DRAFT
INVESTING IN IOWA’S WATER FY 2023 INTENDED USE PLANS
Clean Water State Revolving Fund (CWSRF) Drinking Water State Revolving Fund (DWSRF)
Approved by the Environmental Protection Commission (EPC) on June 21, 2022. Quarter 2 approved by the EPC on Sept 20, 2022. Quarter 3 approved by the EPC on December 13, 2022. Quarter 4 approved by the EPC on March 21, 2023.
FY 2023 Intended Use Plans Clean Water State Revolving Fund Drinking Water State Revolving Fund
Table of Contents Introduction ............................................................................................................................................................................ 3 Program Overview .................................................................................................................................................................. 3 Highlights and Changes ........................................................................................................................................................... 5 Clean Water State Revolving Fund.......................................................................................................................................... 7 Drinking Water State Revolving Fund ................................................................................................................................... 28
INTRODUCTION In the last 30 years, Iowa’s SRF has provided over $4 billion in loans for water and wastewater infrastructure, agricultural best management practices, and other water quality projects. With the SFY 2023 Intended Use Plan (IUP) and future program plans, Iowa’s SRF will continue to help Iowans Iowa’s SRF is based on federal legislation that created the programs as revolving loan funds to provide a dependable, ongoing source of financing. Several sources of money are used to make loans, including federal Capitalization Grants (CAP Grants), bonds, and loan repayments with interest. No state general funds are provided. Iowa’s SRF programs are highly rated in financial markets, giving the programs strong leveraging capacity to keep up with demand for loans. Transparency and accountability are commitments the Iowa SRF staff has made to stakeholders. All program plans are issued for public review and comment, with approval quarterly by the Iowa Environmental Protection Commission. Annual reports, IUP’s and application requirements are posted on both DNRs and SRF’s websites. Email listservs are used to inform stakeholders of program updates. protect public health and the environment through investing in Iowa’s water. SRF loans can be used as stand-alone financing or in combination with a wide variety of grants, including other federal water and wastewater assistance programs, state and federal agricultural cost-share, and local sources, along with private investment. Cities, counties, rural water systems, sanitary districts, farmers, livestock producers, homeowners, watershed organizations and others across the state utilize existing SRF programs. Many borrowers come back to the SRF multiple times to finance their ongoing capital improvement projects. PROGRAM OVERVIEW STATE REVOLVING FUND (SRF) The Clean Water SRF funds wastewater treatment, sewer rehabilitation, and stormwater quality improvements, as well as non-point source projects. The Drinking Water SRF funds water treatment plants or improvements to existing facilities, water line extensions to existing unserved properties, water storage facilities, wells, and source water protection efforts. SRF PROGRAM ADMINISTRATION
The unique partnership between the Iowa Department of Natural Resources (DNR), the Iowa Finance Authority (IFA), and the Iowa Department of Agriculture and Land Stewardship (IDALS) is the foundation for the success of the SRF programs. These agencies work together to deliver streamlined programs and good customer service:
• DNR-Administers the environmental and permitting aspects of the program as well as regulatory compliance • IFA-Administers the financial aspects of the program including fund management, bonding, loan approval and disbursements • IDALS-Through a contractual agreement with DNR, IDALS administers three SRF Nonpoint Source Linked-Deposit Programs and provides technical assistance to the CWSRF Nonpoint Source Programs, including the Sponsored Project Program
Iowa’s SRF also relies on partnerships with Soil and Water Conservation Districts, county environmental health agencies, watershed and land trust organizations, and lending institutions across the state to implement program and financial goals.
