Priority 2
Make a financial plan
Estimate costs and identify funding streams available to your community
Developing a thoughtful financial plan is critical to the program’s long-term success and to ensure adequate funding for full lead pipe replacement.
Estimate total and annual program costs
Estimate total and annual program costs to understand the scope of funding and financing needed. Overall costs will be based on how many publicly and privately owned lead pipes are in your community (determined through your utility’s inventory), your plan or preferred approach for providing financial assistance to support private lead service line replacement, and the anticipated timeline for replacement that factors in changes in costs (materials, labor, etc.) over the period of replacement. Due to construction inflation, the sooner you start your program, the lower the overall cost.
Make key program decisions on equity and consider their financial impact
Make key program decisions on equity and consider their financial impact
- Affordability: Providing lead service line replacement at no cost to residents is the preferred approach (See: Conduct Replacement at No Direct Cost to the Property Owner). Program costs and appropriate funding sources will vary depending on the approach taken toward fully or partially funding private side replacement, so it is prudent to cost out various options (e.g., no customer cost, low or zero-interest loans, full or partial reimbursements).
- Prioritizing high-risk populations: Certain populations, such as children, pregnant women and low-income communities, are particularly vulnerable to the health effects of lead (See: Prioritize Vulnerable Residents and Neighborhoods). Take into consideration the cost implications of prioritizing such populations in your financial plan.
Set a target timeline by which all lead service lines should be replaced
Set a target timeline by which all lead service lines should be replaced. The LCR Improvements require communities to replace all of their lead service lines and lead connectors within 10 years starting in 2027, with exceptions for communities with exceptionally high proportions of lead lines. Some states have similar requirements to complete replacement within specific timelines. See the Financial Plan Checklist for details on considerations for setting a timeline.
Determine if your utility qualifies for zero-cost technical assistance
Determine if your utility qualifies for zero-cost technical assistance, available to utilities serving a small or disadvantaged community. Technical assistance providers can help you with a range of lead service line replacement activities, including developing inventories; developing financial, communications, and replacement plans; identifying funding opportunities; and preparing applications.
See the Financial Plan Checklist for additional detail on the items above
Contact an Environmental Finance Center to receive technical assistance
Participate in EPA’s WaterTA for your water utility to receive technical assistance
Ask the right questions
Ask the right questions to identify which funding streams make the most sense for your community. You may need to reach out to various members of your team to answer some of these questions:
- What proportion of service lines in our community are made of lead?
- What are the characteristics of the neighborhoods in our community with the highest concentrations of lead service lines (e.g. demographics, socio-economic indicators)?
- Does our community, or certain sections of it, meet our state’s “disadvantaged community” definition and/or qualify for state/federal low- or no-interest loans or grants?
- Do we qualify for federal infrastructure funding through State Revolving Funds (SRF) or other federal funding programs? Does our state have additional funding available beyond the SRF program?
- Have we ever conducted a water rate study to examine the current rate structure and identify potential alternatives to equitably increase rate revenue?
- Do we have an affordability program for low-income households, while implementing rates that support critical water investments?
- What is our capacity to take on debt?
Learn if federal funding is right for you
There are a variety of federal programs available to provide financial assistance for lead service line replacement, each with a different set of terms and requirements. These programs include:
State Revolving Fund
State Revolving Fund (SRFs) are federal funds administered through a state agency that provides low-interest loans as well as a modest amount of principal forgiveness, the latter of which is primarily targeted to state-defined disadvantaged communities.
- The Bipartisan Infrastructure Law invested $15 billion towards lead service line replacement. The funds are provided through the Drinking Water State Revolving Fund (DWSRF) program, with 49% taking the form of principal forgiveness loans to communities that qualify as “disadvantaged” based on the definition adopted by each state.
Water Infrastructure Financing Innovation Act (WIFIA)
Water Infrastructure Financing Innovation Act (WIFIA) is a competitive, flexible federal loan and guarantee program that accelerates investment in the nation’s water infrastructure through long-term and low-cost supplemental financial assistance for regionally and nationally-significant projects. WIFIA financing rates are often substantially below what can be obtained through the municipal bond market.
Assistance for Small and Disadvantaged Communities Grant
Assistance for Small and Disadvantaged Communities Grant is available to assist small, underserved, and disadvantaged communities to satisfy federal Safe Drinking Water Act requirements. Small communities are defined as having a population of 10,000 or less and lacking financial capacity to incur debt sufficient to finance a project necessary to ensure safe drinking water. Nearly $43 million has been distributed since the program’s inception in 2018.
Reducing Lead in Drinking Water Grant
Reducing Lead in Drinking Water Grant is a competitive grant program available to assist disadvantaged communities to address conditions that contribute to increased concentrations of lead in drinking water.
Department of Housing and Urban Development’s (HUD)
HUD’s Community Development Block Grant (CDBG) is a flexible program that provides grant resources on a formula basis to help over 1,200 communities across the country address a wide range of needs. Lead service line replacement is an eligible cost.
US Department of Agriculture (USDA) Rural Development Fund
US Department of Agriculture (USDA) Rural Development Fund Water and Waste Disposal Loan and Grant Program provides low-interest rate loans and grants to rural communities with populations under 10,000 people to support infrastructure projects including lead service line replacement.
Explore state funding sources
Explore state funding sources if your state has a funding program for lead pipe replacement such as Massachusetts, Minnesota, New York, and Ohio.
