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Drinking Water State Revolving Fund Loan Program

The current DWSRF Loan interest rate is 2.01% (until 31 March 2013).


To fund drinking water capital projects that protect public health, North Carolina makes loans at one-half (1/2) of the market rate for a period of up to 20 years. The actual term of the loan is determined by the State Treasurer's Office. An administrative funding fee of 2.00% is charged and made payable upon award of funding according to 15A NCAC 01N .0203. All funded projects must address a threat to public health (as described in 15A NCAC 01N and the Operating Agreement).

Since the DWSRF is federally-seeded, the loans are subject to additional federal regulations regarding environmental review, outreach for disadvantaged business enterprises, payroll (Davis Bacon and related Acts), etc.


The Public Water Supply (PWS) Section receives applications throughout the year and considers those complete applications received as of 30 September.

If you are interested in a DWSRF loan or other financial assistance offered by the PWS Section, contact the regional office and the funding engineer listed for your county.

All funding programs use the same application, but each program has its own requirements. The application and the application appendix for the DWSRF program can be found on the forms page. Follow the instructions in the application and appendix carefully.


Under 40 CFR 35.3525, DWSRF loans provided as part of each years allocation from the federal government to the State of North Carolina must be distributed as follows:

  1. (5) At least 15% must be available to public water systems which regularly serve fewer than 10,000 persons, and
  2. (2) No more than 30% of the principal made available through loans distributed as part of this program may be forgiven. These principal forgiveness loans are distributed through the "Disadvantaged Communities Program", described in the Intended Use Plan (IUP) for the given year.

In addition to the above requirements, 15A NCAC 01N .0201(d) requires that a maximum of 5% be used for loans for project planning purposes only.

For fiscal year 2010, PL 111-88 requires that:

At least 20% must be available for projects to address green infrastructure, water or energy efficiency improvements, or other environmentally innovative activities. This reserve is a vehicle for “green” projects to receive higher priority for funding and is further outlined on the DWSRF Green Project Reserve Page. The Green Project Reserve, by itself, provides a DWSRF loan at one-half (1/2) of the market rate.

And, separately, that:

At least 30% must be available as principal forgiveness loans through the "Disadvantaged Communities Program". This program is further outlined on the Disadvantaged Communities Program Page.

It is possible for a project to qualify for and participate in funding through both the Green Project Reserve and the Disadvantaged Communities Program.

These mandates were renewed for fiscal year 2011 through PL 112-10. However, it is uncertain if these mandates will carry on for future DWSRF allocations.


Under 15A NCAC 01N .0301(c) applications are ineligible if filed after the award of a construction contract on the project, unless:

  • The applicant is subject to an administrative order or deadline issued by the Division or
  • The project qualifies as an emergency situation.


Under NCGS 159G-31, applicants must be either a local government unit or a water corporation in order to be eligible.

Under 40 CFR 35.3520(d)(2) and (3), applicants must either demonstrate technical, managerial and financial capacity or a commitment to obtain this capacity to be eligible. Determination of these capacities is based upon a review of:

  • Finances,
  • Compliance with applicable public health, environmental and utility laws, and
  • [Under 15A NCAC 01N .0202(b)] the experience and certification level of the water system operator as evidenced by the submission of a Water System Management Plan (WSMP).

Project Types

Under 40 CFR 35.3520(b)(2), eligible projects types include the following:

While 40 CFR 35.3520(b)(2) also allows for the following project types:

  1. Treatment,
  2. Transmission and distribution,
  3. Source,
  4. Storage, or
  5. Consolidation.
  6. Creation of new systems,

15A NCAC 01N .0302(a) does not make these projects eligible in North Carolina.

The following project types are specifically ineligible under 40 CFR 35.3520(e):

  1. Dams or rehabilitation of dams,
  2. Water rights not acquired through system consolidation,
  3. Reservoirs that either:
    • Do not store finished water or
    • Are not part of the treatment process,
  4. Projects needed mainly to meet requirements for fire protection,
  5. Projects primarily intended to serve future growth, or
  6. Projects receiving DWSRF funds from the national set-aside for Indian Tribes.

Under 15A NCAC 01N .0202(e) and 40 CFR 35.3520, the DWSRF program can fund only the most cost-effective solution to a documented public health problem. Therefore, the applicant must document both the existence of the problem and the costs of alternatives to address it, typically in the Preliminary Engineering Report, or 'PER.' In particular, the PER must explicitly discuss the 'do-nothing' or 'no-build' alternative.

Project Costs

Under 40 CFR 35.3520(c), eligible projects costs include the following:

  1. Planning, design, and associated pre-project costs,
  2. Land acquisition (as required for location of project components) from a willing seller ( where there is no condemnation involved),
  3. Restructuring of systems that are found to be:
    • Non-compliant with applicable public health, environmental and utility laws, or
    • Otherwise lacking in technical, managerial and financial capacity.

In addition to those above, 15A NCAC 01N .0303(a) specifically allows for the following project costs:

  1. Planning
    • System needs assessment,
    • Preparation of Local Water Supply Plan (LWSP) and
    • Preparation of Water System Management Plan (WSMP);
  2. Environmental assessment reports,
  3. Construction,
  4. Legal, fiscal and administrative costs; and
  5. Contingency costs.

