Keeping it clean: Financing clean water through innovative methods

Al Petrasek, Ph.D., P.E.
Vice President
Carter & Burgess, Inc.
Dallas, Texas

From the Clean Water State Revolving Fund to Environmental Protection Agency-sponsored programs, financing wastewater treatment efforts encompasses a wide variety of funding alternatives. Once focused on large systems, funding in the new millennium also embraces rural and small systems—even non-incorporated areas. With awareness and creativity, wastewater funding opportunities exist for many types of projects.

Acquiring funds
Thinking outside the box and innovation are key in securing funding for wastewater infrastructure. One newer idea in this economic climate is low-interest loans. These loans are increasingly available in the private sector due to a low prime interest rate. This environment also results in lower interest rates for municipal bonds, which means many projects can be sustained by wastewater rates, even if some rates have to be raised.

Another alternative is for smaller wastewater entities to obtain economies of scale by merging with others or joining with a larger nearby treatment district for mutual benefit. Privatization is also an option for some operators, although it has not turned out to be the solution it was once thought to be. Public works grants are still available, but the federal surplus that many counted on to finance these grants has evaporated. These alternative sources of funding require research and planning and may be difficult to bring to realization.

One of the most common and popular options is the Clean Water State Revolving Fund (CWSRF). Instituted in 1987, this federal-state partnership has provided billions of dollars in low-interest loans for financing wastewater treatment efforts across the United States.

Shaping CWSRF
There are 51 different CWSRF programs operating under an umbrella of national standards, yet with significant differences among the states. All 50 states plus Puerto Rico participate in the CWSRF program by receiving millions of dollars in federal grants, which are then leveraged to make available even more money for loans to communities, districts, companies and even individuals for high-priority water quality efforts.

For more than a decade, the CWSRF program has provided several billions of dollars in low-interest loans for financing wastewater treatment efforts across the United States. The program remains one of the biggest sources of wastewater infrastructure funding, but other attractive options are becoming available.

The programs are, in effect, banks. Payments on these low-interest loans, some of which carry no interest, are recycled to make loans for other efforts. The revolving nature of the program enables the federal government's investment in the program to finance up to four times as many projects as a direct grant could. Nationwide, the program has almost $30 billion in assets, with more than $3 billion in SRF loans distributed annually.

The EPA provides 20 percent of the total funding available, or the "seed money," with the states responsible for the remaining 80 percent. The states use the federal money as collateral to issue bonds and then distribute the money raised from bond sales to local governments, communities, individuals, groups and non-profit organizations.

Increasing flexibility
Loans issued under the CWSRF program are primarily earmarked for the planning, design and construction of publicly-owned wastewater treatment facilities or to build and rehabilitate sewer mains, laterals, and other collection infrastructure.

Even though the program is mostly used for building and improving wastewater treatment plants, other projects are eligible. SRF funds can be used to enhance and protect the quality of watersheds in a variety of projects and to finance the protection of groundwater sources. The rationale is that reducing storm runoff and other contributors to the wastewater stream will decrease the pressure on existing facilities and delay construction of expensive new plants.

Project eligibility varies from state to state, depending on each state's programs and priorities. Increasingly, loans are being applied to non-traditional wastewater projects such as:

  • Agricultural, rural and urban runoff control, including "smart growth" initiatives;
  • Wet-weather flow control, including combined sewer control measures and sanitary sewer overflow reduction programs;
  • Wetlands restoration and protection and other non-point pollution control efforts;
  • Alternative treatment technologies;
  • Water reuse and conservation projects.

The EPA has several options for assisting entities in reducing pollutant discharge:

Section 106. The EPA can provide direct assistance to interstate agencies and states (which includes U.S. territories and Indian tribes) through Section 106 of the Clean Water Act to "establish and implement water pollution control programs." Increasingly, the focus of these efforts is aimed at protection of extensive watersheds. This approach considers overall water quality problems and seeks solutions by focusing limited finances on effective project management.

Water Quality Cooperation. The EPA makes direct grants to state water pollution control agencies, municipalities and others to promote the coordination of environmentally beneficial activities. Eligible efforts under Section 104(b)(3) of the Clean Water Act include municipal compliance with the CWA, stormwater control, sludge management and pre-treatment.

