Skip common site navigation and headers
United States Environmental Protection Agency
Ground Water & Drinking Water
Begin Hierarchical Links EPA Home > Water > Ground Water & Drinking Water > Drinking Water State Revolving Fund Program Guidelines: Table of Contents > Drinking Water State Revolving Fund Program Guidelines: Part II End Hierarchical Links

 

Drinking Water State Revolving Fund Program Guidelines: Part II

United States
Environmental Protection
Agency
Office of Water
(4606)
EPA 816-R-97-005
February 1997


  1. ALLOTMENT/USE OF FUNDS

    Section 1452(m) authorizes a total of $9.6 billion for the DWSRF program from FY 1994 through FY 2003. This section describes allotment, reallotment, and withholding of these funds; national and State set-asides; and types of financial assistance available from the Fund.

    1. Allotment/Reallotment/Withholding of Funds

      1. Allotment formula

        Funds available to States from FY 1997 appropriations will be allotted according to the formula used for distributing Public Water System Supervision (PWSS) grants under section 1443 in FY 1995. Funds available to States from FY 1998 appropriations and beyond will be allotted according to a formula that reflects the needs identified in the most recent Needs Survey conducted pursuant to section 1452(h). In each case, the minimum proportional share established in the formula that each State will receive will be one percent of the funds available for allotment to all the States. The District of Columbia will also receive a one-percent share of available funds (section 1452(a)(1)(D)). The Virgin Islands and the Pacific Island territories will together receive an allotment of 0.33 percent (section 1452(j)).

      2. Period of availability and reallotment

        Funds are available to the States during the fiscal year in which they are authorized and during the following fiscal year (section 1452(a)(1)(C)). The amount of any allotment not obligated to the State at the end of this period of availability will be reallotted among other States according to the original formula used to allot these funds (FY 1997 funds: PWSS formula; FY 1998 funds and beyond: appropriate Needs Survey). Any State that has not obligated all of the funds allotted to it in the period of availability shall not be eligible to participate in the reallotment of funds for that particular fiscal year. The Administrator may reserve up to 10 percent of the funds available for reallotment to provide additional assistance to Indian tribes (section 1452(a)(1)(E)).

      3. Withholding of funds

        1. The Administrator will withhold funds under the following provisions:

          1. Capacity Development Authority --The Administrator will withhold 20% of a State's allotment unless the State has obtained the legal authority or other means to ensure that all new community water systems and new nontransient, noncommunity water systems commencing operation after October 1, 1999, demonstrate technical, managerial, and financial capacity with respect to each drinking water regulation in effect. This withholding provision becomes effective in FY 1999, which begins October 1, 1998. For any capitalization grant applications awarded after October 1, 1998, but before October 1, 1999 (FY 1999 funds), EPA will not obligate 20 percent of capitalization grant funds allotted to a State that does not have adequate authority in place. If a State documents by September 30, 1999, that the authority is in place to ensure that new systems demonstrate adequate capacity, then EPA will award the unobligated FY 1999 funds. If a State does not have the authority in place by September 30, 1999, it will lose the 20 percent of FY 1999 funds that were not awarded originally. EPA will withhold 20% of each successive capitalization grant allotted to a State and the withheld funds will be reallotted. The withholding provision will cease to apply to federal funds appropriated starting the next fiscal year after a State obtains the required authority.

          2. Capacity Development Strategy -- The Administrator will withhold funds from any States that are not developing and implementing a strategy to assist public water systems in acquiring and maintaining technical, managerial, and financial capacity. The amount of a State's allotment under section 1452 that will be withheld on October 1 of each fiscal year is 10 percent of FY 2001 allotments, 15 percent of FY 2002 allotments, and 20 percent of each subsequent year's allotments. The determination of when the State meets the requirement will occur on October 1 of each year. States not meeting the requirement for that fiscal year's federal appropriation will lose funds to reallotment regardless of when the State submits the capitalization grant application. Funds will no longer be withheld once a State develops and implements its capacity development strategy. The withholding provision will cease to apply to federal funds appropriated starting the next fiscal year after a State obtains the required authority. EPA plans to issue separate guidelines for States to use in developing these strategies.

