States can use their CWSRF resources to construct or upgrade wastewater  infrastructure, address nonpoint sources of pollution, or develop or  implement management plans in federally-designated estuaries. States Have Loaned 96 Percent of Their CWSRF Funds for Wastewater Infrastructure, with 23 Percent Supporting Projects in Small Communities

Taken together, states have loaned the majority of their CWSRF dollars — 96 percent or about $50 billion since 1987—to build, upgrade, or enlarge  conventional wastewater treatment facilities and conveyances. Direct  CWSRF support for nonpoint source activities represents only 4 percent of  CWSRF dollars (about $2 billion), although it accounts for over a quarter  of all CWSRF projects financed. Nationwide, 23 percent of CWSRF funds  (64 percent of all CWSRF loan agreements) were devoted to water quality  projects in communities with populations of less than 10,000 people. From fiscal year 1987  through June 2005, the Clean Water State Revolving Fund program has  provided over $52 billion dollars in financial assistance to local  governments and others for a variety of water quality improvement  projects across the nation. The  remainder supports sewers and other conveyances. Nonpoint Source Projects Represent 4 Percent of CWSRFs but Account for Over 25 Percent of All CWSRF-Supported Projects

Direct CWSRF support for nonpoint source pollution control activities  represents only 4 percent (about $2 billion) of CWSRFs allocated by the  states but accounts for over 25 percent of all CWSRF-supported projects  because nonpoint source projects are typically less expensive than  wastewater infrastructure projects. To date, 37  states have reported using some portion of their CWSRF funds to directly  support nonpoint source projects. This may occur, for example, when a state  provides a loan to build a centralized collection system or wastewater  treatment plant to replace failing individual septic systems, which EPA  and the states define as a nonpoint source of water pollution. Most States Report Using Some of Their CWSRFs to Support Nonpoint Source Projects

As of June 2005, 37 states reported using some portion of their CWSRF  funds to support nonpoint source projects, up from only 2 states in 1990. According to EPA and state officials, some  CWSRF programs have rules to protect the ability of small communities to  access CWSRF funds. Among the factors these officials cite in predicting changes in  states’ allocation strategies are (1) aging wastewater infrastructure  needing rehabilitation or replacement; (2) population growth and  redistribution; (3) changes in EPA enforcement priorities, particularly with  regard to limiting sewage discharges during wet weather conditions; (4)  pressure to implement EPA’s TMDL program; and (5) stricter EPA and  state water quality standards for temperature, nutrients, and sediments. Combined sewer systems collect and  transport both sanitary sewage and storm water runoff in a single-pipe  system to a wastewater treatment facility. EPA and the States Use Specific Financial and Environmental Measures to Evaluate Efficient and Effective Use of CWSRF Resources

EPA and the states use a uniform set of financial and environmental  measures to help determine efficient and effective use of CWSRF  resources. According to the EPA’s  annual review guidance, the review is intended to, among other things (1)  evaluate the success of the state’s performance in achieving goals and  objectives identified in its Intended Use Plan (which identifies the  intended uses of the amounts available to its CWSRF) and the state’s  Annual Report (which describes how the state has met the goals and  objectives of the previous fiscal year as identified by the Intended Use  Plan), (2) determine how the CWSRF is achieving the intent of the Clean  Water Act, (3) assess the financial status and performance of the fund, and  (4) evaluate progress in identifying the environmental and public health  benefits of the program. Some states are attempting to go beyond EPA’s requirements by gathering  data on actual environmental benefits from their CWSRF-funded projects,  including nonpoint source projects. What strategies do states use to allocate their CWSRF dollars among  qualifying expenses? What measures do states use to ensure that their allocation strategies are  resulting in the most efficient and effective use of their CWSRFs? To determine the extent to which states are currently using their CWSRFs  to support conventional wastewater infrastructure versus other qualifying  expenses, we summarized data from the Environmental Protection  Agency’s (EPA) National Information Management System (NIMS), the  database EPA uses to track expenditures for all 51 CWSRF programs.
Why GAO Did This Study

Communities will need hundreds of billions of dollars in coming years to construct and upgrade wastewater treatment facilities, sewer systems, and other water infrastructure. To finance these efforts, they will rely heavily on low-interest loans from the Environmental Protection Agency's (EPA) Clean Water State Revolving Fund (CWSRF) program to supplement their own funds. Through fiscal year 2005, states have used their CWSRFs to provide communities over $52 billion for a variety of water quality projects. The Clean Water Act allows states to use their CWSRFs to (1) construct or improve conventional wastewater infrastructure, (2) control diffuse (nonpoint) sources of pollution such as agricultural runoff and leaking septic systems, and (3) protect federally-designated estuaries. Given the states' flexibility in determining how to spend CWSRF dollars, GAO was asked to examine (1) the extent to which states use their CWSRF dollars to support conventional wastewater treatment infrastructure versus other qualifying expenses, (2) the strategies states use to allocate their CWSRF dollars among qualifying expenses, and (3) the measures states use to ensure that their allocation strategies result in the most efficient and effective use of CWSRF dollars. EPA reviewed a report draft, providing technical comments that were incorporated.

What GAO Found

Since 1987, states have used 96 percent (about $50 billion) of their CWSRF dollars to build, upgrade, or enlarge conventional wastewater treatment facilities and conveyances. Projects to build or improve wastewater treatment plants alone account for over 60 percent of this amount, with the remainder supporting the construction or rehabilitation of sewer and storm water collection systems. CWSRF assistance for nonpoint source activities represents only 4 percent (about $2 billion) of CWSRF dollars, although it accounts for over a quarter of all CWSRF projects financed. To date, 37 states report using some portion of their CWSRF funds to directly support nonpoint source activities. Nationwide, 23 percent of CWSRF funds (64 percent of all CWSRF loan agreements) were devoted to water quality projects in communities with populations of less than 10,000 people. The 50 states (and Puerto Rico) have used a variety of strategies to allocate CWSRF funds to meet their individual needs. For example, the state of Washington sets aside 20 percent of its CWSRF dollars to support nonpoint source projects, while Alabama state law defines only traditional public wastewater treatment facilities as appropriate projects under its CWSRF program. Other states have designed their programs to target selected types of borrowers. Pennsylvania, for example, has targeted borrowers in small or rural communities during the allocation process. According to EPA and state officials, states' allocation strategies may change as certain states' priorities and clean water needs shift. Among the reasons are (1) aging wastewater infrastructure in need of rehabilitation or replacement; (2) population growth and redistribution; (3) changes in EPA enforcement priorities; and (4) stricter EPA and state water quality standards for temperature, nutrients, and sediments. EPA and the states use a uniform set of financial and environmental measures to help determine efficient and effective use of CWSRF resources. Financial measures include, among others, return on federal investment, the pace at which available funds are loaned, and the sustainability of the fund. EPA regional officials conduct annual reviews of each state program to help ensure the fiscal integrity of the state programs. All programs are also subject annually to independent financial audits. To measure environmental outcomes of CWSRF-funded projects, in fiscal year 2005, EPA developed an electronic benefits reporting system that all 51 programs have agreed to use. Currently, the system collects data only on anticipated environmental benefits associated with CWSRF-funded projects. However, to varying degrees, some states such as Oklahoma and Washington are attempting to gather data on actual environmental benefits from their CWSRF-funded projects, including nonpoint source projects.