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 loan, thus reducing annual principal and interest payments.
EL staff write Clean Water Fund Program (CWFP) and Safe Drinking Water Loan Program (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.
Affordability criteria and PF allocation methodology
Additional subsidization in the form of principal forgiveness has been an aspect of the state revolving fund programs (i.e. CWFP and SDWLP) since the American Recovery and Reinvestment Act (ARRA) was passed in 2009. This additional subsidization has been reauthorized by Congress every year since then in the annual appropriations acts.
The Water Resources Reform and Development Act (WRRDA), passed in 2014, made the authority for the additional subsidization a permanent part of the Clean Water State Revolving Fund (CWSRF). WRRDA made the additional subsidy optional for the CWSRF and only available in years when the national appropriation for CWSRFs exceeds $1 billion. The amount of additional subsidy that is available is calculated using the percentage by which the national appropriation exceeds $1 billion, up to a maximum of 30%. WRRDA also required the states to add specific affordability criteria to their allocation methodologies for distributing the additional subsidization. The required criteria for the CWSRF include income, population trends and unemployment.
Application deadline for principal forgiveness
Applications received by the deadlines are placed on the funding list for the applicable program and ranked in priority score order, and then the PF allocation methodology is applied.
- CWFP - In years when PF is available, all CWFP applications seeking PF are due by the Sept. 30 deadline.
- SDWLP - In years when PF is available, all SDWLP applications seeking PF are due by the June 30 deadline.
Allocation & distribution of PF funds
CWFP PF funds
The PF allocation methodology is structured to allocate PF funds to the highest-priority CWFP projects in municipalities with the greatest financial need, primarily determined by median household income (MHI) and populations, with additional points awarded based on population projections over 20 years and unemployment rate. See Tables 1-4 below.
SDWLP PF funds
The PF allocation methodology is structured to allocate PF funds to the highest-priority SDWLP projects in municipalities with the greatest financial need, primarily determined by MHI and population, with additional points awarded based on a number of criteria included in SDWLP Table 3 shown below. See Tables 1-4 below.
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. The principal forgiveness caps are described in the annual Intended Use Plans (IUPs). The amount of PF any municipality can receive in a state fiscal year is capped. No municipality can receive principal forgiveness for more than 70% of total eligible project costs.
Additionally, even if a single project is funded from two or more state fiscal years, that project cannot receive more than one full principal forgiveness allocation (based on the eligible PF percentage and/or the cap).
- The CWFP Regular PF cap is $750,000 per municipality.
- Starting in SFY 2019, any CWFP Priority PF is awarded in addition to Regular PF with the caveat that no more than 70% of total eligible project costs are awarded as principal forgiveness.
- The SDWLP PF cap is $500,000 per municipality.
- No municipality can receive principal forgiveness for more than 70% of total eligible project costs.
Additional 10% PF for Green Tier Legacy Communities or for providing new drinking water disinfection
Projects in municipalities that are Green Tier Legacy Communities (GTLC), or projects that are providing disinfection of drinking water where it was not provided previously, are eligible for an additional 10% PF on top of the percentage determined by Table 4 below with the caveat that no more than 70% of total eligible project costs are awarded as principal forgiveness. To receive the additional 10% PF for being a GTLC, the municipality must have signed the GTLC Charter prior to the application deadline date. Information on becoming a GTLC can be found at greentiercommunities.org and DNR's Legacy Communities page.
Table 1 - population size
Population points ranging from 0 to 50 are awarded under CWFP and SDWLP Table 1 with the highest points going to the smallest populations.
|CWFP & SDWLP Table 1 - population size|
Table 2 - median household income
Median household income (MHI) points ranging from 0 to 100 are awarded under CWFP and SDWLP Table 2 based on the municipality's MHI percentage of the state's 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.
|CWFP & SDWLP Table 2 - MHI|
|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%|
Table 3 - additional points
CWFP Table 3
Additional points for population trends and unemployment are awarded under CWFP Table 3.
|CWFP Table 3 - population trends & unemployment|
|5||Projected to lose 10% or more of population over 20 years|
|5||County unemployment rate is > state's unemployment rate by less than one percentage point|
|10||County unemployment rate is > state's unemployment rate by one percentage point or more|
SDWLP Table 3
View the additional points and criteria for asset management plans (AMPs) and public water system (PWS) partnerships. The DNR Bureau of Drinking Water and Groundwater reviews and approves asset management plans and also determines the eligibility of corrosion control study recommendations. View the policy, criteria, and additional points for the 40% lead service line (LSL) replacement minimum.
