By Emma Copenhaver, Project Analyst at the UNC Environmental Finance Center
State Revolving Funds, or SRFs, can be attractive for many utilities because they offer low-interest loans for expensive capital improvement projects. SRFs provide financing for drinking water projects through the Drinking Water State Revolving Fund (DWSRF) and wastewater projects through the Clean Water State Revolving Fund (CWSRF). With a heavy influx of additional SRF funds from the Bipartisan Infrastructure Law arriving soon, understanding how these funds are distributed can help secure funding for upcoming projects.
What is the Bipartisan Infrastructure Law?
The Bipartisan Infrastructure Law, or BIL, is a historic investment in water infrastructure. BIL invests nearly $45 billion of additional funding directly into state SRF programs through FY26:
- $11.7 billion each to DWSRF and CWSRF programs as supplemental funding, which can be used for any project eligible under the DWSRF or CWSRF guidelines.
- $15 billion to DWSRF Lead Service Line Replacement (LSLR), which can be used for creating a lead service line inventory, replacing known lead or downstream galvanized steel lines, and non-routine lead testing.
- $1 billion each to DWSRF and CWSRF Emerging Contaminants (EC) that addresses projects seeking to eliminate contaminants on any contaminant candidate list, especially projects aiming to reduce or eliminate PFAS.
These funds do not expand SRF project eligibilities outlined by the EPA. Still, they significantly expand the amount of funding available from SRF programs.
A significant portion of this expanded funding from BIL will be awarded as principal forgiveness loans. BIL funding has set aside 49% of SRF Supplemental funds and Lead Service Line Replacement funds, as well as 100% of Emerging Contaminants funds as principal forgiveness loans to support small and disadvantaged communities, or DACs.
This funding gives utilities more opportunities to make capital improvements, but the SRF application process can take many months. This means that utilities should start planning for capital improvement projects now. Understanding how SRF programs work can ensure the best chance to take advantage of BIL funding, and each SRF program varies state by state. One of the best ways to start learning about a state’s SRF program is to read its Intended Use Plan, or IUP.
What is an IUP?
Each year, EPA provides state capitalization grants to distribute through their SRFs. Before receiving this funding, however, each state’s SRF program must demonstrate how they plan to use the awarded funds.
This is where IUPs come in. IUPs have two primary purposes: they tell the EPA how the SRF plans to use their capitalization grant and act as an annual “application” for the state’s capitalization grant award. IUPs contain information about how funds will be spent, how interest rates are determined, how the point system on the Project Priority List (or PPL) is used, and much more.
Before state capitalization grants are awarded, the EPA evaluates the IUPs to ensure each program follows SRF regulations. While IUPs must include certain information, there is no standard format they need to follow as long as they contain the required information. This means each state’s IUP will look different but contain the same type of information.
IUPs contain valuable information for utilities that want to get funding. Knowing how your state administers its SRF program could help you to streamline your application process, score more points on your application, and ultimately get funding. You can often find a state’s current IUP on the website of the state environmental department or agency that administers their SRF program.
How are IUPs different with BIL funding?
There aren’t any significant changes to the content of IUPs for BIL funds, but states have more flexibility when drafting their IUPs. Because BIL funds flow directly through the SRF, states can combine BIL funds with their DWSRF and CWSRF IUPs.
For example, Alabama has chosen to draft separate IUPs for each portion of BIL funding in addition to their base SRF IUPs. Separate IUPs are generally shorter because they contain a smaller, more specific set of project eligibilities. Creating separate IUPs can also allow SRF programs to expand on specific project goals and clearly separate their Project Priority Lists. However, this method may take longer because it requires drafting different IUP documents.
Pennsylvania, however, has combined its BIL funding allocations into its existing DWSRF and CWSRF IUPs. Because BIL funding does not expand SRF project eligibilities, the goals, application process, fund transfers, and ranking process will be similar or identical across programs. While this approach can eliminate some redundancies, state SRF programs will need to be more explicit when discussing specific programs. This means each IUP may still need specific information, like individual goals, for each BIL program.
Additionally, with expanded funds and projects, states have even more flexibility to create assistance agreements, which allows applicants to pull from different pots of money to fund their projects fully. State programs also have more options for transferring and recycling funds between CWSRF and DWSRF programs, designing the application process, and using set-asides.
While there are several changes you may see in your state’s IUPs, the basic structure will remain the same. These changes give your state SRF program more flexibility with expanded funding. If you would like to learn more about how your state is drafting its IUPs during BIL funding years, visit the Switchboard on the Southwest EFC website or your state’s environmental department website.
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