October 24, 2018

By Emily Kelly, PE

While we wish there were a free lunch, or in the case of drinking water and wastewater project funding, a grant, those days appear to be gone forever.  Increasingly, financially strapped communities find themselves looking at repairing aging infrastructure. In many cases, however, the aging infrastructure can no longer be repaired; it is unsafe for public health or is inadequate for the population. When repair is not possible and replacement is necessary, there are several options for cities, counties, utility districts, and water authorities searching for lower-cost loans, such as the State Revolving Fund (SRF) Loan Program, USDA grants/loans, the Community Development Block Grant (CDBG) program, Tennessee Municipal League (TML) loans, and the bond market.

This blog post will focus on the SRF Loan Program which is a reimbursement program with fixed low interest rates — 20-year terms for drinking water projects and 30-years terms for wastewater treatment plant and other clean water projects.

The only projects that the SRF Loan Program does not fund are growth or routine maintenance projects.  Eligible projects must protect public health and the environment.  The SRF Loan Program can provide emergency funding, but the process is a little too unwieldy to utilize it for true, immediate emergencies.

Several upsides of SRF loans are noted below:

  • Because of the fixed low interest rates, communities can save as much as 30% of the initial capital costs over a 20-30-year period.
  • Interest rates can vary from 0% on up. Maximum interest rates are discounted twice from the Bond Buyer Index.  Most Tennessee communities qualify for 2.5% rates and less.
  • Other than a Comptroller’s Office 0.08 percent fee, there are no additional fees for closing, early repayment, etc.
  • The loan acquisition process is transparent.
  • The process provides community outreach by soliciting for Disadvantaged Business Enterprise participation.
  • SRF provides a realistic user rate evaluation and accounts for depreciation.
  • SRF protects the communities by requiring full time resident inspection of the project.
  • SRF coordinates with other division of TDEC for the project reviews.

There are a few downsides to SRF Loans.  These include:

  • Design and construction management costs, such as tracking the American Iron and Steel Provision and the Davis-Bacon Act wage rate compliance, may increase consultant fees from 1%-10% above non-SRF funded projects.
  • Projects must be ready to proceed. In recent years, SRF has emphasized and funded projects that are ready to construct.  Fully designed plans and specs must be submitted in order show a readiness to proceed.

What’s the first step to see if SRF is a good option for your community? Talk with an LDA Engineering professional and request to get on the State Revolving Fund’s Priority Ranking List. Applicants must be on the list to be funded.  The process requires completing a written request and a system information questionnaire.

SRF will be soliciting for new projects in January 2019.  Please contact LDA with any questions and for SRF loan assistance.

Emily Kelly is a Professional Engineer whose experience includes 11 years at Tennessee’s State Revolving Fund (SRF) Loan Program.  She served most of that time as the SRF Technical (Engineering) Section Manager, helping local governments across the state obtain low-cost funding for their drinking and clean water projects.