4>EPA

United States
Environmental Protection
Agency

Supporting Healthy Watersheds in the West

Arizona's Forest Thinning & Wildfire Restoration Program

With more than 2.6 million people living in the
wildland-urban interface, Arizona has a long history
of savage wildfires that have burned millions
of acres over the past 20 years. Communities
have seen their drinking water supply resources
damaged, their forests decimated, and their homes
and businesses destroyed. Arizona experiences an
average of 1,500 wildfires every year and with the
region amid an enduring megadrought, that trend is
likely to continue.

The Arizona Water Infrastructure Authority of
Arizona (WIFA) administers the state's Clean Water
State Revolving Fund (CWSRF) Program and has
provided $1.4 billion of financial assistance to
Arizona communities. While the CWSRF program
is widely known for supporting wastewater
infrastructure projects for publicly owned treatment
works, many communities are not aware of the vast
array of activities that the program can support to
prevent pollution of surface water and groundwater
resources from nonpoint sources.

WIFA has been promoting the use of the CWSRF
program for projects that address watershed health,
green infrastructure, and nonpoint source water
quality challenges for many years. But they wanted
to do more to help communities threatened by
wildfires, so they worked with the City of Flagstaff to
create the Forest Thinning and Wildfire Restoration
Program. This was the perfect foundation for
WIFA and the City to undertake the first large-scale
forest thinning project funded in part by the CWSRF
program in 2019.

EPA 832F22014 - October, 2022

Clean Water

THE CITY OF FLAGSTAFF

Funding projects that protect

water resources by
reducing the risk of wildfire
and

post-fire flooding in key
watersheds with a

$6 MILLION CWSRF LOAN

$1MILUON LOAN FORGIVENESS



I


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EPA 832F22014 - October, 2022

CWSRF Supporting Healthy Watersheds

The Power of Partnership and
Financial Incentives

Successfully undertaking forest thinning projects that span tens of
thousands of acres of forest requires a good strategy and a deep bench
of partners from various stakeholder groups on the federal, state, tribal,
and local levels that include public and private entities alike.

Positive Engagement

At the state level, WIFA understood the importance
of engaging its sister agency, the Arizona
Department of Environmental Quality (ADEQ),
whose Water Quality Improvement Grants program
has provided $533,640 in funding for several
watershed restoration projects resulting from
wildfire using grant dollars provided by Section
319 of the Clean Water Act.

To successfully implement forest restoration
project activities, CWSRF participation requires
collaboration with a wide range of entities,
including local governments, tribal entities, and
citizen groups. The City of Flagstaff's CWSRF
project is a case study in the range of partnerships
that are critical to a successful forest restoration
program. The City of Flagstaff's forest restoration
program involved:

US Forest Service
Residents

•	State government

•	Stakeholder groups
Non-governmental organizations
(e.g.,National Forest Foundation)
Other funders

How does WIFA incentivize
nonpoint source project
funding in the CWSRF
program?

As the southwestern US
continues to endure a historical
megadrought. protecting water
resources is more critical than
ever.



WIFA offers up to 20% loan
forgiveness to projects that
include nonpoint source
pollution reduction, riparian
restoration, or reducing
stormwater flows.

A $10 million loan for a forest
thinning project may receive up
to $2 million that does not need
to be repaid.


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EPA832F22014- October, 2022

CWSRF Supporting Healthy Watersheds

Innovative Financing Mechanisms
in Action

In Arizona, CWSRF program statutes only permit making loans to
public entities. So how does the program succeed in getting critical
funding to non-profit organizations and watershed protection

How does WIFA finance
Forest Thinning & Wildfire
Restoration loans using
the CWSRF?

Pass-Through Lending

Think Outside the Box

Pass-through loans are commonly used by CWSRF
programs nationally to fund nonpoint source projects
by taking advantage of existing relationships with
public borrowers. This structure allows a municipality
to act as a conduit through which CWSRF funding
can flow through to watershed partners that are
implementing the project, but would not otherwise be
eligible to apply for a loan. These watershed partners
are responsible for repaying the loan proceeds to the
conduit municipality, which in turn repays the CWSRF
program.

The CWSRF makes
a Loan to a public
entity.

The public entity
makes smaller
loans to non-
profits, watershed
groups, private
entities to
implement forest
thinning work.

Clean Water

State Revolving Fund

IT

Eligible
Public
Borrower

It T

oo

The entities
implementing the
project repay the
public entity using
a variety of sources
like tax revenue,
license fees, dues,
or other grant
funding.

The public entity
uses the proceeds
to repay its loan to
the CWSRF.

H

O

The pass-through loan mechanism allows state
CWSRF programs that have more limited eligibilities
to broaden the horizon of eligible projects and the
types of borrowers they may offer loans to, provided
that the pass-through entity and the assistance
recipient are eligible under Section 603(c) of the
Clean Water Act. Because the conduit organization is
the loan guarantor, this provides increased security
over making direct loans to small, inexperienced
borrowers thus minimizing the financial risk to the
program. One of the most attractive features of this
approach is that the loan forgiveness offered by
the CWSRF program may be passed along to the
watershed partnership borrower(s), which represents
a tremendous cost savings not found on the open
market today. Pass-through lending is an excellent
strategy to extend the reach of the CWSRF program
across the watershed.


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EPA 832F22014 - October,

CWSRF Supporting Healthy Watersheds

Marketing and Outreach

To expand w: dfire mitigation programs in a way that
supports water quality, communities must understand the
value of the ecosystem services that the forests provide.

Communicating Project Benefits

WIFA chose to focus its marketing efforts for the
CWSRF Forest Thinning & Restoration Program
on the measurable benefits and costs avoided by
undertaking pro-active forest management projects.
A triple-bottom-line tool was developed using
quantifiable metrics designed to communicate
values that everyday citizens could relate to.
It provides real, actionable data that potential
municipal and tribal borrowers can use to gain
approval for projects from their community
leadership and voters (if necessary). The metrics in
the tool include:

Lost revenues to local economies
Impacts on real estate and property values
Drinking water supplies and billing rates
Impacts to recreation and tourism
Public health and economic prosperity

Did you know?

Homes located within 3 miles of of the
wildfire perimeter had a 31% decline in value,
while homes within 12 miles had a 6% decline
in value.

Lost property values within 12 miles:

$1.2 BILLION Lost property

Average value	values within 3

of homes	miles of fire:

destroyed:	$72M

$4.8M

Did you know?

The damage caused by wildfire can persist
for 5-10 years and be more detrimental to

water supplies that the fire itself. So how can
healthy forests save you money?

Wildfires often result in

flash floods and
mudslides

that pollute rivers and reservoirs

Cost up to $37 Million

to restore local drinking water
infrastructure damaged by post-fire runoff,
rendering drinking water supply sources

unusable

Cleaning polluted water is

200 times more expensive

than preventing pollution of drinking water
sources. Forest thinning helps utilities save
money by protecting healthy soil

Did you know?

Forest thinning projects are good for the
economy!

Healthy forests generate over

$1 BILLION

in revenue from recreation annually


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