Business Unit Leader, Lindsay Beaman hosts Civil Engineer, Kelli Scott for an in-depth discussion on funding for drinking water and wastewater project. During this podcast episode they will answer the following questions:
Lindsay Beaman: (0:20)
What type of funding is available for water and wastewater projects Kelli?
Kelli Scott: (0:23)
Mostly SRF loans potentially some forgivable loans through SRF block grant, which is Community Development Block Grant (CDBG). The SRF loans are pretty much available to anyone. Recently they have had lower rates than bonding. There have been some on the water side for forgivable grants. Those are not always available. They’re re-evaluated on an annual basis and they can have anything to do with backup power installing new leaders within the community, MCL violations and that sort of thing. Those are not typically based on income eligibility. Those are more of a compliance item. Block grants are normally based on income eligibility requirements and then you always have the option to do sewer revenue or water revenue bonds, where your sewer and water funds pay for the improvement. You could also use GEO bonds or General Obligation Bonds that come out of your tax revenue.
Lindsay Beaman: (1:36)
Let’s break that down a little bit more. You talked about MCL. Can you clarify what MCL stands for and what you meant by projects that have compliance needs?
An MCL violation would be something that is in your operations permit for your water system or your wastewater system. MCL stands for maximum contaminant limit, and on water, for example, it would be a radium or arsenic or nitrates or nitrites, something that you would do testing for. If you are looking to get a grant for an MCL violation, you must have a project planned, which means you have to have a report into the DNR, a preliminary engineering report that states what the issue is and what the proposed solution is. The reason for this is because there are a lot of communities that can have violations, but it’s kind of a first come, first serve sort of thing. So even if you have a violation and you need the help, if you’re not planning for it, there’s other people ahead of you that have planned for it. So the best way to get that, would to get a report into the DNR stating how you’re gonna fix that. Even if you don’t currently have a violation that’s a good way to go about that. What was your other question?
Lindsay Beaman: (2:57)
I mean, basically what you’re saying is, if you’re finding out from the DNR or other regulatory authorities that you’ve got something wrong with a water, drinking water, or wastewater system, you’re not meeting your limits by our permits. There could be funding available to you, but they would be anticipating that you do some sort of a study first to show what your interest is in fixing it, not just asking for a handout. Is that what you’re saying?
Kelli Scott: (3:22)
Correct and also if you have some idea that you may have a violation in the future, you don’t have to have a violation in order to put the report into the DNR. If you think you’re going to have an issue in the future, like we have one community that has had some issues with their equipment and having to do repairs and repairs are getting very, very expensive to the point where it would cost them less to replace the equipment, but they don’t have the money on hand to replace the equipment and they’re still meeting limits. But if that piece of equipment continues to fail, then they will likely have violations. So we are recommending to them to go ahead and get a report in so that they’re on record with dealing with the issue, and if they do get violations, then they would be eligible for the SRF grants if they become available, and those are again, evaluated on an annual basis on what those will cover, what the percentages of those would cover and the amount of money available to do that.
Lindsay Beaman: (4:32)
How difficult is it to apply for funding? In addition to you said writing a report, is there anything else you have to do?
Kelli Scott: (4:39)
In order to apply for the funding, like I said, you have to have a report to go with it to prepare the report, you will need to hire an engineer. They will look at your system what you have, what your needs might be, what your typical operating procedures are, and what your limits and so forth are, and then in that report, they will look at that, come up with a general idea of what those improvements might cost alongside with discussions with the operators, mayors, clerks, councils whoever wants to be involved in that, and then with the submittal of the report the funding application would go in it. Most of it gets filled out by the engineer, but from the city you will be requested to do on some projects, a viability assessment, which is a multi page document with yes or no check boxes asking, does the city have a procedure in place or not? That sort of thing, and also a independent municipal financial advisor will be required as well,and what they will do is look at your funds available through the city your sewer rates, water rates, that sort of thing to determine if where the rates are set at now are enough to support the new project and also a current, essentially financial report of the city to submitted with the application as well. So from the city’s side, they need to get their finances all gathered up, to be able to submit for the application.
Lindsay Beaman: (6:26)
Can the city apply for more than one type of funding or is it one grant at a time?
The State Revolving Fund loan, you can apply for that, and also use that in conjunction with an SRF grant and or a CDBG the Community Development Block Grants. The Block grant is dependent on income again and also city population typically you are eligible for up to $300,000 or $600,000 depending on your community population.
Lindsay Beaman: (7:08)
Is it ever better to use a bank for funding?
Kelli Scott: (7:12)
It is possible, sometimes the bond rates for your General Obligation Bonds could be lower than an SRF loan. Other times the SRF loan is less expensive. It would be essentially the same process for the city, only all that money would be through the bank versus going through the state with the reports. You could get the money from the bank for a project without having a report to the DNR. Although that does not preclude you from needing a report with the DNR, depending on the improvement you’re going to need.
Lindsay Beaman: (7:48)
You’ve got your need for money, your project, your development of a report and your funding options. How long will this take to actually get funding so that a project can be built?
