Rural Water Infrastructure: Additional Coordination Can Help Avoid Potentially Duplicative Application Requirements
Released: 2012-10-16T00:00:00

Letter

Background

Rural communities often have small or aging drinking water and wastewater systems. The need for a water project can arise for multiple reasons, including replacing or upgrading outdated or aging equipment that does not treat water to meet water quality standards and systems that do not produce water to meet new treatment standards. For example, arsenic is often present naturally in groundwater, and to meet new federal arsenic standards for drinking water, many rural communities using groundwater as a drinking water source will have to improve their drinking water systems to remove arsenic. EPA estimates that drinking water and wastewater infrastructure for small communities over the next several decades could cost more than $100 billion.

This section describes (1) federal funding for drinking water and wastewater infrastructure projects in rural communities; (2) the process for applying for these federal funds, including the requirements state and federal agencies must ensure rural communities meet under the National Environmental Policy Act; and (3) our prior work on coordination among federal agencies and rural water infrastructure programs.

Federal Funding for Rural Water Infrastructure Projects

The federal government administers a number of programs that assist rural communities in developing water and wastewater systems and complying with federal regulations, with EPA’s drinking water and clean water SRF programs and USDA’s RUS program providing the most funding. Communities typically pay for drinking water and wastewater infrastructure through the rates charged to users of the drinking water and wastewater systems. Large communities serve many people and can spread the cost of infrastructure projects over these numerous users, which makes projects more affordable. Small or rural communities have fewer users across which to spread rate increases, making infrastructure projects less affordable and these communities more reliant on federal funding to help lower the cost of projects through lower interest rates or grants that do not need to be repaid.

The Safe Drinking Water Act and the Clean Water Act authorize the Drinking Water SRF and Clean Water SRF programs, respectively, as well as EPA’s authority to regulate the quality of drinking water provided by community water supply systems and the discharge of pollutants into the nation’s waters. Under the Safe Drinking Water Act, EPA sets standards to protect the nation’s drinking water from contaminants, such as lead and arsenic. In 1996, amendments to the act established the drinking water SRF program to provide assistance for publicly and privately owned drinking water systems. Under the Drinking Water SRF program, states make loans and are required to provide a certain percentage of funding in loan assistance to communities of less than 10,000. The Clean Water Act is intended to maintain and restore the physical, chemical, and biological integrity of our surface waters, such as rivers, lakes, and coastal waters. In 1987, amendments to the Clean Water Act established the Clean Water SRF program to provide assistance to publicly owned wastewater treatment facilities. Using the federal funds EPA provides to capitalize the state SRF programs, states provide loans to communities for drinking water and wastewater treatment projects. In order to qualify, states must contribute an amount equal to 20 percent of the federal capitalization grant. States that qualify for funding are responsible for administering their individual SRF programs, and communities of any size can apply for assistance. Loans are generally provided at below-market interest rates, saving communities money on interest over the long term. As communities repay the loans, the states’ funds are replenished, enabling them to make loans to other eligible drinking water and wastewater projects, and creating a continuing source of assistance for communities. See figure 1 for a description of the state Drinking Water and Clean Water SRF program funding sources. Nationwide, there are almost 52,000 publicly and privately owned drinking water systems and 16,000 publicly owned wastewater treatment facilities.

USDA’s RUS administers a water and wastewater loan and grant program for rural communities with populations of 10,000 or less. The program is designed to address public health concerns in the nation’s rural areas by providing funding for new and improved drinking water and wastewater infrastructure. RUS provides a mix of loan and grant funding to communities that have been denied credit through normal commercial channels. Like the SRF programs, the RUS program makes loans at below-market rates to save communities interest over time but, unlike the SRF programs, the RUS program can make loans for up to 40 years, which helps lower communities’ annual repayment costs. In addition, communities do not need to repay funds received as grants, further helping to reduce the overall financial burden they incur upon a water project’s completion. To determine the amount of loans and grants a community receives, RUS assesses the potential increase in the water or sewer user rate needed to repay the loan. RUS provides grants to communities when necessary to reduce user rates to a level that the agency determines to be reasonable.

Other federal agencies have programs that provide funds for drinking water and wastewater infrastructure, including HUD’s Community Development Block Grant program and the Department of Commerce’s Economic Development Administration’s Public Works and Economic Development Program. Under HUD’s program, communities use block grants for a broad range of activities to provide suitable housing in a safe living environment, including water and wastewater infrastructure. Thirty percent of block grant funds are allocated by formula to states for distribution to communities of 50,000 or less. Drinking water and wastewater needs compete with other public activities for funding and, according to HUD officials, account for about 10 percent of all block grant funds nationally. Economic Development Administration’s Public Works and Economic Development Program provides grants to small and disadvantaged communities to construct public facilities, including drinking water and wastewater infrastructure, to alleviate unemployment and underemployment in economically distressed areas. In addition, the U.S. Army Corp of Engineers and the Department of the Interior’s Bureau of Reclamation provide financial assistance for some large drinking water and wastewater projects, but these projects must be authorized by Congress prior to construction.

In addition to these federal programs, some states have created their own programs to provide assistance for drinking water and wastewater infrastructure. For example, the North Carolina Rural Economic Development Center provides infrastructure loans for communities in the state’s rural counties. In Montana, the Treasure State Endowment Program provides grants to make drinking water and wastewater projects more affordable for the state’s communities.

Application Process and National Environmental Policy Act Requirements

The state SRF programs and the RUS program each have their own application process through which communities can apply for funding, although the application processes generally include similar steps: (1) completing an application that asks for, among other things, basic demographic, legal, and financial information associated with the project; (2) developing a preliminary engineering report that provides basic design specifications and other technical information for the project; and (3) conducting an environmental analysis that considers the environmental effects of the proposed project and alternatives. The state agencies responsible for EPA’s SRF programs and USDA state offices review these documents, prioritize the projects based on agency-determined criteria, provide comments to communities on how their applications can be improved, and ultimately approve or reject the request for funding. Communities can choose to apply for funding to different federal and state programs at any stage during the process. In some cases, the SRF and RUS programs will work together to jointly fund the same project if the project is too large for one agency to fund, or if it will make the project more affordable for the community. If their requests are approved, communities design the projects, obtain construction bids, contract to build the projects, and are reimbursed by the funding agency. Communities usually hire a consulting engineer to develop the preliminary engineering reports and conduct the environmental analyses for a project. In addition, EPA and USDA pay for technical service providers that communities can use to help them understand and apply for their programs. Communities can also get assistance from local planning districts, which are voluntary associations of county and municipal governments that provide development assistance to their membership.

