CWSRF Sponsorship Programs: Swipe Right to Match Point Source Projects with Nonpoint Source Projects
Clean Water State Revolving Fund (CWSRF) programs have been a source for low interest loans for wastewater treatment plants since 1987. Wastewater utilities have established and mostly predictable revenue sources to serve ongoing capital improvement needs. The arrangement of the CWSRF loan provides generous terms and a reliable source of funding to expand or improve treatment systems, or repair aging utility infrastructure. Since the passage of the Bipartisan Infrastructure Law (BIL), which appropriated $12.7 billion in supplemental funds to the CWSRF over Federal Fiscal Years 2022 - 2026, there has been an interest from many quarters to direct a larger portion of these funds towards green stormwater infrastructure (GSI) projects. While the CWSRF has funded some GSI and other nonpoint source projects over the years, it remains a very small percentage of overall spending.
Understanding Funding Challenges of GSI Projects
There are many reasons why green stormwater projects aren’t commonly funded with this program, but one immediate reason is a lack of applications for GSI projects. Unlike wastewater treatment plant (WWTP) upgrades, there is no regulatory framework that specifically requires green stormwater projects. The exceptions to this include Combined Sewer Overflow Consent Decrees, if the regulated utility decides to limit overflows with green infrastructure, or more likely, a combination of green and gray infrastructure. Also, in some areas of the country, such as the Chesapeake Bay Region, regional Total Maximum Daily Loads (TMDLs) have meaningful enforcement mechanisms that have pushed municipalities to implement green infrastructure to meet water quality standards. Yet in most areas of the country, existing TMDLs do not carry meaningful regulatory weight, and consequently, municipalities are not looking for loans to pay for green infrastructure. One must also recognize that many municipalities do not have stormwater utilities, and without reliable payment of stormwater fees collected through a stormwater utility, these communities typically lack a dedicated source of funding for repayment of CWSRF loans. Some states are working to help municipalities create these sources of needed funds, but local leaders must determine whether or not to authorize such a fee.
Potential Funding Solutions for GSI Projects
Despite these challenges, there is a relatively simple arrangement that can provide funding for these important green infrastructure projects through CWSRF programs. This arrangement creates a beneficial match between a point source project and a nonpoint source project (i.e. green stormwater project).
This is how it works:
A wastewater treatment plant loan is paired with a green stormwater infrastructure project
A state CWSRF agency provides a steeply discounted interest rate to the utility as a sponsoring entity, who works with the GSI implementing entity
Interest savings are applied to the “sponsored project”
The results is a “bonus” project that furthers water quality goals of the wastewater utility through green stormwater infrastructure design
This arrangement can be facilitated by a registry that allows implementers (i.e. entities proposing and willing to manage a GSI project) with project sponsors (i.e. WWTP with planned capital projects). The Ohio EPA under its Water Resources Restoration Sponsorship Program (WRRSP), for example, has created such a registry. This platform allows both sides of the arrangement to determine if a match would serve each other’s needs. A utility might be interested in sponsoring a project within the same service area so as to further improve water quality in the receiving waterbody. Or a utility might be interested in other assets such as the volume of stormwater captured by a project. Although Ohio has primarily funded land conservation and restoration projects, green stormwater projects are eligible for this program as well. While Ohio doesn’t currently list ecological outputs in the registry, there is no reason why the specific numeric benefits of a project could not be included. The inclusion of these outputs could push applicants towards more cost-effective solutions, particularly if the state CWSRF program required that the most cost-effective solutions be prioritized.
Critical Elements of GSI Sponsorship Programs
Creating a registry is a critical part of establishing a sponsorship program in any state because it creates a pipeline of projects that can be weighed against each other. Just as one might be dissuaded by family from marrying someone sight unseen, blindly selecting a sponsorship project can lead to perverse incentives or suboptimal projects. States should not market this program as one creating a type of “gift card” for green infrastructure projects, which can incentivize the creation of projects made to “fit the budget” even if they don’t provide a great value-add. Similar to a poorly matched first date, these projects can waste time and resources.
Also critical to the success of sponsorship programs is a robust and predictable pipeline of sponsoring projects. Without these large ticket utility projects, there is less funding that can be made available via related interest rate savings. Ohio has the third largest CWSRF program in the United States and has effectively allocated its funding each year. This has allowed the state program to fund approximately $15 million a year in conservation and restoration projects through sponsorship pairings. Yet a state doesn’t need to administer a huge CWSRF allotment to create useful project matches. More important to project implementers is the knowledge that a certain number of eligible sponsors exist and that they seek quality projects to sponsor. Even 25% of this annual amount would encourage project implementers to scope and design projects to compete for the attention of project sponsors.
Benefits of GSI Sponsorship Programs
High-priority projects are typically identified by local stakeholders
Relationships between wastewater treatment plant staff and environmental and community groups are created and strengthened
Paired projects bring together two sides of the same water quality coin (discharge and nonpoint source/stormwater)
A pool of funding for GSI projects (dependent upon size of CWSRF loans) that doesn’t need to be appropriated every year is made available through the CWSRF. While the amount of funds made available is dependent upon the size of the CWSRF loans for sponsoring projects, this can be a significant source of funding for these types of projects (e.g. for Ohio, ~$15 million/year)
What is stopping the creation of more sponsorship programs and these mutually beneficial pairings in other states? The barriers depend upon the particular state. In Ohio, the enabling legislation for the CWSRF allowed the program to set interest rates as it determined was proper, and to determine how to use program savings. Iowa and Vermont, on the other hand, needed to make changes to state statute first in order to use ratepayer fees for non-utility uses and to change eligible project types. If state legislation does need to change, it will be necessary to engage state legislators and explain the reasons for allowing their CWSRF program to create such a program.
Why might this adjustment to state CWSRF programs be useful in your state? First of all, sponsorship programs do not require the state or federal appropriation of additional funds to advance GSI projects and, moreover, sponsorship programs can carry on indefinitely regardless of changes in federal funding for CWSRF. Secondly, a sponsorship program can direct significant amounts of money directly towards implementation of projects, through the creative deployment of funding that is less affected by political changes at the state and federal level. Lastly, these pairings can create working relationships between entities that are oftentimes working on opposite sides of the water quality spectrum. Creating these partnerships may unlock future projects or lay the groundwork for water utilities to examine green solutions to meet their regulatory requirements in the future. Most importantly perhaps, these sponsorship programs direct funding towards important projects that frequently do not have dedicated funding sources. What’s not to like in that match?