased overflows; eliminate or relocate overflows; or, where elimination or
relocation is not feasible, provide treatment to meet WQS and regularly assess the feasibility of
prohibition, relocation, or elimination.27
27 See 59 Fed. Reg. 18688,18696 (April 19, 1994).
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During the LTCP planning process, a community should characterize existing CSO conditions and
identify receiving waters that are sensitive areas. The LTCP should give priority to sensitive
areas and any implementation schedule should sequence projects to mitigate impacts on
sensitive areas as early as possible. Giving highest priority to sensitive areas might mean in
some cases that discharges to non-sensitive areas would be addressed later in the
implementation schedule than would be the case under a normal engineering and construction
schedule.
The identification of an area as "sensitive" is based on the designated use of a water body
established by a state or authorized tribe as part of its water quality standards. If a use is not
attainable for one of the reasons in 40 CFR 131.10(g) and is not an existing use (as defined in 40
CFR 131.3), a state or authorized tribe may revise the designated use with a supporting use
attainability analysis (UAA) and must then adopt the highest attainable use.
Use Impairment: LTCPs should also give priority to receiving waters that experience recurring
adverse impacts from the community on aquatic life, human health, or aesthetics. Such waters
may be the subject of public concern. As a result of public participation and discussion with the
permitting authority, the community should develop an implementation schedule that gives
highest priority to waters with impaired uses and addresses them as soon as possible. As is the
case with sensitive areas, giving highest priority to certain use-impaired waters might mean
that discharges to other waters would be addressed later in the implementation schedule than
would be the case under a normal engineering and construction schedule.
Public Health: While SSOs cannot be permitted, they can be the subject of CWA enforcement
actions. Even where an SSO does not reach a water of the United States, it can be a violation of
a permit obligation to properly maintain and operate a sewer system. Accordingly, where
basement backups of raw sewage and the ejection of raw sewage from manholes onto streets
are CWA permit violations, reducing exposure to this raw sewage should be a priority in any
schedule that is negotiated with the community to protect public health.
Environmental Justice: The guiding principle of environmental justice is the fair treatment and
involvement of all people regardless of race, color, culture, national origin, income, and
educational levels with respect to the development, implementation, and enforcement of
protective environmental laws, regulations, and policies. Communities can use EPA's EJSCREEN
tool28 when assessing whether there may be environmental justice concerns within their
service area, such as areas with: people of color and/or low-income households; potential
environmental quality issues; and/or existing environmental quality impairments in an area
with demographic factors that suggest the community is sensitive to environmental pollution.29
28 EPA has developed an environmental justice mapping and screening tool called EJSCREEN. It is based on
nationally consistent data and an approach that combines environmental and demographic indicators in maps and
reports. Screening results should be supplemented with additional information and local knowledge to get a better
understanding of the issues in a selected location. EJSCREEN is available at httpsi//www,epa.gov/eiscreen.
29 Overview of Demographic Indicators in EJSCREEN, http$i//www,epa,goy/ei$creen/oyeryiew~deroographic~
indicators-eiscreen.
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Any implementation schedule should sequence projects to mitigate public health and
environmental impacts to areas with potential environmental justice concerns as early as
possible. For WQS decisions, in addition to completing an economic analysis under Section IV.g
and considering any other financial metrics, a community or state is strongly encouraged to
consider opportunities to mitigate impacts of WQS decisions on areas with potential
environmental justice concerns. See Section IV.g for additional discussion. Before seeking an
extended schedule, EPA also encourages communities to actively involve the affected public by
holding public meetings. The affected public includes rate payers, industrial users of the sewer
system, persons who reside downstream from the CSOs, persons who use and enjoy these
downstream waters, and any other interested persons. For any change to WQS, a public
hearing is required per 40 CFR 131.20.
2. Alternative 1 Schedule Development
This guidance does not dictate specific implementation schedules based on financial capability.
It does, however, provide recommended implementation schedule benchmarks in Exhibit 8 to
aid all parties in negotiating reasonable and effective schedules for implementation of CWA
controls. Exhibit 8 should be used after all three critical metrics in Alternative 1 have been
calculated, including performing the Financial Alternatives Analysis and establishing the Final
LQPI Score to determine the community's overall impact level using the Expanded FCA Matrix.
The results of the Expanded FCA Matrix correspond to the recommended implementation
schedule benchmarks in Exhibit 8, below. EPA has developed these schedule benchmarks to
account for the consideration of the new critical metric, the LQPI Score. Based on EPA's
experience, EPA recommends that, absent consideration of Other Metrics, it is financially
feasible for communities to implement measures for compliance with the CWA that would have
a "medium" impact within 15 years and to implement measures that would have a "high"
impact within 20 years. In unusually high impact situations, an implementation schedule up to
25 years may be negotiated with state NPDES and EPA authorities based on consideration of
Other Metrics. In addition, communities should continue to make capital investments to meet
water quality standards even if they are "high" impact, though schedules up to 20 years (or up
to 25 years for unusually high impacts) may offer flexibility for "high" impact communities.
Exhibit 8: 2022 FCA Recommended Implementation Schedule Benchmarks for Alternative 1
Expanded FCA Matrix Result
Recommended Implementation Schedule Benchmarks
Low Impact
Normal Engineering/Construction Schedule
Medium Impact
Total schedule up to 15 years
High Impact
Total schedule up to 20 years (schedule up to 25 years based on
negotiation with EPA and state NPDES authorities)
It is important to note that EPA evaluates financial capability on a continuum. Although the
Expanded FCA Matrix categorizes impact as "high," "medium," or "low," this does not
necessarily mean that communities will be given the maximum number of years within that
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category or that schedules will be rigidly set according to the break points between the
categories. For example, two communities whose total residential household costs are 1.1%
and 1.9% of MHI are both categorized in the FCA Guidance as having a "mid-range" impact for
the Rl. All other things being equal, the appropriate schedules for those communities are likely
to be different. Similarly, all other things being equal, two communities whose LQIs are 24%
below the national LQI and 26% below the national LQI would be more likely to have similar
overall compliance timeframes, even though one community is ranked as having a "mid-range"
score and the other as having a "weak" score. Finally, Other Metrics submitted by the
community may affect the length of the schedule regardless of where the community is on the
"high," "medium," and "low" continuum.
Because the three critical metrics under Alternative 1 might not present the most complete
picture of a community's financial capability to fund its CWA controls, communities are
encouraged to submit any additional documentation (Other Metrics) that would create a more
accurate and complete picture of their financial capability. The Proposed 2022 FCA includes
Other Metrics with Standardized Instructions and Other Metrics with Submission of Information
to be Determined by the Community. Any Other Metrics that have been submitted for
consideration would supplement the three critical metrics and the Expanded FCA Matrix
results, and consideration of these metrics may, in rare cases, result in implementation
schedules that go beyond the schedule benchmarks in Exhibit 8, up to 25 years for unusually
high impact situations. Additionally, the use of these additional metrics in the same manner
may be considered in WQS decisions.
Exhibit 9, below, describes four hypothetical schedule determinations where the three critical
metrics, Other Metrics, and environmental considerations were assessed together to develop
the implementation schedule.
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Exhibit 9: Schedule Development for Hypothetical Communities
Scheduling
Consideration
Community #1
Community #2
Community #3
Community #4
Engineering/
Construction
Schedule
9 years
9 years
9 years
9 years
Sensitive Areas
n/a
2 years to remove
discharges from
sensitive areas
n/a
n/a
Use Impairment
n/a
2 years to remove
discharges from
waters with
impaired uses
n/a
n/a
Environmental
Justice
Potential EJ
concerns
identified
n/a
n/a
Potential EJ
concerns
identified
Financial
Capability
Proposed 2022
FCA Result =
Low Impact
(engineering
schedule)
Proposed 2022 FCA
Result = Medium
Impact (up to 15
years)
Proposed 2022 FCA
Result = High
Impact (up to 20
years unless
justified by
additional
information)
Proposed 2022
FCA Result = High
Impact (up to 20
years unless
justified by
additional
information)
Significant
Drinking Water
Costs
n/a
2 additional years
n/a
2 additional years
Demonstration
of Financial
Alternatives as
Part of FCA
No
Yes
Yes, and analysis
shows that
additional
measures can
reduce FCA impact
closer to Medium
Yes
Schedule:
9 years
(reduction of
discharges in
areas with EJ
concerns within
first 3 years)
17 years
(removal of
discharge from
sensitive area and
waters with
impaired uses
within first 2
years)
17 years
22 years
(reduction of
discharges in
areas with EJ
concerns within
first 5 years)
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3. Alternative 2 Schedule Development
Unlike Alternative 1, EPA has not established benchmarks for the development of an
implementation schedule under Alternative 2. Instead, EPA plans to consider the impacts on
households as well as the Final LQPI Score when approving implementation schedules that seek
to avoid rates that represent an overly burdensome percentage of household income.
Under Alternative 2, communities are encouraged to submit any additional documentation
(Other Metrics) that would create a more accurate and complete picture of their financial
capability. The Proposed 2022 FCA includes Other Metrics with Standardized Instructions and
Other Metrics with Submission of Information to be Determined by the Community. Any Other
Metrics that have been submitted for consideration would supplement the financial and rate
model and Final LQPI Score and may result in an extended implementation schedule, not to
exceed a total of 25 years.
g. Recommended Expanded Economic Impact Matrix and Analyses for WQS Decisions
for the Public Sector
The recommended expanded matrix and additional analyses for water quality standards (WQS)
decisions described in this Section IV.g, along with the electronic spreadsheet tools for the
public sector at https://www.epa.gov/was~tech/spreadsheet~tools~evaluate~economic~impacts~
public-sector,30 replace the worksheets and calculations for the public sector sections of the
1995 WQS Guidance. EPA intends this replacement to guide states and authorized tribes in
evaluating the degree of economic impact from potential WQS decisions. Section IV.g includes
the expanded economic impact matrix for WQS that incorporates the Municipal Preliminary
Screener (MPS), Secondary Score (SS), and Lowest Quintile Poverty Indicator (LQPI) Score in a
multi-step approach, as well as incorporating consideration of a Financial Alternatives Analysis
in a similar manner as Alternative 1 of the Proposed 2022 FCA for extended CWA compliance
schedules. Section IV.g also includes recommended additional analyses or actions when
considering revisions to designated uses. Section IV.g does not revise the recommended
methodology in the private sector sections of the 1995 WQS Guidance.
WQS decisions relevant to this document include revisions to designated uses, WQS variances,
and antidegradation reviews. The WQS regulations at 40 CFR 131.10(g)(6), commonly referred
to as "Factor 6," allow revisions to designated uses or the adoption of WQS variances if a state
or authorized tribe can demonstrate that attaining the use is not feasible because controls
more stringent than the technology-based requirement would result in both substantial and
widespread economic and social impacts. The WQS regulations at 40 CFR 131.12(a)(2) allow
lowering of water quality if it is necessary to accommodate important economic or social
development in the area in which the high-quality waters are located.
30 These electronic spreadsheet tools for the public sector encompass the data inputs and calculations of the 1995
WQS Guidance.
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1. Use of Guidance and Additional Analyses for 1/1/QS Use Attainability Analyses as
Compared to 1/1/QS Variances
The metrics and thresholds in Alternative 1 of the Proposed 2022 FCA are based on a
"snapshot" of financial and socio-economic data. Because financial conditions are dynamic,
these metrics are most appropriate for evaluating requests for WQS variances based on 40 CFR
131.10(g)(6). Specifically, the snapshot approach is well-suited for determining the duration of
WQS variances, with the time-limited nature of a WQS variance ensuring that changes in
financial conditions will be considered if and when there is a request for a subsequent variance
or at the time of reevaluation for a WQS variance with a duration longer than five years.
Although EPA has had considerable experience and success negotiating the schedule of water
quality improvements under CWA consent decrees and evaluating requests for time-limited
WQS variances based on 40 CFR 131.10(g)(6) using the analytical approach in the 1995 WQS
Guidance and 1997 FCA Guidance, the same cannot be said for requests to remove designated
uses or change to less stringent use subcategories. While the analyses and metrics
recommended in the Proposed 2022 FCA may be considered in evaluating such use change
requests, EPA recommends caution in doing so. There may be many cases where these
analytics and metrics demonstrate that attaining the designated use and criterion is not feasible
throughout the limited term of a WQS variance, but the same would not be true for a use
removal or change to a less stringent use subcategory, which does not include a temporal
component. To that end, EPA recommends states or authorized tribes first explore whether
there are other factors under 40 CFR 131.10(g) that preclude attainment of the designated use.
