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Department of Health	Clean WateF	|"^°"mental Protection

and Environment	State Revolving Fund	9 y

Cover Crop Interseeding for Clean Water in
Northeast Kansas Using the CWSRF Program

A Nonpoint Source Pilot Project

November 2024	EPA 841-R-24-010

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Helping Farmers Protect Water Quality
and Reduce Production Costs

Agriculture is a major industry in Kansas. In 2023 alone, the estimated value of crops produced in
the state exceeded $7.5 billion. Because agricultural operations disturb the land, nonpoint source
pollutants such as sediment, fecal coliform, nutrients, herbicides and pesticides can enter surface
waters. The Kansas Nonpoint Source Management Plan identifies agriculture as primarily responsible
for pollutant loadings and/or impairments to the state's streams and lakes, making nonpoint
source pollution control a priority. The state is seeking innovative ways to support agricultural best
management practice implementation, including
taking advantage of the opportunities provided by
the Kansas Clean Water State Revolving Fund, or
CWSRF.

This document highlights an example of local,
state and federal partners using CWSRF to facilitate
farmers' adoption of cover crop interseeding, an
important practice used to protect water quality
and soil health while ensuring the sustainability
of agricultural lands. Cover crop interseeding
requires expensive specialized equipment that
plants cover crops into a primary crop while
it's still growing. These cover crops protect and
improve the health and fertility of the underlying
soil, which helps maintain high crop yields and
plant growth while requiring less irrigation and
fertilizer inputs.

Overtime, investing in cover crop interseeding
can enhance a farmer's bottom line by increasing
efficiencies and lowering operational costs.

However, financial and time constraints and a lack
of technical knowledge can prevent farmers from
implementing these practices. Therefore, they are
often receptive to receiving financial and technical
assistance from programs such as the CWSRF and
Clean Water Act Section 319.

^ What is CWSRF? ^

The CWSRF is a federal-state partnership
offering low-cost water quality project
financing. The program was established
by the 1987 federal Clean Water Act
amendments. Each year since then, the
federal government has appropriated
funds to the EPA for the CWSRF program,
and the agency distributes these funds
to every state and Puerto Rico according
to a formula. Each state CWSRF program
provides low-interest loans that spread
project costs over repayment periods of
up to 30 years. Repayments are cycled
back into the fund and used to pay for
additional clean water projects. States
have flexibility in operating the CWSRF
program concerning the priorities for
funding and loan terms, including the
interest rate and repayment period, and
the mechanisms for loan administration.
CWSRF may be used to implement diverse
nonpoint projects, including agricultural
best management practices.

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# ¦ III III 0 ¦





Cover Crops Build Healthy Soils



Healthy soils are measured by the percentage of organic matter they contain. Over time,
heavily tilled soils lose their organic matter. The damaged soil structure cannot adequately
infiltrate and store water, so crops are typically fertilized and irrigated to promote plant
growth, which in turn creates challenges for water quality protection due to the increased
nutrient concentrations in runoff.

Using cover crops can increase organic matter in the soil over time, which improves
the soil's ability to infiltrate and retain water and reduces the amount of irrigation
required. Cover crops also typically lower the soil temperature at the surface, creating a
microclimate that is more conducive to plant growth. Restoring a healthy soil profile by
using cover crops reduces the runoff of fertilizer and pesticides, helps the soil retain water
and sequesters carbon.

Atmospheric
^ Nitrogen „

Denitrification

. \

Ammoma\

/ Nitrate

Ammonium

Cover crops
scavenge

nitrogen

from the soil
and prevent
leaching

Based on a diagram by
Solorieski, S. arid M.
Larramendy (2018). Emerging
Pollutants - Some Strategies
for the Quality Preservation of
Our Environment.

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Recognizing a Need

The Glacial Hills Resource Conservation and Development Region, inc., also known as the Glacial
Hills RC&D, a nonprofit organization in Nemaha County, Kansas, sought to establish a cover
crop interseeder leasing program. The program would promote farmers' use of high-clearance
interseeding equipment, also known as "high boy" interseeders, by allowing them to try the
expensive equipment priorto purchasing one. Although Glacial Hills RC&D frequently partners on
Clean Water Act Section 319 nonpoint source watershed projects, the high cost of purchasing the
interseeder machines would have exceeded the available Section 319 grant funds — prompting
Glacial Hills RC&D to look elsewhere.