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INTENDED USE PLANS The Intended Use Plans (IUPs) following this Program Overview will provide a roadmap to the policies and procedures of the CWSRF and DWSRF Programs, along with the lists of projects and activities to be funded. The IUPs outline the proposed management of the Clean Water SRF and the Drinking Water SRF programs during State Fiscal Year 2023 (July 1, 2022 - June 30, 2023) and include Project Priority Lists (PPL), program policies and goals, financial management strategies, discussion of set-aside programs and efforts, and planned uses of administrative accounts. The IUPs are developed and updated quarterly, in June, September, December, and March or more often as needed, with projects added and funding amounts adjusted as needed. While the plans of action outlined in these SFY 2023 IUPs may be amended in subsequent quarters, they are intended to lay out the general direction and goals of the Clean Water and Drinking Water SRF Programs. The CWSRF IUP and the DWSRF IUP each have several additions that are incorporated into the IUPs. There are multiple appendices to each IUP which are contained in this Microsoft Word document. The Project Priority Lists are an attachment to each IUP and are located in a separate Microsoft Excel spreadsheet. Finally, each IUP has an annex which addresses the specific policies and implementation of the Bipartisan Infrastructure Law, and which are located in separate Word documents. These additions will be discussed in more detail further in this document. Federal and state law requires, and Iowa welcomes, opportunity for public participation in the development of the IUP. Any revisions of the goals, policies and method of distribution of funds must be addressed by a revision of the IUP, including public participation. Minor adjustments in funding schedules and loan amounts are allowed without public notification by the procedures of this IUP and state rules for administration of these programs. PROJECT PRIORITY LIST Project Priority Lists (PPL) for wastewater projects and drinking water projects are located in Attachment 1 of the Clean Water IUP and Attachment 1 of the Drinking Water IUP, respectively. These attachments are a separate Microsoft Excel spreadsheet available on www.iowasrf.com 1 2 For program planning purposes, the fundable projects are further identified as “R - ready for loan” (indicating that the construction permit and environmental review have been completed), and “P - in planning” and “L - loan signed.” TYPES OF FINANCING Construction Loans are offered with 20-year terms. An extended term loan is available up to 30 years, based on the average life of the project components. Interest rates and fees are established within the IUP. Planning & Design (P&D) Loans are offered for up to 3 years to cover engineering and project development costs. P&D loans can be rolled into an SRF construction loan or paid off with other permanent financing. Nonpoint Source Loans are available to public and private borrowers in the form of direct loans, loan participation or linked-deposit loans, depending on the borrower. These loans address stormwater management, inadequate septic systems, landfill closure, lake restoration, soil erosion control, brownfield cleanup, manure management and more. CO-FUNDING The SRF funding can be combined with several other funding sources to make costly infrastructure projects possible. While SRF offers low loan rates and additional subsidization to eligible applicants, many of Iowa’s communities need additional help from other funding sources. Joint funding that combines SRF loan dollars and funds from other agencies is crucial to making some water and wastewater infrastructure upgrade projects more affordable for many communities. The Iowa SRF Program is committed to coordinating with other funding agencies to simplify the process of co-funding and to find an affordable solution to water and wastewater needs. 1 CWSRF Project Priority List https://www.iowasrf.com/program/clean_water_loan_program/clean-water-srf-intended-use-plan-information/ 2 DWSRF Project Priority List https://www.iowasrf.com/program/drinking_water_loan_program/drinking-water-intended-use-plan-iup-information/
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EMERGENCY FUNDING In May of 2019, a Memorandum of Understanding (MOU) was signed regarding coordination between EPA and FEMA. The MOU established a framework for the EPA funded State Revolving Fund (SRF) programs to assist and collaborate with FEMA disaster assistance grant programs. The Iowa SRF Program will work with communities on a case-by-case basis to provide assistance addressing public health threats related to drinking water and wastewater resulting from a disaster. Some of the ways the SRF can help following a disaster include: • Use SRF loans as match for FEMA grants. FEMA funds will generally pay for 75% for the replacement costs for public water and wastewater systems. The SRF can be used for the required 25% match. • Use SRF funds as short-term loans to be repaid with FEMA grants. There may be times when a public facility has been approved for a FEMA grant but there is a delay in receiving the funds. In those situations, when all program requirements are met, an SRF loan could be used to finance the repairs and then be repaid with FEMA money. Emergency loans meeting these conditions may be made and then shown on the next quarterly IUP update. HIGHLIGHTS AND CHANGES In the past year, many exciting opportunities have developed to advance environmental equivalency in the water sector through increased investment in water and wastewater infrastructure. Iowa is expanding and revising the SRF Program, as needed, to adapt to and take advantage of these new opportunities. Highlighted below are some of the changes Iowa is incorporating into this year’s Intended Use Plans. Plans for implementing the Bipartisan Infrastructure Law (BIL ) funding, also known as the Infrastructure Investment and Jobs Act , are not covered in this annual release of the Intended Use Plan but will be implemented through separate annexes (BIL Annexes) to the DWSRF and CWSRF Intended Use Plans. The most current information available will also be posted at https://www.iowasrf.com/infrastructure-bill-funding- opportunities/. The BIL introduced a new requirement to federally funded infrastructure programs which expands domestic procurement requirements beyond iron and steel to include construction materials and manufactured goods. This requirement is referred to as Build America, Buy American (BABA) . Some SRF funded projects may be subject to the requirements of BABA, including projects that co-fund with other federal programs such as Housing and Urban Development Community Development Block Grant or USDA Rural Development loans. U.S. Environmental Protection Agency has not yet released implementation procedures on BABA; further guidance on BABA will be implemented in future quarterly updates to the CWSRF and DWSRF Intended Use Plans. The most current information available will also be posted at https://www.iowasrf.com/infrastructure-bill-funding- opportunities/. The Water Resources Restoration Sponsored Project Program is temporarily not accepting applications during SFY 2023 (September 2022 and March 2023 application rounds). The Disadvantaged Community (DAC) definition (DWSRF Program) and the Affordability Criteria (CWSRF Program) are under review