These other factors involve evaluating environmental conditions that are less likely to change
over time and are more likely to impact all segments of a community evenly, as opposed to the
dynamic nature and potential disproportionate distribution of economic conditions in a
community.
Where states and authorized tribes choose to pursue a use change based on 40 CFR
131.10(g)(6), an appropriate demonstration for removal of a use or a change to a less stringent
use subcategory must satisfy all of the requirements in the WQS regulations at 40 CFR part 131,
particularly those at 40 CFR 131.10, and should include the calculations of the WQS Economic
Impact Matrices, consideration of financial alternatives as described in Step 3b of this Section
IV.g and Appendix C of this document, as well as other analyses described below for use
changes.
Although the consideration of a Financial Alternatives Analysis is applicable to the
demonstration of any WQS decisions based on 40 CFR 131.10(g)(6) where a community's Initial
LQPI Score is "medium" or "high," for use changes it provides especially critical information.
This information, along with the additional analyses that support an appropriate economic
justification, facilitate WQS decisions that strive to restore and maintain water quality to the
greatest extent possible, consistent with the objectives of the CWA. For starters, an appropriate
justification should demonstrate that all feasible financial alternatives (such as those identified
in Appendix C of this guidance including loans, grants, customer assistance programs, and
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alternative rate structures) and additional future debt capacity have been considered and none
of the viable financial alternatives currently, or under reasonably expected future economic
conditions, results in the designated use being feasible to attain.31
In addition, there are other analyses or actions that EPA recommends to assess decisions
regarding use changes. EPA recommends a trend analysis of the LQPI Score (see Exhibit 1 in
Section IV.b) over the most recent 10-year period to ensure the financial data is representative
and reflects changing economic conditions of a community's low-income households overtime.
Finally, when states and authorized tribes re-examine designated use changes in accordance
with WQS regulations regarding triennial reviews,32 EPA expects that they evaluate up-to-date
economic information if the designated use was revised based on 40 CFR 131.10(g)(6), including
whether the use is attainable after retiring debts.
2. 1/1/QS Decisions in Areas with Potential Environmental Justice Concerns
In addition to completing an economic analysis, including the Financial Alternatives Analysis,
using Section IV.g and considering any other financial metrics, a community, state, or
authorized tribe is strongly encouraged to consider other opportunities to mitigate impacts of
WQS decisions to areas with potential environmental justice concerns. For example, for WQS
variance demonstrations, EPA recommends that communities sequence activities included in
WQS variance requirements to mitigate impacts to areas with potential environmental justice
concerns as early as possible. Finally, public hearings, required by the WQS regulations when
reviewing or revising WQS, provide opportunities for public comments, including comments on
potential environmental justice concerns resulting from changes to designated uses when they
are initially proposed and during subsequent triennial reviews.
3. Submittal of Additional Community-Specific Information
Because the three recommended critical metrics set forth below might not present the most
complete picture of a community's financial capability, communities are encouraged to submit
any additional documentation that would create a more accurate and complete picture of their
financial capability. Financial and rate models in Alternative 2 (as discussed in Section IV.c) or
Other Metrics (as discussed in Sections IV.d and IV.e) could provide additional information for
31 For purposes of the Financial Alternatives Analysis, "feasible" steps should include the financial and funding
considerations listed in Appendix C, whether or not they are prohibited by state law.
32 40 CFR 131.20(a): 'The State shall from time to time, but at least once every 3 years, hold public hearings for the
purpose of reviewing applicable water quality standards adopted pursuant to §§ 131.10 through 131.15 and
Federally promulgated water quality standards and, as appropriate, modifying and adopting standards. The State
shall also re-examine any waterbody segment with water quality standards that do not include the uses specified
in section 101(a)(2) of the Act every 3 years to determine if any new information has become available. If such new
information indicates that the uses specified in section 101(a)(2) of the Act are attainable, the State shall revise its
standards accordingly..."
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consideration in conjunction with the use of recommended critical metrics in Alternative 1 to
support WQS decisions. However, EPA is not recommending the use of financial and rate model
analysis under Alternative 2, alone or in lieu of Alternative 1, in WQS decisions.
4. Steps to Evaluate the Degree of Economic Impact from Potential 1/1/QS Decisions
Step 1: Determine the Initial Economic Impact by Using Table 1
Table 1, used to determine the initial economic impact for the public sector, is the same as
the matrix for the public sector in the 1995 WQS Guidance. To calculate the Municipal
Preliminary Screener (MPS) and Secondary Score (SS) for use in this step, please see the
electronic spreadsheet tools for the public sector at https://www.epa.gov/wqs-
tech/spreadsheet-tools-evaluate-economic-impacts-public-sector.
Table 1:
Secondary Score
(SS)
Municipal Preliminary Screener
(Cost Based on Median Household Income)
(MPS)
Below 1.0%
Between 1.0% to 2.0%
Above 2.0%
Below 1.5 (Weak
Economy)
Substantial Impact
Between 1.5 to 2.5
(Mid-range Economy)
Substantial Impact
Above 2.5 (Strong
Economy)
Impact Not Likely to be
Substantial
Impact Not Likely to be
Substantial
Impact Unclear
Step 2: Determine the Initial Lowest Quintile Poverty Indicator Score
For more information on how to calculate the Initial Lowest Quintile Poverty Indicator
(LQPI) Score, please see Exhibit 1 under Alternative 1 in the Proposed 2022 FCA in
Section IV.b.3.
Step 3: Determine the Final Lowest Quintile Poverty Indicator Score
Where a community's Initial LQPI Score is "medium" or "high," the Final LQPI Score should
be based on the outcome of the Financial Alternatives Analysis. As described earlier in this
section, WQS variances are temporary in nature and provide a transparent mechanism for
making water quality improvements towards the eventual attainment of the designated use
with timeframes that are justified and enforceable in NPDES permits. Therefore, to ensure
that there is maximum flexibility where water quality improvements can and will be made,
EPA is providing adjustments to the Initial LQPI Score for WQS variances in Step 3a, which is
equivalent to those provided in Exhibit 2 of Section IV.b.5 for schedule decisions. However,
unlike WQS variances, the purpose of designated use changes that would require such an
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analysis is to revise the ultimate desired condition rather than meet it. Similarly, the
purpose of antidegradation reviews is to determine whether to allow a lowering of high
water quality where such high water quality already exists, potentially also reducing a
water's climate resiliency. While both are allowed by EPA's regulations, where justifiable,
neither designated use changes nor antidegradation reviews inherently include an
enforceable mechanism to drive additional environmental improvement, and may have
longer lasting impacts on low-income communities. Therefore, EPA presumes that where
there are financial alternatives identified, such alternatives would mitigate impacts to low-
income communities leading to a downward adjustment of the Initial LQPI Score (see Step
3b).
3a: For WQS Variances
For WQS variance decisions, if the Initial LQPI Score is "medium" or "high" (i.e., score 2.5
or below), perform a Financial Alternatives Analysis in accordance with Section IV.b.4
and Appendix C. The Final LQPI Score may be different from the Initial LQPI Score
depending on the results of the Financial Alternatives Analysis, as shown in Table 2 of
this section.
Table 2:
Result of Financial
Alternatives Analysis
Adjustment to Initial LQPI
Score
Rationale
Community:
Does not perform the
analysis,
Does not consider all
alternatives in
Appendix C (or as
identified by EPA), or
Finds financial
alternatives to lessen
impact on lowest
quintile households
but does not commit
to pursue alternatives.
Initial LQPI Score is adjusted,
potentially limiting flexibility
in schedule decisions:
"Medium" Initial LQPI
Score is adjusted to
"low" Final LQPI; and
"High" Initial LQPI
Score is adjusted to
"medium" Final LQPI
Score.
Community can do more to
assist its lowest quintile
households, so poverty
concerns should not be used
to justify a WQS variance.
Community performs a
Financial Alternatives Analysis
and commits to pursuing
feasible financial alternatives
to reduce the impact on
lowest quintile households.
Depending on discussions with
EPA and EPA's consideration
of likelihood of remaining
impacts, the Initial LQPI Score
may be adjusted or stay the
same.
Community commits to taking
additional actions to help its
lowest quintile; as a result, the
lowest quintile may or may
not continue to be
significantly impacted.
Community performs a
Financial Alternatives Analysis
and EPA determines that
community has taken all
Initial LPQI Score stays the
same, potentially providing
increased flexibility in WQS
decisions:
Community has taken all
feasible steps to help its
lowest quintile, so impacts to
lowest quintile households
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feasible steps33 to help lowest
"Medium" Initial LQPI
may be used to justify a WQS
quintile households, but there
Score stays as
variance.
are still significant impacts on
"medium" Final LQPI
the lowest quintile.
Score; and
"High" Initial LQPI
Score stays as "high"
Final LQPI Score.
Step 3b: For Use Changes or Antidegradation Reviews
For use change decisions and antidegradation reviews, the presumption for any
community with a "medium" or "high" Initial LQPI Score is that the Final LQPI Score will
be adjusted to a "low" or a "medium," respectively, if any feasible financial alternatives
are identified. However, where the community commits to all feasible financial
alternatives and provides justification showing that even after implementing feasible
financial alternatives, significant impacts to the lowest quintile would remain, there is
no change in the Initial LQPI Score. That is, the Initial LQPI Score is the Final LQPI Score.
Step 4: Use the Expanded Economic Impact Matrix in Table 3 to combine the results from the
Initial Economic Impact (Table 1) and the Final Lowest Quintile Poverty Indicator Score (from
Step 3)
Table 3:
Final Lowest
Quintile Poverty Indicator (LQPI) Score
Initial Economic Impact
(MPS and SS)
Low Impact
Medium Impact
High Impact
Impact Not Likely to be
Substantial
Impact Unclear
Impact Unclear
Substantial Impact
Substantial Impact
Impact Unclear
Substantial Impact
Substantial Impact
5. Recommendations for Making WQS Decisions
The following are recommendations for making WQS decisions after applying the Expanded
Economic Impact Matrix from Table 3, including consideration of financial alternatives where
appropriate and additional analyses when evaluating changes to designated uses. EPA notes
that Table 4 does not indicate that WQS decisions should be rigidly determined according to the
break points between the categories. Information on Other Metrics or analysis of financial and
rate models may provide additional information that could influence WQS decisions. Further,
EPA recommends that in addition to completing the economic analyses set forth in this Section
33 For purposes of the Financial Alternatives Analysis, "feasible" steps should include the financial and funding
considerations listed in Appendix C, whether or not they are prohibited by state law.
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IV.g and considering any other financial metrics, opportunities to mitigate impacts of WQS
decisions to areas with potential environmental justice concerns should be considered (see
discussion in the introduction of this section).
Table 4: Recommendations for Making WQS Decisions
Results of Expanded Economic Impact Matrix
(Table 3)
Recommendations for Making WQS Decisions
Impact Not Likely to be Substantial
Results would likely not demonstrate infeasibility
based on 40 CFR 131.10(g)(6) for revisions to
designated uses or WQS variances.
For antidegradation reviews, results would likely
not demonstrate that allowing lower water quality
is necessary to accommodate important economic
or social development in the area in which the
waters are located per 40 CFR 131.12(a)(2).34
Impact Unclear
For revisions to designated uses or WQS variances,
infeasibility based on 40 CFR 131.10(g)(6) is likely
unclear.
For use changes, consider the Expanded
Economic Matrix results in concert with
the results of the additional analyses and
actions described in this Section IV.g for
use changes. Where feasibility remains
unclear, communities may want to
consider whether a use change is
appropriate at this time. Communities may
also evaluate Other Metrics (described in
Sections IV.d and IV.e of the Proposed
2022 FCA) or the financial and rate models
(described in Alternative 2 in Section IV.c).
For WQS variances, where the impacts are
unclear, EPA recommends evaluation of
Other Metrics (described in Sections IV.d
and IV.e of the Proposed 2022 FCA) or the
financial and rate models (described in
Alternative 2 in Section IV.c).
34 In order to allow a lowering of high water quality, the state or authorized tribe must find that the lowering is
necessary to accommodate important economic or social development in the area in which the waters are located
per 40 CFR 131.12(a)(2). The economic demonstration in the Proposed 2022 FCA only serves to determine whether
there is "important economic or social development in the area in which the waters are located." A state or
authorized tribe would still need to conduct an analysis of alternatives, consistent with 40 CFR 131.12(a)(2)(ii), to
determine if such a lowering is "necessary."