A preliminary engineering report describes the proposed project, including its purpose, features of the proposed location, condition of any existing facilities, alternative approaches considered, design features, and costs. Figure 2 shows the application process and timeline that is generally followed for both EPA and RUS programs.

The state SRF and RUS state-level programs review the likely environmental effects of projects they are considering funding using different levels of environmental analysis. These reviews occur either under the National Environmental Policy Act of 1969 (NEPA) for the RUS program, or for the SRF programs, under a state environmental review process similar to NEPA. EPA regulations define the necessary elements of these state “NEPA-like” reviews. Typically, a proposed water or wastewater project is subject to an environmental assessment or, in the rare case that the project is likely to significantly affect the environment, a more detailed environmental impact statement. If, however, the agency determines that activities of a proposed project fall within a category of activities the agency has determined has no significant environmental impact—a determination called a categorical exclusion—then the project applicant or the agency, as appropriate, generally does not have to prepare an environmental assessment or environmental impact statement. Because many community water and wastewater infrastructure projects either upgrade or replace existing infrastructure, projects rarely result in significant environmental impacts, and NEPA requirements can be satisfied through an environmental assessment or a categorical exclusion. In addition, in some cases, the funding agency may help complete the environmental analysis documents for a planned project.

Federal Agencies’ Coordination for Rural Water Infrastructure

Our previous work has raised questions regarding sufficient coordination between drinking water and wastewater infrastructure funding programs, despite federal efforts to improve coordination at the state and local level. In December 2009, we reported that EPA, USDA, and other agencies that fund drinking water and wastewater infrastructure for rural communities along the U.S.-Mexico border, lacked coordinated policies and processes and did not efficiently coordinate their programs, priorities, or funding. Specifically, without efficient coordination, applicants faced significant administrative burdens that, in some cases, resulted in project delays because the programs required separate documentation to meet the same requirements and did not consistently coordinate in selecting projects. For example, an engineer in Texas told us that one community applying for funding had to pay $30,000 more in fees because the engineer had to complete two separate sets of engineering documentation for EPA and USDA. As we stated in our December 2009 report, the applicant could have saved these funds had EPA and USDA established uniform engineering requirements. To resolve such inefficiencies, we suggested Congress consider establishing an interagency mechanism, such as a task force, of federal agencies working in the border region. One of the responsibilities of this task force would be to work with state and local officials to develop standardized applications and environmental review and engineering documents, to the extent possible, for the federal and state agencies working in the border region.

Similarly, our October 2005 report discusses collaboration and practices that federal and state agencies can engage in to enhance and sustain interagency collaboration. In the report, we define collaboration as any joint activity that is intended to produce more public value than could be produced when organizations act alone. According to the report, agencies can enhance and sustain interagency collaboration by engaging in one or more of the following practices:  define and articulate a common outcome;  establish mutually reinforcing or joint strategies; identify and address needs by leveraging resources;  agree on roles and responsibilities;  establish compatible policies, procedures, and other means to operate  develop mechanisms to monitor, evaluate, and report on results; reinforce agency accountability through agency plans and reporting; and reinforce individual accountability for collaborative efforts through performance management systems.

For a number of these practices, the report states that nonfederal partners, key clients, and stakeholders need to be involved in decision making. Additionally, a number of important factors, such as leadership, trust, and organizational culture, are necessary elements for a collaborative relationship.

Consistent with the findings of our October 2005 report, the 1997 joint memorandum signed by EPA, USDA, and HUD encourages cooperation in developing strategic plans for each agency’s program and encourages cooperation among program managers at the state level to remove as many barriers as possible in program regulations or policy. In addition, the memorandum encourages the development of common practices across agencies, including regularly communicating and leveraging funds to make the most efficient use of available resources. Moreover, the memorandum encourages the signing agencies to prepare common documents, including one environmental analysis per project, that meet all the federal and state agencies’ requirements. This memorandum is similar to governmentwide NEPA regulations and various guidance issued by the Council on Environmental Quality, which emphasize the need for coordination among federal and state agencies on environmental and other requirements. Most recently, the council issued a March 2012 guidance that encourages federal agencies to cooperate with state, tribal, and local governments so that one document satisfies as many applicable environmental requirements as practicable. In addition, the guidance encourages federal agencies to enhance coordination under NEPA by designating a lead agency responsible for conducting an environmental analysis. Furthermore, according to the guidance, a federal agency preparing an environmental analysis should consider adopting another federal agency’s environmental analysis if it addresses the proposed action and meets the standards for an adequate analysis under NEPA and the adopting agency’s NEPA guidance.

Fragmentation and Overlap in EPA and USDA Programs Can Result in Potential Duplication of Community Efforts to Apply for Funding

Drinking water and wastewater infrastructure funding is fragmented among the three programs we reviewed—EPA’s Drinking Water and Clean Water SRF programs and USDA’s RUS program. As a result, overlap can occur when communities with populations of 10,000 or less apply to one of the SRF programs and the RUS program. For the 54 projects we reviewed in the five states we visited, this overlap did not result in duplicate funding or funding for the same activities on the same project. Specifically, for 42 projects that we reviewed, the state SRF programs or the RUS program funded the projects individually, and for the remaining 12 projects that we reviewed, the state SRF and RUS programs each contributed a portion of the overall project cost because none of the programs could cover the full cost individually, according to community officials. However, we identified potentially duplicative efforts by communities to complete funding applications and related documents for both agencies.

The SRF and RUS Programs Provide Overlapping, but Not Duplicative, Funding to Communities with Populations of 10,000 or Less

Overlap can occur among the state SRF and RUS programs because they can each direct funding to communities with populations of 10,000 or less. As a result, these communities are eligible to apply for funding from more than one of these programs. For example, communities of 10,000 or less can apply to the state Clean Water SRF and RUS programs for funds to install or upgrade wastewater treatment plants and sewer lines. In addition, communities of 10,000 or less can apply to the state Drinking Water SRF and RUS programs for funds to install, repair, improve, or expand treatment facilities, storage facilities, and pipelines to distribute drinking water.

