U.S. EPA released an Implementation Memo March 8 regarding the Clean Water and Drinking Water State Revolving Funds (SRF) provisions in the Bipartisan Infrastructure Law (BIL). As previously reported, the BIL is providing a total of $55 billion in new federal investment for water and wastewater over the next five years, much of which was directed by Congress to flow out through the SRFs.

Since the BIL was signed into law in November 2021, EPA and other federal agencies have been working to develop guidance and get the dollars flowing. NACWA has been closely engaged with EPA throughout this process and is pleased to see this important memo released this week.

The Implementation Memo outlines the responsibilities and directives from EPA to the states as they move forward with funds received through traditional CWSRF, traditional DWSRF, and new emerging contaminants and lead service line pots of funds being made available through the SRFs.

The Memo emphasizes that the SRFs provide flexibility to states and borrowers to address a wide range of local water quality and public health challenges. The state SRF programs will retain significant flexibility in implementing the BIL programs, as they currently have with the traditional SRF funds. However, EPA provided specific language emphasizing the BIL objectives and ways in which it expects that the states will revisit and reconsider how they prioritize projects, apply additional subsidization, and increase participation in the SRFs by communities that have not been active in the past.

NACWA encourages all utilities to review the Memo. Key elements include:

• Outlining that the 49 percent of funds for additional subsidization are to be used to i) benefit disadvantaged communities, following the CWSRF affordability criteria set by each state, ii) benefit individual residential ratepayers struggling with affordability, or iii) address energy efficiency, stormwater, or sustainable projects. In short, this means that EPA is directing states to follow the existing federal process for applying additional subsidy – while also calling for greater innovation throughout the Memo in how it is applied.

• The Memo encourages states to revisit their existing affordability criteria in light of the significant influx of additional subsidy being provided in the BIL. EPA expects states to review, refine, and improve their affordability criteria and priority point systems to ensure they are sufficient to address affordability issues that impact achieving Clean Water Act goals. Importantly, the Memo notes that population alone is not a sufficient metric. EPA offers a list of metrics for states to consider when reviewing their affordability criteria, some of which align with NACWA recommendations. While these are only recommendations, not mandates, they can provide helpful guidance for conversation between utilities and their states regarding additional subsidization (see pages 14-15, 26, 40-43).

• Also important, EPA clarifies that states should reach within larger communities or service areas (which may not qualify as disadvantaged on the whole) to target additional subsidization to disadvantaged neighborhoods within larger cities or service areas (page 26).

• EPA clarifies that states have the flexibility to combine their Intended Use Plans (IUPs) and Project Priority Lists (PPLs) for base SRF funds and their BIL influx– or submit a separate list for their base annual funds and BIL funds.

• EPA encourages states to reach beyond traditional stakeholder organizations and engage neighborhood and other organizations to help identify needs, comment on IUPs, and communicate priorities. States are encouraged to leverage the 2 percent set-aside for technical assistance to bring new applicants into the program and fund projects in the planning or pre-construction stages, as these are known to be potential barriers to engaging disadvantaged communities in the SRFs (pages 3-4). States are also called to provide meaningful public review process beyond the traditional outreach they have done (page 12).

• Directs states to fund projects that enhance resilience, climate adaptation, and energy efficiency or ‘climate smart’ water systems (pages 5-6).

• Clarifies that American Rescue Plan Act (ARPA) funds can in some circumstances be counted as non-federal match for the CWSRF and DWSRF (page 3).

The Memo also defines and provides basic guidance for how the new Emerging Contaminants pot of SRF funds, which totals $1 billion, will be implemented (pages 36-37). This is an area of particular interest to NACWA. We are concerned that, because the funds flow through the SRF to SRF-eligible activities, eligible uses may not align well with the types of projects and investments clean water agencies are making to address emerging contaminants such as PFAS. NACWA has been discussing this concern with EPA and Congress.

In short, the Memo outlines that there is a lot of work ahead for the SRF programs in every state. NACWA believes there is an important opportunity for clean water agencies to engage with SRFs in the process and urge revisions or new approaches where you feel they are needed. In doing so, utilities can help the states achieve the goals set out in the BIL. The Memo hopefully can serve as a resource for these discussions.

As a next step, EPA has planned a webinar next week (March 15) to walk through this new water guidance. More information is available here.

Many clean water agencies have also been inquiring about the changes that BIL made to “Buy America” provisions. The BIL incorporated comprehensive new Build America, Buy America (BABA) mandates which will apply to all federal infrastructure funding programs as of May 15, 2022. The Office of Management and Budget (OMB) is expected to release implementation guidance for all impacted federal agencies, including U.S. EPA, later this month. NACWA has weighed in with OMB and EPA along with other water sector organizations regarding concerns with how the changes may impact clean water agencies. We look forward to continued engagement over time as these new mandates come on line and await clarity from the agencies later this month.

NACWA will continue to engage on all of these issues as BIL and BABA implementation moves ahead. Contact Kristina Surfus, NACWA’s Managing Director of Government Affairs, with questions or to discuss.