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2022 Proposed Financial Capability Assessment Guidance
February 2022
For antidegradation reviews, where it is unclear
that allowing lower water quality is necessary to
accommodate important economic or social
development in the area in which the waters are
located, per 40 CFR 131.12(a)(2),35 EPA
recommends evaluation of Other Metrics
(described in Sections IV.d and IV.e of the
Proposed 2022 FCA) or the financial and rate
models (described in Alternative 2 in Section IV.c).
Substantial Impact
For use changes, consider the results of the
Expanded Economic Matrix in concert with the
results of the additional analyses and actions
described in this Section IV.g for use changes to
determine whether overall results continue to
support a demonstration of infeasibility based on
40 CFR 131.10(g)(6).
For WQS variances, results would likely support a
demonstration of infeasibility based on 40 CFR
131.10(g)(6).
For antidegradation reviews, results would likely
support a demonstration that lowering water
quality is necessary to accommodate important
economic or social development in the area in
which the waters are located per 40 CFR
131.12(a)(2).36
V. Request for Public Comment
EPA requests comment on the Proposed 2022 FCA. Specifically, as discussed in Section lll.b,
EPA is seeking comment related to the following questions:
1. Should the Final 2022 FCA incorporate a single new metricLQPI that considers
lowest quintile income and poverty elements together? Or should the Final 2022 FCA
incorporate two new metrics (a lowest quintile income indicator and a poverty
indicator) to be calculated separately and combined in a matrix?
2. EPA is seeking additional examples or case studies of funding and financing
considerations to add to Appendix C.
3. EPA is seeking feedback on the current proposed scheduling benchmarks of 20 years
for "high" Expanded FCA Matrix impacts, or 25 years for unusually high impacts. If
commentors propose different benchmarks, EPA is requesting examples to support
the basis for such benchmarks.
35 Ibid.
36 Ibid.
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2022 Proposed Financial Capability Assessment Guidance
February 2022
VI. Appendices
a. Appendix A - Residential Indicator Worksheets
b. Appendix B - Financial Capability Indicator Worksheets
c. Appendix C - Financing and Funding Considerations for Financial Alternatives
Analysis
d. Appendix D - Resources Related to Water Infrastructure Financing
e. Appendix E - Examples of Other Metrics Relevant to Consideration of Financial
Capability
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2022 FCA Guidance - Appendix A
Residential Indicator Worksheets UPDATED (2022)
This appendix contains an updated version of the steps necessary to prepare the
Residential Indicator. The worksheets and instructions are largely identical to the 1997 FCA
Guidance. Since then, however, data sources have evolved, and this update recognizes the
inputs that can be found today. In addition, "Practice Tips" in text boxes are incorporated
to provide additional guidance on aspects of the Residential Indicator calculation that EPA
has found are common questions and can benefit from additional direction.
CRITICAL METRIC: THE RESIDENTIAL INDICATOR
The Residential Indicator measures the financial impact of the current and proposed
Clean Water Act (CWA) controls on residential users. Development of this indicator starts
with the determination of the current and proposed wastewater system control costs per
household (CPH). Second, the service area's CPH estimate and the median household
income (MHI) are used to calculate the Residential Indicator. Finally, the Residential
Indicator is compared to established financial impact ranges to determine whether
required CWA controls will produce a possible "high," "mid-range," or "low" financial
impact on the permittee's residential users. Worksheets are provided to aid in
developing the Residential Indicator.
Developing CPH Estimate
The first step in developing the CPH is to determine the permittee's total wastewater
treatment (WWT) and collection system costs by adding together the current costs for
existing wastewater treatment operations and the projected costs for any proposed
CWA controls. The next step is to calculate the residential share of the total system
costs. The final step is to calculate the CPH by dividing the residential share of total
costs by the number of households in the permittee's total wastewater service area.
PRACTICE TIP: The total wastewater service area
should iimclltji staill and wholesale areas served.
Current wastewater system costs are defined as current annual wastewater operating
and maintenance expenses (excluding depreciation) plus current annual debt service
(principal and interest). This fairly represents cash expenses for current wastewater
treatment operations. (Expenses for funded depreciation, capital replacement funds, or
other types of capital reserve funds are not included in current WWT costs, because they
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2022 FCA Guidance - Appendix A
represent a type of savings account rather than an actual operation and maintenance
expense.)
PRACTICE TIPS:
For a service area with wholesale customers, current costs should
also include the wholesale customers' Q&IIVI and debt service
incurred to provide retail serv delivery of wastewater to the
primary community. Thb "m- rmation can be inserted c - n t
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2022 FCA Guidance - Appendix A
PRACTICE TIP: Divide lines 100 and 1 sub-lines to further break
out costs (e.g., 100a: O&M Expenses for Core Service Area City; 100b:
O&M Expenses for Wholesale Community). An additional line item can
Projected Costs: Projected costs for compliance are identified on Lines 103 and 104.
Costs should be provided in current dollars, preferably consistent with the year of the
most recent demographic and current financial data. Adjust the projected annual WWT
and CWA costs to current dollars using the appropriate cost indices, preferably for the
geographical region of permittee.
The annualized debt service cost information for the projected WWT facilities and
projected CWA controls (Line 104) can be calculated using an annualization factor, which
reflects the local borrowing interest rate and borrowing term of the permittee. For
example, if the adjusted projected debt costs (current dollars) are $25,000,000 and
typical borrowing terms include an interest rate of eight percent over 20 years, then
costs can be annualized with the following calculation:
Annual Debt Service Costs = Adjusted Debt Costs x Annualization Factor
The annualization factor for the example is calculated using the following formula:
PRACTICE TIP: Future capital costs should be in the same year dollars
as the current cost data. Use the appropriate engineering
construction cost index to adjust projected capital costs or related
increased operations costs as necessary.
Annual Debt Service Costs = $25,000,000 x .1019 = $2,547,500
Interest Rate
Annualization Factor =
(1 + Interest Rate)y'
+ Interest Rate
ears
Annualization Factor =
.08
+ .08 = .1019
(1+ ,08)20-l
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2022 FCA Guidance - Appendix A
Alternatively, annual debt service costs can be calculated in Excel spreadsheets using the
following formula:
= PMT{Interest Rate, Term of Loan in Years, Present Value of Projected Costs)
The annualized debt service cost for the projected CWA controls is entered on line 104.
Line 104 should include future cash-financed capital. Divide lines 101 and 104 into sub-
lines to further categorize debt service costs (e.g., 104a: Annual Revenue Bond Debt
Service; 104b: Annual Pay-Go Costs). Add the current and projected wastewater treatment
and projected CWA control costs to estimate the total WWT and CWA costs (line 102 + line
105).
PRACTICE TIP: The debt service should be estimated based on the
source and type of debt or oth ncing expected to be used to pay
for necessary capital expenditures, including state clean water
revolving and pooled funds.
Residential Share: Calculate the residential share of the total cost (line 106) and enter on
line 107. The residential share of total costs (line 107) is computed by multiplying the
percent of total wastewater flow including infiltration and inflow attributable to residential
users by the total costs (line 106).
PRACTICE TIPS:
The residential share represents costs for useholds, whether in
single-family homes or in multi-unit condominiums or apartment
buildings. Residential costs exclude the portion of expenses attributable
to commercial, governmer d industrial customers. Permittees that
treat multi-unit household as commercial accounts within the billing
system need to estimate the flows attributable to those households.
neral, the residential share is based on billed flow for residential
households. If supported by documentation, the residential si- «y
be adjusted for infiltration and inflow fll&I) based on how the permittee
addresses l&ll in its bills.
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2022 FCA Guidance - Appendix A
For example, for a permittee with the following characteristics:
Total Costs:
Residential Flow:
Total Flow:
$12,000,000
10.5 Million Gallons per Day
13.1 Million Gallons per Day
The residential share of the total cost is:
Residential Wastewater Flow
Residential Share of Costs = Total Costs x
Total Wastewater Flow
Residential Share of Costs = $12,000,000 x
10.5 Million Gallons per Day
= $9,600,000
13.1 Million Gallons per Day
Calculate the CPH (line 109) by dividing total residential share costs (line 107) by the
total number of households (line 108) in the permittee's total wastewater service area.
The Residential Share percentage in this example is 80.2 percent.
Data Sources
The permittee's latest audited Financial Report should be available to develop the
current wastewater treatment costs.1 In order to comply with accounting requirements,
most permittees develop a combined statement of revenues, expenses, and changes in
fund balance. These Financial Reports should be available directly from the permittee,
or, in some states, from central records kept by the state auditor or other state offices.
The permittee may have a separate financial report, or its financial data may be
incorporated into a municipality's report.
Projected costs in the wastewater service area should be available through the
permittee's planning documents. Wastewater service area boundaries also should be
available from the permittee, frequently in electronic format. The Census Bureau
annually collects American Community Survey data on the number of households by
Census-designated place. If the permittee's service area is relatively contiguous with
political boundaries, then do a search for "Census QuickFacts" with the name of the
town or county. Alternatively, Census Table B25002 (refer to
https://data.census.gov/cedsci/all?q=B25002) is a resource if a more nuanced estimate
is required. Note that "occupied housing units" equals households. The permittee
should use the most recent 5-Year ACS Household data in its FCA calculations.
1 For many communities, this Financial Report was previously characterized as a Comprehensive Annual Financial
Report (CAFR), but the Governmental Accounting Standards Board has recently indicated that the CAFR should now
be referred to as the "Financial Report."
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2022 FCA Guidance - Appendix A
PRACTICE TIPS:
Note that the volume of residential usage may not only include volume
for residential customer accounts, but residential households may also
be served through multi-unit structures in commercial accounts, such as
apartment buildings. Census c , avide information on the
number of households in multi-family structures, providing a basis for
adjusting the residential usage. The residential share tends to be lower
for communities with more commercial or industrial customers, and
generally higher in suburban, predominately residential areas.
Particularly for more complex service areas, electronic Geographic
Information System (GIS) shapefil " lyzed with census
electronic files, to better characterize the service area households.
Many utillitie " dy have GIS mappings of the service area to assist in
management of the system. In addition, note that in Census terminology,
a "household" is eq "occupied housing unit," so data
characterizing occupied housing units may be helpful to understanding
the nature of the permittee's service area. In addition, the permittee
should not use "residential customer" counts to estimate households, as
more than one household may occup idential customer site, and
households may live in commercial multi-unit customer properties.
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2022 FCA Guidance - Appendix A
COST PER HOUSEHOLD
Worksheet 1
Line Number
Current WWT Costs
Annual Operations and
Maintenance Expenses
(Excluding Depreciation) 100
Annual Debt Service
(Principal and Interest) 101
Subtotal of Current Costs
(Line 100 + Line 101) 102
Projected WWT and CWA Costs
(Current Dollars)
Estimated Annual Operations
and Maintenance Expenses
(Excluding Depreciation) 103
Annual Debt Service
(Principal and Interest) 104
Subtotal of Projected Costs
(Line 103 + Line 104) 105
Total Current and Projected
WWT and CWA Costs
(Line 102 + Line 105) 106
Residential Share of Total WWT
and CWA Costs 107
Total Number of Households in
Service Area 108
Cost per Household
(Line 107 + Line 108) 109
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2022 FCA Guidance - Appendix A
Developing the MHI Estimate
The second step in developing the Residential Indicator is to determine the median
household income (MHI) for the permittee's entire wastewater service area. Information
and calculations used to develop the MHI value are presented in Worksheet 2 and its
instructions.
Worksheet 2 Instructions
Enter the requested information on Worksheet 2, lines 201 through 203. If the
permittee's service area is relatively contiguous with political boundaries, then do a
search for "Census QuickFacts" with the name of the town or county. Alternatively,
Census Table B19013 (refer to https://data.census.gov/cedsci/all?q=B19013 j is a
resource if a more nuanced estimate is required. The permittee should use the most
recent 5-Year Average MHI data in its FCA calculations.
PRACTICE TIP: For more complex service areas, electronic
Geographic Information System i- tlM ¦h jpefiles * ,11 I» halyzed with
census electronic shapefiles, allowing a more precise
characterization of the MHI for servic households. Many
permittees already have GIS mappings of the service area to assist in
management of the system.
On Worksheet 2, calculate the adjusted MHI by entering the most recent 5-Year census
MHI value on line 201. Then enter the MHI Adjustment Factor, if any, on line 202. Finally,
multiply the MHI (line 201) by the Adjustment Factor (line 202) and enter the Adjusted
MHI on line 203.
PRACTIO l II in enei I ,n idjustm in i , 'tor is not required given
that the Census data is the most up-to-date information available.
Identify the year of the Census data, and if an adjustment is made,
provi " ixplanation.
