Clean Water Act: Use of State Revolving Funds Varies (Testimony,
04/16/96, GAO/T-RCED-96-140).
Pursuant to a congressional request, GAO discussed its preliminary
review of the State Water Pollution Control Revolving Fund (SRF)
Program. GAO noted that: (1) as of June 30, 1995, the states had loaned
77 percent of their $18.9 billion in available cumulative funds; (2) the
proportion of state loans varies between states; (3) program data are
incomplete, since the Environmental Protection Agency has not yet
developed the national program information system; and (4) impediments
that states have encountered in loaning SRF funds include some states'
lack of experience in managing lending programs, the inability of some
small communities to repay the loans, the ability of large communities
to obtain more favorable loans elsewhere, the availability of
nonrepayable federal grants, and the need for voter approval in some
states.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-RCED-96-140
TITLE: Clean Water Act: Use of State Revolving Funds Varies
DATE: 04/16/96
SUBJECT: Water pollution control
Revolving funds
Intergovernmental fiscal relations
State-administered programs
Loans to localities
Community development programs
Wastewater management
Interest rates
Facility construction
Environmental policies
IDENTIFIER: State Water Pollution Control Revolving Fund
EPA Construction Grants Program
EPA State Revolving Fund Information Management System
Texas
Louisiana
Pennsylvania
Maryland
Community Development Block Grant
Arizona
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Cover
================================================================ COVER
Before the Committee on Appropriations,
Subcommittee on VA, HUD, and Independent Agencies,
House of Representatives
Statement Submitted
on April 16, 1996
2:00 p.m., EDT
CLEAN WATER ACT - USE OF STATE
REVOLVING FUNDS VARIES
Statement for the Record by
Stanley J. Czerwinski, Associate Director,
Environmental Protection Issues,
Resources, Community, and Economic
Development Division
GAO/T-RCED-96-140
GAO/RCED-96-140T
(160295)
Abbreviations
=============================================================== ABBREV
EPA -
SRF -
GAO -
============================================================ Chapter 0
Mr. Chairman and Members of the Subcommittee:
To assist the Subcommittee's consideration of the Environmental
Protection Agency's (EPA) fiscal year 1997 budget request, we are
pleased to submit this statement on the preliminary results of our
review, being performed at your request, of the State Water Pollution
Control Revolving Fund (SRF) Program. The program provides federal
financial assistance primarily to help communities build wastewater
treatment facilities and, thereby, meet the requirements of the
Federal Water Pollution Control Act, as amended, known as the Clean
Water Act. We expect to report fully this summer on the results of
our work, including a questionnaire we sent to nine states.
Specifically, this statement provides information on: (1) how much
of their available funds have the states lent for wastewater
treatment facilities and related purposes and (2) what impediments
are the states encountering in making these loans.
In summary, the states had made loans totalling $14.6 billion, or 77
percent of the available funds, as of June 30, 1995, according to a
survey by the Ohio State Water Development Authority,\1 the only
known source of data for all states. The proportion of funds lent
varied widely among the states. Also, we found that the states
encountered various impediments in lending their SRF funds. These
include (1) some states' lack of experience in managing lending
programs, (2) financial factors, such as the inability of small
communities to afford SRF loans and the ability of certain large
communities to borrow at lower rates from the bond market, and (3)
other, state-specific factors.
--------------------
\1 Between 1992 and 1995, the Ohio authority annually surveyed all 50
states and Puerto Rico on certain aspects of the SRF program.
BACKGROUND
---------------------------------------------------------- Chapter 0:1
The Congress established the Construction Grants Program in 1972 to
provide non-repayable grants (funded primarily by the federal
government, with state assistance) to help local governments pay for
the construction of wastewater treatment facilities. In the 1987
amendments to the Clean Water Act, the Congress phased out the
Construction Grants Program and authorized the creation of state
revolving funds, which provide repayable loans to local governments.
All 50 states and Puerto Rico have established SRFs.
Under the SRF program, the federal government provides grants to the
states as "seed money" to capitalize their revolving loan funds. The
states are required to match the federal grants, at a rate of one
state dollar for every five federal dollars. The states use their
revolving funds to make loans to local governments and, as loans are
repaid, the fund is replenished. The states may use SRF funds for
estuary protection and nonpoint-source pollution control, as well as
wastewater treatment facilities.
As of June 30, 1995, according to the Ohio authority, the states
collectively had received $18.9 billion in their SRFs, comprised of
several sources. Over one-half of this amount, about $10 billion,
came from new federal grants and about $1 billion more from unused
construction grants that the states transferred to their revolving
funds. Other substantial sources included funds borrowed by the
states ($5.4 billion)\2 and state matching and other funds ($2.4
billion).
The transfer of federal funds to SRFs begins when the Congress
appropriates funds to EPA. EPA then allots funds to individual
states generally according to percentages specified in the Clean
Water Act. To receive its allotment, a state must provide
EPA--within 2 years--with a list of projects that it expects to fund.