The state SRF and RUS programs have funded projects in communities with populations of less than 10,000 in recent years, according to our analysis of SRF and RUS data from July 1, 2007, through June 30, 2011. Specifically, over this time frame, communities with populations of 10,000 or less received $3.2 billion, or 36 percent of total Drinking Water SRF funding. Similarly, such communities received $6.3 billion, or 24 percent of total Clean Water SRF funding. In accordance with its mission, the RUS program has directed all of its funding for drinking water and wastewater infrastructure projects to such communities, for a total of $11 billion from October 1, 2006, through September 30, 2011. The amount of program funding overlap between the state SRF and RUS programs varies among the states, with some states showing greater overlap than others. State Drinking Water SRF program funding overlap with the RUS program ranged from 7 percent in Rhode Island to 93 percent in Virginia, and state Clean Water SRF program funding overlap with the RUS program ranged from 8 percent in California to 74 percent in Pennsylvania. Additional information about variations in program funding overlap is provided in appendix II.

Overlap in program funding could lead agencies to fund the same project, resulting in the potential for duplication. However, for the state SRF and RUS programs, the majority of projects we reviewed in the five states were funded by either one of the SRF programs or the RUS program, in conjunction with other federal or state program funds, such as HUD’s Community Development Block Grant program, Montana’s Treasure State Endowment Program, and programs from the North Carolina Rural Economic Development Center. Table 1 shows the funding awards for community projects in states we visited. In the five states we visited— Colorado, Montana, North Carolina, Pennsylvania, and South Dakota—42 of the 54 projects we reviewed received funding from the SRF or RUS programs, in addition to other sources.

In addition to the 42 projects that were separately funded by the state SRF or RUS programs, 12 projects we reviewed received funding from both the SRF and RUS programs (see table 2 for funding details). Our analysis of these projects showed the programs did not pay for the same activities with their funding, and according to state and community officials, the joint funding for a community’s project was beneficial and warranted. Specifically, according to federal, state, and community officials we interviewed, jointly funded projects tended to be relatively expensive projects that exceeded one or the other agency’s ability to fund independently or that needed additional funding to make the project affordable for community residents. Following are examples:  Washington, Pennsylvania, population approximately 3,500, sought funding from both the Clean Water SRF and RUS programs, and other programs, for its nearly $21 million sewer project to install over 200,000 feet of sewer lines. The community initially sought funding from the Clean Water SRF program, but then decided to seek additional funding from the RUS program after realizing the project exceeded available funding from the SRF program, according to the consulting engineer the community used. The Clean Water SRF program provided $10.3 million, and the RUS program provided $5.5 million.  Hertford, North Carolina, population approximately 2,200 sought funding from the Drinking Water SRF and RUS programs for its project to expand drinking water capacity by drilling wells, installing water supply lines, expanding the water treatment plant, and constructing an elevated storage tank. Similar to the Washington, Pennsylvania, project, community officials said that the Hertford project was too expensive for a single agency to fund. The Drinking Water SRF program provided $2.6 million toward the project, and the RUS program provided $772,000.  Faulkton, South Dakota, population approximately 800, sought funding from the Drinking Water SRF, the RUS program, and the Community Development Block Grant program to replace water pipelines and install a water tower. The town applied to multiple programs to receive grants to help ensure that the project would be affordable to its residents. The Drinking Water SRF program provided a loan in the amount of $500,000 and immediately forgave the balance of the loan, effectively providing these funds at no cost to the community. The RUS program provided $2.1 million in funds to this project, including grant funds, which helped keep the project affordable. The Community Development Block Grant program provided approximately $519,000 in additional funds, and the community put forth $149,000.

Program overlap among the state SRF and RUS programs can result in potential duplication of communities’ efforts to prepare funding applications and related documents, including preliminary engineering reports and environmental analyses, according to our analysis of project documents and interviews with engineers and community officials in the five states we visited. In these states, as with others, the state SRF and RUS programs require the communities to submit a preliminary engineering report and an environmental analysis as part of their loan applications.

Preliminary engineering reports submitted by communities to the SRF and RUS programs contained many of the same components, but the format and the level of detail required varied. Table 3 shows the similar or common components included in these preliminary engineering reports of four projects we reviewed. We judgmentally selected an example from one community in each state that had at least one jointly funded project or that had applied to both programs for funding, and that prepared preliminary engineering reports.

As table 3 shows, the preliminary engineering reports for both programs asked for similar information such as project location, community growth and population, existing facilities, alternative approaches to the project, and environmental and technical details of the project. The preliminary engineering reports prepared for the RUS program also included information on debt service and short-lived assets—those assets that have a planned life less than the repayment period of the loan—while the SRF engineering reports did not include such information.

Engineers and community officials we interviewed in some states told us that they prepare separate preliminary engineering reports for each agency when a community applies for funding from both agencies, which can increase costs to the communities. Specifically, officials and engineers in some states told us the requirements for USDA’s RUS preliminary engineering report are generally more rigorous. They stated that these reports contain similar information but with different formats and levels of detail. Examples are as follows: In North Carolina, engineers and a technical service provider we interviewed told us that the state SRF and RUS formats for the preliminary engineering reports differed significantly in format but contained much of the same information. State officials told us the state SRF programs do not typically accept preliminary engineering reports completed for the state-level RUS program because they try to maintain a common format to enable efficient review. Similarly, the state-level RUS program officials said that they do not accept reports completed for the state SRF programs.

In Colorado, an engineer for several projects we reviewed told us that the engineering firm had to complete preliminary engineering reports for both the state SRF programs and the RUS program even though the reports had similar formats and information.

In South Dakota, engineers told us that to minimize effort, time, and cost to the community, they prepare preliminary engineering reports to meet state SRF, RUS, and other program requirements even if the community does not initially seek funds from all of these programs. These engineers said doing so helps minimize the additional effort it would take to revise the report at a later time if the community decided to seek additional funds. According to another engineer, if the preliminary engineering report is completed to meet just the SRF programs’ requirements, the firm will require additional time and money to meet the additional preliminary engineering report requirements necessary to apply for funding through the RUS program.

Montana and Pennsylvania take a different approach than the other three states we visited as follows:  Montana has a uniform preliminary engineering report accepted by most federal and state agencies. Engineers said that the agencies ask for some different information, which they gather in amendments to the report instead of having communities submit similar information multiple times.

In Pennsylvania, officials from state SRF and state-level RUS programs said they encourage communities to apply to either the SRF or RUS programs and do not often jointly fund projects. Officials from both programs told us that when they do fund projects jointly, they try to accept one another’s documents to avoid duplicating them.

We also found similarities in the environmental analyses submitted by communities to the SRF and RUS programs for four of the projects in the states we visited. According to our review of environmental analyses submitted to the state SRF and RUS programs—we judgmentally selected one in each of four communities and states that had jointly funded projects or applied to both programs for funding—each environmental analysis followed a similar overall format and contained many of the same components, but the level of analysis and the level of detail needed to satisfy federal and state requirements varied. Table 4 shows the overall format and similar components for these environmental analyses. The agencies ask for information on many of the same components, including purpose and need, alternatives analysis, and environmental consequences.