If the permittee's service area includes more than one jurisdiction, it may be necessary
to develop a weighted MHI for the entire service area. The Bureau of Census's
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2022 FCA Guidance - Appendix A
designated MHI areas generally encompass most permittee's service areas. For this
reason, the calculation of a weighted MHI usually will not be necessary to reasonably
represent the permittee's MHI. When a weighted MHI must be calculated, a weight
would be assigned to each jurisdiction to reflect its share of the total households.
The following example illustrates how to develop a weighted MHI value. If a permittee
is a regional authority that serves three local jurisdictions, the weighted average MHI
would be calculated as follows:
Jurisdiction MHI Number of Households (HH)
A
$30,000
100,000
B
$45,000
25,000
C
$25,000
50.000
175,000
/ tin, \ I titiR \ / tin,- \
Weiqhied MHI = MHIA + MHlB -2 + MHIC
J A \Total HH) B \Total HH! c \Total HH /
, 100,000 \ I 25,000 \ , 50,000 \
$30,000 + $45,000 + S25.000
V175,0Cl0 ' \ 175,000/ \175,000/
517,143 + $h,42c' + $7,143 = $30,715
Data Sources
Median household income is available for most communities from the latest annual
Census ACS data collection. In the few cases where a local jurisdiction's MHI is not
available, the surrounding county's MHI may be sufficient. The Census Bureau provides
annual 5-Year Average Median Household Income data in Table B19013.
Developing the Residential Indicator
Worksheet 2 Instructions
To calculate the Residential indicator (line 205 of Worksheet 2), divide the total annual
control cost per household (line 109 transferred to line 204) by the Adjusted MHI (line
203) and multiply by 100.
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2022 FCA Guidance - Appendix A
Analyzing the Residential Indicator
The Residential Indicator will be used in the Expanded Financial Capability Matrix to help
permittees, and EPA and state NPDES authorities determine reasonable and workable
long-term wastewater system control schedules.
To assess the financial impact CWA controls may have on the permittee's residential
users, the Residential Indicator is compared to the financial impact ranges that reflect
EPA's previous experience with water pollution control programs. These ranges are as
follows:
Financial Impact
Residential Indicator (CPH as % MHI)
Low
Less than 1.0 Percent of MHI
Mid-Range
1.0 - 2.0 Percent of MHI
High
Greater than 2.0 Percent of MHI
When the Residential Indicator is less than 1.0 percent, between 1.0 and 2.0 percent,
and greater than 2.0 percent, the financial impact on residential users to implement the
CWA controls will be characterized as "low," "mid-range," and "high," respectively.
Unless there are significant weaknesses in a permittee's financial and socioeconomic
conditions, second phase reviews for permittees that have a low residential indicator
score (less than 1.0) are unlikely to result in longer implementation schedules.
Permittees with low residential indicators may wish to forego the second phase analysis
and proceed with the normal engineering and construction implementation schedule
developed as part of the planning process.
In situations where a permittee believes that there are unique circumstances that would
affect the conclusion of the first phase, the permittee may submit documentation of its
unique financial conditions to the appropriate state NPDES and EPA authorities for
consideration.
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2022 FCA Guidance - Appendix A
RESIDENTIAL INDICATOR
Worksheet 2
Median Household Income (MM)
Line Number
Census Year MHI
201
MHI Adjustment Factor
202
Adjusted MHI
(Line 201 x Line 202)
203
Annual WWT and CWA Control
Cost per Household (CPH)
(Line 109)
204
Residential Indicator:
Annual Wastewater and CWA
Control Costs per Household as a
percent of Adjusted Median
Household Income
(CPH as % MHI)
(Line 204 - Line 203 x 100) 205
Residential Indicator Rating
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2022 FCA Guidance - Appendix B
Financial Capability Indicator Worksheets UPDATED (2022)
This appendix contains an updated version of the steps necessary to prepare the Financial
Capability Indicator. The worksheets and instructions are largely identical to the 1997
version. Since then, however, data sources have evolved, and this update recognizes the
inputs that can be found today. In addition, "Practice Tips" in text boxes are incorporated
to provide additional guidance on aspects of the Financial Capability Indicator that EPA has
found are common questions and can benefit from additional direction.
CRITICAL METRIC: PERMITTEE FINANCIAL CAPABILITY INDICATORS
Selected indicators are assessed to evaluate the financial capability of the permittee.
These indicators will examine the permittee's debt burden, socioeconomic conditions,
and financial operations. The second-phase review examines three general categories of
financial capability indicators for the permittee:
Debt Indicators - Assess current debt burden of the permittee or the
communities within the permittee's service area and their ability to issue
additional debt to finance the CWA controls. The indicators selected for this
purpose are:
o Bond Ratings (General Obligation and/or Revenue Bond Fund)
o Overall Net Debt as a Percent of Full Market Property Value
Socioeconomic Indicators - Assess the general economic well-being of residential
users in the permittee's service area. The indicators selected for this purpose are:
o Unemployment Rate
o Median Household Income
Financial Management Indicators - Evaluate the permittee's overall ability to
manage financial operations. The indicators selected for this purpose are:
o Property Tax Revenue Collection Rate
o Property Tax Revenues as a Percent of Full Market Property Value
Even though the financial capability analysis reflects current conditions, pending changes
in the service area should be considered in development of the second phase indicators.
For example, if the current unemployment rate is high, but there is a new plant opening
that will stimulate economic growth, the unemployment indicators for the service area
would need to be modified to reflect the projected impact of the new plant. The
permittee should submit documentation of such conditions to the appropriate EPA and
state NPDES authorities for consideration. When the permittee is a sanitary district, sewer
authority or similar entity, the second phase indicators related to property values and tax
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2022 FCA Guidance - Appendix B
revenues may not be applicable. In those circumstances, the permittee may simply use
the remaining indicators or submit other related documentation that will help assess its
financial capability to implement the necessary wastewater system controls.
DEBT INDICATORS
The debt indicators described below were selected to assess the current debt burden
conditions and the ability to issue new debt. These indicators are the bond rating and
overall net debt as a percent of full market property value. When these indicators are
not available for the permittee, other financial data which illustrates debt burden and
debt issuing capacity may be used to assess the permittee's financial capability in this
area.
Bond Rating (Worksheet 3)
The information needed to evaluate the bond ratings is presented in Worksheet 3.
Recent bond ratings for the permittee and service area communities summarize a bond
rating agency's assessment of a permittee's or community's credit capacity. General
obligation (G.O.) bonds are bonds issued by a local government and repaid with taxes
(usually property taxes). They are the primary long-term debt funding mechanism in use
by local governments. General obligation bond ratings reflect financial and
socioeconomic conditions experienced by the community as a whole.
"Revenue bond" ratings, by comparison, reflect the financial conditions and
management capability of the wastewater utility. They are repaid with revenues
generated from user fees. Revenue bonds are sometimes referred to as water or sewer
bonds. In some cases, these bonds may have been issued by the state on behalf of local
communities.
Bond ratings normally incorporate an analysis of a wide variety of quantitative and
qualitative financial capability indicators. These analyses evaluate the long-term trends
and current conditions for the indicators. The ultimate bond ratings reflect a general
assessment of the permittee's current financial conditions. However, if security
enhancements like bond insurance have been used for a revenue bond issue, the bond
rating may be higher than justified by the local conditions.
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2022 FCA Guidance - Appendix B
PRACTICI e permittee's or community's rating
was enhanced through bond insurance, the uninsured
rating should be stated in the bond prospectus, and that
value should be provided in the FCA analysis.
Many small and medium-sized communities have not used debt financing for projects
and, as a result, have no bond rating. The absence of bond rating does not indicate strong
or weak financial health. When a bond rating is not available, this indicator may be
excluded from the financial analysis.
Worksheet 3 Instructions
Enter the most recent bond ratings on Worksheet 3, lines 301 and 302. Note that ratings
are requested for general obligation bonds and revenue bonds. When there are several
different bond ratings, enter the most recent bond rating on Line 303 as the summary
bond rating.
Data Sources
Municipal bond reports from rating agencies (e.g., Moody's Bond Record, Standard &
Poor's Corporation, and Fitch) provide recent ratings. Municipal bond prospectuses
typically list the bond rating in the upper-right corner of the cover page and within the
"Ratings" section of the report. General Obligation and Revenue Bond prospectuses are
available at: httpsi//emma.msrb.org/. Municipalities also may have reports from rating
agencies summarizing updates of the rating status.
Benchmarks
Moody's Investor Services
"Baa" is the minimum investment grade rating. See Moody's on Municipals - an
Introduction to Issuing Debt for a description of bond ratings.
Moody's Investor Services' Rating
Weak: Ba. B, Caa. Ca. C
Mid-Range: Baa
Strong: Aaa. A A, A
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2022 FCA Guidance - Appendix B
Standard & Poor's; Fitch
"BBB" is the minimum investment grade rating. See Standard & Poor's Municipal Finance
Criteria and Fitch's Rating Definitions for a description of bond ratings.
Standard & Poor's and Fitch Ratings
Weak:
Mid-Range:
Strong:
BB, B, CCC, CC, C, D
BBB
AAA, AA, A
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2022 FCA Guidance - Appendix B
BOND RATING
Worksheet 3
Line Number
Most Recent General Obligation
Bond Rating:
Date:
Rating Agency:
Rating:
Most Recent Revenue
(Water/Sewer or Sewer) Bond:
Date:
Rating Agency:
Bond Insurance (Yes/No):
Rating:
Summary Bond Rating:
301
302
303
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2022 FCA Guidance - Appendix B
Overall Net Debt as a Percent of Full Market Property Value
Description
Overall net debt is debt repaid by property taxes in the permittee's service area. It
excludes debt which is repaid by special user fees (e.g., revenue debt). This indicator
provides a measure of the debt burden on residents within the permittee's service area
and measures the ability of local governmental jurisdictions to issue additional debt. It
includes the debt issued directly by the local jurisdiction and debt of overlapping entities,
such as school districts. This indicator compares the level of debt owed by the service
area population with the full market value of real property used to support that debt and
serves as a measure of financial wealth in the permittee's service area. Information
needed to develop overall net debt as a percent of full market value is identified on
Worksheet 4.
Worksheet 4 Instructions
Enter requested data on Worksheet 4, lines 401 - 405.
Line 401 - Direct Net Debt - Enter the amount of each jurisdiction's general obligation
debt outstanding that is supported by the property in the permittee's service area.
General obligation bonds are secured by the "full faith and credit" of the community
and are payable from general tax revenues. This debt amount excludes general
obligation bonds that are payable from some dedicated user fees or specific revenue
source other than the general tax revenues. These general obligation bonds are called
"double-barreled bonds."
Line 402 - Debt of Overlapping Entities - The Statistical Section of the permittee's
Financial Report generally lists the outstanding debt attributable to the permittee's
service area. If not, calculate the permittee's service area's share of any debt from
overlapping entities using the process illustrated below:
o Identify in Column A below each overlapping entity that has incurred debt that
must be partially supported by the permittee's service area. (Check the
Statistical Section of the permittee's Financial Report or State assessor's office
for this information).
o Identify the total amount of tax-supported outstanding debt for each
overlapping entity in Column B. Money in a sinking fund is not included in the
outstanding debt since it represents periodic deposits into an account to
ensure the availability of sufficient monies to make timely debt service
payments.
o Identify the percentage of each overlapping entity's outstanding debt charged
to persons or property in the permittee's service area in Column C. The
percentage is based on the estimated full market value of real property of the
respective jurisdictions.
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2022 FCA Guidance - Appendix B
o Multiply the total outstanding debt of each overlapping entity by the
percentage identified for the permittee's service area (Column B x C).
o Add the figures in Column D to arrive at total overlapping debt for permittee's
service area.
(A)
Overlapping Entities
(B)
Outstanding Debt (less
Sinking Fund)
(C)
Percent Chargeable to
Permittee's Service
Area
(D)
Outstanding Debt
Attributable to
Permittee's Service
Area
County
$10,500,000
25%
$2,625,000
School District
$16,800,000
95%
$15,960,000
Total Overlapping Debt
$18,585,000
Line 403 - Overall Net Debt - Add lines 401 and 402.
Line 404 - Market Value of Property - The property value should reflect the full market
value of real property excluding personal property within the permittee's service area.
It is possible that the tax assessed property value will not reflect full market value. This
occurs when the tax assessment ratio is less than one. In such cases the full market
value of property is computed by dividing the total tax assessment value by the
assessment ratio (the assessment ratio represents the percentage of the full market
value that is taxed at the established tax rate). For example, if the assessed value is
$1,000,000 and the assessment ratio is 50 percent then the full market value of real
property is $1,000,000/.50 = $2,000,000.
