Dear Rural Water Association Member: Each year it is a priority objective of the National Rural Water Association (NRWA) to retain and increase Congressional funding for the USDA water initiatives including the grant & loan program, the Circuit Riders, the Wastewater Technicians and the Sourcewater Technicians. NRWA’s volunteer board of directors, including representation from your association, each year, determines this objective. You, the members of state rural water associations, determine our policy goals and objectives. This article provides a summary and explanation of the USDA Rural Development water initiatives based on research and USDA programmatic information. Sincerely, Mike Keegan Analyst, NRWA keegan@ruralwater.org
USDA’s Rural Water Initiatives – a History of Success
How does a community of 92 residents finance a much-needed water system? By partnering with neighboring communities and working with the United States Department of Agriculture Rural Development Utilities Programs. Between 1998 and 2003, the USDA agency conducted a series of tap water tests at Lyon & Sioux Rural Water System, Inc., located in northwest Iowa near Boyden. The water system serves 7 rural communities with populations ranging from 92 to 750. The results of the tests conducted by indicated that the drinking water supplied by the water system contained contaminants that could be harmful to those drinking the water. A $5.1 million USDA loan to Lyon & Sioux Rural Water System, Inc. helped fund construction of a new water treatment plant and other system improvements. As a result, the newly constructed water treatment plant now has the capacity to treat nearly 1.3 million gallons of water per day. USDA Rural Development Utilities’ Water and Waste Disposal Loan and Grant funds were also used for well field improvements at Boyden, population 672, and Otter Creek, and to connect Boyden to the rural water system. “Since the construction of the new water treatment plant, more economic development is now possible in Boyden,” Reed Grafing, operations manager with Lyon & Sioux Rural Water System said. “It has opened the door for more expansion projects, which is really exciting for a lot of people living in the town.”
Stories like this one are not uncommon, thanks to a rural vision more than seven decades ago. The process of working with rural towns to plan and finance rural water and wastewater projects has been replicated tens of thousands of times over the last 70 years The United State’s Department of Agriculture’s Rural Development (RD) Utilities Programs administers the Water and Waste Disposal Loan and Grant Program, which along with other Rural Development Utilities, Housing and Business programs, is charged with improving the quality of life and increasing economic opportunity in rural America. The program has a proven record of successfully providing clean water to rural communities. During Fiscal Year 2008, nearly $2 billion in new loans and grants were obligated to benefit over 4 million rural residents. These included mission critical projects funded as part of Earth Day and through additional application backlog funding received in the Farm Bill. The Water and Waste Disposal Program is fast approaching its 75th anniversary. With tough economic times, growing environmental concerns and a new Administration in place, now is a good time to reflect on the program’s strengths that will keep it successful for the next 75 years.
History of Program In 2007, Rural Development celebrated the 70th anniversary of the electric and water programs. The origins of the program date to 1937. In August of that year, Congress passed the Water Facilities Act to provide loans for farm water systems in seventeen western states where drought and water shortages were chronic hardships. Three years later, in 1940, the first Water Facilities Act loan for $1,600 was approved. It was a large loan at the time. The program was expanded in 1954 to allow for nationwide loans and to add non-farm customers to area farm water systems. Passage of the Consolidated Farm and Rural Development Act (CONACT) in 1961 repealed the Water Facilities Act, which granted protection for service areas. In 1965, grants were added to the program for water and waste disposal systems. The first Circuit Rider contract, which provides training and technical assistance for rural water systems, was executed in 1980. An important milestone in the history of the Water and Waste Disposal Program occurred during 1987 to 1989. The Omnibus Budget Reconciliation Act of 1986 required the sale of water and waste disposal loans in an effort to provide income for the Federal government. The resulting auctions produced nearly $3.8 billion in loans sold either to investors or prepaid at a discount by the borrowers. The water and waste disposal loan caseload was reduced by nearly seventy-five percent as the result. Yet, strong demand for water project funding triggered growth over the next 18 years. Currently, the loan portfolio is composed of nearly $9.8 billion in 17,600 loans. The Rural Development Utilities Programs administers the program under 7 CFR 1780, dated December 1998.
