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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 III, Part IV End Hierarchical Links


Drinking Water State Revolving Fund Program Guidelines: Part III, Part IV


    1. Eligible systems

      Drinking water systems that are eligible for Fund assistance are community water systems, both privately and publicly owned, and nonprofit noncommunity water systems. Federally-owned systems are not eligible to receive Fund assistance (section 1452(a)(2)).

      Fund managers should seek tax advice if they plan to issue bonds, to ensure that the requirements of the Private Activity Use Rule are met, particularly with regard to funding eligible private systems.

      Drinking water systems that have components of their systems in more than one State are eligible to receive funding after consultation with the regulatory agencies involved.

    2. Eligible Projects

      1. Compliance and public health

        A DWSRF may provide assistance only for expenditures (not including monitoring, operation, and maintenance expenditures) of a type or category which will facilitate compliance with national primary drinking water regulations applicable to the system under section 1412 or otherwise significantly further the health protection objectives of the Act (section 1452(a)(2)).

        Projects to address SDWA health standards that have been exceeded or to prevent future violations of the rules are eligible for funding. These include projects to maintain compliance with existing regulations for contaminants with acute health effects (i.e., the Surface Water Treatment Rule, the Total Coliform Rule, and nitrate standard) and regulations for contaminants with chronic health effects (i.e., Lead and Copper Rule, Phases I, II, and V rules, and safety standards for total trihalomethanes, arsenic, barium, cadmium, chromium, fluoride, mercury, selenium, combined radium-226, -228, and gross alpha particle activity).

        Projects to replace aging infrastructure are also eligible if they are needed to maintain compliance or further the public health protection goals of the Act. Examples of these include projects to:

        • rehabilitate or develop sources (excluding reservoirs, dams, dam rehabilitation and water rights) to replace contaminated sources;
        • install or upgrade treatment facilities if, in the State's opinion, the project would improve the quality of drinking water to comply with primary or secondary standards;
        • install or upgrade storage facilities, including finished water reservoirs, to prevent microbiological contaminants from entering the water system; and
        • install or replace transmission and distribution pipes to prevent contamination caused by leaks or breaks in the pipe, or improve water pressure to safe levels.

        Projects to consolidate water supplies -- for example, when individual homes or other public water supplies have a water supply that is contaminated, or the system is unable to maintain compliance for financial or managerial reasons -- are eligible for DWSRF assistance.

        The purchase of a portion of another system's capacity is eligible for a loan, if it is the most cost-effective solution.

      2. Loan assistance to systems that meet the definition in section 1401(b)

        Certain entities that deliver water through constructed conveyances, other than piped water systems, are not currently considered public water supplies. The SDWA Amendments would classify such systems as public water systems unless they comply with provisions of 1401(b). These systems are eligible for section 1452 funds for the purposes specified in 1401(b).

      3. Land acquisition

        Land is eligible only if it is integral to a project that is needed to meet or maintain compliance and further public health protection. In this instance, land that is integral to a project is only the land needed to locate eligible treatment or distribution projects. In addition, the acquisition has to be from a willing seller. Land that is necessary for source water protection may be eligible to receive a loan under section 1452(k).

        The cost of complying with the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (the Uniform Act) is an eligible cost to be included in a DWSRF program loan. (See section on cross-cutters for a more detailed discussion of the Uniform Act.)

      4. Planning and design of a drinking water project

        A Fund may provide assistance for the costs of project planning, design and other related costs. The provision of assistance for design and planning costs does not guarantee a system that the DWSRF program will provide funding for the construction of the project. The State may choose to combine the loan for planning and design with a construction loan.

        Costs to municipalities for preparing environmental assessment reports may be included as part of the costs of planning a project. Costs incurred by the State in reviewing the environmental assessments are considered DWSRF administrative costs.

      5. Restructuring of systems that are in noncompliance or that lack the technical, managerial and financial capability to maintain the system

        A Fund may provide assistance to an eligible public water system to consolidate with other public water system(s) only if the assistance will ensure that the system returns to and maintains compliance with SDWA requirements (section 1452(a)(3)(B)).

        If the system does not have the technical, managerial, and/or financial capability to ensure compliance, or is in significant noncompliance, the system may receive assistance only if (1) the assistance will ensure compliance, or (2) the owner or operator of the system agrees to undertake appropriate changes in operations. These changes include consolidation or management changes that will ensure that the system has the technical, managerial, and financial capability to ensure and maintain compliance with SDWA requirements. Costs associated with consolidation, such as legal fees and water buy-in fees, are eligible for funding.

        A State should establish criteria or guidelines to help assess what types of operational or management changes may be appropriate for a water system. Further, a State should define when a system would be a good candidate for physical consolidation to solve a compliance or long-term financial issue, or when a system could consolidate by other means, such as through management consolidation.