A state generally has up to 2 years to receive payment of its
allotment and, after receiving its payment, has up to 1 year to make
binding commitments to fund specific projects. Next, a binding
commitment is typically converted into a loan agreement.\3
As work on a project is completed and contractors submit invoices for
payments, EPA generally authorizes payments to the contractors. The
law requires that SRF funds be used in an "expeditious and timely
manner," but neither the law nor EPA's regulations specifically
define these terms.
--------------------
\2 A state is authorized to use money from its SRF to secure a bond
issue (debt). The state then uses the proceeds from the sale of
bonds to augment its SRF. This is called leveraging. According to
the Ohio data, 21 states have leveraged their SRFs.
\3 In some states, according to an EPA official, a binding commitment
is equivalent to a loan agreement.
LENDING RATES VARY WIDELY AMONG
THE STATES
---------------------------------------------------------- Chapter 0:2
Overall, the states had lent $14.6 billion, or 77 percent, of the
$18.9 billion cumulatively available to them, as of June 30, 1995,
according to the only available data we were able to identify that
cover all states' activities. These data were collected by the Ohio
authority.\4
Although the states collectively had lent 77 percent of their
available funds, lending rates varied considerably from state to
state. For example, 8 states had lent more than 90 percent of their
available funds. Conversely, 11 states had lent less than 60
percent, including 3 states that had lent less than 40 percent.
We relied on the Ohio authority data because EPA does not compile
nationwide data on SRF lending. EPA officials told us that they are
developing their own information system. Called the SRF Information
Management System, it is expected to begin operating later this year
and to include nationwide information on the states' lending of SRF
funds. The officials said that such data may help identify the
states that may be having difficulty using SRF funds.
--------------------
\4 The Ohio authority's 1995 report acknowledges that certain state
data are inconsistent. Nevertheless, we believe the data can be
useful in identifying program trends.
MANAGERIAL, FINANCIAL, AND
OTHER FACTORS CONSTRAIN STATES'
LENDING OF SRF FUNDS
---------------------------------------------------------- Chapter 0:3
Through our discussions and visits with EPA and state officials, we
identified a number of impediments that have constrained states'
lending of SRF funds. These include managerial, financial, and
other, state-specific factors.
The states' experience in managing loan programs has affected how
quickly they lent SRF funds, especially in the early years of the SRF
program. However, this factor should become less important as the
states gain experience in managing their revolving funds. For
example, in Texas, which had a state fund for financing wastewater
infrastructure before the SRF program was authorized, officials told
us that their state program experience allowed them to operate the
SRF efficiently. This is reflected in Texas' lending rate--81
percent as of August 1995\5 , a relatively high rate.
In contrast, Louisiana, with no comparable experience prior to the
SRF program, had more difficulty at the beginning. In the first 6
years of the SRF program, Louisiana made loans totalling $49 million,
but in the seventh year alone it made loans totalling $38 million.
Thus, Louisiana's lending rate rose from 48 percent as of June 1994
to 65 percent as of June 1995.\6
Financial factors can affect whether both small and large communities
apply for SRF loans. For example, state officials in Louisiana and
Pennsylvania said that many small communities cannot afford to repay
a loan because they do not have enough ratepayers among whom to
spread a project's costs and that such communities, therefore, often
do not apply for loans. At the other end of the population spectrum,
state officials told us that large communities with good credit
ratings may be able to borrow money via the bond market at rates that
are more favorable, or with fewer restrictions, than those offered by
their SRF.
Also, Maryland and Pennsylvania officials said that some communities
are reluctant to apply for a SRF loan because they hoped to obtain a
non-repayable federal grant or have withdrawn their applications for
SRF loans after receiving such a grant. The sources for such grants
include the Department of Housing and Urban Development's Community
Development Block Grant Program and the Department of Agriculture's
Rural Development Administration grants.\7
Finally, there are other, state-specific factors that affect the
states' use of SRF funds. For example, in Arizona all public
projects, including those financed with SRF loans, must be approved
by the voters before loans can be awarded. According to Arizona
officials, voters did not approve any projects that were ready to
proceed with SRF financing last year, and the state postponed loan
closings until at least August 1995.
--------------------
\5 Although the lending rate for Texas was 64 percent according to
the Ohio data, on the basis of our discussions with Texas officials
and review of documents, we estimate that the lending rate was 81
percent. Texas' fiscal year is September 1 to August 31.
\6 We derived these estimates on the basis of discussions with state
officials and review of documents. These rates are within 2
percentage points of the data reported by the Ohio authority.
\7 As we reported last year, 8 federal agencies administer 17
different programs that are designed specifically for, or that may be
used by, rural areas for constructing, expanding, or repairing water
and wastewater facilities. See Rural Development: Patchwork of
Federal Water and Sewer Programs Is Difficult to Use
(GAO/RCED-95-160BR, Apr. 13, 1995).
*** End of document. ***