As part of the CONACT, or Farm Bill, which requires re-authorization every five years, the program has strong support from Congress through continued funding and reauthorization. Without such authorizations and funding, the water and waste disposal program would face an uncertain future. A Successful Program For the rural residents who have benefited from the program, turning on the tap and knowing the water is clean is the real measure of success. For the federal government, success is measured by federal accountability standards applied to programs to ensure that your tax dollars are invested wisely. The Office of Management and Budget rates government programs on their effectiveness through their Program Assessment and Rating Tool (PART). The Rural Development Water and Waste Disposal Program is among those agencies recognized by OMB as “Effective.” This is the highest rating a federal program can receive. To achieve an effective rating, programs must set ambitious goals, achieve results, exhibit skilled management and improve efficiency. Rural Development’s Water and Waste Disposal Programs set the bar in targeting assistance to low-income rural areas for water and wastewater infrastructure funding. For instance, while the minimum requirement is that the community served is has a population fewer than 10,000, the average size of the community served is 4,000. On average, communities 20 percent below the state median income receive project funding. The PART analysis concluded that WEP does a good job of collecting program data and using it to manage effectively. Accordingly, over the life of the program, fewer people in rural areas experience problems with access to safe, affordable drinking water and wastewater disposal. Program resources are also used effectively. Efficient management of the loan to grant ratio allows deployment of the maximum level of financial assistance with limited resources. For example, during 2008, the overall loan/grant ratio of obligations was 75/25, exceeding the established 70/30 goal. The program also exceeded its target of 32 percent for referrals to commercial credit sources with a 40.9 percent level. This moves funds to communities who need it the most. Leveraging water and waste disposal dollars with other funds is critical to the program’s ability to support as many rural water and wastewater projects as possible. The leveraging goal for 2008 was 30 percent. Actual leveraging program-wide was 27.7 percent. The infusion of additional budget authority over a very short timeframe for backlogged water projects affected this 2008 Farm Bill provision. The Rural Development Water and Waste Disposal Programs continue to work toward the 2010 goal of a 25 percent reduction in exposure to water-related heath and safety issues in rural America. One last measure of success: As of September 30, 2008, the current monthly delinquency rate for Rural Development’s Water and Waste Disposal Programs was 0.53 percent, which means that the agency is doing an excellent job of servicing water and waste loans. Good servicing begins
with a system to quickly identify borrowers with financial problems and work toward resolution. Annual borrower financial reports are critical in identifying problem borrowers.
Program Basics [for box/sidebar] Purpose: The purpose of the program is to provide loan and grant funds for water and waste projects serving the most financially needy communities. Financial assistance should result in reasonable user costs for rural residents, rural businesses and other rural users. Reasonable user costs are determined by comparing similar systems user costs. Eligibility: Applicants: Public bodies, non-profit corporations or tribal governments. Rural Areas: A Rural Area is defined by Rural Development’s Water and Waste Disposal Programs as any area not in a city or town, with a population in excess of 10,000 inhabitants based on the last census. Projects: Project costs are those to construct, enlarge, extend or otherwise improve rural water and waste facilities, including related reasonable administrative, legal and engineering costs. Funding: All funding is extended without regard to race, color, religion, sex, national origin, marital status, age, physical or mental handicap. Funding can be in the form of loans, grants or combinations thereof. Priority: The priority for selection of applications is provided to: Populations of less than 5,500 with the highest priority going to populations of less than 1,000, projects needed to alleviate an emergency situation related to a health standard; Projects benefiting users that have median household incomes less than 100 percent of the statewide nonmetropolitan median household income (SNMHI) with the highest priority going to those below 80 percent of the SNMHI; and Projects that merge ownership, management and operation of smaller systems, and the amount of non RDUP funds committed to the project with the highest priority given to those with over 50 percent non RDUP funding. Compliance: The facilities financed must be in compliance with appropriate regulatory agency regulations, have acceptable management that possesses adequate financial and technical skill, and be modest in size, design and cost. Security: All loans will be secured by the best security position practicable to protect Rural Development Utilities Programs during the term of the loan. Each debt instrument will include a clause that if at any time it appears to the agency that the borrower can obtain credit at reasonable rates and terms to refinance the remaining debt, the borrower
will apply for and accept such loan. This requirement is commonly referred to as “graduation” (more on this later). Where to Apply: Rural Development’s (RD) locally positioned office, within the USDA Service Center network, provides service for water and waste disposal applicants within the U.S. and the U.S. Territories. The RD office staff located in the service centers is responsible for administration of a wide array of programs to promote rural development and improve the quality of life in rural America. For more information visit the Rural Development web site at www. rurdev.usda.gov.
