Principal forgiveness
Principal forgiveness policies are described in detail in the annual Intended Use Plans (IUPs).
Principal forgiveness (PF) is an additional subsidy, provided by the federal government, to assist municipalities that would experience significant hardship raising the revenue necessary to finance needed infrastructure projects. PF is used to reduce the size of a Clean Water Fund Program (CWFP) or Safe Drinking Water Loan Program (SDWLP) loan, thus reducing annual principal and interest payments. The PF allocation methodology aims to allocate PF funds to the highest priority projects in municipalities with the greatest financial need.
Note: Information on this webpage does not apply to the SDWLP Lead Service Line (LSL) Replacement Program and the CWFP and SDWLP Emerging Contaminants (EC) Programs.
DNR Environmental Loans staff write CWFP and SDWLP loans for the full amount of funds being provided for a project, but the PF portion is forgiven at the time of disbursement. The municipal bond pledged as security for the loan only needs to cover the amount of principal that will actually be repaid.
APPLICATION DEADLINE FOR PF
Applicants who meet the October 31 notice of Intent to Apply (includes Priority Evaluation & Ranking Formula) submittal deadline and appear on the Project Priority List (PPL) for the applicable program may submit an application for financial assistance.
- SDWLP applications are due by the June 30 deadline if competing for PF.
- Supplemental SDWLP applications may be submitted anytime during the state fiscal year for projects not seeking PF.
- CWFP applications competing for PF (with the exception of Energy Efficiency PF) are due by the September 30 deadline.
- CWFP applications are accepted anytime during the state fiscal year for projects not seeking PF.
Applications received by the appropriate deadline will be placed in priority score order on the Funding List for the applicable program and then the PF allocation methodology will be applied.
DISADVANTAGED COMMUNITIES, AFFORDABILITY CRITERIA & PF ALLOCATION METHODOLOGY
The federal government requires states to include specific disadvantaged/affordability criteria in their allocation methodologies for distributing additional subsidization. The methodology is specified in the annual IUPs.
BIPARTISAN INFRASTRUCTURE LAW (BIL) IMPLEMENTATION
EPA's BIL Implementation memorandum dated March 8, 2022, describes a key priority of BIL as "[ensuring] that disadvantaged communities benefit equitably from the historic investment in water infrastructure." Additionally, EPA expects states to evaluate and revise, as needed, the CWFP affordability criteria and the SDWLP disadvantaged community definition. To meet these expectations, we revised the PF allocation methodology and PERF scoring in the State Fiscal Year (SFY) 2023 IUPs to make it more meaningful.
CRITERIA AND METRICS
Starting in SFY 2023, for consistency, the PF scoring methodology is now the same for both the CWFP and SDWLP.
The previous criteria used to allocate PF was primarily determined by population size and median household income. In the CWFP, additional points were awarded based on population projections over 20 years and unemployment rate.
Changes to the PF methodology include adding more affordability metrics or expanding upon them and significantly increasing the general PF caps. The table used to determine the PF percentage now includes almost triple the number of tiers (than were used in SFY 2022) to reflect a municipality's score more accurately and to smooth the transition between the PF percentage tiers.
The additional metrics added to the CWFP and SDWLP are 200% family poverty percentage and lowest quintile household income. Population trend data and county unemployment rate were added to the SDWLP and expanded upon in the CWFP.
Refer to the annual IUPs for more information on the disadvantaged/affordability criteria.
DATA SOURCES USED
Starting in SFY 2023*, the most recent data that is available at the start of each state fiscal year will be used for our calculations. The data used for our determinations can be accessed from the Environmental Loans Data Sources web page.
* An exception for SFY 2023 was made for MHI data, as this data was already gathered and published at the time of the notice of Intent to Apply (ITA) deadline. Therefore, the U.S. Census Bureau's American Community Survey 5-year estimates from 2015-2019 were used for SFY 2023.
