Michigan Revolving Loan Fund Updates

As the SRF and SWQIF funds affect so many, the proposed changes to the SRF merit a post even though the changes are still in the discussion stage.  An advisory committee has submitted a report with recommended changes to the current program.

The recommendations in this report are premised on the need for a policy approach that emphasizes strategic investment of dollars in vital infrastructure to protect water quality as well as the creation of more long-term, self-sustained funding. There are two parts to this policy strategy.

Part 1: Creation of a state grant program and expanded use of a state loan program to stimulate investments that protect infrastructure assets and reduce long-term costs to the public.

Part 2: Institution of reforms to the existing SRF program to stimulate investments in large scale sewer system improvement projects that address chronic water quality problems.

Part 1 – Reducing the cost of infrastructure and increasing investment in critical water quality protection through creation of a state grant program and expanded use of a state loan program

Michigan needs to invest much more heavily in the management of its sewer infrastructure assets. This keeps systems in good condition rather than allowing them to deteriorate to the point where they become extremely costly to repair or replace.  The State also needs to facilitate the establishment of dedicated revenue streams that are based on the actual cost of services provided. Given the fiscal condition of local governments, incentivizing these actions through grant funding is critical.

Part 1 Recommendations

  • Remaining funds from Proposal 2 of 2002 (approximately $654 million) should be allocated over a five year period. This should be phased so that more of the funding is available in the later years.
  • In each funding cycle, 50% of the funds available should be targeted toward implementing projects in a grant program consistent with Part 1 of this report and 50% for a loan program. Both should be implemented under the Strategic Water Quality Initiatives Fund (SWQIF), with provision to adjust this allocation in any given year based on demand.
  • The loan program created under the SWQIF should be as simple as possible. The DEQ and the legislature should take steps to ensure that the state’s loan program does not suffer the same ills as the federal program.
  • The State must ensure that federal capitalization grants to the SRF are fully captured so no available dollars are left on the table.  State match for these grants should be provided through the general fund. However, in the event that this funding source is unavailable in any given year, a portion of the Proposal 2 funds should be designated as match for the federal capitalization grant.
  • Bonds from Proposal 2 of 2002 should be used to provide grants to local governments for:
    • Design, development and implementation of asset management plans or capital improvement programs for sanitary sewer and storm sewer infrastructure,
    • Development of stormwater management plans or programs,
    • Development and implementation of stormwater utilities, or
    •  Planning and design of sewer projects (similar to the grant program previously authorized by the legislature using Proposal 2 bond funds).
  • The grant application process should be kept as simple as possible.  Projects that meet eligibility criteria should be funded on a first-come, first-served basis.
  • Legislation describing the acceptable manner for creation of a stormwater utility consistent with the Michigan Supreme Court’s Bolt vs. City of Lansing decision needs to be adopted.

Part 2 – Increasing use of the State Revolving Fund program by streamlining requirements in the existing SRF program

The goal of the recommendations in this category is to reduce the administrative burden on applicants and the DEQ so the process is easier and less costly to administer. This in turn will result in a greater number of projects being funded.

Part 2 Recommendations

Primary recommendation: DEQ should work with a committee of stakeholders to revise the SRF program, using a process improvement approach, to ensure that a thorough list of recommendations is developed and appropriately vetted.

Part 2 Recommendations for DEQ and its stakeholder group to consider:

  • Revise the pre-application meeting process to allow potential applicants to evaluate the likelihood of funding prior to incurring significant costs.
  • Evaluate and revise the criteria for selecting priority projects.
  • Develop a checklist to determine which elements need to be addressed in the Project Plan for a specific application.
  • Review the public participation requirements and consider options other than the mandatory requirement for a formal public hearing, with a transcript, prior to submitting the Project Plan.
  • To the maximum extent possible, eliminate requirements to provide information on other state and federal laws and regulations for conformity.
  •  Create special financial incentives for “economic hardship” applicants, similar to those currently provided in the Drinking Water Revolving Fund program.
  •  If funds available exceed demand in any given year, the Committee urges the DEQ Director to lower interest rates in the subsequent funding cycle.

These are highlights from the Executive Summary. You can view the entire document here:

http://www.michigan.gov/documents/deq/deq-ess-mfs-CWSRF-advisorycomm-FinalReport_364766_7.pdf

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Michigan Revolving Loan Fund Updates

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