Line 405 - Overall Net Debt as a Percent of Full Market Property Value - Divide line 403
by line 404 and multiply by 100.
Data Sources
Debt information is generally available in the Statistical Section of the community's
Financial Report. In most cases the most recent Financial Report is on file in the finance
department of the community's website. Overlapping debt is also generally provided in a
community's Financial Reports. Market value of real property is available in the Statistical
Section of the community's Financial Report. If not, the property assessment data should
be readily available through the community, county, or State's assessor office. The
boundary of most permittee's service areas generally conforms to one or more
community boundaries. Therefore, prorating community data to reflect specific service
area boundaries is not normally necessary for evaluating the general financial capability of
the permittee.
Benchmarks
Weak: Above 5%
Mid-range: 2-5%
Strong: Below 2%
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2022 FCA Guidance - Appendix B
OVERALL NET DEBT AS A PERCENT OF FULL MARKET PROPERTY
VALUE
Worksheet 4
Direct Net Debt
(G O. Bond Excluding
Double-Barreled Bonds)
Line Number
401
Debt of Overlapping Entities
(Proportionate Share of
Multijurisdictional Debt): 402
Overall Net Debt
(Lines 401 +402): 403
Full Market Value of
Property: 404
Overall Net Debt as a Percent
of Full Market Property Value
(Line 403 divided by Line 404
x 100): 405
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2022 FCA Guidance - Appendix B
SOCIOECONOMIC INDICATORS
The socioeconomic indicators are used to assess the general economic well-being of
residential users in the permittee's service area. The indicators used to assess economic
conditions are unemployment rate and median household income. When the permittee
has additional socioeconomic data, it may want to submit the data to the appropriate
EPA and state NPDES authorities to facilitate a better understanding of the permittee's
unique economic conditions. Several examples of this type of socioeconomic data could
be poverty rate, population growth, and employment projections.
Unemployment Rate
Unemployment information is entered on Worksheet 5. The unemployment rate is
defined as the percent of a permittee's service area residents on the unemployment rolls.
Worksheet 5 Instructions
Unemployment values are entered on lines 501 - 503 on Worksheet 5. If the
unemployment rate for a permittee's service area is not available, the unemployment
rate for the county in which the service area is located may be used as a substitute. On
line 503, enter the average national unemployment rate.
Data Sources
The Bureau of Labor Statistics (BLS) maintains current unemployment rate figures for
municipalities and counties with a population over 25,000. National and state
unemployment data are also available for comparison purposes. This information can
be obtained from the BLS Data Tools webpage at httpsi//www.bls.gov/data. The most
recent year of unemployment data can be used.
Benchmarks
Compare the permittee's unemployment values with the national average values.
National averages are readily available through the Bureau of Labor Statistics.
Weak: More than 1 percentage point above the National Average
Mid-range: ± 1 percentage point of the National Average
Strong: More than 1 percentage point below National Average
For example, if the national average unemployment rate is 6 percent, an unemployment
rate greater than 7 percent would be considered weak, while an unemployment rate less
than 5 percent would be considered strong.
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2022 FCA Guidance - Appendix B
UNEMPLOYMENT RATE
Worksheet 5
Unemployment Rate - Permittee:
Source:
Unemployment Rate - County (use
if permittee's rate is unavailable):
Source:
Benchmark:
Average National Unemployment
Rate:
Source:
Line Number
501
502
503
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2022 FCA Guidance - Appendix B
Median Household Income
Median household income (MHI) is defined as the median amount of total income dollars
received per household during a calendar year in a given area. It serves as an overall
indicator of community earning capacity. Worksheet 6 is used to present information for
this indicator.
Worksheet 6 Instructions
Median household income was discussed during the first phase assessment and is
presented on Worksheet 2. On line 601 of Worksheet 6, enter the adjusted MHI from
Worksheet 2 (line 203). Enter the national MHI value for the same year (line 602) and
enter the value on Line 604.
Data Sources
Median household income is available through Census Bureau ACS data at the following
website: https://www.census.gov/data.html. Refer to Table B19013: "Median Household
Income in the Past 12 Months (in [Current Year] Inflation-Adjusted Dollars)."
Benchmarks
Compare the permittee's MHI to the adjusted national MHI:
Weak More than 25% below Adjusted National MHI
Mid-Range ± 25% of the Adjusted National MHI
Strong More than 25% above Adjusted National MHI
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2022 FCA Guidance - Appendix B
MEDIAN HOUSEHOLD INCOME
Worksheet 6
Median Household Income -
Permittee (Line 203,
Worksheet 2)
Source
Benchmark
National MHI: 602
Source:
Relationship to Benchmark
Permittee MHI
Relationship to
National MHI
(Line 601/Line 602) 603
Rating
(See table above)
Line Number
601
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2022 FCA Guidance - Appendix B
FINANCIAL MANAGEMENT INDICATORS
The financial management indicators used to evaluate a permittee's financial
management ability are property tax revenue as a percent of full market value of real
property and property tax revenue collection rate.
Property Tax Revenues as a Percent of Full Market Property Value
This indicator can be referred to as the "property tax burden" since it indicates the
funding capacity available to support debt based on the wealth of the community. It
also reflects the effectiveness of management in providing community services.
Worksheet 7 Instructions
Property tax burden is computed on Worksheet 7. The full market value of real property
was calculated in Worksheet 4, line 404. Enter the full market value on line 701. Enter the
most recent year's property tax revenue on line 702. General fund revenues are primarily
property tax receipts.
PRACTICE TIP: Property tax revenues should include both
current y lections and collections of payments in
, ,i- ,rs from prior y i , ;essments.
Data Sources
Property tax revenue collection data and market value of real property are generally
available in the Statistical Section of the community's Financial Report. If not, property
assessment and tax revenue collection data should be readily available through the
community, county, or state assessor's office. Occasionally, the assessment and tax
revenue data of communities partially serviced by the permittee may have to be prorated
to provide a clearer picture of the permittee's property tax burden.
Benchmarks
Weak:
Mid-range:
Strong:
Page 13 of 19
Above 4%
2% - 4%
Below 2%
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2022 FCA Guidance - Appendix B
PROPERTY TAX REVENUES AS A PERCENT OF FULL MARKET PROPERTY
VALUE
Worksheet 7
Line Number
Full Market Value of Real
Property (Line 404) 701
Total Property Tax Revenues 702
Property Tax Revenue as a
Percent of Full Market Property
Value
(702-701 x 100) 703
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2022 FCA Guidance - Appendix B
Property Tax Revenue Collection Rate
The property tax revenue collection rate is an indicator of the efficiency of the tax
collection system and the acceptability of tax levels to residents.
Worksheet 8 Instructions
The property tax revenue collection rate is calculated on Worksheet 8. Total property
tax revenues collected was listed in Worksheet 7, Line 702. Enter this value on line
801. Enter the property taxes levied on line 802. Divide the property tax revenue
collected by the property taxes levied and multiply by 100 to present the collection
rate as a percentage on line 803.
Data Sources
Property taxes levied and property tax revenues are available in a community's annual
Financial Report. Property taxes levied can also be computed by multiplying the
assessed value of real property (see Worksheet 4, Line 404) by the property tax rate,
both of which are available from a community's financial statements or the state
assessor's office. Occasionally, the assessment and tax revenue data of communities
partially serviced by the permittee may have to be prorated to provide a clearer
picture of the permittee's property tax revenue collection rate.
Benchmarks
Weak: Below 94%
Mid-range: 94-98%
Strong: Above 98%
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2022 FCA Guidance - Appendix B
PROPERTY TAX REVENUE COLLECTION RATE
Worksheet 8
Line Number
Property Tax Revenue
Collected (Line 702) 801
Property Taxes Levied 802
Property Tax Revenue
Collection Rate
(Line 801 - Line 802 x 100) 803
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2022 FCA Guidance - Appendix B
Analyzing Permittee Financial Capability Indicators
This section describes how the indicators in the second phase may be used to generate
an overall score of a permittee's financial capability. The indicators are compared to
national benchmarks to form an overall assessment of the permittee's financial capability
and its effect on implementation schedules in the long-term CWA control plan.
In situations where a permittee believes that there are unique circumstances that would
affect the conclusion of the second phase, the permittee may submit documentation of
its unique financial conditions to the appropriate EPA and state NPDES authorities for
consideration. The purpose of additional information is to clarify unique circumstances
which are not fairly represented by the overall scores of the selected indicators. An
example could be where a state or community imposes restrictions on property taxes.
Worksheet 9 Instructions
The indicators generated from the worksheets are compared to the state, national, or
industry benchmarks presented in Table 2. Information compiled from Worksheets 3
through 8 is summarized in Column A on Worksheet 9. Score each of these values using
the rating standards in Table 2 and the following score benchmarks and enter the
appropriate number in Column B. The score definitions are:
Benchmarks Score
Weak 1
Mid-Range 2
Strong 3
To calculate an average score for the indicators, total the values in Column B and divide
by the number of entries. Enter the average score on Line 907.
If it is not possible to develop one or more of the six indicators, the permittee should
explain why the indicator is inappropriate or unavailable. Since the point of the analysis is
to measure the overall financial impact of the wastewater system controls, the debt and
socioeconomic indicators are generally better measures of this impact than the financial
management indicators. Consequently, if one of the debt or socioeconomic indicators is
not available, the two financial management indicators should be averaged and used as a
single indicator to average with the available debt and socioeconomic indicators. This
averaging is necessary so that undue weight is not given to the financial management
indicators.
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2022 FCA Guidance - Appendix B
TABLE 2 Summary of Financial Capability Indicator Ratings
Indicator
Strong
Mid-Range
Weak
Bond Rating
AAA - A (S&P) or
Aaa - A (Moody's) or
AAA - A (Fitch Ratings)
BBB (S&P) or
BAA (Moody's) or
BBB (Fitch Ratings)
BB - D (S&P) or
Ba - C (Moody's) or
BB - D (Fitch Ratings)
Overall Net Debt as a
Percent of Full Market
Property Value
Below 2%
2% - 5%
Above 5%
Unemployment Rate
More than 1 Percentage
Point Below the National
Average
± 1 Percentage Point
of National Average
More than 1
Percentage Point
Above the National
Average
Median Household
Income
More than 25% Above
Adjusted National MHI
± 25% of Adjusted
National MHI
More than 25% Below
Adjusted National MHI
Property Tax
Revenues as a Percent
of Full Market
Property Value
Below 2%
2% - 4%
Above 4%
Property Tax
Collection Rate
Above 98%
94% - 98%
Below 94%
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2022 FCA Guidance - Appendix B
Summary of Permittee Financial Capability Indicators
Worksheet 9
Indicator Column A: Column B: Line Number
Actual Value Score
Bond Rating
(Line 303) 901
Overall Net Debt as a
Percent of Full Market
Property Value (Line
405) 902
Unemployment Rate
(Line 501) 903
Median Household
Income (Line 601) 904
Property Tax
Revenues as a Percent
of Full Market
Property Value (Line
703) 905
Property Tax Revenue
Collection Rate (Line
803) 906
Permittee Indicators
Score (Sum of Column
B -f Number of
Entries) 907
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2022 FCA Guidance - Appendix C
Financing and Funding Considerations for Financial
Alternatives Analysis
Water infrastructure projects are a major undertaking for communities of all sizes and economic status.
The Proposed 2022 FCA can serve as a planning tool for evaluating the financial resources a community
has available to implement CSO controls, along with assisting in negotiating CWA implementation
schedules. For many, navigating the complex process of investing in water infrastructure is challenging,
especially if financial resources are limited or if customers have difficulty paying their bills.
EPA's CSO Policy states that, "each permittee is ultimately responsible for aggressively pursuing financial
arrangements" for the implementation of CWA controls.1 Determining the costs and thoroughly
planning how to fund and finance a project will help a community manage this process.2 There are ways
to pay for these projects to alleviate a community's overall expenses. Communities should also consider
approaches that can be used to reduce or mitigate the financial impact of water services on the lowest
quintile households, while still allowing the community to complete critical infrastructure improvements
within a reasonable schedule.
For communities demonstrating a "medium" or "high" Initial LQPI Score (see Section IV.b.3 of the
Proposed 2022 FCA), the community's FCA should provide the results of a "checklist" of financial
alternatives to minimize the burden on residential ratepayers, and identify the additional steps it
proposes to take, if any. The "checklist" is broken into four categories. Below the "checklist" are detailed
descriptions of funding and financing approaches that can help communities in making water
infrastructure and water quality investment decisions.