TABLE 1 - POPULATION SIZE
Population points ranging from 0 to 100 are awarded under Table 1 with the highest points going to the smallest populations.
| Table 1 | |
|---|---|
| Points | Population Size |
| 0 | ≥ 10,000 |
| 10 | 8,500–9,999 |
| 20 | 5,000–8,499 |
| 30 | 3,000–4,999 |
| 40 | 2,000–2,999 |
| 50 | 1,500–1,999 |
| 60 | 1,000–1,499 |
| 70 | 500–999 |
| 80 | 250–499 |
| 100 | 0-249 |
TABLE 2 - MEDIAN HOUSEHOLD INCOME
Median household income (MHI) points ranging from 0 to 100 are awarded under Table 2 based on the municipality's MHI as a percentage of the state mean MHI with the highest points going to the lowest MHI percentages.
- Example: If a municipality's MHI is $32,766 and the state's MHI is $54,610, then the municipality's MHI is 60% of the state's MHI and will receive 100 points.
| Table 2 | |
|---|---|
| Points | MHI Percent |
| 0 | 126%+ |
| 5 | 116% to < 126% |
| 10 | 106% to < 116% |
| 15 | 101% to < 106% |
| 20 | 96% to < 101% |
| 25 | 91% to < 96% |
| 30 | 86% to < 91% |
| 40 | 81% to < 86% |
| 50 | 76% to < 81% |
| 60 | 71% to < 76% |
| 70 | 66% to < 71% |
| 85 | 61% to < 66% |
| 100 | < 61% |
TABLE 3 - 200% FAMILY POVERTY PERCENTAGE
Family poverty percentage points ranging from 0 to 100 are awarded under Table 3 based on the percentage of families in a municipality with incomes below 200% of the federal poverty level with the highest points going to the highest family poverty percentages.
| Table 3 | |
|---|---|
| Points | Family Poverty Percentage |
| 0 | < 8% |
| 5 | 8% to < 12% |
| 10 | 12% to < 16% |
| 20 | 16% to < 20% |
| 30 | 20% to < 24% |
| 40 | 24% to < 28% |
| 50 | 28% to < 32% |
| 65 | 32% to < 36% |
| 80 | 36% to < 40% |
| 100 | 40%+ |
TABLE 4 – POPULATION TREND
Population trend points ranging from 5 to 15 are awarded under Table 4 to municipalities that are projected to lose 5% or greater of their population over 20 years with the highest points going to the greatest projected population declines.
| Table 4 | |
|---|---|
| Points | Population Trend |
| 5 | 5% to < 10% |
| 10 | 10% to < 15% |
| 15 | ≥ 15% |
TABLE 5 – COUNTY UNEMPLOYMENT RATE
Unemployment points ranging from 10 to 25 are awarded under Table 5 based on county unemployment rates in relation to the average state unemployment rate with the highest points going to the highest unemployment percentages.
- Example: If a municipality's county unemployment rate is 3.5% and the state's rate is 3.0%, the municipality's rate is greater than the state's rate by less than 1 percentage point and they will receive 10 points.
| Table 5 | |
|---|---|
| Points | County Unemployment Rate |
| 10 | < 1 percentage point |
| 20 | 1 to < 2 percentage points |
| 25 | ≥ 2 percentage points |
TABLE 6 - LOWEST QUINTILE HOUSEHOLD INCOME UPPER LIMIT
Lowest quintile household income (LQI) points ranging from 10 to 20 are awarded under Table 6 based on the municipality's LQI as a percent of the state mean LQI with the highest points assigned to the lowest LQI percentages.
| Table 6 | |
|---|---|
| Points | LQI Upper Limit |
| 10 | 70% to < 80% |
| 15 | 60% to < 70% |
| 20 | < 60% |
TABLE 7 – SCORING FOR PF PERCENTAGE
Environmental Loans staff sum the scores from Tables 1 through 6 and use the total score to determine the percentage of PF the municipality is eligible for in Table 7.
