Source: National Small Flows Clearinghouse

 ACTIVITY

UPDATE

Funding Decentralized Wastewater Systems

Using the Clean Water State Revolving Fund

developer of a property, based on affordability,

profitability, and availability of a central sewer

system. In small communities with limited or no

centralized system, developers typically choose the

most common, affordable and easily installed on-site

systems. Once installed, these conventional on-site

systems are often not inspected or maintained except

in emergency situations when wastewater backs up

into homes and backyards. Malfunctioning systems

can cause contamination of groundwater and nearby

surface waters. Many state and local regulatory codes

have not been updated to discourage or eliminate

inadequate practices and/or allow the use of new

technologies with demonstrated performance. As a

result, small communities may incur significant

economic burdens where alternative wastewater

systems are not considered or permitted.

he Clean Water State Revolving Fund

(CWSRF) is a low-interest or no-interest

source of funding for the installation, repair, and

upgrading of "decentralized" wastewater systems in

small-town, rural, and suburban areas.

"Decentralized" wastewater systems include: on-site

disposal systems such as septic systems with

drainfields and alternative systems such as mounds

and cluster systems. Cluster systems are designed to

treat the wastewater from two or more dwellings or

businesses, but not entire communities. There are an

estimated 25 million households that use

decentralized wastewater systems. In 1995,

according to the U.S. Census Bureau, two-and-onehalf million systems malfunctioned. This estimate is

probably conservative. It is anticipated that as our

communities continue to expand into suburban and

rural areas, that the number of decentralized systems

and associated system failures will increase.

Background

In the 1970s and 1980s, large federal investments in

the construction of wastewater facilities focused

primarily on large, centralized collection and

treatment systems. This effort did not recognize the

benefits of properly managed decentralized

wastewater systems in achieving the goals of the

Clean Water and Safe Drinking Water Acts.

Problems Associated With Decentralized

Wastewater Systems

In many existing communities, the initial decision to

install a particular system (i.e., to hookup to a

centralized system or to use a decentralized system)

is primarily made in the private sector by the

T
	









Benefits of Properly-Managed

Decentralized Treatment Systems

Properly-managed decentralized wastewater

systems are viable, long-term alternatives to

centralized wastewater facilities, particularly in

small and rural communities.

Why install a decentralized system? Because

they:

• protect public health and the

environment. Properly managed

decentralized systems can provide the

treatment necessary to protect public health

and the environment. They can be sited,

sized, designed, installed and operated to

meet all federal, state, and local water

quality requirements.

• are appropriate for low density

communities. Decentralized systems are

usually the most appropriate technology

and most cost-effective option for rural

areas and much of the urban outskirts.

• are appropriate for varying site

conditions. Decentralized systems can be

designed for a variety of site and soil

conditions, including shallow water tables,

bedrock and small lot sizes.

Nationwide data show that conventional on-site

system failures can be attributed to the following:

• Improper siting and/or site evaluation

• Improper system selection and design

• Poor installation practices

• Insufficient operation and maintenance

Financing Decentralized Systems . . .

The Clean Water State Revolving Fund

The Clean Water State Revolving Fund (CWSRF)

programs in each state and Puerto Rico operate like

banks. Federal and state contributions are used to

capitalize or set up the programs. These assets, in turn,

are used to make low or no-interest loans for important

water quality projects. Funds are then repaid to the

CWSRFs over terms as long as twenty years. Repaid

funds are recycled to fund other water quality projects.

These CWSRF resources can help supplement the

limited financial resources currently available for

decentralized treatment systems. Projects that may be

eligible for CWSRF funding include:

1. New system installation (single and clustered

systems) to correct an existing nonpoint

source problem

2. Replacement, upgrade, or modification of

inadequate or failing systems

3. Costs associated with the establishment of a

centralized management entity* (permitting

fees, legal fees, etc.)

4. Capital associated with centralized

management programs (e.g., trucks, storage

buildings, spare parts, etc.)

* We encourage the establishment or designation of a

management entity for all decentralized projects.

Acceptable management entities include cities and

counties, special governmental units (sanitary districts,

county service districts, etc.), public or private utilities,

private corporations, and nonprofit organizations.