Tap into municipal resources
Revenue from water rates
Revenue from water rates is the primary funding source for drinking water utilities to support operations and maintenance costs. Though no elected official wants to raise water rates, relatively small annual increases to water rates could be used to fund service line replacement by spreading the costs across the customer base (where allowed), ensuring access to clean and safe drinking water in the future. There are a few things to keep in mind when considering using rate payer dollars to fund lead service line replacement programs:
Affordability issues
Affordability issues, especially in communities with smaller customer bases and communities with high proportions of low-income households. Because lead service line replacement costs are spread across fewer customers in smaller communities, the rate impact is likely greater than in large communities. Your community may opt for an alternative pricing structure or customer assistance program (where allowed) to help those residents experiencing financial hardship.
Check out NRDC’s Water Affordability Business Case Downloadable Tool
Perceived or real legal barriers on the use of public funds
Perceived or real legal barriers on the use of public funds to cover private-side replacements. Though this use of rate funds is presumed to be allowed in most states, statutory or constitutional restrictions or lack of clarity in some states may present an obstacle to covering the cost of full replacement. In some states, these barriers may be overcome by taking additional steps, and it is important to become familiar with the required processes and requirements.
Where allowed, spread the cost over time and across your ratepayer base
Where allowed, spread the cost over time and across your ratepayer base, not just to those who have lead service lines. Small annual increases to water rates spread across a large customer base may be more palatable to customers than expensive cost-sharing of replacement up front and may help alleviate the financial burden for low-income and disadvantaged communities. Due to the long lives of service lines, 20-30-year financing should be available, greatly spreading the cost. Some utilities use a surcharge mechanism for recovering lead service line replacement costs.
See our financial check list for questions to consider for spreading the cost across your ratepayers
Municipal Bonds
Municipal bonds are an attractive option to pay for lead service line replacement projects due to their low interest rates. These lower rates are due to most municipal bonds having interest that is exempt from federal, and in many instances, state income taxes, making it an attractive option to pay for lead service line replacement projects. Communities with less favorable bond ratings may consider partnering with county governments or other local authorities that have a higher rating (e.g., see an example from Newark). The use of debt provides two important benefits:
- Cost spreading: As debt service payments are made over time (typically 30 years), the associated charges are reduced to a more reasonable amount than if paid with cash resources.
- Generational equity: As service lines are likely to last for many years, it is reasonable for both existing and future residents to help pay for the cost.
Consider non-utility sources of revenue
Though less common, there are examples of utilities funding some aspects or phases of their lead service line replacement through renegotiated leases, water tower antenna rental fees, stadium tax revenues, community benefits agreements, corporate partnerships, and philanthropy.
Apply for funding and financing
Increase the chances of a favorable award by tailoring the application to the funding program’s priorities and ranking criteria.
EPA’s Lead Service Line Replacement Financing Case Studies
Detroit, MI utilized federal and state funding to pay for full lead service line replacement.
NJ American Water – an investor-owned utility that serves nearly one-third of the state – implemented a lead service line replacement surcharge for all its customer base, averaging about $3/month per residential customer and enabling the utility’s plan to replace all lead service lines by 2031.
Newark, NJ employed municipal bonding to pay for lead service line replacement prior to the federal BIL program. The unique financing package was nearly $200 million, primarily from a $120 million municipal bond issued on Newark’s behalf by the Essex County Improvement Authority, which took advantage of the Authority’s AAA bond rating. To pay the bond, the city renegotiated a lease agreement on city property that the Port Authority of NYNJ uses for transportation purposes.
Philadelphia Water Department’s Tiered Assistance Program (TAP) is a model affordability program.
See our Financial Plan Checklist for additional detail
NRDC: Water Affordability Business Case Downloadable Tool
Local Infrastructure Hub: Drinking Water State Revolving Fund Grant Application Bootcamp
EPA Bipartisan Infrastructure Law resources for drinking water
EPA Identifying Funding Sources for Lead Service Line Replacement
EPA: Water Affordability – Water Finance Center
CDM Smith Tapping into Lead Service Line Funding Opportunities
Metropolitan Planning Council’s Drinking Water 123: Section on Financing
Incorporate service line replacement into broader capital planning
Incorporate service line replacement into broader capital planning and asset management activities to maximize administrative and construction cost-efficiencies and minimize disruptions. Coupling your lead service line replacement project with other public work projects that require digging up the same streets, sidewalks, and landscapes (e.g., water main replacements or relining, sewer lateral replacement, meter replacement, or roadwork) can help stretch funds by increasing efficiencies. Additionally, coordinating such activities will also minimize disruptions to customers.
Streamline municipal processes
Streamline municipal processes to remove barriers to faster lead service line replacement. Consider revisions to road opening moratoriums and pavement restoration policies to create an exception for lead service line replacement as well as reductions to or elimination of plumbing permit fees and code inspections.
Consider establishing a public-private partnership
Consider establishing a public-private partnership to speed up lead service line replacement, increase cost-efficiencies, and streamline implementation. Community-based private-public partnerships (CBP3s) are a collaborative model where government, private companies, and community-based organizations work together to meet public service needs. In a CBP3, the private partner would be responsible for financing, planning, design, construction, operation, maintenance and/or rehabilitation and replacement of publicly owned infrastructure. By pooling resources, expertise, and funding from both public and private sectors, CBP3s have the potential to increase the ability to leverage public funds while minimizing impacts to a municipality’s debt capacity.
Examples of Utilities coordinating lead service line replacement work with water main replacement and sewer improvements
Wausau, WI utilized a community-based public-private partnership approach for lead service line replacement
See the Financial Plan Checklist for additional policies and practices that can increase cost-efficiencies