and will be revised through public review and comment. The SRF Programs intend to implement the DAC definition and affordability criteria the BIL Annexes to the DWSRF and CWSRF Intended Use Plans, respectively. The goal of this revision is to expand environmental equality and ensure Iowa’s SRF Programs are reaching communities most in need of assistance. The new definitions will be used to determine an applicant’s eligibility to receive loan forgiveness from the base DWSRF and CWSRF Loan Programs as well as BIL Loan funds. The percent of loan forgiveness offered to each eligible project will also be determined through these revised criteria. See BIL Annex A to the DWSRF IUP and CWSRF IUP, respectively. Beginning in SFY 2023, loan initiation fees will not be assessed on loans to Disadvantaged Communities (DAC) receiving loan forgiveness. For the first time in the Program’s history, the U.S. EPA is allowing states to utilize funding from the Cap Grant to provide Technical Assistance to borrowers. EPA is also preparing Technical Assistance contracts to support states and borrowers with accessing SRF Program funds from the BIL. Future quarterly updates to the CWSRF IUPs will describe how Iowa intends to utilize these funds and the technical assistance that will be available to our borrowers. See page 19. Beginning in SFY 2023, borrowers will be asked to identify their Municipal Advisor for the project as part of the
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IUP application. Beginning in SFY 2023, prior to closing a construction loan, applicants must demonstrate that appropriate action has been taken to implement the utility rate recommendations of their Municipal advisor set forth in the 5-year pro-forma cash flow analysis. Beginning in SFY 2023, to the extent applicable, applicants must provide certification evidencing compliance with public bidding law, pursuant to Iowa Code Chapter 26, prior to closing a construction loan. With the SFY 2023 Intended Use Plans and future program plans, Iowa’s SRF Programs will continue to help Iowans protect public health and the environment through investing in Iowa’s water.
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FY 2023 INTENDED USE PLANS CLEAN WATER STATE REVOLVING FUND Table of Contents
State Revolving Fund (SRF) ..................................................................................................................................................... 3 SRF Program Administration................................................................................................................................................... 3 Intended Use Plans ................................................................................................................................................................. 4 Project Priority List.................................................................................................................................................................. 4 Types of Financing................................................................................................................................................................... 4 Co-Funding .............................................................................................................................................................................. 4 Emergency Funding................................................................................................................................................................. 5 I. State Fiscal Year 2023 Plan of Action ............................................................................................................................... 8 CWSRF Goals and Objectives............................................................................................................................................ 8 SFY 2023 Project Priority List (PPL)................................................................................................................................. 11 Water Resource Restoration Sponsor Program ............................................................................................................. 12 Plan for Nonpoint Source Assistance Programs ............................................................................................................. 13 Current and Projected Financial Capacity of the CWSRF ............................................................................................... 14 Financial Management Strategies .................................................................................................................................. 14 Plan for Use of Administrative Accounts........................................................................................................................ 14 II. Information on the CWSRF Activities to be Supported .................................................................................................. 15 Allocation of Funds ......................................................................................................................................................... 15 Sources and Uses of Available CWSRF Funds ................................................................................................................. 15 Section 212 Projects Program Policies ........................................................................................................................... 15 Plan for Efficient and Timely Use of CWSRF Funds ........................................................................................................ 17 Water Quality Management Planning............................................................................................................................ 18 SEE Salary Funds Deducted from Capitalization Grant .................................................................................................. 18 III. Assurances and Specific PRoposals ................................................................................................................................ 18 IV. Criteria and Method for Distribution of Funds............................................................................................................... 18 Section 212 Infrastructure Projects................................................................................................................................ 18 Nonpoint Source Assistance Programs .......................................................................................................................... 19 V. Method of Amendment of the Intended USe Plan ........................................................................................................ 19 VI. Public Review and Comment.......................................................................................................................................... 19 VII. Project Priority List ......................................................................................................................................................... 20 VIII.Technical assistance ....................................................................................................................................................... 20 Appendix A - CWSRF Estimated Funding Sources and Funding Uses ................................................................................... 