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Monday, November 25, 2013

Drinking Water State Revolving Fund (DWSRF): Program Overview and Issues

Mary Tiemann
Specialist in Environmental Policy

In the Safe Drinking Water Act (SDWA) Amendments of 1996, Congress authorized a drinking water state revolving loan fund (DWSRF) program to help public water systems finance infrastructure projects needed to comply with federal drinking water regulations and to meet the act’s health objectives. Under this program, states receive annual capitalization grants to provide financial assistance (primarily subsidized loans) to public water systems for drinking water projects and other specified activities. Through June 2012, Congress had provided $14.7 billion for the DWSRF program, and combined with the 20% state match, bond proceeds, and other funds, the program generated $23.6 billion in assistance and supported 9,990 projects.

The latest Environmental Protection Agency (EPA) survey of capital improvement needs for public water systems indicates that these water systems need to invest $384.2 billion on infrastructure improvements over 20 years to ensure the provision of safe tap water. EPA reports that, although all of the identified projects promote the public health objectives of the SDWA, just $42.0 billion (10.9%) of reported needs are attributable to SDWA compliance.

Key program issues include the gap between estimated needs and funding; the growing cost of complying with SDWA standards, particularly for small communities; the ability of small or economically disadvantaged communities to afford DWSRF financing; and the broader need for cities to maintain, upgrade, and expand infrastructure unrelated to SDWA compliance. Several overarching policy questions are under debate, including, “What is the appropriate federal role in providing financial assistance for local water infrastructure projects?” and “What other funding mechanisms could supplement or replace a program reliant on annual appropriations?”

In recent appropriations acts, Congress has added new conditions to assistance provided through the DWSRF program. The American Recovery and Reinvestment Act of 2009 (ARRA;
P.L. 111- 5) provided $2 billion in supplemental funding through the DWSRF program for drinking water infrastructure projects. ARRA applied Davis-Bacon prevailing wage and “Buy American” requirements to projects receiving any ARRA DWSRF funding, and required that 20% of the funds be reserved for “green” projects. For FY2012, Congress provided $917.9 million for the DWSRF program (P.L. 112-74). In the act, Congress made the green infrastructure reserve discretionary, but expanded the application of Davis-Bacon requirements to the DWSRF program to include FY2012 and all future years.

For FY2013, the President requested $850 million for the program. Under the Consolidated and Continuing Appropriations Act, 2013 (
P.L. 113-6), EPA planned to allocate $861.3 million for the program, after accounting for rescission and sequestration reductions. The President has requested $817 million for FY2014.

The 113
th Congress is considering alternative financing approaches for water infrastructure. The Senate passed S. 601, the Water Resources Development Act of 2013. Title X of this bill, the Water Infrastructure Finance and Innovation Act of 2013, would establish a pilot loan guarantee program to test the ability of innovative financing tools to promote increased development of, and private investment in, water infrastructure projects. The bill states that it is intended to complement, not replace, the SRF programs. S. 335, the Water Infrastructure Finance and Innovation Act of 2013, would establish a financing program at EPA to provide direct loans and loan guarantees for a range of water infrastructure and water resource management projects.

Date of Report: November 4, 2013
Number of Pages: 20
Order Number: RS22037
Price: $29.95

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