    3. Projects not Eligible for Funding

      The Fund cannot provide funding assistance for the following projects and activities:

      • Dams, or rehabilitation of dams;
      • Water rights, except if the water rights are owned by a system that is being purchased through consolidation as part of a capacity development strategy;
      • Reservoirs, except for finished water reservoirs and those reservoirs that are part of the treatment process and are located on the property where the treatment facility is located;
      • Laboratory fees for monitoring;
      • Operation and maintenance expenses;
      • Projects needed mainly for fire protection;
      • Projects for systems that lack adequate technical, managerial and financial capability, unless assistance will ensure compliance;
      • Projects for systems in significant noncompliance, unless funding will ensure compliance;
      • Projects primarily intended to serve future growth.

      1. Lack of technical, managerial and financial capability

        A Fund may not provide any type of assistance to a system that lacks the technical, managerial or financial capability to maintain SDWA compliance, unless the owner or operator of the system agrees to undertake feasible and appropriate changes in operation or if the use of the financial assistance from the DWSRF will ensure compliance over the long-term (section 1452(a)(3)(B)(i)). The State shall develop a capacity program to evaluate each system to be funded to ensure it has adequate capacity to receive funding.

      2. Significant noncompliance

        A Fund may not provide assistance to any system that is in significant noncompliance with any national drinking water regulation or variance unless the State conducts a review and determines that the project will enable the system to return to compliance and the system will maintain an adequate level of technical, managerial and financial capability to maintain compliance (section 1452(a)(3)(B)(ii)).

      3. Growth

        A Fund cannot provide assistance to finance the expansion of any drinking water system solely in anticipation of future population growth (section 1452(g)(3)(C)). However, assistance may be provided to address population growth expected to occur over the useful life of the facility to be funded. In determining whether or not a project is eligible for assistance, the State must determine the primary purpose of the project. If the primary purpose is to supply or attract growth, the project is not eligible to receive DWSRF funds. If the primary purpose is to solve a compliance or public health problem, the entire project, including the portion necessary to accommodate a reasonable amount of growth over its useful life, is eligible. In reviewing the proposed project, the State should review the basis for, and reasonableness of, the population projections.

        A State must also consider the extent of current risk to public health in establishing funding priorities. Consequently, if a project includes substantial growth, it must be placed at the lower end of the priority list. It would be contrary to the intent of Congress, as reflected in the "anticipation of growth" provision, to fund a project with the prospect of a substantial amount of growth ahead of a project where a significant portion is attributable to rectifying a current health threat.

    4. Compliance Without DWSRF Funding

      The inability or failure of any public water system to receive assistance from a Fund or any other funding agency, shall not alter the obligation of a drinking water system to comply in a timely manner with all applicable drinking water standards and requirements of section 1452 (section 1452(l)).


    1. Cross-cutting Federal Authorities

      There are a number of Federal laws, executive orders and government-wide policies that apply by their own terms to projects and activities receiving Federal financial assistance, regardless of whether the statute authorizing the assistance makes them applicable. These "cross-cutting Federal authorities" (cross-cutters) include environmental laws such as the National Historic Preservation Act and the Wild and Scenic Rivers Act, and social and economic policy authorities such as Executive Orders on Equal Employment Opportunity and government-wide debarment and suspension rules.

      A few cross-cutters apply by their own terms only to the State as the grant recipient (e.g., Drug-Free Workplace Act, Pub. L. 100-692 . 5152 et. seq.), because the authorities explicitly limit their application to grant recipients. In general, however, the cross-cutters will apply to projects and activities receiving assistance from the Fund.

      The Fund may consist of funds from several sources: Federal grant dollars, State match amounts, loan repayments, and, perhaps, bond proceeds. It is therefore difficult to identify which projects are receiving Federal financial assistance and are thus, subject to the cross-cutters. Consequently, the cross-cutters will apply to an amount of funds equaling the amount of the Federal grant. Requirements imposed by the cross-cutters must be met by projects whose cumulative DWSRF funding is equivalent to the amount of the capitalization grant ("equivalency projects").

      The concept of equivalency was developed for the CWSRF program, although in that program it had an additional feature. In the CWSRF program, equivalency projects were subject to a number of specific requirements listed in the Clean Water Act (section 602(b)(6)), as well as the cross-cutters. In the DWSRF program, the concept of equivalency is only used to describe which projects must comply with cross-cutters and which must undergo a tier one environmental review (see IV.B.)

      Projects funded with DWSRF monies in amounts greater than the capitalization grant are not subject to these requirements, but States that apply cross-cutters to projects whose cumulative funding is greater than the amount of the Federal capitalization grant may bank this excess to meet future requirements.

      All programs, projects and activities undertaken by the DWSRF program, including those undertaken as non-equivalency projects, are subject to Federal anti-discrimination laws, including the Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973 and the Age Discrimination Act of 1975.