Capacity of the CWSRF

Nationally, the CWSRF has in excess of $42 billion in

assets and has issued nearly $39 billion in loans since

1988. The CWSRF currently is funding over $4

billion worth of water quality projects annually.

Clearly, the CWSRF can be a powerful financial

resource for funding decentralized systems projects.


 	





Who May Qualify?

The Clean Water Act (CWA) of 1987 authorized the

CWSRF to fund point source (§212), nonpoint source

(§319), and estuary (§320) projects. Decentralized

system projects that are solutions to nonpoint source

problems may be eligible as a §319 or §320 project.

Included in a long list of eligible CWSRF loan

recipients for NPS and estuary projects are

community groups, farmers, homeowners, small

businesses, conservation districts, and nonprofit

organizations. Since the program is managed by the

states, project funding varies according to the

priorities, policies, and laws within each state.

Eligible applicants also vary by state.

Getting a Project Funded

Given that each state administers its own CWSRF

program differently, your first step in seeking a

CWSRF loan is to contact your state CWSRF

representative. The list of CWSRF state

representatives can be found on our website

(www.epa.gov/owm/cwfinance/cwsrf/index.htm).

Here are some suggested questions to ask your

representative:

1. Has the State committed to funding

decentralized systems in its CWSRF Intended

Use Plan (IUP)?

2. If not, what can I do to help get these systems

listed on the IUP?

3. Can an individual or private entity receive a

CWSRF loan for a decentralized system?

4. If not, can I receive a CWSRF loan through

my county?

Your CWSRF state representative will be able to

guide you through the proper channels. In addition,

you can refer to the Ohio case study under the

"Success Stories" section of this fact sheet for further

details on a popular approach to implementing a

CWSRF/decentralized systems state program.

Sources of Loan Repayment

Each state must approve a source of loan repayment as

part of the application process. Though finding a

source of repayment may prove challenging, it does

not have to be burdensome. Many users of the

CWSRF have demonstrated a high level of creativity

in developing sources of repayment. The source of

repayment need not come from the project itself.

Some potential repayment sources include:

• Property owner's ability to pay (determined

during loan application)

• Fees paid by developers

• Recreational fees (fishing licenses, entrance

fees)

• Dedicated portions of local, county, or state

taxes or fees

• Donations or dues made to nonprofit groups

• Stormwater management fees

• Wastewater user charges

Success Stories

In August 1997, the Ohio EPA and the Mahoning

County General Health District entered into an

agreement to create a linked deposit program to make

low-interest loans available to individual homeowners

in need of upgrading or replacing their home sewage

disposal systems. The process for obtaining a CWSRF

loan is as follows:

1. The homeowner obtains a permit, which

contains specifications on the proper

installations, operation, and maintenance of

the onsite system, from the county.

2. The homeowner is then issued a certificate

that he or she can take to any bank that

participates in the Linked Deposit Program.

3. The lending institution, using its own criteria,

decides whether or not to offer the applicant a

loan and at what interest rate and term.

4. The lending institution then notifies the Ohio

EPA. The Agency then deposits the loan
	









amount in the institution at a reduced interest

rate.

5. Savings from the reduced interest rate are

then passed on to the loan applicant.

Over the past four years, Ohio's EPA Water Pollution

Control Loan Fund made over a million dollars

available for use in this program. A similar program

was launched in Cuyahoga County, Ohio with

$1,950,000 earmarked for the first three years of the

program.

In June 1995, the Maine Municipal Bond Bank

(MMBB) and the Maine State Housing Authority

(MSHA) entered into a Memorandum of

Understanding (MOU) to make low-interest loans to

finance septic systems for owner-occupied, singlefamily residences through the MSHA loan programs.

The funds are used for the rehabilitation or

replacement of septic systems. The interest rate is set

at one percent with a maximum term of 20 years. The

MSHA remits to the MMBB on a monthly basis any

repayments for loans received during the prior month,

which are put back in the CWSRF.

In 1994, Pennsylvania instituted a program to fund

on-site sewage disposal systems for individual

homeowners using their CWSRF. The Pennsylvania

Infrastructure Investment Authority, the Pennsylvania

Housing Finance Agency, and the Pennsylvania

Department of Environmental Protection collaborated

on the development of this special funding program,

which allows a homeowner to borrow up to $25,000 at

an interest rate of one percent per annum to fund the

rehabilitation, improvement, repair, or replacement of

an existing on-site treatment system. These loans are

processed through participating local lending

institutions.

