The EPA Could Improve
Its Review of Drinking
Water State Revolving
Fund Programs to Help
States Assist
Disadvantaged
Communities
July 11, 2023 | Report No. 23-P-0022
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Report Contributors:
Myka Bailey-Sparrow
Michael D. Davis
Kathryn Hess
Douglas LaTessa
Chen-yang Liu
Abbreviations:
DWSRF
Drinking Water State Revolving Fund
EPA
U.S. Environmental Protection Agency
IIJA
Infrastructure Investment and Jobs Act
IUP
Intended Use Plan
OIG
Office of Inspector General
OWSRF
Office of Water State Revolving Fund Database
SDWA
Safe Drinking Water Act
Key Definitions:
Please see Appendix A for key definitions.
Cover Image:
Drinking water supply tower. (EPA photo)
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Office of Inspector General
U.S. Environmental Protection Agency
Glance
23-P-0022
July 11, 2023
Why We Did This Audit
The U.S. Environmental
Protection Agency Office of
Inspector General conducted this
audit to determine to what extent
states have met their drinking
water state revolving fund loan
subsidy goals for disadvantaged
communities as identified in their
intended use plans and whether
the EPA identified and addressed
barriers, if any, that hindered
states from spending the
maximum allowed on loan
subsidies for disadvantaged
communities.
Annually, the EPA awards
capitalization grants to the states
that then provide low interest rate
loans for drinking water
infrastructure projects. For federal
fiscal years 2017 through 2021,
these grants totaled $5.1 billion.
The grants contain minimum loan
subsidy requirements. The EPA
also set a goal for the states to
provide the subsidies timely. The
states can use up to
approximately 31 percent of their
grants to fund set-asides to,
among other things, assist
disadvantaged communities in
qualifying for loans.
This audit supports an EPA
mission-related effort:
• Ensuring clean and safe water.
This audit addresses top EPA
management challenges:
• Integrating and leading
environmental justice, including
communicating risks.
• Managing increased investment
in infrastructure.
Address inquiries to our public
affairs office at (202) 566-2391 or
OIG.PublicAffairs@epa.gov.
List of OIG reports.
The EPA Could Improve Its Review of Drinking
Water State Revolving Fund Programs to Help
States Assist Disadvantaged Communities
What We Found
We found that two of the seven states we
reviewed, Alabama and Maryland, did not
consistently meet their requirements to award
loan subsidies to disadvantaged communities
and other eligible recipients for state fiscal
years 2017 through 2020. By 2019, Maryland
completed corrective actions to address this
issue.
When states do not
provide loan subsidies, or
do not provide them timely,
infrastructure
improvements may not
occur, negatively affecting
disadvantaged
communities' ability to
provide safe drinking
water.
Furthermore, of the seven states we reviewed,
Idaho was the only one to consistently meet
the EPA's timeliness goal. We calculated that the other six states did not
timely award $46.7 million in loan subsidies, nearly a third of the required
minimum subsidies.
We identified barriers to meeting the loan subsidies requirements, including:
• Inadequate oversight by the EPA regions.
• Underuse of set-asides by the states.
For the states we reviewed, the level of set-aside statistically correlated with
the level of loan subsidy. Alabama, which fell $7.2 million, or 38.4 percent,
short of its loan subsidy requirements, took less than a quarter of its available
set-asides. If Alabama increased its set-aside award to the national average,
we estimated that it would have $30.7 million for federal fiscal years 2023
through 2026 that it could put to better use by assisting disadvantaged
communities in qualifying for loans.
Lastly, Alabama did not consistently assign its loan subsidies with a
capitalization grant in the EPA's database. We found this problem with ten
additional states nationwide. This problem prevents the EPA from performing
consistent oversight.
Recommendations and Planned Agency Corrective Actions
To improve the EPA's oversight of states' efforts to provide loan subsidies to
disadvantaged communities, we recommend that the EPA update regional
review guidance, work more closely with states to clarify set-aside
requirements and to assess set-aside use to assist disadvantaged
communities, and ensure that states assign loan subsidies with a capitalization
grant in the EPA's database. The Agency agreed to all three recommendations
and proposed acceptable corrective actions for two. We will work with the
Office of Water to resolve the third recommendation.
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U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
July 11,2023
MEMORANDUM
SUBJECT: The EPA Could Improve its Review of Drinking Water State Revolving Fund Programs
to Help States Assist Disadvantaged Communities
Report No. 23-P-0022
This is our report on the subject audit conducted by the U.S. Environmental Protection Agency Office of
Inspector General. The project number for this audit was QA-FY22-0020. This report contains findings that
describe the problems the OIG has identified and corrective actions the OIG recommends. Final
determinations on matters in this report will be made by EPA managers in accordance with established audit
resolution procedures.
You are designated as the action official for the three recommendations made in this report.
In accordance with EPA Manual 2750, your office provided acceptable planned corrective actions and
estimated milestone dates for Recommendations 1 and 2. These recommendations are resolved. A final
response pertaining to these recommendations is not required; however, if you submit a response, it will be
posted on the OIG's website, along with our memorandum commenting on your response.
Action Required
Recommendation 3 is unresolved. EPA Manual 2750 requires that recommendations be resolved
promptly. Therefore, we request that the EPA provide us within 60 days its responses concerning specific
actions in process or alternative corrective actions proposed on the recommendation. Your response will
be posted on the OIG's website, along with our memorandum commenting on your response. Your
response should be provided as an Adobe PDF file that complies with the accessibility requirements of
section 508 of the Rehabilitation Act of 1973, as amended. The final response should not contain data that
you do not want to be released to the public; if your response contains such data, you should identify the
data for redaction or removal along with corresponding justification. The Inspector General Act of 1978,
as amended, requires that we report in our semiannual reports to Congress on each audit or evaluation
report for which we receive no Agency response within 60 calendar days.
FROM: Sean W. O'Donnell, Inspector General
TO:
Radhika Fox, Assistant Administrator
Office of Water
We will post this report to our website at www.epa.gov/oig.
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The EPA Could Improve Its Review of Drinking
Water State Revolving Fund Programs to
Help States Assist Disadvantaged Communities
23-P-0022
Table of C
Chapters
1 Introduction 1
Purpose 1
Background 1
Responsible Offices 5
Scope and Methodology 5
Prior Reports 7
2 States Did Not Always Meet Loan Subsidy Requirements 9
States Did Not Always Meet Loan Subsidy Requirements 9
Effect of States Not Meeting Loan Subsidy Requirements 11
3 Barriers Affected States' Ability to Meet the Requirements to Provide Loan Subsidies to
Disadvantaged Communities 12
The EPA Needs to Address Barriers to Meeting Loan Subsidy Requirements 12
Not Meeting Loan Subsidy Requirements Timely Can Delay Critical Infrastructure
Improvements 18
Recommendations 19
Agency Response and OIG Assessment 19
4 Incomplete Data Prevents Consistent Oversight of DWSRF Loan Subsidy Requirements 20
Required Reporting of State DWSRF Information in the OWSRF Database 20
The OWSRF Database Has Incomplete Data Entries 20
The EPA Did Not Require States to Update Data 20
Data Problem Prevents Consistent Oversight 21
Recommendation 21
Agency Response and OIG Assessment 21
Status of Recommendations and Potential Monetary Benefits 23
Appendixes
A. Key Definitions 24
B. Additional Analysis of the States that We Reviewed 25
C. Analysis of the Four Set-Asides Available for the DWSRF Programs 31
D. Alternate Tables 34
E. Agency Response to Draft Report 39
F. Distribution List 43
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Chapter 1
Introduction
Purpose
The U.S. Environmental Protection Agency Office of Inspector General initiated this audit to determine
to what extent:
• States have met their drinking water state revolving fund, or DWSRF, loan-subsidy goals for
disadvantaged communities, as identified in their intended-use plans.
• The EPA has identified and addressed barriers, if any, that hindered states from spending the
maximum allowed on loan subsidies for disadvantaged communities in their DWSRF.
Top Management Challenges Addressed
This audit addresses the following top management challenges for the Agency, as identified in the OIG report.
EPA's Fiscal Year 2023 Top Management Challenges, issued October 28, 2022:
• Integrating and leading environmental justice, including communicating risks.
• Managing increased investment in infrastructure.
Background
According to the EPA, over 148,000 public water systems provide drinking water to 90 percent of
Americans through an estimated 2.2 million miles of transmission lines and distribution mains. In 2023,
the EPA estimated that $625 billion is needed to maintain and improve the nation's drinking water
infrastructure over the next 20 years. This infrastructure investment is needed to ensure the public
health, security, and economic well-being of our communities.
Drinking Water State Revolving Fund
The DWSRF is a financial assistance program that helps water systems and states achieve the human
health protection objectives of the Safe Drinking Water Act, or SDWA. Congress established the DWSRF
in the 1996 amendments to SDWA. Congress
annually appropriates funding for the DWSRF. The
EPA then awards annual capitalization grants to
each state and Puerto Rico to fund the 51 state
DWSRF programs.1 In this report, we use "states"
in relation to the DWSRF to refer to the 50 states
and Puerto Rico. For federal fiscal years 2017
through 2021, these grants totaled over
$5.1 billion, as shown in Table 1.
1 The DWSRF program also provides direct grant funding for the District of Columbia and U.S. territories. This grant
funding was outside the scope of this audit.
Table 1: Amount of capitalization grants for
the 51 drinking water state revolving funds.
Federal fiscal year I
I Amount allocated ($)
2017
803,531,000
2018
1,082,966,000
2019
1,072,857,000
2020
1,073,539,000
2021
1,072,564,000
Total over five years 5,105,457,000
Source: OIG analysis of EPA data. (EPA OIG table)
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SDWA requires each state to provide at least a 20 percent match to the federal funds. The state DWSRF
programs function like infrastructure banks by providing low-interest loans to eligible recipients for
drinking water infrastructure projects. These loans are considered subsidized because they offer below-
market interest rates. As the recipients repay their loans to the state DWSRF, the state makes new loans
to other recipients. These repayments of loan principal and interest earnings allow the state's DWSRF to
revolve over time.
DWSRF Loan Subsidies
SDWA, as amended, allows states to provide subsidies, including forgiveness of principal, to a
disadvantaged community or a community that the state expects to become disadvantaged as a result
of taking on a loan for a proposed project. SDWA refers to these subsidies as "additional subsidies"
because the loans provided through the DWSRF are already subsidized through below-market interest
rates. In this report, we refer to them more simply as "subsidies."
Since federal fiscal year 2019, SDWA has required states to provide these subsidies if there are sufficient
applications for loans from those communities. SDWA also requires each state to establish affordability
criteria for the purpose of determining what constitutes a disadvantaged community. As shown in
Table 2, requirements related to the DWSRF loan subsidies varied over time. For the years we examined,
the minimum subsidy to disadvantaged communities required by SDWA was either zero, meaning
subsidies were optional, or 6 percent of the capitalization grant. The maximum subsidy allowed by
SDWA was 30 or 35 percent.
Table 2: DWSRF loan subsidy requirements by percent of capitalization grant
Federal fiscal
year*
SDWA subsidy
requirement
minimum (%)
SDWA subsidy
requirement
maximum (%)
Annual
appropriation
subsidy
requirement
minimum (%)
Annual
appropriation
subsidy
requirement
maximum* (%)
Total minimum
subsidy
requirement (%)
2015
0
30
20
30
20
2016
0
30
20
—
20
2017
0
30
20
—
20
2018
0
30
20
—
20
2019
6
35
20
26
2020
6
35
14
20
Source: OIG analysis of EPA data. (EPA OIG table)
* We examined intended use plans from 2017 through 2020 and noted that states varied in which capitalization
grant federal fiscal year corresponded to a state's intended use plan. This meant that the capitalization grants we
examined ranged from federal fiscal years 2015 to 2020.
"t" Since federal fiscal year 2017, states were authorized to provide greater subsidies if the funds were used to
address a public health threat from heightened exposure to lead in drinking water.
In addition, Congress included in relevant annual appropriations laws minimum subsidy requirements of
14 or 20 percent of the capitalization grant for the years we examined, as shown in Table 2. These
subsidies were available to eligible DWSRF recipients, including disadvantaged communities. While most
states we reviewed awarded these subsidies only to disadvantaged communities, two states also
awarded the subsidies to nondisadvantaged communities, such as those recovering from an emergency
or being served by a very small system.
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The subsidy requirements together resulted in a total minimum subsidy of 20 or 26 percent of the
capitalization grant for the years we examined, as shown in Table 2. For the period we reviewed, the
EPA required that a capitalization grant remain open until the state met the minimum subsidy
requirements in executed loans.2
In 2013, the EPA established a timeliness goal that the state DWSRF programs provide the required
minimum loan subsidies in executed loan agreements by the end of the federal fiscal year after the EPA
awarded the capitalization grant. The EPA created this timeliness goal to address concerns related to
unliquidated obligations, where funds were not being moved into projects in a timely manner.
