State Water Board adopts drinking water SRF intended-use plan prioritizing failing and at-risk systems

SACRAMENTO — The State Water Resources Control Board voted unanimously Tuesday to adopt its fiscal-year 2025–26 Drinking Water State Revolving Fund intended-use plan, a staff-led document that outlines how roughly $1.04 billion in available drinking-water funding will be prioritized and spent.

The board approved the IUP after a prolonged staff presentation and discussion about how to balance scarce federal and state funds against a large backlog of small-system needs. Board member Nicole Morgan moved adoption of the staff-recommended approach and the board approved it 5–0.

The plan directs Division of Financial Assistance staff to focus grant and principal-forgiveness dollars on systems identified as "failing" or "at risk" under the SAFER program and to continue prioritizing consolidation projects. Staff said the approach is intended to target limited dollars toward systems most likely to leave customers without safe water.

Board staff and presenters outlined the financial and program details behind the plan. Joe Karkovsky, deputy director of the Division of Financial Assistance, told members the division has been managing a heavy workload: about 99 new project agreements in the prior year totaling a little over $700 million, and more than 300 projects still under active management. Karkovsky and other presenters said about $1.04 billion is available for projects in 2025–26, and staff proposed a target of $300 million in repayable loans for the year.

Mike Downey, who leads the loans and grants branch, said staff recommend keeping existing loan eligibility and limits for this year, including a $50 million maximum loan amount and a $300 million loan target that added roughly $370 million of loan projects to the fundable list in staff modeling. Downey also said scoring of loan applications will begin next year under the policy changes the board adopted in May.

Staff briefed the board on several specialized funding streams built into the IUP: - Emerging contaminants: federal funds targeted to contaminants such as PFOS, 1,2,3-TCP, manganese, 1,4-dioxane and perchlorate remain available. Staff said demand from large and medium systems is sufficient but that staff are still working to bring additional applications from small and disadvantaged communities. - Lead service line replacement: California did not apply for this year’s EPA allotment because staff lack sufficient application demand to use an additional allotment and are focusing on getting existing federal lead funds into projects already underway. - ASADRA disaster funds: staff reported three qualifying projects tied to the 2018 wildfire damage, one of which has an executed agreement and two of which remain under development.

The adopted IUP also included change-sheet edits the board approved during the meeting. Those edits raised several grant/principal-forgiveness caps for projects serving 200 connections or fewer and added explicit authority for the deputy director of the Division of Financial Assistance to approve requests up to 20% above the stated cap for good cause in limited circumstances (for example, consolidation projects with demonstrably higher costs).

Board members used the discussion to press staff on real-world consequences of the new prioritization approach. Nicole Morgan and others cited past examples of small systems that had to work multiple years to be placed on a priority list; those members asked staff to ensure the IUP would not create procedural barriers that delay projects that staff and regulators agree are urgently needed. Vice Chair Doreen D’Adamo and board members Laurel Firestone and Sean Maguire emphasized the need for flexibility and clearer staff guidance so projects do not “fall through the cracks.”

To address those concerns the board adopted two implementation safeguards: (1) a change to IUP footnotes clarifying that the deputy director has discretion to fund projects not explicitly labeled failing or at-risk if the deputy director determines the project addresses a risk of failure, and (2) a new resolved clause directing staff to work with the DWSRF advisory committee, the SAFER program, water systems, technical-assistance providers, environmental-justice groups and affected communities to assess whether the SAFER criteria and related eligibility rules should be adjusted before next year’s IUP.

Mike Downey told the board there are no recommended eligibility changes to the loan program for this year. Kristen Appold, who leads the office of sustainable water solutions within DFA, said staff had revised how the program calculates cost-per-connection for small systems: in response to public comment, interim technical-assistance and planning costs are excluded from the five-year construction cost-per-connection calculation so more projects become eligible for grants or principal forgiveness.

Board members also requested a management-level memo from the deputy director to DFA staff clarifying the expectation that staff use available discretion — and promptly elevate difficult decisions when appropriate — so urgent projects can proceed while regulatory or category questions are resolved.

Chair Joaquin Esquivel framed the IUP vote as part of the board’s broader infrastructure role. Esquivel noted the state board’s large investments and work to coordinate pots of money and directed staff to pursue timely and pragmatic application of the plan.

The board’s action authorizes submittal of the IUP to the U.S. Environmental Protection Agency, which conditions capitalization grants on the IUP submittal. Staff said the office has 60 days from award to submit the IUP and cannot draw down federal capitalization grant funds until the IUP is submitted.

Votes at a glance: the IUP resolution passed unanimously (5–0). Earlier in the meeting the board unanimously adopted the minutes from its previous meeting (with one abstention recorded during roll call for that earlier motion). The board postponed a separate fund-expenditure-plan item to a future meeting.

The board directed staff to return with the fund-expenditure plan at a subsequent meeting and to continue stakeholder engagement and technical assistance efforts to expand application readiness among small and disadvantaged communities.