SDWLP Table 3 points will be awarded as follows:
- Replacement of LSLs – 10 points for water main projects that include lead service line (LSL) replacements when at least 40% of the services being replaced are composed of lead. This also includes galvanized material that is downstream of lead goosenecks or services. Service line material documentation must be submitted with the application in order to be awarded points.
- Note: a municipality does not need to be in receipt of a lead action level exceedance (ALE) to receive these points.
- Implementing Corrosion Control Study Recommendations – 10 points for projects that are implementing the approved recommendations from a corrosion control study.
- Development of New Asset Management Plans – 10 points for development of a new asset management plan (completed within the previous twelve months).
- Revision/Updating of Asset Management Plans – 5 points for revising or updating an existing asset management plan (within the previous twelve months).
- Public Water System Partnerships - 5 points for execution of a new public water system agreement (within the previous twelve months) between two or more water systems in which the technical, managerial, or financial (TMF) capacity will be improved in one or more of those water systems.
|SDWLP Table 3 - additional points|
|10||Projects that include lead service line (LSL) replacements (at least 40% of services)|
|10||Projects implementing approved recommendations from corrosion control study|
|10||Applicants with a new approved asset management plan|
|5||Applicants with revised/updated, approved asset management plan|
|5||Applicants with a newly executed agreement between two or more public water systems to improve technical, managerial or financial (TMF) capacity|
Table 4 - scoring for PF percentage
CWFP Table 4
Environmental Loans staff sum the scores from CWFP Tables 1 through 3 and use the total score to determine the eligible PF percentage in CWFP Table 4.
|CWFP Table 4 - scoring for PF percentage|
|Total Score||PF Percent|
SDWLP Table 4
Environmental Loans staff sum the scores from SDWLP Tables 1 through 3 and use the total score to determine the eligible PF percentage in SDWLP Table 4. Note that SDWLP Table 4 has been changed from previous years to eliminate the 15% PF tier and broaden the 30% PF tier.
|SDWLP Table 4 - scoring for PF percentage|
|Total Score||PF Percent|
Other policies regarding principal forgiveness
View the CWFP Priority PF criteria for regionalization, phosphorus reduction and energy efficiency projects.
No PF roll-down
PF amounts may shift within the fundable range on the final funding list. If any PF remains after all projects in the fundable range have closed on 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 PF on the final funding list.
No PF on market rate costs
PF 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 other funding sources
When calculating project costs that are eligible for PF, all amounts obtained from other funding sources (Community Development Block Grant, USDA-Rural Development, local bank, etc.) for the purpose of financing project costs are deducted from total eligible project costs before applying the eligible PF percentage determined in Table 4 above.
- A municipality's internal funds contributed towards a project are not deducted before calculating the eligible PF amount.
No PF-only awards
In order to be awarded PF, every applicant is required to also accept a loan for some of their project costs. A minimum of 30% of the costs used to calculate the PF amount must be taken as a loan in order to qualify for PF.
The Department of Administration (DOA) will disburse principal forgiveness payments proportionally with each disbursement request received from the municipality based on the percentage of PF awarded in the Financial Assistance Agreement (FAA), up to the cap, if applicable.
Data sources used
Data used are the most recently published preliminary population estimates (adjusted for changes based on resolution of estimate objections from municipalities) as supplied to DNR by the Wisconsin Department of Administration (DOA) Demographic Services Center (DSC).
Median Household Income (MHI)
MHI data comes from the U.S Census Bureau's American Community Survey (ACS) 5-year estimates. The most recent MHI data for most Wisconsin municipalities is available on the Environmental Loans MHI page as well as instructions for obtaining an MHI from the U.S Census Bureau.
Population trends data
Population projections are developed by the Wisconsin DOA DSC. Data used are the most recent projections for the municipality as of the application deadline date. For sanitary districts, the town's population projection is used.
Unemployment data comes from the Wisconsin Department of Workforce Development (DWD) and is updated monthly. Unemployment data are the average unemployment percentage for the most recent 12 months of data available at the time of the application deadline for the state and for the county in which the municipality resides.
- Contact information
- For information on this topic, contact:
- Becky Scott, Program & policy analyst
Disclaimer of guidance: This document is intended solely as guidance and does not contain any mandatory requirements except where requirements found in statute or administrative rule are referenced. Any regulatory decisions made by the Department of Natural Resources in any matter addressed by this guidance will be made by applying the governing statutes and administrative rules to the relevant facts. Program implementation details are outlined in the governing administrative codes and statutes: §§ 281.58 and 281.59 and 281.61, Wis. Stat. and chs. NR 162 and 166, Wis. Adm. Code.