Keys to Success What makes this program so successful? Clear Priorities The Program is designed to give priority to those rural communities with smaller population and lower income levels, as well as projects needed to address water and waste disposal-related health issues. The regulation governing the program (CFR 7, Part 1780) clearly describes the process by which points are assigned for these and other priority criteria. Community-Based Program Delivery The Water and Waste Disposal Loan and Grant Program, though overseen by the Rural Development National Office, is largely administered in State and Area Rural Development Service Centers. As a result, potential borrowers are able to explore options for funding with a federal government loan officer or engineer who lives and works in their area. Community Program Specialists working in these offices are better able to identify areas of need and reach out to them as a result of this community-based approach. Needs-Based Financing Rural Development works closely with each community to determine its needs and develop a financing package that allows them to provide quality service at affordable rates. Financing can include loans, guarantees, or loan and grant combinations. Applicants able to obtain commercial credit at reasonable rates are referred to local and regional lenders. The agency has developed an automated underwriting system to faciliate the process and ensure consistency across the country. Through thorough and sound underwriting the Agency ensures that limited grant dollars are available for communities that need them the most. Supervised Credit Approach Rural Development's mission is to improve the quality of life in rural America. Making loans and grants available to communities in need is just the beginning of the process of ensuring that rural residents have access to vital water and waste disposal services. The agency monitors implementation of funded projects, reviewing bids, visiting construction sites, and conduction compliance reviews until the project is completed and service is available. Graduation Policy
Demand for Rural Development financing far exceeds available funding. Each year the agency reviews its portfolio and identifies borrowers that may be in a position to graduate from the program to commercial loans. A good example might be a community that has experienced significant growth and increased household income. By doing so, the program ensures that its limited resources are available to communities that need it. In 2008, 222 borrowers—over five percent of those in the program—graduated. Technical Assistance Complementing the Water and Waste Disposal Loan and Grant Program the technical assistance and training, funded by Rural Development, and made available to rural communities through rural community organizations, such as the National Rural Water Association and its affiliates. Whether it is guidance on setting rates, operating water and wastewater systems or diagnosing a problem with an existing system, communities know that they can count on this vital resource. The agency benefits through the development and maintenance of sustainable systems. Change – Critical Influences For the program, change is constant and accelerating. The program works hard to adapt to a growing and changing industry. Technology and the accompanying efficiencies offer greater productivity with fewer resources. Technically savvy, today’s federal workforce, along with the water systems serving rural America, come with an array of skills to meet greater needs and new regulatory requirements. New and additional training methods (i.e. web based) keep Rural Development’s Water and Waste Disposal Program headed in the right direction. Management controls and internal reviews ensure the program is delivered in a consistent manner across rural America. Change can come from internal or external forces. In the case of water and waste programs, change has been driven by the CONACT and in some instances, the appropriations process. Historically, Rural Development and its constituents work together to implement various changes in policy and process. Rural Development Water and Waste Disposal Programs have often worked with industry partners in an effort to obtain feedback on the program. While feedback sometimes comes as criticism, it may help steer the program in the right direction. Long-term performance measures for Rural Development’s Water and Waste Disposal program provide focus and worthwhile outcomes for the funding provided. Creating sustainable water systems and reducing risk of water borne illnesses, the program’s two long-term measures, are critical to the quality of life in rural America. Sustainable water systems rely on the technical, financial and management skills to ensure needed to ensure clean water. They will also have adequate reserves for scheduled maintenance costs and planned capital improvements. Reducing risk of water borne illnesses requires emphasis on utilizing funding to make enhancements to existing water systems or to construct new systems for rural residents that lack safe and clean water. More stringent standards from water related regulatory agencies create an increasing demand for affordable funding for rural America. This demand is generated through necessary improvements at existing water facilities and in the need for new water facilities. Rural Development’s Water
and Waste Disposal program, through its facility financing and technical assistance funding, continues to reach the neediest areas while providing adequate water quality and quantity at reasonable user rates. Ensuring clean water for Rural America requires affordable financing, such as the Water and Waste Disposal program provides. Because the cost of materials to build these systems is increasing at an alarming rate, better planning, operation and maintenance is becoming more critical, especially given today’s economy. Rural Development Utilities Programs offers help with operation and maintenance through the Technical Assistance and Training Grant (TAT) program and the National Circuit Rider Program (NCRP). The NCRP is currently operated by the National Rural Water Association. The technical assistance field staff, funded through the TAT and the NCRP, provides training and operational assistance necessary for proper operation of the water systems and the success of the Water and Waste Disposal program. Ensuring proper planning, operation and maintenance results in increased emphasis on environmental standards, cleaner water, a stronger community and strengthens the program. Some of the success of the Water and Waste Disposal program can be attributed to the very low default rate exhibited by the program’s loan portfolio and the importance of the water systems financed. The More Things Change, the More They Stay the Same: Need for the Program has Not Gone Away USDA Rural Development’s mission is to increase economic opportunity and improve the quality of life for rural residents. The core mission of the Water and Waste Disposal program has not changed and demand for the program has not waned. Recent estimates project rural water and wastewater systems will need $95 - $110 billion over the next 20 years to maintain compliance with regulatory requirements. Rural Development has invested more than $111 billion since 2001 for equity and technical assistance to finance and foster growth in homeownership, business development, and critical community and technology infrastructure. More than 2 million jobs have been created or saved through these investments. As rural towns deal with the impact of the struggling U.S. economy, effects of climate change, aging infrastructure and water access and quality issues, the Rural Development Water and Waste Disposal program is more critical than ever. Rural communities have come to rely on this program and with good reason. After more than 70 years, the program continues to serve the public with the same enthusiasm and determination as it did when it first began. Further information on this and other rural programs is available at a local USDA Rural Development office or by visiting USDA Rural Development’s web site at http://www.rurdev.usda.gov.