The extent to which communities duplicate their environmental analyses for each program varies by state, depending on the extent to which water and wastewater infrastructure programs in the state accept each other’s work or use each other’s documents. In Colorado, North Carolina, and South Dakota, the communities can submit the final approved environmental analyses prepared for the RUS program to the SRF programs, which eliminates one of the documents they have to prepare. However, in these states, the state-level RUS program will not typically accept the analysis prepared for the SRF program because the state analyses are less rigorous, according to RUS officials. In Pennsylvania, the state programs have agreed to uniform environmental requirements, and the communities therefore submit the same document to both programs. Communities may be required to submit additional information, as needed, to meet requirements specific to each program. In Montana, the state SRF programs prepare an environmental analysis for the community that is primarily based on information that the community submits in the preliminary engineering report, but the community prepares the environmental analysis that it submits to the state RUS program.

Furthermore, in some cases, the state programs may require the same type of environmental analysis for a project but, in other cases, the state programs may require different levels of environmental analysis—such as a categorical exclusion. For example, for a single wastewater project, the town of Conrad, Montana, completed an environmental analysis for the state-level RUS program, while the state SRF program completed the environmental analysis for the town. In contrast, Pagosa Springs, Colorado, submitted an environmental checklist to the state SRF program for its wastewater project and received a categorical exclusion but had to submit an environmental analysis for the application it submitted to the state-level RUS program for the same project. Variation exists across states despite NEPA regulations stating that federal agencies should eliminate duplication with state and local procedures by providing for joint preparation of environmental analyses or by adopting appropriate environmental analyses. According to state SRF officials, state-level RUS officials do not always accept state analyses because NEPA regulations under the RUS program are rigid and because some state RUS officials are not flexible in their interpretation of the requirements for environmental analyses. State RUS officials, however, told us that environmental analyses by some state environmental programs are not sufficient to meet federal NEPA standards, making it difficult for them to accept these environmental analyses.

Potentially duplicative application requirements, including preliminary engineering reports and environmental analyses, may make it more costly and time-consuming for communities to complete the application process. For example, if consulting engineers have to provide similar, or even the same, information, in two different engineering reports or environmental analyses, their fees to the community may be higher. Engineers we interviewed estimated that preparing additional preliminary engineering work could cost anywhere from $5,000 to $50,000 and that the cost of an environmental analysis could add as little as $500 to a community’s costs or as much as $15,000. Moreover, having to complete separate preliminary engineering reports or environmental analyses may delay a project because of the additional time required to complete and submit these documents. State officials in Montana told us that coordination between federal and state programs and the implementation of uniform application requirements could reduce the time it takes an applicant to complete a rural water infrastructure project by up to half.

Federal and State Actions Have Not Fully Facilitated Coordination for Funding Communities’ Projects

Our review of five states and local communities in those states showed that EPA and USDA have taken some actions to coordinate their programs and funding at the federal and state level to help meet the water infrastructure needs of rural communities, but not others specified in the 1997 memorandum. Because these federal programs are implemented at the state level, efforts to coordinate between the agencies primarily occur among state officials managing the SRF and other water infrastructure programs, the RUS state-level offices, and the communities whose projects they fund. In some cases, inconsistent coordination at the state level has led to potential duplication for communities applying for funding and inefficiencies in program funding. EPA and USDA, at the federal level, and the state SRF and RUS state-level offices, have taken some actions to coordinate but have not taken others that could help avoid duplication of effort by communities applying for project funding.

Agencies Have Taken Some Actions to Encourage Coordination at the State and Community Level but Not Others

Recognizing the importance of coordinating the SRF and RUS programs at the state level, EPA and USDA agencies have taken some actions at the federal level to encourage coordination between the state-level programs and communities but not other actions specified in the 1997 memorandum. The 1997 joint memorandum signed by EPA and the USDA sought to improve coordination among federal and state agencies as they help fund community projects. It identified four major actions that state and state-level federal offices can take to improve coordination and reduce inefficiencies and potential duplication of effort. These actions are consistent with several of the leading practices we identified in our October 2005 report on interagency collaboration. These actions are as follows: Cooperate in preparing planning documents. The memorandum encourages state SRF and RUS programs to cooperate in preparing planning documents, including operating, intended use, and strategic plans that are required under each agency’s programs. The memorandum says that the federal and state programs should endeavor to incorporate portions of each agency’s planning documents to minimize duplication of planning efforts. This action is consistent with two leading practices for interagency collaboration identified in our previous work— defining and articulating common outcomes and developing joint strategies—through which partner agencies can overcome significant differences in agency missions and cultures, and align their activities and resources to accomplish common goals.

Cooperate to remove policy and regulatory barriers. The memorandum states that agencies should cooperate in removing as many barriers to coordination as possible in program regulations or policy by, for example, coordinating project selection systems and funding cycles. This action is consistent with a leading practice for interagency collaboration identified in our previous work—promoting compatible policies and procedures.

Cooperate on project funding. The joint memorandum encourages state SRF and state-level RUS officials to meet on a regular basis to cooperate in determining what projects will receive funding and which program should fund which project, and to discuss the possibility of jointly funding projects when necessary. This action is consistent with two of the leading practices for interagency collaboration identified in our previous work— agreeing upon roles and responsibilities and leveraging resources. Through such actions, federal and state agencies funding water and wastewater infrastructure can clarify which agencies will be responsible for taking various steps and for organizing joint and individual agency efforts and thereby obtain benefits that they would not have realized by working individually.

Cooperate in preparing environmental analyses and meeting other common federal requirements. The joint memorandum states that, whenever possible, agencies should cooperate on federal requirements that are common across agencies—environmental analyses and other common documents, such as preliminary engineering reports—in order to create one comprehensive application package per project. This action is consistent with our leading practice for interagency collaboration of establishing compatible policies and procedures for operating across agency boundaries. Through such an action, federal and state agencies would seek to make policies and procedures more compatible.