| Table 7 | |
|---|---|
| Points Received in Tables 1-6 | PF Percent |
| 0-59 | No PF |
| 60-69 | 10% |
| 70-79 | 15% |
| 80-94 | 20% |
| 95-109 | 25% |
| 110-124 | 30% |
| 125-139 | 35% |
| 140-154 | 40% |
| 155-169 | 45% |
| 170-184 | 50% |
| 185-199 | 55% |
| 200-249 | 60% |
| 250-360 | 65% |
ADDITIONAL 10% PF
Applicants that meet the following criteria may qualify for an additional 10% PF on top of the percentage determined by Table 7:
- Projects in municipalities that are Green Tier Legacy Communities (GTLC).
- Municipal projects that are providing disinfection of drinking water where it was not provided previously.
No municipality can receive PF for more than 70% of total eligible project costs. A minimum total score of 60 points is required in order to qualify for the additional 10% PF. To receive the additional 10% PF for being a GTLC, the municipality must have signed the Green Tier Charter prior to the financial assistance application deadline date. Information on becoming a GTLC can be found on the DNR Legacy Communities web page.
CAPPED AMOUNT OF PF
The PF cap may vary in different state fiscal years (SFYs) and may be different between the two programs, depending on the amount of PF funds available. No municipality can receive principal forgiveness for more than 70% of total eligible project costs. Additionally, even if a single scored project is funded from two or more state fiscal years, that project cannot receive more than one full PF allocation (based on the eligible PF percentage determined by Table 7 and/or the cap). The maximum lifetime PF allocation for a single scored project funded over multiple state fiscal years will be based on the PF cap of the earliest SFY for which the project was allocated funding.
- The CWFP General PF cap is $2,100,000 per municipality for SFY 2024 projects.
- Any Priority PF or Emerging Contaminants PF is awarded in addition to General PF but is still subject to the 70% maximum.
- The SDWLP General PF cap is $1,600,000 per municipality for SFY 2024 projects.
- Any Emerging Contaminants PF is awarded in addition to General PF but is still subject to the 70% maximum.
- Lead Service Line PF is not included in, or subject to, the General PF cap.
OTHER POLICIES REGARDING PF
Additional principal forgiveness policies are described in detail in the annual Intended Use Plans (IUPs) including, but not limited to, the following:
PRIORITY PF
In the CWFP, Priority PF is an incentive that may be awarded in addition to General PF. View the CWFP Priority PF criteria for regionalization, phosphorus reduction, and energy efficiency projects.
NO PF ROLL-DOWN
General PF amounts may shift between projects within the fundable range on the final funding list. If any General PF remains after all projects in the fundable range have closed their loans, this PF will be moved forward to the next year's funding list. No PF will roll down past the last project identified in the fundable range for General PF on the final funding list.
- This restriction does not apply to the three types of CWFP Priority PF (Regionalization PF, Phosphorus Reduction PF, and Energy Efficiency PF).
- Any unallocated or unused PF will be moved forward to the next year's funding list.
- Once all the SDWLP General PF and Lead Service Line PF is allocated, the LSL loan funds will be allocated for costs not covered by SDWLP PF using the LSL score ranking.
NO PF ON MARKET RATE COSTS
Principal forgiveness will not be calculated on project costs that are eligible only for market rate financing. Market rate costs will be subtracted from the project total before calculating the PF award for a project.
NO PF ON COSTS COVERED BY INTERNAL FUNDS OR OTHER FUNDING SOURCES
When calculating project costs that are eligible for principal forgiveness, only amounts that are financed through the CWFP/SDWLP will be included in the PF calculation (as mentioned above, market rate costs are deducted before calculating PF amounts even if they are included in the award). Internal funds as well as other sources of funding (e.g., loan or grant) will be deducted from the project total before calculating the PF award for the project.
Note: The Pilot Projects Program does not have principal forgiveness.
- Contact information
- For information on this topic, contact:
- Noah Balgooyen, SDWLP Coordinator
- Lisa Bushby, CWFP Coordinator
- Becky Scott, Environmental Loans Section Manager