            The total amount of funding that will be withheld if a State fails to meet the requirements of both of the capacity development provisions is 20 percent of the capitalization grant (section 1452(a)(1)(G)(i)).

          3. Operator Certification Program -- The Administrator will withhold 20% of a State's funds unless the State has adopted and is implementing a program for certifying operators of community and nontransient, noncommunity public water systems. This withholding provision will begin two years after the Administrator publishes guidelines for certification of operators. The Administrator is required to publish guidelines no later than February 6, 1999. The withholding provision will cease to apply to federal funds appropriated the next fiscal year after a State complies with the requirement (section 1452(a)(1)(G)(ii)).

        2. Reallotment of withheld funds

          All funds withheld from a State because the State does not have the capacity development authority, does not develop and implement a capacity development strategy, and/or does not develop and implement an operator certification program, will be reallotted, using the same formula that was originally used to allot those funds. A State that has funds withheld for any one of these three activities is not eligible to receive reallotted funds for that activity. Thus, if a State does not develop an operator certification program but does have a capacity development strategy, the State would be eligible to receive a reallotment from withheld funds from States without capacity development programs but would not be eligible for reallotted funds under the operator certification provision. A State would also have to be eligible to receive reallotted funds in accordance with the reallotment provisions in section 1452(a)(1)(E) prior to being eligible to receive reallotted funds under the specified withholding provisions. This section limits reallotment to those States that have obligated all of their allotment during the period of availability.

        3. Loss of primacy

          A State may not receive capitalization grant funds if the State had primary enforcement authority (primacy) for drinking water pursuant to section 1443 (section 1452(a)(1)(F)) on the date of enactment of the Safe Drinking Water Amendments of 1996 (August 6, 1996) and the State subsequently loses primacy. A State would not be eligible for future capitalization grants until primacy is restored. Wyoming and the District of Columbia did not have primacy prior to August 6, 1996. However, the law provides that they are eligible to receive DWSRF funds. The Administrator may reserve funds from the allotment of a State that loses primacy for use by EPA to administer primary enforcement responsibilities in that State. The balance of the funds not used by EPA to administer primacy will be reallotted to other States pursuant to section 1452(a)(1)(E).

    2. Set-asides From The National Appropriation And Ceilings on State Allotments

      Section 1452 authorizes numerous national set-sides from the appropriation for that section and allows States to use certain percentages of their allotment for various purposes other than project construction. Table 2 provides an overview of the available set-asides. Table 3 presents a flow chart for calculating these set-asides and Table 4 gives a numerical example of the set-asides. States need to determine the level of funds necessary to evaluate short-term program needs to protect public health and prevent contamination versus the long-term need to maintain an adequate level of infrastructure to address system needs over the long-term.

      1. National set-asides

        The National set-asides are reserved from the funds annually appropriated by Congress to carry out section 1452. These set-asides are:

        1. Indian Tribes/Alaska Native Villages

          The Administrator may reserve (the Administrator will provide these funds) 1.5% from annually appropriated funds for grants to Indian Tribes and Alaska Native Villages (section 1452(i)). EPA will provide separate guidelines regarding the selection of projects, project management, and program oversight for these grants. Indian Tribes and Alaska Native Villages that have not otherwise received either grants or DWSRF assistance under 1452 for a specific project are eligible to receive grants under this provision.

        2. Health effects studies

          Section 1452 requires the Administrator to reserve $10 million from annually appropriated funds to conduct health effects studies on drinking water contaminants (section 1452(n)).

        3. Unregulated contaminant monitoring

          Starting in FY 1998, section 1452 requires the Administrator to reserve $2 million from annually appropriated funds (section 1452(o)) to pay for the costs of monitoring unregulated contaminants under section 1445(a)(2)(C).

        4. Small system technical assistance

          The Administrator may reserve up to 2% of the funds annually appropriated in FYs 1997-2003 to carry out the technical assistance provisions of section 1442(e) to the extent that the total amount of funding appropriated under section 1442 is not sufficient. The set-aside from section 1452(q) plus the appropriation in 1442(e) cannot exceed $15 million per year (section 1452(q)).

