Drinking Water State Revolving Loan Fund
This document provides general information regarding the Drinking Water State Revolving Loan Fund (DWSRF) and North Dakota's DWSRF Program. Questions regarding the DWSRF may be directed to the Division of Municipal Facilities at 701.328.5211.
DWSRF - GENERAL INFORMATION
The DWSRF was authorized by the U.S. Congress under the 1996 Amendments to the Safe Drinking Water Act (SDWA). The Amendments authorize the U.S. Environmental Protection Agency (EPA) to provide federal funds to the states to capitalize DWSRFs through the year 2003. States are required to provide a 20% match for the federal funds. DWSRFs are established and managed by the states. The overall purpose of the DWSRF is to assist public water systems (PWSs) in financing the costs of drinking water infrastructure needed to achieve or maintain compliance with the SDWA, and to protect public health.
The North Dakota DWSRF is jointly managed by the North Dakota Department of Health (Health Department) and the North Dakota Municipal Bond Bank (Bond Bank). The Health Department receives the federal capitalization grants, and is responsible for the technical and overall administrative functions of the program. The Bond Bank, under agreement with the Health Department, serves as the financial agent, and is responsible for the preparation and issuance of bonds, reviewing the financial capability of loan applicants, investing program proceeds, handling loan repayments, and other necessary financial functions.
Each year, the Health Department submits a capitalization grant application to the EPA. When the grant is approved, the Bond Bank issues bonds in an amount sufficient to meet the states's 20% match requirement. The Bond Bank may also issued leveraged bonds, the proceeds of which may be used to fund loans, if loan demand exceeds the amount of grant and state match funds available for loans.
The grant funds and bond proceeds are deposited into the DWSRF and made available as low-interest loans for eligible PWS projects. As systems pay back their loans, the interest and principal payments, along with available investment earnings, are used to retire the state bonds and as a source of funds for additional projects. This revolving feature of the DWSRF program will ensure that North Dakota has funds for needed projects into the future.
If there are insufficient funds available to make scheduled principal and interest payments on outstanding DWSRF bonds when payments are due, available excess revenues from the Clean Water SRF (CWSRF) may be transferred to the DWSRF bond fund to meet the deficiency. Following such a transfer, the DWSRF has an obligation to reimburse the CWSRF with future available DWSRF excess revenues.
The present loan interest rate for eligible PWSs that qualify for tax-exempt financing is 2.5 percent. The present loan interest rate for eligible PWSs that do not qualify for tax-exempt financing is 4.0 percent. All loans are subject to a 0.5% administration fee. The maximum repayment period for DWSRF loans under the SDWA is 20 years.
DWSRF - USE OF FUNDS
There is considerable flexibility in how DWSRF funds can be used. DWSRF funds may be used for: loans; loan guarantees; as a source of reserve and security for leveraged loans (proceeds of which must be placed in the DWSRF); to buy or refinance existing local debt obligations (publicly-owned systems only) where the initial debt was incurred and construction started after July 1, 1993; and, to earn interest prior to disbursement of assistance. DWSRF assistance to date has consisted entirely of loans, including several refinancing loans. Future assistance is expected to consist primarily of loans for new project construction.
A portion of the DWSRF funds may also be used for federally-authorized nonproject or set-aside activities such as: administration (up to 4%); state environmental program assistance (up to 10%); small system (less than 10,000 population) technical assistance (up to 2%); local assistance and other state programs including the delineation and assessment of source water protection areas (up to 10% for any one activity with a maximum of 15% for all activities combined); and, subsidized loans to disadvantaged communities as defined by the state and agreed to by the EPA (up to 30%). To the extent that there are a sufficient number of eligible projects, at least 15% of the available funds must be annually used to provide project loan assistance to eligible PWSs that serve fewer than 10,000 persons. Available funds constitute the total annual allotment, including the required 20% state match, minus funds dedicated to the above set-asides (excluding the set-aside for disadvantaged communities).
The overall philosophy of the Health Department is to maximize the availability of DWSRF funds for project construction. Therefore, with the exception of fiscal year 1997, only two set-asides have been established which are considered essential for the DWSRF and SDWA programs, DWSRF administration (4%) and small system technical assistance (2%). Ten percent of the fiscal year 1997 DWSRF allotment was set aside to assist the Health Department in completing the delineation and assessment of source water protection areas, a new activity required of states under the 1996 SDWA Amendments. Fiscal year 1997 was the only year that DWSRF funds could be set aside for this purpose. The funds for this set-aside must be expended prior to May 2003. The Health Department intends to transfer any unused funds from this set-aside to the project loan fund on or prior to May 2003.