Financial Alternatives "Checklist"
1. Financing Options for Capital Costs
a. Has the community discussed financing options, including timing, terms, and potential
grants or forgiveness, with the responsible State Revolving Fund?
b. Has the community looked into grants or low-cost loans for its projects?
c. Has the community considered extended financing on loans?
1 CSO Policy, 59 Fed. Reg. 18688,18690 (April 19,1994).
2 "Funding" is providing "one-way" financial resources to support an infrastructure project. This includes money
that utilities get from customers paying their bills and other charges like connection fees (referred to as "pay as
you go" or "Pay Go" funding). Funding also refers to when the recipient obtains a grant or similar form of funds
that do not need to be repaid and do not carry an interest expense.
"Financing" is the "two-way" movement of money for a program or project. This is when the monetary resource
need is filled from external, borrowed money where principal and interest are owed to the source of funds. This
includes federal and state loans as well as municipal bonds. These require repayment of principal and interest over
a specific period of time. Typically, financing is used for capital assets or "infrastructure" and not used for
supporting ongoing operation and maintenance.
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d. Has the community considered restructuring its existing loans to better terms?
e. Has the community considered special assessment districts to finance geographically
defined project work?3
f. Has the community considered other revenue sources to reduce direct burden on
ratepayers such as sales or property taxes, rental income from water tower leases, or
other potential sources of support (see list below under Utility Revenue Streams)?
g. Has the community investigated how other financing approaches could reduce the cost
and shorten the schedule of required projects?
2. Rate Design
a. What kind of rate structure does the community have?
b. Has the community prepared a forward-looking financial plan and rate analysis within
the last five years? If so, was the plan implemented?
c. Does the community use inclining block rates that charge higher per gallon rates for
higher increments of use?4
d. Does the community use volumetric rates, rather than flat fee charges for sanitary
sewer service?5
e. Does the community have identified separate rate structures for commercial, industrial,
and wholesale customers reflecting their particular demands on the collection and
treatment system?
f. Does the community charge differently for different types of customers (e.g.,
commercial vs residential, in-city vs suburbs, based on property size or pipe size)?
g. Have you considered a wealth-based approach?
3 A special assessment tax is a surtax levied on property owners to pay for specific local infrastructure projects such
as the construction or maintenance of roads or sewer lines. The tax is charged only to the owners of property in
the neighborhood that will benefit from the project. That neighborhood is called the special assessment district.
4 This rate structure tends to help lower-income customers who generally use less water than higher-income
customers. As the Environmental Financial Advisory Board (EFAB) noted in its 2007 recommendations, "a utility
system with an increasing block rate structure would see residential customers with large consumption incurring a
much larger cost than customers with low consumption." EFAB Report: Comments on EPA Document: Combined
Sewer Overflows-Guidance for Financial Capability Assessment and Schedule Development (May 31, 2007).
5 Flat rates are common in smaller utilities. Non-volumetric rates are common in many areas but can penalize
customers with below-average levels of usage. A flat fee plus volumetric rate structure tends to help lower-income
customers who generally use less water than higher-income customers. As EFAB noted in its 2007
recommendations, "a utility system with an increasing block rate structure would see residential customers with
large consumption incurring a much larger cost than customers with low consumption."
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2022 FCA Guidance - Appendix C
3. Ratepayer Support Options for Lower Income Residential Customers
a. Has the community looked into setting up a Customer Assistance Program?
b. Identify the types of customer assistance support your community has for lower income
residential customers, including which, if any, of the below types of programs are
offered.
i. Lifeline RateA low flat rate for an initial amount of usage, to cover most or all
of a household's basic needs, such as drinking, cooking, and sanitation. Water
consumption above the lifeline amount could be charged at a higher rate. Can
be applied to all customers, or just to low-income customers.
ii. Percentage-of-lncome Payment PlanRate design that prevents water bills
from exceeding a certain percentage of the customer's income.
iii. Bill DiscountReduces an eligible low-income customer's bills by a flat dollar
amount or a percent discount. Can be used to reduce the fixed service charge,
the volumetric consumption charge, or both. Additionally, discounts can be
tiered by income.
c. What other programs are available to financially support lower income households in
the service area?
d. What legal obstacles exist to establishing low-income household support for your
community?
4. Financial and Utility Management
a. Is the utility accounted for as a proprietary/enterprise fund or a separate independent
utility?
b. Are all rate revenues or other user charges applied to fund the utility's purposes?
c. Has the utility raised rates in the last five years? If so, provide information regarding the
rate increases.
d. Does the utility have programs to optimize maintenance and asset management to
reduce life cycle costs?6
e. Is regionalization, consolidation, and/or other partnerships to provide economies of
scale and reduce per customer costs a possibility?
6 Optimizing the efficiency of a utility's operations (including through operational changes and strategic capital
investments) is an important tool to help reduce a system's total revenue needs and thereby improve the
affordability of bills for all customers. This can often be accomplished through improved asset management,
especially over the course of a multi-year compliance schedule.
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f. Has the utility or related municipality instituted a stormwater management program? If
so, are impervious-area based stormwater fees7 used to fund the stormwater
compliance costs?
g. Does the utility provide direct financial assistance (through rebates, upfront subsidies or
direct replacement of fixtures) for efficiency improvements including leak repairs or
replacement of inefficient fixtures or appliances?
h. What efforts has the utility made to help the community understand the value of the
various improvements that the utility is undertaking, including benefits associated with
water quality and public health improvement as well as any social and economic co-
benefits?
Utility/Community Financial Assistance: Grants and Loans Specifically for
Wastewater, Stormwater, and/or Drinking Water ("Water") Utilities
Public Funding and Financing Sources
Clean Water State Revolving Fund
EPA/State - Clean Water State Revolving Fund (CWSRF)
httpsi//www, epa.gov/cwsrf
Loans; Grants
Many communities look at national- and state-level sources when seeking financial support for
infrastructure projects. Often these come in the form of federal dollars that are distributed from
EPA to states and administered at the state level, such as the CWSRF and Drinking Water State
Revolving Fund (DWSRF). These federal-state partnerships provide low-cost financing to help
communities address water infrastructure needs.
Do you need a low-cost loan, that can also possibly provide a portion of funds that you don't have to
pay back? Look at your state's CWSRF and DWSRF programs.
SRFs can offer:
Below market interest rates
Possible 0% interest rate
Possible "additional subsidization" (i.e., money that you don't have to pay back)
o Possible negative interest rates
o Possible principal forgiveness or grants
Up to 30-year repayment, drinking water projects can be up to 40 years
7 The impervious surface rate structure can shift cost burdens from residential customers to nonresidential
customers, such as commercial and industrial properties that have large impervious areas (e.g., roofs, parking lots,
or paved areas) but may discharge little or no wastewater.
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Possible planning and design loan option
Clean Water SRF has priority list, but do not have to fund in priority order
Sponsorship program- bigger borrower would get a bigger reduction in interest rate
Separate Drinking Water State Revolving Fund
o DWSRF has state disadvantaged community definitions
o DWSRF has public health priority list
Already have a SRF loan? Look at any existing SRF loans, and see if they can be restructured. You can
also have multiple SRF loans.
Rural and/or Small Communities Specific Funding Sources
U.S. Department of Agriculture (USDA) - Rural Utility Services (RUS) Water and Environment
Program (WEP)
https://www.rd.usda.gov/programs-services/all-programs/water-environmental-programs
Loans; Grants
Does the utility serve less than a population of 10,000 people? If so, you can qualify for USDA loans
and grants.
WEP provides funding for the construction of water and waste facilities in rural communities and is
proud to be the only Federal program exclusively focused on rural water and waste infrastructure
needs of rural communities with populations of 10,000 or less. WEP also provides funding to
organizations that provide technical assistance and training to rural communities in relation to their
water and waste activities.
Serve a population more than 10,000 people but less than 50,000 people? USDA WEP can provide
loan insurance for communities less than 50,000 people.
U.S. Housing and Urban Development (HUD) - Community Development Block Grant (CDBG) State
Program
https://www.hudexchange.info/programs/cdbg-state/
Grants
Under the State CDBG Program, states award grants to smaller units of general local government
that do not receive CDBG funds directly from HUD. These are called non-entitlement areas. Eligible
activities include construction of public facilities and improvements, such as water and sewer
facilities, streets, neighborhood centers, and the conversion of school buildings for eligible purposes.
Not less than 70 percent of CDBG funds must be used for activities that benefit low- and moderate-
income persons. Eligible grantees are as follows:
Non-entitlement areas are cities with populations of less than 50,000 (except cities that are
designated principal cities of Metropolitan Statistical Areas), and
Counties with populations of less than 200,000.
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2022 FCA Guidance - Appendix C
Larger Cities and Municipalities Specific Funding Sources
U.S. Environmental Protection Agency (EPA) - Water Infrastructure Finance and Innovation Act
(WIFIA)
https://www.epa, gov/wifia
Loans
WIFIA provides long-term, low-cost supplemental loans for regionally and nationally significant
projects. Important program features include:
$20 million: Minimum project size for large communities.
$5 million: Minimum project size for small communities (population of 25,000 or less).
49 percent: Maximum portion of eligible project costs that WIFIA can fund.
Total federal assistance may not exceed 80 percent of a project's eligible costs.
35 years: Maximum final maturity date from substantial completion.
5 years: Maximum time that repayment may be deferred after substantial completion of the
project.
Interest rate will be equal to or greater than the U.S. Treasury rate of a similar maturity- at
the date of closing.
Projects must be creditworthy and have a dedicated source of revenue.
NEPA (https://www.epa.gov/nepa). Davis-Bacon
(https://www.dol.gov/whd/govcontracts/dbra.htm). American Iron and Steel
(https://www.epa.gov/cwsrf/state-revolving-fund-american-iron-and-steel-ais-
requirement), and all other federal cross-cutting authorities (cross-cutters) apply.
U.S. Housing and Urban Development (HUD) - Community Development Block Grant (CDBG)
Entitlement Program
https://www.hudexchange.info/programs/cdbg-entitlement/cdbg-entitlement-program-eligibility-
requirements/
Grants
The CDBG Entitlement Program awards grants to entitlement community grantees to carry out a
wide range of community development activities directed toward revitalizing neighborhoods,
economic development, and providing improved community facilities and services. Eligible activities
include construction of public facilities and improvements, such as water and sewer facilities,
streets, neighborhood centers, and the conversion of school buildings for eligible purposes. Not less
than 70 percent of CDBG funds must be used for activities that benefit low- and moderate-income
persons. Eligible grantees include:
Principal cities of Metropolitan Statistical Areas (MSAs)
Other metropolitan cities with populations of at least 50,000
Qualified urban counties with populations of at least 200,000 (excluding the population of
entitled cities)
8 https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=vield
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2022 FCA Guidance - Appendix C
Economic Development Specific Funding Sources
The role of wastewater service providers working with their local economic development office has
grown in recent years. Increasing a community's rate base through community economic development
can improve the ability to attract capital for utility infrastructure projects. Most communities have an
economic development office or a representative whose specific mission is to attract new businesses to
the area.
U.S. Department of Commerce - Economic Development Administration (EDA)
Grants
Investments for Public Works and Economic Adjustment Assistance Programs
httpsi//www. eda.gov/programs/eda-programs/
EDA invests in traditional public works projects, including water and sewer systems improvements,
industrial parks, business incubator facilities, expansion of port and harbor facilities, skill-training
facilities, and brownfields redevelopment. This empowers distressed communities to revitalize,
expand, and upgrade their physical infrastructure, and generate or retain long-term, private sector
jobs and investment.
Planning Program and Local Technical Assistance Program
httpsi//www. eda.gov/funding-opportunities/
EDA assists eligible recipients in developing economic development plans and studies designed to
build capacity and guide the economic prosperity and resiliency of an area or region. The Local
Technical Assistance program strengthens the capacity of local or State organizations, institutions of
higher education, and other eligible recipients to undertake and promote effective economic
development programs through projects such as feasibility studies and impact analyses.
Environmental Justice-Specific Funding Sources
EPA - Environmental Justice-Specific Funding Sources
Environmental Justice Collaborative Problem-Solving (CPS) Cooperative Agreement Program
httpsi//www. epa.gov/environmental-iustice/environmental-iustice-collaborative-problem-solving-
cooperative-agreement-0
Grants
EPA's EJ CPS Cooperative Agreement Program provides funding for eligible applicants for projects
that address local environmental and public health issues within an affected community. The CPS
Program assists recipients in building collaborative partnerships to help them understand and
address environmental and public health concerns in their communities.