DWSRF Set-Asides
SDWA allows each state to use up to approximately 31 percent of each DWSRF capitalization grant from
the EPA to fund the state's work to fulfill a variety of its drinking water responsibilities. For example, the
state can use these set-asides to fund activities that help communities obtain the technical, managerial,
and financial capacity needed to qualify for a DWSRF loan, as described in Table 3. This capacity includes
the abilty to maintain compliance with SDWA requirements and manage financial resources.
Technical Capacity:
Managerial Capacity:
Financial Capacity:
The physical and operational
The ability of a water system to
The ability of a water system to acquire
ability of a water system to meet
conduct its affairs in a manner
and manage sufficient financial
SDWA requirements.
enabling the system to achieve and
resources to allow the system to achieve
maintain compliance with SDWA
and maintain compliance with SDWA
requirements.
requirements.
—EPA Regional Capacity Development Coordinator's Handbook
Table 3: How states can use SDWA-authorized set-asides to assist disadvantaged communities in
obtaining the capacity needed to qualify for DWSRF loans
Set-aside
Use example
Maximum set-aside
(% of capitalization grant)
Administration and
technical assistance*
• Provide technical assistance to water systems
4
Small systems technical
assistance*
• Provide technical assistance and training to small
water systems
• Contract for third-party technical assistance providers
2
State program
management
• Develop and implement a capacity development
strategy
10
Local assistance and
other state programs
• Assist in the development and implementation of local
drinking water initiatives
• Provide technical or financial assistance to water
systems for capacity development
15
Total
31
Source: OIG analysis of EPA data. (EPA OIG table)
* A state DWSRF program may use up to the highest of three options for the administration and technical
assistance set-aside: $400,000, 4 percent of the federal capitalization grant, or one-fifth of one percent of the
current value of the state's fund. This leads to a higher than 4 percent allocation for this set-aside for some states.
f For the purposes of the DWSRF, small systems are those systems that serve 10,000 or fewer persons.
2 In a November 2021 memorandum, the EPA updated the policy regarding loan subsidies, allowing loan subsidies
to be awarded from previously closed capitalization grants without reopening them and lowering the approval
level to EPA regional program offices.
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DWSRF Planning and Reporting Requirements
SDWA requires each state to prepare an annual intended use plan, or IUP, that describes how the state
intends to use that year's capitalization grant to support the overall goals of the DWSRF program.
According to 40 C.F.R. § 35.3555, the IUP must:
• Define what constitutes a disadvantaged community.
• Identify the amount and type of loan subsidies that may be made available to disadvantaged
communities.
• Identify, to the maximum extent practicable, projects that will receive disadvantaged
community loan subsidies and the respective subsidy amounts.
SDWA also requires that each state publish and submit to the EPA a report every other year on its
DWSRF activities. In practice, many states publish their reports annually.
EPA Oversight of State DWSRF Programs
The EPA is responsible for oversight to ensure that the state DWSRF programs comply with applicable
federal requirements throughout the project approval, loan closing, project completion, and close-out
processes. According to 40 C.F.R. § 35.3570, the EPA is required to annually review each of the state
DWSRF programs. The purpose of these annual reviews is to assess the state's performance of activities
identified in the state's IUP and biennial report, as well as to determine compliance with the
capitalization grant agreement requirements. Managers and staff members in EPA regional offices
review the state DWSRF programs in their region. The EPA directs its regional offices to take a risk-based
approach to the annual review to help direct the Agency's limited resources to the areas that need the
most attention. The regions assess the financial health and management capacity of each state DWSRF
program and work with states to improve program operations. The EPA provides a checklist for the
regional review team to complete for each annual review. This checklist contains questions about loan
subsidies that the regional review team should consider. For example, the questions ask about the
state's criteria for providing loan subsidies and whether the amount and type of loan subsidies are
consistent with the loan subsidy requirement for the year under review. The EPA requires the regional
review team to provide the state with a written report, known as a "program evaluation report,"
detailing the review process and findings. The EPA encourages the team to provide this report within
60 days from the date that the team completed the annual review.
Recent Federal Focus on DWSRF and Equity
In 2021, the federal government emphasized the need for equity in drinking water safety and programs
through the Justice40 Initiative and the Infrastructure Investment and Jobs Act, also known as the IIJA.
Although these two efforts are outside the scope of this audit's time frame, our findings can help inform
the EPA's work to meet the DWSRF-related goals established by each effort.
Justice40 Initiative
In January 2021, the president created a governmentwide Justice40 Initiative with the goal of delivering
40 percent of the overall benefits of relevant federal investments to disadvantaged communities. In
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July 2021, the administration identified the DWSRF program as one of the 21 priority programs to
immediately begin enhancing benefits for disadvantaged communities.
Infrastructure Investment and Jobs Act
The president signed the IIJA on November 15, 2021. This law included $50 billion for the EPA to
strengthen the nation's drinking water and wastewater infrastructure—the largest single investment in
water infrastructure that the federal government has ever made. Overall, the DWSRF will receive
$30.7 billion allocated over federal fiscal years 2022 through 2026. Of this amount, the general fund will
receive $11.7 billion to supplement annual appropriations to the DWSRF. The remainder of the DWSRF
funds appropriated in the IIJA is for replacing lead service lines and addressing emerging contaminants.
The IIJA provides that disadvantaged communities benefit from this investment in water infrastructure.
The law mandates that 49 percent of IIJA funds provided through the DWSRF general fund must be
provided as loan subsidies to disadvantaged communities. In a March 2022 memorandum to state
revolving fund program managers, the EPA stated that "[g]iven the level of funding under [the IIJA],
states should review the current disadvantaged community definition to ensure that it is sufficient to
address public health and affordability issues within the state."
Responsible Offices
The EPA Office of Ground Water and Drinking Water, within the EPA Office of Water, protects public
health by ensuring safe drinking water. The office oversees implementation of SDWA and oversees and
provides funding for state drinking water programs. The Office of Water works with the ten EPA regional
offices; other federal agencies; state, local, and tribal governments; the regulated community; the
public; and other stakeholders to provide guidance, specify scientific methods and data collection
requirements, perform oversight, and facilitate communication among those involved in providing safe
drinking water.
Scope and Methodology
We conducted this performance audit from October 2021 to May 2023 in accordance with generally
accepted government auditing standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
We assessed the internal controls necessary to satisfy our audit objectives.3 In particular, we assessed
the internal control components—as outlined in the U.S. Government Accountability Office's Standards
for Internal Control in the Federal Government— significant to our audit objectives. In this report, we
discuss the internal control deficiencies that we found. Because our audit was limited to the internal
3 An entity designs, implements, and operates internal controls to achieve its objectives related to operations,
reporting, and compliance. The U.S. Government Accountability Office sets internal control standards for federal
entities in GAO-14-704G, Standards for Internal Control in the Federal Government (also known as the "Green
Book"), issued September 10, 2014.
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control components deemed significant to our audit objectives, it may not have disclosed all internal
control deficiencies that existed at the time of the audit.
To obtain an understanding of the criteria applicable to the implementation of the DWSRF program, we
reviewed relevant federal statutes, regulations, policies, and guidance, including:
• SDWA, as currently enacted and in effect during the time periods of the DWSRF capitalization
grants we examined.
• The IDA.
• 40 C.F.R. part 35, subpart L.
• Relevant EPA guidance documents.
• EPA annual DWSRF reports.
• EPA policies regarding loan subsidies and cioseout of capitalization grants.
To determine whether states met their DWSRF loan
subsidy requirements and the EPA timeliness goal, we
reviewed seven state programs. We judgmentally
selected states to obtain geographic and size
diversity. As our selection was judgmental rather than
random, we cannot project our findings on DWSRF
program performance in these seven states to the
performance of ail state DWSRF programs. The
selected states and their corresponding EPA region
are shown in Table 4 and Figure 1.
Table 4: States selected for our audit
j State
EPA region I
Alabama
4
Idaho
10
Maryland
3
Massachusetts
1
Nebraska
7
Texas
6
Wisconsin
5
Source: OIG analysis. (EPA OIG table)
Figure 1: The seven states selected for this audit and their corresponding EPA regions.
Source: OIG analysis of EPA and geographic information. (EPA OIG image)
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For state fiscal years 2017 through 2020, we reviewed each of the seven states' lUPs and biennial or
annual reports, as well as the corresponding EPA reports assessing the state DWSRF programs.4 We
interviewed managers and staff for each state DWSRF program and for the EPA regions responsible for
oversight of those state programs.
We also analyzed data retrieved from the EPA Office of Water State Revolving Fund, or OWSRF,
database to determine the extent to which each state program met its loan subsidy requirements and
the EPA timeliness goal. We identified the appropriate capitalization grant for each state fiscal year and
determined the loan subsidies associated with those capitalization grants.
We were not able to perform the same type of analysis for Alabama as we did for the other six states
that we reviewed because of the way the state entered its grant data into the OWSRF database. For
most of the Alabama grant data we examined, the state had not assigned loan subsidy amounts to a
specific capitalization grant. If a state has not made this assignment in the OWSRF database, the
database cannot be used to determine whether a capitalization grant has met its minimum subsidy
requirement and is ready for closeout. Because we were not able to examine Alabama's loan subsidy
data by capitalization grant, we looked at its loan subsidy commitments over four consecutive state
fiscal years. While this analysis differed from our analysis for the other six states, it provided comparable
insight into Alabama's progress in providing loan subsidies.
Based on our findings related to Alabama, we examined nationwide loan data as recorded in the OWSRF
database to identify if other states in addition to Alabama did not assign loan subsidy amounts to
specific capitalization grants.
To determine whether the EPA identified and addressed barriers, if any, that hindered states from
spending the maximum allowed on DWSRF loan subsidies for disadvantaged communities, we surveyed
the 51 DWSRF program managers. We received 30 survey responses, for a 58.8 percent response rate.
We also interviewed DWSRF staff and managers in the seven states we reviewed and in the
corresponding EPA regions to further our understanding of these barriers and steps that the EPA has
taken. In addition, we analyzed the EPA's data on state set-aside awards and the correlation between
those awards and the states meeting loan subsidy requirements. Where we identified that the EPA is
taking action to address a barrier, we did not assess the effectiveness of that action.
Prior Reports
In EPA OIG Report No. 15-P-0032, EPA Needs to Demonstrate Public Health Benefits of Drinking Water
State Revolving Fund Projects, issued December 5, 2014, we identified deficiencies with the EPA's
collection of DWSRF project data and the EPA's annual review process to determine project outcomes.
As a result of these deficiencies, the EPA was unable to demonstrate the public health results and
overall success of the DWSRF program. We made four recommendations to address these deficiencies,
and the EPA completed corrective actions to address the recommendations.
Prior to that, in EPA OIG Report No. 14-P-0318, Unliquidated Obligations Resulted in Missed
Opportunities to Improve Drinking Water Infrastructure, issued July 16, 2014, we identified $231 million
in idle capitalization grant funds that were not being implemented into potential drinking water
4 Federal fiscal years run from October 1 through September 30. Many states run their fiscal years from July 1
through June 30. In both cases, the fiscal year is known by the later of the two calendar years spanned.
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projects. We also found that less than one-third of the projects in state lUPs were executed within the
grant year and that these states did not have a consistent definition of when projects were ready to
proceed. When projects are not ready to proceed, environmental benefits are delayed. We made four
recommendations to address these issues. The EPA reported that it completed corrective actions to
address the recommendations. This audit resulted in the EPA implementing a national strategy to
reduce unliquidated obligations within the DWSRF program.
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Chapter 2
States Did Not Always Meet Loan
Subsidy Requirements
Two of the seven states we examined, Alabama and Maryland, did not consistently meet their
requirements to provide loan subsidies to disadvantaged communities and other eligible recipients for
state fiscal years 2017 through 2020. By 2019, Maryland resolved state budget and staffing issues that
caused their loan subsidy deficit; however, Alabama's loan subsidy deficit remained. While most of the
seven state DWSRF programs we reviewed eventually met their requirements to provide loan subsidies,
only Idaho consistently met the EPA timeliness goal for providing required minimum loan subsidies. We
calculated that the states did not timely award $46.7 million in loan subsidies—nearly a third of the
required minimum subsidies. When states do not provide loan subsidies to disadvantaged communities
or do not provide those subsidies in a timely manner, those communities may not be able to make the
critical infrastructure improvements necessary to provide safe drinking water to residents.
States Did Not Always Meet Loan Subsidy Requirements
We found that two of the seven states, Alabama and Maryland, did not meet their loan subsidy
requirements for the four state fiscal years we examined, based on the loan information we retrieved
from the OWSRF database on July 7, 2022, as shown in Table 5. We also found that these two states and
two additional states, Nebraska and Texas, did not meet the EPA timeliness goal. Additional information
on our analysis is in Appendix B.