        5. Operator training reimbursement

          The Administrator will reimburse States for the costs of training and certifying operators of drinking water systems serving 3,300 persons or fewer to meet the requirements of guidelines that the Administrator must publish by February 6, 1999 (section 1419(a) and (d)). The Congress has authorized to be appropriated $30 million annually from FY 1997 through FY 2003 for these reimbursement costs (section 1419(d)(3)). If the appropriation is not sufficient to meet these requirements, the Administrator, prior to allocating funds to the States, shall reserve such sums from 1452(m) as are necessary to provide grants to States. Funds under this provision are set-aside prior to the allotment of funds to the States, and will be provided as a separate grant.

      2. Allotment for D.C. and other jurisdictions

        The Administrator shall reserve one percent of the funds allotted to the States for the District of Columbia. The administrator shall also reserve up to 0.33% of the total funds allotted to the States for grants to the Virgin Islands, the Commonwealth of the Northern Mariana Islands, American Samoa, and Guam (section 1452(j)). The funds will be allotted according to the formula for allotting PWSS grants under section 1443(a)(4), and may be used to fund projects eligible for assistance under section 1452(a)(2). EPA will provide separate guidelines regarding the management of these set-asides.

      3. State set-aside activities

        Section 1452 authorizes States to provide funding for certain set-aside activities, described below, provided that the amount of that funding does not exceed ceilings specified in the Statute. A State must describe in the IUP the amount of funds that it will use for these activities. A set-aside account must be set up to accept these funds. Before cash can be drawn down from the federal ACH, a State must provide a workplan to EPA describing how the funds will be expended.

        When set-asides are used to fund program (non-project) activities, the State and EPA must negotiate a workplan indicating how funds will be spent. No cash draws will be authorized from the federal ACH until the workplan(s) have been approved by EPA. While EPA reserves the right to require additional information from the States, the workplan should at a minimum include:

        • the funding amount in dollars and as a percentage of the State DWSRF allocation;
        • the number of FTEs projected for implementing each set-aside;
        • the goals and objectives, outputs, and deliverables for each set-aside;
        • a schedule for completing activities under each set-aside;
        • the responsibilities of the agencies involved in implementing each set-aside;
        • a description of the evaluation process to assess the success of work funded under each set-aside.

        If a State does not expend all of its set-aside funds, a State may redirect the monies to the Fund, or it may redirect the funds to another set-aside activity as long as the maximum allowed for that activity has not been reached for the Fiscal Year from which the funds were derived. Set-aside funds may not be used to subsidize water system operation and maintenance expenses or for project activities eligible for funding from the Fund or those projects specifically not eligible for assistance from the Fund.

        1. DWSRF administrative expenses

          A State may use up to four percent of the funds allotted to it for the reasonable costs of administering the programs under section 1452 and providing technical assistance (section 1452(g)(2)). These costs may include such activities as issuing debt; DWSRF program start-up costs; audit costs; financial, management and legal consulting fees; development of IUP and priority ranking system; development of affordability criteria; and cost of support services provided by other State agencies.

          Expenses incurred issuing bonds guaranteed by the Fund may be absorbed by the proceeds of the bonds and need not be charged against the four percent administrative costs allowance, if done so prior to depositing the proceeds into the Fund. The net proceeds of those issues must be deposited in the Fund.

          Funds that a State chooses to use for administrative purposes cannot be deposited into the Fund. Instead, these funds must be deposited into a separate account, or with other non-project funds.

          The State may charge an application fee to process, manage or review an application for Fund assistance. Such fees may be collected in an account outside the Fund and used to supplement administrative expenses. Monies in this non-project fee account must be dedicated to the administrative purposes associated with the DWSRF program. If fees are collected and deposited into the Fund account, they are subject to the stipulated uses of the Fund, which does not include the use of funds for administrative purposes.

