EPA Publication 832-R-22-001
January 2022
United States
Environmental Protection
Agency
SEPA
FINANCING DECENTRALIZED
WASTEWATER TREATMENT SYSTEMS
Pathways to Success with the Clean Water State Revolving Fund Program
Clean Water
State Revolving Fund
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Contents
Executive Summary 1
Introduction 3
Measuring the Impacts of Failing Decentralized Wastewater Systems 3
The Clean Water State Revolving Fund Program 5
Can the CWSRF Help Address Decentralized Wastewater Treatment Challenges? 6
Understanding the Fundamentals of the CWSRF Program 7
CWSRF Eligibility Requirements 7
CWSRF Program Requirements 9
Qualifying for a CWSRF Loan 9
CWSRF Loan Forgiveness & Disadvantaged Community Programs 10
How Can I Use the CWSRF to Finance My Decentralized System Project? 12
Direct Loans 13
The Conduit Approach to Decentralized System Loans 16
Linked Deposit Loans 17
Pass-Through Loans 19
Sub-State Revolving Fund 21
Sponsorship 23
Co-Financing 24
Options for CWSRF Loan Repayment 25
Property Tax Assessment Financing [PTAF] 25
Septic Utility Fees 26
Homeowner's Association Dues 26
Other Repayment Sources 26
Initiating a Financing Program for Decentralized Wastewater Systems
with the CWSRF 27
Best Practices for Successful Decentralized System Project Implementation 29
Appendix A. How Do CWSRF Decentralized System Financing Programs Work? 30
Appendix B. Creative CWSRF Loan Repayment Strategies 31
Appendix C. Effective Communication Strategies for Launching a New
Decentralized System Program 32
Endnotes and References 34
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The Environmental Protection Agency (EPA) is providing this guide for community leaders,
local and state onsite wastewater programs, and Clean Water State Revolving Fund
(CWSRF) programs on how to utilize the CWSRF for decentralized wastewater treatment
system projects (i.e., decentralized systems].
Approximately one in five American households rely on some type of decentralized
wastewater system, such as a single-family home septic system or community cluster
system. When properly designed and maintained, these systems protect public health
and the environment. The Impacts of failing systems can include illness, environmental
degradation, and economic loss in communities that rely on healthy waters for industry,
business, and tourism.
The CWSRF program is a robust source of
financing for projects that improve water quality
and wastewater infrastructure. The CWSRF offers
attractive loan terms, including below-market interest
rates, loan forgiveness, extended-term financing,
and flexible repayment options. Most CWSRF loans
are used to support the construction and repair of
centralized wastewater treatment systems that serve
households through connections to sewer lines.
However, the CWSRF is also a viable financing source
for decentralized projects.
What is a Decentralized
Wastewater Treatment System?
Decentralized wastewater treatment
systems treat domestic wastewater
from homes and businesses that are
not served by a centralized public
sewer system. Types of decentral-
ized systems include:
• Individual septic wastewater
treatment systems (also
referred to as "onsite" systems)
• Cluster systems
• Package plants
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> Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
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{£ This guide explores how the CWSRF can be used as a source of financing for decentralized
system projects by describing the basics of the program, the requirements, optional financing
o structures, and mechanisms to effectively reach prospective borrowers. It is designed to help
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interested in learning the ways to access this source of financing. This guide may also be used
by state staff in CWSRF programs that have never financed decentralized system projects
and wish to either begin or expand their assistance to include them. For others learning
about the CWSRF, this guide will provide the tools and knowledge necessary to successfully
navigate the financing process, including information on eligibility, the application process,
and understanding available financing mechanisms. It covers the basics of alternative CWSRF
financing structures such as: linked deposit lending, pass-through loans, sub-state revolving
loan funds, sponsorship programs, and working with Community Development Financing
Institutions [CDFIs] or other private lenders, as well as the benefits of co-financing with other
programs.
Across the country, CWSRF
programs have developed
successful decentralized
system financing programs
based on strong relationships
with community leaders
and stakeholders to target
financial assistance to
populations with the greatest
need. Households that rely
upon decentralized systems
for domestic wastewater
treatment are often in
economically disadvantaged
areas. This guide includes
an 11-step process for
community leaders, local
and state onsite wastewater
programs, and state CWSRF programs to work together to: [1] identify the problem; (2] select
the best financing solution; (3) identify critical partners; [4] effectively finance the project; and
(5) implement decentralized system projects.
Wherever possible, state-specific case studies and examples are included to illustrate the
benefits and impacts of CWSRF-based financing of decentralized system projects. Tools and
resources are also included to provide an understanding of the CWSRF program requirements
and their applicability, options for loan repayment, and help on planning, risk assessment,
management, and educational tools.
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Our nation's wastewater infrastructure is diverse in its complexity, it ranges from large-
scale engineering technologies for highly populated urban centers to simple septic systems
used throughout rural America. In fact, approximately one in five households in the United
States rely upon decentralized wastewater treatment systems (or "decentralized systems"
for short] to manage domestic wastewater.1 With continuing advancement in design,
decentralized systems play a valuable role in a comprehensive wastewater infrastructure
strategy. These systems also offer attractive energy cost savings and resiliency in the
face of severe weather events, such as hurricanes and floods. When properly designed,
installed, and maintained, decentralized systems can be a highly cost-effective and efficient
means of treating domestic wastewater.
Most government financing assistance for wastewater infrastructure is directed toward
centralized collection systems and wastewater treatment plants. However, there are many
communities where connecting to centralized wastewater treatment infrastructure is
not the most cost-effective solution or geographically feasible. Unfortunately, projects to
address decentralized systems can be prohibitively expensive for many homeowners, thus
delaying important investments in the wastewater infrastructure needed to protect public
health and water quality.
Measuring the Impacts of Failing Decentralized Wastewater Systems
There are serious consequences to surface and groundwater quality, drinking water
resources, and public health from failing decentralized wastewater systems. Some
communities have no constructed wastewater treatment and rely upon cesspools, privies,
or straight pipes that discharge waste directly into their surrounding environment.
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§ Lack of wastewater infrastructure and failing systems are a major contributor to water
z quality impairment from pathogens (e.g., E. coli] in the United States.2 Pollution from failing
decentralized systems can cause declines in local economies that are dependent on healthy
waters for industries such as tourism, fishing, and shellfish harvesting (Figure 1). Economic
impacts can also result in diminished real estate property values, job losses and unemployment.
Overall, business revenue losses can be extensive from polluted waters caused by failing
decentralized systems.
In addition, these consequences disproportionately affect rural, minority, and economically
disadvantaged communities that struggle to address these impacts given their limited financial
capacity.3 Finding affordable, sustainable financing solutions to resolve decentralized system
infrastructure challenges is imperative at the local, state, and national level.
The Impacts of Failing Septic Systems
Nutrient Pollution
Nitrogen pollution and
algal blooms in lakes,
rivers and streams
Fish kill events
Ecosystem degradation
Contamination of
Recreational & Drinking
Water Resources
• Disease outbreaks from
exposure to E. coli and
other pathogens
• Contamination of
vital drinking water
resources
Economic Impacts
• Losses in home and
property values
• Losses in business
revenues
• Declining economic
prosperity
Figure 1. Failing septic systems affect the economy and environmental resources.
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he Clean Water State Revolving Fund Program
The CWSRF was created in 1987 by the Amendments to the Clean Water Act under 33 LJ.S.
Code §1383 as a financial assistance program to support a variety of water quality projects,
including wastewater infrastructure. The program is a partnership between EPA and the
states, where each state is responsible for the operation and management of its own
CWSRF program.