Table 5: Status in meeting loan subsidy requirements for state fiscal years 2017 through 2020
State
Region
Minimum subsidy
requirements ($)
Subsidies provided
as of July 2022 ($)
Difference ($)
Alabama*
4
18,851,460
11,620,460
-7,231,000
Idaho
10
8,419,040
12,301,941
3,882,901
Maryland
3
12,671,200
10,079,259
-2,591,941
Massachusetts
1
18,009,000
23,726,006
5,717,006
Nebraska
7
8,418,780
8,705,242
286,462
Texas
6
63,765,300
80,654,755
16,889,455
Wisconsin
5
14,478,556
21,135,220
6,476,664
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Because Alabama's executed loans were not associated with a capitalization grant in the OWSRF database,
we were unable to determine which capitalization grant a loan belonged to. Instead, we calculated the amount
for Alabama based on date ranges.
Alabama Should Prioritize Loan Subsidies
Our analysis, as shown in Table 6, demonstrated that Alabama did not meet the minimum loan subsidy
requirements. Over the four state fiscal years we examined, Alabama accumulated a deficit of
$7.2 million in loan subsidies. While Alabama's subsidies increased from $1.9 million in state fiscal year
2017 to $4.8 million in state fiscal year 2020, that increase was not enough to make up the deficit in
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subsidies from the prior three years. From this record, we concluded that Alabama did not sufficiently
prioritize meeting the minimum loan subsidy requirements.
Table 6: Alabama's DWSRF loan subsidies by state fiscal year
State fiscal year
Grant award
amount ($)
Required
subsidy (%)
Required
subsidy amount
($)
Loan subsidy
amount as of
July 2022* ($)
Difference* ($)
2017
15,740,000
20
3,148,000
1,925,000
-1,223,000
2018
23,944,000
20
4,788,800
1,640,000
-3,148,800
2019
23,721,000
26
6,167,460
3,236,000
-2,931,460
2020
23,736,000
20
4,747,200
4,819,460
72,260
Total
18,851,460
11,620,460
-7,231,000
Notes: Green cell = Loan subsidy amount was at or above the required subsidy amount. Yellow cell = Loan subsidy
amount was below the required subsidy amount. Appendix D includes a version of this table that uses symbols,
rather than color, to convey the information above.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Because Alabama's executed loans were not associated with a capitalization grant in the OWSRF database, we
were unable to determine which capitalization grant a loan belonged to. Instead, we calculated the amount for
Alabama based on date ranges.
Maryland Addressed Its Loan Subsidy Gap
The Maryland DWSRF program did not meet its loan subsidy requirements in two of the four years we
examined, as shown in Table 7. The Maryland state legislature's budget planning caused grants to
remain unused for nearly a year. This legislative delay largely contributed to the Maryland DWSRF
program being late in meeting its loan subsidy. In addition, according to the EPA Region 3 program
evaluation reports, the Maryland DWSRF program experienced significant staff turnover during a
two-year period. These vacancies included high-level positions that were temporarily filled by other
staff. By 2019, Maryland completed corrective actions intended to help it meet its DWSRF program
requirements. Some of the results of those actions are reflected in Table 7. As the table shows, the state
caught up in meeting the loan subsidy requirements for the two earliest years examined by the time we
retrieved loan information from the OWSRF database in July 2022. As of November 2022, the Maryland
DWSRF program had resolved 83 percent of the $2.6 million deficit shown in Table 7.
Table 7: Maryland's DWSRF loan subsidies by state fiscal year
State fiscal
year
Grant award
amount ($)
Required subsidy (%)
Required
subsidy
amount ($)
Loan subsidy
amount as of
July 2022 ($)
Difference*
($)
2017
14,913,000
20
2,982,600
3,029,565
46,965
2018
14,108,000
20
2,821,600
3,000,000
178,400
2019
13,987,000
20
2,797,400
1,940,724
-856,676
2020
20,348,000
20
4,069,600
2,108,970
-1,960,630
Total
12,671,200
10,079,259
-2,591,941
Notes: Green cell = Loan subsidy amount was at or above the required subsidy amount. Yellow cell = Loan subsidy
amount was below the required subsidy amount. Appendix D includes a version of this table that uses symbols,
rather than color, to convey the information above.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and loan subsidy amount as of July 2022.
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States Did Not Meet the EPA Timeliness Goal
We also examined whether the states met the EPA timeliness goal when they awarded loan subsidies to
disadvantaged communities and other eligible recipients. In 2013, the EPA established a timeliness goal
that the state DWSRF programs provide the required minimum loan subsidies in executed loan
agreements by the end of the federal fiscal year after the EPA awarded the capitalization grant. For at
least three of the four state fiscal years we reviewed, Alabama, Maryland, Nebraska, and Texas did not
meet the EPA timeliness goal, as shown in Table 8. However, all except Alabama had made progress in
awarding loan subsidies by the time we retrieved the loan data in July 2022. Massachusetts and
Wisconsin met the EPA timeliness goal in at least two of the four state fiscal years we reviewed. Idaho
was the only state reviewed that met the EPA timeliness goal for all four state fiscal years we reviewed.
Table 8: State status in meeting the EPA timeliness goal for state fiscal years 2017 through 2020
State
Percent of years
meeting the EPA
timeliness goal
(%)
Status*
Alabama1"
25
Did not meet the EPA timeliness goal for three of the four years we
examined. As shown in Table 6, at the time we retrieved the loan data,
Alabama was still behind by $7.2 million in meeting the loan subsidy
minimum requirements for the four years.
Idaho 100 Met the EPA timeliness qoal for all four years we examined.
Maryland
0
Did not meet the EPA timeliness goal for any of the four years we
examined. As shown in Table 7, at the time we retrieved the loan data,
Maryland had met the loan subsidy minimum requirements for the two
earliest years.
7J- Met the EPA timeliness goal for three of the four years we examined,
assac use s Massachusetts missed the goal for one year due to a project delay.
Nebraska
0
Did not meet the EPA timeliness goal for any of the four years we
examined. However, at the time we retrieved the loan data Nebraska
had exceeded minimum subsidy amounts for the three earliest years.
Did not meet the EPA timeliness goal for three of the four years we
Texas 25 examined. However, at the time we retrieved the loan data, Texas had
exceeded minimum subsidy amounts for the three earliest years.
Wisconsin
50
Met the EPA timeliness goal for two of the four years we examined,
and nearly met the qoal for the other two.
Source: OIG analysis of EPA data. (EPA OIG table)
* Loan data retrieved from the OWSRF database on July 7, 2022.
f Because Alabama's executed loans were not associated with a capitalization grant in the OWSRF database,
we based timeliness on the loan subsidy amount awarded within a state fiscal year.
Effect of States Not Meeting Loan Subsidy Requirements
We calculated that the states, for the period we reviewed, did not timely award $46.7 million in loan
subsidies, or nearly a third of the required minimum subsidies, based on the EPA timeliness goal. When
states do not provide loan subsidies to disadvantaged communities and other eligible recipients, or do
not provide those subsidies in a timely manner, those communities may not be able to make the critical
infrastructure improvements necessary to provide safe drinking water to residents.
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Chapter 3
Barriers Affected States' Ability to Meet the
Requirements to Provide Loan Subsidies to
Disadvantaged Communities
While most of the seven states we reviewed eventually met their requirements to provide loan subsidies
to disadvantaged communities and other eligible recipients, most did not meet the EPA timeliness goal.
When states do not provide timely loan subsidies, infrastructure improvements may be delayed,
negatively affecting communities' ability to provide safe drinking water to their residents. We identified
five barriers that affected the ability of state DWSRF programs to meet the requirements to provide loan
subsidies in a timely manner. While the EPA has addressed or partly addressed three of these barriers,
the Agency still needs to take action to address two of them. First, the EPA needs to improve its review
of state DWSRF programs. And second, the states need to improve their use of set-aside funds to assist
disadvantaged communities in qualifying for DWSRF loans. In particular, we found that Alabama
underused the DWSRF set-asides when compared to the other states we examined. If Alabama were to
increase its set-aside award to the national average, we estimated that it would have $30.7 million for
federal fiscal years 2023 through 2026 that it could put to better use by assisting disadvantaged
communities in qualifying for DWSRF loans.
These improvements should lead to states not only meeting their loan subsidy requirements but also to
states attaining both the IIJA goal of assisting disadvantaged communities and the Justice40 Initiative
goal of delivering 40 percent of benefits from the DWSRF investment to disadvantaged communities.
The EPA Needs to Address Barriers to Meeting Loan Subsidy
Requirements
We identified five barriers that contributed to state DWSRF programs not consistently meeting the
requirements for awarding loan subsidies. These included two barriers that the EPA needs to address:
• Inadequate oversight by the EPA regions.
• Underuse of set-asides by the states.
The EPA is taking actions that address, or partly address, the other three barriers we identified:
• States' narrow definitions of how communities qualify for disadvantaged community loan
subsidies.
• Community challenges with meeting federal acquisition and labor requirements for proposed
projects.
• States' concerns about the sustainability of their funds.
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Inadequate Oversight by the EPA Regions
We identified inadequate oversight by the EPA regions as a barrier to states awarding loan subsidies.
The EPA regions conducted their oversight in different ways, with some regions inadequately addressing
the timeliness of loan subsidy commitments. As shown in Table 9, EPA Region 4 did not discuss loan
subsidies in its program evaluation reports for Alabama, unlike the other regions did in their reports for
the states we reviewed. We concluded that, at a minimum, the EPA regions should discuss and
document the progress toward meeting the minimum loan subsidy requirements.
Table 9: EPA program evaluation reports
Region
State
Did the EPA region include
a discussion of loan
subsidies in program
evaluation reports?
Did the EPA region include
a table of open grants and
loan subsidies in program
evaluation reports?
Did the EPA region include
loan subsidy financial
indicators in program
evaluation reports?
1
Massachusetts
Yes
Yes
Yes
3
Maryland
Yes
Yes
No
4
Alabama
No
No
No
5
Wisconsin
Yes
Yes
No
6
Texas
Yes
No
No
7
Nebraska
Yes
No
No
10
Idaho
Yes
Yes
No
Source: OIG analysis of EPA data. (EPA OIG table)
Also shown in Table 9, four of the seven regions we examined included a table in their program
evaluation reports that identified the minimum amount that the state must use for loan subsidies and
the amounts committed and disbursed for each open capitalization grant. This comparison table
presents the state's progress toward the minimum subsidy amount. The three EPA regions that did not
include this type of table oversee three of the four states that did not meet the EPA timeliness goal:
Alabama, Nebraska, and Texas.5 Regional staff told us that the EPA and state program staff can get this
information on loan subsidies from the OWSRF database and that the inclusion of this information is not
required. However, the EPA's team lead for the national DWSRF program told us that the regions should
include subsidies in their review of the state DWSRF programs and in the resulting program evaluation
reports.
Region 1 is the only region we reviewed that included the number of loans made to disadvantaged
communities and the dollar amount of the loan subsidies awarded in its program evaluation reports, as
shown in Table 9. We identified the inclusion of these financial indicators related to loan subsidies in the
program evaluation reports as an effective practice for tracking the progress of awarding loan subsidies.
If a region does not include information on the status of loan subsidies in its program evaluation report,
the region misses an opportunity to communicate to the state the importance of meeting the minimum
subsidy requirements in a timely manner. A lack of clear communication from the region about progress
could contribute to some state DWSRF programs not meeting the EPA timeliness goal when they
provide loan subsidies to disadvantaged communities and other eligible recipients.
5 As documented in Chapter 2, Maryland's untimely award of loan subsidies were a result of budget and staffing
problems, and the state completed corrective actions intended to help it meet its DWSRF program requirements.
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Underuse of Set-Asides by the States
We identified states' underuse of set-asides as a barrier to the states awarding loan subsidies to
disadvantaged communities. Three of the four states that struggled to meet the EPA timeliness goal-
Alabama, Nebraska, and Texas—used set-asides at rates lower than the national average. Their subsidy
amounts were smaller in proportion than those of the states with higher rates of set-aside use. The
states' underuse of set-asides was a barrier to meeting the EPA timeliness goal.
The rates at which states accessed set-asides varied over the four-year period we reviewed, as shown in
Table 10. We present additional analyses of state set-asides use in Appendix C.
Table 10: State set-asides shown as percent of capitalization grant, per state fiscal year
State
2017 (%)
2018 (%)
2019 (%)
2020 (%)
Average (%)
Alabama
4.0
4.0
11.8
8.7
7.1
Idaho
31.0
31.9*
31.0
31.0
31.2*
Maryland
27.0
26.8
31.0
27.0
28.0
Massachusetts
31.0
31.0
24.6
31.0
29.4
Nebraska
17.5
21.0
19.3
17.0
18.7
Texas
19.0
19.0
18.1
18.1
18.6
Wisconsin
29.1
27.6
25.1
27.3
27.3
National average 20JS 23^1 22^9 21/J 22.0
Maximum* 31X) 31X) 31^0 31^0 31.0
Notes: Green cell = Percentage awarded for set-asides was at or above the national average. Yellow cell =
Percentage awarded for set-asides was greater than one-quarter of the maximum allowed percentage and below the
national average. Red cell = Percentage awarded for set-asides was less than or equal to one-quarter of the
maximum allowed percentage. Appendix D includes a version of this table that uses symbols, rather than color, to
convey the information above.
