Grants and loans are necessary for many small and medium-sized communities, as revenue from water rates alone is often insufficient to maintain and expand critical infrastructure. Grants in particular are often sought by communities who have difficulty qualifying for debt sufficient to finance their capital needs.
If your utility is underfunded, or you suspect it is underfunded, a good first step to becoming more financially stable is to create a long-term financial forecast. A significant benefit of doing this kind of modeling is that it is extremely helpful when applying for grants and loans. By becoming aware of your water system’s capital needs for the next 25 years (or more), you can take steps today to balance incremental rate increases with grant and loan funding, developing a plan to get on track for the coming decades.
Primary Loans and Grants
This USDA program provides long-term, low-interest loans to help fund clean and reliable drinking water systems, and sewage and wastewater disposal. A grant may be combined with a loan if funds are available.
Eligibility is limited to rural areas and towns serving 10,000 residents or fewer, and the program requires that projects are financially sustainable. Demonstrating financial sustainability can be challenging but Waterworth can help.
The DWSRF is a financial assistance program to help water systems and states to achieve the health protection objectives of the Safe Drinking Water Act. Congress appropriates funding for the DWSRF. The EPA then awards capitalization grants to each state for their DWSRFs each year, based on the Drinking Water Infrastructure Needs Survey and Assessment, performed every 4 years. Each state provides 20% in matching funds.
Utilities apply for low-interest loans through their state DWSRF, with terms up to 30 years, or the useful life of the project, whichever is less. Repayment begins up to 18 months after project completion. Repayments and interest flow back into the dedicated revolving fund, which can then be used to make additional loans over time.
Additional EPA funding resources:
- Other Loans and Grants for Small Drinking Water Systems
- Water Finance Clearinghouse
- Water Infrastructure Finance and Innovation Act (WIFIA)
- State Water Infrastructure Finance and Innovation Act (SWIFIA)
Applying for Funding
Applying for funding typically involves demonstrating eligibility, need, and the ability to prudently manage the project, both financially and practically. In the case of a loan, that includes demonstrating the ability to meet repayment obligations. Funders must be assured that investments in water and wastewater infrastructure will be properly managed and maintained throughout the asset’s life expectancy. Water service providers can provide evidence of this capability through a long-term financial model (LTFM).
Often an engineering firm or consultant is contracted to help apply for a grant/loan. The consultant’s fee is then built into the amount being applied for, reducing the total amount available for the actual project(s).
Waterworth is an alternative that is 75% less expensive than consultants, 75% faster, and one that provides information that is 75% higher in quality than doing-it-yourself with Excel. Using Waterworth to build a LTFM is a better option not only for applying for funding, but it’s also part of being a prudent steward of your water system.
The Importance of a Long-Term Financial Model
Creating an LTFM is important for a variety of reasons. It will:
- demonstrate prudency and long-term thinking;
- clearly communicate your utility’s financial circumstance;
- reassure the lender/grant issuer that you will be able to meet your debt servicing obligations;
- reassure the lender/grant issuer that you will not be back to reapply once you’ve used up the funds, because, if granted, your application will address your long-term needs.
The LTFM will also become operationalized in short-term financial planning, adding value to the short-term budget cycle by improving both efficiency and effectiveness. It does this through the development of:
- policies and strategies that will best support the achievement of community goals and priorities, leading to long-term financial sustainability;
- long-term financial forecasts, including the identification of key revenue and expenditure drivers;
- a common understanding of the municipality’s financial future, challenges, and opportunities, and collective agreement on the financial direction to be taken by key stakeholders (Town of Canmore, 2019).
As the person (or persons) responsible for the financial safekeeping of your community’s water system, it’s important to adopt longer term considerations into your decision making today. Long-term financial forecasting with Waterworth is not only helpful for applying for loans and grants, it’s what you should be doing as a prudent financial steward of your municipality’s water system. A clear understanding of your system’s current and future revenue needs, and being able to clearly articulate those needs, will give you a solid foundation from which to secure the funding necessary to reach your long-term goals.