Environmental Justice Small Grants Program
https://www.epa.gov/environmentaliustice/environmental-iustice-small-grants-program
Grants
EPA's EJ Small Grants Program supports and empowers communities working on solutions to local
environmental and public health issues. The program is designed to help communities understand
and address exposure to multiple environmental harms and risks.
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Other Funding Sources
State-Specific Clean Water Loans or Grants
Many states have dedicated funds for wastewater projects. Look on your state's environmental
and/or public health agency website to find state specific loan and grant information to fund
wastewater infrastructure projects.
Regional Funding Sources
Appalachian Regional Commission (ARC) Grants
httpsi//www. arc.gov/funding/ARCGrantsandContracts. asp
Grants
ARC awards grants and contracts from funds appropriated to the Commission annually by Congress.
Program grants are awarded to state and local agencies and governmental entities (such as
economic development authorities), local governing boards (such as county councils), and nonprofit
organizations (such as schools and organizations that build low-cost housing). ARC provides funds
for basic infrastructure services, including water and sewer facilities, that enhance economic
development opportunities or address serious health issues for residential customers.
Great Lakes Grants
httpsi//www. epa.gov/great-lakes-funding
Grants
Funded activities under the program will advance protection and restoration of the Great Lakes
ecosystem in support of (i) the Great Lakes Restoration Initiative as described in the Great Lakes
Restoration Initiative Action Plan II (https://www.glri.us/action-plan). (ii) the Great Lakes portion of
Objective 2.02 (Protect and Restore Watersheds and Aquatic Ecosystems) of EPA's 2014-2018
Strategic Plan, and/or (iii) the Great Lakes Regional Collaboration Strategy to Protect and Restore
the Great Lakes (https://www.glrc.us).
Federal Emergency Management Agency (FEMA) - Building Resilient Infrastructure and
Communities (BRIC)
https://www.fema.gov/grants/mitigation/building-resilient-infrastructure-communities
Grants
BRIC will support states, local communities, tribes, and territories as they undertake hazard
mitigation projects, reducing the risks they face from disasters and natural hazards. BRIC is a new
FEMA pre-disaster hazard mitigation program that replaces the existing Pre-Disaster Mitigation
program.
Water Finance Clearinghouse
https://clearinghouse.epa.gov/wfc
Want to find a vast list of funding sources in one place? Visit the Water Finance Clearinghouse.
The Water Finance Clearinghouse is an easily navigable web-based portal to help communities
locate information and resources that will assist them in making informed decisions for their
drinking water, wastewater, and stormwater infrastructure needs. The Water Finance Clearinghouse
includes two searchable databases: one contains available funding sources for water infrastructure
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2022 FCA Guidance - Appendix C
and the second contains resources, such as reports, weblinks, and webinars on financing
mechanisms and approaches that can help communities access capital to meet their water
infrastructure needs.
Private Funding and Financing Sources
Foundations
Loans; Grants
Foundation funding may be a possibility, depending on the mission of specific local, regional, or
national foundations.
Charitable foundations and other philanthropic organizations have been a source of monetary
support for community planning and infrastructure projects. Philanthropic support typically comes
in two forms:
Grants: A monetary award to an organization or individual to undertake specific activities or
projects, as defined in the grant. Grant funds are not required to be repaidthis is a form of
funding.
Impact Investing: An investment made into a company or organization with the intention of
generating specific impacts that align with the investing organization's mission, along with a
financial return for the investing organization. Impact investment rate terms range from
below market-rate to market-rate, depending on the investing organization's strategic goals,
providing a lower-cost alternative for borrowers to traditional, market-rate loansthis is a
form of financing.
Investors and Banks
Loans
Communities have successfully leveraged private sources of funding and financing to pay for their
infrastructure projects. Private capital typically takes one of two forms in the infrastructure funding
context:
Private Financing (Loans): Private financial groups and individual investors can offer private
loans for infrastructure projects. Impact investing loans from non-governmental organizations
is also possible. Typically, private loans have higher interest terms than public funds and
philanthropic impact investing loans but may offer other types of incentives attractive to
borrowers.
Private Financing (CDFIs): The Community Development Financial Institutions (CDFI) Fund is a
fund from the U.S. Department of the Treasury, which distributes funding to private financial
institutions that are recognized for providing service and support to communities in need. In
turn, these institutions use the CDFI funds to provide flexible financing to communities.
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2022 FCA Guidance - Appendix C
Local Funding and Financing Sources
Municipal Bonds
Loans
A bond is a debt obligation issued by a nonprofit organization (state, city, county, or other) to
finance its capital expenditures. It is a debt investment in which an investor loans money to an entity
(state, city, county, or other), which borrows the funds for a defined period at a variable or fixed
interest rate. The interest paid on municipal bonds is tax-exempt, making them an attractive low-
cost way to obtain capital.
Utility Revenue Streams
Utilities fund most their infrastructure investments through local revenue-generating mechanisms
(e.g., customer rates and other fees for water, wastewater, and stormwater services). See the
Progressive Rate Structures section below.
Many utilities have also created additional revenue streams to pay for new infrastructure
investments to reduce rate increases for their customers. Non-rate-based revenue can help to
improve the organization's overall financial health by creating new sources of income for
unexpected expenses and diversifying the utility's income in communities with decreasing volumes
of water sold and collected (e.g., due to declining populations or water conservation programs).
Some examples of how utilities have approached this include:
Leasing space on water towers: Water towers are valuable real estate because they are often
located in or near towns. Because of their proximity to population centers, water utilities have
been able to sell space on their towers for cellphone antennas and advertising.
Selling grid service to a local electric utility: Grid service refers to an arrangement where a
local electric utility pays the water utility for agreeing to temporarily curtail some of its electric
load when needed to help the electric utility match supply to demand. The water utility is still
paid for agreeing to this arrangement even if it is never asked to shed load.
Selling fertilizer as a product: Utilities have found a range of ways to recycle and sell product
reclaimed from wastewater, including as organic-nitrogen fertilizer for gardeners and farmers.
In addition to providing an additional revenue stream, the utilities save on waste disposal
costs.
Selling water and wastewater line protection: Homeowners own the lateral service lines that
connect the main distribution lines to their home. Replacement cost is generally $2,500-
$3,500, and is the responsibility of the homeowner. Some utilities have sold a service that acts
as an "insurance" for customers, guaranteeing the utility will fix their lateral service lines when
necessary. This can make use of the utility's existing expertise and resources to provide a
sought-after service to the customer.
Other sources of revenue generated from taxes: Other sources of local revenue can include
general revenues appropriated to support wastewater services and portions of payroll taxes,
property taxes, sales taxes, and toll severance taxes devoted to support wastewater services.
Your elected officials: Consider talking to your elected officials about your infrastructure
needs.
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2022 FCA Guidance - Appendix C
Additional examples of how communities have implemented these revenue building strategies is
available in EPA's Water Infrastructure Financial Leadership Successful Financial Tools for Local
Decision Makers document, available at https://www.epa.gov/sites/production/files/2017-
09/documents/financial leadership practices document final draft 9-25-17 O.pdf.
Customer Financial Assistance: Finance Programs and Approaches
Specifically for Low-Income Customers
Customer Assistance Programs (CAPs)
https://www.epa.gov/sites/production/fijes/2016-04/documents/dw-vyvy utilities cap combined 508.pdf
Households on fixed or lower incomes, as well as households that face a temporary crisis such as a
job loss or illness, may have difficulty paying water and sewer bills. Many wastewater and drinking
water utilities have seen an opportunity to meet specific customer needs, along with the needs of
meeting their own operational and capital costs to provide drinking water delivery and/or
wastewater management services, through developing CAPs. These programs can show households
short-term or long-term reductions through a Bill Discount, Flexible Terms, Lifeline Rate, Temporary
Assistance, and Water Efficiency advantages.
Additional information on CAPs is available at:
Compendium of Drinking Water and Wastewater Customer Assistance Programs (EPA),
available at https://www.epa.gov/sites/production/files/2016-Q4/documents/dw-
ww utilities cap combined 508.pdf
Navigating Legal Pathways to CAPs (Environmental Finance Center at UNC Chapel Hill),
available at https://efc.sog.unc.edu/proiect/navigating-legal-pathwavs-rate-funded-
customer-assistance-programs
Guidance on Developing CAPs (Water Research Foundation), available at
https://www.waterrf.org/research/proiects/customer-assistance-programs-multi-familv-
residential-and-other-hard-reach
U.S. Health and Human Services (HHS) - Low Income Household Water Assistance Program
(LIHWAP)
https://www.acf.hhs.gov/ocs/programs/lihwap
LIHWAP provides funds to assist low-income households with water and wastewater bills. LIHWAP
grants are available to states, the District of Columbia, the Commonwealth of Puerto Rico, U.S.
Territories, and federally and state-recognized Indian tribes and tribal organizations that received
fiscal year 2021 Low Income Household Energy Assistance Program (LIHEAP) grants.
Progressive Rate Structures
Utilities fund most of their infrastructure investments through revenues generated from customer
rates and other fees for drinking water, wastewater, and stormwater services.
Examples of wealth-based approaches:
A set cost for a 'livable' amount of water usage for the household and then anything in
excess of that base amount would cost exponentially more.
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2022 FCA Guidance - Appendix C
Another example is that the sewer bill is split in two. The first part would be based on a
reasonable amount of water usage. This 'base' charges would then be captured via an
increase to the community's overall property tax rate (and then those revenues would be
transferred from the community's general fund to the utility's enterprise fund). The
second part would be considered usage above the reasonable amount. The 'excess'
charges would be billed directly to the customer by the utility.
Additional Financial Approaches
Special Assessment Districts
Special assessments are used to provide and fund projects for a specific geographic area. Special
assessment districts provide the legal arrangement to charge those receiving the service for
capital and/or operating costs of the project. CWA projects may be funded with special
assessments. For example, in Michigan, neighborhoods with significant basement flooding
problems have approved the use of special assessments to fund corrections to their wastewater
collection system that include correction of CSO problems.
Taxes (Income Taxes, Sales Taxes, Property Taxes)
Taxes may be used as a limited funding source for annual wastewater system costs. Options
include income taxes, sales taxes, and property taxes. Taxes may not be used to pay operating
costs for some projects funded through the SRFs. However, user charge regulations do not
require that capital outlays or debt service be covered in the user charge system. As a result,
taxes can be used to repay bonds or loans for CWA projects that are subject to CWA Title II
requirements. Projects funded with other sources such as local bonds, state loans, etc. do not
have these restrictions.
Income taxes: Individual or corporate income taxes have historically had less
applicability to environmental program funding than other taxes such as property taxes,
and targeted sales taxes. Income taxes are used to fund environmental programs, but
their use is largely at the state level.
Sales taxes: Many local jurisdictions raise funds through sales taxes. Communities may
dedicate a portion of local option sales tax revenues to water pollution control, or may
impose a local option sales tax on a specific product or service.
Property taxes: Local governments use ad valorem property taxes as the primary source
of funding for general government operations. Ad valorem property taxes are based on
the value of property. As a result, residents with larger and/or more expensive homes
pay more in properly taxes than residents with less expensive homes.