      Because of the similarities between the DWSRF and CWSRF programs, and because the State plays a more substantial role in these two programs than in other Federal assistance programs (particularly in its relationship with assistance recipients), the method for applying cross-cutters in the DWSRF program will be the same as that used in the CWSRF program. The Agency will remain ultimately responsible for ensuring that assistance recipients comply with the cross-cutters, but will carry out this responsibility mainly though its annual oversight and approval roles. Day-to-day responsibility for overseeing funding recipients' implementation of the cross-cutters will fall upon the State. For example, where a cross-cutter requires consultation with another Federal agency, such as the U.S. Fish and Wildlife Service, the State will take this action initially. If a compliance issue cannot be resolved for a particular project through that consultation, then the State must seek the Regional Office's assistance in settling the matter. The most recent list of cross-cutters that apply is attached in Appendix A.

    2. Environmental Reviews

      The environmental review principles developed for the CWSRF program will provide the basis for the development of a State environmental review process (SERP) in the DWSRF program. The SERP that applies to Fund equivalency projects must be the same as the process for CWSRF equivalency projects. Non-equivalency projects must also undergo an environmental review, but the State may elect to apply an alternative SERP to these projects.

      1. Equivalency projects

        Equivalency projects are reviewed under a SERP that is functionally equivalent to the review followed by the Agency under the National Environmental Policy Act (NEPA). The State may elect to apply the procedures at 40 CFR Part 6, Subpart E and related subparts, or apply its own "NEPA-like" SERP for conducting environmental reviews developed for the CWSRF program. For equivalency projects, a SERP must contain the elements described below.

        Legal foundation: The State must have the legal authority to conduct environmental reviews of construction projects receiving Fund assistance. The legal authority and supporting documentation must specify:

        • The mechanisms to implement mitigation measures to ensure that a project is environmentally sound;

        • The legal remedies available to the public to challenge environmental review determinations and enforcement actions;

        • The State agency that is primarily responsible for conducting environmental reviews; and

        • The extent to which environmental review responsibilities will be delegated to local recipients and will be subject to oversight by the primary State agency.

        Interdisciplinary approach: The State must employ an interdisciplinary approach for identifying and mitigating adverse environmental effects including, but not limited to, those associated with cross-cutting Federal environmental authorities.

        Decision documentation: The State must fully document the information, processes and premises that influence its decisions to:

        • Proceed with a project contained in a finding of no significant impact (FNSI) following documentation in an environmental assessment (EA);

        • Proceed or not proceed with a project contained in a record of decision (ROD) following preparation of a full environmental impact statement (EIS);

        • Reaffirm or modify a decision contained in a previously issued categorical exclusion (CE), EA/FNSI or EIS/ROD following a mandatory 5 year environmental reevaluation of a proposed project; and

        • If a State elects to implement processes for either partitioning an environmental review or CE from environmental review, the State must similarly document these processes in its proposed SERP.

        Public Notice and Participation: The State must provide public notice when a CE is issued or rescinded, a FNSI is issued but before it becomes effective, a decision issued 5 years earlier is reaffirmed or revised, and prior to initiating an EIS. Except with respect to a public notice of a categorical exclusion or reaffirmation of a previous decision, a formal public comment period must be provided during which no action on a project will be allowed.

        A public hearing or meeting must be held for all projects except for those having little or no environmental effect.

        Alternatives Consideration: The State must have evaluation criteria and processes which allow for:

        • Comparative evaluation among alternatives, including the beneficial and adverse consequences on the existing environment, the future environment and individual sensitive environmental issues that are identified by project management or through public participation; and

        • Devising appropriate near-term and long-range measures to avoid, minimize or mitigate adverse impacts.

      2. Non-equivalency projects

        The State may elect to apply an alternative SERP to non-equivalency construction projects assisted by the Fund, provided that the process:

        • Is supported by a legal foundation which establishes the State's authority to review construction projects;

        • Responds to other environmental objectives of the State;

        • Provides for comparative evaluations among alternatives and accounts for beneficial and adverse consequences to the existing and future environment;

        • Adequately documents the information, processes and premises that influence an environmental determination; and

        • Provides for notice to the public of proposed projects and for the opportunity to comment on alternatives and to examine environmental review documents. For projects determined by the State to be controversial, a public hearing must be held.

      3. EPA approval and review process

        The RA must review and approve any State "NEPA-like" and alternative procedures to ensure that the requirements for both equivalency and non-equivalency projects have been met. The RA will conduct these reviews on the basis of the criteria for evaluating NEPA-like reviews contained in Appendix B to these guidelines. Because these criteria are also used in the CWSRF program (Appendix A to the CWSRF regulations), a State may simply adopt those for the DWSRF program. Significant changes to State environmental review procedures must be approved by the RA. The approved SERP may be incorporated in the State's operating agreement, if it elects to prepare one. (See I.D. above)

        States should establish administrative procedures for monitoring, collecting and summarizing environmental review information and provide documentation of these activities in the Biennial Report. EPA's annual review will include a review of a sample of DWSRF projects to verify the application and the adequacy of the SERP.


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