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Today, by a vote of 412-4, the House of Representatives passed a major overhaul to the Clean Water State Revolving Fund Program (CWSRF). This was the result of intense lobbying by NACWA and the Water Infrastructure Network (WIN) to demonstrate that Congress remains committed to the CWSRF as a core investment tool for municipal wastewater agencies.  The CWSRF overhaul is included in the conference report for H.R. 3080, the Water Resources Reform and Development Act (WRRDA), reauthorizing flood control projects throughout the country.  The Senate is poised to vote on the package later this week.  

NACWA is quite pleased that Conferees agreed to the CWSRF overhaul which includes many policy initiatives that NACWA has long been an advocate for such as targeted resources for technology innovation, support for integrated planning, and measures to address affordability concerns.  Also included is a new federally administered pilot program  that provides loans and loan guarantees for drinking water and wastewater infrastructure investments referred to as the Water Infrastructure Financing Innovations Act (WIFIA), but ensures that funding this new program does not come at the expense of the CWSRF.  

This Advocacy Alert provides NACWA members a section-by-section overview of the key provisions related to both. 

Background

Although the House and Senate WRRDA packages did not contain provisions related to the CWSRF, the Senate-passed bill (S. 601) did contain a WIFIA proposal. The WIFIA proposal raised concerns among House conferees and stakeholder groups, including NACWA and WIN, that without some action by Congress to indicate a continued commitment to the CWSRF program, a WRRDA package containing WIFIA could be seen as opening the door to a scaled back CWSRF. WRRDA Conferees, led by Senator Barbara Boxer, Chairwoman of the Senate Environment and Public Works (EPW) Committee and Representative Bill Shuster, Chairman of the House Transportation and Infrastructure (T&I) Committee, came under pressure to take action to counter these concerns and included policy reforms to the CWSRF that NACWA has long advocated for and that in the past have enjoyed broad bi-partisan support. Although drinking water projects are eligible for loans under the new WIFIA program, the conference report does not include revisions to the Drinking Water SRF. 

Congress has not enacted any major revisions to the CWSRF program since 1987, which makes the provisions in WRRDA a landmark change to the Clean Water Act’s long-standing CWSRF program. Although several Congresses have attempted to pass CWSRF-related bills, none were successful until now. Several provisions included in today’s package have been in earlier SRF reauthorization bills - including a reauthorization proposal in the 111th Congress that ultimately stalled in the Senate despite overwhelming bi-partisan votes in favor of it in both the House and Senate EPW Committee - and therefore enjoyed prior bi-partisan support.

Several provisions deal with critical issues that NACWA has been a long-time advocate for including measures to help utilities address affordability concerns, undertake integrated planning, build resiliency to extreme weather events, and install innovative technologies to support resource recovery and Utility of the Future (UOTF) activities. Below is a more detailed overview of specific provisions:

Overview: Water Resources Reform and Development Act

Title V – Water Infrastructure Financing – Section-by-Section

Subtitle A – State Water Pollution Control Revolving Funds: This subtitle revises Title 6 of the Clean Water Act which contains the authorities under which the CWSRF operates.

Sec. 5001 – This section revises the preamble for Title 6 (Sec. 601 – General Authority) to broaden the purposes and objectives of the SRF to support the broad goals and objectives of the CWA as a whole. Prior to this revision, the SRF was to be used for construction/rehabilitation of POTWs and implementation of the 319 non-point source management program and the National Estuary Program. As you will note later on, there are several ways in which the eligibility for CWSRF funds is being expanded significantly under this legislation, but revising the preamble is the first method for doing this.

Sec. 5002 - Revises Sec. 602 relating to Capitalization Grant Agreements and what States are required to do as Administrators of the SRF programs. There are several new requirements States must comply with that concern fund management and charging of fees. However, the provision that impacts municipalities and recipients of CWSRF financing most directly is the requirement that as a condition of providing assistance, a recipient must certify that it has evaluated the cost-effectiveness of a project and has selected the activity that maximizes the potential for efficient use of water and energy. The specific language is -

“(A) has studied and evaluated the cost and effectiveness of the processes, materials, techniques, and technologies for carrying out the proposed project or activity for which assistance is sought under this title; and (B) has selected, to the maximum extent practicable, a project or activity that maximizes the potential for efficient water use, reuse, recapture, and conservation, and energy conservation, taking into account-- (i) the cost of constructing the project or activity; (ii) the cost of operating and maintaining the project or activity over the life of the project or activity; and (iii) the cost of replacing the project or activity;”

Prior reauthorization packages have included similar provisions to ensure that a SRF loan recipient has assessed that sustainability of the assets being invested in and the long term costs of the installed infrastructure, technology or best management practice.

Sec. 5003 – revises Sec. 603 relating to the uses of the CWSRF itself and contains most of the revisions in the package. The revisions related primarily to three areas: broadens list of eligible activities; extends repayment terms and requires a fiscal sustainability plan from publicly owned treatment works (POTW) recipients; and, codifies additional subsidization.