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2022 FCA Guidance - Appendix D
Resources Related to Water Infrastructure Financing
Compendiums and documents on rate setting and CAPs
Drinking Water and Wastewater Utility Customer Assistance Programs:
https://www.epa.gov/waterfinancecenter/compendium~drinking~water~and~wastewater~
customer-assistance-programs
Water Infrastructure Financial Leadership:
https://www.epa.gov/waterfinancecenter/water~infrastructure~financial~leadership
Environmental Policy Innovation Center: http://policyinnovation.org/
o H2Affordability: How Water Bill Assistance Programs Miss the Mark:
http://policvinnovation.org/water/affordability
Funding sources
Water Finance Clearinghouse: https://clearinghouse.epa.gov/wfc
Clean Water State Revolving Fund: https://www.epa.gov/cwsrf
Drinking Water State Revolving Fund: https://www.epa.gov/dwsrf
Water Infrastructure Finance and Innovation Act (WIFIA): https://www.epa.gov/wifia
The Environmental Justice Collaborative Problem-Solving (CPS) Cooperative Agreement
Program: https://www.epa.gov/environmental~iustice/environmental~iustice~collaborative~
problem-solving-cooperative-agreement
Environmental Justice Small Grants Program:
https://www.epa.gov/environmentaliustice/environmental-iustice-small-grants-program
Source Reduction Assistance (SRA) Grant Program: https://www.epa.gov/p2/grant-
programs~pollution~prevention#sra
CoBank's Rural Water and Wastewater Lending:
https://www.cobank.com/corporate/industrv/water
National Rural Water Association (NRWA)'s Rural Water Loan Fund:
https://nrwa.org/members/products~services~portfolio/rural~water~loan~fund/
Pisces Foundation Water Grant: https://piscesfoundation.org/what-we-do/water/
Rural Water Loan Fund (RWLF): https://nrwa.org/members/products-services-
portfolio/rural-water-loan-fund/
U.S. Army Corps of Engineers (USACE)'s Project Modifications for Improvement of the
Environment (CAP Section 1135): https://www.sas.usace.army.mil/Missions/CAP/Section~
1135~Proiect~Modifications~for~lmprovements-to-the-Environment/
USACE's Emergency Streambank and Shoreline Protection:
https://www.mvr.usace.army.mil/Business~With~Us/Outreach-Customer-Service/Flood~
Risk-Ma nagement/Section-14/
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2022 FCA Guidance - Appendix D
U.S. Department of Agriculture (USDA)'s Water and Waste Disposal Guaranteed Loan
Program: https://www.rd.usda.gov/programs~services/water~waste~disposal~loan~
guarantees
USDA's Water & Environmental Programs (WEP): https://www.rd.usda.gov/programs~
services/a I l-programs/water-environmental-programs
USDA's Water & Wastewater Projects Revolving Fund Program:
https://www.rd.usda.gov/programs~services/revolving~funds~for~financing~water~and~
waste water-projects
USDA's Water & Waste Disposal Loan & Grant Program:
https://www.rd.usda.gov/programs~services/water~waste~disposal~loan~grant~program
USDA's Water & Waste Disposal Predevelopment Planning Grants:
https://www.rd.usda.gov/programs~services/water~waste~disposal~predevelopment~
planning~g rants
U.S. Department of Commerce - Economic Development Administration (EDA)'s
Investments for Public Works and Economic Adjustment Assistance Programs:
https://www.eda.gov/programs/eda~programs/
EDA's Planning Program and Local Technical Assistance Program:
https://www.eda.gov/funding~opportunities/
U.S. Department of Health and Human Services - Indian Health Service (IHS)'s Sanitation
Facilities Construction (SFC) Program: https://www.ihs.gov/dsfc/
U.S. Department of Housing and Urban Development (HUD)'s Community Development
Block Grant (CDBG) Program:
https://www.hud.gov/program offices/comm planning/communitydevelopment
HUD's CDBG - Disaster Recovery Program: https://www.hudexchange.info/programs/cdbg~
dr£
HUD's Section 108 Loan Guarantee Program:
https://www.hudexchange.info/programs/section~108/
U.S. Federal Emergency Management Agency (FEMA)'s Hazard Mitigation Grant Program
(HMGP): https://www.fema.gov/grants/mitigation
FEMA's Public Assistance (PA) Grant Program: https://www.fema.gov/assistance/public
FEMA's Pre-Disaster Mitigation (PDM) Grant: https://www.fema.gov/grants/mitigation/pre~
disaster
FEMA's Flood Mitigation Assistance Program (FMA):
https://www.fema.gov/grants/mitigation/floods
U.S. Small Business Administration (SBA)'s Business Physical Disaster Loans:
https://disasterloan.sba.gov/ela/lnformation/BusinessPhysicalLoans
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2022 FCA Guidance - Appendix D
Environmental Finance Centers
EPA Region 1 - University of Southern Maine https://neefc.org/
o Water and Wastewater Rates Analysis Model can set water and/or wastewater rates
for the following year by projecting the utility's expenses, revenues from rates, and
fund balance. Data inputs are minimal.
o Water Utility Customer Assistance Program Cost Estimation Tool is designed to help
water utilities estimate the costs of implementing a customer assistance program.
EPA Region 2 - Syracuse University https://efc.syr.edu/
o In the About Us -> Environmental Finance Center Network tab, there is information
about trainings and webinars to encourage smarter management of municipal
finances and assets, and to help operators conduct day-to-day operations more
efficiently.
o In the Projects Drinking Water and Wastewater Infrastructure EFCN Smart
Management for Small Water Systems tab, there are free workshops, webinars, and
technical assistance on topics such as asset management, financial management,
and others for small water system operators, owners, and municipal
representatives.
o In the Projects -> Municipal Development -> Public Management and Finance
Program tab, the website discusses how the Environmental Finance Center delivers
technical assistance to rural communities that are developing water or wastewater
infrastructure projects and other environmental improvement projects. The EFC
offers individualized technical assistance in funding and financing advice, asset
management guidance, and other topics.
EPA Region 3 - University of Maryland https://www.efc.umd.edu/
o The Municipal Online Stormwater Training (MOST) Center is meant to help
communities bridge the gap in needed technical and financial resources through a
comprehensive training program to help municipalities within the Chesapeake Bay
Watershed access and implement innovative stormwater management techniques
to improve water quality in the Bay. Formed based on the expressed need from
many in the Chesapeake Bay that are faced with limited capacity and resources for
meeting stormwater management obligations.
o Works each year with several communities in the region to revitalize their
stormwater management and financing programs. Projects span across Maryland,
Virginia, Pennsylvania, and West Virginia.
o Working to build managerial and financial capacity of small public drinking water
systems.
o Working with the City of Scranton to assess the City's current asset management
framework in addressing both combined sewer system and separate storm sewer
system.
EPA Region 4 - University of North Carolina, Chapel Hill https://efc.sog.unc.edu/
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2022 FCA Guidance - Appendix D
o The main feature of this website is the Utility Financial Sustainability & Rates
Dashboards, which can be found within the Resources tab at the top of the
homepage. Within this dashboard for selected states, you can perform the
following:
¦ Compare a selected utility's median water and/or sewer bill to all utilities in
the state (or a host of other comparison groups), as well as see annual water
and/or sewer bills as a percentage of MHI. You can also raise rates to see
how metrics change.
¦ See selected demographic data for the town in which the water and/or
sewer utility operates, compared to total/median demographic data for all
utilities in the survey (or a host of other comparison groups) as well as
statewide. Demographic data includes: number of systems, estimated
number of connections, estimated service population, average household
size, median household income; and poverty rate.
o In the homepage, scroll down and select either "Drinking Water" or "Stormwater."
From there, you can also see the most recent rate sheet associated with your utility,
as well as tables of rate structures and rates.
o There is also a simple template for utility financial planning, and several
presentations related to ratemaking and utility financial management.
EPA Region 5 - Michigan Technical University http://gleic.org/
o Resources include an electronic reference library of key publications to support the
efficient management, maintenance, operation, and finance of municipally owned
or controlled environmental systems. Publications might include providing technical
guidance on the use of specific maintenance treatments for water and sewer
collection and distribution systems; providing technical guidance on conducting a
water distribution system leak study using locally available resources; developing a
guide for establishing a sustainable capital improvement program using asset
management principles; and providing summarized technical data such as methods
for rate studies.
EPA Region 6 - University of New Mexico http://southwestefc.unm.edu/
o An "Asset Management Switchboard," which is a repository of documentation and
tools related to asset management: https://swefcamswitchboard.unm.edu/am/
o Finance-related services the EFC provides:
¦ Asset Management
¦ Small Systems Project
¦ Water System Finance
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2022 FCA Guidance - Appendix D
EPA Region 7 - Wichita State University
https://www.wichita.edu/academics/fairmcmm* \allege of iiberai arts and sciences/hug
owall/efc/
o The Kansas City Development Project is a training program designed to teach Kansas
municipal officials and utility staff about the managerial and financial aspects of
running a water system. The Project seeks to build capacity for municipal officials
and utility staff that make financial decisions regarding their community's water
utility. The project includes conducting interactive trainings across Kansas on topics
such as utility asset management, financial planning, and promotion of inter-local
cooperation.
o Professional development for water and wastewater professionals to further the
implementation of asset management concepts through networking with other
systems and content experts.
o Detailed guidance document on how to successfully form a sewer district in Missouri
in a way the average citizen can understand.
o Training to provide an overview of the importance of capital planning and review the
elements necessary to develop and implement a Capital Improvement Program.
Participants learn the details of putting together a capital plan through checklist and
matrix tools. Financial research information is also provided on traditional and non-
traditional funding sources in order to provide options available for funding capital
assets.
o EFC has curated all funding opportunities for watershed projects in one place,
organized by tags in a searchable database:
https://www.wichita.edu/academics/fairmount college of iiberai arts and scienc
es/hugowall/efc/news/meramec-funding-sources-landing-page.php
EPA Region 8 - National Rural Water Association https://efc.nrwa.ore/
o Rural Water Loan Fund provides low-cost loans for short-term repair costs, small
capital projects or replacement costs, or pre-development costs associated with
proposed water and wastewater projects. Systems must be public entities serving up
to 10,000 persons, or in rural areas with no population limits.
o National Rural Water Association has webinars, workshops, and guidebooks on
sustainable utility management for small and rural water and wastewater systems.
EPA Region 9 - California State University, Sacramento https://www.efc.csus.edu
o Tools for collecting, recording, and uploading asset data in your municipal
stormwater system. Additionally, there are training and workshops on asset
management and utility performance, as well as indicators of financial and technical
performance.
o Toolkit to support asset management and funding for municipal stormwater
programs. Toolkit includes guidance report and worksheets to help record data on
system assets, as well as maintenance needs and long-term costs. Additionally, there
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2022 FCA Guidance - Appendix D
are guidance and tools for evaluating benefits and costs in stormwater
management, as well as forums/workshops on topics of technical, managerial, and
financial aspects of stormwater management.
EPA Region 10 - Rural Community Assistance Corporation
https://www.rcac.org/environmental/environmental-finance-center/
o Develops and provides financial modules and tools including a very small system
asset management plan,
o Collects and shares infrastructure finance resources that communities can review or
adapt and use to move forward with innovative financial solutions,
o Develops and delivers hands-on, adult learner centered financial and environmental
training on topics that include source water protection, tribal infrastructure
financing and asset management,
o Provides direct technical assistance to small rural communities and tribes as they
plan for and work toward financial sustainability for their environmental and public
health utilities and facilities,
o Assists rural communities to build, improve, manage, operate, or finance drinking
water and wastewater systems.
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2022 FCA - Appendix E
Examples of Other Metrics Relevant to Consideration of Financial
Capability
Examples of Information Related to Residential Impacts:
1. Income distribution by quintile, geography, or other breakdown, illustrating how income
distribution in the service area differs from comparable data on the national level or for
similar cities.
2. Where cities have adopted differential rates for low-income customers, the income
distribution that led to that rate structure.
3. Information about service area poverty rates and trends.
4. Projected, current, and historical sewer and stormwater fees as a percentage of household
income, quintile, geography or other breakdown.
5. Information on sewer and water usage for various classes of ratepayers or by type of
dwelling unit.
6. Information on the percent of households who own versus rent.
Examples of Information Related to Financial Strength:
1. Historical population trends or population projections.
2. Service area unemployment data and trends, or other labor market indicators, including
unemployment on an absolute basis.
3. Rate or revenue models, including dynamic financial planning models showing the
projections of impacts over the program period. All revenue sources tied to CWA
obligations may be included as appropriate.
4. Rate determination studies used to develop and support recent rate increases.
5. Data and trends on late payments, disconnection notices, service terminations,
uncollectable accounts, or revenue collection rates.
6. Historical increases in rates or other dedicated revenue streams.
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2022 FCA - Appendix E
7. State or local legal restrictions or limitations on property taxes, other revenue streams or
debt levels.
8. Other costs or financial obligations, such as those that relate to drinking water or other
infrastructure, that significantly affect a permittee's ability to raise revenue.
9. Circumstances that may affect a permittee's bond rating. For instance, incurring debt
beyond certain thresholds may negatively impact the permittee's bond rating, thus reducing
the ability to raise capital.
10. Financial plans that show the implications of incurring additional debt for a permittee's
ability to secure financing, including projections of metrics such as debt ratios, debt service
coverage, debt per customer, days of cash on hand, days of working capital, and other
metrics used by rating agencies. Such data should be benchmarked to metrics such as rating
agency medians and relative to similar entities. This will be especially relevant where the
permittee does not have a bond rating.
11. Extraordinary stressors such as those from natural disasters, municipal bankruptcies,
unusual capital market conditions, or other situations which impact a permittee's ability to
raise revenue or acquire needed financing. When such stressors occur, they may also
provide support for making changes to existing schedules.
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