21 Appendix B-1 Procedures to Determine Section 212 Project Priority List............................................................................ 21 Appendix B-2 Criteria to Determine Project Priority List...................................................................................................... 22 Section 212 POTW Projects ............................................................................................................................................ 22 Nonpoint Source Assistance Programs .......................................................................................................................... 22 Appendix C Loan Forgiveness ............................................................................................................................................... 22 A. Borrowers Receiving Additional Subsidization ........................................................................................................ 22 B. Borrowers Counted for Green Project Reserve (GPR) ............................................................................................. 25 Appendix D SFY 2023 Sponsored Project Funding Recommendations................................................................................. 26 Appendix E General Nonpoint Source Assistance Projects for Approval of Land Purchase ................................................. 26 Appendix F State Match........................................................................................................................................................ 27
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FY 2023 Intended Use Plans Clean Water State Revolving Fund I. STATE FISCAL YEAR 2023 PLAN OF ACTION
The Clean Water SRF Program funds wastewater treatment, sewer rehabilitation, and stormwater quality improvements, as well as non-point source projects. Publicly owned wastewater treatment works, including those owned by cities, counties, sanitary districts, and utility management organizations are eligible. For non-point source projects, both public and private entities are eligible, including farmers, landowners, watershed organizations, landfills and rural homeowners. The CWSRF loan program consists of three main program areas: • The purchase of debt obligations for wastewater and some storm water projects for publicly owned facilities • Direct loans, loan participation and linked deposit financing approaches addressing nonpoint source programs • Water Resource Restoration Sponsor Program (Sponsored Projects) addressing nonpoint source problems via interest rate reductions on wastewater loans
The SFY 2023 Plan of Action covers the following areas: • CWSRF goals and objectives • Current and projected financial capacity of the CWSRF • Financial management strategies • Plan for the SFY 2023 Project Priority List • Plan for Nonpoint Source Assistance Programs • Plan for use of administrative accounts
The plan is based on anticipated use of new and revolved funds available in the CWSRF for funding water quality protection needs, including both publicly owned wastewater infrastructure and nonpoint source water protection projects. CWSRF Goals and Objectives The primary long-term goal of the Iowa CWSRF is to protect the environment and public health and welfare through a perpetual financial assistance program. Due to federal legislation in this past year, program updates are anticipated in SFY 2023. New goals have been established to meet those requirements and adjust programs to available staff. The SFY 2023 short-term goals and objectives are as follows: • Goal: Commit loan funds to as many recipients as possible in accordance with the state priority rating system, the IUP, staff resources, and available funding, in order to assist in the construction of projects with the highest water quality impacts. Objective: During SFY 2023, applications will be accepted quarterly and updates to the IUP will be prepared to add projects and update program financial information. Sponsored Project applications will be taken in March 2022 and added to the IUP during this fiscal year. Projects approved under the Nonpoint Source Assistance Programs will be funded on a continuous basis from the funds reserved for those programs. • Goal: Continue to implement the Water Resource Restoration Sponsor Program authorized in Iowa Code 384.84. Objective 1: During SFY 2023, SRF staff will receive applications only once this year for Sponsored Project funding. The application deadline for SFY 2023 was in March 2022, as advertised in the previous SFY 2022 Intended Use Plan. In conjunction with watershed coordinators, Iowa Department of Agriculture and Land
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Stewardship urban conservationists, and others, SRF staff evaluated the applications and prepared a list of proposed projects for this IUP. Objective 2: Systematic business assessment of the Sponsored Project Program process to identify best practices and to establish new practices that can streamline the process and shorten project completion times.
• Goal: Encourage applicants to engage a registered municipal advisor (MA).
Objective: During SFY 2023, all applicants submitting an Intended Use Plan application must demonstrate that they have hired an MA to assist with cash flows, rate setting, debt service coverage, and other financial aspects of their wastewater utility. Due to current supply chain and contractor availability issues, the costs of projects have been increasing. The CWSRF Program will encourage applicants to engage with their MA early in the project planning process to ensure that the community is taking appropriate measures to account for potential increased debt service requirements. The CWSRF program will reimburse up to $4,000 of the MA fee to the borrowers. • Goal: Implement the “Build America, Buy American (BABA)” requirements enacted by Congress in the Bipartisan Infrastructure Law on May 14, 2022. Objective: During SFY 2023, SRF staff will engage DNR Field Office staff to establish a BABA oversight program. SRF staff will provide information to those applicants required to comply with necessary documentation and inspection procedures. CWSRF will conduct site visits and provide technical assistance to help applicants determine eligibility for the exemptions and waivers provided for in the Act and EPA guidance. • Goal: Continue to implement the “Use of American Iron and Steel (AIS)” requirements enacted by Congress on January 17, 2014. Objective: During SFY 2023, SRF staff will re-evaluate the AIS oversight program , retaining best practices and aligning the program with BABA requirements, as needed. SRF staff will provide information to applicants on necessary documentation and inspection procedures and will continue to help applicants determine eligibility for the exemptions and waivers provided for in the Act and EPA guidance. SRF will continue to engage DNR Field Office staff to conduct site visits and provide technical assistance. • Goal: Fund green projects to meet the requirements of the Green Project Reserve (10% of the CWSRF Cap Grant). Objective: During SFY 2023, the CWSRF Program will fund green projects as required in the FFY 2022 Cap Grants and revise Grant Year assignments for 2018-2021 as project costs finalize . Iowa has already complied with the GPR requirements of previous Cap Grants.
• Goal: Continue applying additional subsidization available in the FFY 2019-FY2021 Cap Grants.