CWA Indian Set-Aside Program. A partnership between the EPA and the Indian Health Service distributes funds under the Indian Set-Aside Program for projects that increase Indian tribes' ability to plan, design, construct, operate and maintain wastewater treatment programs. The program, authorized by Section 518(C) of the CWA, addresses tribal sanitation needs by maximizing the technical resources of both agencies.

Handling small systems
Earlier funding programs focused primarily on large, centralized systems, but some states are using SRF loans and other funding options to provide effective wastewater treatment to small towns and rural areas. Small treatment systems include septic systems with drain fields and alternative systems such as mounds and cluster systems designed to treat wastewater from several homes or commercial buildings, but not entire communities.

The Water Infrastructure Network, a coalition of water utilities, municipal organizations, contractors and others, estimates that the nation should be spending $22 billion a year on wastewater infrastructure over the next 20 years, up from the current $10 billion from all sources. Fully half of WIN's estimate is for pipe repair and replacement.

These systems can be sited, sized, designed, built and operated to comply with all federal, state and local water quality requirements. They are effective in a variety of site and soil conditions, including small lots in an area with a high water table.

In most cases, the decision to build a decentralized system or tie into an existing centralized facility is made by the developer based on affordability, availability of a centralized system and the developer's profitability. Often, the most affordable and easily installed onsite system is chosen. Once built, the system is not inspected or maintained by the users until it fails, and some 2.5 million fail annually.

The EPA says these failed systems tend to share four common faults:

  • Improper siting or site evaluation;
  • Improper system selection and design;
  • Poor installation practices;
  • Insufficient attention to operation and maintenance.

Decentralized projects eligible for CWSRF loans can include:

  • Insufficient attention to operation and maintenance;
  • Installation of new single and clustered systems to correct existing non-point pollution problems;
  • Replacement, upgrading and modification of inadequate or ineffective systems;
  • Establishment of a centralized management entity for decentralized projects, including permitting and legal fees. Acceptable management entities include cities and counties, special governmental units such as utility districts and county service districts, public or private utilities, nonprofit organizations and private corporations;
  • Capital expenditures associated with centralized management programs such as trucks and storage buildings.

Funding decentralized systems
In addition to CWSRF loans, several other federal and federal/state programs are designed to finance decentralized system construction and upgrades.

EPA Section 319 Grants. Under the EPA's non-point source program, funds are provided to the various states to restore waters adversely affected by non-point source pollution and to protect waters threatened by such pollution. Most states have non-point source management plans that allocate at least part of their Section 319 funds to small communities and state agencies to build decentralized wastewater systems. These funds have also been used to repair decentralized systems.

USDA RUS. Rural areas and towns with populations of less than 10,000 may be eligible for Waste and Waste Disposal Loans and Grants from the U.S. Department of Agriculture's Rural Utilities Service (RUS). The funds are used to reduce to a reasonable level the water and waste disposal costs paid by residents. Grants may cover up to 75 percent of eligible project costs. The RUS also guarantees water and waste disposal loans made by banks and other lenders, but decentralized systems financed by this program must be owned and operated by the entity obtaining the grant.

CDBG. State-administered Community Development Block Grant programs can be earmarked for construction of and improvements to sewer facilities that serve smaller cities and counties. Some states are looking beyond trying to operate a wastewater system that continually must keep up with the demands of expanding populations and growing urbanism by seeking to steer development. These so-called "smart growth" efforts are an attempt to reduce the strain upon the wastewater network.

Keeping track
Even though the SRF program is a major contributor to improvements in the nation's wastewater infrastructure, it is not the only one. Keeping track of these ever-changing options and determining which is best for an individual wastewater treatment entity or effort is crucial to keeping abreast of increasing demand and changing environmental regulations. The other options and opportunities that exist to obtain funds for necessary upgrades and extensions of the existing networks require creativity in developing an eligible project, close attention to each state's unique SRF and an awareness of the available options. This will result in more cost-effective and innovative projects.

Al Petrasek, Ph.D., P.E., is a vice president covering planning, design, construction and management of civil and environmental engineering projects for Carter & Burgess, Inc., a national architectural and engineering and construction management firm. For more information on financing opportunities for wastewater treatment systems, contact Dr. Petrasek at (214) 920-8344 or