State SRF Policies: Dispatches From Our Water Webinar Series
State-level decisions shape how effectively State Revolving Fund (SRF) dollars are invested in water infrastructure. EPIC’s Water Team hosted a three-part webinar series highlighting practical policy options from our latest briefs. Each session explored strategies to help states and partners improve, accelerate, and maximize the impact of SRF investments—ensuring communities get the water infrastructure they need, faster.
We share each webinar recording below with additional information and insights. If you are interested in learning more about this work, please visit our State Revolving Funds webpage or send us an email at contactwater@policyinnovation.org.
Optimizing Interest Rates and Other SRF Loan Policy Strategies
Why Loan Policy?
SRF financial assistance is delivered in two main forms: loans (“financing”) and grants or principal forgiveness (“funding”). SRFs are designed as revolving loan programs to offer low-cost capital, while remaining financially viable in the long term.
Because SRF borrowers are typically community water systems or municipalities, it is their customers—water ratepayers or municipal taxpayers—who ultimately shoulder repayment of these loans (which, to note, are how the majority of SRF assistance is provided). The SRFs, therefore, provide a crucial financing mechanism for many communities by offering competitive loans below market interest rates.
Strategic design of financing terms is therefore essential to both program accessibility and durability. States must make key policy decisions about interest rates, loan terms, and fees, and their decisions must strike a careful balance between making financing affordable for all communities and preserving the long-term sustainability of the funds.
Why Now?
SRFs are the largest federal funding programs for water infrastructure, serving as essential resources for financing local drinking water and wastewater projects across the United States.
The SRF programs have collectively channeled billions of dollars to states through the Clean Water State Revolving Fund, established in 1987 under the Clean Water Act, and the Drinking Water State Revolving Fund, created in 1996 by amendments to the Safe Drinking Water Act.
The 2021 Infrastructure Investment and Jobs Act significantly expanded the SRFs, infusing more than $43 billion over five years into these programs.
Given that the vast majority of SRF projects receive at least some financing, it is crucial to understand how interest rates and other loan terms impact project applicants. Luckily, multiple policy options are available to states to help structure viable loans so that communities can repay them.
Unpacking the Resources
In our brief Optimizing Interest Rate and Other Loan Policies for SRF Financing, we explore policy options, analyze trends across states, and highlight policies and best practices that states should consider when determining interest rate and other loan policies.
Our webinar unpacks the brief and highlights its findings, with a focus on the key strategies below, to offer states clear takeaways for optimizing access to and impact of SRF dollars.
For Interest Rate Policies
Evaluate Fixed vs. Market-Based Rates
Adopt Tiered or Formula-Based Rate Structures
For Loan Term Policies
Customize Loan Terms
Offer Shorter Loan Terms for Planning Loans
For Loan Fee Policies
Assess the Impact of Fees
Consider Flexible, Variable Fees
How States Can Define Disadvantaged Communities to Expand Access to SRFs for Small and Under-Resourced Communities
DAC Qualification is Critical—and is in the States’ Hands
Because states’ needs, characteristics, and priorities are so varied, the federal Safe Drinking Water Act gives states wide discretion to determine which communities qualify as Disadvantaged Communities (DACs). In addition to principal forgiveness eligibility, state SRF programs typically offer more favorable financing opportunities to DACs. Therefore, how a state defines who qualifies as a DAC impacts whether—and to what extent—small and under-resourced communities are able to access SRFs.
The Stakes are High
Despite having the largest economy in the world, the United States has failed to provide safe, affordable, and durable water infrastructure to all of its citizens. In its 2023 Drinking Water Infrastructure Needs Survey and Assessment and its 2024 results from a 2022 Clean Watersheds Needs Survey, the EPA estimates over $1 trillion in combined drinking water and clean water infrastructure needs over the next 20 years.
While many communities across the nation require these investments, historically underresourced communities have the most critical need. In order to best serve all communities, SRF programs must create comprehensive, flexible, and adaptive DAC definitions that incorporate a broad range of socioeconomic, demographic, and financial factors.
Unpacking the Resources
Our brief How States’ Disadvantaged Community Definitions Can Prioritize Access to SRFs for Under-Resourced Communities surveys diverse approaches taken by the 50 states, which we uncovered through analyzing Intended Use Plans (IUPs). The brief reveals varied methodologies and, while there may not be a “one-size-fits-all” solution, we recognize several recurrent strategies and best practices.
Our webinar unpacks the brief, highlighting the strategies below to ensure states’ allocation of resources reaches under-resourced communities. We focus and expand upon this clear set of takeaways, also exploring considerations and key tradeoffs for state decision-makers as they build SRF program policies around defining DACs.
Use a set of comprehensive criteria to define DACs, with factors that are relevant to the state’s objectives.
Enable balanced consideration of multiple factors.
Set definitions that are easy to understand and apply, using publicly accessible data and tools.
Specify appropriate thresholds to determine which communities qualify as disadvantaged.
Determine the geographic scope and consider the project service area when defining factors and thresholds for DACs.
Adopt scaled, or differentiated, definitions to allow ranking of DACs on the basis of relative need, in order to prioritize them as such.
Customize definitions to address specific community and project needs.
Periodically review and adapt definitions to align with evolving needs and circumstances.
Policy Decisions Impacting how Principal Forgiveness is Distributed to SRF Applicants
Distributing SRF Funds to Where They Are Needed Most
Simply qualifying as a state-defined DAC does not guarantee favorable—or any—assistance from SRFs. Instead, states make a range of policy decisions that determine which DACs receive benefits, and to what extent.
There is a significant opportunity under SRF programs to support state-defined DACs, both through additional subsidies and through the crucial policy decisions states make that impact the distribution of funds to communities most in need.
One of the most critical ways to benefit communities struggling to afford needed water infrastructure projects is through principal forgiveness. Thus, we’ve pursued a sweeping project to identify how states are building policy to optimize the impact of SRF dollars for DACs—and what we can learn from them.
Unpacking the Resources: How Principal Forgiveness Impacts Access to SRFs
Our detailed analysis of state-level SRF policies reveals diverse approaches to supporting state-defined DACs. We’ve published our findings in our brief, State Policies Impacting SRF Assistance to State-Defined Disadvantaged Communities, and highlighted case studies that offer effective strategies for using principal forgiveness to expand SRF access for under-resourced communities.
While there is no universal solution for all states, several approaches have emerged from our analysis, which can be adopted by states to help optimize the impact of their SRF funding. Our findings uplift the following strategies, which we explore and unpack further in our brief and webinar.
Strive to allocate the maximum allowable amount of principal forgiveness under the base SRF program for state-defined DACs.
Consider implementing scaled principal forgiveness caps based on community need.
Award project prioritization points to DACs, and consider using a sliding scale that reflects varying levels of disadvantage.
Provide DACs with broad benefits, like interest rate discounts and extended loan terms, alongside additional subsidies.