SRF loan applications are due four times a year, they have quarterly, submittal dates. Usually within three to four months, you find out, they put you on, what’s called the intended use plan, which is saying, this is my project and this is how much money I want. So you usually know within three to four months, if you’re going to be on that. Very rarely rarely are people not able to obtain SRF money. The block grants are quarterly as well, and those may take longer if you currently are not within the 51% to low to moderate income, which means you have 51% of your population or more below the income requirements. If that is not currently documented through census data, you may have to do a special survey, which would take some additional time on that. Otherwise it’s a fairly straightforward and quick process to actually apply for your funding and then be told that you have it available. SRF also has essentially two parts to that loan program. They have the planning and design loan which is 0% interest for up to three years, and then they have their construction loan, which is at whatever the current rate is, which I believe right now is around 1.75, or 2%. Both of those do have origination fees with them, but the planning and design loan, again, you have to put your application in and you get that fairly quickly and that is used to pay for your engineering fees and administrative fees, legal fees, anything like that needed to prepare the documents to get to construction.
Lindsay Beaman: (9:50)
You talked about income eligibility. I know that a question I hear a lot of times is does that apply to a community as a whole, or can that apply to certain regions within a community?
Kelli Scott: (10:03)
It can be either or, as far as the community as a whole would be a project like a wastewater treatment facility or a water treatment facility, something that serves the entire community. So for that, the community as a whole would need to meet that income requirement, but if it is something like a sanitary sewer main that is too small and they continuously have backups and that is in an area of town and it would directly benefit those with lower incomes. Then that would be the subset of the population. So it depends on who is directly benefiting from the said improvement. So if you do the sewer project and it eliminates sewer backups into those lower income homes, then that would be a subset population.
Lindsay Beaman: (10:57)
So you’ve talked about a lot of rules in order to apply for funding. Is any of this making a project more expensive on a whole?
Kelli Scott: (11:05)
We’ve gotten that question a lot and we actually did, I’m going to call it an experiment on a project where we led it with State Revolving Fund money and without, and the net project cost was essentially the same. So it doesn’t really impact the cost of a project.
Lindsay Beaman: (11:25)
Wow. So it sounds like there’s a lot of projects that qualify for grant and loan funding pretty much you’ve covered the gamut from water distribution, sanitary, sewer collection, anything within the public system, all the way up to treatment of both types. That’s a lot of projects and their availability probably varies based on the need. Like you said, there are some compliance needs and the probably the greater need, and then the greater, the need, as far as financial obligations to help really improve those grant and loan options.
Lindsay Beaman: (11:56)
Are there any other grants or loans out there besides SRF or CDBG that might be worthy of discussion?
Kelli Scott: (12:05)
So there are USDA loans and grants out there. Those are typically utilized by lower income communities. The reason being is an SRF loan is 20 year terms and USDA can be 30 up to 40 year terms. So it gives you a longer payback time. They also do have grants available through USDA, again for the low income, low to moderate income requirements or for those communities that meet those requirements. There can be some nuances to the USDA that, maybe make it more favorable, or less favorable. One of them that can be more favorable is the longer payback time, the 30 and 40 years, but that can also be a downside because a lot of the equipment, if you’re doing a treatment facility, a wastewater or water treatment facility, your equipment, your pumps, and your blowers, and that sort of thing really have a design life of about 20 years. So the downside of that would be if your old loan is not paid off yet, you may have to take a second one. It works well though in communities where water distribution, or where you’re putting your water rains replacement, replacing a water mains, water towers, sanitary sewer pipes, the sort of thing that’s going to definitely be in the ground for 30, 40 plus years. There’s a lower risk of that. The grants again are based on income and they can be a range, there’s not a set percentage match. You could get a minimal amount of match, 10%, 20%, something like that up to nearly a 100% funded by grant by the USDA. Their loan rates are typically about the same as SRF. They do have some additional requirements with regards to ADA compliance, not related to the project that you’re doing that sometimes swing the needle one way or the other on whether or not the city wants to pursue that or not. For example, is city all handicap accessible? If it’s, yes, no big deal. If no, then a city kind of needs to figure out how they’re going to address that in order to meet the requirements of USDA.
Lindsay Beaman: (14:34)
Awesome so it sounds like there’s a lot of funding opportunities. This has been a great talk. And I think what you’re trying to say too, is if you have any, foreseen need in funding, coming down the line for any of your water resources needs that the sooner you can start this conversation with the engineer, the better don’t necessarily wait for compliance, because that might give you more time to apply and reapply for funding to maximize your benefits. Do you have anything else to add on that note?
Kelli Scott: (14:59)
I think you’re, you’re absolutely right. If you have any inclination that a compliance schedule is coming or something of the sort, it doesn’t cost you anything to contact engineers and start getting a feel of who’s out there, what they know, what they don’t know, what they can, and can’t help you with. It does not lock you into doing a project immediately, but at least you can be prepared in moving forward with the project and have a good idea of who, who maybe you want to work with on that, and also a lot of times we, as engineers can give you a general idea of what that project might cost so that you can start working with your financial advisors and figuring out if your current rate structure is sufficient or not. Raising rates a little bit at a time now is perceived a lot better by the community then delaying it four or five, six years until you actually get your compliance schedule and then have a large jump. So we can really kind of help you with that planning process before you’re required to do anything.
Lindsay Beaman: (16:10)
Sounds great Kelli, thank you for your time today.
Kelli Scott: (16:13)
Well thank you Lindsay.