Water Pollution:

State Revolving Funds Insufficient to Meet Wastewater Treatment Needs

RCED-92-35: Published: Jan 27, 1992. Publicly Released: Feb 27, 1992.

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Pursuant to a congressional request, GAO reviewed the states' implementation of the Environmental Protection Agency's (EPA) State Water Pollution Control Revolving Fund (SRF) Program, which shifts the responsibility for financing wastewater treatment needs to the states and authorizes the federal government to provide SRF capitalization grants for 6 years, focusing on whether: (1) statutory or regulatory changes are necessary to increase program efficiency and effectiveness; and (2) SRF can meet the nation's wastewater treatment needs.

GAO found that although the SRF Program is structurally sound, a number of statutory provisions and administrative problems may impede efficient and effective implementation, including: (1) restrictions on using SRF to purchase land necessary for a wastewater treatment facility; (2) a lack of financial expertise in EPA regions to assist and oversee state programs; (3) limitations on using SRF to cover states' administrative costs; and (4) a maximum loan term that, in many cases, can be shorter than the estimated design life of SRF-financed plants and equipment. GAO also found that: (1) even if EPA made such statutory and administrative modifications, states could only expect to meet about 31 percent of the nation's wastewater treatment needs through SRF by 2001; (2) the overall percentage of treatment needs that the states will meet is actually much lower than 31 percent because EPA does not include many SRF-eligible needs in its survey; (3) because of limited SRF funds for meeting large investment needs, few states are using the funds to meet nonpoint-source pollution control and estuary protection needs; (4) some SRF statutory requirements increase costs disproportionately for small communities, making it more difficult for them to qualify for SRF assistance; and (5) provisions of the Tax Reform Act which limit the issuance of tax-exempt bonds and competition for limited resources significantly affect the ability of state and local governments to finance wastewater treatment plants.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Under the Clean Water Infrastructure Financing Act of 1999 (H.R. 2720), the acquisition of lands necessary to meet any mitigation requirements related to the construction of a publicly owned treatment works would be eligible for assistance under the water pollution control state revolving fund program. This bill was introduced in the House on August 5, 1999. However, the Clean Water Act has not been reauthorized for several years.

    Matter: Congress may wish to consider amending the Clean Water Act to authorize EPA to allow states that have demonstrated that they have controls in place to determine how much land is necessary and should be financed through SRF for particular projects.

  2. Status: Closed - Implemented

    Comments: Under the Clean Water Infrastructure Financing Act of 1999 (H.R. 2720), the loan repayment period for disadvantaged communities would be extended to the lesser of 40 years or the expected life of the project to be financed with the proceeds of the loan. This bill was introduced in the House on August 5, 1999. However, the Clean Water Act has not been reauthorized for several years.

    Matter: Congress may wish to consider amending the Clean Water Act to allow states to extend the loan term to correspond with the design life of the plant and equipment being financed.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: According to EPA, the agency has taken several steps to ensure that the regional staff responsible for managing the water pollution control SRF program have the necessary skills. Through its annual reviews of regional SRF program operations, EPA has monitored staffing levels to ensure that they include an adequate number of individuals with financial backgrounds. Over the past five years, EPA says that it has succeeded in recruiting and assigning individuals with financial management backgrounds in each of the ten regions. In addition, EPA annually provides advanced financial training in regional locations for staff assigned to the SRF program. EPA now believes that the current staffing in the regions is adequate to manage the SRF program.

    Recommendation: The Administrator, EPA, should compare the skills of regional staff currently managing the SRF Program with the skills needed, develop a plan to meet those needs through training and hiring, and include those needs in the agency's proposed budget.

    Agency Affected: Environmental Protection Agency

  2. Status: Closed - Implemented

    Comments: EPA recognizes that the 4-percent cap on administrative costs may not be sufficient when capitalization grants are discontinued, especially for states with leveraged programs. EPA has analyzed the use of fees and found that many states charge fees to supplement funds available for program administration. EPA has advised state program managers that collecting fees for this purpose is permissible and that these fees should be maintained in accounts outside of program fund accounts to avoid being constrained by the ceiling. In response to a congressional request, EPA provided recommended legislative language that would allow states to get more than 4 percent to administer the program as long as overall costs are reasonable and necessary. Although EPA believes that the reauthorization process would be the appropriate mechanism to make this change, agency officials believe that it is likely that the modification will be done through the FY 1999 EPA appropriation.

    Recommendation: The Administrator, EPA, should, on the basis of an assessment of the impacts of the 4 percent allowance for administrative costs, determine if any states should be allowed to use more of their SRF funds to cover administrative costs. In addition, EPA should assess the impact of total reliance on fees and state appropriations after federal capitalization grants end and determine whether Congress should be asked to amend the statute to allow states to use some portion of their SRF funds to cover administrative costs.

    Agency Affected: Environmental Protection Agency

  3. Status: Closed - Not Implemented

    Comments: EPA does not appear to be taking actions beyond those that were ongoing when the report was issued. In the report, GAO noted that EPA was developing models to estimate needs for combined sewer overflow and stormwater. EPA indicated that documented needs and needs estimated using modeling will capture the needs of estuarine protection to a large extent.

    Recommendation: The Administrator, EPA, should develop models to provide more comprehensive estimates of needs, including needs associated with nonpoint-source pollution and estuary protection.

    Agency Affected: Environmental Protection Agency

  4. Status: Closed - Implemented

    Comments: EPA has begun implementing a $50 million Hardship Grants Program, which is aimed at helping small and disadvantaged communities to address their wastewater treatment needs. As of July 1997, a total of 13 states have given formal notice of their intention to utilize the Hardship Grants Program. Finally, one-half of one percent of annual Title VI appropriations are set aside for grants to Indian Tribes (including Alaska Native Villages) for the construction of municipal wastewater treatment facilities; the Administration has proposed boosting the set-aside to a full one percent.

    Recommendation: The Administrator, EPA, should use the analysis of the Environmental Financial Advisory Board's working groups as a starting point for developing a long-term strategy to help state and local governments close the gap between needs and available resources to meet water quality goals set forth in the Clean Water Act. In particular, the Administrator should develop a plan to help small communities meet their wastewater treatment needs.

    Agency Affected: Environmental Protection Agency


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