Each CWSRF program functions like an environmental infrastructure bank, providing
financing assistance, primarily in the form of below-market interest rate loans to eligible
borrowers for water quality and wastewater infrastructure projects. There are 51 CWSRF
programs: one in each state and Puerto Rico. Collectively, the CWSRF has provided over
$145 billion in financial assistance for water quality and wastewater infrastructure projects
through June 30, 2020.4 This includes decentralized wastewater treatment projects such
as:
• Installation of new individual septic systems,
• Repair and/or replacement of existing septic systems,
• Conversion of cesspools to septic systems,
• Conversion of septic systems to centralized wastewater treatment systems,
• Replacement or modification of existing cluster or small community package plants,
and
• Payment of costs associated with establishing a Responsible Management Entity
fRMEl such as a special district to oversee decentralized systems in a particular
neighborhood or region.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
Each state program sets goals and priorities through its own project ranking system and
3 publishes an Intended Use Plan (IUP] every year that includes a Project Priority List of projects
o it intends to finance.
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The CWSRF programs are authorized through statutes and regulations at both the federal and
state levels. While the federal authorities are broad and flexible, it is possible for states to have
more stringent limitations on what their CWSRF program can finance.
Can the CWSRF Help Address Decentralized Wastewater Treatment Challenges?
> The CWSRF can help communities, watershed groups, non-profit organizations, and
< homeowners facing decentralized wastewater treatment challenges by providing low-cost
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financial assistance to undertake decentralized system projects. Though the program is
widely known for financing centralized wastewater treatment infrastructure projects worth
millions of dollars, CWSRF programs have been working with local stakeholders to provide
valuable assistance for decentralized wastewater projects in small, rural, and economically
disadvantaged communities nationwide for more than 30 years.
With billions of dollars in financing available for loans (more than $7.4 billion in FY 2020], the
CWSRF is an excellent resource to consider when seeking solutions to support homeowner's,
associations, and communities in need of affordable financing for decentralized system
investments.5 Nationally, the CWSRF provided more than $3.4 billion in combined assistance,
since the program's inception, for various types of decentralized wastewater projects and septic-
to-sewer conversions, representing over two percent of the total CWSRF assistance provided.
The CWSRF has the tools to expand the universe of decentralized wastewater projects that
receive assistance given the growing interest from stakeholders. Half of the CWSRF programs
have made loans to these types of projects at one time or another, but as of 2020 there are only
11 state programs that continue to do so on a regular basis. There are many other states that
would like to expand into this area.
In recent years, the passage of the Water Resource Reform and Development Act of 2014
(WRRDA] and the American Water Infrastructure Act of 2018 (AWIA] placed more emphasis on
financing decentralized wastewater projects. The legislation supports decentralized funding due
to the pervasiveness of these systems in the domestic wastewater landscape, and propensity to
contribute to water quality impairments if left in disrepair or not maintained.
These legislative changes to the CWSRF program broadened the types of decentralized
wastewater project activities eligible to receive financing. Eligible activities now include the
installation of new decentralized systems as well as the repair and replacement of existing
systems. CWSRFs may make loans to both public and private entities for decentralized system
projects. Although most programs are not designed to make loans directly to individual
homeowners, this can be accomplished and should not discourage local stakeholders from
seeking CWSRF assistance for decentralized wastewater projects. The need for financing
decentralized systems finds more CWSRF programs adopting alternative financing mechanisms.
This allows state programs to engage community stakeholders and direct affordable financing to
private borrowers and individual homeowners.
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CWSRF Eligibility Requirements
Broadly, capital and construction costs are eligible for CWSRF financing, while operation and
maintenance (O&M] expenses are not. Most CWSRF programs will finance planning and design
costs but may have different criteria. For example, some states offer a planning and design
allowance while others only reimburse for those costs once construction is ready to begin. The
CWSRF staff in vour state can help you understand what costs may or may not be eligible for
assistance. Depending on the type of decentralized system installed, O&M activities may differ as
shown in the examples below.67
Figure 2 illustrates the broad flexibility that the federal statutes allow. Remember that some
states have their own legal authorities that limit eligibilities within their CWSRF programs.
Therefore, it is important to know what the CWSRF in your state can and cannot do. For
example, the federal CWSRF program regulations allow for loans to be made directly to individual
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
The CWSRF offers some of the most competitive lending rates available: they are guaranteed to
be below the market rate, and states have the option of adding loan forgiveness to qualifying
borrowers. Many states offer other attractive options like planning and design grants and can
accept a wide variety of loan repayment options. The flexibility and creativity of CWSRF programs ^
ensure they can be effective partners in financing decentralized systems. ^
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Understanding the Fundamentals of the CWSRF Program |
Successfully using CWSRF funds for decentralized system projects requires understanding o
how the program works, how to apply for a loan and the expectations of potential borrowers. c
To navigate the process and effectively engage with the CWSRF program in your state, it is
important to understand eligibility and program requirements, loan terms, and repayment options.
What is O&M?
Decentralized systems require upkeep and maintenance. Maintaining these systems is
a critical part of ownership, but these costs are not eligible for CWSRF financing.
Individual Septic System
G Ensure basement service traps have
water in them as needed.
G Clean collection lines as needed.
G Check for leaks in toilets and
dripping faucets annually.
G Make sure all caps and lids are intact
and in place annually.
G Check for surfaced effluent annually.
G Pump out septic tanks every
3-5 years.
Cluster Decentralized Wastewater Systems
G Perform an annual review and audit
of electricity, chemicals, labor, and
equipment servicing costs.
G Remove and dispose of residuals
annually.
G Establish a repair fund for equipment
with a useful life [<10 years).
G Establish a replacement-depreciation
fund to cover the cost of replacing
major capital equipment.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
homeowners for the installation, repair, replacement, or upgrade of decentralized systems.
However, direct loans to homeowners are uncommon because under state statutes many CWSRF
programs are only able to make loans to public entities, such as municipalities, counties, state
agencies, districts, or other political subdivisions. This limitation is one of the reasons why
alternative financing mechanisms exist. To date, the Delaware CWSRF is the only state program
that makes loans directly to individual homeowners with decentralized systems (see page 14],
Many CWSRF programs reach individual homeowners for decentralized wastewater projects
and upgrades either by lifting state legislative restrictions or developing innovative financing
mechanisms to navigate alternatives. Where CWSRF programs perceive a demand for financing,
they are often willing to develop innovative and effective solutions with the help of community
stakeholders who are interested in exploring these options to address decentralized wastewater
project needs.
CWSRF Financing Fundamentals
Is my project eligible
for CWSRF funding?
• Planning and design
• Construction
• CWSRF CANNOT pay for operations and maintenance
Your state's CWSRF staff can help you understand what
costs may/may not be included in a CWSRF loan.
What kinds of projects are eligible?8
New septic system installation
Repair/replacement projects
Converting cesspools to septics
Cluster systems or community package plants
Certain fees associated with setting up a special
district or a Responsible Management Entity
&
Am I eligible to apply?
The CWSRF may lend to:
• Communities, municipalities, townships, counties,
political subdivisions
• Individual homeowners
• Citizen groups
• Non-profit organizations
• Public utility companies
What terms are available?
Within statutory limits, state CWSRF programs have a great
deal of flexibility to offer borrowers, including leeway with:
• Interest rate and repayment terms
• Limited amounts of loan forgiveness
• Sculpted repayment structures to accommodate
borrower cash flows
Check with staff in your state about how a CWSRF loan can
be customized to fit your needs.
Figure 2. How do you finance decentralized projects under the federal CWSRF program?
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
There may be limitations on the types of borrowers or projects that your state CWSRF program
can lend to under statute. Check with your CWSRF program representative to discuss options.
CWSRF Program Requirements
Projects that are deemed "treatment works," per Section 212(2](A] of the Clean Water Act, must m
comply with certain federal requirements. It is up to each state program to determine whether m
a project meets this definition and therefore must comply. It is important to note that projects o
co-financed between the CWSRF and another source must meet all CWSRF requirements. This ^
applies for all projects that receive any amount of CWSRF funding. 0
Qualifying for a CWSRF Loan
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CWSRF loan underwriting guidelines require borrowers to have enough funds available (after o
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operations, maintenance, and other expenses] to repay the loan. Some states require an g
additional buffer or reserve to add further security. The credit review process will differ based ^
on whether the project is implemented and repaid by a public entity (e.g., municipality, utility]
or an individual homeowner. Each state might have different credit review requirements;
Figure 3 shows what is typically requested from public and private entities versus individual
homeowners.