Source: OIG analysis of EPA data. (EPA OIG table)
* A state DWSRF program may use the highest of three options for the administration and technical assistance
set-aside: $400,000; 4 percent of a capitalization grant; or one-fifth of one percent of the current value of its fund.
This may result in a total percent of the capitalization grant that exceeds the 31 percent maximum listed in this
table.
For the states we examined, we found that the amount of loan subsidy a state awarded statistically
correlated with the percent of set-asides that a state awarded, as shown in Figure 2.6 Idaho, the state
that met the EPA timeliness goal for awarding loan subsidies in all four years that we examined, fully
used the available set-aside options. Set-aside use in Massachusetts and Wisconsin was close to the
maximum allowed. Alabama, Nebraska, and Texas took set-asides at rates lower than the national
average.
6 In Figure 2, the proportion of the difference (x-axis) equals the difference between the loan subsidy provided and
the loan subsidy requirements divided by the loan subsidy requirements. We excluded Maryland from our analysis,
as Maryland's deficit in awarding loan subsidies to disadvantaged communities resulted from a legislative delay
and a temporary staffing issue that have been resolved, as discussed in the previous section. The correlation
analysis R-value of 0.933 is greater than 0.9, which indicates a strong correlation. The correlation analysis p-value
of 0.00651 is less than 0.05, which indicates a significant correlation. The shaded area around the correlation line
shows the 95 percent confidence interval.
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Figure 2: Correlation between the percent of capitalization grants for 2017-2020
took by states as set-asides and the proportion of the difference between loan
subsidies awarded and the loan subsidy requirements
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Alabama used this set-aside exclusively for administrative costs. For two of the four years in our review,
this was the only set-aside that Alabama accessed.
Table 11: Alabama set-asides, shown as percent of capitalization grant
Year*
Administration
and technical
assistance (%)
Small systems
technical
assistance (%)
State program
management
(%)
Local
assistance and
other state
programs (%)
Total (%)
2017
4.0
0.0
0.0
0.0
4.0
2018
4.0
0.0
0.0
0.0
4.0
2019
4.0
0.4
6.9
0.5
11.8
2020
4.0
0.0
4.6
0.1
8.7
2017-2020
4.0
0.1
2.9
0.2
7.1
National average,
2017-2020
3.6
1.7
8.9
7.8
22.0
Maximum
4.0
2.0
10.0
15.0
31.0
Notes: Green cell = Percentage awarded for set-aside was at or above the national average. Yellow cell =
Percentage awarded for set-aside was greater than one-quarter of the maximum percentage and below the national
average. Red cell = Percentage awarded for set-aside was less than or equal to one-quarter of the maximum
percentage. Appendix D includes a version of this table that uses symbols, rather than color, to convey the
information above.
Source: OIG analysis of EPA data. (EPA OIG table)
* The OWSRF database uses July of the previous year through June of the year listed.
Alabama took the other three set-asides—small systems technical assistance, state program
management, and local assistance and other state programs set-asides—at rates less than the national
averages. Alabama was the only state reviewed that did not access these three set-asides every year. To
understand the historical use of these three set-asides, we examined use for 2004 through 2018 and
found that Alabama did not access these set-asides.
Some state managers' opinions and misperceptions regarding set-asides contributed to Alabama's low
set-aside awards. An Alabama Department of Environmental Management branch chief told us in an
email that he perceived the set-asides as requiring more effort than the benefit they yield. To receive a
capitalization grant, a state must submit a work plan to the EPA describing how it intends to use the
set-asides. The administration and technical assistance set-aside is the only exception to this
requirement. The state does not need to submit a work plan for this set-aside if the set-aside is to be
used by the state only for administrative work. The water director for Region 4, the region that oversees
Alabama's DWSRF program, told us that some states do not use their set-asides because some
set-asides cannot be used to augment the state staff. However, according to the DWSRF program
operations manual, both the administration and technical assistance set-aside and the state program
management set-aside include provisions for administrative costs that could be used to fund state staff.
Finally, the Alabama branch chief told us that the state is not in the financial shape to provide a match
for the state program management set-aside. However, that perception that a match is required is not
consistent with current requirements. The Water Infrastructure Improvements for the Nation Act
amended SDWA in December 2016 to remove the state matching requirement for this set-aside.
The EPA should work with states to overcome misperceptions on set-aside use and to assess the states'
use of set-asides to assist disadvantaged communities to qualify for DWSRF loans. For example, if
Alabama increased its set-aside awards to the national average for the three set-asides it underuses, we
estimated that it would have $30.7 million for federal fiscal years 2023 through 2026—from IIJA
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supplemental and annual DWSRF appropriations—that it could put to better use by assisting
disadvantaged communities in qualifying for DWSRF loans.7
States' Narrow Definitions of How Communities Qualify for Disadvantaged
Community Loan Subsidies
We identified states' narrow definitions of how communities qualify for disadvantaged community loan
subsidies as a barrier to states awarding loan subsidies to disadvantaged communities. As we reviewed
state lUPs and analyzed the responses we received to the state DWSRF program managers survey, we
identified inconsistencies in how states define "disadvantaged community" and allocate their subsidies.
For example, to determine whether a community qualifies as disadvantaged, Alabama uses the ratio of
the community's annual average water bill to the state median household income, whereas Texas
compares a community's median household income to a percentage of the state median household
income. SDWA provides the flexibility for each state DWSRF program to establish its own definition for a
disadvantaged community. However, how the states define disadvantaged communities affects the
distribution of loan subsidies because communities that would be eligible under the definition of one
state would not be eligible under the definition of other states.
The EPA took action that addresses this barrier through its implementation of the IIJA. In a March 2022
memorandum, the EPA strongly encouraged states to update their definitions of disadvantaged
communities; this encouragement aligns with the goals of the Justice40 Initiative and the EPA's
Environmental Justice Action Plan. The EPA issued DWSRF Disadvantaged Community Definitions: A
Reference for States in June 2022 to serve as a resource for states that are updating their disadvantaged
community definitions. The EPA revised the guidance document in October 2022.
Community Challenges with Meeting Federal Acquisition and Labor
Requirements for Proposed Projects
We identified community challenges with meeting federal acquisition and labor requirements that apply
to funded water infrastructure projects as a barrier to states awarding loan subsidies. Thirty percent of
the respondents to our survey of state DWSRF program managers, as well as EPA regional managers we
interviewed, raised concerns regarding these requirements. Communities may not have the ability to
comply with these requirements, which may prevent them from qualifying for DWSRF loans. However,
states can use the set-asides to help communities comply with these requirements. For example, a
regional project officer explained that states could use the set-asides to hire rural water organizations to
provide assistance.
In addition, the EPA is taking action to partly address this barrier by proposing national waivers for some
requirements related to the new IIJA requirement that infrastructure projects use construction materials
produced in the United States. Furthermore, under specific conditions the EPA can waive federal
requirements on a project level. States can use set-asides to help a community apply for a
project-specific waiver.
7 To arrive at this estimate, we assumed that the EPA would allocate funds from the fiscal year 2023 appropriation
to the state DWSRFs in the same proportion as used in fiscal year 2022 and that annual appropriations for fiscal
years 2024, 2025, and 2026 would remain the same as that for fiscal year 2023.
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States' Concerns About the Sustainability of Their DWSRFs
We identified state concerns about the sustainability of their funds as a barrier to the states awarding
loan subsidies. Forty percent of the respondents to our survey of the state DWSRF program managers
reported that the need to financially sustain their programs was a barrier to providing the maximum
amount of loan subsidies allowed. This sustainability concern arises because loan subsidies are
effectively grants and are not repaid to the state DWSRF. This means that loan subsidies result in fewer
funds revolving through the state DWSRF.
Despite these concerns, some states exceeded the minimum loan subsidy requirements. For example,
Idaho reported in its lUPs that, while it awarded subsidies well above the minimum requirements, the
projected health of its program was strong. In its 2020 IUP, Idaho stated that its level of loan subsidies
"is in keeping with recent years' levels, during which an analysis of fund balances and revenues have
shown consistently rising year-end amounts; therefore, it is reasonable to conclude that a level of [loan
subsidy] above the 'floor' does not endanger the perpetuity of the DWSRF."
Twenty-three percent of respondents to our survey of state DWSRF program managers stated that an
increase or modification in funds would help alleviate barriers associated with providing loan subsidies.
The EPA has the opportunity to address this sustainability concern barrier through the funds provided by
the IIJA. This Act provides the EPA with an unprecedented $30.7 billion, which the EPA is to invest in the
nation's drinking water infrastructure through the state DWSRF programs. By providing significant
additional funds through the IIJA, the EPA's implementation of the IIJA should help alleviate concerns
that state program managers have regarding the sustainability of their DWSRFs.
Not Meeting Loan Subsidy Requirements Timely Can Delay Critical
Infrastructure Improvements
Most states we reviewed did not meet the EPA timeliness goal. When states do not provide timely loan
subsidies to disadvantaged communities and other eligible recipients, critical infrastructure
improvements can be delayed, and the communities' ability to provide safe drinking water to their
residents is impaired. These same communities have historically struggled to access DWSRF funding. The
EPA is implementing the IIJA funding so that disadvantaged communities have greater access to funds to
improve their water infrastructure through higher loan subsidy requirements.
To improve its oversight, the EPA regions should consistently monitor the rate at which states award
loan subsidies to disadvantaged communities and document this information in annual program
evaluation reports. These changes will communicate to the states the importance of providing subsidies.
Additionally, the changes should improve state timeliness in providing loan subsidies and help the state
DWSRF programs reach the IIJA and Justice40 goals of assisting disadvantaged communities.
The EPA regions also should improve how they work with states regarding assistance to disadvantaged
communities through the states' use of set-asides. If states are not assisting disadvantaged communities
in developing the needed technical, managerial, and financial capacity, these communities are unlikely
to qualify for subsidized DWSRF loans. Improved state use of set-asides to provide needed assistance
should lead to improvements in the timely awarding of subsidized DWSRF loans to disadvantaged
communities.
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Recommendations
We recommend that the assistant administrator for Water:
1. Update the EPA's State Revolving Fund Annual Review Guidance to require regions to include
the following in the annual program evaluation reports for each state's drinking water state
revolving fund:
a. An analysis of the state's progress in meeting the minimum loan subsidy requirements
for open capitalization grants.
b. Financial indicators related to loan subsidies.
2. Implement a plan for the EPA regions to work with states to clarify set-aside use requirements
and to assess the states' use of set-asides in assisting disadvantaged communities in qualifying
for drinking water state revolving fund loans.
Agency Response and OIG Assessment
The Office of Water provided its response to our draft report on May 31, 2023, and agreed to
Recommendations 1 and 2. The Agency's full response is in Appendix E. We agree that the corrective
actions and estimated completion dates proposed by the Office of Water meet the intent of
Recommendations 1 and 2.
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Chapter 4
Incomplete Data Prevents Consistent Oversight of
DWSRF Loan Subsidy Requirements
Of the seven states we reviewed, Alabama did not consistently assign its loan subsidies to a
capitalization grant in the OWSRF database. We looked at the OWSRF data for all states and found this
problem with ten additional states. This problem affected the accuracy of records for $114 million in
loan subsidies across 313 projects. For capitalization grants, states must report the use of all DWSRF
funds, including loan subsidies, to the EPA. In May 2021, the EPA replaced previous reporting systems
with the OWSRF database. After the EPA migrated loan and grant data to the new database, states
needed to take additional steps to fix data issues, such as assigning loan subsidies to capitalization
grants. Because 11 states did not assign the loan subsidies to a capitalization grant, the EPA is unable to
determine, using the data in the OWSRF database, the progress these states have made in awarding
loan subsidies.
Required Reporting of State DWSRF Information in the OWSRF
Database
The EPA DWSRF capitalization grants require states to report the use of all funds, including loan
subsidies, to the EPA at least quarterly. In May 2021, the EPA replaced previous reporting systems with
the OWSRF database. The EPA provided guidance and a training video on its website to show states
what data are required, how to access the database's tools, and how to enter the needed data. The EPA
migrated existing data to the new database, and the states had to take additional steps to resolve data
issues, such as assigning loans subsidies to grants.
The OWSRF Database Has Incomplete Data Entries
Eleven states—or approximately 22 percent of the states—did not consistently assign project loan data,
including loan subsidies, to the appropriate
capitalization grant, for federal fiscal years 2015
through 2021. We found, as of June 2022, $114 million
in project loan subsidies distributed across
313 projects was not assigned. Over half of these
states—six of the 11—are in Region 4, as shown in
Table 12.
Table 12: States that did not consistently
assign project loan data to the
appropriate capitalization grant data
The EPA Did Not Require States to
Update Data
The EPA worked with states to correct missing or
incomplete data in the new database, including
assigning loan subsidies to corresponding
capitalization grants. The EPA built quality assurance
procedures into the data migration which identified
State I
I EPA region
Alabama
4
Kentucky
4
Maine
1
Mississippi
4
Nevada
9
North Carolina
4
Puerto Rico
2
South Carolina
4
Tennessee
4
Vermont
1
Washington
10
Source: OIG analysis of EPA data.
