Funding of Small Community Needs Through the Clean Water State Revolving Fund

Program Overview: How SRF Works

The Clean Water State Revolving Fund (SRF) program was authorized by Title VI of the Clean Water Act (CWA) Amendments of 1987. The SRF program replaced the long-running Federal Construction Grants program providing independent and permanent sources of low-cost assistance for water quality infrastructure projects. EPA provides "seed money" to all 50 states and Puerto Rico to capitalize state loan funds. States administer the SRF program to provide financial assistance to local communities.

Low interest loans are the primary form of SRF financial assistance, which can also include purchasing insurance or guaranteeing loans. The "revolving" nature of the SRF is such that as loan payments are made, funds are recycled to support additional water quality projects. Total assets of the SRF program exceeded $27 billion in 1998.

SRF funding allows states to address their highest-priority water quality needs. Funding is most commonly used to support wastewater treatment systems (including decentralized systems), nonpoint source controls, and estuary protection activities.  

Funding Trends

Since 1988 the SRF has lent $22.9 billion to communities nationwide. Small communities (10,000 or fewer people) account for $5.2 billion. Very small communities (3,500 or fewer people) have received 44 percent of that $5.2 billion. Table 1 provides a state-by-state summary of loan dollars and agreements. This information was compiled from the SRF database maintained by EPA. Figure 1 summarizes the distribution of SRF dollars to small communities relative to total SRF funding during the past 11 years. Certain states may provide a higher percentage of their total state allocation to small communities, but their total SRF allocation is smaller than other states. Small communities averaged 23 percent of total SRF funding with some annual variability; since 1993 small communities have received from 18 to 29 percent of the total on an annual basis. SRF funding to small communities has nearly doubled from $456 million in 1993 to $866 million in 1998.

SRF assistance to small communities also may be evaluated in terms of the number of assistance agreements (loans). Only two states had capitalization grants in SRF's inaugural year (1988) and only three agreements were awarded that year. More states applied in 1990 and, as Figure 2 illustrates, the number of agreements has risen steadily since then. In 1998, 1,139 SRF assistance Agreements were awarded, with 701 of those going to small communities. A total of 3,897 of 6,816 SRF assistance agreements has been awarded to small communities since 1988.

While small communities received about 23 percent of SRF dollars, they account for 57 percent of SRF agreements awarded between 1988 and 1998. Small communities have never received less than 50 percent of the total number of loans. The apparent disparity between percentage of agreements and percentage of dollars indicates that loans to small communities are usually for lesser amounts of money than loans to large ones. A possible explanation for the smaller awards is that relatively smaller and less expensive wastewater treatment systems are being built for communities of 10,000 or fewer people.

Although SRF funds a portion of wastewater treatment needs of small communities, their needs are relatively large. EPA's 1996 Clean Water Needs Survey (CWNS) says the total documented need for wastewater treatment and collection systems for small communities amounts to $13.8 billion. The 1990 U.S. Census Bureau data indicate that more than 80 percent of the houses in the United States without access to wastewater treatment are in small communities. Figure 3 shows the costs associated with specific categories of need (as they are defined by the Needs Survey) and reveals that small communities clearly have the greatest need for new collector sewers and secondary treatment. Each of these needs will require approximately $4 billion of small community funding nationwide.

The Needs Survey states that small communities with limited financial, technical, administrative, and legal resources encounter difficulties qualifying for and repaying SRF loans. Small financial bases limit the ability of small and rural communities to finance wastewater projects. Many of these communities also lack access to private credit markets. Consequently, these communities may delay addressing their needs.

Future SRF Direction for Small Communities

Despite their comparatively weak economic status, small communities still must comply with the CWA requirements for wastewater collection and treatment and must continue to address human health risks. In recognition of financial constraints on small communities, President Clinton's Clean Water Initiative of 1994 proposed the establishment of special subsidies to make loans more affordable for small communities as part of the reauthorization of the CWA. These potential subsidies may include zero or negative (down to negative two percent) interest rates on loans, extension of the loan repayment period from 20 to 30 years, or loan forgiveness.

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Small Community SRF Data Tables: