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State Revolving Funds Explained: A Comprehensive Guide for Water Utilities

State Revolving Funds represent the backbone of water infrastructure financing in America, providing over $229 billion since their inception. This comprehensive guide demystifies the SRF process, helping utilities navigate this critical funding source in an era of unprecedented federal investment. Image Description: An aerial view of a water treatment facility showing infrastructure improvements in progress, with workers installing new equipment and pipelines.

Vinod Jose

Founder & CEO

Published :

May 2, 2025

Water treatment plant undergoing renovation with funding from State Revolving Fund program.

Understanding the Basics: What Are SRFs?

State Revolving Funds (SRFs) represent the backbone of water infrastructure financing in America, providing over $229 billion in funding since their inception [1]. Yet many utilities—especially smaller systems—find these programs confusing and challenging to navigate. This comprehensive guide demystifies the SRF process, providing water utilities with the knowledge needed to successfully tap into this critical funding source.

State Revolving Funds are state-run, federally-supported programs that provide low-interest loans and, in some cases, principal forgiveness (essentially grants) for water infrastructure projects. There are two distinct programs:

1. Clean Water State Revolving Fund (CWSRF): Funds wastewater treatment, stormwater management, nonpoint source pollution control, and other water quality projects.

2. Drinking Water State Revolving Fund (DWSRF): Supports drinking water infrastructure, from source development to treatment and distribution.

Each state operates its own SRF programs using federal capitalization grants combined with state matching funds (typically 20% of the federal amount) [2]. As loans are repaid, the funds revolve, creating a sustainable financing mechanism. As EPA Assistant Administrator for Water Bruno Pigott noted, "Water infrastructure is a critical part of our daily lives. It delivers clean, safe drinking water; it collects and treats wastewater and it helps to manage floodwater and drought impacts" [3].

The Bipartisan Infrastructure Law (BIL) significantly expanded SRF funding, adding $11.7 billion to the CWSRF and $11.7 billion to the DWSRF over five years (2022-2026) [4]. This historic investment includes substantial allocations for disadvantaged communities, with 49% of BIL funding provided as principal forgiveness or grants [5]. In 2024 alone, the Biden-Harris Administration announced more than $11.5 billion in water infrastructure funding through State Revolving Fund programs [6].

The SRF Application Process: A Step-by-Step Guide

The SRF process varies somewhat by state, but generally follows these key steps:

1. Project Planning and Eligibility Determination

Before applying, utilities must:

• Clearly define the project scope, objectives, and preliminary cost estimates

• Confirm eligibility under state-specific criteria

• For drinking water projects, ensure alignment with state priority ranking criteria

• For wastewater projects, verify consistency with water quality management plans

Key Tip: Contact your state SRF program administrator early to discuss your project and confirm eligibility. As the EPA notes in its guidance, early engagement can improve a project's ranking and funding chances [7].

2. Pre-Application and Project Ranking

Most states require:

• Submission of a pre-application or letter of intent

• Placement on the state's Project Priority List (PPL) or Intended Use Plan (IUP)

• Projects are typically ranked based on factors such as:

o Public health risk or compliance issues addressed

o Water quality benefits

o Sustainability elements

o Service to disadvantaged communities

o Project readiness

Critical Insight: Understanding your state's ranking criteria is essential—some states update their priority systems annually based on federal guidance and state needs. According to a 2024 report by the River Network, states have recently been revising their ranking criteria to better align with Justice40 and equity goals [8].

3. Application Submission

The formal application typically includes:

• Detailed project description and justification

• Engineering reports and preliminary designs

• Environmental review documentation

• Financial information demonstrating repayment ability

• User rate analysis and projections

• Legal certifications and authorizations

• Local matching fund verification (if required)

Common Pitfall: Insufficient detail in engineering reports frequently delays applications. Ensure your documentation thoroughly addresses project necessity, alternatives considered, and technical specifications.

4. Environmental Review

All SRF-funded projects must undergo environmental review, typically following either:

• The National Environmental Policy Act (NEPA) process, or

• A state equivalent environmental review

The level of review depends on project complexity and potential impacts, ranging from a Categorical Exclusion for simple projects to a full Environmental Impact Statement for more complex undertakings.

Time-Saving Approach: Begin environmental review early in the process—it often becomes the critical path for project approval.

5. Loan Execution and Project Implementation

Once approved, the process continues with:

• Loan agreement execution

• Final design approval

• Bid procurement (following specific state/federal requirements)

• Construction and ongoing compliance with loan conditions

• Regular reporting to the state SRF program

Compliance Alert: SRF-funded projects must adhere to several federal requirements, including:

• American Iron and Steel provisions

• Build America, Buy America Act requirements (for most projects since 2022) [9]

• Davis-Bacon wage requirements

• Disadvantaged Business Enterprise (DBE) goals

Maximizing Principal Forgiveness and Favorable Terms

Many utilities fail to optimize their SRF applications for the most favorable terms. Consider these strategies:

Disadvantaged Community Designation

States use various criteria to identify disadvantaged communities eligible for principal forgiveness, including:

• Median Household Income (MHI) relative to state averages

• User rates as a percentage of MHI

• Unemployment rates

• Population decline

• Other socioeconomic factors

Strategic Approach: Research your state's specific definition and document all qualifying factors in your application. Recent research by the Environmental Policy Innovation Center found that while definitions vary widely, most states are working to improve targeting of funds to disadvantaged communities [10].

