Water Investment Division outlines SRF priority list, flags uncertainty in federal match

Eric, director of engineering in the Water Investment Division, told committee members that staff have compiled a draft priority list of applications for the State Revolving Fund (SRF) programs and that the list shows roughly $156 million in construction requests plus several million in planning work.

The draft is a compilation of applicant submissions, not a final ranked list, Eric said. "This list is collection of the applications that come into us, not to receive a loan, but to get on a priority that we have ranked. It's sort of a 2 step process," he said. He described the process as: communities submit applications, the division scores and adopts a priority list, and then communities submit loan applications when ready.

Why it matters: SRF programs provide low-interest construction and planning loans for drinking-water and wastewater infrastructure, and federal capitalization grants typically require a state match. Changes in federal appropriations or earmarks can materially alter how much money the state must provide to access federal dollars.

Officials said the federal picture has shifted from what was assumed when the state budget was prepared. Eric explained that recent congressional earmarks (congressionally directed spending) reduced the amount that flows to state SRF capitalization grants in prior years; more recently, the earmarks were removed and that money remained in SRF allocations, creating larger grant totals than the division expected when forming the state budget. "When we put the budget together in the fall, our presumption was that we're going to continue with these earmarks," Eric said. He added that the agency has been given indications the federal allotments are increasing but that official allotments have not yet been received.

Officials described how the federal supplemental grants and IIJA (Infrastructure Investment and Jobs Act) money layer on top of the base SRF program and how match requirements have changed over the five-year cycle: match rates started lower in early years, rose to 20 percent in later years for some supplemental grants, and differ by program type (for example, some emerging-contaminant grants require no match). "As it progressed through 5 year first 2 years, 10 percent ... starting as a third year last year, it bumped up to 20%," Eric said.

On project readiness and timing, staff said not all projects on the draft list will move forward in the coming fiscal year. A key readiness milestone for construction loans is a local bond vote. "This is key. We can't provide construction loans to community until they pass the bond," Eric said, noting the priority list contains applications at different stages of readiness. Division staff said they may be able to use short-term cash balances or bond-bank cash-flow mechanisms to move further down the list temporarily, knowing federal or other funds likely will arrive before communities need construction draws.

Large projects cited: Eric identified several large projects on the draft lists, including a Burlington wastewater project he described as "a hundred and $124,000,000 project" that will span multiple fiscal cycles, and a South Burlington loan he identified as roughly $32.2 million. He said the Burlington work involves changes to treatment and pumping that will shift flow to the main plant and require upgrades there.

Next steps and public process: Division staff said they expect to complete the draft priority lists later in the month, publish the draft, hold a hearing and public comment period, and then finalize the lists—possibly in June, though staff called that timing optimistic. "These lists will be completed, at sometime probably later this month. And, then we'll put out a draft list, take have a hearing, take comment, and then finalize it, probably sometime in June," Eric said.

What was not decided: No formal votes or policy decisions were recorded in the briefing. Staff presented information and answered questions; they did not request immediate action to appropriate state match dollars during the session. Officials said some match amounts are informational at this point and could be addressed in a later budget cycle if federal allotments change.

Ending: Staff asked committee members to note the distinction between the priority list and individual loan approvals and said more precise figures for federal allotments and the required state match will follow when official federal allotments arrive.