Zero-Percent Interest Loans Make Lead Pipe Replacement Affordable in Many States
By Danielle Goshen
Lead service lines (LSLs), which connect water mains to homes, schools, and businesses, pose a risk for lead exposure through drinking water. According to the EPA, there are still an estimated 9.2 million lead service lines in cities and towns across the United States, many of which are in low-income neighborhoods and communities of color. Highlighting the urgency to remove these lines, there is no safe level of exposure to lead and exposure is particularly dangerous for young children, causing developmental issues and long-term health risks.
Luckily, through the Bipartisan Infrastructure Law (BIL), passed in November 2021, an unprecedented $15 billion has been allocated to identify and replace lead service lines over five years, distributed through the Drinking Water State Revolving Fund (DWSRF). The lead service line replacement (LSLR) program therefore reflects a strong federal commitment to addressing the public health threat posed by lead-contaminated drinking water.
Importantly, however, the DWSRF offers states substantial flexibility in how they deploy SRF resources. While BIL provides billions of dollars in funding, states must make crucial policy choices in how they structure their financing options. With opportunity comes responsibility, and states are tasked with designing effective programs that target the communities most in need and offering affordable financing terms available to these communities.
States’ Policy Choices on Funding and Financing
While BIL has increased the amount of federal funding available, states retain significant autonomy over how SRF funds are distributed. Under BIL, 49% of LSLR funds are provided to communities as grants or principal forgiveness loans. Up to 31% of the BIL LSLR funds can be set aside for program administration, technical assistance, local capacity building, and other allowed purposes [1]. The remainder is provided to communities as loans [2]. However, the accessibility of the LSLR program for lower income communities often depends on how favorable the loan financing opportunities are under this program.
States can opt to provide zero-percent interest loans, low-interest loans, or other forms of financial assistance through their SRF programs. Zero-interest loans, in particular, are a critical financing tool for many low-income or disadvantaged communities who cannot afford to take on additional debt, even at low rates. For these communities, accessing zero-interest loans can be the difference between moving forward with vital infrastructure improvements or delaying projects indefinitely.
Digging into the data from the second year of funding under BIL, Federal Fiscal Year (FFY) 2023, we see that states are nearly split between providing zero-interest loans for LSLR projects versus financing with interest. See Table 1, below.
| States that Provide 0% Interest Loans for LSLR Projects | States that Do Not Provide 0% Interest Loans for LSLR Projects | Didn't Apply for LSLR Funding in SFY24 | Unclear |
|---|---|---|---|
| Arkansas | Alaska | New Hampshire | Connecticut |
| California | Alabama | Oregon | |
| Delaware | Arizona | ||
| Florida | Colorado | ||
| Iowa | Georgia | ||
| Indiana | Hawaii | ||
| Louisiana | Idaho | ||
| Massachusetts | Illinois | ||
| Maine | Kansas | ||
| Minnesota | Kentucky | ||
| Mississippi | Maryland | ||
| North Carolina | Michigan | ||
| North Dakota | Missouri | ||
| Nebraska | Montana | ||
| New Mexico | New Jersey | ||
| New York | Nevada | ||
| Ohio | Oklahoma | ||
| Rhode Island | Pennsylvania | ||
| South Dakota | South Carolina | ||
| Texas [3] | Tennessee | ||
| Utah [4] | Virginia | ||
| Vermont | Washington | ||
| West Virginia | Wisconsin | ||
| Wyoming |
Table 1: Table showing states that provide zero-interest loans under the DWSRF’s LSLR program
A review of 50 state SRF programs reveals that, in their State Fiscal Year 2024 (SFY24) funding cycles, the second year BIL funds were available to states, 24 states offer zero-percent interest loan options for lead service line replacement projects. Note that two of these states provide explicit limitations for certain projects and applicants. For example, New York caps the interest-free financing at $14 million in any Federal Fiscal Year, aiming to ensure that these favorable financing terms are spread among different applicants [5]. Texas, on the other hand, only provides zero-interest loans for the LSLR inventory projects or portions of projects [6].