Public and Private Entities
Audited financial statements
for the last 3 years
Community Median Household
Income (MHI)
Current debt and repayment
schedules
Schedule of capital and
maintenance expenses
Sources of loan repayment
Project budget
Annual projections for
revenues and expenditures for
the term of the loan
Debt ordinance that authorizes
the applicant to enter into a
CWSRF loan and formalizes
the repayment source
0.
Individual Homeowners
Official credit reports
Tax returns
Pay stubs
Social Security statements
Pension statements
Copy of Deed of Trust on
property
Monthly expenses (utilities, etc.)
Figure 3. Typical credit review requirements for public and private entities versus homeowners.
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3 decentralized systems using alternative financing mechanisms. This is discussed further in the
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cj next section. Depending on the financing mechanism selected, the partnering entity responsible
5 for conducting the credit review may have different criteria.
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> An applicant's lack of financial capacity and/or a viable loan repayment source is the most cited
a reason CWSRF programs do not enter into loan agreements for decentralized system projects.
§
Although the CWSRF is primarily a loan program, and potential borrowers need to consider
£ potential loan repayment sources, options exist in every program to provide assistance to help
^ small and disadvantaged communities. In addition, in some cases the CWSRF assistance does
not need to be repaid, and how this can support decentralized programs is discussed below.
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CWSRF Loan Forgiveness & Disadvantaged Community Programs
Most CWSRF programs offer either a small or disadvantaged community program with special
financing for qualified applicants. They are evaluated based on a set of affordabiIity criteria to
characterize their financial capability. Qualifying applicants may receive interest rates between
zero percent and market rate with loan terms up to 30 years or the useful life of the project
(whichever is shorter], and/or they may have a percentage of their loan forgiven.9
Under federal law, all state programs are allowed to provide loan forgiveness to their borrowers
(this is also referred to as principal forgiveness]. However, they are limited by federal legislation
and appropriations as to how much forgiveness they can offer each year. Loan forgiveness is
Program: West Virginia CWSRF
Recipient: New Haven - Winona
Project: Septic Tank Gravity System
The community of Winona is a former coal camp of 99 homes and
commercial buildings in Fayette County, West Virginia. Before 2017,
wastewater disposal practices in Winona consisted of direct discharges and
failing septic systems that released raw or partially treated wastewater into
local ditches, ravines, and streams. Because of this, Keeney Creek, which flows
through the center of the community, had the highest frequency of bacteria violations in the New
River watershed. This project created a state of-the-art decentralized sewer system through a series
of distributed high-capacity septic systems. The project treats wastewater using technology that
recirculates effluent through sheets of textile filters that last longer and require less maintenance than
alternatives. The project combines principal forgiveness from the CWSRF with grant funding from two
state agencies to keep the project affordable (under $60 per month] for this low-income community.
The flexibility of the CWSRF to provide funding for pre-bid engineering, legal, accounting, and
administrative costs was key to making this project a reality. For more information, see the CWSRF's
PISCES Recognition Program: 2017 Compendium.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
functionally the same as a grant and occurs when a portion of the principal of the loan is written
off—meaning it does not need to be repaid. The CWSRF statute allows states to offer loan
forgiveness based on either affordability or sustainability criteria. The statute also determines
whether CWSRFs may provide the subsidies to private entities, public entities, or both.10 Within
this statutory authority, each state establishes terms and conditions to qualify for forgiveness
based on its own lending priorities. For decentralized wastewater projects, loan forgiveness is
typically based on affordabi I ity criteria. In recent years, the CWSRF programs have refined their
affordabi I ity criteria to better assist families in economically distressed areas. Figure 4 outlines
criteria that states have typically used to determine afford ability. Each CWSRF program uses
different benchmarks. CWSRF programs offer information on how much loan forgiveness is
available and their plans for using that subsidy in their annual IUP, which is displayed on each
program's website.
Loan forgiveness is an invaluable tool for the CWSRF to get critical assistance to the
communities who need it most. It is often used to tailor loan packages that are customized to
the applicant's ability to pay. Some of the alternative financing mechanisms discussed in the
next section are limited in their ability to offer loan forgiveness. This is a factor that should be
considered when selecting decentralized system financing tools.
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Median Household Income
Local Median Household Income (MHI) as a
percentage of statewide MHI. Is the community MHI less
than 80% of the statewide average?
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Unemployment & Poverty
Local unemployment rate expressed as a percentage of
the statewide unemployment rate. Is the local community
living below the poverty line? How many jobs have been
lost over a 5-year or 10-year period?
Population Trends
Has the community gained or lost population
based on 5-year or 10-year trendlines?
»
Existing Debt
What is the applicant's debt-to-income ratio?
How will it be impacted by the cost of the
proposed project?
Figure4. Common affordability criteria used to determine CWSRF loan forgiveness.
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various nonpoint source related projects. States with CWSRF decentralized system funding
programs have used pass-through and linked deposit loans to provide more than $1 million in
assistance for septic system projects. Overall, states have provided more than $510 million for
decentralized system projects, which includes septic-to-sewer conversions.13 The remaining
states may still be assessing which decentralized system financing programs would be the best
to pursue.
Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program g
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First, a CWSRF program must evaluate its statutory and regulatory language and identify any —
restrictions on lending to private property owners. Second, the CWSRF needs to determine how ^
it can offer financing terms that are affordable to residents in need of this type of assistance. x
These terms may include interest rate flexibilities and loan forgiveness options. Third, CWSRF o
staff need to consider if they are the most effective messenger to reach the intended borrower, %
or if another entity may be more familiar. Homeowners may fear regulatory oversight when ?
financing is provided by state and/or federal agencies. Strategic partnerships with county o
housing authorities, nonprofit organizations, councils of government, or local contractors can ^
help dilute this fear that sometimes keep homeowners from participating in financial assistance z
programs.11 ™
Finally, the CWSRF program must assess if there is sufficient staff to implement and oversee the
planned program. Fifteen of the sixteen states with active decentralized wastewater programs
have chosen financing through an intermediary for this reason. This is also referred to as
"conduit" lending where the CWSRF works with a partner, such as a local bank or county health
department, with fewer restrictions to get financial assistance into the hands of homeowners.
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projects. Figure 6 shows states that are actively using alternative financing mechanisms for <£?
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Direct Loans
All CWSRF programs make direct loans for larger decentralized wastewater projects, such
as septic-to- sewer conversions. These projects may often be viewed as part of a "centralized
wastewater system," where the recipient is a municipality or a publicly owned treatment works
(POTWs], Only one state—Delaware—directly finances individual septic or cluster system
projects (Figure 7). These borrowers, primarily homeowners and mobile home park owners,
sign a loan directly with Delaware's CWSRF program. The Delaware CWSRF offers two financial
assistance programs to address decentralized wastewater needs: The Septic Extended Funding
Option (SEFO] and the Septic Loan Rehabilitation Program (SLRP], SEFO provides interest-free
loans for borrowers that do not qualify for the SLRP. These loans are repaid when the property
is refinanced or sold. If these events do not occur, the SEFO loan is forgiven after twenty
years. Due to this structure, the state uses CWSRF administrative funds for SEFO. SLRP loans
are made from the CWSRF loan fund and do not receive loan forgiveness. Delaware works
with septic system installers and the First State Community Action Agency for outreach and
technical assistance but manages all other aspects of the loan program in-house.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
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A National Picture of Conduit Lending
and Sponsorship in the CWSRF Program
(as of October 2020)
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SPONSORSHIP
A traditional publicly owned treatment
works (POTW) project pairs with a
local partner with a nonpoint source
(NPS) project. A municipality receives
the CWSRF loan with a reduced
interest rate as compensation for
sponsoring the NPS project. The
municipality can implement the NPS
project themselves, or provide the
financing to a NPS partner like a
nonprofit, to do so.
