Water utilities
Make a Financial Plan
Develop a thoughtful, long-term funding and financing plan to ensure adequate funding for full lead pipe replacement.
Key Actions
Conduct an initial assessment of cost and timeline
Make information about lead service lines and what you will do to address this issue accessible to all.
Conduct an initial assessment of the program cost and corresponding timeline for replacement by considering the scope of the problem, key program design decisions, and replacement costs.
Estimate total and annual program costs
Estimate total and annual program costs to understand the scope of funding and financing needed. Overall costs will be based on how many publicly and privately owned lead pipes are in your community as determined through your utility’s inventory, your plan or preferred approach for providing financial assistance to support private lead service line replacement, and the anticipated timeline for replacement that factors in changes in costs (materials, labor, etc.) over the period of replacement. Due to inflation in material and labor costs, the sooner you start your program, the lower the overall cost. Additionally, coordinating LSLR with other planned construction activities can help reduce costs (see Principle 3, Key Action 3).
Align financial decisions with LSLR priorities
When developing a lead service line replacement program that aligns with the community’s priorities and needs, water utilities must consider multiple factors—costs, for example—that affect the feasibility and the impact of the program on program goals such as affordability and public health. Carefully consider and evaluate financial impacts. Water utilities are constantly balancing competing interests and trade-offs when implementing programs. To develop a successful and sustainable lead service line replacement program that aligns with community priorities, utilities should consider the following factors:
Affordability
Providing lead service line replacement at no up-front cost to residents is the preferred approach (see Principle 5, Key Action 4) for replacing LSLs quickly and completely. There may be state or local restrictions about the extent to which private-side replacement costs can be covered through rate revenues. Program costs and appropriate funding sources will vary depending on the approach taken toward fully or partially funding private side replacement. It is therefore prudent to cost out various options such as no up-front cost to customers, low or zero-interest loans, full or partial reimbursements to customers, etc.
Prioritizing high-risk populations
Certain populations, such as children, pregnant women, and low-income communities are particularly vulnerable to the health effects of lead (see: Principle 5, Key Action 1). Take into consideration the cost implications of prioritizing such populations in your financial plan.
Set a target timeline
Set a targeted timeline by which all lead service lines should be replaced. The Lead and Copper Rule Improvements (LCRI) require communities to replace all of their lead service lines and lead connectors within 10 years, starting in 2027, with exceptions for communities with exceptionally high proportions of lead lines (see LCRI Compliance Timeline Calculator). Some states have their own requirements for completing full replacement within specific timelines. See the Financial Plan Checklist for details on considerations for setting a timeline.
Toolbox
Financial planning
Replacement timelines
Identify and evaluate federal, state, and municipal funding opportunities
Securing funding is the backbone of any successful infrastructure project. Fortunately, a variety of federal, state, and municipal funding and financing sources are available to support lead service line replacement (LSLR) efforts. Identifying the right mix of funding and financing for your community is essential to unlocking the resources needed to drive your project forward.
Ask the right questions to determine your eligibility
Ask the right questions to help you identify which funding and financing sources are available and make the most sense for your community. Federal, state, and local funding and financing are available for lead service line replacement projects. Since each funding source has different requirements and eligibility criteria, you should start by asking the following questions to determine which one is best suited for your needs:
- What are the characteristics of neighborhoods in our community with the highest concentrations of lead service lines, in terms of demographics and socio-economic indicators?
- Does our community, or certain sections of it, meet our state’s “disadvantaged community” definition and/or qualify for state/federal low- or no-interest loans or grants?
- Do we qualify for federal infrastructure funding through State Revolving Funds (SRFs) or other federal or state funding programs?
- Does our state have additional funding available?
- When was the last time we examined the following in the context of addressing customer affordability concerns while also increasing revenues to support crucial investments in water infrastructure and operations?
- Alternative rate structures
- Customer assistance programs
- What is our current financial position and capacity to take on debt?
- Are there other critical investment needs on the short and mid-term horizon?
Evaluate federal funding options
Evaluate if federal funding is right for you. There are a variety of federal programs available to provide financial assistance for lead service line replacement, each with a different set of terms and requirements. These programs include:
State Revolving Funds (SRFs)
State Revolving Funds (SRFs) are federal funds administered through a state agency that provide low-interest loans as well as a modest amount of principal forgiveness, the latter of which is primarily targeted to state-defined disadvantaged communities. Lead service line replacement is an eligible cost.
