Student Corner: Wastewater Funding Coordination Proves Complex for Many Local Governments

Community and Economic Development – Blog by UNC School of Government

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Student Corner: Wastewater Funding Coordination Proves Complex for Many Local Governments

By CED Program Interns & Students

Published July 1, 2010

Kendra Jensen is a UNC-Chapel Hill graduate student pursuing a master’s degree in Public Administration. She is currently working with the Kerr-Tar Council of Governments through the Carolina Economic Revitalization Corps (CERC)

In an earlier post, Jeff Hughes, director of the Environmental Finance Center at the UNC School of Government, discusses the complexity and changing atmosphere of water infrastructure funding. In a related article, published by the NC Water Works Association/Water Environment Association Newsletter, a similar discussion revolves around recent trends in the issuance of water debt and funding for North Carolina governments. While state and federal grants are still used to fund wastewater facility construction and upgrades, many projects are being funded through the use of federal low-interest loans or state revolving loan programs.  This evolving trend proves to be complex for the coordination of funding for many rural governments, particularly those in Tier 1 counties.

North Carolina funding for wastewater treatment facilities and upgrades in rural areas is typically derived from a number of funding sources. Federal sources include the USDA Rural Development Program and the Economic Development Administration. State sources include the Division of Community Assistance housed in the Department of Commerce, the NC Division of Water Quality’s Construction Grants and Loans Section and the Clean Water Management Trust Fund. Perhaps most imperative to rural and Tier 1 County governments is funding derived for construction and planning purposes from the NC Rural and Economic Development Center. While some of these programs, including The Rural Center, offer direct grants, the majority of these programs offer low-interest loans or revolving loan funds.

A North Carolina General Assembly Program Evaluation Division report, titled North Carolina’s Water and Wastewater Infrastructure Funding Lacks Strategic Focus and Coordination identifies six state funding entities, which lack central oversight and describes the process of funding as complex and fragmented. The report derives these conclusions from a holistic approach to wastewater funding options and reviews the application, review and award processes for each source. If concluded to be complex and fragmented for all of North Carolina, smaller governments and Tier 1 counties may suffer additional challenges.

Distressed counties that lack the tax base or capacity to raise large amounts of revenue, may have a difficult time meeting the debt service requirements of even the lowest interest loans, such as those offered by the USDA or state revolving loan programs. Further complicating the issue is keeping utility rates at an affordable level for low and moderate income residents of Tier 1 counties. Transitioning to a system of funding based on low interest loans, collateralized by governments, proves to complicate the process and coordination of funding, especially for those governments already struggling to meet all the needs of its population.

One of the most reliable and tailored forms of funding for Tier 1 counties comes from the North Carolina Rural and Economic Development Center. The Water and Sewer Supplemental Grants Program offers grants at a maximum amount of $500,000 and Water and Sewer Planning Grants at a maximum of $40,000. Eligible projects should create jobs or promote job creation in the proposed project area. Federal Economic Development Administration grants require job creation or retention and economic growth in order to be eligible for Public Works and Economic Development Facility grants. In some instances, upgrades to a wastewater facility are not needed for the purpose of economic development or job creation. Age and wear of a facility can be the cause for needed upgrades, but do not create as much potential for job creation, and are vaguely related to the creation of economic development activities.

Another area of focus for many wastewater grant sources relates to water quality and environmental impacts, or emergencies causing significant decreases in water quality or quantity. Many of these grants, including USDA Emergency Community Water Assistance Grants, are closely tied to documented violations. Eligible projects must be able to show significant decreases in water quality or demonstrate increased environmental impacts. These grants are largely reactive to emergencies or situations leading to documented violations. The scope of assistance for these grants is unable to assist communities proactively seeking to make upgrades before an emergency situation or violation occurs.

The variety of funding sources and options allows North Carolina’s local governments flexibility in funding wastewater projects. However, the basis for many funding options, and the shift to low-interest loans could further complicate the process for local governments who recognize the need for proactive planning, but lack the financial or economic resources to support wastewater projects.