Green Project Components

Many states offer preferential terms for projects incorporating:

• Energy efficiency improvements

• Water conservation measures

• Green infrastructure

• Environmentally innovative approaches

Application Enhancement: Explicitly identify and quantify green components, even when they represent only a portion of the overall project. The CWSRF provides significant support for green infrastructure, with nearly $2 billion allocated since 2009 [11].

Consolidation and Regionalization

Projects that consolidate failing systems or establish regional approaches often receive priority status and better terms.

Partnership Opportunity: Explore potential collaboration with neighboring systems, particularly those with compliance challenges.

Readiness to Proceed

States prioritize projects that can begin construction quickly, particularly with time-limited BIL funding.

Preparation Strategy: Advance design work, environmental review, and necessary approvals prior to application to demonstrate readiness. The EPA recommends completing initial planning phases before applying for construction funding [12].

State-Specific Variations: Understanding Your Program

While core elements remain consistent, significant state-to-state variations exist in SRF programs:

Application Timelines

• Some states accept applications year-round

• Others have specific submission windows (commonly aligned with fiscal years)

• Several states use quarterly review cycles

For example, Wisconsin's Drinking Water SRF program (called the Safe Drinking Water Loan Program) uses a ranked allocation methodology to prioritize projects with the greatest financial need [13].

Interest Rates

• Rates typically range from 0% to 80% of market rates

• Many states offer tiered rates based on community size or economic status

• Some programs feature extended terms (up to 30-40 years in certain cases)

In Texas, for instance, the CWSRF program offers interest rate reductions of 165 basis points from market rates for regular projects, with 0% loans available to eligible small/rural disadvantaged communities [14].

Supplemental Requirements

• Asset management plan requirements

• Fiscal sustainability planning

• Rate structure analysis

• Water conservation planning

• Climate resilience assessments

Research Imperative: Review your state's current SRF Intended Use Plan (IUP) for specific requirements, rates, and priorities. Many states have now published their 2025 IUPs [15].

Common Application Challenges and Solutions

Challenge: Demonstrating Financial Capacity

Many utilities struggle to document sufficient revenue for loan repayment.

Solution: Develop a comprehensive financial analysis showing:

• Rate structure adequacy

• Historical collection rates

• Reserve fund policies

• Worst-case scenario planning

• Phased implementation approaches if necessary

A Government Accountability Office (GAO) report highlighted the need for better financial indicators in state SRF programs, recommending that the EPA update its guidance to help states better assess financial capacity [16].

Challenge: Technical Complexity

Smaller utilities often lack in-house expertise for required engineering analyses.

Solution:

• Utilize technical assistance resources like Rural Community Assistance Partnership (RCAP)

• Consider engineering grants from USDA or state programs

• Explore planning loans available through many SRF programs

Colorado, for example, offers planning grants up to $10,000 and design and engineering grants specifically to help disadvantaged communities with SRF application technical requirements [17].

Challenge: Administrative Burden

The documentation requirements can overwhelm utility staff.

Solution:

• Develop a comprehensive application calendar with interim deadlines

• Use data management platforms to organize supporting materials

• Consider regional approaches to share administrative costs

A 2023 Clean Water Action report found significant variation in the transparency and accessibility of SRF programs across states, with many states needing to simplify their application processes [18].

Challenge: Competition for Limited Funds

Despite increased funding, demand still exceeds availability in many states.

Solution:

• Focus on elements that enhance ranking scores

• Submit applications early in the funding cycle

• Develop phase-able projects that can be partially funded if necessary

According to Deirdre Finn of the Council of Infrastructure Financing Authorities (CIFA), post-pandemic costs have increased about 40%, meaning BIL funding doesn't stretch as far as originally anticipated [19].

Leveraging Technology for SRF Success

Modern data platforms are transforming how utilities approach SRF funding:

• Automated monitoring of IUP updates and deadline changes

• Project development tools aligning project elements with state priority systems

• Document management systems organizing the extensive application materials

• Funding mix optimization analyzing the ideal combination of SRF and other sources

• Compliance tracking ensuring adherence to reporting requirements

Programs like AquaIntel's Utility Fund Tracker provide comprehensive overviews of federal and state financing options, with tools that identify the optimal combination of funding sources to maximize grants while minimizing rate impacts.

Moving Forward: Building an SRF Strategy

Successful utilities approach SRF funding as an ongoing strategic process rather than a one-time application:

1. Develop a multi-year capital improvement plan aligning projects with SRF priorities

2. Establish relationships with state SRF administrators before you need funding

3. Create a standardized approach to assembling common application elements

4. Track outcomes and adjust strategies based on previous application experiences

5. Stay informed about changing priorities by monitoring state and federal guidance

The SRF programs represent an unparalleled opportunity for water utilities to address critical infrastructure needs with favorable financing. By understanding the process, tailoring applications to state-specific requirements, and leveraging available resources, utilities of all sizes can successfully navigate these complex but valuable funding mechanisms.