          States may recover reasonable costs associated with the development of the DWSRF program, if the costs were incurred between August 6, 1996, the date of enactment of the SDWA Amendments of 1996, and the date on which the first capitalization grant for a State was awarded. Documented reimbursement costs will be counted as part of the amount, up to four percent, that a State can set aside for administrative purposes.

          If the State does not obligate the entire four percent for administrative costs in one year, it can bank the excess balance and use it for administrative costs in later years.

        2. State program management A State may use up to a total of 10 percent of its allotment to:
          • administer the State PWSS program;
          • administer or provide technical assistance through source water protection programs, which includes the Class V portion of the Underground Injection Control Program;
          • develop and implement a capacity development strategy; and
          • develop and implement an operator certification program (section 1452(g)(2)).

          The State must provide a dollar for dollar match (100 percent for up to 10 percent of the capitalization grant) for capitalization grant funds used for these purposes. This match is separate, and in addition to, the 20 percent match for the capitalization grant. At least one-half of the State match funds provided by the State must be in addition to the amount the State expended for the PWSS program in FY 1993 (see example on following page). Federal grant regulations preclude a State from using the same State funds to meet match requirements for two different programs. Thus, the same State dollar cannot be used to meet this match requirement and the match requirement in Section 1443 of the SDWA (PWSS program grants), except that the FY 1993 match for the PWSS can offset up to one-half of the match required under section 1452 (g).

          Funds used to administer or provide technical assistance for source water protection programs shall not be used for enforcement actions. States may credit toward the one-to-one match State dollars used for the PWSS program that are in excess of the current fiscal year State match required in Section 1443. States may also credit current year expenditures on capacity development and operator certification programs toward the State's required match.

          If the State does not obligate the entire 10 percent for these activities in any one year, it can bank the excess balance and use it for the same activities in later years.

        3. Small systems technical assistance

          A State may use up to two percent of its allotment to provide technical assistance to public water systems serving 10,000 people or fewer (section 1452(g)(2)). If the State does not use the entire 2 percent for these activities against a given allotment, it can bank the excess balance and use it for the same activities in later years. If a State chooses to use funds under this set-aside, EPA encourages States to use available funds to support small system efforts to apply for DWSRF loans. A State may use these funds to support a technical assistance team or to contract with outside organizations to provide technical assistance.

        4. Local assistance and other State programs

          A State may fund several other categories of activities to assist development and/or implementation of local drinking water protection initiatives (section 1452(k)). A State may use up to 15% of the capitalization grant amount for specified uses below, with the stipulation that not more than 10% of the capitalization grant amount can be used for any one activity. A State is not allowed to bank any of these funds for use in future years, with the exception of the funds used for source water delineation and assessment.

          Funds loaned out under this section (i and ii) must be repaid in 20 years after completion of a project. States may place repayments in the project fund or set up a new, separate dedicated account(s) for 1452(k)(1) activities. Assistance from this separate account(s) may continue to be used for any eligible 1452(k)(1) activity.

      .


      State Program Management Match Example

      Assume a State will receive a $10 million capitalization grant, and it would like to use 10% of the funds for this set-aside, which is $1 million. The State must match it with $1 million in State funds. According to the Statute, a State may receive credit for certain expenditures in FY 1993 and the current year being discussed, in lieu of having to match entirely with new appropriations. One important reminder is that at least one-half of the funds must be in addition to the amount expended by the State for the PWSS program in FY 1993.