Sponsorship reinforces the idea
that wastewater treatment
plant improvements and water
resource restoration projects are
complimentary efforts.
PASS-THROUGH
CWSRF program makes a loan to
another government agency or a
municipality. The funds are then
passed to private borrowers as loans
for NPS pollution projects.
Pass-through lending is actively used
for septic system repair/replacement,
agricultural BMP projects, stormwater
runoff controls, riparian restoration,
and acid mine drainage overflow
prevention in many states.
LINKED DEPOSIT
CWSRF program purchases a
reduced-rate certificate of deposit
from a private financial institution.
The financial institution then loans
out the deposited funds (at a slightly
lower interest rate) to individuals for
small-scale water quality projects that
otherwise may have issues obtaining
financing.
Linked deposit mechanisms are
successful because the CWSRF
program is invisible to the individuals
seeking assistance. They are using a
financial institution and loan process
that is familiar, which is why many
states have used linked deposits
to fund decentralized wastewater
projects.
Note: This list is not inclusive.
Not all states use these mechanisms every year. Delaware also funds decentralized systems through direct homeowner loans.
Figure 6. Mechanisms used by CWSRFs to finance decentralized system projects.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
The Delaware Department of Natural Resources and
Environmental Controls (DNREC) offers loans up to $35,000
for homeowners and $250,000 for mobile home parks for the
construction, repair and replacement of decentralized systems,
and connections to central sewer lines. Loans are offered through
two programs, depending on the borrower's credit quality. Owners
are required to pump out the system every three years. CWSRF
staff perform a credit review of all applicants.
DELAWARE DEPARTMENT OF
NATURAL RESOURCES AND
ENVIRONMENTAL CONTROL
Septic Loan Rehabilitation Program (SLRP)
20-year loans at 3 or 6% interest, depending on income. Monthly payments
paid to the CWSRF.
Septic Extended Funding Option (SEFO)
Interest-free loans for borrowers that do not qualify for SLRP. No monthly payments.
Loans are due when the property is sold or transferred, or the mortgage is refinanced.
Otherwise, the loan is forgiven at maturity. SEFO loans are financed from the
CWSRF Administrative Fund.
At the end of FY 2020, Delaware had more
than 530 SLRP and SEFO loans outstanding
worth $9.3 million.
The average loan is $18,000.
The delinquency rate is less than 2%.
The loans pay for planning, design,
and construction costs.
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Source: Interview with Jessica Velasquez, Delaware Department of Natural Resources and Environmental Control, April 12, 2019.
Figure 7. CWSRFs direct loans for decentralized systems: Delaware.
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The Conduit Approach to Decentralized System Loans
CWSRF programs often conduct their decentralized system lending via an intermediary,
including state and local government agencies, banks, and nonprofits. The choice of an
intermediary is contingent on many factors (Figure 8], These factors include, but are not limited
to:
• Borrower eligibility: Eligibility restrictions impact the type of decentralized system
conduit lender. For instance, some states are unable to make CWSRF loans to private
entities and may require a governmental partner as a conduit lender.
• Willing partner: Decentralized system financing partners should have similar goals
as the CWSRF, capacity to implement the financing program, and a positive working
relationship with the CWSRF staff.
• Accessibility: Effective decentralized system financing partners should be engaged
with the target borrower community. In many cases, the most effective CWSRF conduit
lender is one that is already familiar and accessible to the borrower.
• Internal considerations: The CWSRF program needs the proper staffing and internal
infrastructure in place to manage the selected financing mechanisms, whether it is
oversight of partner banks or the ability to approve payment requests.
CWSRF programs often use conduit lenders to make smaller loans targeting property owners,
homeowner's associations, mobile home parks, and similar recipients. Using the mechanisms
described on the following pages, they may finance individual septic systems, smaller package
plants, or other smaller projects, with the CWSRF directly taking on larger, more complex
projects such as septic-to-sewer conversions.
Selecting a Conduit Lender for Decentralized System Projects
Most CWSRFs use a partner (conduit lender) to finance decentralized system projects.
The choice of partner is contingent on many factors, such as:
Partner
Eligibility
The conduit lender
must be eligible
under state and
federal CWSRF
regulations.
Borrower
Eligibility
The financing
recipient (e.g., home-
owners) must be an
eligible borrower for
the conduit lender
and the SRF.
Willing
Partner
The partner should
have similar goals as
the CWSRF program.
Accessibility
The partner should
be engaged with
the target borrower
community.
Availability
The CWSRF and the
partner must have
the staffing and
infrastructure to
manage and oversee
the program.
Figure 8. Factors to consider when choosing a conduit lender.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
Linked Deposit Loans
Partner: Local Bank
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directly with the property owner to implement the decentralized wastewater project, conduct v5
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the credit review, and approve the loan once the permits have been received. ""
The CWSRF program works behind the scenes: it makes an investment (typically in a certificate ^
of deposit] at the bank, accepting a reduced rate of return on its investment. The bank then z
offers the same discount to the borrower. As a result, the property owner pays an interest rate m
that is below the bank's typical rate (Figure 9], While banks typically set the lending criteria, <
CWSRFs often have some influence. For example, Iowa's lenders agree not to charge more than S
three percent interest on the linked deposit loans. State banking rules and limitations may
impact the structure of a linked deposit mechanism.
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States have typically sought the linked deposit option if they are legally unable to make loans m
to private parties like homeowners. This option also allows property owners to work directly °
with their community lender with whom they may already have a relationship. Loan forgiveness
has not typically been offered under this model because a bank is providing the loan; however, a ^
lender may be willing to negotiate forgiveness options with a CWSRF.
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Fluctuations in interest rates can impact the borrower's reliance on these types of loans. For q
example, the recent low interest rates have significantly diminished the demand for linked
deposit programs nationally. However, due to the participation of hundreds of small community
banks, Iowa's linked deposit program has remained a popular choice for septic system,
agricultural, and other projects.
What are people
saying about Iowa's
Onsite Wastewater
Assistance
Program (OSWAP)?
"We started having a lot of septic problems and found out that we were going
to have to replace our current system. Thanks to OSWAP's low-interest loan and
City National Bank, we were able to get it fixed. I was surprised how affordable
my payments were with the 3% interest over 10 years. It is a very convenient,
affordable and easy program that I would recommend to anyone."
Mark Feller - Borrower
Shenandoah
"The program is a benefit for our customers as well as a service to the communities
we serve. We have issued 50 loans through the program since 2002 and have
received excellent service. Our customers appreciate the 3% interest rate and the
fact that the loan can be for the entire cost of the improvements they make to
their system. Amortization can be established to make the payments affordable for
everyone. A major benefit to Hills Bank is the fact that the entire loan amounts are
fully funded by the Iowa Finance Authority."
Don Wilson - Lender
First Vice President, Commercial Banking
Source: http://www.iowasrf.com/program/other water quality programs/ on-site-waste-water-assistance-program/
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Iowa Onsite Assistance
Program (OSWAP]
OSWAP has over 400 participating bank
lenders. Many are community banks.
• Lenders apply at
www.iowalinkeddeposit.com.
THE LENDERS
Maryland Linked Deposit
Program for Onsite Systems
Lenders must be approved by the State
Treasurer's Office through an RFP
process. They can participate in any state
lending programs, not just the SRF. About
20 lenders participate.
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After the OSWAP project has been
approved by the IA Department of
Natural Resources, Iowa SRF deposits
an amount equal to the loan with
the lender. The lender reimburses the
homeowner from this account.
The lender establishes the loan terms.