Objective: During SFY 2022 SRF staff plans to approve plans and specifications and execute loans or loan amendments with loan forgiveness to previously assigned recipients for the amounts required in the FFY 2019, FFY2020, and FFY 2021 Cap Grants in accordance with previously established criteria (see Appendix C). Iowa has complied with the additional subsidization requirements for all previous Cap Grants.
• Goal: Review and revise criteria used to identify eligible applicants for loan forgiveness.
Objective: During SYF 2023, SRF staff will revise the affordability criteria through public review and comment. The CWSRF intends to utilize the new affordability criteria to identify eligible applicants to receive
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loan forgiveness from future Cap Grants. The CWSRF intends to implement the new criteria in BIL Annex A to the CWSRF IUP.
• Goal: Apply additional subsidization available in FFY 2022 Cap Grant.
Objective: During SFY 2023, SRF staff will utilize the revised affordability criteria to assign loan forgiveness for FFY 2022 Cap Grant. SRF staff will approve plans and specifications and execute loans or loan amendments with loan forgiveness for the amounts required in the FFY 2022 Cap Grant.
• Goal: Comply with grant reporting conditions.
Objective: During SFY 2023, the Iowa CWSRF Program plans to enter data into the CWSRF National Information Management System (NIMS) and the EPA reporting database for the Office of Water State Revolving Funds (OWSRF). • Goal: Comply with EPA guidance on reporting under the Federal Funding Accountability and Transparency Act (FFATA). Objective: In the Annual Report, SRF staff will list loans that met the several requirements of FFATA for open Cap Grants. Grants may not be closed out until equivalency amounts can be reported. • Goal: Comply with EPA guidance on cost and effectiveness requirements under Section 602(b)(13) of the Clean Water Act. Objective: During SFY 2023, CWSRF will require applicants to submit a self-certification form indicating compliance with this requirement.
• Goal: Promote and identify sustainable practices in projects proposed for funding.
Objective: During SFY 2023, SRF staff will provide information on the EPA’s Sustainability Policy to applicants and include sustainability features in project descriptions.
• Goal: Comply with the EPA Signage Guidance.
Objective: During SFY 2023, SRF staff and recipients will notify the public in the most effective ways possible about assistance agreements and benefits of the CWSRF program in order to enhance public awareness of EPA assistance agreements nationwide. The Iowa CWSRF program sends out press releases listing all CWSRF loans that have closed and borrower contact information.
Additional long-term goals include: • Goal: Work with other state and federal agencies to coordinate water quality funding.
Objective: During SFY 2023, SRF staff will meet regularly with staff from the Community Development Block Grant program, and the USDA Rural Development program. SRF staff will also coordinate funding with state and federal grant and loan programs designed to address both point source and nonpoint source water quality initiatives. • Goal: Apply program requirements that are simple and understandable and do not add unnecessary burdens to applicants or recipients. Objectives: During SFY 2023, SRF staff will continue to assist applicants with completing the federal cross- cutting requirements for environmental and historical review, and will advise borrowers as needed with Davis-Bacon compliance. Borrowers will be responsible for compliance and may hire outside consultants to
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assist.
• Goal: Continue the option of extended financing terms for CWSRF infrastructure projects.
Objective: During SFY 2023, this option will be offered to current and new projects on the Project Priority List. Applicants seeking extended financing must complete a worksheet outlining the anticipated life of the project components, which can be averaged to determine the extended term. • Goal: Maintain mechanisms for funding the on-going administration of the program if federal funding is reduced or eliminated. Objective: During SFY 2023, initiation and servicing fees will be collected on CWSRF loans for deposit to administrative accounts. SRF staff will develop short and long-term plans for administrative budgets.
• Goal: Manage the CWSRF to maximize its use and impact through sound financial management.
Objective: During SFY 2023, SRF staff and financial advisors will continue to conduct financial analysis and develop innovative approaches to financial management.
• Goal: Implement programs that effectively address water quality needs and target appropriate audiences.
