Financing Decentralized Wastewater Treatment Systems


y-/EPA

United States
Environmental Protection
Agency

Financing Decentralized

Wastewater Treatment Systems

INTRODUCTION

Approximately one in five households in
the United States rely on decentralized
wastewater systems, such as single-family
home septic systems or community cluster
systems, for wastewater treatment and disposal.
For communities relying on decentralized systems,

costs to repair, replace,

•SERA

FINANCING DECENTRALIZED
WASTEWATER TREATMENT SYSTEMS

Pathways to Success wlthlhc Cteai Watw State Rcvohrini Fund Program

or install systems can be
expensive, and these costs
are often the homeowner's
responsibility. EPA's

Financing Decentralized
Wastewater Treatment
Systems: Pathways to
Success with the Clean
Water State Revolving
Fund Program Guide helps
community leaders, local
and state decentralized
wastewater treatment programs and state Clean
Water State Revolving Fund (CWSRF) administrators
understand how the CWSRF can be a viable source
of financing for decentralized systems.

The Guide details (1) the CWSRF Program; (2)

How to Use the CWSRF to Finance Decentralized
System Projects; (3) Options for CWSRF Loan
Repayment; and (4) initiating a Financing Program
for Decentralized Wastewater Systems with the
CWSRF. This summary sheet highlights key content
from these sections.

The CWSRF Program

1

EPA's CWSRF Program, administered

individually by each state and Puerto Rico,
provides low-cost financing for wastewater
infrastructure and water quality projects, including
decentralized wastewater system projects.
The CWSRF functions like an environmental
infrastructure bank, providing funding, primarily
in the form of below-market interest rate loans
to eligible borrowers. However, it is important to
note that States are afforded extensive flexibility
in administering their program, including defining
project and applicant eligibilities, financing terms,
and loan forgiveness options for qualified borrowers.
Contact your state for details.

CWSRF Financing Fundamentals

®ls my project eligible for CWSRF funding?

•	Planning and design

•	Construction

•	CWSRF CANNOT pay for operations
and maintenance (O&M)

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?

•	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 computers

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 loans

•	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.

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ppiJI United States

Mam. Environmental Protection
'¦ i Jrm, Agency

Financing Decentralized
Wastewater Treatment Systems

How Can I Use the CWSRF to Finance My Decentralized System Project?

Federal statutes give states the ability to finance decentralized systems, but states determine whether
and how to provide the financing. If a CWSRF program determines there is a need and demand for
decentralized system financing, it will assess the best way(s) to offer financing. The table below highlights
the most common mechanisms used by states for financing decentralized systems. As of 2020, only 11 states
regularly use the CWSRF to finance decentralized wastewater projects. The Guide provides detailed information
on each of these mechanisms, including case studies.

How Do CWSRF Decentralized System Financing Programs Work?

Lending Structure

How does it work?

Who is doing it?

Direct homeowner loan

The state CWSRF signs a loan directly
with the property owner.

Linked deposit loan

The borrower applies for funding at a
participating bank. The CWSRF buys
down the interest rate that the bank
charges the borrower.

IA, MD, OH

Pass-through loan

The CWSRF makes a loan to a state or CT, MA, MN, NJ, OH, PA, WV

local government unit (agency, county,

or special district), which uses the

funds to make loans for decentralized

projects. The government unit ensures

repayment of the CWSRF loan.

CDFI pass-through

Same as above, but through a CDFI or
other financial institution.

ID, OR, WA, WV

Sub-state revolving fund

The CWSRF makes a loan to the
partner to capitalize another revolving
fund. Returns on the sub-state
revolving fund are used to repay the
CWSRF and to make new loans.

MO, OH, Rl, VA, WA

Sponsorship

A utility increases the size of its loan to
sponsor a NPS project. In exchange, the
CWSRF reduces the interest rate on the
loan to cancel out the cost of the NPS
project.

DE, IA, OH, OR all have sponsorship
programs but they have not been used
for decentralized projects

Co-funding

The CWSRF co-finances projects with
another funding entity.

Every state does this, but may not have
used this approach for financing
decentralized projects.

Options for Loan Repayment

Federal statutes require that borrowers have a viable source of loan repayment. The three most common
forms of repayment for decentralized system projects include:

• Property Tax Assessment Financing (PTAF): A

commonly used tool to help avoid high upfront costs
with decentralized system projects. This approach
allows the homeowner to pay for the project through
a long-term, fixed-cost financing option underwritten
by the value of the property.

• Septic Utility Fees: A cluster system or group of
households may collect fees to pay for O&M. This
fee can be used as a potential repayment source
for the installation, repair, or replacement costs of
decentralized systems.

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ppiJI United States

Mam. Environmental Protection
'¦ i Jrm, Agency

Financing Decentralized
Wastewater Treatment Systems

• Homeowners 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.

6.

Communicate Potential Costs and Benefits.

Meet with community members to discuss the
potential costs, benefits, timelines, and plans.

In addition to these options,

the Financing Options for
Non-Traditional Eligibilities
in the CWSRF report features
a variety of additional
potential repayment sources.

4

Initiating a Financing Program for
Decentralized Wastewater Systems
with the CWSRF

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. The Guide provides a
roadmap for how a decentralized system program
can be successfully financed by the CWSRF.

1.	Identify the Problem and Technical Solution.

Issues are determined by public health,
environmental, and economic impacts. Technical
solutions include community engagement as
well as consulting engineers/designers early in
the process.

2.	Review CWSRF Financing Options. These include
eligibility, repayment, and types of financing
mechanisms.

3.	Identify Potential Partners. Partnering
organizations must be eligible CWSRF
participants.

4.	Meet with CWSRF Staff. CWSRF program staff
can discuss proposed projects and identify the
best financing mechanism.

5.	Develop an O&M Plan. These activities are
not eligible expenses for CWSRF financing,
yet property owners should be equipped with
appropriate education and training tools.

7.	Put Together a CWSRF Financing Proposal.

Identify the financing mechanism and tailor the
CWSRF application to suit it.

8.	Sign Financing Agreements. This arrangement is
dependent on the type of financing mechanism
selected.

9.	Implement Decentralized System Projects. These
can include construction, repair, and replacement
of a septic system.

Finally, for a decentralized system financing program
to thrive, communication to stakeholders about
financing options available is critical. The Guide
provides several outreach examples for reaching
potential borrowers.

MORE INFORMATION

CWSRF State Program Contacts: www.epa.gov/
cws rf/state-cws rf- p ro g ra m -co nta cts

Financing Decentralized Wastewater Treatment
Systems: Pathways to Success with the Clean
Water State Revolving Fund Program: www.epa.
aov/svstem/files/documents/2022-02/financina-
dwts.pdf

Financing Options for Nontraditional Eligibilities
in the Clean Water State Revolving Fund
Programs: epa.aov/cwsrf/financina-options-
nontraditional-eliaibilities-cwsrf

Document Number: EPA-832-F-22-013 | August 2022

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