The following project costs are specifically ineligible under 40 CFR 35.3520(f):

  1. Laboratory fees for routine compliance monitoring, and
  2. Operation and maintenance expenses.

Eligibility is more fully described in 40 CFR 35.3520 and 15A NCAC 01N .0300.


The PWS Section prioritizes projects first by category and then by the number of priority points awarded as described in the Operating Agreement between DENR and EPA [OA S.1.b.(ii)]. Project categories are defined in OA S.1.b.(i) as follows:

  1. A project that eliminates by consolidation/dissolution a public water system demonstrating a lack of technical, financial, and/or management capacity in accordance with the Safe Drinking Water Act, Sections 1402(b)(1) and 1414(h), and NCAC 15A 18C .0300;
  2. A project that eliminates compliance problems due to existing violations of the NC Drinking Water Act or anticipated violations based on data and state or federal rulemaking;
  3. A project to improve the available water supply or treatment capacity to supply existing users; improve treated water quality; provide a permanent or emergency interconnection between systems; or rehabilitate, repair or replace an existing eligible item of infrastructure with no increase in capacity; and
  4. All other eligible public water system projects.

Award of priority points to distinguish between projects in the same category is described in OA S.1.

Unusual Features of the Program

Allowance for Facilities Planning and Design (i.e. Engineering Fee Curves)

It is advised that applicants for and recipients of DWSRF funding maintain an allowance for facilities planning and design services based on Appendix B to 40 CFR 35 Subpart I. This appendix establishes the allowance based on the estimated or actual building cost. Any significant exceedance should be accompanied by written explanation in order to approve these services as part of the project budget.

Environmental Review

In addition to the State Environmental Policy Act (SEPA), which all public projects are subject to, DWSRF projects are also subject to the National Environmental Policy Act (NEPA). In practice this is handled by the State Environmental Review Procedures (SERP) - a set of procedural enhancements to SEPA environmental review that makes it also comply with NEPA (it becomes 'NEPA-like').

Disadvantaged Business Enterprise Outreach

All public projects are subject to NCGS 143-128.2, which governs minority business participation, and 01 NCAC 30I, which is the rule that implements the statute. In addition, DWSRF projects are also subject to the Federal DBE Rule (40 CFR 33), which governs participation of and outreach to Disadvantaged Business Enterprises (DBEs). In practice this is handled by requiring that both the Owner’s / State Special Conditions Package and the Federal Special Conditions Package be inserted into any project-related construction contract. Carefully follow directions in these Special Conditions Packages and the related Owner’s Compliance Package.

Davis Bacon Payroll Requirements

The Davis Bacon Act governs labor wage rates and compensation for contractor and sub-contractor employees working on federally funded projects, such as those funded by the DWSRF. The United States Environmental Protection Agency (EPA) have provided the following presentations as an overview of these requirements:

Contractor responsibilities are outlined in the Davis-Bacon Contract Provisions, which are established by the United States Department of Labor (DOL) in 29 CFR 5.5.

  • These provisions must be added to each construction contract.

The Davis-Bacon Contract Provisions subject contractors and subcontractors to certain minimum “wage determinations”.

  • These wage determinations are to be included in each construction contract and posted at the work site.

Once construction is underway, the applicant is responsible for:

  • Posting an educational poster (English / Spanish) at the work site,
  • Collecting weekly payroll reports from each contractor and subcontractor, and
  • Interviewing a representative group of contractor and subcontractor employee laborers within timeframes established by the U.S. Department of Labor.

These reports and interviews are to determine that employees are compensated properly according to the wage determinations included in the construction contract while the poster is to inform employees of their rights.

Rules and Authority

The Safe Drinking Water Act (SDWA) was originally passed by Congress in 1974 to protect public health by regulating the nation's public drinking water supply. The law was amended in 1986 and 1996 and requires many actions to protect drinking water and resources, rivers, lakes, reservoirs, springs, and ground water wells. (SDWA does not regulate private wells or systems that serve fewer than 25 individuals and 15 connections.) SDWA authorizes the United States Environmental Protection Agency (EPA) to set national health-based standards for drinking water to protect against both naturally-occurring and man-made contaminants that may be found in drinking water. EPA, states, and water systems then work together to make sure that these standards are met. (Source: EPA810-F-99-008)

Congress established the Drinking Water State Revolving Fund (DWSRF) Loan program in the 1996 amendments to provide financial assistance to public water systems to comply with the SDWA. The states are required to provide 20 percent matching funds.

40 CFR 35 Subpart L implements the SDWA in regards to DWSRF. This rule provides general statutory authority for EPA to oversee the DWSRF program nationwide and outlines general requirements for states that administer the funds.

The statute, NCGS Chapter 159G, establishes the DWSRF in North Carolina. 15A NCAC 01N implements the DWSRF in North Carolina.

The Operating Agreement (OA) between DEQ and EPA governs the program's day-to-day activities.

Each year's Intended Use Plan (IUP) describes the eligible projects and expected activities for the plan year.