The CWSRF limits terms to up to
3% interest and 10 years
Minimum loan is $2,000
100% of project costs
Principal repayments are credited
back to the CWSRF
INVESTMENT
VEHICLE
HOMEOWNER
/r~i
After the lender approves the loan, the
Maryland SRF purchases a CD in the
amount of the loan at the lender. The
CWSRF accepts a discounted rate of
return. The lender passes the discount on
to the borrower.
The interest rate is the lender's market
rate minus the SRF discount
100% of project costs
LOAN
In FY2020, Iowa lenders signed over
$1 million in OSWAP linked deposit loans.
Since OSWAP's inception in 2003, over
$18.6 million in loans have been signed.
RESULTS
Since its inception in 1999, Maryland has
funded 100 linked deposit loans. In recent
years, low market interest rates have
diminished demand.
Property owners must receive a permit from the county prior to going to the lender.
Figure 9. CWSRF linked deposit loan programs: highlights from Iowa and Maryland.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
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Pass-Through Loans =
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• Community Development Financial Institution (CDFI) g
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• Other community funding agencies h
In pass-through programs, a partner organization serves as a bridge connecting CWSRF financing ^
to the loan recipient. The partner evaluates, approves, and services the loans. As the property z
owner incurs costs on the project, the partner lender requests disbursements from the CWSRF, m
and passes them to the property owner. Similarly, the property owner repays the loan via the <
partner organization. There is no direct contact between the property owner and the CWSRF. S
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Pass-through intermediaries can be private or governmental entities. The choice depends on
the willingness of the partner, the ability to reach the end borrower, and the CWSRF's legal
constraints (Figure 10], As a result, pass-through program partners differ from state to state.
In a state where the CWSRF is unable to make decentralized system loans to private entities, °
the pass-through partner must be a municipal, intermunicipal, or state government entity. For
instance, in New Jersey, septic management districts must be established as the partner, while ^
Pennsylvania works through the state housing authority.
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Idaho, Washington, and Oregon partner with community development financial institutions q
(CDFIs] or other private/nonprofit community financing organizations. For example, Craft3
is an innovative regional nonprofit CDFI that partners with the CWSRF in Washington for
septic system and other loans.14 Massachusetts creates pass-through loans with individual
communities while West Virginia has partnerships with both a state agency, the WV Housing
Development Fund, and a community financing organization (Safe Housing and Economic
Development, Inc.],
The choice of partners may affect how flexible the financing may be for different types of
projects. While community financing agencies are mission-driven, they may have different
lending criteria than local or state agencies. However, a pass-through partner may also be
willing to distribute CWSRF loan forgiveness funds to the borrower.
What Is a Community Development
Financial Institution?
CDFIs are mission-driven financial institutions that provide credit and financial
services to underserved markets and populations. They can be banks, credit unions,
(microjloan funds, or venture capital providers. CDFIs are certified by the U.S.
Department of the Treasury.
A list of certified CDFIs can be found at www.cdfifund.gov.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
PASS-THROUGH VIA
GOVERNMENT ENTITY
Massachusetts Community Septic
Management Program (CSMP)
Communities request a CWSRF loan to
develop and implement a septic
management program. The community
provides loans to homeowners for the
repair or replacement of failed septic
systems.
CONDUIT
PASS-THROUGH
VIA PRIVATE OR NON-PROFIT ENTITY
Washington Regional Onsite
Sewer System Program
Craft3 is a non-profit CDFI in Washington
and Oregon. Craft3 helps homeowners to
finance the repair and replacement of
failing septic systems.
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Interest on the loan is 0% for the first
2 years. During that time, the community
is expected to disburse the funds to
property owners.
Homeowner loans are up to 5% interest
and 20 years Homeowners repay their
loans via property tax payments. The
community maintains a lien on the
property until the loan is paid off.
The lien is transferable.
CWSRF LOAN
HOMEOWNER
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LOAN
Craft3 received 5 CWSRF loans between
FY 2016 and FY 2020. The 2020 loan
was at 1.3% interest and 20 years, with
$1 million loan forgiveness. Craft3
also received grants from Washington's
Centennial Grant Program.
Craft3's loan rates are based on
household income and were 2.49%
to 5.49% in 2020* They offer flexible
repayment options, up to 15 years.
Many borrowers would not qualify for a
traditional bank loan.
After two years, CWSRF loan repayments
begin. The interest rate is 2% and the term
is up to 20 years. Property tax
payments are used to repay the
CWSRF loan.
REPAYMENT
Craft3 repays the SRF using available
cash flows, including borrower
repayments. Craft3 maintains capital
liquidity and loan loss reserves to offset
losses and ensure repayment of the
CWSRF loans.
From 1996 to 2020, the CSMP made over
$142 million in loans and financed more
than 480 septic projects.
RESULTS
id
From July 15,2016 to June 30,2020,
CWSRF loans to Craft3 have helped finance
1,033 decentralized projects totaling
$24 million. 31% of loans were to low-
income households.
"Effective 8/1/2020. Subject to change. Full rates, terms, geographic eligibility at www.craft3.org/cleanwater
Figure 10. CWSRF pass-through loans: government and private models.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
Sub-State Revolving Fund
Partner:
• State or local governmental entity
• Community Development Financial Institution (CDFI)
• Other Community Funding Agencies
In a sub-state revolving fund, the CWSRF provides one or more initial loans to an entity to
capitalize another revolving loan fund (many sub-state revolving funds also seek other grant
funds for capitalization]. The sub-state revolving fund makes loans to and receives repayments
from property owners for decentralized system projects. The repayments are used to pay off the
CWSRF and finance new loans, with the intention of becoming self-supporting over time.
Any eligible CWSRF borrower can receive a loan to start a sub-state revolving fund. Missouri's
CWSRF helped capitalize a sub-state revolving fund through two loans to a local nonprofit,
Ozarks Water Watch. Other CWSRF programs, including those in Washington, Rhode Island,
and Virginia, have helped capitalize sub-state revolving funds through loans with governmental
entities - the Spokane Conservation District, local communities, and a large political subdivision,
respectively (Figures 10,11], In some cases, these loans both included forgiveness of a portion of
the CWSRF principal.
In most cases, the sub-state revolving fund administrator establishes the lending criteria,
ensuring that it has the means to repay the CWSRF loan while also establishing a revolving
structure to finance new loans. Many sub-state revolving funds offer both grants and loans.
It is important for an entity considering a sub-state revolving fund to consider the potential
borrower pool and develop a business plan with financial projections to understand its financing
ability.
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Virginia Middle Peninsula
Planning District Commission
(MPPDC) Septic Repair
Program
MPPDC consists of 3 towns and 6 counties,
with significant rural and coastal areas.
The Septic Repair Program was first
capitalized with a $250,000 CWSRF
loan in 1997. It has received 3 more
CWSRF loans and funding from other
programs.
SUB-RLF
©
BORROWER
Rhode Island Community
Septic System Loan Program
(CSSLP)
Since 1999, local governments may
apply for CWSRF loans to capitalize
a CSSLP for septic system repair and
replacement. There is a similar program for
sewer tie-ins.
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CWSRF loans are at 0% interest for
15 years.
CWSRF LOAN
Local governments apply with an Onsite
Wastewater Management Plan and
provide additional security in the event of
homeowner defaults (e.g., general revenue
pledge]. The CWSRF loan is at 0%.
Homeowner loan terms range from 0%
to prime +2%, and repayment within
15 years. Low-income homeowners may
receive grants.
Referrals are typically by the county
Health Department, septic inspectors, and
contractors.
HOMEOWNER
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LOAN
Homeowner credit reviews are
conducted by a state agency, Rl
Housing.
There is a 1% annual fee and a $300
loan origination fee.
MPPDC has provided $1.4 million in
assistance, 55% as loans. 174 projects
have been completed. There are 50-60
active loans at any time. Interest earnings
are used for administration.
RESULTS
id
60 CCSLP have been made to
17 communities totaling $21.1 million.
