State Water Pollution Control Revolving Funds

The Clean Water Act provides low-interest loans for communities,
individuals, citizens' groups, non-profits, and others to better the
quality of watersheds through a wide range of water-quality related
projects. These loans are administered through "State Revolving Funds."

What is a "State Revolving Fund?"

Each state and five U.S. territories operate their own State Water
Pollution Control Revolving Fund (SRF). These funds, established with
sizable EPA grants, operate like banks, providing low interest loans
for water quality improvement projects. States are given considerable
latitude for administration and use of these funds. There are, however,
several important federal rules that states must follow. Citizens who
know the rules can help make sure these funds are spent effectively.

How much money is in these funds today?

The SRF's total assets exceed $34 billion. For Fiscal Year 2001,
Congress appropriated $1.347 billion for new grants to help states
build up these funds. New allotments ranged from $6.5 million for
Montana to $148 million for New York.
What was expected of the states?

Amendments to the Clean Water Act established the federal SRF program
in 1987. Before receiving these grants, states had to demonstrate to
the EPA that they had:

• set up financial management procedures necessary to ensure the long-term health of the fund;
• established a system for setting annual priorities for the use of the funds;
• put procedures for regular, substantive public involvement into place; and
• established a "NEPA-like process" that loan applicants and state agencies would have to follow.

What is a "NEPA-like process?

NEPA stands for National Environmental Policy Act. Passed in 1970,
NEPA ensures that federal actions are evaluated for environmental
impacts. Under NEPA, a proposed federal action with the potential for
significant environmental impact is subject to an Environmental Impact
Statement (EIS), a detailed study of the need for, alternatives to, and
impacts of the action. An action of lesser magnitude is subject to a
less-detailed but still-rigorous Environmental Assessment (EA). Public
involvement is integral to a NEPA process.

The public can:

• help determine whether an EIS is required for a project;
• provide environmental, economic, and social information that is important to the decision-making process; and
• express opinions about the crucial judgment calls that public
  officials must often make after all this information is gathered and
  evaluated.

A state's "NEPA-like process" need not be identical to the federal
process. But it must rest on the same basic principles. When a sound
environmental review process is not established and followed, the
results may include poor projects or money wasted on unnecessarily
expensive projects.

What types of projects do SRFs typically fund?

State Revolving Fund loans can be made for:

1. Sewage treatment. Construction, expansion, or
   rehabilitation of "publicly owned treatment works" (including municipal
   sewage collection, treatment, recycling, land application, and disposal
   facilities).
2. Nonpoint source pollution control. Implementing
   a management program under Section 319 of the Act, which contains many
   of the Act's provisions for control of nonpoint source pollution.
3. Estuary protection. Developing and implementing a conservation and management plan under Section 320 of the Act (the National Estuary Program).

Most SRF loans to date have paid for "bricks, mortar, and big pipe"
projects to collect, treat and dispose of sewage in traditional ways.

Are typical SRF projects the best use of these monies?

In many situations, traditional sewer projects are neither the best
nor the most cost-effective way to address community wastewater needs.
Traditional sewer projects can increase pollution at the point of
discharge to receiving waters, and can physically degrade tributaries
where collector sewer lines are typically placed. Traditional projects
may also encourage and subsidize urban and rural sprawl. The long-term,
indirect adverse water quality effects of sprawl can easily outweigh
the positive direct water quality benefits these projects bring.

Since they are moderately to extremely expensive, a heavy emphasis
on traditional wastewater projects in a state's SRF portfolio can
quickly consume most or all of the available loan money for pollution
control, leaving little or no funds for a host of smaller-scale, less
expensive, practical projects for point and nonpoint source pollution
control.

What other types of projects could the SRF fund?

EPA and some environmental groups are promoting a more balanced use
of SRF loans that emphasizes support for the highest priority problems
in a given watershed. They are also promoting much more careful
evaluation of SRF projects - especially expensive ones - to ensure that
they are cost-effective and do not have adverse indirect effects.

Public interest groups can play an important role in directing these
funds to the places they are needed most. A state SRF could be used for
a wide variety of pollution control activities. For example, SRF funds
could help pay for local programs to control urban runoff, mitigate
construction impacts or renovate septic tanks. They might also help
develop innovative methods of wastewater collection, treatment, and
disposal.

Where can I get information about my state's SRF?

Every year, each state publishes two documents that anyone
interested in the SRF program should obtain. The first is the state's
annual SRF report, which shows how much money was spent on projects,
and for what purposes, during the past year. The second is the state's
annual Intended Use Plan (IUP), which indicates tentative priorities
for future loans.

You might also want to obtain a copy of the state's capitalization
grant agreement with EPA. This agreement spells out many of the terms
under which the program was established and is run.

What if problems with the administration of an SRF occur?

If a state fails to follow EPA rules or meet all conditions of its
capitalization grant agreement, the EPA may issue a "finding of
noncompliance." If such a finding is made, the Regional Administrator
must prescribe the necessary corrective action. EPA's corrective action
must remedy the specific instance(s) of noncompliance and require
adjustments in program management to avoid similar problems in the
future. If the state fails to take the required corrective actions
within 60 days, new SRF grant payments may be withheld. If the state
fails to take the necessary actions within twelve months, any withheld
payments must be reallocated to other states.

Emerging questions

A number of questions associated with the SRF program are emerging
today. One of the most important is whether SRF loans can be made
exclusively for public projects, or whether they should also be
available to help private interests (such as operators of concentrated
animal feedlot facilities) install pollution control systems.

Supporters of the latter idea say it would get more pollution "bang
for the buck" in many watersheds. Opponents say that operators of
private facilities should have private capital to pay for their
required pollution control systems, which should be viewed simply as a
basic part of doing business.