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.

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