Objective: During SFY 2023, SRF staff will continue to educate users and potential users about the program offerings through presentations, displays, program materials, and the IowaSRF.com website. SFY 2023 Project Priority List (PPL) The management of the CWSRF program includes a priority list of projects for loan assistance, which has been developed according to DNR rules 567 IAC 92 (455B). Attachment 1 constitutes the CWSRF Project Priority List. This priority list will be amended on a quarterly basis during SFY 2023. With the available CWSRF funds, this IUP provides a projection of loan funding assistance for applications in priority order determined by point source rating criteria defined in 567 IAC 91 (455B). More information on priority ranking is available in Appendix B. For program planning purposes, the fundable projects are further identified as “R - ready for loan” (indicating that the construction permit and environmental review have been completed), “P - in planning” and “L - loan signed.” Due to the project workload and for planning purposes, the CWSRF staff may evaluate projects that have been on the IUP list for more than three years. A notification will be sent to the applicants that their project may be dropped if there is no progress in the six months following the notice. If a project is dropped, the applicant may reapply when the project is ready to move ahead. The following categories of projects will be included for funding during SFY 2023 and are included on Attachment 1: • Planning and Design Loans . Planning and design loans are provided at 0% interest for up to three years to cover the costs of preparing facility plans and project specifications. The loans will be rolled into CWSRF construction loans or repaid by another source of permanent financing. Planning & Design Loan applications can be found on the SRF website 3 . • Unfunded Prior Years’ Section 212 Projects : These are loan requests remaining on the Project Priority List from previous years’ IUPs. It is Iowa’s intention to make CWSRF loans to these projects during SFY 2023 if they are ready for a binding loan commitment. • Segments of Previously Funded Section 212 Projects . State rules provide that subsequent segments of a project, which has previously received funding priority or assistance, must be placed on the Project Priority List
3 https://www.iowasrf.com/program/planning__design_loans/
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ahead of new projects. Segmented projects will be added to the SFY 2023 Project Priority List as received. • New Section 212 Projects . New applications for assistance during SFY 2023 will be accepted on a quarterly basis and will be added to the Project Priority List if projects are determined to be eligible for funding and the application is complete. Intended Use Plan applications can be found on the SRF website 4 and on the DNR Wastewater Construction Permit website 5 , and submitted to srf-iup@dnr.iowa.gov. • New General Nonpoint Source Projects including Source Water Protection. New applications for assistance during SFY 2023 will be accepted on a quarterly basis and will be added to the Project Priority List if projects are determined to be eligible for funding and the application is complete. Intended Use Plan applications can be found on the SRF website under the Other Water Quality Program 6 tab and submitted to srf-iup@dnr.iowa.gov . • Supplemental Financing . Supplemental financing for projects listed in previously approved IUPs are added to the IUP as they are requested unless the additional funds will be used for improvements that would significantly change the scope of the project. Additional environmental review may be required. Supplemental loans will not be provided for changes that are ineligible for funding. Water Resource Restoration Sponsor Program The project category called water resource restoration or “sponsored projects” provides wastewater utilities with the opportunity to fund locally directed, watershed-based, nonpoint source projects that address water quality issues. Iowa Code chapter 384.84 authorizes these projects to be financed with sewer revenues. On a CWSRF loan with a sponsored project, the utility borrows for both the wastewater improvement project and the sponsored project. However, the overall interest rate on the total amount of principal borrowed is reduced so that the utility’s ratepayers do not pay any more than they would have for just the wastewater improvements. In this way, a utility accomplishes two water quality projects for the cost of one. • For loans up to 20 years, the interest rate on the combined infrastructure/sponsored project loan will be reduced to not lower than 0.75%. The maximum amount allowed for eligible sponsored project costs is $100,000 per $1 million borrowed. The amount of funds reserved in SFY 2023 for Water Resource Restoration Sponsor Program interest rate reductions is $5 million. In order to fund all eligible applications, the DNR reserves the right to cap individual application funding awards at a percentage of the total amount allocated for Sponsored Projects. Applications for SFY 2023 were accepted until March 1, 2022. The applications proposed for funding in SFY 2023 are listed in Appendix D. The Sponsored Project Program is temporarily not accepting applications during SFY 2023 (September 2022 and March 2023) for program planning purposes to enhance the program. Application opportunities are expected to resume for communities or wastewater utilities interested in applying to the CWSRF Water Resource Restoration Sponsored Project Program. Future quarterly updates to the IUP will provide information on deadlines for pre-application conference calls and application deadlines. Applicants that are approved for funding will be contacted after the approval of this IUP to schedule a project initiation meeting and to begin the sponsored project review and approval process. All information about the review and approval process is included in the Sponsored Project Manual 7 located on the SRF website. Applicants should review the manual information to become familiar with the process. Sponsors of approved projects will be required to follow project review and implementation guidelines established in the Water Resource Restoration Sponsored Projects Milestone Checklist located in the Sponsored Project Manual on the SRF website.