(EPA OIG table)
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data issues to the states. However, controls were not in place to require states to address these data
issues in the new database.
Data Problem Prevents Consistent Oversight
With some loan subsidies not being assigned to the appropriate capitalization grant, the EPA is unable to
perform consistent oversight of DWSRF loan subsidy requirements using the data in the OWSRF
database. The database includes tools that generate reports showing the states' progress in fulfilling
their DWSRF capitalization grant requirements. One of these reports, the Assistance Agreement Report,
shows a discrepancy between two loan subsidy fields—current additional subsidy amount and assigned
grant subsidy—when the loan subsidy data has not been assigned to a capitalization grant in the OWSRF
database. In Figure 3 we show examples of the report when loan subsidies are unassigned and when
they are assigned.
For the 11 states that did not
consistently assign project loan
data to the appropriate
capitalization grant, the EPA staff
performing oversight would not
be able to rely on the data within
OWSRF. We conclude that the
EPA staff would need to ask the
state program staff for additional
information about loans,
subsidies, and the capitalization
grants. This might delay the EPA's
review processes, including the
drafting and issuance of the
annual program evaluation
report. In addition, because the
EPA region cannot close a state's grant until the state has reached the minimum loan subsidy
requirement, accurate documentation of loan subsidy status in the OWSRF database is important for
effective grant management. The EPA must ensure that the grant and loan information in the OWSRF
database is complete and accurate to allow oversight of states' progress in awarding loan subsidies to
disadvantaged communities.
Recommendation
We recommend that the assistant administrator for Water:
3. Require states to assign executed loans to the appropriate capitalization grant in the EPA Office
of Water state revolving fund database.
Agency Response and OIG Assessment
The Office of Water provided its response to our draft report on May 31, 2023, and agreed to
Recommendation 3. The Agency's full response is in Appendix E. We determined that the corrective
Figure 3: Examples of loan subsidy information in OWSRF for
projects with unassigned and assigned loan subsidies
Unassigned Loan Subsidy Assigned Loan Subsidy
Current
Current
Additional
Assigned
Additional
Assigned
Subsidy
Grant
Subsidy
Grant
Amount
Subsidy
Amount
Subsidy
500,000.00
¦«L
j 500,000.00
500,000.00
500.000.00
500,000.00
500,000.00
125,000.00
ii
! 185,000.00
185,000.00
! 500,000.00
500,000.00
Source: OIG analysis of OWSRF assistance agreement reports.
(EPA OIG image)
23-P-0022
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action and completion date the Office of Water proposed do not fully meet the intent of
Recommendation 3. As we discussed in a previous section, we found, as of June 2022, $114 million in
project loan subsidies distributed across 313 projects in 11 states was not assigned in the OWSRF
database to the appropriate capitalization grant for federal fiscal years 2015 through 2021. In June 2023,
we found that the problem remained, with $136 million in project loan subsidies distributed across 269
projects not assigned. We also noted the same problem with newer loans. Consequently, we
determined that the Office of Water's efforts to administer the requirement that states assign loans to
capitalization grants have been ineffective. An acceptable corrective action would include a plan for how
the Office of Water will get the states to comply. We will work with the Office of Water to resolve this
recommendation.
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Status of Recommendations
and Potential Monetary Benefits
RECOMMENDATIONS
Rec.
No.
Page
No.
Subject
Status1
Action Official
Planned
Completion
Date
Potential
Monetary
Benefits
(in $000s)
1
19
Update the EPA's State Revolving Fund Annual Review
Guidance to require regions to include the following in the annual
program evaluation reports for each state's drinking water state
revolving fund:
a) An analysis of the state's progress in meeting the
minimum loan subsidy requirements for open
capitalization grants.
b) Financial indicators related to loan subsidies.
R
Assistant Administrator for
Water
10/31/23
2
19
Implement a plan for the EPA regions to work with states to
clarify set-aside use requirements and to assess the states' use
of set-asides in assisting disadvantaged communities in
qualifying for drinking water state revolving fund loans.
R
Assistant Administrator for
Water
10/31/23
$30,700
3
21
Require states to assign executed loans to the appropriate
capitalization grant in the EPA Office of Water state revolving
fund database.
U
Assistant Administrator for
Water
1 C = Corrective action completed.
R = Recommendation resolved with corrective action pending.
U = Recommendation unresolved with resolution efforts in progress.
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Appendix A
Key Definitions
Capitalization Grant: A monetary award by the EPA to a state for purposes of funding that state's
DWSRF.
Disadvantaged Community: The area served by a public water system that meets affordability criteria
established by the state after public review and comment. Each state is required to define what
constitutes a disadvantaged community in their DWSRF intended use plans.
DWSRF Annual Review: The process in which the EPA annually assesses the success of the state's
performance of activities identified in the state's DWSRF I UP, biennial report, and operating agreement
and determines the state's compliance with the capitalization grant agreement and the requirements of
SDWA section 1452 and 40 C.F.R. part 35, subpart L. Each review results in a written report called a
program evaluation report.
Financial Capacity: The ability of a water system to acquire and manage sufficient financial resources to
allow the system to achieve and maintain compliance SDWA requirements.
Intended Use Plan, or IUP: A document prepared annually by a state, after public review and comment,
which identifies intended uses of all DWSRF program funds and describes how those uses support the
overall goals of the DWSRF program.
Loan Subsidy: An additional subsidy that is provided for a proposed project to a disadvantaged
community, or a community that the state expects to become disadvantaged as a result of taking on a
loan. Some states also provide loan subsidies to other qualifying communities, such as a community
recovering from an emergency, or a community served by a very small water system.
Managerial Capacity: The ability of a water system to conduct its affairs in a manner enabling the
system to achieve and maintain compliance with SDWA requirements.
Pace: The amount of executed loans as a percent of all funds available.
Program Evaluation Report: A document prepared by an EPA region that reports on the results of the
region's annual review of a state's DWSRF program. The report provides the EPA's perspective on state
use of DWSRF funds and helps guide management and administration decisions, to ensure efficiency,
effective implementation, and management of the state's DWSRF program.
Set-Aside: A portion of a capitalization grant that a state may use for a) administration and technical
assistance, b) small system technical assistance, c) state program management, and d) local assistance
and other state programs.
Small System: A water system that serves 10,000 or fewer persons, for the purposes of the DWSRF.
Technical Capacity: The physical and operational ability of a water system to meet SDWA requirements,
including the adequacy of physical infrastructure and the technical knowledge and capability of
personnel.
Unliquidated Obligations: The unexpended balance remaining from the amount of federal funds that
the EPA has obligated to an agreement.
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Appendix B
Additional Analysis of the States that We Reviewed
This appendix details our analysis of the seven states we reviewed. It includes specific information about
loan subsidy requirements, loan subsidy timeliness, and regional oversight.
Alabama Needs to Prioritize Loan Subsidies, and Region 4 Oversight Does Not
Discuss Loan Subsidies
Our analysis, as shown in Table B-l, demonstrates that Alabama did not meet the minimum loan subsidy
requirements over the four state fiscal years we examined. Alabama accumulated a deficit of $7.2 million
in loan subsidies. Table B-l further demonstrates that, while Alabama is behind in providing subsidies, its
subsidies increased from $1.9 million in state fiscal year 2017 to $4.8 million in state fiscal year 2020.
Alabama should prioritize its award of loan subsidies to continue making progress, resolve its deficit, and
meet minimum loan subsidy requirements. Our analysis of Alabama's loan execution differed from our
analyses of other states because Alabama's loans and subsidies were not assigned to specific
capitalization grants in the OWSRF database. While the "required subsidy amount" listed in Table B-l is
not an annual requirement but rather a requirement for the period of the capitalization grant, we would
expect the difference between the required subsidy and the loan subsidy amounts to be small.
Table B-1: Alabama's DWSRF loan subsidies by state fiscal year
State
fiscal
year
Grant
award
amount ($)
Required
subsidy
(%)
Required
subsidy amount
($)
Provided
timely
Subsidy
amount as of
July 2022* ($)
Difference*5
($)
2017
15,740,000
20
3,148,000
No
1,925,000
-1,223,000
2018
23,944,000
20
4,788,800
No
1,640,000
-3,148,800
2019
23,721,000
26
6,167,460
No
3,236,000
-2,931,460
2020
23,736,000
20
4,747,200
Yes
4,819,460
72,260
Total
18,851,460
11,620,460
-7,231,000
Notes: Green cell = Loan subsidy amount was at or above the required subsidy amount. Yellow cell = Loan subsidy
amount was below the required subsidy amount but above one-quarter of the required subsidy amount. Appendix D
includes a version of this table that uses symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Because Alabama's executed loans were not associated with a capitalization grant in the OWSRF database, we
were unable to determine to which capitalization grant a loan belonged. Instead, we calculated the amount for
Alabama based on date ranges.
§ Difference between required subsidy amount and subsidy amount as of July 2022.
The EPA Region 4 program evaluation reports, which document the region's annual reviews of the
Alabama DWSRF program, differed from the reports we examined for the other six state programs.
Region 4 made no mention of loan subsidies for disadvantaged communities in the four Alabama reports
we examined.
The Region 4 program evaluation reports discussed the cumulative amount of loans issued as a percent
of all funds available, referred to as pace. In the state fiscal year 2017 program evaluation report,
Region 4 recommended that Alabama increase its pace of executing loans. Alabama's pace improved
from 91 percent in 2017 to 102 percent in 2020, which exceeds the national average of 96 percent.
However, the pace at which Alabama provided loan subsidies lagged, meaning that disadvantaged
communities did not receive subsidies to make drinking water infrastructure improvements.
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Alabama may be prompted to improve its efforts to provide loan subsidies if Region 4 includes
discussions of loan subsidies in its annual program evaluation reports. A Region 4 section chief told us
that current Region 4 staff were not involved before 2019; therefore, they were not responsible for the
state fiscal year 2017 and 2018 program evaluation reports. Further, the section chief told us that the
Region 4 staff followed the EPA's annual review guidance, and that guidance does not require an
analysis of subsidies to disadvantaged communities. However, the team lead for the EPA's national
DWSRF program told us that regions should include such subsidies in their review of the state DWSRF
programs and in the resulting program evaluation reports. In addition, the checklist provided to the
region by the national program included questions related to assisting disadvantaged communities. The
same Region 4 section chief indicated that the next program evaluation report would be different.
Idaho Met the EPA Timeliness Goal When It Provided Loan Subsidies to
Disadvantaged Communities
Idaho exceeded the loan subsidy requirements and met the EPA timeliness goal for all four state fiscal
years we examined, as shown in Table B-2; none of the other six states met both the requirements and
the EPA timeliness goal. In addition, Idaho provided an amount of loan subsidies to disadvantaged
communities and other eligible recipients that was more than the minimum requirements of its
awarded capitalization grants. Idaho reported in its lUPs that despite providing an amount of loan
subsidies that exceeded the minimum requirements, the projected health of its program was strong.
Table B-2: Analysis of Idaho loan subsidies
State fiscal
year
Grant
amount ($)
Required
subsidy
(%)
Required
subsidy
amount ($)
Subsidy
amount
within EPA
time frame
($)
Provided
timely
Subsidy
amount as
of July
2022 ($)
Difference*
($)
2017
8,312,000
20
1,662,400
2,318,647
Yes
2,318,647
656,247
2018
8,241,000
20
1,648,200
2,216,881
Yes
2,216,881
568,681
2019
11,107,000
20
2,221,400
3,122,357
Yes
3,122,357
900,957
2020
11,104,000
26
2,887,040
4,644,056
Yes
4,644,056
1,757,016
Total
8,419,040
12,301,941
3,882,901
Notes: Green cell = Loan subsidy amount was at or above the required subsidy amount. Appendix D includes a
version of this table that uses symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
EPA Region 10 noted in its 2020 program evaluation report that Idaho's return on federal investment,
calculated by dividing the total loan funds disbursed by the federal portion, had maintained a level greater
than the 120 percent federal benchmark. For state fiscal years 2017 through 2020, Idaho maintained a
130 percent return on federal investment despite a high level of loan subsidy awards. Idaho also provided
subsidies for projects outside of the disadvantaged community definition, such as for emergencies.
The State Legislature's Budget Process Hindered Maryland's Timeliness
The Maryland DWSRF program did not meet the loan subsidy requirements in a timely manner for any
of the four state fiscal years we examined, as shown in Table B-3. Maryland's loan subsidies met or
exceeded the minimum subsidy requirements in only two of the four years, based on the information
we retrieved from the OWSRF database on July 7, 2022. Maryland's state legislature required that a
capitalization grant be awarded before the required state matching funds would be included in budget
planning for the next state fiscal year, which caused capitalization grants to remain unused for nearly a
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year. This legislative delay largely contributed to Maryland not meeting the EPA timeliness goal. The
Maryland DWSRF program experienced significant staff turnover over a two-year period, which also
contributed to the delays. According to EPA Region 3's program evaluation reports, these vacancies
included high level positions that had to be filled temporarily by other staff.
