Following the Flow of Investments in Water Infrastructure Projects through the State Revolving Funds (SRFs)
By Janet Pritchard and Danielle Goshen
Over the past few years, communities have increasingly gained interest in the State Revolving Funds (SRFs) as a means to fund much-needed water infrastructure upgrades. Many advocates across the country also want to see these funds allocated in a manner that decreases disparities in water infrastructure access. This attention has only been amplified with the historic investments in the SRF programs under the Biden-Harris Administration’s Infrastructure Investment and Jobs Act (IIJA), also known as the Bipartisan Infrastructure Law (BIL), which will infuse the SRFs with more than $43 billion over Federal Fiscal Years 2022 to 2026, funds that will be allocated by state SRF agencies within each state over 2023-2028.
The SRFs are the conduit for the vast majority of federal funding for water infrastructure. Understanding the way these funds operate can open up opportunities for ensuring the funds are prioritized for the benefit of communities that have previously been left behind. However, SRF programs were not particularly designed with the public in mind, and are often difficult for people to grasp due to their technical nature.
With this in mind, EPIC has developed an explainer entitled Following the Money: How Dollars Flow From Federal Appropriations Through State Revolving Fund Programs to Support Local Water Infrastructure Projects to demystify this process.
While not intended as an introduction to the Drinking Water and Clean Water SRF programs, this explainer is better suited for advocates and policymakers who have had some exposure to SRFs and want to take their understanding to the next level. Through explaining actions taken at the federal, state, local, and ratepayer levels, we outline the SRF process in 19 steps, while specifically following a single year of funding (FFY 2022, the first year that includes BIL funding) from start to finish. The flowchart below, taken from the explainer, shows a simplified process for these steps.
By explaining these steps and diving into several concepts that are often misunderstood, we hope that this explainer will provide support to communities trying to answer questions around how funds move from the federal government to communities for essential water infrastructure projects. Concepts that are demystified in this explainer include the following.
Concept #1: Under the umbrella of financial assistance, “financing” and “funding” are two distinct concepts.
While called funds, the SRFs provide a mixture of financing (e.g. loans) and funding (e.g. grants) to communities for water infrastructure projects. Not all communities are eligible for the more favorable funding in the form of grants and forgivable loans (which are structured as loans but function as grants), and most communities have at least a portion of their assistance provided as loans. This makes it difficult for some communities to access financial assistance when perceived or actual barriers to taking on additional debt are present.
Concept #2: Ratepayers, through their water systems, repay the state SRF agency for all financing provided under the SRF programs.
This concept shows that the revolving nature of the SRF programs is dependent upon a certain amount of financial assistance provided as financing. This is because in order to continue to use the investments made from the federal government into perpetuity, the loans plus interest must be placed back into the SRF ‘pots’ to be eligible for use during successive SRF cycles.
Concept #3: SRFs have always had base funds and sometimes receive supplemental funding.
There are different ways the federal government invests in the SRF programs. Base funding is provided annually, and occasionally, supplemental funding is also provided and stacked on top of base appropriations. Due to the pressing need to address the country’s water infrastructure issues, it is essential for the federal government to continue to provide increasing levels of funds to these programs, whether under base or supplemental appropriations.
Concept #4: The first four steps in flow of money for SRFs are at the federal level: White House budget proposal, authorization, appropriation, and allotment.
The federal government initiates a round of funding for the SRF programs, starting with a White House budget proposal, through congressional authorization, appropriation, and finally allotment of the appropriated funds to the states by the EPA. At each stage, decisions are made about how much funding will eventually reach the states to then be distributed to local communities. Further, during appropriation, Congress may stipulate additional requirements for the use of funds that are not included under the regular requirements under the Safe Drinking Water Act (which governs the Drinking Water State Revolving Fund) and the Clean Water Act (which governs the Clean Water State Revolving Fund).
Concept #5: State SRF agencies must draft and publish an Intended Use Plan (IUP) and Project Priority List (PPL), and have these approved by EPA before funds are issued to the states.
At this stage in the flow of funds, states play a key role in shaping the policy decisions that determine how funds will be spent under their program through the creation of an Intended Use Plan and a Project Priority List. Advocates and policymakers can work with their state SRF administering agency to try and change key policies that can increase access for underserved communities and projects that advocates believe should be prioritized in the state.
Concept #6: The timing of how money is paid out is a very important detail in accurately tracking funds year-to-year, and it’s important to remember that the federal fiscal year (FFY) is different from the state fiscal year (SFY).
There is a difference between federal and state fiscal years! While often overlooked, this point is important to understand when trying to determine things like what federal funding cycle the IUP will govern and how much time the state has to draw down federal funding.
Concept #7: Various federal, state, and local decisionmakers are responsible for key decisions regarding the flow of dollars to fund projects. We summarize these decisions in 19 steps.
Our explainer outlines decisions that are made, the decision makers involved, and timelines and deadlines associated with 19 key steps in the flow of funding from the federal government to communities for water infrastructure projects. We also follow a specific year of funding (FFY 2022) for three states (Michigan, Texas, and Wisconsin) to show the diversity in state programs and their timeframes - highlighting that there is not a one-size fits all approach to administering SRF funds.
Read the full explainer here. If you have any questions or comments please reach out Danielle Goshen at DGoshen@policyinnovation.org.
EPIC is in the process of preparing additional State SRF Policy Options Briefs on various topics. Sign up for EPIC’s mailing list to learn when new briefs are published.