42 U.S.C. § 300j–12 — State revolving loan funds

(a) General authority: (1) Grants to States to establish State loan funds: (A) In general: The Administrator must offer agreements with eligible states to give them capitalization grants, including letters of credit, to help meet this subchapter's health-protection goals and use fund resources efficiently. (B) Establishment of fund: To get a capitalization grant, a state must set up a "State loan fund" for drinking water treatment and follow this section's rules. Each grant goes into that fund, except as this section or other parts of the law say otherwise. Money meant for other purposes can't go into the State loan fund. (C) Extended period: A grant stays available to the state for the fiscal year it was authorized plus the next fiscal year (with a special rule for pre-1997 funds letting them be used through 1998). (D) Allotment formula: Funds are divided among participating states using a formula — for fiscal years 1995–1997, the same formula used for public water system supervision grants in 1995, with a 1% minimum share per state (including Wyoming and D.C.); starting in fiscal year 1998, a formula based on each state's share of documented needs from the most recent survey, still with that same minimum share. (E) Reallotment: Grants a state doesn't use by the deadline get reallotted to other states using the same formula, except the Administrator can set aside 10% for Indian Tribes, and a state that hasn't used all its own money can't receive reallotted funds. (F) Nonprimacy States: If a state doesn't have primary enforcement responsibility for public water systems, its share doesn't go into any state's fund — the Administrator holds it instead, using what's needed to enforce the law directly in that state and reallotting the rest to states that do have enforcement responsibility. If the Administrator later determines a state no longer meets the requirements to keep its enforcement authority, that state's grants stop immediately. This rule doesn't apply to a state that already lacked enforcement authority as of August 6, 1996. (G) Other programs: (i) Starting fiscal year 1999, the Administrator must withhold 20% of a state's capitalization grant unless it meets capacity-development requirements, with phased withholding percentages (10% in 2001, 15% in 2002, 20% in 2003) tied to capacity-development strategy requirements — no more than 20% total withheld per year — and withheld money gets reallotted to states that do meet the requirements. (ii) The Administrator must also withhold 20% of each grant unless the state meets operator certification requirements, with the same reallotment rule. (a)(2) Use of funds: (A) In general: Money in the state fund — including loan repayments and interest — can generally only pay for loans, loan guarantees, backing for larger loans, or other authorized financial help to community water systems and nonprofit noncommunity water systems (not systems owned by the federal government). (B) Limitation: This money can only pay for water system expenses like planning, design, siting, and related work, or replacing and fixing aging treatment, storage, or distribution facilities — not for ongoing monitoring, operation, or maintenance costs — and only for types of spending the Administrator has said will help meet drinking water rules or otherwise support health protection. (C) Sale of bonds: The fund's interest earnings can back bonds a state issues to raise matching money, as long as the bond proceeds go back into the fund. (D) Water treatment loans: The fund can also loan money to certain water systems (referenced in section 300f(4)(B)) for treatment described there. (E) Acquisition of real property: Fund money can't buy land or property rights, unless the purchase is a necessary part of an authorized project and the seller is willing. (F) Loan assistance: Each year, 15% of the money credited to a state's fund must be set aside for loans to public water systems that regularly serve fewer than 10,000 people, as long as there are eligible projects to fund. (G) Emerging contaminants: (i) Money deposited under part (t) can only fund grants addressing emerging contaminants, especially PFAS chemicals. (ii) At least 25% of that money must go to disadvantaged communities or systems serving under 25,000 people, and states must use the same priorities as in part (b)(3)(A) when picking recipients. (iii) This emerging-contaminants money can't be used to back tax-exempt bonds. (3) Limitation: (A) In general: Except as (B) allows, a public water system can't get this assistance if it (i) lacks the technical, management, or financial ability to comply with the law, or (ii) is significantly out of compliance with a drinking water rule or variance. (B) Restructuring: Such a system can still get help if (i) the help will fix the compliance problem, and (ii) if the system lacked capability, its owner agrees to make changes (like changing ownership, management, rates, or consolidating with another system) that the state says are needed for long-term compliance. (C) Review: Before giving assistance to a system that's significantly out of compliance, the state must review whether it lacks the needed capability. (4) American iron and steel products: (A) In general: Fund money used to build, change, or repair a public water system must use iron and steel products made in the United States. (B) Definition: "Iron and steel products" means pipes and fittings, manhole covers and other castings, hydrants, tanks, flanges, pipe clamps and restraints, valves, structural steel, reinforced precast concrete, and construction materials, all made mainly of iron or steel. (C) Application: This rule can be waived if the Administrator finds that applying it would hurt the public interest, that U.S.