More water infrastructure funds = more equity?
As Congress considers multiplying the size of the State Revolving Fund (SRF) programs–a necessary and significant investment in water infrastructure–it is imperative that the funds reach historically underinvested communities. The funds for Clean Water and Drinking Water are the largest federal programs to finance water infrastructure projects. [Congress appropriates funds to capitalize a revolving fund in each state. States provide loans and other types of assistance to eligible recipients to invest in projects that improve water quality and public health.] The Infrastructure Investment and Jobs Act (H.R.3684) appropriates $43.4 billion for SRFs over the next five years. To put that into context, that is more than 300 percent larger than the last five years of funding! The bill also reauthorizes the SRFs and amends the Clean Water Act and the Safe Drinking Water Act. If passed and signed, the increased funding would address the widening gap between the need and investment in water infrastructure, improve public health, spur economic growth, and create thousands of jobs.
But the key question is will more funds enhance equity?
The premise that a rising tide will lift all boats does not necessarily hold. The extent to which SRFs enhance equity largely depends on who applies, how applications are ranked, and the type of assistance that states provide. Applying requires significant time, money, and expertise: estimates suggest the average cost to apply for state aid to finance water infrastructure in California is $17,000. Water systems serving small or low-income communities struggle to apply and accept loans.
Ensuring the funds reach the communities that need them most requires guardrails. Some of the amendments in the Senate bill would make the SRF programs more equitable. Policymakers could go further, pushing for improvements in conference, report language, and state policies and practices.
The three areas for more action, legislatively or administratively, that I think are critical to better equity outcomes are 1) technical assistance, 2) prioritization and 3) more generous subsidies.
Provide more technical assistance
Applications for SRF funds are lengthy and difficult to complete. Navigating the process can overwhelm water systems, especially those with limited capacity–who typically serve small and low-resourced communities. Technical assistance reduces the burden that communities must shoulder. An assessment of the 2009 American Recovery and Reinvestment Act (ARRA) funds shows communities with limited capacity relied on the state and consultants’ help. States can start reaching out to communities now, set aside more funds for technical assistance, hire more staff, and turn to nonprofits to help those with the greatest need.
Start reaching out to communities now: States, technical assistance providers, and nonprofits can reach out to communities now to help plan and design projects to finance with the funds that Congress – fingers crossed – will vote to appropriate. Planning grants will help communities assess which problems to tackle, develop projects, involve the community in the decision-making, complete paperwork, and submit applications. For example, Colorado provides $10,000 planning grants to assist water systems serving low-income communities apply for SRFs. The lessons from the allocation of ARRA funds show that “early and frequent communication among stakeholders, with regularly scheduled meetings and webinars that began before ARRA was even passed, helped to form solid working relationships.”
Set aside more funds for technical assistance: Federal statute allows states to use 4 percent of their DWSRF capitalization grant for administration and technical assistance and 2 percent of their capitalization grant for technical assistance to systems serving fewer than 10,000 people. On average, states do not fully utilize these set-asides (Table 1). States should set aside more funds for technical assistance to help systems apply for SRFs.
Hire more staff: Increasing the size of the SRF programs will significantly increase the workload for administrators. States reported the workload associated with administering ARRA was daunting; their staffs were overextended due to working above and beyond their usual hours. Many states were grateful for the ARRA funding but “would think twice if offered the same opportunity again.” The programs that hired new staff fared better.
Turn to non-profits and navigators for help: An amendment in the Senate bill allows states to use up to 2 percent of their capitalization grant to fund nonprofit organizations to provide technical assistance for small systems. States should take full advantage of this opportunity. Nonprofit organizations can reach communities to explain the program, project eligibility, and application requirements as well as help communities connect with the resources they need to apply for and manage awards. Communities need to engage with assistance providers, engineers, and environmental scientists to develop designs, conduct environmental assessments, and complete other requirements. Relying on nonprofits will reduce the administrative burden for the state.
Prioritize historically underinvested communities
States can develop better definitions of disadvantaged communities and improve their ranking criteria to target more funds to historically underinvested communities.
Develop better definitions of disadvantaged communities: Federal statute requires states to use SRFs to assist economically disadvantaged communities (DACs). Each state determines how to define DACs. The criteria for qualification determine where the money flows. Nearly all states use median household income (MHI) as an indicator. MHI is a decent measure of the financial capacity of a water system but many environmental justice advocates argue that states should also consider systemic disparities that have excluded communities from accessing benefits. These factors could include race, ethnicity, linguistic isolation, and geographic location. Indicators of the ability of households to pay for services–such as the proportion of children, seniors, persons with disabilities, and persons living below the poverty line–are also important. Developing better criteria is necessary and urgent work.
Improve ranking criteria: States develop criteria to rank project applications. Some states, including Michigan, New Jersey, and Texas, award additional priority points to communities that qualify as DACs but many do not. Explicitly prioritizing historically underinvested communities in the ranking criteria will better direct investment to communities with limited ability to fund infrastructure with local own-source revenue. This policy reform will be necessary to achieve the Justice40 goal of targeting 40 percent of federal funds to disadvantaged communities.
Provide more additional subsidies
The Senate bill defines additional subsidies as “principal forgiveness, grants, negative interest loans, or buying, refinancing, or restructuring debt and excludes loans with positive interest rates.” The bill requires states to provide 49 percent of the supplemental dollars as additional subsidies. States could provide more. Congress set the floor for additional subsidization to 50 percent of ARRA funds but states provided over 70 percent as principal forgiveness or grants.
The reauthorization raises the minimum additional subsidization for disadvantaged communities to 10 percent of the capitalization grant for the Clean Water SRF and 12 percent of the capitalization grant for the Drinking Water SRF. Raising the floor is an important step forward, though many environmental justice advocates are pushing for at least 20 percent of SRF dollars to be provided as subsidies to DACs.
Raise ceiling: Unlike the supplemental funds, the amount for additional subsidies that states provide may not exceed 30 percent for the CWSRF and 35 percent for the DWSRF. Future legislation should raise this cap.
Ensure there are sufficient applications: States are only bound by the additional subsidization requirement if there are sufficient applications from DACs. This clause makes technical assistance to build the pipeline of projects ever more important.