Figure 11. Sub-state revolving loan funds: highlights from Virginia and Rhode Island.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
Sponsorship
Partner:
• Publicly-Owned Utility
• Local Government Entity
Sponsorship loans are being used in several states to finance nonpoint source projects and may
also be used for financing decentralized system projects. In a sponsorship loan, a public CWSRF
borrower (community, wastewater utility, etc.] receives a loan for a POTW project. An amount is
added to the loan to finance a nonpoint source project, which is being "sponsored" by the public
borrower. In return, the CWSRF lowers the interest rate on the loan so the annual payments are
equal to what they would have been to finance the POTW project alone without the addition
of the nonpoint source sponsored project. The public CWSRF borrower is funding two projects
for the price of one. The nonpoint source sponsored project is essentially grant-funded. Some
CWSRFs provide an additional discount as an added incentive. Figure 12 provides additional
information and insight on how financing works under a sponsorship loan.
Sponsorship is ideally suited to nonpoint source projects that lack sources of repayment
revenues. This financing option is currently in use in Ohio, Iowa, Oregon, Delaware, and Vermont
for land conservation, wetland restoration, and other water protection projects
Loan
Amount
Interest Rate
Total Repayment
over 20 Years
CWSRF Loan
$1,000,000
3.8%
$1,436,707
CWSRF Loan with Sponsored Project
$1,393,442
0.3%
$1,436,707
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,00 0
$600,00 0
$400,00 0
$200,000
$0
Additional financing
for sponsored
project
Same repayment
amount despite
larger loan amount
when you include a
sponsored project.
CWSRF Loan with Sponsored Prqect
A hypothetical $1 million
traditional CWSRF loan
with a 3.8% interest
rate and 20-year loan
term will have to repay
$1,463,707.
A nonpoint source project
is sponsored, bringing the
total loan to $1,393,442.
The CWSRF lowers the
interest rate to 0.3%, so
the total repayment stays
$1,463,707. The nonpoint
source project pays
nothing.
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Figure 12. Sponsorship loans: how does the math work?
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
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While not yet being used for decentralized systems, sponsorship is a suitable option for
financing septic repair, replacement, and remediation projects. For instance, an entity could
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2 community's wastewater treatment utility or local community, which may find it more
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2 expand the collection system.
Co-Financing
Partner:
• Any Other Financing Program
CWSRF programs have the flexibility to be partnered with almost any other state or federal
water quality financing program. This includes the United States Department of Agriculture's
Rural Development (USDA-RD) program, the United States Department of Housing and
Urban Development's Community Development Block Grant [CDBG] program, EPA's Water
w Infrastructure Finance and Innovation Act (WIFIA) program, and more.15 Every CWSRF program
i- has engaged in co-financing and many states such as Montana and Arizona have one-stop
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~ CWSRF loan to be paired with a grant or other low-cost funds from other programs, bringing
down the costs for borrowers and expanding the reach of limited grant funds.
Presently, co-financing arrangements typically involve a direct loan from the CWSRF. They
are often used for complex projects, such as package plants, cluster systems, or septic-to-
sewer conversions. Co-financing can also assist with other financing mechanisms, such as
establishment of a sub-state revolving fund. The eligibility restrictions of the CWSRF, as well as
any co-financing sources, must be considered in any such arrangement. Each of the financing
mechanisms presented may be used to fund a wide range of projects to address decentralized
wastewater system needs (Figures 13 and 14].
Figure 13. A failed home septic system.
Figure 14. A neighborhood cluster system.
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Identifying a repayment source is key to securing CWSRF financing as it is a federal
statutory requirement that borrowers have a viable source of repayment. The flexibility
of the CWSRF program offers creative financing and favorable lending terms for all types
of decentralized system borrowers. This includes homeowners obtaining direct loans,
associations constructing a cluster system, public entities setting up a conduit lending
platform for individual homeowners, or large utilities. EPA's report, Financing Potions
for Non-Traditional Eligibilities in the CWSRF. features a variety of potential sources for
repayment of CWSRF loans. Below are a few of the more common methods for securing
and repaying decentralized system loans.
Property Tax Assessment Financing (PTAF)
• A common tool for repayment of decentralized wastewater projects is property
taxes. To help homeowners avoid high upfront costs with decentralized system
projects, the PTAF approach allows the lender to secure the loan using a lien
against the property when the system is being installed. Then the loan is repaid
through incremental increases on the property owner's property tax bill. If
done properly, this cost of financing becomes almost undetectable. It allows the
homeowner to pay for the project through a long-term, fixed- cost financing option
underwritten by the value of the property. The first priority lien position guarantees
repayment of the loan and is attached to the property to be assumed by the new
owner in the event of sale or ownership transfer. New owners may either assume
the obligation or require the seller to pay off the debt in full as part of the sales
agreement.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
1
Septic Utility Fees
q • Some areas are already collecting fees for the operations and maintenance of a cluster
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system or package plant. Or a group of households may collect fees for the maintenance
of their individual septic systems through a designated organization called a Responsible
Management Entity (RME), This fee may also be used as a potential repayment source
for installation, repair, or replacement costs of decentralized systems-
Homeowner's Association Dues
• The CWSRF can make loans directly to homeowner's associations (HOAs), which are
then repaid with revenues from HOA dues. Maryland has used this approach for several
types of nonpoint source projects and could also include decentralized system projects.
Other Repayment Sources
• The table in Appendix B provides more examples of non-traditional repayment sources
used by recipients to repay their CWSRF loans. Not every example has been used for
decentralized systems, but these nonpoint source projects could be transferable for
financing decentralized wastewater projects.
26
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Wastewater Systems with the LWSRF
Now that you're armed with the basic information on how to finance decentralized
wastewater projects with the CWSRF, it's time to start moving down the path to success!
Stakeholders may approach a CWSRF with a decentralized system financing proposal
if the CWSRF does not already offer decentralized financing or if a different mechanism
than what is offered would be a better fit. Individual homeowners may pursue CWSRF
financing through any of the mechanisms discussed previously. A community, homeowner's
association, or other group of residents may also choose to create a decentralized system
financing program with the CWSRF as a partner. Figure 15 shows a sample step-by-step
roadmap for how a decentralized system program can be successfully financed by the
CWSRF.
Examples of Community Involvement in New York
The Town of Lake George has a comprehensive outreach program
and materials, including a Septic Summit.
Suffolk County, on the eastern end of Long Island, has a website for
stakeholders including a form for property owners to sign up for
their Septic Improvement Program.
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Financing with CWSRF:
Steps to Success
1. Identify the Problem and Technical Solution
Evaluate the public health, environmental, and economic
impacts of failing septic systems in your community. This
includes identifying the potential technical solutions needed
to address the problems. The process will likely require an
outreach campaign that encourages community involvement
through holding public meetings, distribution of brochures
and information, and social media engagement. Include the
appropriate regulatory authority (e.g., Department of Health)
and consulting engineer/designer early in the process. The
state CWSRF program must ensure the proposed project is
the most effective solution to the problem.
2. Review CWSRF Financing Options
Consider your state's CWSRF program options including
whether the borrower and projects are eligible, what
the sources of repayment will be, and whether a conduit
mechanism will be necessary to finance decentralized
system projects. If a viable CWSRF financing mechanism
does not already exist in your state, consider utilizing one
(or more) of the alternative financing mechanisms available
(linked deposit, pass-through, sponsorship, etc.).
3. Identify Potential Partners
Conduit lending and sponsorship mechanisms involve a
partnership with a local or state agency, utility, nonprofit,
bank, or other financing institution. Identify a partner that
is an eligible CWSRF participant, and willing and able to
participate in the project. Meet with potential partners in
advance to discuss the CWSRF and potential financing
options.
4. Meet with CWSRF Staff
Meet with CWSRF staff to discuss the proposed project and
the best financing mechanism according to state rules/laws.
CWSRF programs are always willing to work with borrowers
to get high priority water quality projects financed, utilizing
the available flexibilities in their laws and regulations.