-made products aren't available in enough quantity or quality, or that using U.S. products would raise the project's cost by more than 25%. (D) Waiver: If someone asks for a waiver, the Administrator must publicly post the request and let the public comment for at least 15 days before deciding, including posting it online. (E) International agreements: This rule must be applied consistently with U.S. treaty obligations. (F) Management and oversight: The Administrator can keep up to 0.25% of this section's funding to manage and oversee this rule. (G) Effective date: This rule doesn't apply to a project if a state agency approved its engineering plans before December 16, 2016, before the project sought bids. (5) Prevailing wages: Construction projects funded even partly by a state loan fund must pay prevailing wages, as required under section 300j–9(e). (b) Intended use plans: (1) In general: After public review and comment, each state with a capitalization agreement must write an annual plan for how it will use its fund's money. (2) Contents: This plan must include (A) a list of projects the fund plans to help in the coming fiscal year, with a description of each project, the terms of assistance, and the community's size; (B) the criteria and methods for handing out the money; and (C) the fund's financial status and its short- and long-term goals. (3) Use of funds: (A) As much as practical, the plan must prioritize projects that (i) address the most serious health risks, (ii) are necessary for compliance (including filtration requirements), and (iii) help the systems most in need, judged by affordability per household. (B) After public comment, each state must publish and regularly update a list of eligible projects, including their priority ranking and, if known, expected funding schedule. (c) Fund management: Each state fund must be maintained and credited with loan repayments and interest, and stays available forever for this purpose. Money not currently needed must be invested in interest-earning investments. (d) Assistance for disadvantaged communities: (1) Loan subsidy: (A) When a state lends money to a disadvantaged community (or one expected to become disadvantaged because of the project), the state can offer extra help — like forgiving part of the loan, giving grants, charging negative interest, or restructuring debt. (B) A loan with an interest rate of 0% or higher doesn't count as this extra subsidy. (2) Total amount of subsidies: Each year, the total subsidies a state gives under (1) (A) can't be more than 35% of its capitalization grant, and (B) if there's enough demand from disadvantaged communities, can't be less than 12%. (3) "Disadvantaged community" is defined, after public comment, as the service area of a water system that meets the state's own affordability criteria; the Administrator can publish guidance to help states set those criteria. (e) State contribution: Each state must put its own money into its fund — at least 20% of the total grant amount — by the time it gets the grant. States had extra time to do this for fiscal years 1994 through 1997, as long as they deposited the money by September 30, 1999. (f) Types of assistance: Unless state law limits it further, fund money can only be used to (1) make loans where the interest rate is at or below market rate (including interest-free), principal and interest payments start within 18 months of finishing the project and the loan is fully paid off within 30 years (up to 40 years for disadvantaged communities, but never longer than the project's expected useful life), the borrower sets up a dedicated repayment source (or shows adequate security if privately owned), and the fund gets credited with all payments; (2) buy or refinance debt a municipality or regional agency took on after July 1, 1993, at or below market rate; (3) guarantee or insure a local obligation if that improves credit access or lowers the rate; (4) back bonds the state issues if the proceeds go into the fund; and (5) earn interest on the fund's money. (g) Administration of State loan funds: (1) Combined financial administration: To save on costs, a state may combine its fund's financial management with another revolving fund it runs, if state law allows and the Administrator confirms that (A) the money will still be tracked separately and used only for this section's purposes, and (B) the state agency that normally runs the drinking water program keeps authority over assistance priorities and oversight (with the Governor deciding which agency has that authority in nonprimacy states). (2) Cost of administering fund: (A) Each year, a state may use a set amount — any related fees it collected, plus the greatest of $400,000, one-fifth of one percent of the fund's value, or 4% of that year's grant awards — to cover reasonable administrative costs and give technical assistance to water systems. (B) Starting in fiscal year 1995, a state may also use up to 10% more of its allotted funds for public water system supervision, source water protection technical assistance, capacity-development strategy work, and operator certification programs. (C) An additional 2% may go to technical assistance for systems serving 10,000 or fewer people. (D) Money used for source-water protection technical assistance under (B) can't pay for enforcement actions. (3) Guidance and regulations: The Administrator must publish guidance and rules covering (A) making sure states spend their money efficiently and legally, (B) preventing waste, fraud, and abuse, and (C) avoiding use of this money to expand a system in anticipation of future population growth — and must make sure states and water systems use standard accounting and audit practices. (4) State report: Every 2 years, each state running a fund must publish and send the Administrator a report on its activities, including its most recent audit findings; the Administrator must periodically audit all state funds under procedures set by the Comptroller General. (h) Needs survey: (1) The Administrator must assess the capital improvement needs of all eligible water systems nationwide and report to Congress within 180 days after August 6, 1996, and every 4 years after that. (2) Any survey done after October 23, 2018 must also estimate the cost of replacing all lead service lines nationwide, breaking out costs for lines owned by the water system versus other portions, as practical. (i) Indian Tribes: (1) Up to 1.5% of this section's yearly funding may go as grants to Indian Tribes, Alaska Native villages, and (for training purposes) intertribal groups that haven't already gotten funding under this section, to be spent the same way as regular state fund money. (2) This money must go toward the biggest public-health threats affecting tribal water systems, as the Administrator decides with the Indian Health Service. (3) For Alaska Native village projects, the Administrator can also grant money to the State of Alaska for the villages' benefit, and Alaska can use up to 4% of that for project management. (4) The Administrator, working with the Indian Health Service, must survey and assess tribal drinking water treatment needs on the same schedule as the general needs survey. (5) The Administrator may also grant money to intertribal groups to provide operations, maintenance, and operator certification training to tribal water systems, choosing the groups most qualified and most valued by the tribes. (j) Other areas: The Administrator must give allotments to the Virgin Islands, Northern Mariana Islands, American Samoa, and Guam, usable by their governments or their water systems. These grants, plus grants to D.C., don't go into state loan funds, and altogether can't exceed 0.33% of the total money available under this section each year. (k) Other authorized activities: (1) A state may also (A) make loans (only loans, not grants) to (i) water systems buying land or conservation easements from a willing seller to protect their source water, (ii) community water systems for voluntary source-water protection measures in delineated protection areas, or (iii) community water systems funding activities under section 300j–14(a)(1)(B)(i); (B) give assistance as part of a capacity-development strategy; (C) spend money to delineate and update source-water protection area assessments, as long as it's obligated within 4 fiscal years; and (D) spend money on wellhead protection programs and other source-water protection efforts. (2) Each year, a state's total spending under this part can't exceed 15% of its capitalization grant, and no single activity listed — land purchases, voluntary protection funding, capacity-development assistance, source-water assessments, or wellhead protection — can exceed 10%. (3) Nothing here gives states any new regulatory power or takes away any authority they already had. (l) Savings: If a water system doesn't get funding under this or any other loan or grant program — or the funding is delayed — that doesn't excuse it from meeting drinking water standards and requirements on time. (m) Authorization of appropriations: (1) Congress authorized, apart from parts (a)(2)(G) and (t): $1,174,000,000 for fiscal year 2019; $1,300,000,000 for 2020; $1,950,000,000 for 2021; $2,400,000,000 for 2022; $2,750,000,000 for 2023; $3,000,000,000 for 2024; and $3,250,000,000 for each of 2025 and 2026. (2) Any authorized money not appropriated in its fiscal year can still be appropriated later, and stays available until spent. (n) Health effects studies: Each year, the Administrator must set aside $10,000,000 from this section's funding for health-effects studies on drinking water contaminants, prioritizing studies on cryptosporidium, disinfection byproducts, arsenic, and vulnerable subpopulations. (o) Monitoring for unregulated contaminants: Starting fiscal year 1998, the Administrator must set aside $2,000,000 each year to pay for monitoring unregulated contaminants under section 300j–4(a)(2)(C). (p) Demonstration project for State of Virginia: As a one-time demonstration, with approval from Virginia's legislature and the Administrator, Virginia may use its fund money in a special program to help build new drinking water facilities in specific rural southwestern Virginia counties (Lee, Wise, Scott, Dickenson, Russell, Buchanan, Tazewell, and the city of Norton) that lacked such facilities as of August 6, 1996 and faced economic hardship — including loaning the money to a regional endowment fund, possibly with an advisory group of county representatives. (q) Small system technical assistance: The Administrator may set aside up to 2% of this section's funding for fiscal years 2022–2026 for small-system technical assistance under section 300j–1(e), but total spending on that assistance (from appropriations plus this set-aside) can't exceed what section 300j–1(e) authorizes. (r) Evaluation: The Administrator must evaluate how well the state loan funds worked through fiscal year 2001, and submit that evaluation to Congress alongside the President's fiscal year 2003 EPA budget request. (s) Best practices for State loan fund administration: The Administrator must (1) collect information from states about how they run their funds — including efforts to simplify applications, help applicants, encourage partnerships with small systems, ensure timely use of funds, manage the funds well, and measure things like lending capacity and financial sustainability; (2) within 3 years after October 23, 2018, share best practices with states based on that information; and (3) periodically update those best practices. (t) Emerging contaminants: (1) Money made available under this part gets allotted to states the same way as a regular capitalization grant, to be used for the emerging-contaminants purposes described in part (a)(2)(G). (2) Congress authorized $100,000,000 for each of fiscal years 2020 through 2024, staying available until spent.