State Policies Impacting SRF Assistance to State-Defined Disadvantaged Communities

By Danielle Goshen, Janet Pritchard, and Jack Travis

State-level policy decisions play a pivotal role in determining how State Revolving Fund (SRF) dollars are allocated, particularly to state-defined disadvantaged communities (DACs). Of course, one key policy determination is the criteria used to define DACs. Qualifying as a state-defined DAC does not guarantee favorable – or any – assistance from the SRF, however. Instead, states make a range of policy decisions that determine which DACs receive benefits such as principal forgiveness and to what extent.

These decisions include setting the total amount available for  principal forgiveness, establishing caps on the amount of principal forgiveness any given project or community can receive, and defining project prioritization criteria. A detailed analysis of state-level SRF policies reveals diverse approaches to supporting  state-defined DACs, with each state implementing distinct strategies. While there is no universal solution that fits all, several best practices and recommendations emerge from this analysis to help states maximize the impact of SRF funding:

• Allocating Base Funding as Principal Forgiveness for DACs

• Strive to allocate the maximum allowable amount of principal forgiveness allowable under the base SRF program  for state-defined DACs

• Caps on Principal Forgiveness

• Consider implementing scaled principal forgiveness caps based on community need

• Project Prioritization Points for DACs

• Award prioritization points to state-defined DACs, and consider using a sliding scale that reflects varying levels of disadvantage

• Interest Rate Discounts and Extended Loan Terms for DACs

• Provide broad benefits to state-defined DACs, in addition to additional subsidies