Drinking Water State Revolving Fund
Program Guidelines: Part III, Part IV
ELIGIBLE SYSTEMS AND PROJECTS
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
- 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
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.
- Loan assistance to systems that meet the definition in section
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).
- 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.)
- 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
- 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
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
Projects not Eligible for Funding
The Fund cannot provide funding assistance for the following projects and
- 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
- Projects primarily intended to serve future growth.
- 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.
- 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
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
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)).
STATE/PROJECT LEVEL AUTHORITIES
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
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.
- 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
- 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
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.
- 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.
- 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
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