      FY 1993

      FY 1997

      PWSS grant

      $900,000

      $1,200,000

      State match for PWSS match

      $300,000

      $400,000

      Additional State funds

      $200,000

      $300,000

      Determination of State Credit


      In lieu of providing funds for part or all of this match provision, many States may be able to credit current funds that a State is using for its PWSS program or other eligible funding. The Statute allows a State to use funds expended for the PWSS program that are above and beyond the required PWSS State match, for both the current year ($300,00 for FY 1997 in this example) and in FY 1993 ($200,000 here). In addition, a State may credit the funds that the State is using for the State PWSS match portion in FY 1993 only ($300,000). Thus, in this example, you first look at the $300,000 from FY 1997, since the Statute requires that at least 50% of the total match come from the current year (FY 1997 in this example). The State could then potentially use up to $500,000 ($200,000 + $300,000) from FY 1993. However, in this example, the State would be limited to the use of $300,000 credit in FY 1993, due to the limitation of having only $300,000 of credit available in FY 1997. Thus, the State could use a total of $600,000 without providing new appropriations or other in-kind services. If the State wants to use the remaining $400,000 ($1 million less $600,000 already matched) in eligible set-aside funds, the State would need to provide an additional $200,000 or an equivalent amount of in-kind services. This additional $200,000 in FY 1997 would allow the State to use the additional $200,000 of unused credit from FY 1993. Thus, the State could take advantage of the full 10% set-aside with only a small amount of new funding or other in-kind contributions. In-kind services could include funds that the State currently expends on operator certification or capacity development programs. The State could also choose to simply use only $600,000 if no additional funding could be secured.

      Second Example


      Using the above example, if the State provided no funding for the PWSS program above the $400,000 State match in FY 1997, the allowable credit for FY 1997 would be zero. Thus, the State could not receive credit for FY 1993 allowable credits without providing State contributions in addition to the PWSS State match in FY 1997. This is due to the requirement that at least one-half of the funds be in addition to funding since 1993. For each new dollar the State provides, up to $500,000, the State could match it with eligible credits from the FY 1993 expenditures described in the example above. Thus, in order to use the full $1 million set-aside in this example, a State would have to provide $500,000 in new funding or in-kind services.

      Third Example


      Again using the above example, if the State provides $600,000 for the PWSS program above the State match requirement in FY 1997 (versus $300,000 as stated above), the State could use the $600,000 from FY 1997 and use $400,000 from FY 1993 as credit for the State match. In this example, the State would not have to provide any additional match in cash to take full advantage of this set-aside.

      1. Assistance to a public water system to acquire land or a conservation easement for source water protection purposes:

        A State may provide assistance, only in the form of a loan, to a public water system to acquire land or a conservation easement from a willing party for the purpose of protecting the system's source water(s) and ensuring compliance with national drinking water regulations.

        If a State elects to use this set-aside, the State shall develop a priority setting process, or use an established priority setting process that meets the same goals, to decide what land or easements can be purchased. The process must include a requirement that public water systems demonstrate how the land or easements to be purchased will directly promote public health protection and/or compliance with national drinking water regulations. The State must seek public review and comment on this process. Furthermore, the State must identify specific parcels of land or easements purchased in the Biennial Report.

      2. Assistance to a community water system to implement voluntary, incentive-based source water quality protection measures:

        A State may make a loan to assist a community water system implement voluntary, incentive-based source water protection measures in areas delineated under a source water assessment program described in section 1453 and for source water petitions. Only community (as opposed to noncommunity) water systems are eligible for this assistance. A State may establish a source water petition program and receive petitions from owners/operators or local governments requesting State assistance in the development of a voluntary, incentive-based partnership among systems, local governments, and others likely to be affected by the management measures. Only pathogenic organisms, chemicals in source water at levels above a drinking water standard, or chemicals that are not reliably and consistently below the drinking water standard can be identified as contaminants in a petition.

        If a State elects to use this set-aside, the State must develop a list of systems that will receive loans, giving priority to projects that promote compliance and public health protection, and then seek public review and comment on this list.

      3. Provide funding to delineate and assess source water protection areas:

        A State may use up to 10 percent of its FY 1997 capitalization grant to delineate and/or assess source water protection areas for public water systems in accordance with section 1453. Assessments include the identification of potential sources of contamination within the delineated areas. These assessment activities, which primacy States are required to undertake, are limited to the identification of contaminants regulated under the SDWA, or unregulated contaminants, selected by the State, at its discretion, when the State determines that they may pose a threat to public health. Funds set aside for this purpose shall be obligated by the State within four fiscal years after the State receives the grant from which the funds are set-aside. .

