Congress considers changes to EPA revolving loan formulas: Ohio may lose ground

July 6th, 2016

By Jon Honeck, GOPC Senior Policy Fellow

Background

Each year Congress appropriates funds for the U.S. EPA to provide capitalization grants for state revolving loan funds for wastewater treatment.  In Ohio, this fund is known as the Water Pollution Control Loan Fund (WPCLF).   The Ohio EPA sets priorities for the fund according to state needs and federal guidelines.  Local communities submit applications for loans to help finance wastewater treatment plant, sewer system upgrades, or conversions of septic systems to centralized sewage collection.  Ohio’s allotment of the total appropriation is set at 5.7% of the total appropriation amount; the state received $78.5 million in 2016. The annual subsidy allows the WPCLF to offer interest rates below standard market rates.  When combined with loan repayments, the fund can offer substantial amounts of financing.  In 2015, it made a record $759.6 million in loans. 

Congress orders a review

In 2014, Congress passed a major overhaul to the Clean Water Act.  This legislation, known as the Water Resources Development and Reform Act, mandated that the EPA review the allocation formula for the Clean Water Act revolving loan program.  The formula had changed little since the program was created in 1987.  At that time, the formula roughly reflected states’ share of the national population and share of the Clean Watersheds Needs Survey. 

Congress asked the US EPA to determine whether the formula addresses the water quality needs of states based on: (1) the most recent Clean Watersheds Needs Survey (CWNS); and (2) other information that the agency determined appropriate.  The CWNS takes place every four years.  In the 2012 survey, Ohio wastewater utilities identified $14.6 billion in capital projects that needed to be addressed over a 20-year period.  (Click here to access the 2012 CWNS).

Potential Revisions to the Formula

The US EPA presented its report to Congress in May, 2016.  It can be accessed here.  The agency’s main conclusion is that “the current allotment does not adequately reflect the reported water quality needs or the most recent census population for the majority of States” (emphasis in original, p. 5).    The report considers four basic factors that could be used in a revised formula:

  • Clean Watershed Needs Survey (CWNS, which the agency admits underestimates water quality needs)
  • Resident Population from the 2010 U.S. Census
  • Water Quality Impairment Component Ratio (WQICR), an existing database documenting pollution in rivers, lakes, and streams, derived from data submitted by the states; and,
  • Ratio of revolving loan fund assistance to the federal capitalization grant over the past ten years (to reward states that have increased project funding by leveraging their federal grants as much as possible);

Using these factors, the report considers three possible options for a new formula.  Each option would limit a state’s potential loss to 25% and its potential gain to 200%. 

OPTION FACTORS and FORMULA WEIGHTS
1 2012 Clean Watersheds Needs Survey (70%), 2010 population (30%)
2 2012 CWNS (50%), 2010 population (30%), WQICR (20%)
3 2012 CWNS (50%), 2010 population (30%), WQICR (10%), Ratio of assistance to federal grant (10%)

Ohio’s allocation would decline

Ohio fares poorly in all three scenarios, mostly because its share of the national population has fallen by over a full percentage point in the last 30 years, to about 3.7% of the national total.  Interestingly, Ohio’s share of the Clean Watersheds Needs Survey has fallen only slightly, reflecting the large amount of EPA-mandated combined sewer overflow work that must be done.   All three scenarios would yield double-digit declines in Ohio’s allotment, with option 1 creating an 18.2% decline, and options 2 and 3 at the maximum reduction of 25%.   In Program Year 2016, a 25% reduction would have meant a loss of nearly $20 million in federal funding. 

What happens now?

The scenarios in the report are only suggestions.  Congress would have to pass legislation to modify the current formula.  Formulas that did not have a “stop-loss” rule of 25% could have even greater effects on Ohio’s allocation.  Significant federal funding cuts would make it more difficult for the WPCLF to provide low interest rate loans to Ohio communities at a time when sewer rates are rising and affordability is becoming an issue.  It would become especially difficult to offer principal forgiveness options to Ohio’s poorest communities.  These communities already face reduced federal funding options from cuts to the Community Development Block Grant program.  Between 2000 and 2014, average Ohio sewer charges increased by 85 percent, more than twice the rate of consumer inflation.[1]  In a 2015 report on infrastructure needs, GOPC identified replacement and upgrades to water and sewer infrastructure as critical needs that span Ohio’s cities and villages of all population sizes.  Key stakeholders in the area should make every effort to inform Congress about the importance of maintaining Clean Water Act revolving loan program funding. 

[1] Author’s analysis of average user charges from Ohio EPA, 2014 Water and Sewer Rate Survey.  Consumer Price Inflation increased by 37 percent.

Ohio General Assembly Passes House Bill 512 to Reform Water Testing Procedures

June 2nd, 2016

By Jon Honeck, GOPC Senior Policy Fellow

Before leaving on its summer break, the Ohio General Assembly passed House Bill 512, a major reform to Ohio’s drinking water regulations that will tighten lead notification and testing requirements, tighten the requirements for lead-free plumbing fixtures, and provide more flexibility to the Ohio EPA and the Ohio Water Development Authority to support public drinking water and wastewater treatment infrastructure.  The bill passed with strong bipartisan support in the wake of the well-publicized crises involving lead in drinking water supplies in Flint, MI, and Sebring, OH.  The American Water Works Association estimates that there are 6.1 million lead service drinking water supply lines still in place across the nation, including many in Ohio.  With proper corrosion control methods, many of the issues with lead pipes can be avoided, although the ultimate answer is to replace these lead lines over time.  We hope that this same bipartisan spirit will carry forward into the fall and 2017 as the state grapples with important water infrastructure and water quality issues. 

Under the bill, homeowners must be notified within two business days of lead laboratory test results received by a community water system.  If the lab results show a lead level above the applicable threshold then the water system must provide information about the availability of health screening and lead blood level testing in the area to the homeowner and notify all customers that the system has exceeded acceptable lead levels within two business days, and provide information about lead testing to all customers within 5 business days.  Within 18 months of the notification of about excessive lead levels, the system must submit a revised corrosion control treatment plan to the Ohio EPA.  A revised corrosion control plan requirement is also triggered if a system changes sources of water supply, makes substantial changes to treatment, or operates outside the limits for certain metals or chemicals. Each water system is also required to map parts of its service area that are likely to contain lead lines.

Many Ohio cities are engaged in multi-year capital projects to fix combined sewer overflows and replacing aging water infrastructure.  The Water Pollution Control Loan Fund, which is controlled by the Ohio EPA, provided over $700 million in revolving loans in 2015 for these purposes.  The Fund receives an annual capitalization grant from the U.S. EPA so it can provide below-market interest rates to projects that are a high priority for the state and local partners. House Bill 512 broadened the scope of the WPCLF’s authority to match recent changes in federal law.  New funding purposes include energy conservation and efficiency at wastewater treatment plants (which use enormous amounts of electric power), watershed management, recapture or treatment of stormwater, and decentralized sewer systems to assist smaller, more isolated rural areas.  In addition, loan terms for the WPCLF are increased from 20 to 30 years, making them more affordable for borrowers.  These changes make it easier to develop creative approaches to managing the water treatment system. 

As Greater Ohio pointed out in Phase I of its ongoing infrastructure project, the state’s needs are vast and the financial capacity of many water utilities is stretched to its limit.  We will make further policy recommendations on this point in 2016.