4 www.iowasrf.com 5 https://www.iowadnr.gov/Environmental-Protection/Water-Quality/Wastewater-Construction/Construction-Permits
6 https://www.iowasrf.com/program/other_water_quality_programs/ 7 https://www.iowasrf.com/about_srf/sponsored-project-manual/
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Water quality practices funded through sponsored projects must be maintained for the useful design life of the practice. Sponsored Project recipients will be required to develop and execute a maintenance plan for all practices, and agree to a Water Resource Restoration Sponsored Project Performance Agreement to ensure that the water quality practices being funded are constructed and maintained in a manner that will achieve, and continue to provide, the water quality improvement according to the approved design. The waterbody, watershed, and water quality concern identified in the Water Resource Restoration Sponsored Project application cannot be changed after an application has been awarded funding. Beginning with projects awarded in SFY 2022, Sponsored Project loan amendments must be executed prior to the second principal payment on the sponsoring CWSRF loan or the Sponsored Project award may be withdrawn. Explanations of eligible applicants and projects, as well as specific application requirements, are outlined in the SFY 2023 Sponsored Project Application. This information is available on the Sponsored Project Home Page 8 . Plan for Nonpoint Source Assistance Programs Iowa authorizing legislation and state administrative rules allow the use of CWSRF program funds for nonpoint source pollution control projects. Four Nonpoint Source Assistance Programs have been established which target areas of need allowed under federal guidance and identified in the state Nonpoint Source Water Quality Management Plan: • The On-Site Wastewater Systems Assistance Program (OSWAP) provides loans to homeowners to replace inadequate septic systems. New systems must be certified by county sanitarians. • The Local Water Protection (LWP) Program addresses soil, sediment, and nutrient control practices on agricultural land. DNR contracts with the Iowa Department of Agriculture and Land Stewardship, which operates the program through local Soil and Water Conservation Districts. • The Livestock Water Quality Facilities (LWQ) Program assists livestock producers with manure management plans, structures, and equipment. Facilities with fewer than 1,000 animal unit capacity are eligible. DNR contracts with the Iowa Department of Agriculture and Land Stewardship, which operates the program through local Soil and Water Conservation Districts. • The General Nonpoint Source (GNS) Program supports a wide variety of other water quality protection efforts. Projects include habitat and wetland restoration, landfill closure, lake restoration, and watershed planning. Funding for Stormwater Best Management Practices loans is also included in this program. Projects that involve purchase of land require separate approval by the EPC. These projects are listed in Appendix E. Loans for these four Nonpoint Source Assistance Programs are made through participating lenders through either a linked deposit arrangement or loan participation. For linked deposits, CWSRF funds are deposited with a participating lender and are used to reduce the interest rate on the loan. For loan participants, CWSRF funds are used to purchase an existing loan from a lender. The table below outlines the current and proposed allocations planned for the four programs. These allocations may be amended based on need and the financial capacity of the CWSRF.
Proposed SFY 2023 Amount
Nonpoint Source Assistance Programs
Onsite Wastewater Assistance Program (OSWAP)
$1.5 million $3.0 million $4.0 million $10.0 million
Local Water Protection Program (LWPP)
Livestock Water Quality Facilities Program (LWQ) General Nonpoint Source Program (GNS)*
TOTAL $18.5 million *GNS projects that receive a direct loan are not included in this allocation and are listed individually on the CWSRF Project Priority List (Attachment 1).
8 https://www.iowasrf.com/about_srf/sponsored_projects_home_page.cfm
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Current and Projected Financial Capacity of the CWSRF Appendix A, the Estimated Sources and Uses table, shows that funds are available to fund current requests. The leveraging capacity of the CWSRF is robust due to the maturity of the fund and the current loan portfolio. SRF staff has analyzed the future financial capacity of the CWSRF in light of the discussion over water quality standards and other future wastewater needs. Assuming that Iowa continues receive Cap Grants, and that the CWSRF Program continues to grant 10% loan forgiveness and the current interest rates, it is projected that the CWSRF could loan an average approximately $290 million per year over the next 10 years, or a total of $2.9 billion. If Iowa receives no additional Cap Grants and the CWSRF Program keeps current interest rates, the CWSRF could loan an average of approximately $230 million per year over the next 10 years. These figures would increase with an increase in interest rates. Financial Management Strategies The CWSRF Project Priority List (Attachment 1) shows total loan requests for wastewater projects. Because many of these projects are in the planning phase, they are not expected to sign a binding loan commitment during this fiscal year. The projected timing and demand for loan draws is reflected in the sources and uses table (Appendix A). Other uses for CWSRF program funds in SFY 2023 include $18.5 million reserved for the Nonpoint Source Assistance Programs. The cash draw procedure used is the direct loan method. The Iowa CWSRF program uses its equity fund to originate loans. When a sufficient number of loans have been made, the CWSRF program issues bonds and uses the bond proceeds to replenish the equity fund. Iowa’s bonds are cross-collateralized across both the Clean Water and Drinking Water SRF accounts. When funds are needed, state match bonds are issued at the same time that leveraged bond issues are done for greater cost effectiveness. State match is fully disbursed prior to drawing Cap Grant funds. The Cap Grant