Meanwhile, 23 states have chosen not to provide zero-percent financing for lead projects, and one state (Connecticut) has an unclear policy. Further, two states (Oregon and New Hampshire) decided to not apply for LSLR funding for their SFY24 funding cycle by the time this blog is published.
These interest-free policy decisions reflect the wide variation in how states are prioritizing their SRF funds and which communities they aim to support.
The Importance of Zero-Interest Loans
Zero-interest loans are an essential mechanism for promoting equity in water infrastructure investment. Many of the communities who are most in need of lead service line replacements are also the least equipped to handle the financial burden of such projects. High-interest loans or loans with restrictive terms can further strain water system budgets, delaying necessary improvements and perpetuating public health risks.
For these communities, zero-interest loans reduce financial barriers and ensure that vital infrastructure upgrades are affordable, providing a critical form of relief for small towns, rural areas, and economically disadvantaged urban neighborhoods where lead exposure remains a serious public health concern.
Policy Choices Moving Forward
As states continue to implement their LSLR programs using BIL funds, the choices they make about funding and financing will shape the future of water infrastructure and public health in their communities. Policymakers must weigh the long-term benefits of returning interest to the fund through loans with non-zero interest rates with the immediate needs of the communities that are unable to pay back interest rates.
Providing zero-interest loans is one way to ensure that all communities, regardless of economic status, have the opportunity to replace lead service lines and protect public health. For states that have not yet implemented such financing options, there may be opportunities to reassess their programs and align their policies with the needs of the most vulnerable populations.
Ultimately, the success of BIL’s lead service line replacement efforts will depend on the willingness of states to prioritize equitable access to safe drinking water infrastructure investments and to make key policy decisions, like providing 0% interest loans available for certain communities to ensure that those most in need are not left behind.
Conclusion
BIL has provided substantial funds to address one of the most pressing public health concerns in the US — lead contamination in drinking water. Through SRF programs, states have the opportunity to make critical investments in infrastructure that will protect future generations. However, the financing decisions made at the state level will determine how effective these programs are in reaching the communities that need them most. As we move forward with BIL funding, states must carefully consider the benefits of zero-interest loans and other financing options that promote equity and long-term sustainability in water infrastructure.
[1] See State SRF Policies to Help Communities Fully Take Up the New Federal Funding for Lead Service Line Replacement (EPIC, 2023), available at https://www.policyinnovation.org/blog/setasidefunds.
[2] Bipartisan Infrastructure Law (BIL) (P.L. 117-58), 135 Stat. 1400. Available at: https://www.congress.gov/117/plaws/publ58/PLAW-117publ58.pdf.
[3] Note that Texas only provides 0% interest loans on inventory portions of projects.
[4] While Utah provides as low as zero percent interest loans using the Revenue Bond Index RBI as a basis point, the points assigned in Table 2 in Utah Administrative Code (UAC) R309-705-6, and a method to reduce the interest rate, it does not describe a methodology for how it determines reduction in interest rates. See UAC R309-705-6 available at: https://rules.utah.gov/publicat/code_rtf/r309-705.rtf.
[5] New York State, Department of Health, Final Amendment No. 2 to the Drinking Water State Revolving Fund Federal Fiscal Year 2024 Intended Use Plan Bipartisan Infrastructure Law Lead Service Line Replacement Funding (March 2024), at pg. 4. Available at: https://www.health.ny.gov/environmental/water/drinking/iup/docs/amendment_2_bil-lslr_ffy2024.pdf.
[6] Texas Water Development Board, Drinking Water State Revolving Fund Intended Use Plan Lead Service Line Replacement Funding SFY 2023 (FFY 2022 and FFY 2023 Allotment) (April 2024), at pg. 8. Available at: https://www.twdb.texas.gov/financial/programs/lead-slr/doc/DWSRF-LSLR-SFY2023-IUP-Amended.pdf.