- The Infrastructure Investments and Jobs Act invested $15 billion specifically toward lead service line replacement. The funds are provided through the Drinking Water State Revolving Fund (DWSRF) program, with 49% of the funds taking the form of principal forgiveness loans to communities that qualify as “disadvantaged” as defined by the state.
Water Infrastructure Financing Innovation Act (WIFIA)
Water Infrastructure Financing Innovation Act (WIFIA) is a competitive, flexible federal loan and guarantee program that accelerates investment in the nation’s water infrastructure through long-term and low-cost supplemental financial assistance for regionally and nationally significant projects. WIFIA financing rates are often substantially below what can be obtained through the municipal bond market.
Water Infrastructure Improvements for the Nation (WIIN) Grant Programs
Water Infrastructure Improvements for the Nation (WIIN) Grant Programs support projects that address and improve drinking water infrastructure, including support for lead service line replacement projects.
- Assistance for Small and Disadvantaged Communities Grant is available to assist small, underserved, and disadvantaged communities satisfy federal Safe Drinking Water Act requirements. Small communities are defined as having a population of 10,000 or less and lacking financial capacity to incur debt sufficient to finance a project necessary to ensure safe drinking water. Nearly $43 million has been distributed since the program’s inception in 2018.
- Reducing Lead in Drinking Water Grant is a competitive grant program available to assist disadvantaged communities address conditions that contribute to increased concentrations of lead in drinking water.
Department of Housing and Urban Development’s (HUD) Community Development Block Grant (CDBG)
Department of Housing and Urban Development’s (HUD) Community Development Block Grant (CDBG) is a flexible program that provides grant resources on a formula basis to help over 1,200 communities across the country address a wide range of needs. Lead service line replacement is an eligible cost.
US Department of Agriculture (USDA) Rural Development Fund Water and Waste Disposal Loan and Grant Program
US Department of Agriculture (USDA) Rural Development Fund Water and Waste Disposal Loan and Grant Program provides low-interest rate loans and grants to rural communities with populations under 10,000 people to support infrastructure projects including lead service line replacement.
Explore your state’s funding sources
Explore your state’s funding sources. Your state may have funding programs specifically designated for lead pipe replacement (e.g., Massachusetts, Michigan, Minnesota, New York, and Ohio). In addition, other state housing- or infrastructure-related funding programs could include lead service line replacement in their list of eligible activities.
Consider joint applications for federal funding
Consider joint applications for federal funding to create economies of scale. Small and underresourced water systems can benefit from teaming up and pooling resources to apply for funding under a single application. EPA’s 2017 Drinking Water State Revolving Fund Eligibility Handbook (p. 9) states that “Multiple community water systems can join together in a consortium to apply for a single loan for a mutually beneficial project or set of projects.” It is important to check state statutes and regulations to see if this approach is allowed in your state.
Pursue multi-year SRF funding applications
Pursue multi-year SRF funding applications. Some State SRF programs allow utilities to submit applications for multiple years of lead service line replacement (LSLR) financing and funding rather than the typical approach of issuing awards solely for a given fiscal year. Securing multi-year funding and financing can help sustain LSLR programs and attract more contractors to a program, as utilities and their contractors alike have more security around multi-year resource commitments. This additional security can help attract more interest from contractors and investments in local workforce initiatives, both of which can reduce program costs while creating local benefits.
Tap into water rate revenue
Revenue from water rates is the primary funding source for drinking water utilities to support operations, maintenance, and capital investments. Few water utility managers (or elected decision-makers) are eager to raise water rates, but some innovative approaches can help mitigate the impact of increased rates and enhance acceptance of a ratepayer-funded program. Some of these approaches include:
Alternative cost recovery, customer rates, and financing mechanisms
Alternative cost recovery, customer rates, and financing mechanisms could be viable options for addressing the often contradictory goals of full lead service line replacement and affordable service. Again, it is important to determine if any local or state laws would preclude the use of these tools. Examples of these tools include:
- Rate-funded customer rebates or subsidies: A portion of rate revenue is allocated to provide direct rebates or subsidies for property owners replacing lead pipes.
- LSLR surcharge: A fixed or volumetric surcharge dedicated to LSLR can provide transparency and ensure stable funding.
- Tiered rates: In some cases, higher rates for large water users could help fund LSLR for vulnerable communities.
- Temporary rate adjustments: A short-term rate increase (e.g., 5-10 years) dedicated solely to LSLR. This mechanism is similar to energy-sector cost recovery mechanisms.