In February 2012, EPA, USDA, and several other federal and state agencies created a working group to examine the feasibility of developing uniform guidelines for preliminary engineering report requirements. The group plans to develop a draft outline for uniform preliminary engineering report guidelines by September 2012 and has received numerous examples and comments from participating states. According to RUS officials, however, once the draft outline is developed it must be reviewed by participating state and federal agencies before it is considered final, and the final outline could be delayed if agency review and response times are slow. In addition, EPA and USDA have taken action at the federal level to help the states coordinate better and make programs more efficient for communities applying for funding. Specifically, EPA and USDA coordinate at the federal level to encourage states to emphasize coordination between their SRF programs and RUS, as well as with local communities. According to EPA and USDA officials, to inform state officials and communities about the programs and funding opportunities available in their respective states, the federal agencies participate in conferences and workshops, conduct Webinars, and sponsor training. The federal agencies also issue guidance to their programs. For example, EPA issued a report in 2003 providing case studies and innovative approaches on how state SRF programs could better coordinate with other programs with similar purposes. In addition, in June 2011, EPA and USDA signed a Memorandum of Agreement to work together to help communities implement innovative strategies and tools to achieve short- and long-term water and wastewater infrastructure sustainability. Among other things, the memorandum encourages the agencies to share and distribute resources and tools to communities that promote long-term sustainability and to provide training and information that encourages the adoption and adaptation of effective water infrastructure management strategies.

The actions that EPA and USDA have taken to date, such as providing guidance in the 1997 memorandum, have helped states and state-level federal agencies to coordinate generally but have not facilitated better coordination at the state level in more specific ways. In particular, the federal agencies have not taken actions, highlighted in the 1997 memorandum, to develop common documents for communities to apply to different funding programs. For example, EPA and USDA have not created a working group or taken similar action to work with other federal and state officials to develop a uniform environmental analysis. Making environmental analyses more compatible would be consistent with the March 2012 Council on Environmental Quality guidance on eliminating duplication in federal NEPA efforts. Similar to the 1997 joint memorandum, Council of Environmental Quality NEPA regulations and guidance encourage coordination between state and federal agencies in preparing environmental documents to reduce the time and cost required to make federal permitting and review decisions while improving outcomes for communities and the environment. According to agency officials, the agencies have not taken such action because they believe they have coordinated sufficiently. According to EPA officials, the states conduct NEPA-like analyses but are not required to meet the same NEPA requirements as federal agencies, and EPA cannot therefore dictate what documents the states use. In addition, USDA officials said that the RUS program’s NEPA guidance documents already encourage state-level RUS offices to coordinate with the state SRF programs to accept RUS’s environmental analyses, as appropriate and consistent with guidance from the Council on Environmental Quality. Without agreement to use common environmental analyses, however, rural communities could continue to spend more effort and resources to meet application requirements for improving their water and wastewater infrastructure.

State-Level Programs Took Varied Actions to Coordinate in Five States We Visited

In the five states we visited, the state-level programs varied in the actions they took to coordinate their water and wastewater infrastructure programs consistent with the 1997 joint memorandum. In some states, the state SRF and RUS programs have developed innovative ways to coordinate and remove barriers to coordination consistent with the 1997 memorandum but, in other states, the state SRF and RUS programs have been less successful, leading to potential duplication for communities applying for funding and inefficiencies in program funding. Table 5 shows the extent of actions to coordinate taken by the state SRF programs and state-level RUS programs in the five states we visited. Some community officials we met with suggested that, for the drinking water and wastewater infrastructure programs, good coordination among state officials would involve meeting on a regular basis to cooperate in determining what projects would receive funding, thereby leveraging agency funds that are increasingly limited.

In the five states we visited, the state SRF and state-level RUS programs varied in the number and types of action they had taken to coordinate, as described in the memorandum. However, the state-level programs did not take actions to cooperate in preparing planning documents. The extent of actions taken by the five states consistent with the memorandum are as follows: Cooperate in preparing planning documents. In the states we visited, state SRF and RUS programs do not regularly coordinate when developing agency-specific planning documents. State SRF officials identify the projects that apply to their program in planning documents called intended use plans. In these plans, the states rank projects using state-determined criteria following EPA guidance, such as environmental and health concerns. Similarly, state-level RUS officials develop funding plans in which they separately rank projects applying to their program using national criteria that focus primarily on economic development, as well as environmental and health concerns.

Cooperate to remove policy and regulatory barriers. The state SRF and RUS programs in three of the states we visited had cooperated to remove policy barriers to coordination, such as differences in funding cycles. Specifically, in those states, federal and state officials meet regularly to ensure funding cycles are aligned to avoid unnecessary project delays. For example, in South Dakota, the state’s SRF and other state water and wastewater infrastructure funding programs have the same funding cycles and application timelines, which are administered by one agency. State and local officials told us that having the state funding programs aligned made it easier to navigate differences in funding cycles with RUS and other federal funding programs operating in the state. In addition, Montana officials created a working group to share information across state water and wastewater infrastructure programs and coordinate funding cycles. State and local officials in Montana said that regular coordination between federal and state officials on individual projects helped manage programmatic differences, such as differing funding cycles, to avoid lengthy delays in funding projects. Officials and engineers in both states said that the benefits of these joint efforts included reductions in community costs and administrative burdens for submitting applications and related documents, as well as reductions in the federal and state agencies’ time in reviewing the documents. Other states have not worked to remove policy and regulatory barriers to coordination. For example, state and local officials in North Carolina told us that differences in application processes and funding cycles for the federal and state programs, including state SRF programs and the RUS program, increased the complexity and cost of applying for funding. Multiple agencies in the state that fund drinking water and wastewater infrastructure projects, including the SRF programs, have different funding cycles, so that communities have to apply separately to each program and at different times to make the project affordable. State and local officials in Colorado told us that they faced similar barriers.

Cooperate on project funding. Officials in all the states we visited meet at various times during the year, although some meet more frequently and discuss project funding in greater detail. Officials in Montana and South Dakota told us that they meet regularly to discuss upcoming projects, project applications, and coordination of funding, when possible. For example, officials from federal and state drinking water and wastewater funding programs in the Montana working group share information and discuss current projects and communities applying for funding. Community representatives said that state SRF program officials hold monthly meetings between the applicant and other state and federal funders to ensure that adequate funding is available to keep the project moving forward and to resolve any differences between the community and the federal and state programs providing funding. Similarly, in South Dakota, officials for the state SRF and RUS programs told us that they discuss project applications routinely and work closely with officials from local planning districts who, in turn, use their expertise working with federal and state programs to help communities apply for funding. In Pennsylvania, the state SRF and state-level RUS programs coordinate early in the application process by (1) conducting joint outreach sessions with communities interested in applying for drinking water and wastewater project funding and (2) directing communities to the program that better fits their needs, according to state officials we spoke with. State-level officials and engineers we spoke with identified improvements in the efficiency and effectiveness of the programs because the officials direct communities to the program that best fits their needs or provides the best opportunity for a successful application.