In 1995, Minnesota created several sub-programs

within its CWSRF to address nonpoint source

pollution. Once such program is the Tourism Loan

Program, administered through the Department of

Trade and Economic Development, which loans

CWSRF funds to private owners of small lake resorts

for replacement or upgrade of onsite treatment

systems. The loans are made in participation with a

local bank, with the state financing 50 percent of the

costs at two percent interest and the bank financing the

remaining 50 percent at a market rate. The

Department also administered the Small Cities Loan

Program, which provided CWSRF loans at zero

percent to small, unsewered communities to upgrade

or replace all failing on-site systems. The Small Cities

program has since been replaced by other funding

mechanisms for small, unsewered areas.

Challenges Ahead

The EPA encourages states to open their CWSRFs to

the widest variety of water quality projects while still

addressing their highest priority projects. Those

interested in implementing or upgrading an

decentralized treatment system should seek out their

CWSRF program, learn how their state program

works, and participate in the annual process that

determines which projects are funded.


 	





Other Federal funding sources for

decentralized systems . . .

EPA 319 Grants

Section 319 of the Clean Water Act provides the

statutory authority for EPA's Nonpoint Source

Program. This program provides funds to states to

restore waters adversely affected by nonpoint source

pollution, and to protect waters endangered by such

pollution. Most states have nonpoint source

management plans that allow for the use of section

319 funds for decentralized wastewater system

projects. The program has provided money to small

communities and state agencies to construct

decentralized wastewater systems in areas where these

systems are more cost effective than centralized

systems. Nonpoint Source Program funds have also

been used to repair decentralized systems where such

systems are common. Finally, these funds have been

and will continue to be used for decentralized system

technology demonstration projects. For more

information visit their web site at:

www.epa.gov/owow/nps/cwact.html

USDA Rural Utilities Service (RUS)

Water and Waste Disposal Loans and Grants are

available to develop water and waste disposal

(including solid waste disposal and storm drainage)

systems in rural areas and towns with a population not

in excess of 10,000. The funds are available to public

entities such as municipalities, counties, specialpurpose districts, Indian tribes, and nonprofit

organizations. Grant funds are available to reduce

water and waste disposal costs to a reasonable level

for rural users. Grants may be made for up to 75

percent of eligible project costs in some cases. RUS

also guarantees water and waste disposal loans made

by banks and other eligible lenders. The facilities

financed must be owned and controlled by the

borrower/grantee. Financed decentralized systems

would have to be owned and managed by the RUS

borrower/grantee.

USDA Rural Development offices located throughout

the country administer the programs. Additional

information including local contacts may be found by

visiting their web page: www.usda.gov/rus/water.

HUD Community Development Block Grant

The state administered Community Development

Block Grant program (State CDBG) provides annual

grants to 48 states and Puerto Rico. The states and

Puerto Rico in turn, use the funds to award grants for

community development purposes to smaller cities

and counties. The states of Hawaii and New York

have not chosen to administer the program. As a

result, in those two states HUD directly administers

the awarding of CDBG grants to smaller cities and

counties.

CDBG grants can be used for numerous activities,

including rehabilitation of residential and nonresidential structures, construction of public facilities,

and improvements to water and sewer facilities. For

more information, visit their web site at:

www.hud.gov/cpd/cdbg.html.

Non-Federal Assistance

In addition to funding available from the federal

government, several states have created infrastructure

funds, which can fund the development of local on-site

infrastructure. State-funded programs supporting

decentralized systems are ongoing in several states

including Massachusetts, North Carolina,

Pennsylvania, and Virginia.
	





For more information about the Clean Water Revolving Fund, or for a program representative in your state,

please contact:

Clean Water State Revolving Fund Branch

U.S. Environmental Protection Agency

1201 Constitution Avenue, NW (Mailcode 4204M)

Washington, DC 20004

Phone: (202) 564-0752 Fax: (202) 501-2403

Internet: www.epa.gov/owm/cwfinance/index.htm

Office of Water January 2003 EPA 832-F-03-003