- LSLR customer assistance program: A program funded through voluntary customer contributions, with proceeds funding service line replacements for vulnerable populations. Examples include an opt-in LSLR fee where customers voluntarily pay an extra charge on their bills, and a water bill round-up program where bills are rounded up to the next dollar.
- Public health-based rate discounts: Providing financial credits on future bills for households that proactively replace lead service lines to encourage participation.
- Impact or connection fees: Portions of revenue collected from new development could be used to support LSLR.
Spreading the program costs over time and across your ratepayer base
Spreading the program costs over time and across your ratepayer base, not just to those who have lead service lines, can help reduce rate impacts to any one customer group. Smaller annual increases to water rates spread across a larger customer base may be more palatable than a program where customers bear the brunt of replacement costs upfront. This approach has the potential to alleviate the financial burden for low-income customers. Some utilities use a surcharge mechanism for recovering lead service line replacement costs. See the Financial Plan Checklist for questions to consider for spreading program costs across your ratepayers. Again, it is important to determine if any local or state laws would preclude the use of these approaches.
While using your water rates is perfectly reasonable, there are a few things to keep in mind when considering the use of ratepayer dollars to fund lead service line replacement (LSLR) programs—particularly related to legal barriers and affordability issues.
Perceived or real legal barriers on the use of public funds to cover private-side replacements.
The use of rate funds for private-side lead service line replacement is presumed to be allowed in most states; however, statutory or constitutional restrictions or lack of clarity in some states may present an obstacle to covering the cost of full replacement. In some states, these barriers may be overcome by legislative action or judicial decisions. It is important to become familiar with the required processes and requirements specific to your state.
Affordability issues
Affordability issues, especially in communities with smaller customer bases and communities with high proportions of low-income households. Because lead service line replacement costs are spread across fewer customers in smaller communities, the rate impact is typically greater than it is in large communities. Communities with broader or more socioeconomically diverse customer bases have more options available to them in terms of alternative pricing structures or customer assistance programs.
Leverage municipal bonding
Municipal bonds can be an attractive option to pay for lead service line replacement projects due to their low interest rates. Communities with less favorable bond ratings may consider partnering with county governments or other local authorities to apply for bonds, an example being Newark, NJ. The use of debt provides two important benefits:
Spreading costs
As debt service payments are made over time (typically 30 years), the associated charges in any given year are lower than they would be if the utility paid for its program using cash on hand or pay-as-you-go approaches.
Inter-generational equity
As service lines are likely to last for many years, it is reasonable for both existing and future customers to help pay for the cost.
Consider non-utility sources of revenue
Consider non-utility sources of revenue. Though less common, there are examples of utilities funding some aspects or phases of their lead service line replacement through renegotiated leases, water tower antenna rental fees, stadium tax revenues, community benefits agreements, corporate partnerships, philanthropy, private donations, and other non-utility revenue sources.
Assemble and submit a strong application
Assemble and submit a strong application for funding and financing. Increase the chances of a favorable award by tailoring the application to the funding program’s priorities and ranking criteria. Pay close attention to deadlines, especially intermediary steps required to access funds (e.g., intent to apply and other pre-application steps, bid documents, etc.) Where available, request technical assistance to prepare an application.
Toolbox
LSLR financing
Funding LSLR through water rates
Funding LSLR with non-utility revenue
Water affordability & financial assistance
Financial planning
Water affordability & assistance
Leverage technical assistance
Water systems with limited capacity and resources don’t have to navigate lead service line replacement alone. Technical assistance programs offer expert support—from securing funding to engaging with customers—helping to streamline the process and drive successful outcomes.
Determine eligibility for zero-cost technical assistance
Determine if your utility qualifies for zero-cost technical assistance, available to utilities serving a small or disadvantaged community. Technical assistance providers can help you with a range of lead service line replacement activities, including developing inventories; developing financial, communications, and replacement plans; identifying funding opportunities; and preparing applications.
Get in touch with a technical assistance provider
Get in touch with a technical assistance provider to connect with experts who can help your water utility. Additionally, states can help support technical assistance by making strategic decisions on the use of federal funding (see: State Decision Makers’ Roadmap: Principle 2, Key Action 1) Technical assistance providers can provide water utilities support on a variety of challenges including:
- Service line identification and location
- Funding applications
- Lead service line replacement project planning and implementation
- Education on workforce development
- Safe Drinking Water Act (SDWA) compliance