funds will be drawn at a 100% proportionality ratio. The Iowa SRF program was invited to apply for a loan through EPA’s State Infrastructure Financing Authority Water Infrastructure Finance and Innovation Act (SWIFIA). SWIFIA is a loan program exclusively for state infrastructure financing authority borrowers. SWIFIA may be used for up to 49 percent of an eligible project’s costs that are ready to proceed, meaning construction will commence within 18 months after the Letter of Interest is submitted to EPA. A preliminary list of mostly CWSRF projects eligible for SWIFIA funding has been identified, totaling more than $500 million. The SRF program is in the process of working through the underwriting process; the timeline for closing the loan is yet to be determined. The program issued bonds in May 2022, which included the required state match obligations for the FFY 2022 Cap Grants (base CWSRF program and BIL supplemental). Plan for Use of Administrative Accounts There are three distinct funding sources for CWSRF administrative expenses: • The CWSRF administrative Cap Grant set-aside. Iowa intends to take or reserve 4% of the federal Cap Grant funds for program administration. • Loan initiation fees. A 0.5% loan origination fee will be charged on new CWSRF loans. The maximum amount charged is $100,000. Under EPA rules, because Iowa’s origination fees are financed through the loans, the proceeds are considered program income. Program income can only be used for the purposes of administering the CWSRF program or for making new loans. Beginning in SFY 2023, loan initiation fees will not be assessed on loans to Disadvantaged Community (DAC) receiving loan forgiveness. • Loan servicing fees. A servicing fee of 0.25% on the outstanding principal is charged on CWSRF loans. Under EPA rules, only servicing fees received from loans made above and beyond the amount of the Cap Grant and after the Cap Grant under which the loan was made has been closed are considered Non-Program Income. Non- Program Income can be used to administer the program or for other water quality purposes. The uses of Non- Program Income are discussed below. Program Income. Program Income collected in SFY 2023 will be used for administering the CWSRF Program. Program Income is replenished throughout the fiscal year by funds received from loan initiation fees as described above.
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Non-Program Income . A portion of these funds will be used in SFY 2023 for administering the CWSRF Program. Planned Expenses. CWSRF administration expenses include the SRF include the work of wastewater engineering section project managers, specialists in environmental review, nonpoint source program administrators, financial officers, loan coordinators, and program managers. It also covers expenses for financial and legal advisors. These program expenses will first be paid out of Program Income and then Non-Program Income once Program Income has been fully expended. DNR intends to use a portion of Non-Program Income funds during SFY 2023 to support staffing to the Field Services Bureau for wastewater compliance activities including inspections, investigations and technical assistance and to support staffing in the Water Quality Bureau for construction permitting, National Pollution Discharge Elimination System permitting, American Iron and Steel Site Inspections, and other programmatic staffing needs. II. INFORMATION ON THE CWSRF ACTIVITIES TO BE SUPPORTED Allocation of Funds Allocation of funds to eligible projects was based on a four-step process: 1. The amount of financial assistance needed for each application was estimated. 2. The sources and allowable uses of all CWSRF funds were identified. 3. The CWSRF funds were allocated among the projects, consistent with the amount available and the financial assistance needed. 4. A designated amount was reserved for each Nonpoint Source Assistance Program based on past funding and expected future needs. Information pertinent to each CWSRF project is contained in Attachment 1, pursuant to Section 606(c) (3) of the Clean Water Act. Sources and Uses of Available CWSRF Funds In July 2021, the CWSRF Program was awarded the FFY 2021 Cap Grant in the amount of $21,505,000. In October 2022, the CWSRF Program was awarded the FFY 2022 Cap Grant in the amount of $15,660,000. Appendix A to this Intended Use Plan illustrates potential sources and uses of funds in the CWSRF for SFY 2023. As shown, all pending loan requests and program administration needs can be funded. Projects will draw on their funding at different intervals based on their construction cycles. These differences are used to estimate cash needs throughout the year. Appendix A will be updated quarterly as needed to provide an ongoing view of the financial plan for meeting loan requests. Iowa’s SRF program issues bonds as needed. These bond issues typically include the state match for the next federal Cap Grants. See Appendix F. On May 5, 2021, IFA issued $218,290,000 of SRF bonds; no state match funds was necessary at the time of issuance. On May 3, 2022, IFA issued SRF bonds totaling $206.18 million ($198.025 million tax-exempt and $8.155 million taxable). The 2022 bonds included $3 million of Clean Water state match and $5.7 million of Drinking Water state match, which was deposited in the respective state match accounts. After SRF bonds are issued, the state match is spent first so the Cap Grant can be drawn down at 100% when it is received. Section 212 Projects Program Policies Project Scope. The scope of the project must be outlined in the Intended Use Plan application and in the facility plan. Changes to the scope are allowed prior to loan closing. Significant changes in scope may cause delays if additional work is required by the project manager or environmental review specialist. Once a loan is signed, only minor changes to the scope are allowed and only if the changes do not require additional technical or environmental review. Loan Interest Rates . Interest rates for CWSRF planning and design loans are 0% for up to three years. The current interest rates for construction loans made from the CWSRF are as follows:
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