1. Eligible activities: In addition to activities related to construction of treatment works, non-point source management and the National Estuary Program, the SRF loans can now be used for a laundry list of activities, many of which already qualified for investments under the SRF but are now explicitly codified as part of the statute. These items include: investments in decentralized systems, investments in water efficiency and conservation that reduce the demand for more capacity at the treatment works; investments that manage, recapture or treat stormwater or subsurface drainage; investments in energy conservation and efficiency that reduce overall energy consumption needs by a POTW; water reuse and recycling; security-related improvements; and investments in watershed-based activities enumerated in sec. 122 of the CWA which also was revised to include investments by POTWs to bolster resiliency against extreme weather events and collaborations with non-point sources of water pollution located upstream from the treatment works. In addition, the revisions to sec. 122 include investments in integrated water resources planning and management.

Although the package does not include the “Green Project Reserve” set-aside that Congress first established as part of the stimulus bill in 2009 and since carried over through annual appropriations bill, as discussed above, these types of activities are now directly eligible for SRF funds and also eligible for additional subsidization as well (see #3 below) 

NACWA has been a leading advocate for greater investment in innovative technologies and management practices that move a POTW toward greater resource recovery and are pleased to see these measures now embraced in the statute. These measures build on the advocacy work NACWA has done with respect to the Farm Bill and encouraging greater collaborations with upstream agricultural producers; to our legislative proposal embodied in the Water Infrastructure Resiliency and Sustainability Act which would target investment in measures to help POTWs address their vulnerabilities to climate change; and, to our legislative proposal embodied in the Innovated Stormwater Infrastructure Act which seeks to target investments in green infrastructure. It is also important to note that the SRF can now support communities who want to develop an Integrated Plan under EPA’s Integrated Planning initiative (see note below on additional subsidization.)
Additionally, through a revision to the definition of “treatment works” under Sec. 212 of the CWA, SRF can now be used for acquisition of land or interests in the land necessary for construction (see Sec. 5012.)

2. Loan repayment terms and fiscal sustainability planning: the package extends SRF repayment term to 30 years which NACWA has advocated for as part of our affordability work.

The package also requires POTW loan recipients to establish a fiscal sustainability plan, or certifies that it has a plan in place, that includes:

1. 1. an inventory of critical assets that are a part of the treatment works;
   2. an evaluation of the condition and performance of inventoried assets or asset groupings; 
   3. a certification that the recipient has evaluated and will be implementing water and energy conservation efforts as part of the plan; and
   4. a plan for maintaining, repairing, and, as necessary, replacing the treatment works and a plan for funding such activities.

These provisions have been in past SRF reauthorization packages which NACWA has supported and speak to Congress’s interest in ensuring that SRF investments are supporting sound fiscal and infrastructure investments programs and that utilities have asset management plans in place to ensure continuous maintenance of that infrastructure.

3. Additional Subsidization – Since Congress enacted the 2009 stimulus package, language has been included authorizing States to provide additional subsidization in the form of loan forgiveness and negative interest loans. The WRRDA package now codifies this authority. NACWA has been the leading advocate for this provision and is pleased to see this authorization now permanently made part of the statute. A few conditions to note on the use of this authority:

a. States are allowed to use not more than 30% of the capitalization grant for additional subsidization in any year in which appropriations to the SRF capitalization grant program exceeds $1.3 billion, a percentage that is reduced in any year that the capitalization grant falls below $1.3 billion to a level that matches the percentage amount exceeding $1 billion (for example, States can use no more than 20% for additional subsidization if overall appropriations for that year is $1.2 billion.) The authority disappears altogether if appropriations fall below $1 billion. The $1 billion trigger has been attached to this authority in annual appropriations and is a powerful incentive for Congress to ensure CWSRF appropriations exceed the $1.3 billion mark.

b. In order to qualify for additional subsidization, a recipient must meet affordability criteria established by the state, or demonstrate that additional subsidization benefits individual rate payers, that without it, such ratepayers will experience significant hardship, and is directed to individual ratepayers through a user charge rate system.

The revisions require State affordability criteria to meet a certain standard laid out in the package and if they do not, a State must revise the criteria. The standard includes language which should ensure that large urban areas, as well as smaller and rural areas, can qualify under it.

c. A third way in which a POTW can qualify for additional subsidization is by proposing a project that implements a process, material to implement a process, material, technique, or technology to address water-efficiency goals; to address energy-efficiency goals; to mitigate stormwater runoff; or to encourage sustainable project planning, design, and construction.

NACWA is quite pleased with this provision as it recognizes that investments in water-efficiency, energy-efficiency or stormwater mitigation are not always the most cost-effective investments for a POTW in that they may cost ratepayers more in the short-run without necessarily seeing a return on investment for many years. Given that the conferees did not include a set-aside for this type of work, providing eligibility for additional subsidization for these investments is a powerful incentive for POTWs to consider making them. Also, it’s important to note that this provision now enables POTWs to receive essentially a grant from the SRF in order to undertake project planning and development, including developing integrated plans under EPA’s Integrated Planning initiative.