Officials in Colorado and North Carolina also meet but do not regularly discuss project funding or the communities that have applied for funding, and said that they have experienced lapses in program efficiency and effectiveness, such as loss of federal funding for the state. Officials in both states told us coordination is complicated by communities not disclosing that they have applied to other state or federal programs for funding. Specifically, according to federal and state officials, in some cases, communities and the consulting engineers representing them will sign a funding agreement with either the state SRF or state-level RUS program but continue to seek additional grant or subsidized loan funding from other state and federal programs to get additional grant funding or better loan terms. State SRF and state-level RUS program officials in North Carolina and Colorado told us that not disclosing multiple funding sources can lead to inefficiencies when state SRF program officials and state-level RUS officials are unaware that a community has applied to both programs. Specifically, state-level officials who administer the RUS program in North Carolina and Colorado reported having to or expecting to deobligate a total of more than $20 million that they had committed to fully fund projects because they were unaware that the state SRF programs had committed to fully fund the same projects. The state-level RUS program in North Carolina expects to have to deobligate funding for three projects totaling about $4.9 million in loan and grant funding, and the RUS program in Colorado had to deobligate funding for seven projects totaling $15.6 million. The two RUS state offices could not meet internal agency deadlines to fully obligate their available funds and, as a result, had to return these funds to the RUS headquarters pool. State officials in North Carolina recently developed a uniform cover sheet for all state drinking water and wastewater funding program applications that asks communities to disclose other sources of funding. However, in our review of the uniform cover sheet, applicants are not asked to provide information on funding requested from RUS and other federal drinking water and wastewater funding programs.

Cooperate in preparing environmental analyses documents and other common federal requirements. In our visits to Montana and Pennsylvania, we learned that federal and state programs, including the state SRF and RUS programs, have coordinated to streamline the application process in their states. For example, in Montana, these programs coordinated to develop uniform application materials and preliminary engineering report requirements that are accepted by all federal and state water and wastewater infrastructure programs in the state. Similarly, in Pennsylvania, program officials agreed upon uniform environmental analyses that are accepted by all programs, which reduce the cost and time for completing applications. Other states we visited have not agreed on uniform application requirements. According to federal and state officials in Colorado, North Carolina, and South Dakota, the state SRF and RUS programs have not developed documents with common formats and requirements for drinking water and wastewater infrastructure projects because of difficulty in integrating multiple program requirements. Specifically, state and local officials said that much of the information required in the environmental analyses was the same, but that agencies could not agree on a standard format and level of detail. For example, state SRF and RUS program officials in Montana told us they had tried, but were unable, to develop a uniform format for the presentation of their environmental analyses even though they had done so for their preliminary engineering reports. Furthermore, officials in Colorado and North Carolina expressed concern that having uniform documents that incorporated both state SRF and RUS program requirements would slow the application processes for all three programs and make them more costly. Specifically, officials administering both of the state SRF programs were concerned that, by adopting a format compatible with RUS policies and procedures, they would make the state SRF application process more onerous.

Conclusions

Rural communities rely on federal grants and loans to meet their water and wastewater infrastructure needs and to keep their drinking water and sewer user rates affordable. It is therefore important to make the most efficient use of limited federal funds to help as many communities as possible and to eliminate potential duplication of effort by communities when they apply for funds. EPA and USDA recognized in a 1997 memorandum that it is necessary to more effectively and efficiently coordinate the SRF and RUS programs at the state level through four major actions: in preparing planning documents, removing policy and regulatory barriers, meeting regularly to discuss project funding, and preparing common environmental analyses and other common federal requirements. In addition, EPA and USDA have taken actions to encourage states to improve coordination over the past 15 years. Specifically, recent actions by EPA and USDA, such as their efforts to inform state officials and communities about the programs and funding opportunities by participating in conferences and workshops, conducting Webinars, and sponsoring training, as well as creating a working group to examine the possibility of developing guidelines to assist states in developing uniform preliminary engineering reports to meet requirements for federal and state programs, are encouraging and will help communities. However, the guidelines have not yet been completed, and EPA and USDA have not initiated a similar effort to develop guidelines for uniform environmental analyses that can be used to meet federal and state requirements. Without uniform documents, rural communities face a continuing burden and additional costs when applying for federal funds to improve their water and wastewater infrastructure. The state-level programs in the five states we reviewed varied in the number and types of actions they had taken to coordinate across the four key areas in the 1997 memorandum. Some state-level programs have developed innovative ways to coordinate and remove barriers to coordination, but in other states, the programs have been less successful, warranting stronger federal attention. Moreover, the state-level programs did not take actions to cooperate in preparing planning documents in any of the states. Until the state-level programs are regularly coordinating across the four key areas in the 1997 memorandum, including when developing planning documents, they will continue to risk potential program inefficiencies. Additional delays in taking actions to help improve such coordination could prevent EPA and USDA from more effectively and efficiently providing limited resources to needy communities.

Recommendations for Executive Action

To improve coordination and to reduce the potential for inefficiencies and duplication of effort, we recommend that the Secretary of Agriculture and the Administrator of EPA take the following three actions:  ensure the timely completion of the interagency effort to develop guidelines to assist states in developing their own uniform preliminary engineering reports to meet federal and state requirements;  work together and with state and community officials to develop guidelines to assist states in developing uniform environmental analyses that could be used, to the extent appropriate, to meet state and federal requirements for water and wastewater infrastructure projects; and  work together and with state and community officials through conferences and workshops, Webinars, and sponsored training to reemphasize the importance of coordinating in all four key areas in the 1997 memorandum.

Agency Comments and Our Evaluation

We provided EPA and USDA with a draft of this report for their review and comment, and both agencies provided written comments. EPA neither agreed nor disagreed with our first two recommendations but concurred with the third. USDA neither agreed nor disagreed with any of our recommendations. EPA’s comments are provided in appendix III and USDA’s comments are provided in appendix IV. Both agencies made technical comments that we incorporated as appropriate. In addition, we sent relevant portions of this report to state or federal officials responsible for administering the state SRF programs and state-level RUS programs for their review and technical comment.

