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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 or Safe Drinking Water Loan Program loan, thus reducing annual principal and interest payments.

Note: Information on this webpage does not apply to the Private Lead Service Line Replacement Program.

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.

The PF allocation methodology is structured to allocate PF funds to the highest priority projects in municipalities with the greatest financial need.

Application deadline for PF

Applicants who meet the October 31 Intent to Apply and Priority Evaluation & Ranking Formula 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, whether competing for PF or not.
  • CWFP applications competing for general PF are due by the September 30 deadline.
    • CWFP applications are accepted year-round for projects not seeking PF.

Affordability criteria and PF allocation methodology

The federal government requires states to include specific affordability criteria in their allocation methodologies for distributing additional subsidization. The methodology in the annual Intended Use Plans gives the highest percentage of PF funds to those local governmental units that have the greatest financial need.

The criteria used to allocate PF is primarily determined by population size and median household income, with additional points awarded based on a number of criteria included in Table 3.

  • In the CWF Program, additional points are awarded based on population projections over 20 years and unemployment rate.
  • Note that in previous years there were four SDWLP tables. Points under the previous SDWLP Table 3 were moved to Section IV of the PERF in order to allow all applicants to benefit from completing the activities. SDWLP Table 4 has now been relabeled as SDWLP Table 3. Scores from SDWLP Tables 1 and 2 are added together and then used to determine the eligible PF percentage in SDWLP Table 3.

Applications received by the appropriate deadline are placed in priority score order on the funding list for the applicable program and then the following PF allocation methodology is applied:

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
Points Population
0 10,000+
5 8,500–9,999
10 5,000–8,499
15 3,000–4,999
20 2,000–2,999
25 1,500–1,999
30 1,000–1,499
35 500–999
40 250–499
50 0-249

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 as percentage of the State 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
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%

Additional points for population trends and unemployment are awarded under CWFP Table 3.

CWFP Table 3 - population trends & unemployment
Points Additional Criteria
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 – scoring for PF percentage

Environmental Loans staff sum the scores from SDWLP Tables 1 and 2 then use the total score to determine the eligible PF percentage in SDWLP Table 3. Note that this table has been changed from previous years to eliminate the 15% PF tier and broaden the 30% PF tier.

SDWLP Table 3 - scoring for PF percentage
Total Score PF Percent
0-49 No PF
50-79 30%
80-99 45%
100-165 60%

CWFP Table 4 – scoring for PF percentage

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
0-29 No PF
30-54 15%
55-79 30%
80-99 45%
100-165 60%

Additional 10% of PF

A minimum total score of 30 points is required in order to qualify for the additional 10% of general PF. 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% of general PF on top of the determined eligible general-PF percentage, with the caveat that no municipality can receive PF for more than 70% of total project costs. To receive the additional 10% of general PF for being a GTLC, the municipality must have signed the GTLC Charter prior to the SDWLP/CWFP PF application deadline date. Information on becoming a GTLC can be found at the DNR's Legacy Communities page.

Capped amount of PF

The principal forgiveness caps are described in the annual IUPs. The PF cap may vary in different state fiscal years and may be different between the two programs, depending on the amount of PF funds available. 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 general PF cap is $750,000 per municipality.
    • Starting in SFY 2019, any Priority PF is awarded in addition to general PF.
  • The SDWLP PF cap is $500,000 per municipality.

Other policies regarding principal forgiveness

Additional principal forgiveness policies are described in detail in the annual Intended Use Plans.

Priority PF

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 internal funds or other funding sources

When calculating project costs that are eligible for PF, all amounts obtained from other funding sources (internal funds; loan or grant from local bank, Community Development Block Grant, USDA-Rural Development, etc.) for the purpose of financing project costs are deducted from total eligible project costs before applying the eligible PF percentage. Note that this is a change from previous policy in that internal funds will now be deducted before calculating PF.

No PF-only awards

In order to be awarded PF, every applicant is required to also accept a CWFP/SDWLP 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. This restriction does not apply to the Private LSL Replacement Program.

PF disbursements

After the minimum loan disbursement that is required by the Internal Revenue Service (IRS) regulations is met, the Wisconsin 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.

Jointly-funded financial hardship scenarios

If a municipality is in dire financial hardship and cannot fund a project while complying with policies in the IUP, the CWFP/SDWLP will collaborate with other long-term, affordable funding sources on a case-by-case basis to consider available options to meet the financial needs of the municipality's project.

Note: The Small Loans Program (SLP) and the Pilot Projects Program do not have principal forgiveness.

Data sources used

Population size

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 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 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

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, Project Manager Section Chief

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