        Funds are available from the capitalization grant only for FY 1996 and FY 1997 to delineate and assess source water protection areas in accordance with section 1453. () Since there are no FY 1996 funds available for the DWSRF program, FY 1997 is the only year when funds will be available for this important activity. EPA encourages States to determine the level of activity necessary to delineate and assess their source water protection areas, and determine the level of funding necessary to complete these activities. If needed, States should take up to 10 percent of fiscal year capitalization grant allowed by law. EPA will review the State's determination as part of the capitalization grant application review.

      4. To support the establishment and implementation of wellhead protection programs:

        The State may make expenditures from the set-aside account to establish and implement wellhead protection programs (WHP) under section 1428. Funds can be used to establish a WHP program, which a State must then submit to the EPA Region for approval. The WHP activities to be funded must be identified in the IUP.

      5. To provide funding to a Public Water System to implement a technical or financial assistance under the capacity development strategy:

        A State may provide assistance to a public water system as part of a capacity development strategy under section 1420(c).

    1. Movement of funds between the Fund and set-aside account after award of capitalization grant

      If provided for in the IUP, a State may move funds among set-aside activities or from the set-aside account(s) to the Fund after receiving an approved amendment to the capitalization grant. Once payments have been made (according to the schedule outlined in the capitalization grant award), the project funds will be considered part of the Fund and may only be used for the authorized purposes.

    2. Transfer of funds

      Section 302 of the SDWA Amendments of 1996 allows a State to transfer up to 33% of the capitalization grant made to a State under section 1452(m) to the CWSRF or an equivalent amount from the CWSRF to the DWSRF. This transfer is at the Governor's discretion and cannot occur until at least a year after the State has received its first DWSRF capitalization grant. EPA plans to issue guidelines at a later date concerning this transfer provision.

(1)States may use funds from this set-aside for the development of Total Maximum Daily Loads (TMDL's) in limited circumstances. The State must establish a policy of allowing use of set-aside funds to develop TMDL's only if a clear cause and effect relationship can demonstrate that development of the TMDL is essential to public health protection and continuing compliance with national primary drinking water regulations. Funding TMDL's through source water set-asides is only eligible if it will prevent or reduce source water contamination or enhance the efficiency of the drinking water treatment process. In this context, TMDL activity should be weighed against other source water assessment and delineation priority activities. State source water assessment programs submitted to EPA that propose to include TMDL activity shall ensure that the development of TMDL's does not delay the completion of the source water assessments.


TABLE 2
Set-Asides and funding ceilings in the Drinking Water SRF Program Before allotment to States

Before allotment to States
Programmatic
$ 10 Million Health effects research
$ 2 Million Unregulated contaminant monitoring (starting in FY 1998)
up to 2%Technical assistance to small systems (optional) (1)
UndecidedReimbursement of operator training expenses projects
Projects
1.5%

Indian Tribes/Alaska Native Villages

Based on Allotment to States
Projects
1.0%District of Columbia
0.33%

Virgin Islands, Territories

After Allotment to States
Programmatic
up to 4%Administration of DWSRF program and technical assistance
up to 2%Technical assistance to small systems
up to 10%Assistance to State programs (PWSS, SWP, capacity development, operator certification.)
up to 15% Combination of the following:**
  • loans for public water systems to acquire land or conservation easements
  • loans for community water systems to implement SWP measures or to implement recommendations in SW petitions
  • technical and financial assistance to public water systems for capacity development
  • expenditures to delineate or assess SWP areas.
  • expenditures to establish and implement wellhead protection programs

**Each activity separately can receive no more than 10% of the capitalization grant amount
Projects
up to 30%

Loan subsidies for disadvantaged communities

Based on Fund Amount
Projects
minimum 15%Loans toward small systems (population <10,000) under Section 1452
1 Cap at $15 Million when combined with funds appropriated under Section 1442.


Table 3- DWSRF SET-ASIDES

Table 3 - DWSRF SET-ASIDES

Table 4 SET-ASIDES EXAMPLE

Table 4 SET-ASIDES EXAMPLE





Safewater Home | About Our Office | Publications | Links | Office of Water | En Español | Questions and Answers

 
Begin Site Footer

EPA Home | Privacy and Security Notice | Contact Us