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.