Table B-3: Analysis of Maryland loan subsidies
Subsidy
State
Grant
Required
Required
amount
Subsidy
fiscal
amount
subsidy
subsidy
within EPA
Provided
amount as of
Difference*
year
($)
(%)
amount ($)
time frame ($)
timely
July 2022 ($)
($)
2017
14,913,000
20
2,982,600
0
No
3,029,565
3,000,000
1,940,724
46,965
2018
14,108,000
20
2,821,600
0
No
178,400
2019
13,987,000
20
2,797,400
0
No
-856,676
2020
20,348,000
20
4,069,600
0
No
2,108,970
-1,960,630
Total
12,671,200
10,079,259
-2,591,941
Notes: Green cell = Loan subsidy amount was at or above required subsidy amount. Yellow cell = Loan subsidy
amount was below required subsidy amount but above one-quarter of the required subsidy amount. Red cell = Loan
subsidy amount was one-quarter or less of required subsidy amount. Appendix D includes a version of this table that
uses symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
Region 3's program evaluation reports documented how the region communicated with the Maryland
DWSRF program regarding the problems with the pace of providing loan subsidies. Each of the four
Region 3 program evaluation reports for Maryland we reviewed provided a table of open grants that
identified the grant year; minimum amount of loan subsidies required; and the planned, committed, and
disbursed amounts of subsidies. In addition, Region 3 proactively worked with Maryland to increase the
use of subsidies. For example, in the 2018 program evaluation report, Region 3 encouraged Maryland to
expedite loans receiving subsidies.
Massachusetts Exceeded Loan Subsidy Minimum Requirement Amounts
As shown in Table B-4, Massachusetts met the loan subsidy minimum requirement in a timely manner
for three of the state fiscal years we reviewed. The state missed meeting the minimum in state fiscal
year 2019 due to delays related to a single loan. In state fiscal year 2020, the state greatly exceeded its
required loan subsidies.
Table B-4: Analysis of Massachusetts loan subsidies
Subsidy
Subsidy
State
Required
Required
amount within
amount as
fiscal
Grant
subsidy
subsidy
EPA time
Provided
of July 2022
Difference*
year
amount ($)
(%)
amount ($)
frame ($)
timely
($)
($)
2017
15,451,000
20
3,090,200
3,090,200
Yes
3,090,200
0
2018
15,319,000
20
3,063,800
3,063,800
Yes
3,063,800
0
2019
25,774,000
20
5,154,800
4,674,329
No
4,764,329
-390,471
2020
25,770,000
26
6,700,200
12,259,047
Yes
12,807,677
6,107,477
Total
18,009,000
23,726,006
5,717,006
Notes: Green cell = Loan subsidy amount was at or above the required subsidy amount. Yellow cell = Loan subsidy
amount was below the required subsidy amount but above one-quarter of the required subsidy amount. Appendix D
includes a version of this table that uses symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
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The EPA Region 1 program evaluation reports for Massachusetts were the only reports we examined
that included financial indicators related to subsidies for disadvantaged communities. These financial
indicators included the number of loans made to disadvantaged communities and the dollar amount of
the loan subsidies awarded. Additionally, the reports included a table that identified—by open
capitalization grant—the minimum amounts the state could use for loan subsidies, the amounts
committed, and the amounts disbursed.
Nebraska's Loan Pace Affected Timeliness of Loan Subsidies
As shown in Table B-5, Nebraska did not meet the minimum loan subsidy requirement in a timely
manner for any of the four state fiscal years we reviewed. However, Nebraska met the requirement for
all but the last year based on the information we retrieved from the OWSRF database on July 7, 2022.
Table B-5: Analysis of Nebraska loan subsidies
Subsidy
Required
amount
State
Required
subsidy
within EPA
Subsidy
fiscal
Grant
subsidy
amount
time frame
Provided
amount as of
Difference*
year
amount ($)
(%)
($)
($)
timely
July 2022 ($)
($)
2017
8,312,000
20
1,662,400
0
No
2,484,082
1,881,291
3,592,397
821,682
2018
8,312,000
20
1,662,400
146,160
No
218,891
2019
11,036,000
20
2,207,200
0
No
1,385,197
2020
11,103,000
26
2,886,780
0
No
747,472
-2,139,308
Total
8,418,780
8,705,242
286,462
Notes: Green cell = Loan subsidy amount at or above required subsidy amount. Yellow cell = Loan subsidy amount
below required subsidy amount but above one-quarter of the required subsidy amount. Red cell = Loan subsidy
amount one-quarter or less of required subsidy amount. Appendix D includes a version of this table that uses
symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
In the four program evaluation reports we reviewed for Nebraska, EPA Region 7 discussed its concerns
with the state's loan pace. Nebraska's loan pace averaged 76 percent over the four-year period we
reviewed, which was significantly below the national average of 96 percent. This means that a significant
amount of funds had not revolved through as committed loans or been used for loan subsidies.
Nebraska's 2017 annual report stated that "[t]he small rural makeup of the [s]tate remains a challenge
for communities in funding major capital projects. Declining population bases make it difficult to collect
the amount of user fees needed to fund infrastructure requirements." In its 2020 program evaluation
report, Region 7 requested that Nebraska prepare a written plan to address the timely and expeditious
use of funds.
Unlike other regional program evaluation reports we reviewed, the Region 7 reports for Nebraska did
not include a table of open grants and loan subsidies that presents the state's progress toward the
minimum subsidy amount.
Texas Regularly Exceeded Loan Subsidy Requirements Despite Some Delays
Texas met the loan subsidy minimum in a timely manner for only one of the four state fiscal years we
examined, as shown in Table B-6. However, based on the data we retrieved from the OWSRF database in
July 2022, Texas had committed loan subsidies that significantly exceeded the minimum amount required
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for the first three capitalization grants we examined. Texas also provided subsidies to eligible recipients
outside of disadvantaged communities, such as to communities addressing emergency conditions.
Table B-6: Analysis of Texas loan subsidies
Subsidy
awarded
State
Required
Required
within EPA
Subsidy
fiscal
Grant
subsidy
subsidy
time frame
Provided
amount as of
Difference*
year
amount ($)
(%)
amount ($)
($)
timely
July 2022 ($)
($)
2017
60,104,000
20
12,020,800
6,676,285
No
15,759,908
20,735,850
25,225,185
18,933,812
3,739,108
2018
59,590,000
20
11,918,000
17,101,840
Yes
8,817,850
2019
87,040,000
20
17,408,000
14,669,976
No
7,817,185
2020
86,225,000
26
22,418,500
14,382,066
No
-3,484,688
Total
63,765,300
80,654,755
16,889,455
Notes: Green cell = Loan subsidy amount was at or above the required subsidy amount. Yellow cell = Loan subsidy
amount was below the required subsidy amount but above one-quarter of the required subsidy amount. Appendix D
includes a version of this table that uses symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
If Region 6 improved its program evaluation reports, Texas may improve its timely awarding of loan
subsidies. In the program evaluation reports we examined for Texas, EPA Region 6 generally included
how much Texas made available in loan subsidies, both in total and to disadvantaged communities, and
the number of projects awarded to disadvantaged communities. Region 6 did not include an analysis of
open grants that identified the minimum amount that the state must use in subsidies, the amount
committed, and the amount expended. Region 6 staff told us that each year the region attempts to
focus on items that the EPA Office of Water is interested in and on the recommendations from previous
reviews. Region 6 staff also told us that they were selective in what they included in the reports to
ensure the reports were of a manageable length.
Wisconsin Had Minor Delays in Awarding Loan Subsidies
As shown in Table B-7, Wisconsin met the loan subsidy minimum requirements in a timely manner for
two of the four state fiscal years we examined. However, Wisconsin's loan subsidies met or exceeded
the minimum subsidy requirements for all four state fiscal years based on the information we retrieved
from the OWSRF database in July 2022.
Table B-7: Analysis of Wisconsin capitalization grant subsidies
Subsidy
amount
State
fiscal
Grant
Required
subsidy
Required
subsidy
within EPA
time frame
Provided
Subsidy
amount as of
Difference*
year
amount ($)
(%)
amount ($)
($)
timely
July 2022 ($)
($)
2017
14,496,000
20
2,899,200
6,762,352
Yes
7,248,000
4,348,800
2018
14,360,681
20
2,872,136
3,718,085
Yes
5,000,000
2,127,864
2019
18,931,000
20
3,786,200
3,267,843
No
3,786,200
0
2020
18,927,000
26
4,921,020
3,416,369
No
4,921,020
0
Total
14,478,556
20,955,220
6,476,664
Notes: Green cell = Loan subsidy amount was at or above the required subsidy amount. Yellow cell = Loan subsidy
amount was below the required subsidy amount but above one-quarter of the required subsidy amount. Appendix D
includes a version of this table that uses symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
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In each of the program evaluation reports for Wisconsin we examined, EPA Region 5 included a table
that identified, by capitalization grant, the minimum amount the state could take in subsidies and how
much subsidization from each capitalization grant was reported. Region 5 staff told us they provide a
similar table in program evaluation reports for all six of their states.
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Appendix C
Analysis of the Four Set-Asides Available
for the DWSRF Programs
Administration and Technical Assistance Set-Aside
A state may use the highest of three options for the administration and technical assistance set-aside: $400,000;
4 percent of a capitalization grant; or one-fifth of one percent of the current value of its fund. The state may use
this set-aside to cover the reasonable costs of administering the DWSRF program and to provide technical
assistance to public water systems. According to the EPA, however, few states have provided technical
assistance through this set-aside. As shown in Table C-l, most states we reviewed took at least 4 percent of their
grant for the administrative and technical assistance set-aside; however, Nebraska and Maryland did not.
Maryland accessed this set-aside only once, taking 4 percent in 2019, while Nebraska took 0.4 percent in 2017
and 1.1 percent in 2019. Neither of the states met the loan subsidy timeliness goal in the years we reviewed, as
shown in Chapter 2, Table 5. States could use this set-aside to assist water systems that serve disadvantaged
communities, regardless of the size of the system.
Table C-1: Administration and technical assistance set-aside, shown as percent of capitalization grant
I State I
2017(%) I
I 2018(%) I
I 2019(%) I
I 2020(%) I
I Average (%) I
Alabama
4.0
4.0
4.0
4.0
4.0
Idaho*
4.0
4.9
4.0
4.0
4.2
Maryland
0.0
0.0
4.0
0.0
1.0
Massachusetts
4.0
4.0
4.0
4.0
4.0
Nebraska
0.4
0.0
1.1
0.0
0.4
Texas
4.0
4.0
4.0
4.0
4.0
Wisconsin*
5.4
4.1
5.4
5.6
5.1
National average 32 3JJ 3JJ 3^ 3.6
Maximum* 40 40 40 40 40
Notes: Green cell = Percentage took as set-aside was at or above the national average. Yellow cell = Percentage took as
set-aside was greater than one-quarter of the maximum set-aside, but below the national average. Red cell = Percentage took
as set-aside was less than one-quarter of the maximum set-aside. Appendix D includes a version of this table that uses
symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data. (EPA OIG table)
* A state DWSRF program may use the highest of three options for the administration and technical assistance set-aside:
$400,000; 4 percent of a capitalization grant; or one-fifth of one percent of the current value of its fund.
Small Systems Technical Assistance Set-Aside
A state may use up to 2 percent of its capitalization grant to provide technical assistance to small systems, those
serving 10,000 or fewer persons, including activities such as supporting a state technical assistance team or
contracting with outside technical assistance organizations. Alabama was the only state we reviewed that did
not consistently use this set-aside, as shown in Table C2. Alabama did not use this set-aside in three of the four
years we reviewed. In the one year that Alabama did use this set-aside, it used only a small fraction of what was
available. Nebraska did not use this set-aside in 2020, which lowered its average below the national average.
Although Wisconsin also did not fully use this set-aside, Wisconsin was one of two states that, as of July 2022,
met the minimum loan subsidy requirements for each of the four years we examined, as shown in Table B7 in
Appendix B. The EPA expects states to fully use this set-aside for the additional DWSRF funding that will be
available for federal fiscal years 2022 through 2026 through the IIJA. This set-aside could help water systems
serving disadvantaged communities, as many of these systems are small.
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Table C-2: Small systems technical assistance set-aside, shown as percent of capitalization grant
1 State 1
2017 (%) I
I 2018 (%) I
I 2019(%) I
I 2020(%) I
I Average (%) I
Alabama
0.0
0.0
0.4
0.0
0.1
Idaho
2.0
2.0
2.0
2.0
2.0
Maryland
2.0
2.0
2.0
2.0
2.0
Massachusetts
2.0
2.0
2.0
2.0
2.0
Nebraska
2.0
2.0
2.0
0.0
1.5
Texas
2.0
2.0
2.0
2.0
2.0
Wisconsin
2.0
1.7
1.2
1.3
1.6
National average 1.6 1.8 1.8 1.6 1.7
Maximum 2J) ZO 2J) ZO 2J)
Notes: Green cell = Percentage took as set-aside was at or above the national average. Yellow cell = Percentage took as
set-aside was greater than one-quarter of the maximum set-aside, but below the national average. Red cell = Percentage took
as set-aside was less than one-quarter of the maximum set-aside. Appendix D includes a version of this table that uses
symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data. (EPA OIG table)
State Program Management Set-Aside
A state may use up to 10 percent of its capitalization grant for state program management activities, such as
administering the state public water system supervision program; administering or providing technical
assistance through source water protection programs; and developing and implementing a capacity
development strategy and an operator certification program. As shown in Table C-3, Alabama was the only state
we reviewed that did not use this set-aside every year. For two of the four years we reviewed, Alabama did not
use any of this set-aside. For the other two years, Alabama did not maximize its use of this set-aside.