DWSRF - ELIGIBLE APPLICANTS
PWSs eligible for DWSRF assistance include community water systems, both publicly- and privately-owned, and nonprofit noncommunity water systems. Federally-owned PWSs are not eligible to receive DWSRF assistance. Community water systems are PWSs which serve at least 15 service connections used by year-round residents or regularly serve at least 25 year-round residents. Noncommunity water systems are PWSs that primarily provide service to other than year-round residents. Examples of nonprofit noncommunity water systems that are eligible for DWSRF assistance include schools and publicly-owned campgrounds, parks, and rest areas.
DWSRF - ELIGIBLE PROJECT TYPES AND COSTS
Although there are some exclusions, there is considerable flexibility in the types of projects and project-related costs that are eligible for DWSRF assistance. A DWSRF program may provide assistance only for expenditures of a type or category which will facilitate compliance or otherwise significantly further health protection under the SDWA. Attachment 1 depicts the types of projects and project-related costs that are both eligible and ineligible for DWSRF assistance.
DWSRF - FEDERAL REQUIREMENTS
There are a number of federal laws, executive orders, and government-wide policies that apply to projects and activities receiving federal financial assistance, regardless of whether the federal laws authorizing the assistance make them applicable. These federal authorities are referred to as cross-cutting authorities or cross-cutters. The cross-cutters apply to projects and activities whose cumulative funding equals the amount of the DWSRF capitalization grant.
The cross-cutters can be divided into three groups: environmental; social policies; and, economic and miscellaneous authorities. Environmental cross-cutters include federal laws and executive orders that relate to preservation of historical and archaeological sites, endangered species, wetlands, agricultural land, and the like. Social policy cross-cutters include requirements such as minority and women's business enterprise participation goals, equal opportunity employment goals, and nondiscrimination laws. Economic cross-cutters directly regulate the expenditure of federal funds such as the prohibition against entering into contracts with debarred or suspended firms. Attachment 2 includes a complete listing of the cross-cutters.
DWSRF - PROJECT QUALIFICATION AND LOAN APPLICATION PROCESS
States are required to develop an annual Intended Use Plan (IUP) for the DWSRF, and provide it to the public for review and comment before submitting it to the EPA as part of its capitalization grant application. The IUP must include, among other things, a description of how the DWSRF funds will be used, a priority ranking system which meets the SDWA and EPA guidelines, a comprehensive project priority list based on the ranking system, project bypass criteria, and a fundable list. The fundable list represents the highest-ranked projects from the comprehensive project priority list that are anticipated to receive loan assistance in the first year following the grant award. In determining funding priority, states are required to ensure, to the maximum extent practical, that priority use of DWSRF funds be given to projects that: 1) address the most serious risks to human health; 2) are necessary to ensure compliance under the SDWA; and 3) assist systems most in need on a per household basis (i.e., affordability).
The Health Department developed a priority ranking system for the DWSRF which has been approved by the EPA. The priority ranking system is a 100-point system consisting of the following criteria and point assignments:
Water Quality (maximum points limited to 35)
Water Quantity (maximum of 20 points)
Affordability (maximum of 15 points)
Infrastructure Adequacy (maximum points limited to 15)
Consolidation or Regionalization of Water Supplies (maximum of 10 points)
Operator Safety (maximum of 5 points)
To qualify for potential DWSRF assistance, a project must be eligible, ranked, and included on the comprehensive project priority list within an IUP. Once identified in an IUP, a project can be approved for assistance based upon its ranking and the availability of funds. Under certain conditions, lower-ranked projects can be funded ahead of higher-ranked projects. The conditions under which a higher-ranked project can be bypassed are included in the IUP, and include such criteria as readiness to proceed. While an application can be processed and preliminary work completed in advance, no assistance can be approved for nor any funds transferred to a system until their project is identified in a finalized IUP.
The Health Department prepares the required annual IUP for public review and comment in the fall of each year. In the spring of each year, a letter of interest is sent to all potential DWSRF loan recipients asking for information regarding new drinking water projects for which they may be interested in pursuing DWSRF assistance. Systems that respond are provided a project ranking questionnaire. Eligible projects for which ranking questionnaires are returned are ranked and included on the comprehensive project priority list as part of the IUP development process. Following public review and comment, the IUP is finalized and subsequently included in the grant application to the EPA.
Once the IUP is finalized, systems with projects on the fundable list may apply for DWSRF assistance. Systems with projects on the comprehensive project priority list but not on the fundable list may also apply. They should not do so, however, before contacting the Health Department to discuss the fundability of the project based upon its ranking, availability of funds, and other assistance requests. Application packages can be obtained by writing or calling the Health Department. The address and telephone number are:
North Dakota Department of Health
Depending on the complexity of the project, the Health Department may schedule a meeting when contacted for a DWSRF application package. At this meeting, a representative of the Health Department will explain the program, answer any questions that the system may have, and assist the system as needed. Upon completion, a full copy of the application needs to be sent to both the Health Department and the Bond Bank. The Health Department assesses the applicant's technical and managerial capability and ensures that other programmatic requirements are met. The Bond Bank reviews the financial information and assesses the applicant's financial capability The system will be promptly notified if additional information is needed.