In its comments on our first recommendation, that the agencies complete their efforts to develop uniform requirements for preliminary engineering reports, EPA stated that it supported the intent of the recommendation but noted it does not have the authority to require states to adopt a required format and that some states may not utilize it. EPA recommended that we replace the word “requirements” with the word “format.” USDA also indicated that EPA and HUD have no authority to require state governments to use a particular preliminary engineering report outline and requested that we therefore change the word “requirements” to the word “guidelines.” We recognize and agree that states have discretion to develop their own requirements for their SRF programs. In making our recommendations, we did not intend to limit states’ discretion in adopting their own preliminary engineering report requirements. However, we continue to believe that the federal agencies could do more to help states identify common requirements for their own uniform preliminary engineering report documents. We changed our recommendation to reflect that the states do have discretion and that the federal agencies should develop guidelines to help the states develop uniform preliminary engineering report requirements.

In its comments on our second recommendation, to develop uniform requirements for environmental analysis documents, EPA stated that in principle it agreed with our recommendation but said it is not realistic to develop a one-size-fits-all approach. EPA said that developing the “essential elements” for environmental analyses should achieve the same outcome and requested that we change the word “requirements” to “essential elements.” USDA stated that it did not necessarily disagree with the intent of the recommendation but noted that EPA has limited authority to dictate specific requirements to states implementing the SRF program. It also identified several procedural and policy hurdles including the fact that USDA’s NEPA requirements are typically more stringent than the reviews under the SRF programs. USDA stated that it would work with EPA to discuss the concept of unified reviews and identify what would be required to achieve such reviews. USDA suggested that the Council on Environmental Quality could be called on to facilitate a working group between federal water and wastewater infrastructure funding programs on NEPA implementation. In making our recommendation, we did not intend to limit states’ discretion in adopting their own requirements for environmental analyses. We changed the wording of our recommendation to clarify that the agencies would develop guidelines to assist states in developing common requirements for environmental analyses. We also note that USDA’s suggestion for the Council on Environmental Quality to facilitate a working group seems reasonable but did not make this part of our recommendations because we did not review the Council on Environmental Quality as part of our work.

EPA concurred with our third recommendation, that the agencies work together and with state and community officials in all four key areas of the 1997 memorandum, while USDA neither agreed nor disagreed with the recommendation. EPA said that our report showed that little overlap existed between the programs but that state-level coordination should be encouraged more broadly. USDA said that it had no control over communities that choose to change funding sources to a state SRF program after accepting funding from the state-level RUS programs. We understand that communities have the discretion to change funding sources if better loan and grant terms are available, but strong coordination can help the agencies know when communities are applying to other programs and what other communities might need funding. Such coordination, envisioned in the 1997 memorandum, can avoid the loss of funds from states with high needs and other inefficiencies identified in this report. Furthermore, as EPA confirmed in its comments, state-level coordination can be encouraged more broadly to help other state and federal water and wastewater infrastructure funding programs better leverage limited state and federal funds.

Finally, in its general comments on the draft report, USDA commented on GAO’s use of a relatively small sample of states for this review and that the RUS programs in those states were experiencing a transition in leadership and had not had time to develop relationships and learn other agencies’ programs. We selected states that had high rural water and wastewater infrastructure needs and a range of experience coordinating their water and wastewater infrastructure funding programs. We clearly state in the report that the sample is small and that our results cannot be generalized to all states. We recognize that the experience and trust established through long-term relationships is critical to the establishment of good coordination between federal and state programs. However, given the amount of time the memorandum has been in place, we believe that if good coordination between state SRF and state-level RUS programs had been established prior to the transition in state-level RUS leadership, it would have facilitated a smoother transition, and many of the challenges identified in our report may have been avoided.

We will send copies of this report to the Administrator of EPA, the Secretary of Agriculture, the appropriate congressional committees, and other interested parties. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or trimbled@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

The objectives of this report examine (1) the potential for fragmentation, overlap, and duplication between the Environmental Protection Agency’s (EPA) Drinking Water and Clean Water State Revolving Fund (SRF) programs and the U.S. Department of Agriculture’s (USDA) Rural Utilities Service (RUS) Water and Wastewater Disposal program, both of which address water and wastewater infrastructure needs in rural communities, and (2) the extent to which these programs coordinate with each other at the federal and state level to help meet the water infrastructure needs of rural communities. We selected these programs for this review because they provided the highest amount of federal funds to water and wastewater infrastructure projects, which include projects in rural communities—defined for this report as communities with populations of 10,000 or less—in fiscal year 2011. The federal government has not established a formal or consistent definition of what constitutes a rural community; however, RUS defines a rural community as having a population of 10,000 or less. EPA, although it does not define communities as rural, gathers data on funding to communities of various sizes, including communities with populations of 10,000 or less. For both agencies, communities can include entities such as towns, cities, or counties, which make the decision whether to apply for funding from the programs. In some cases, regional water utilities or other utility associations can apply on behalf of a community or a group of communities. Using this definition allowed us to obtain and analyze similar data from both agencies.

To address both objectives, we reviewed government reports, statutes, regulations, guidance, budgets, and other relevant documents to identify federal support for rural water infrastructure programs and specifically the support provided by the Clean Water SRF, Drinking Water SRF, and RUS programs. In addition, we interviewed officials from EPA and USDA and from relevant nonprofit organizations, including the environmental finance center at Boise State University and the Council of Infrastructure Financing Authorities to collect financial and other information on the extent of fragmentation, overlap, duplication, and coordination among these rural water funding programs, as well as the current challenges facing rural communities. We then selected a nongeneralizable sample of five states to visit—Colorado, Montana, North Carolina, Pennsylvania, and South Dakota—to review the extent of fragmentation, overlap, and duplication among the EPA and USDA programs and the extent of coordination among the programs at the state level. The information from this sample cannot be generalized to all states but provides illustrative examples of their experiences in applying for funding from the EPA and USDA programs. We conducted site visits to these states to observe federally funded projects, discuss the funding process, and discuss community experiences applying for funding from the EPA and USDA programs. In each state, we judgmentally selected a nongeneralizable sample of communities to visit and projects to observe by analyzing lists of water and wastewater infrastructure projects we obtained from state SRF and state-level RUS program officials, and obtaining recommendations from officials we interviewed. We used the lists of projects to identify communities and projects that had applied for or received funding from the state SRF and RUS programs, or both. We reviewed a total of 54 projects in a total of 31 communities across five states, all of which had experience in applying for funds for a drinking water or wastewater project, or both, from the SRF or RUS programs. As with the state sample, the information from the communities and projects we selected cannot be generalized to other communities and projects but provide illustrative examples.