Meeting with CWSRF staff ensures that the community is
on the right track and that all technical, managerial, and
financial aspects are taken into consideration. It is best to
involve your state's CWSRF program "early and often."
5. Develop an O&M Plan
Operations and maintenance (O&M) is not an eligible
expense for CWSRF financing yet is an essential aspect
of successfully managing a decentralized system. Provide
education and training tools to property owners to empower
them to properly maintain and care for decentralized
systems including tutorials, inspection schedules, and
access to technical assistance providers.
6. Communicate Potential Costs and Benefits
Meet with community members and leaders to discuss
the costs, benefits, timelines, and plans to help ensure
buy-in and continued progress. Develop informational
brochures or hold in-person workshops detailing how failing
decentralized systems impact the public health of local
community members, demonstrate how the CWSRF program
can make decentralized wastewater projects accessible and
affordable, and address questions or concerns.
7. Put Together a CWSRF Financing Proposal
Tailor the CWSRF application to suit the financing
mechanism that will be used. If a linked deposit loan is
selected, the bank will need to work with the CWSRF
program to establish the financing and investment terms.
If a pass-through loan is selected, the conduit partner will
secure financing from the CWSRF program and develop
its own application and loan approval process. Whatever
financing mechanism is used, CWSRF program staff can
advise on the procedures necessary for securing financing.
8. Sign Financing Agreements
The financing agreement will be dependent on the type
of financing mechanism selected. For example, in a pass-
through loan or sub-revolving fund, the loan agreement will
be between the borrower and the pass-through partner. In
a linked deposit program, an investment agreement signed
between the borrower and partner bank is more likely. In
each mechanism, an MOU or financing agreement will be
necessary to formalize the relationship between the conduit
partner and the CWSRF.
9. Implement Decentralized System Projects
Congratulations! You can now begin to implement your
decentralized wastewater treatment system construction,
repair, and replacement projects.
Figure 15. Sample steps for successfully financing a decentralized system program with CWSRF.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
Best Practices for Successful Decentralized System Project Implementation
In the CWSRF, success is measured not only in project implementation, but also the longevity
of the assets that have been financed. Proper care and maintenance are required to ensure
the integrity of decentralized wastewater assets. Providing homeowners and decentralized
wastewater professionals access to education and training is key to the safe and effective use of
these systems. There are educational tools available for decentralized wastewater professionals
(e.g., system designers, installers, inspectors, and service providers], as well as individual
homeowners. These tools are offered by EPA, state, regional, and local governments. It is
important to let borrowers know that the development and initial delivery of public outreach
and education materials is eligible.
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For a decentralized system financing program to thrive, communication to stakeholders about
the financing options available is critical. Brochures and websites can be effective tools to reach
some audiences, but messaging through regulators, inspectors, contractors, installers, and real
estate/housing agencies can also be highly effective. Surveys, focus groups, and community
meetings can help CWSRF programs determine the most effective ways to reach potential
borrowers with decentralized systems. Considering the appropriate phrasing and terminology
for the target audience is equally important. Appendix C offers several outreach examples from
Pennsylvania (a pass-through program through the state housing agency] and Craft3 (a pass-
through program via a CDFI], respectively. They demonstrate the clear, concise language that
can be instrumental to successful decentralized system financing tools.
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To participate in Ohio's Decentralized Wastewater
Treatment System Pass-Through Program, local government partners must agree to:
Use effective and
efficient means
to solicit eligible
homeowner
applications.
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Evaluate and
select local
applicants
and confirm
homeowner
income.
Work with local
health districts
and/or contractors
for permits and
installation.
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Certify and
document that
all financing
conditions and
installation/permit
requirements will
be met.
Use generally
accepted
accounting
practices to
document
payments to
contractors.
Prepare and
file project
documentation
that the CWSRF
requires as a
condition of the
loan.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
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Appendix B
Creative CWSRF Loan Repayment Strategies
Potential CWSRF borrowers must identify a dedicated repayment source, that need not come
from the project itself, before a loan is approved.
Revenue Source
State CWSRF Example
Business Revenues
(resorts, schools,
factories etc. with onsite
wastewater treatment)
Many manufacturing facilities have their own localized treatment systems. For example,
Ohio's CWSRF provided a five-year, $60,000 loan to conduct a site assessment and
cleanup on a brownfield site adjacent to its dry-cleaning facility. The loan was repaid using
a revenue stream from accounts receivable, with inventory and cash as extra collateral.
This approach could also be used for decentralized projects.
Homeowner Association
Fees
The CWSRF program can make loans directly to homeowner's associations, which are
repaid by HOA fees. The state of Maryland CWSRF program made a $529,000 loan to the
Dennis Point Homeowners Association for an erosion control and shoreline stabilization
project. CWSRF loans could also be made to homeowners' associations for decentralized
systems and other eligible projects.
Property Taxes
The Massachusetts CWSRF Community Septic Management Program utilizes a
"betterment agreement" that channels loans through a municipality to individuals for
septic system improvements and allows the municipality to ensure that the loan is repaid
as part of a property tax bill. The municipality can place a municipal lien on property if the
homeowner defaults on the loan.
Resort Taxes/Fees
Many areas use resort taxes or fees to fund water quality efforts. Big Sky, Montana
uses resort tax dollars to fund water and sewer improvement projects. The Montana
CWSRF program has loaned $19.4M to the Big Sky County Water and Sewer District for
wastewater treatment plant improvements, and resort tax dollars could equally be used
as a repayment source for NPS and decentralized projects, especially cluster systems and
package plants.
Watershed Improvement
Districts
Watershed Improvement Districts are local government entities formed pursuant to
state statute, which provides them with taxing authority. These entities are controlled
by landowners/farmers and the structure allows them to collaborate on NPS projects,
generate revenues needed for projects, and secure additional financing. In Maine, the
Cumberland County Soil and Water Conservation District repaid their $2.1 million CWSRF
loan through revenues generated by Restoration Program Participation Fees assessed to
participating landowners.
Watershed Protection
Fees/Taxes
A number of utilities across the country (including Central Arkansas Water, City of Austin,
Howard County, Maryland) utilize an on-bill watershed protection fee to pay for various
watershed protection projects. For example, in Raleigh, North Carolina water customers
pay 10 cents per thousand gallons of water used (approximately 45 cents per month per
customer). This fee typically generates about $1.8 million per year that is used to conserve
critical land in the watershed to provide protection for drinking water sources and reduce
treatment costs.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
Appendix C
Effective Communication Strategies for
Launching a New Decentralized System Program
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Pennsylvania's Homeowner Septic Loan Program
The PENNVEST Homeowner Septic Loan Program
helps qualified homeowners:
• repair or replace an existing connection
to public sewer OR an individual, on-lot
sewage disposal system;
• connect an existing home for the first time
to public sewer.
This low-cost loan is funded by PENNVEST and
administered by the PA Housing Finance Agency.
TERMS
• Fixed interest rate for life of loan, currently as low
as 1.75 percent.
• Up to 20 years to repay the loan balance.
• Funds can be used for design, construction and
permit costs.
SAMPLE PAYMENTS
• If you borrow $15,000 at 1.75 percent (2.55
percent APR1) for 20 years, you pay $75 monthly,
• If you borrow $25,000 at 1.75 percent (2.22
percent APR1) for 20 years, you pay $124 monthly.
LOAN ADVANTAGES
• Pay an attractive interest rate for this vital
home improvement.
• No prepayment penalties if the loan is paid
off early.
WHY REPLACE YOUR SEPTIC SYSTEM?
• Increase the value and marketability of your home.
• Eliminate worries about your septic system when
you sell your home.
• Improve the environmental health of your property.
• Avoid or respond to citations from your municipality.
LEARN MORE AND APPLY
1. Call PHFA's Solution Center at 855-U-ARE-HOME
(855-827-3466) or visit www.phfa.org to learn
more and view a list of participating lenders.