4. Sec. 5004 - Buy American provisions are codified: Conferees include permanent codification of Buy American requirements, limiting these requirements to the purchase of iron and steel projects. The provision mimics those found in annual appropriation bills for the last several years, including waiver provisions.

5. Sec. 5005 - Report on CWSRF allocation formula: Conferees are requiring EPA to undertake a report on the CWSRF allocation formula and report back within 18 months. Revising to the allocation formula in the past has contributed to Congress’s inability to complete work on SRF reauthorization packages. The hope here is that if EPA produces a non-partisan analysis of how to reallocate the capitalization grant based on need and other salient issues, then it could help clear a path toward full reauthorization of the fund in the future.

Subtitle C. Water Infrastructure Finance and Innovation Act (WIFIA)

As mentioned earlier and as often discussed at recent NACWA conferences and committee meetings, the Senate WRDA package contained a pilot program to establish a new investment tool for drinking water and wastewater infrastructure projects, referred to in the short-hand as WIFIA. The Conferees maintained this proposal in the final package with some modifications. Below is a summary of the major elements of the program.

WIFIA would establish a five-year, pilot program allowing the EPA to provide direct loans and loan guarantees to drinking water and wastewater infrastructure projects that cost at least $20 million (or $5 million for water systems serving 25,000 or fewer people). This pilot program would be separate from the SRF program, though State SRF programs can access these funds. The Army Corps of Engineers has the authority to also provide loans and loan guarantees for projects for flood damage reduction, restoration of aquatic ecosystems, improvements to inland and intracoastal waterway navigation systems as a separate program from that which EPA will administer.

Highlights of the WIFIA program include:

Eligible entities:

• Include corporations, partnerships, joint ventures, trusts, a federal, State, or local government or agency, a tribal government or tribal consortium, or a State infrastructure financing authority.

Projects eligible for assistance:

• Include but are not limited to projects for wastewater treatment works, desalination plants, and the acquisition of property for the construction of projects.

Activities eligible for assistance include:

• Development-phase activities including planning and feasibility analysis, revenue forecasting, environmental review, permitting, preliminary engineering and design work;
• Construction, reconstruction, or rehabilitation activities;
• Acquisition of or interest in real property, construction contingencies, and acquisition of equipment;
• Capitalized interest necessary to meet market requirements, reasonably required reserve funds, capital insurance expenses, and construction carrying costs.

Funding: a total of $175 million is available over 5 years, which must be leveraged by other capital for 51% of the projects total cost. Based on how the federal government calculates the cost of making loans under the program, $175 million is expected to result in $1.75 billion in actual investment capital by the federal government which will then be subsequently leveraged by an additional $1.75 billion for a total lending potential of $3.75 billion for water and wastewater investments over the life of the program.

*Not less than 15 percent of the amounts made available each fiscal year shall go to small community water infrastructure projects.

Eligible project costs:

• For a large community, not less than $20 million;
• For a small community (>25,000 individuals), not less than $5 million.

Limitation:

• No project receiving assistance under WIFIA may be financed (directly or indirectly) with proceeds from sales of tax-exempt municipal bonds.

*** This is an important limitation to keep in mind. Projects must come to the table with capital that is not derived from the sale of tax-exempt municipal bonds which could significantly hamper the attractiveness of this program.***

Use of existing funding mechanisms:

• The EPA Administrator must share a project application with its respective State infrastructure financing authority within 30 days of receiving it;
• Once received, the State infrastructure financing authority has 60 days to notify the Administrator if the State infrastructure authority intends to commit funds (through the SRF) to the project in an amount that is equal to or greater than the amount requested in the application. 

*** This is an important provision that recognizes the importance of the SRF as the core federal financing program for water and wastewater infrastructure projects and gives them the right of first refusal regarding funding potential WIFIA projects. This again sends a powerful signal that Congress intends the SRF program to continue.***

Selection criteria include the extent to which:

• The project is nationally or regionally significant with respect to its generation of economic and public benefits, such as:
• The project financing plan includes public or private financing in addition to assistance under the WIFIA;
• The likelihood that assistance under WIFIA would enable the project to proceed at an earlier date than the project would otherwise be able to proceed;
• The project uses innovative approaches;
• The project protects against extreme weather events and helps maintain the environment;
• The project serves regions with significant energy exploration and production areas;
• The project serves regions with significant water resource challenges

Buy American – Buy American provisions similar to those contained in the SRF apply to the WIFIA program, namely requiring that iron and steel used for these projects must be American-made.

Conclusion

Congress is expected to conclude its work on WRRDA this week followed likely by a Presidential signing ceremony within the next 10 days. The revisions to the SRF and the establishment of the WIFIA will take some time for the EPA and SRF Administrators to sort out and, while many of these provisions can be implemented immediately, others such as standing up the WIFIA program, will take significantly more time. In the meantime, NACWA will continue to monitor progress on implementation and inform members of major developments as they occur.