To address the first objective, we assessed fragmentation between the Clean Water SRF, Drinking Water SRF, and RUS programs by examining statutes, regulations, and guidance relevant to the programs. To determine overlap between the programs, we calculated the proportion of SRF funding that was allocated to communities with populations of 10,000 or less for state fiscal years 2007 through 2011 (state fiscal years generally start in July and end in June). We used data from EPA’s National Information Management System (NIMS), which collects and summarizes data on Clean Water and Drinking Water SRF program funding directed to communities of populations of all sizes, including communities with populations of 10,000 or less by states—the same size of communities toward which RUS directs its funding. We conducted interviews with EPA officials to assess the reliability of the NIMS data and found it reliable for our purposes of identifying state SRF funding for communities with populations of 10,000 or less. We compared this proportion of SRF funding with total RUS funding provided from USDA’s accounting system. We interviewed RUS officials about how these funding data are maintained and determined that it was reliable for our purposes of identifying USDA funding for communities with populations of 10,000 or less.

To determine the potential for duplication at the project and activity level, we collected funding data for projects that had been funded by the state SRF programs, the state-level RUS programs, or both, as well as funding data from the communities we visited or whose officials we spoke with. In addition, we spoke with state SRF, state-level RUS, and community officials and consulting engineers to assess the extent to which projects were funded separately by state SRF or state-level RUS programs, or were jointly funded by these programs, and what activities were conducted. Duplication occurs when two or more agencies or programs are engaged in the same activities or provide the same services to the same recipients; however, in some instances, duplication may be warranted because of the magnitude or nature of the federal effort. Further, we collected and analyzed application materials—preliminary engineering reports and environmental analyses—from communities if the community had a project that was jointly funded by both the SRF and RUS programs or had applied to both programs for the same project. On the basis of this criterion, we obtained preliminary engineering reports for four projects in four states and environmental analyses for four projects in the same four states. To analyze the documents, we identified the components of each document and compared them with the others to determine those that were similar and different. We spoke with consulting engineers in those communities to determine whether the communities were required to submit separate documents with similar information to both programs. Because of the limited size of each sample, the results of our analysis are not generalizeable to all such documents.

To address the second objective, we reviewed documents and initiatives, including a 1997 joint memorandum signed by EPA and USDA promoting better coordination between the state SRF and state-level RUS programs and interviewed headquarters officials at EPA and USDA to identify national efforts to encourage better coordination at the state level. To analyze whether EPA and USDA efforts and initiatives incorporated leading practices for interagency collaboration, we compared guidance in the 1997 memorandum with our prior work on practices that can help federal agencies enhance and sustain collaboration. In the states we visited, to determine how closely the state SRF and state-level RUS programs coordinate and whether their efforts to coordinate are consistent with the 1997 memorandum, we reviewed state-level guidance and documentation from state coordinating bodies and interviewed state- level SRF and RUS program officials, community officials, consulting engineers, and technical assistance providers. We identified actions taken by states that were consistent with actions identified in the 1997 memorandum and assessed whether these fulfilled the actions identified in the memorandum using “yes” to indicate the action was fully taken, “no” to indicate that it was not taken at all, and “partial” to indicate the action had not been fully taken.

We selected the five states we visited using a multistep process and several sources of information: funding needs for rural areas; geographic location; and level of coordination between state and community partners. We first narrowed the number of states we could visit to 15 states by analyzing EPA and USDA data on funding needs. To do so, we determined the relative level of funding needed in each state using the following data, by state, for communities with populations of 10,000 or less: (1) per capita needs for drinking water infrastructure, (2) per capita needs for clean water infrastructure, (3) drinking water infrastructure needs as a percentage of total state drinking water needs, (4) clean water infrastructure needs as a percentage of total state clean water needs, (5) the number of backlogged RUS water and wastewater infrastructure project requests, and (6) the total amount of RUS loan and grant funding requested for the backlogged projects. We obtained and analyzed these six categories of data from EPA’s Drinking Water and Clean Water Needs Assessment reports, and USDA’s data on backlog of funding applications. To assess the reliability of EPA’s data, we reviewed the agency’s quality control efforts over the data. To assess the reliability of the USDA data, we interviewed RUS officials on how they obtained and verified the data. We determined that both sets of data were sufficiently reliable for our purposes of selecting a sample of states to visit. Because not all states had complete data, we created three groups of states for analysis: 35 states had full data, or data for all 6 categories; 11 states had partial data, or data for 4 of the 6 categories; and 4 states had mixed data that we determined was not sufficient to analyze. Because the amount of data varied for each group, we determined that we would sample from each group separately.

Next, for the 35 states that provided complete data, we ranked the states from highest to lowest (numbering the highest 1 and so on) within each of the six categories, basing the ranking on either percentage or dollars, depending on the category. We then identified the top 10 states in each category, selected the 10 states that appeared in three or more of the six categories and added the scores across the six categories for each state.

We then conducted a very similar process for the 11 states that had partial data, except that we identified the states with the top five highest values in each of the four categories of data and then selected the three states that appeared in at least three of the four categories. This parallel analysis gave us 10 states from the full data group and 3 states from the partial data group. We then selected 2 states from the third group of states, which had mixed data available, on the basis of their physical size and the fact that they had the most data available in the group.

We further narrowed down the number of states we could visit using geographic dispersion as a criterion. We located the 15 states selected through our analysis of funding data in six Department of Census divisions and selected five that were ranked first according to the six categories. We also selected 2 states from the partial-data group and one state from the mixed-data group, for a total of 8 states.

From the eight remaining states, we selected Colorado, Montana, North Carolina, Pennsylvania, and South Dakota to visit based on the extent of coordination among the state SRF and RUS programs and the communities they served. We called the state SRF and RUS state-level officials to discuss whether the programs met and how frequently they jointly funded projects. We considered the range of coordination in each of the eight states to judgmentally select the five states we visited.

We conducted this performance audit from September 2011 to September 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Drinking Water and Clean Water State Revolving Fund Program Funds Provided to Communities with Populations of 10,000 or Less

Table 6 provides information on the percentages and amounts of funding provided, by state, through EPA’s Drinking Water and Clean Water SRF programs to communities with populations of 10,000 or less.

Appendix III: Comments from the Environmental Protection Agency

Appendix IV: Comments from the U.S. Department of Agriculture’s Office of Rural Development

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the individual above, Susan Iott, Assistant Director; John Barrett; Elizabeth Beardsley; Mark Braza; Elizabeth Curda; Richard Johnson; Micah McMillan; Sara Ann Moessbauer; Dan Royer; Tina Sherman; Carol Herrnstadt Shulman; and Kiki Theodoropoulos made key contributions to this report.