2. Visit or call one of the listed participating lenders
to begin the loan application.
3. Work with design and construction professionals
of your choice to develop an approved system.
1 Subject to credit approval and eligibility restrictions including loan use
and owner occupancy. Interest rate quoted as of 1/1/2019. The APR
is fixed for the term of the loan. Borrower pays origination and closing
charges. Sample payments based on $15,000 and $25,000 loan exam-
ples have twenty year term and 240 payments. Total finance charge for a
$15,000 loan is $3,869 and for a $25,000 loan is $5,727.
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Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
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Washington's Regional Onsite Sewage System Loan Program
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A LOAN THAT WORKS FOR YOU
BENEFITS AND FEATURES
• Covers the full cost of designing, permitting
and installing your septic system.
• Competitive interest rates.
No upfront costs.
• Works for many property types and
incomes.
• Deferred payment options may be available
for homeowners with lower incomes.
ELIGIBILITY
• Residential properties in many Washington
counties.
• Loan-to-value and loan amount maximums
apply to repayment types.
• One of the following must apply:
- Your septic system is at least 25 years old.
- Your system is failing.
- You've been contacted by Health Officials.
- You are under orders to fix your system.
DID YOU KNOW?
Annual care can stretch the life of your septic
tank and prevent early failures. Thafs why all
Craft3 Clean Water Loans include a $2,000
reserve to support your system's ongoing
health. If you're already a client, contact us to
access your reserve today!
GRAFT
ABOUT US
Craft3 is a non-bank community lender
thafs been delivering capital throughout
Oregon and Washington since 1994. We lend
to established nonprofits and growing and
start-up businesses — including those that
don't qualify for traditional loans.
The Craft3 Clean Water Loan is offered
thanks to the support of many public and
private funders and organizations, including
the U.S. Environmental Protection Agency,
and the State of Washington.
REACH US
888-231-2170, ext. 125
www.Craft3.org/CleanWaterWash
CleanWater@CrafG.org
Oregon
Astoria | Bend | Klamath Falls | Portland
Washington
Port Angeles | Seattle | Spokane | Walla Walla
Craft3 Is an equal opportunity lender, provider and
L—1 employer. 07/01/20
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For more than ten years, Craft3 has been
financing replacement of failing septic systems
for families in the Northwest with our unique
Clean Water Loan.
Ifs not a traditional loan, just like we're not a
traditional financial institution. Ifs a loan built
from the ground up to work for your situation.
In some cases, you can even finance connection
to a nearby municipal sewer system.
The Clean Water Loan is currently offered in
many Washington counties. Visit our website to
find out if your area is eligible.
Over one thousand families have trusted the
Craft3 Clean Water Loan to meet their needs.
Give us a call and see how we can help yours.
Apply Now | Learn More
www.Craft3.org/CleanWaterV1fesh
REPLACING YOUR SEPTIC SYSTEM IS EASY
1. Apply online atwww.Craft3.org/CleanWaterWash. Receive pre-approval in as soon as three business
days.
2. Work with your contractor1 to design your system, receive permits and finalize project cost.
3. Sign your loan documents electronically.2
4. Begin your project! Make sure work is completed to your satisfaction.
5. Authorize final payment to your contractor once your project gets final approval from local officials.
6. Loan payments, if required, will be automatically withdrawn from your bank account.
s
1 Your contractor must be approved by your area's health jurisdiction to conduct septic system replacement work. Contact it for a list of
approved contractors.
* By request, document signing is also available via postal mail or in-person.
RATES & TERMS
Rates and terms are determined by applicants' annual household income.
Annual
Household Income
Interest
Rate
Term Options
Examples
Up to $25,000
owner-occupied
2.49%
(2.33% APR)
Deferred Payments*
Interest-Only
Payments**
Fully-Amortized
Payments
Deferred Payment Option:
$24,000 loan amount
No monthly payments for 179 months,
Balloon payment of $33,873 due on the 180th month
based on 2.33% APR.
Up to $45,000
owner-occupied
4.49%
(4.75% APR)
Interest-Only
Payments**
Fully-Amortized
Payments
Interest-Only Payment Option:
$24,000 loan amount,
$94 interest payment for 179 months,
Balloon payment of $24,094 due on 180th month based
on 4.75% APR.
Greater than $45,000
-or-
rvon-owner-occupied,
secondary home
5.49%
(5.93% APR)
Fully-Amortized
Payments
Fully-Amortized Repayment:
$24,000 loan amount,
$201 for 180 months at 5.93% APR.
APR, Annual Percentage Race
*Deferred Payment option maximum loan amount is $35,000 and maximum loan-to-value is 80 percent.
**lnterest-only Payment option maximum loan amount Is $45,000 and maximum loan-to-value of 100 percent
Loan availability, terms and conditions current as of 01/1/19 and are subject to change. Visit our website for latest terms 3nd rates. Examples
include financing of Craft3 $69S loan fee. All loan applications are subject to credit, property and project approval. Maximum loan amount
and Loan to Value apply and are subject to equity value and underwriting requirements for all programs. Loans are secured by a UCC-1A filing
recorded with the county. Subordination may be available with lender approval, fees may apply. Principal balance and interest (If applicable)
is due on sale, transfer, refinance or maturity. Due to Clean Water Loan funding sources, financed projects require a cultural resource review
by the Department of Ecology. If a designation is made, the property owner will be responsible for costs I ncurred. Visit our website for details.
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[2 Financing Decentralized Wastewater Treatment Systems: Pathways to Success with the Clean Water State Revolving Fund Program
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Endnotes and References
o
g 1 U.S. Census Bureau [2015], American Housing Survey.
LU
2 U.S. EPA [2020], Specific State Causes of Impairment Report from the Assessment and Total Maximum Daily
Load Tracking and Implementation System [ATTAINS],
httDs://www.eDa.gov/waterdata/about-online-attains-seDarate-imDaired-and-assessed-waters-reDorts
3 Vock, D. [2019], America Has a Sewage Problem available at https://www.governing.com/archive/gov-
sewage-seDtic-tank-Dollution-health.html
4 U.S. EPA [nd]. The Clean Water State Revolving Fund Program.
https://www.eDa.gov/cwsrf
5 2020 EPA National Information Management System report Annual CWSRF Funds Available for Projects.
6 University of Minnesota [2019], Community Septic System Owner's Guide.
https://h2oandm.com
7 https://www.epa.gov/cwsrf/financing-options-nontraditional-eligibilities-cwsrf
8 National Decentralized Water Resources Capacity Development Project [2004], Cluster Wastewater Systems
Planning Handbook, https://decentralizedwater.waterrf.org
9 US EPA [2016], Funding Disadvantaged Communities with the Clean Water State Revolving Fund, https://
www.epa.gov/sites/default/files/2016-11/documents/funding disadvantaged communities with the clean
water state revolving fund.pdf
10 Section 603[i] of the Water Resources Reform and Development Act of 2014.
11 Personal correspondence with Desiree Sideroff of Craft3 on February 5, 2018.
12 Graphic identifies states with currently active decentralized wastewater treatment system programs, and
that have reported more than $1 million in decentralized system financing agreements to EPA. Septic-to-
sewer conversion loans are not shown, as they are universally covered in all states as part of their traditional
financing of centralized wastewater treatment systems.
13 2020 EPA National Information Management System report Clean Water SRF Program Information National
Summary, including septic-to-sewer conversion projects, https://www.epa.gov/cwsrf/clean-water-state-
revolving-fund-cwsrf-national-information-management-svstem-reports
14 Craft3 also offers loans for septic system installation, repair, and replacement in the state of Oregon. A
separate program is available for Clackamas County Residents. https://www.oregon.gov/dea/Residential/
Pages/Onsite-Loans.aspx
15 All State Revolving Fund [SRF] loans can be used to fulfill matching requirements for Federal grants, and
SRF programs may also use non-Federal [i.e., recycled] funds to match Federal grant funding.
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