Table C-3: State program management set-aside, shown as percent of capitalization grant
State
2017 (%)
2018 (%)
2019 (%)
2020 (%)
Average (%)
Alabama
0.0
0.0
6.9
4.6
2.9
Idaho
10.0
10.0
10.0
10.0
10.0
Maryland
10.0
10.0
10.0
10.0
10.0
Massachusetts
10.0
10.0
3.6
10.0
8.4
Nebraska
10.0
10.0
10.0
10.0
10.0
Texas
10.0
10.0
10.0
10.0
10.0
Wisconsin
10.0
10.0
10.0
10.0
10.0
National average
8.5
9.3
9.3
8.6
8.9
Maximum
10.0
10.0
10.0
10.0
10.0
Notes: Green cell = Percentage took as set-aside was at or above the national average. Yellow cell = Percentage took as
set-aside was greater than one-quarter of the maximum set-aside, but below the national average. Red cell = Percentage took
as set-aside was less than one-quarter of the maximum set-aside. Appendix D includes a version of this table that uses
symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data. (EPA OIG table)
Local Assistance and Other State Programs Set-Aside
States may use up to 15 percent of their capitalization grant for local assistance and other state programs.
Authorized uses include source water protection activities, wellhead protection measures, and technical or
financial assistance for capacity development. States may use no more than 10 percent of each grant for any
one project category funded through this set-aside, including the technical and financial assistance projects.
Alabama did not fully use the available set-aside for local assistance and other state programs, as shown in
Table C-4. Specifically, it did not use any of this set-aside in two of the four years we reviewed. In the two years
that Alabama used this set-aside, it used a small fraction of the amount available. Although Nebraska and Texas
also did not fully use this set-aside, both states, by July 2022, exceeded their loan subsidy requirements in three
of the four years we examined, as shown in Tables B-5 and B-6 in Appendix B.
23-P-0022 32
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Table C-4: Local assistance and other state programs set-aside, shown as percent of capitalization grant
1 State 1
2017(%) I
I 2018(%) I
I 2019 (%) I
I 2020(%) I
I Average (%) I
Alabama
0.0
0.0
0.5
0.1
0.2
Idaho
15.0
15.0
15.0
15.0
15.0
Maryland
15.0
14.8
15.0
15.0
14.9
Massachusetts
15.0
15.0
15.0
15.0
15.0
Nebraska
5.1
9.0
6.2
7.0
6.8
Texas
3.0
3.0
2.1
2.1
2.6
Wisconsin
11.7
11.8
8.5
10.4
10.6
National average 7J> &2 8X) 7J5 7.8
Maximum 15,0 15X) 15X) 15X) 1^0
Notes: Green cell = Percentage took as set-aside was at or above the national average. Yellow cell = Percentage took as
set-aside was greater than one-quarter of the maximum set-aside, but below the national average. Red cell = Percentage took
as set-aside was less than one-quarter of the maximum set-aside. Appendix D includes a version of this table that uses
symbols, rather than color, to convey the information above.
Source: OIG analysis of EPA data. (EPA OIG table)
23-P-0022 33
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Appendix D
Alternate Tables
Table D-1: Alabama's DWSRF loan subsidies by state fiscal year, alternate for Table 6
State fiscal
year
Grant award
amount ($)
Required
subsidy (%)
Required
subsidy amount
($)
Loan subsidy
amount as of
July 2022* ($)
Difference* ($)
2017
15,740,000
20
3,148,000
1,925,000 <->
-1,223,000
2018
23,944,000
20
4,788,800
1,640,000 <->
-3,148,800
2019
23,721,000
26
6,167,460
3,236,000 <->
-2,931,460
2020
23,736,000
20
4,747,200
4,819,460 V
72,260
Total
18,851,460
11,620,460 <->
-7,231,000
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Because Alabama's executed loans were not associated with a capitalization grant in the OWSRF database, we were
unable to determine which capitalization grant a loan belonged to. Instead, we calculated the amount for Alabama based
on date ranges.
Table D-2: Maryland's DWSRF loan subsidies by state fiscal year, alternate for Table 7
State fiscal
year
Grant award
amount ($)
Required subsidy
(%)
Required subsidy
amount ($)
Loan subsidy
amount as of
July 2022 ($)
Difference* ($)
2017
14,913,000
20
2,982,600
3,029,565 V
46,965
2018
14,108,000
20
2,821,600
3,000,000 V
178,400
2019
13,987,000
20
2,797,400
1,940,724 <->
-856,676
2020
20,348,000
20
4,069,600
2,108,970 <->
-1,960,630
Total
12,671,200
10,079,259 <->
-2,591,941
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and loan subsidy amount as of July 2022.
Table D-3: State set-asides, shown as percent of capitalization grant, alternate to Table 10
I State
I 2017 I
2018 I
2019 I
2020 I
Average I
Alabama
4.0 x
4.0 x
11.8 <->
8.7 <->
7.1 x
Idaho
31.0 V
*31.9 V
31.0 V
31.0 V
*31.2 V
Maryland
27.0 V
26.8 V
31.0 V
27.0 V
28.0 V
Massachusetts
31.0 V
31.0 V
24.6 V
31.0 V
29.4 V
Nebraska
17.5 o
21.Oo
19.3 <->
17.0 o
18.7 <->
Texas
19.0 <->
19.0 <->
18.1 <->
18.1 <->
18.6 <->
Wisconsin
29.1 V
27.6 V
25.1 V
27.3 V
27.3 V
National average
20.8
23.1
22.9
21.1
22.0
Maximum*
31.0
31.0
31.0
31.0
31.0
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount, x = Percentage awarded for set-asides was less than or equal to one-quarter of the maximum
allowed percentage.
Source: OIG analysis of EPA data. (EPA OIG table)
* A state DWSRF program may use the highest of three options for the administration and technical assistance set-aside:
$400,000; 4 percent of a capitalization grant; or one-fifth of one percent of the current value of its fund. This may result in a
total percent of the capitalization grant that exceeds the 31 percent maximum listed in this table.
23-P-0022
34
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Table D-4: Alabama set-asides, shown as percent of capitalization grant, alternate to Table 11
Year*
Administration
and technical
assistance (%)
Small systems
technical
assistance (%)
State program
management (%)
Local assistance
and other state
programs (%)
Total (%)
2017
4.0 V
0.0 x
0.0 x
0.0 x
4.0 *
2018
4.0 V
0.0 x
0.0 x
0.0 x
4.0 *
2019
4.0 V
0.4 x
6.9 <->
0.5 x
11.8
2020
4.0 V
0.0 x
4.6 <->
0.1 x
8.7 <-»
2017-2020
4.0 V
0.1 x
2.9 <->
0.2 x
7.1 *
National average,
2017-2020
3.6
1.7
8.9
7.8
22.0
Maximum
4.0
2.0
10.0
15.0
31.0
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount, x = Percentage awarded for set-asides was less than or equal to one-quarter of the maximum
allowed percentage.
Source: OIG analysis of EPA data. (EPA OIG table)
* The OWSRF database uses July of the previous year through June of the year listed.
Table D-5: Alabama's DWSRF loan subsidies by state fiscal year, alternate to Table B-1
State fiscal
year
Grant award
amount ($)
Required
subsidy (%)
Required subsidy
amount ($)
Provided
timely
Subsidy amount
as of July 2022*
($)
Difference*5
($)
2017
15,740,000
20
3,148,000
No
1,925,000 <->
-1,223,000
2018
23,944,000
20
4,788,800
No
1,640,000 <->
-3,148,800
2019
23,721,000
26
6,167,460
No
3,236,000 <->
-2,931,460
2020
23,736,000
20
4,747,200
Yes
4,819,460 V
72,260
Total
18,851,460
11,620,460 <-»
-7,231,000
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Because Alabama's executed loans were not associated with a capitalization grant in the OWSRF database, we were
unable to determine which capitalization grant a loan belonged to. Instead, we calculated the amount for Alabama based
on date ranges.
§ Difference between required subsidy amount and subsidy amount as of July 2022.
Table D-6: Analysis of Idaho loan subsidies, alternate to Table B-2
Subsidy
Required
Required
amount within
Subsidy
State
Grant
subsidy
subsidy
EPA time
Provided
amount as of
Difference*
fiscal year
amount ($)
(%)
amount ($)
frame ($)
timely
July 2022 ($)
($)
2017
8,312,000
20
1,662,400
2,318,647 V
Yes
2,318,647 V
656,247
2018
8,241,000
20
1,648,200
2,216,881 V
Yes
2,216,881 V
568,681
2019
11,107,000
20
2,221,400
3,122,357 V
Yes
3,122,357 V
900,957
2020
11,104,000
26
2,887,040
4,644,056 V
Yes
4,644,056 V
1,757,016
Total
8,419,040
12,301,941 ~
3,882,901
Notes: s = Loan subsidy amount was at or above the required subsidy amount.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
23-P-0022
35
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Table D-7: Analysis of Maryland loan subsidies, alternative to B-3
Subsidy
Required
Required
amount within
Subsidy
State
Grant
subsidy
subsidy
EPA time
Provided
amount as of
Difference*
fiscal year
amount ($)
(%)
amount ($)
frame ($)
timely
July 2022 ($)
($)
2017
14,913,000
20
2,982,600
0 x
No
3,029,565 V
46,965
2018
14,108,000
20
2,821,600
0 x
No
3,000,000 V
178,400
2019
13,987,000
20
2,797,400
0 x
No
1,940,724 <->
-856,676
2020
20,348,000
20
4,069,600
0 x
No
2,108,970 <->
-1,960,630
Total
12,671,200
10,079,259 o
-2,591,941
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount, x = Percentage awarded for set-asides was less than or equal to one-quarter of the maximum
allowed percentage.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
Table D-8: Analysis of Massachusetts loan subsidies, alternate to Table B-4
Subsidy
Required
Required
amount within
Subsidy
State
Grant
subsidy
subsidy
EPA time
Provided
amount as of
Difference*
fiscal year
amount ($)
(%)
amount ($)
frame ($)
timely
July 2022 ($)
($)
2017
15,451,000
20
3,090,200
3,090,200 V
Yes
3,090,200 V
0
2018
15,319,000
20
3,063,800
3,063,800 V
Yes
3,063,800 V
0
2019
25,774,000
20
5,154,800
4,674,329 <->
No
4,764,329 <->
-390,471
2020
25,770,000
26
6,700,200
12,259,047 V
Yes
12,807,677 V
6,107,477
Total
18,009,000
23,726,006 ~
5,717,006
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
Table D-9: Analysis of Nebraska loan subsidies, alternate to Table B-5
Subsidy
Required
Required
amount within
Subsidy
State
Grant
subsidy
subsidy
EPA time
Provided
amount as of
Difference*
fiscal year
amount ($)
(%)
amount ($)
frame ($)
timely
July 2022 ($)
($)
2017
8,312,000
20
1,662,400
0 x
No
2,484,082 V
821,682
2018
8,312,000
20
1,662,400
146,160 x
No
1,881,291 V
218,891
2019
11,036,000
20
2,207,200
0 x
No
3,592,397 V
1,385,197
2020
11,103,000
26
2,886,780
0 x
No
747,472 <->
-2,139,308
Total
8,418,780
8,705,242 ~
286,462
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount, x = Percentage awarded for set-asides was less than or equal to one-quarter of the maximum
allowed percentage.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
23-P-0022
36
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Table D-10: Analysis of Texas loan subsidies, alternate to Table B-6
Subsidy
Required
Required
awarded within
Subsidy
State
Grant
subsidy
subsidy
EPA time
Provided
amount as of
Difference*
fiscal year
amount ($)
(%)
amount ($)
frame ($)
timely
July 2022 ($)
($)
2017
60,104,000
20
12,020,800
6,676,285 <->
No
15,759,908 V
3,739,108
2018
59,590,000
20
11,918,000
17,101,840 V
Yes
20,735,850 V
8,817,850
2019
87,040,000
20
17,408,000
14,669,976 <->
No
25,225,185 V
7,817,185
2020
86,225,000
26
22,418,500
14,382,066 <->
No
18,933,812 <->
-3,484,688
Total
63,765,300
80,654,755 ~
16,889,455
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
Table D-11: Analysis of Wisconsin capitalization grant subsidies, alternate to Table B-7
Subsidy
Required
Required
amount within
Subsidy
State
Grant
subsidy
subsidy
EPA time
Provided
amount as of
Difference*
fiscal year
amount ($)
(%)
amount ($)
frame ($)
timely
July 2022 ($)
($)
2017
14,496,000
20
2,899,200
6,762,352 V
Yes
7,248,000 V
4,348,800
2018
14,360,681
20
2,872,136
3,718,085 V
Yes
5,000,000 V
2,127,864
2019
18,931,000
20
3,786,200
3,267,843 <->
No
3,786,200 V
0
2020
18,927,000
26
4,921,020
3,416,369 <->
No
4,921,020 V
0
Total
14,478,556
20,955,220 ~
6,476,664
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount.