DWSRF - PROFESSIONAL SERVICES
Eligible PWSs will typically require the services of a consulting engineer and bond counsel. The engineer is responsible for preparing all required technical documents. These include, but may not be limited to, the facility plan, plans and specifications, bidding documents, and the operation and maintenance manual. The engineer also provides onsite inspection services during construction to ensure quality control and construction in accordance with the approved plans and specifications. The Health Department will work closely with the system's engineer to ensure compliance with federal and state requirements. The Bond Bank will work with the system's bond counsel to ensure that all legal and financial requirements are met.
DWSRF - PROJECT DEVELOPMENT
The typical DWSRF project consists of three steps: planning, design, and construction. In the planning step, a facility plan is prepared. A facility plan is a planning document that describes existing conditions, identifies current problems, projects future conditions at the design year, and evaluates alternatives to solve the existing problems and meet future needs. The evaluation of alternatives includes both a cost effectiveness analysis and an environmental assessment. The purpose of the facility plan is to identify the most cost effective and environmentally sound solution to the problem(s). The facility plan must be approved by the Health Department before the project can proceed to the next step, the design step.
After the facility plan is approved, plans, specifications, and bidding documents are prepared based on the recommended alternative from the facility plan. These technical documents must comply with, among other things, Minority Business Enterprise/Women Business Enterprise (MBE/WBE) and Equal Employment Opportunity requirements. Once the documents have been approved by the Health Department, the project can be advertised and bids opened. If the bids are acceptable, the construction contract must be awarded to the low, responsive, responsible bidder following Health Department approval. Construction can commence at the system's convenience following Health Department approval.
After award of the construction contract, the Health Department will attend the preconstruction meeting with the system and contractor to explain the construction-related requirements that must be complied with and to answer any questions that arise. The Health Department will also conduct periodic interim inspections during the construction phase of the project. Since DWSRF loans are cost reimbursable, construction and other eligible project-related costs must be incurred before the system can receive payments. Once costs are incurred, the system should submit periodic payment requests to the Health Department for processing. The system should receive payment within two weeks of receipt of the payment request by the Health Department. When construction is completed, the Health Department will conduct a final inspection to verify compliance with federal requirements, verify that the project was constructed in accordance with the approved plans and specifications, and to establish final project costs.
Principal payments on the loan must begin no later than one year after construction is completed and the project is declared operational. Principal payments are typically scheduled for September 1 of each year following project completion. Interest accrues beginning with the first loan draw, and is payable during construction typically on each March 1 and September 1. The Bond Bank will work with the system to establish the repayment schedule as part of the loan closing process.
ELIGIBLE AND INELIGIBLE PROJECTS AND PROJECT-RELATED COSTS UNDER THE DWSRF PROGRAM
EXAMPLES OF ELIGIBLE PROJECTS AND PROJECT-RELATED COSTS
EXAMPLES OF INELIGIBLE PROJECTS AND PROJECT-RELATED COSTS
Dams, or rehabilitation of dams
Water rights, except if the water rights are owned by a system that is being purchased through consolidation as part of a capacity development strategy
Reservoirs, except for finished water reservoirs and those reservoirs that are part of the treatment process and are located on the property where the treatment facility is located
Drinking water monitoring costs
Operation and maintenance costs
Projects needed mainly for fire protection
Projects for systems that lack adequate technical, managerial and financial capability, unless assistance will ensure compliance
Projects for systems in significant noncompliance under the SDWA, unless funding will ensure compliance
Projects primarily intended to serve future growth
CROSS-CUTTING AUTHORITIES FOR THE DWSRF PROGRAM
Clean Air Act
Endangered Species Act
Executive Order 11988 - Floodplain Management
Executive Order 11990 - Protection Of Wetlands
Farmland Protection Policy Act
National Environmental Policy Act
National Historic Preservation Act
Safe Drinking Water Act
Wild and Scenic Rivers Act
SOCIAL POLICY AUTHORITIES
Age Discrimination Act
Civil Rights Act of 1964
Executive Order 11246 - Equal Employment Opportunity
Executive Orders 11625, 12138, and 12432 - Minority and Women's Business Enterprises
Executive Order 12898 - Nondiscrimination in federal Programs
ECONOMIC AND MISCELLANEOUS AUTHORITIES
Demonstration Cities and Metropolitan Development Act
Executive Order 11738 - Prohibition of Procurement from and Assistance to Persons Convicted of Violations under the Clean Air Act and the Clean Water Act
Executive Order 12549 - Debarment and Suspension
Uniform Relocation and Real Property Acquisition Policies Act