State decision makers
Principle 2
Maximize the Impact of Available Funding Through Strategic Program Decisions
Key Actions
Key Action 1
Unlock the full potential of federal funding
State SRF programs can adopt policies that facilitate efficient lead pipe replacement by optimizing the use of federal funding. This ensures that more communities benefit from safer drinking water and get the resources that they need.
Utilize set-aside funds to make DWSRF loans more attractive to applicants
States may set aside up to 26% of their allotment of lead service line replacement (LSLR) funds from the Infrastructure Investment and Jobs Act (IIJA) to support non-construction and preconstruction activities. Activities that could be covered with set-aside funds include technical assistance, program management, project planning, service line inventory surveys and mapping, and workforce development. Making strategic use of these set-aside funds and reserving project award funds for replacement projects reduces the financial burden on local communities in two ways:
Reduces the financial burden on local communities.
Because set-aside funds do not need to be repaid, strategic use of set-aside funds to cover the costs of inventories and other non-construction activities is more advantageous than taking on loans for these activities.
Improves the loan-to-principal forgiveness ratios.
Maximizing the strategic use of set-asides also improves the loan-to-principal forgiveness ratios for project awards. The state can award a higher portion of LSLR construction project awards as principal forgiveness because IIJA requires states to provide 49% of their allotment of IIJA LSLR funds as principal forgiveness or grants, and set-asides come out of the 51% that would otherwise be issued as loans.
Promote and facilitate cooperative procurement and workforce development
Joint procurement and shared capacity-building efforts enable multiple water utilities—especially small and under-resourced systems—to benefit from economies of scale in infrastructure replacement and workforce investments. By teaming up, these systems can pool resources to submit joint applications for funding, reducing administrative burden and enhancing their competitiveness for federal and state dollars. Alternatively, each municipality or water system could pursue its own SRF award, but coordinate to procure a joint contract to deliver lead service line replacement at scale across a set of collaborating systems.
The U.S. EPA’s 2017 Drinking Water State Revolving Fund Eligibility Handbook (p. 9) explicitly supports this model: “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.”
States can encourage and support this kind of collaboration through several mechanisms:
Incentivizing collaboration through SRF project priority scoring.
States can encourage joint or cooperative agreements by awarding additional priority points to water utilities that engage in shared procurement or regional project development. This approach promotes cost-effectiveness and increases access to funding for small and under-resourced systems, particularly in rural and suburban areas. States may consider applying a threshold—such as a maximum number of service connections or linear feet of pipe—for eligibility under this incentive. This helps target support where collaborative approaches are most needed and impactful.
Using set-aside funds
Using set-aside funds to support roundtable convenings for elected officials, water utility staff, and community stakeholders with contractors and workforce development to arrange for regional procurement and contractor capacity building efforts.
Dedicate staff or contractors
Dedicate staff or contractors to support and facilitate joint or cooperative procurement and workforce development activities.
Offer planning grants or seed funding
Offer planning grants or seed funding to support the early stages of joint project development.
Establish regional procurement platforms
Establish regional procurement platforms or shared services models that lower costs for participating utilities.
Support multi-year project planning
Support multi-year project planning by aligning the scale and timing of lead service line replacement (LSLR) project awards. Some State SRF programs allow utilities to submit applications for multiple years of LSLR financing and funding. Securing multi-year funding and financing can help sustain lead pipe replacement programs and attract more contractors to a program, as utilities and their contractors alike have more security around multi-year resource commitments. This added certainty can attract more contractors and investment in local workers, helping lower costs, boost community benefits, and maximize the use of available federal funding.
Incentivize neighborhood-scale replacement projects
Neighborhood or block-by-block replacement projects increase cost-efficiencies and reduce the disruptions to residents in the area by having all the work happen simultaneously. States can promote neighborhood-scale replacement by assigning additional priority points on SRF project priority lists or by prioritizing such projects for principal forgiveness. To ensure the incentive reaches the systems most likely to benefit—typically those in larger urban or suburban areas—states might consider setting a minimum threshold for participation, such as a baseline number of service connections or linear feet of pipe. However, it’s essential that this incentive structure does not preclude support for necessary one-off replacements. Emergency repairs, fixes for leaking pipes, or projects that advance public health, such as replacements serving home-based childcare centers, must still be eligible (see Principle 4, Key Action 2).
Encourage synergies between lead pipe replacement projects with other construction activities
States can also design their state revolving fund (SRF) project ranking system to incentivize coordination between lead service line replacement and other construction projects. For example, states may assign priority points or principal forgiveness to projects where departments or agencies have planned coordination of construction activities.
Offer zero-interest, forty-year terms, and tiered rates on lead pipe replacement loans
To support water systems, especially those serving disadvantaged communities, states should consider offering more favorable loan terms to the extent possible. Options include zero-interest loans for lead service line replacement projects, extended repayment periods for state-defined disadvantaged communities, and income-tiered interest rates. These tools can make capital investments more accessible, reduce long-term financial strain, and accelerate progress.
Toolbox
Funding LSL inventories through SRF set-asides
Funding workforce development programs through SRF set-asides
Multi-year SRF applications
Regional cooperation, coordination & procurement
Neighborhood-scale LSLR projects in cities
Aligning LSRLR with other construction activities
Zero-percent interest rates for SRF loans
Key Action 2
Use state funds to boost the speed of replacement
Additional state funding, to supplement available federal funds, can help maximize the public health benefits to communities across your state. By providing dedicated state support, water systems will be better positioned to continue lead service line replacements even after federal funds are exhausted. Invest state resources to fill funding gaps and ensure all communities have the resources they need to remove lead from drinking water.
Use state appropriations to supplement federal funding
Use state appropriations to supplement federal funding for lead service line replacement (LSLR). Though the Infrastructure Investment and Jobs Act (IIJA) invested a historic $15 billion for LSLR, available funding is not enough to remove the nation’s 9 million lead pipes. Achieving this goal will require anywhere between $72 billion to over $90 billion, a cost far higher than the available funding can cover. These shortfalls in federal funding are particularly acute in states with high numbers of lead service lines. State funding can help fill these gaps to ensure all communities can replace their lead pipes and have access to clean, safe drinking water.
Consider directing the use of state funds for specific purposes
Because each funding source carries its own eligibility requirements and restrictions, state-level decisions can play a critical role in filling gaps and reducing friction in project delivery. States should consider directing their own funds toward targeted purposes that ease access to federal resources or enable private-side replacements that might otherwise be out of reach. Some ways state funds could be directed include:
- Prioritizing projects serving low-income and underresourced communities
- Prioritizing projects addressing multiple infrastructure renewal objectives
- Allowing for state funds to be used to repay loans incurred for lead service line replacement (LSLR) projects, including DWSRF loans using federal funding provided for LSLR from IIJA.
- Allowing for state funds to pay for private side replacements to help overcome real and perceived statutory limitations on the use of public funds for this purpose (see Principle 3, Key Action 1)
- Covering non-federal match requirements to unlock federal SRF dollars or other infrastructure grants.
- Supporting application readiness, including planning, inventory development, or engineering design work for systems with limited capacity
- Offering bridge financing to help utilities start projects while awaiting reimbursement from federal sources
- Funding technical assistance providers or regional entities that can support small system participation in state or federal funding opportunities
Leverage general drinking water funds to expand financing capacity
Where state and federal funds specifically designated for lead service line replacement (LSLR) are insufficient to meet project demands, prioritize LSLR projects for general DWSRF funds, leveraging the DWSRF as needed to expand financing capacity. State administrators can leverage their DWSRF funds by issuing bonds against the value of the revolving funds to expand the amount of funding available for financing.