In 2019, Glacial Hills RC&D approached the Kansas Department of Health and Environment, or KDHE,
which implements the state CWSRF, for additional financial support to establish the cover crop
interseeder leasing program in support of the Kansas Surface Water Nutrient Reduction Plan. The
mutual interest in promoting agricultural best management practices in the region brought KDHE
and Glacial Hills RC&D together to collaborate on this shared goal. The Kansas CWSRF was a well-
situated partner with ample funding to apply to agricultural projects with water quality benefits.

KDHE requested assistance through the EPA's CWSRF Nonpoint Source Pilot Program in 2019 to
determine how it could finance the proposed program under its current regulations and create a
financing structure that could be replicated throughout Kansas. The program's purpose was twofold:
incentivize the adoption of agricultural best management practices that improve water quality and
help the state comply with the Kansas Surface Water Nutrient Reduction Plan, a legislative mandate
to reduce nutrient loading to surface waters.

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Identifying Program Processes

Glacial Hills RC&D purchased high boy cover crop interseeders and leased them to local agricultural
service providers to deploy and operate throughout the Delaware River and Tuttle Creek Lake
watersheds. The providers work directly with farmers to provide the custom cover crop interseeding
service, charging them on a per-acre basis. Through economies of scale, this program makes cover
crop interseeding equipment affordable and accessible to more farmers. Overtime, farmers are
expected to see economic benefits from reduced fertilizer and pesticide costs as well as reduced
need for irrigation, as healthy organic-rich soils retain more water. At the same time, the agricultural
service providers benefit by developing a new line of business and may choose to purchase their own
interseeding equipment. Engaging partners that benefit from a project is key to ensuring buy-in.

Due to the low cost of financing the interseeders through CWSRF when compared to traditional
financing, the agricultural service providers can charge much less per acre to give farmers access to this
equipment. Thus, this approach mitigates the risk for farmers interested in trying cover crops for the
first time and allows them to realize the benefits of this practice firsthand without large capital outlays.

Glacial Hills RC&D plans to sell used interseeders to agricultural service providers or on the open
market and use the proceeds to purchase additional new interseeders. The purchase of additional
interseeders will increase opportunities to engage new partners. The project will continue to support
two additional, but progressively smaller, rounds of equipment purchases and partnerships, with
an end goal of reaching countywide adoption of cover crop interseeding practices and equipment
ownership.

Glacial Hills RC&D requested
$3.5 million in CWSRF
financing to purchase eight
interseeders, with contractual
agreements requiring that
each machine be used to plant
at least 10,000 acres of cover
crops each year in the Tuttle
Creek and Delaware River
watersheds. The goal of the
effort is to realize significant
reductions of nitrogen,
phosphorus and sediment
loadings to surface waters by
increasing the adoption of
cover crops.

Example of a high boy interseeder purchased through the pilot program.

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Structuring the
CWSRF Financing

A key hurdle the project had to overcome
was structuring the CWSRF financing. Due to
a regulatory restriction in the Kansas CWSRF
program that requires all loans for nonpoint source
projects be made to an entity with taxing authority,
a loan could not be made directly to Glacial Hills
RC&D. Using an analysis from the Environmental
Protection Agency's contractors assisting the
pilot project, KDHE elected to use a pass-through
lending model, one of the most efficient and
effective alternative lending mechanisms available
to state CWSRF programs. KDHE and Glacial Hills
RC&D approached the city of Wetmore to act as
an intermediary. This arrangement established a
functioning public-private partnership between
KDHE, Glacial Hills RC&D and the city.

For pass-through loans, a CWSRF program makes a loan to another public entity, such as the city
of Wetmore, that can provide project funding to private borrowers. The city of Wetmore acts as an
intermediary by providing loans or grants to eligible projects, such as nonpoint source projects that
include agricultural best management practices, and the city repays the CWSRF loan to the state.

For the pilot project, the state CWSRF generously elected to award the $3.5 million loan as 100% loan
forgiveness to remove the repayment requirement. The city of Wetmore agreed to participate as a
conduit lender, knowing that the project would positively impact their municipal water supply, which
is fed by a stream corridor in the Delaware River watershed targeted for best management practice
implementation. With assistance provided by the EPA, the city and Glacial Hills RC&D agreed to the
following roles and expectations. The city agreed to:

•	Take on the loan, including being responsible for submitting all requests for CWSRF funding
disbursements to KDHE for all eligible expenses incurred by Glacial Hills RC&D.

•	Maintain accounting records.

