The State Revolving Fund (SRF) is a state-federal partnership that provides low interest loans to municipalities, water and wastewater districts and public water suppliers to finance drinking water and wastewater infrastructure. Massachusetts is presently financing approximately $450 million annually in projects with 2% interest rate loans to its borrowers. The SRF program has over $3 billion in loans outstanding and nearly another billion approved and soon to be financed.

The SRF provides a stable and permanent funding mechanism for environmental infrastructure. Repayments return to the fund and support the financing of future projects. In addition, federal capitalization grants, plus the required 20% state match, continue to increase the size of the SRF fund.

FY 2005

In FY 2005, MassDEP financed 23 (twenty-three) Drinking Water infrastructure projects, totaling $98,707,191. Clean Water SRF financed 53 (fifty-three) Wastewater planning and construction projects, totaling $305,639,527.  These financings allow borrowers to more affordably comply with federal and state laws and regulations concerning drinking water and wastewater discharge and provide important protection of public health and the environment in Massachusetts. The principle benefits of these investments is maintaining compliance with Drinking Water Standards or Water Quality Standards ; or, returning systems or permittees into compliance with those standards. The secondary benefits are economic. Hundreds of environmental engineering, project management, construction and subcontracted trade jobs are created by these public investments.

Sustainable Development

While the SRF programs have for years focused investment upon improvements and upgrades to existing infrastructure, FY 2005 saw a more dedicated approach to the Sustainable Development (SD) principles, with the integration of SD principles into the solicitation criteria and attempts to identify priority SD projects for SRF financing. SD principles support the financing of Treatment Plant rehabilitation and treatment upgrades; distribution system repair and improvement; removal of Infiltration and Inflow from wastewater collection system; elimination of Combined-Sewer Overflows: Brownfields mitigation and redevelopment; and water resource Planning. SD suggests promoting development density and avoiding the investment in infrastructure that encourages sprawl into the Commonwealth's "greenspace."

In FY 2005, the Division of Municipal Services (DMS) also worked with the Office of Commonwealth Development to identify Transit-Oriented Development projects that might benefit from SRF financing of water infrastructure.  Two potential proponents were identified and DMS staff met with the proponents to discuss the SRF financing process.  It is expected that at least one of those projects will move forward in FY 2006.

Commonwealth Capital 

Local governments' commitment to SD, evidenced through their Commonwealth Capital Scores, weighed up to 20% of the SRF rating for each applicant in FY 2005.  A handful of applicants to the Drinking Water SRF program specifically benefited, since if they had not participated in the CommCap process, they would not have ranked highly enough to earn SRF financing. Conversely, three applicants missed the financing cut off, because they chose not to apply for CommCap.

Water Resource Planning

SRF finances a significant number of water resources management plans in Commonwealth communities.  These plans serve as a de facto breeding ground for future SRF projects, since the data developed in the planning process is the type of documentation of need that  MassDEP seeks in ranking project priorities.  Planning efforts identify critical water resources and help communities address their water and wastewater needs in balance with protection of these natural assets.  During FY 2005 DMS worked with other BRP programs to redefine and overhaul the process and anticipates the release of revised guidance in FY 2006. 

SRF Project Management

Retirements and layoffs in FY2002 and 2003 dramatically reduced the number of Project Engineers and significantly depleted the division's institutional memory. A radical change in approach was necessary to enable the SRF program to continue to service the Commonwealth's water infrastructure financing needs.  In 2004, DMS steered its project management approach to "cradle-to-grave" meaning that an individual project manager is responsible for the project throughout its life cycle.  This approach was implemented over the course of 2004 and results were mostly promising.  In 2005, DMS was able to maintain the financial output of previous years, with a reduced staff and a new and robust database tracking and management system. 

Major challenge

The major challenge to the SRF programs in 2005 was the continuing downward trend in federal financial support for the programs, coupled with the rigidity of the federal bureaucracy concerning reporting and data tracking.  Massachusetts absorbed an 18% reduction in the Clean Water SRF grant from 2004 to 2005, which resulted in the loss of $6.8M for project investments and $400K for administration of the program.  MassDEP absorbed the $400k reduction, but that action prohibited the Department from investing that $400k in other program areas. 

Despite the reductions in federal funds, EPA and the federal Office of Management and Budget continued to expand upon the level and detail of information that they sought from Massachusetts and the other states, concerning the SRF programs.  Massachusetts, along with its sister states, has called upon EPA to review the full scope and depth of the EPA reporting requirements and work with the states to develop a methodology that provides the Agency with the information it needs, without unnecessarily burdening the states with irrelevant or duplicative reporting requirements.  EPA is expected to convene a study committee for this issue in FY 2006, and MassDEP will have a role in the process.

Massachusetts learned that its Drinking Water SRF grant would be reduced from $29M in 2005 to $22M in 2006. The Clean Water SRF grant already reduced from $44M in 2004 to $36M in 2005 was expected targeted for further cut to $29M in 2006.  These federal grants provide both borrowing capital for infrastructure projects and administrative support for the management of the programs. These significant cuts will reduce the dollars available to Massachusetts Communities to address the requirements of the federal programs and will require the Commonwealth to further shoulder the burden of the Administration of the programs.