Source: OIG analysis of EPA data retrieved on July 7, 2022. (EPA OIG table)
* Difference between required subsidy amount and subsidy amount as of July 2022.
Table D-12: Administration and technical assistance set-aside, shown as percent of capitalization grant,
alternate to Table C-1
I State
I 2017(%) I
I 2018(%)
I 2019 (%)
I 2020 (%)
I Average (%) 1
Alabama
4.0 V
4.0 V
4.0 V
4.0 V
4.0 V
Idaho*
4.0 V
4.9 V
4.0 V
4.0 V
4.2 V
Maryland
0.0 x
0.0 x
4.0 V
0.0 x
1.0 x
Massachusetts
4.0 V
4.0 V
4.0 V
4.0 V
4.0 V
Nebraska
0.4 x
0.0 x
1.1 <->
0.0 x
0.4 x
Texas
4.0 V
4.0 V
4.0 V
4.0 V
4.0 V
Wisconsin*
5.4 V
4.1 V
5.4 V
5.6 V
5.1 V
National averaqe
3.2
3.8
3.8
3.4
3.6
Maximum*
4.0
4.0
4.0
4.0
4.0
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount, x = Percentage awarded for set-asides was less than or equal to one-quarter of the maximum
allowed percentage.
Source: OIG analysis of EPA data. (EPA OIG table)
* A state DWSRF program may use the highest of three options for the administration and technical assistance set-aside:
$400,000; 4 percent of a capitalization grant; or one-fifth of one percent of the current value of its fund.
23-P-0022
37
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Table D-13: Small systems technical assistance set-aside, shown as percent of capitalization grant,
alternate to Table C-2
I State
I 2017(%) I
I 2018(%) I
I 2019(%) I
I 2020(%)
I Average (%) I
Alabama
0.0 x
0.0 X
0.4 x
0.0 X
0.1 x
Idaho
2.0 V
2.0 V
2.0 V
2.0 V
2.0 V
Maryland
2.0 V
2.0 V
2.0 V
2.0 V
2.0 V
Massachusetts
2.0 V
2.0 V
2.0 V
2.0 V
2.0 V
Nebraska
2.0 V
2.0 V
2.0 V
0.0 x
1.5 o
Texas
2.0 V
2.0 V
2.0 V
2.0 V
2.0 V
Wisconsin
2.0 V
1.7 <->
1.2 <->
1.3 <->
1.6 o
National average
1.6
1.8
1.8
1.6
1.7
Maximum
2.0
2.0
2.0
2.0
2.0
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount, x = Percentage awarded for set-asides was less than or equal to one-quarter of the maximum
allowed percentage.
Source: OIG analysis of EPA data. (EPA OIG table)
Table D-14: State program management set-aside, shown as percent of capitalization grant, alternate to
Table C-3
I State
I 2017 (%)
2018 (%)
I 2019 (%)
I 2020 (%)
I Average (%) I
Alabama
0.0 x
0.0 X
6.9 <->
4.6 <->
2.9 <->
Idaho
10.0 s
10.0 s
10.0 s
10.0 s
10.0 s
Maryland
10.0 s
10.0 s
10.0 s
10.0 s
10.0 s
Massachusetts
10.0 s
10.0 s
3.6 <->
10.0 s
8.4 <->
Nebraska
10.0 s
10.0 s
10.0 s
10.0 s
10.0 s
Texas
10.0 v
10.0 v
10.0 V
10.0 V
10.0 V
Wisconsin
10.0 v
10.0 v
10.0 V
10.0 V
10.0 V
National average
8.5
9.3
9.3
8.6
8.9
Maximum
10.0
10.0
10.0
10.0
10.0
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount, x = Percentage awarded for set-asides was less than or equal to one-quarter of the maximum
allowed percentage.
Source: OIG analysis of EPA data. (EPA OIG table)
Table D-15: Local assistance and other state programs set-aside, shown as percent of capitalization
grant, alternate to Table C-4
1 State
I 2017(%) I
I 2018(%) I
I 2019(%)
I 2020 (%)
I Average (%) I
Alabama
0.0 x
0.0 X
0.5 x
0.1 x
0.2 x
Idaho
15.0 V
15.0 V
15.0 V
15.0 V
15.0 V
Maryland
15.0 V
14.8 V
15.0 V
15.0 V
14.9 V
Massachusetts
15.0 V
15.0 V
15.0 V
15.0 V
15.0 V
Nebraska
5.1 <->
9.0 V
6.2 <->
7.0 <->
6.8 <->
Texas
3.0 x
3.0 x
2.1 x
2.1 x
2.6 x
Wisconsin
11.7 ^
11.8 ^
8.5 V
10.4 V
10.6 V
National average
7.5
8.2
8.0
7.5
7.8
Maximum
15.0
15.0
15.0
15.0
15.0
Notes: s = Loan subsidy amount was at or above the required subsidy amount. <-> = Loan subsidy amount was below the
required subsidy amount, x = Percentage awarded for set-asides was less than or equal to one-quarter of the maximum
allowed percentage.
Source: OIG analysis of EPA data. (EPA OIG table)
23-P-0022
38
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<
Appendix E
Agency Response to Draft Report
l'SITED STATES ENVIRONMENTAL PROTECTION AGENCY
$ \ WASHINGTON, D C. 20460
§ §
\ * OFFICE OF WATER
/ w
MEMORANPjJM
SUBJECT: Response to Office of Inspector General Draft Report OA-FY22-0020, The EPA Could
Improve its Review of Drinking Water State Revolving Fund Programs to Help States
Assist Disadvantaged Communities, dated May 2, 2023
FROM: Radhika Fox For BENITA
Assistant Administrator
Dig&illy signed by
BENITA BEST-WONG
BEST-WONG ^s™1
TO:
Michael Davis
Director, Environmental Investment and Infrastructure
Office of Audit
Thank you for the opportunity to respond to the recommendations in the draft report OA-FY22-
0020, The EPA Could Improve its Review of Drinking Water State Revolving Fund Programs to
Help States Assist Disadvantaged Communities. The following is our position on each of the
final report recommendations. The Office of Water (OW) agrees with Recommendations l- 3
and has provided suggested corrective actions for your consideration.
AGENCY'S POSITION
OIG Recommendation 1 - Agree
We recommend that the Assistant Administrator for Water update the EPA's State Revolving Fund
Annual Review Guidance to require regions to include the following in the annual program evaluation
reports for each state's drinking water state revolving fund:
a. An analysis of the state's progress in meeting the minimum loan subsidy requirements for open
capitalization grants.
b. Financial indicators related to loan subsidies.
Response:
OW agrees with Recommendation 1.
Proposed Corrective Actions:
OW proposes the following Corrective Actions to satisfy this recommendation:
1. Update the State Revolving Fund Annual Review Checklist to include questions regarding
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additional subsidy, including minimum additional subsidy requirements. Expected
completion date of October 31, 2023.
2. Update the State Revolving Fund Annual Review Guidance to explain new Annual Review
Checklist questions regarding additional subsidy. The Guidance will also include
requirements for the program evaluation reports (PERs) to address additional subsidy,
including relevant financial indicators. Expected completion date of October 31, 2023.
OIG Recommendation 2 - Agree
We recommend that the Assistant Administrator for Water implement a plan for the EPA
regions to work with their states to clarify set-aside use requirements and to assess the states'
use of set-asides in assisting disadvantaged communities in qualifying for drinking water state
revolving fund loans.
Response:
OW agrees with Recommendation 2. OW conducts several annual SRF training sessions for
EPA regional and state SRF employees. Set-aside use requirements are included in these
ongoing training sessions, and OW will continue to reiterate these requirements.
Proposed Corrective Actions:
OW proposes the following Corrective Actions to satisfy this recommendation:
1. Update the State Revolving Fund Annual Review Checklist to include questions regarding set-
aside utilization by states to assist disadvantaged communities. Expected completion date of
October 31, 2023.
2. Update the State Revolving Fund Annual Review Guidance to explain new Annual Review
Checklist questions regarding set-aside utilization by states to assist disadvantaged communities.
Expected completion date of October 31, 2023.
OIG Recommendation 3 - Agree
We recommend that the Assistant Administrator for Water require states to assign executed loans to the
appropriate capitalization grant in the EPA Office of Water state revolving fund database for
capitalization grants.
Response:
OW agrees with Recommendation 3 and notes that EPA already requires the states to enter
loan assignment information into the database. As noted in the OIG's draft report, OW began
transitioning from a legacy reporting system to the new OWSRF data system in May 2021
(see attached a screenshot of the OWSRF home screen). Both the legacy reporting system
and the new OWSRF data system require states to assign executed loans to the appropriate
capitalization grant.
Proposed Corrective Actions:
OW proposes that no additional corrective actions are needed, as the program's current
activities and actions (especially since May 2021) already satisfy this recommendation.
Thank you again for the opportunity to respond to the recommendations in the draft report OA-
FY22-0020. If you have any questions regarding this response, please have your staff contact
OW's Acting Audit Follow-Up Coordinator, Cameo Smoot, at Smoot.Cameo@epa.gov.
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Attachment
cc: B enita B e st-Wong, OW/DAA
Cameo Smoot, OW AFC
Macara Lousberg, OW/IO
Janita Aguirre, OW/IO
Jennifer McLain, OW/OGWDW
Yu-Ting Guilaran, OW/OGWDW
Karen Wirth, OW/OGWDW
Anita Thompkins, OW/OGWDW
Cindy Simbanin, OW/OGWDW
Kiri Anderer, OW/OGWDW
Damaris Christensen, OW/OGWDW
Nick Chamberlain, OW/OGWDW
Susan Perkins, OCFO
Andrew LeBlanc, OCFO
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Attachment: Screenshot of the OWSRF Home Screen
A EPA 0ff'Ce °f Watef State ReVOlVin9 FlJndS (OWSRF) Drinking Water akk to CW ® Adm^tratton -r £> fwdback
Home Dashboard Borrowers Assistance Agreements and Projects SRF Annual Summary Agencies Federal Grants Reports v
Drinking Water Home Your Favorites
Please save your work often. NCC regulations require this application time-out after a short period of inactivity and log out
the user.
Drinking Water Home
11/29/2022 - DWSRF BIL GRANTS HAVE BEEN ADDED TO THE SPECIAL APPROPRIATIONS DROP LIST FOR ASSISTANCE Resource Library
AGREEMENTS.
In the future, more BIL fields are expected to be added. In the interim, BIL loans can be marked with this feature. Until
additional fields are added, if an agreement is using multiple pots of BIL funds, please select the appropriation you feel
best represents the project.
Type
Borrower
E3 Static Reports
I>1 Help Videos
~ fifl Static Files
We opened up the SRF data system for SFY 2022 data collection starting 8/22. Data will be collected through 9/30. We are
currently performing final QA on this data and it will be published soon.
This system replaces the legacy Project & Benefits Reporting (PBR) and Drinking Water National Information (DWNIMS) Systems.
EPA migrated legacy data from PBR and DWNIMS to this system. Note that for legacy data, PBR project level data may not total
to DWNIMS state level data because those were formerly two separate systems.
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Appendix F
Distribution List
The Administrator
Deputy Administrator
Chief of Staff, Office of the Administrator
Deputy Chief of Staff for Management, Office of the Administrator
Agency Follow-Up Official (the CFO)
Assistant Administrator for Water
Agency Follow-Up Coordinator
General Counsel
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Deputy Assistant Administrators for Water
Director, Office of Continuous Improvement, Office of the Chief Financial Officer
Director, Office of Ground Water and Drinking Water, Office of Water
Director, Office of Program Analysis, Regulatory, and Management Support, Office of Water
Associate Director, Office of Program Analysis, Regulatory, and Management Support, Office of Water
Audit Follow-Up Coordinator, Office of the Administrator
Audit Follow-Up Coordinator, Office of Water
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Whistleblower Protection
U.S. Environmental Protection Agency
The whistleblower protection coordinator's role
is to educate Agency employees about
prohibitions on retaliation and employees' rights
and remedies in cases of reprisal. For more
information, please visit the whistleblower
protection coordinator webpage.
Contact us:
Congressional Inquiries: OIG.CoiwessionalAffairs(53epa.gov
Media Inquiries: OIG,PublicAffairs@epa.gov
line EPA OIG Hotline: PIG Hotline@epa.gov
-ami Web: epa.gov/oig
Follow us:
Twitter: @epaoig
Linkedln: lirikedin.com/companv/epa-oig
YouTube: voutube.com/epaoig
[0] Instagram: Sepa.ig.on.ig
www.epa.gov/oig
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