•	Submit a final report to KDHE upon completion of the project.

Glacial Hills RC&D agreed to:

•	Serve as a subcontractor to the city for administration and project performance.

•	Complete and submit all forms and documents required forthe CWSRF application.

Pass-Through Loans

CWSRF

CWSRF provides
loans to local or
state agency

CWSRF receives
loan repayment

Government Agency

Low-interest
loan or grant to
borrower

Borrower repays
agency for any
loans

Borrower

KDHE used a pass-through lending model for the
pilot project.

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•	Oversee the bidding process to purchase equipment and complete all bid documents for the
city's use.

•	Oversee and complete the scope of work and reporting requirements outlined in the loan
agreement between KDHE and the city.

•	Reimburse the city for any legal costs incurred during the project.

The project also helped the Kansas CWSRF meet its Green Project Reserve, which is a federal mandate
requiring that all CWSRF programs use at least 10% of each year's federal capitalization grant for
projects addressing green infrastructure, water and energy efficiency or other environmentally
innovative activities. Cover crops qualify under the Green Project Reserve because healthier soils
retain more water and need less irrigation, thereby improving water efficiency. The project scope and
timing enabled the Kansas CWSRF to meet its Green Project Reserve requirement for more than two
years.

Identifying Best Practices for
Equipment Leasing Programs

The pilot project drew on the success and lessons learned from other agricultural best management
practice programs in Washington, Minnesota and elsewhere. Best practices for the management and
oversight of a CWSRF-funded agricultural equipment rental program include:

•	Factors to Include in Fee Setting: Rental programs can increase the rate of cover crop
adoption by simply covering equipment costs without introducing a profit motive.
Implementers in other states suggested talking to local farmers to determine what they are
willing to pay. Factors to consider include depreciation, fuel, maintenance and repairs and
other machinery costs. Labor costs for ope ration may also be included if not funded through
another mechanism; for example, the Scott Soil and Water Conservation District in Minnesota
covers labor costs with grant funds and does not include those costs in rental fees. Capturing
depreciation in the fee-setting process helps ensure that revenues can be used to purchase
new equipment over time.

•	Expected Results: Having a reasonable estimate for shifting the anticipated acreage into cover
crops is an essential component of fee setting. The Rice Soil and Water Conservation District in
Minnesota indicated that it did not reach its acreage target in the first year, while the Scott Soil
and Water Conservation District noted that weather patterns significantly impacted demand.

•	Reversion of Assets: Stipulations in financing agreements can help protect the program if the
implementer becomes insolvent. The agreement between the city of Wetmore and the Glacial
Hills RC&D stipulates that if Glacial Hills RC&D cannot continue implementing the project due
to insolvency, the equipment reverts to the municipality, which will determine whether to
continue the program.

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•	Maintenance Agreements: In Washington State, the Department of Ecology offers loans and
grants for direct-seed activities, including equipment purchases. Because maintenance is a
key to long-term success, the Department of Ecology requires that recipients sign a 10-year
maintenance agreement.

•	Use-Restricted Revenue Accounts: Use-restricted operating revenue accounts can be
a best practice to ensure that CWSRF funds are applied only for approved uses and that
revenues earned from the rental program are recycled/used for new equipment purchases.

Sharing Lessons Learned

A key objective of the partnership between KDHE, Glacial Hills RC&D and the CWSRF is to promote
the widespread adoption of conservation practices throughout the targeted farming community.
The goal was to use agricultural equipment rentals to emphasize cost savings and demonstrate
reduced erosion rates while building a sense of community cohesion at the subwatershed scale.
Having a clear sense of interest and demand when setting up a new cover crop equipment rental/
leasing program is necessary to ensure the program's success. Key elements to consider when
developing a program include ensuring transparency about the potential costs and benefits, being
aware of what producers are willing to pay and understanding the many challenges faced by the
agricultural community.

When identifying a potential pass-
through partner, as Glacial Hills
RC&D was required to do, a priority
was to seek out a municipality that
could benefit from the project.
The city of Wetmore could realize
a direct benefit to its drinking
water source from this project,
potentially reducing its drinking
water treatment costs over time.
Securing a partner with mutually
agreeable benefits is key to
ensuring buy-in, particularly if the
partner must assume an element
of risk.

In February 2023, EPA Administrator Michael Regan visited the
Guetterman Brothers Family Farm in Bucyrus, Kansas, for an up-close
view of an interseeder purchased with CWSRF funding.

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