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An innovative mechanism to finance sanitation and other public-private water quality
enhancement projects.
DESCRIPTION OF INITIATIVE: In 1972 the U.S. Congress passed the Federal Water
Pollution Control Act, which authorized the federal government to fund projects for water supply
and wastewater treatment through grants. In 1987, Congress phased out the construction grant
program and replaced it with a State revolving fund initiative. The State Revolving Fund
program is a mechanism to grant money to states, which then use it to provide low interest loans
for construction of wastewater treatment facilities and similar infrastructure. States may provide
loans to communities of all sizes including individuals, nonprofit organizations, and commercial
enterprises. Over the years, the program has steadily increased funding to non-point source
control and estuary protection projects.
Congress designed the program to allow states to be innovative in structuring their programs to
best serve local needs. States are given the flexibility to offer a variety of assistance options.
Aside from low interest loans, States may also allow the funds to be used for refinancing,
purchasing or guaranteeing local debt or purchasing bond insurance. States set loan terms,
including interest rates, repayment periods and other loan features. States may also customize
loan terms to meet the needs of small and disadvantaged communities.
Key Features of the program include:
- Low Interest Rates and Flexible Terms - Nationally, interest rates for State Revolving Fund
loans average 2.2%, while market rates average 4.8%.
- Significant Funding for Non-point Source Pollution Control and Estuary Protection - State
revolving fund loans provide more than $120 million annually to control pollution from nonpoint sources and for estuary protection, exceeding $1.7 billion to date.
- Assistance to a Variety of Borrowers - The revolving fund program has assisted a range of
borrowers including municipalities, communities of all sizes, farmers, homeowners, small
business, and nonprofit organizations.
- Partnerships with Other Funding Sources - The Revolving Fund Programs partner with banks,
non-profit groups, local governments, and federal and state agencies to provide the best water
quality financing source for each community.
MAINSTREAMING/SUSTAINABILITY: In order to ensure that the funds are used most
effectively, before the US federal government granted the states (and territories) money to make
these loans, the states had to demonstrate 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 use of the funds;
- Implemented procedures for regular, substantive public involvement; and
- Established a process that ensures environmental concerns are addressed by loan applicants.
All 50 U.S. States, and the U.S. territories have satisfied these requirements and all are
participating in the State Revolving Loan program.
To date more than 9,500 projects have been funded and over $40 billion in cumulative assistance
has been provided through the program. Over the last five years, loan repayments and interest
earnings have provided the state programs with an average of over $1.8 billion per year. Over
the years, the annual “revolving” level of funding has grown at an impressive rate, and this
growth is expected to continue.
REPLICATING THE INITIATIVE: The Clean Water State Revolving Fund Program has
served as a model for other programs within the U.S. In 1996, Congress established the Drinking
Water State Revolving Fund program, which mirrors the Clean Water Fund program in
assistance options provided, state and federal responsibilities, and other structural aspects of the
program. The revolving fund concept is also being used in the EPA Brownfields Program, and
the U.S. Department of Transportation is experimenting with the concept for funding
transportation infrastructure.
Experience has shown that using federal grants to seed a revolving loan program for
environmental projects is preferable to direct grants mainly because it eventually allows selfsufficiency in providing funds for future projects. Also, importantly, loans give the recipient a
stake in the financial package, which reduces wasteful expenditures.
- Construction grants are not sustainable over the long term,
- A functioning system to collect community user fees is a requirement for success,
- Partner with local funding sources, such as banks, nonprofit groups, local governments, and
state agencies to ensure the best water quality financing for each community,
- The legal mechanisms should be written broadly to allow both flexible and innovative financing
by local entities and also to allow funding of water quality projects not foreseen at the outset of
the initiative, and
- Local agencies should have effective management and regulatory procedures in place, prior to
receiving grants for a revolving fund program.
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