Funding and Incentives for Consolidation and Regionalization Projects

This website discusses how to fund the costs for consolidation and regionalization projects. If sufficient private capital exists to allow for self-funding, that option is typically the fastest way to consolidate, and it may be less expensive than state or federal funding, which requires additional contract requirements. Private transient and non-transient water systems that are businesses and are looking to consolidate, such as wineries, restaurants, and office buildings will need to use private capital as state funding sources are not available. However, some nonprofit non-transient non-community water systems, such as public schools, childcare facilities and eldercare facilities may be eligible.

How Does the Funding Process Work in General?

Several funding programs are available through the Division of Financial Assistance (DFA) to support consolidation. It should be anticipated that the process will involve several years. Funding is typically split into two phases -- planning and construction. A separate planning and construction application is submitted for each phase of the project. If local funds are available to fund planning work, it is possible to forego the planning funding process and then request reimbursement of planning costs upon execution of a construction funding agreement. In order to ensure reimbursement, the water system should coordinate with DFA to ensure all reimbursement requirements are met.

Submittal of all drinking water funding applications is done using the Financial Assistance Application Submittal Tool (FAAST) webpage. Each application will consist of four parts: a general application, an environmental application, a technical application, and a financial application. The required forms for both planning and construction applications and instructions are located here. Additional guidelines for consolidation projects are also available. There is a DFA "Before You Start" document that is helpful to ensure the most efficient timing on all parts of the project application. Be sure to complete the environmental section of the application quickly as this section tends to have the longest process time.

After receiving a funding agreement for the planning process, hiring an engineer to look at consolidation/regionalization options is the first part of the planning phase. The Engineering Firm Selection Process document can help summarize those items to look for when hiring an engineering consultant. The Division of Drinking Water (DDW) and DFA, working in collaboration with the water system's selected engineer, will help continue the engineering portions of the project from conception to completion, including changes such as LAFCO boundaries and water rights changes. As previously mentioned, expect that this will be a multi-year process. Typically, the receiving water system will be required to submit the construction application so keep them informed about the progress of any planning application.

If there are public health issues associated with the drinking water, for example it is above a maximum contaminant level, and it supplies a disadvantaged community, Interim Emergency Drinking Water may be available for the residents (e.g. hauled water, bottled water) until the construction project is completed.

Status of an application package can be found on our DWSRF Website (under "Check your DWSRF Application Status") and is updated approximately monthly. Status can also be determined by calling the DFA project manager.

Consolidation Funding Incentives for Receiving Water Systems

The Division of Financial Assistance offers zero-interest loans up to $10 million dollars for water systems that complete the consolidation of a small disadvantaged water system. The incentive loan can be used for any water system infrastructure related project that the receiving water system desires. The purpose of this incentive is to encourage larger water systems to support their community through consolidation and regionalization. Details of the program can be found in the annually updated Intended Use Plan.

Regional Consolidation Incentives

Water systems that consolidate three or more public water systems have the opportunity to double the per connection construction grant amounts for small disadvantaged communities.

Loan Program

For systems other than small disadvantaged communities and public schools, low-interest loans are generally available for planning and construction projects. The current interest rate is found on DFA's website.

Grant/Principal Forgiveness

Most communities want to know if grant or principal forgiveness is available for consolidation projects. Typically, grant funding is reserved for systems serving small, low-income communities, and public schools of all income levels. DFA may also have free technical service providers who can work with these water systems to help submit the funding applications and complete some preliminary tasks. The first step is to determine if a community may be considered disadvantaged. First, estimate the "median" household income (MHI) of the service area. The US Census Website can give an approximation of the MHI using the zip code of the water system under their "Income" tab. The results should be compared to the MHI Levels for Disadvantaged and Severely Disadvantaged Cutoffs. If the results are lower than the cut-offs, then some form of grant funding/principal forgiveness may be available. Please be aware that final MHI determinations are made by DFA and that a door-to-door survey may be required in some instances. The detailed guidelines for grant funding are provided in the Intended Use Plan, which is updated annually.

Once an estimate of the MHI is established, review the Intended Use Plan, and discuss the proposed consolidation/regionalization project with the DDW District Office and the Division of Financial Assistance to discuss funding options. Submit a Technical Assistance (TA) Request to aid in the submittal of application materials.

If there are public health issues associated with the drinking water, for example it is above a maximum contaminant level, and it supplies a disadvantaged community Interim Emergency Drinking Water may be available for residents (e.g. hauled water, bottled water) until the construction project is completed.

Other State and Federal Agencies that Fund Water System Consolidation Projects

Funding may also be available using other sources such as Integrated Regional Water Management (IRWM) Funding, USDA Rural Utilities Service Funding, and Community Development Block Grant Programs.