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Environmental Loans Principal Forgiveness (PF)

What is Principal Forgiveness (PF)? PF is 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 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 which will actually be repaid.

Affordability Criteria & PF Allocation Methodology

Additional subsidization in the form of principal forgiveness has been an aspect of the state revolving fund programs (i.e. Clean Water Fund Program (CWFP) and Safe Drinking Water Loan Program (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 which 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 include income, population trends, and unemployment.

The Environmental Loans Program uses the same affordability criteria and principal forgiveness allocation methodology for both its Clean Water Fund Program (CWFP) and Safe Drinking Water Loan Program (SDWLP).

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Application deadline for principal forgiveness

Applications received by the deadlines are placed on the funding list for the applicable program, ranked in priority score order, and then the PF allocation methodology is applied.

  • SDWLP In years when PF is available, all SDWLP applications – whether eligible for PF or not – are due by the statutory application deadline of June 30.
  • CWFP Since the CWFP operates on a continuous funding cycle (accepting applications year-round) the deadline to submit applications for PF has been set at September 30.

Allocation & distribution of PF funds

The PF allocation methodology is structured to allocate PF funds to the highest priority projects in municipalities with the greatest financial need, as determined by median household income (MHI), population, population projections over 20 years, and county unemployment rate. See tables 1-4 below.

Projects in municipalities that are Green Tier Legacy Communities or that are providing disinfection where it was not provided previously are eligible for an additional 10% PF on top of the percentage determined by table 4, with the caveat that no municipality can receive PF for more than 70% of total project costs.

The amount of PF any municipality can receive in a state fiscal year (SFY) is capped. The cap may vary in different SFYs and may be different between the two programs, depending on the amount of PF funds available. The caps are descriped in the annual Intended Use Plans (IUPs). Additionally, a single project cannot receive more than one full PF allocation (based on the eligible PF percentage and/or the cap) even if that project is funded from two or more SFYs.

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Table 1 - population size

Population points ranging from 0 to 50 are awarded under table 1 with the highest points going to the smallest populations.

Points Population
0 15,000+
2 10,000–14,999
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

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Table 2 - income

MHI points ranging from 0 to 100 are awarded under table 2 based on the municipality's MHI's percentage of the state's MHI with the highest points going to the lowest MHI percentages.

Points MHI Percent
0 141%+
2 126-140%
5 116-125%
10 106-115%
15 101-105%
20 96-100%
25 91-95%
30 86-90%
40 81-85%
50 76-80%
60 71-75%
70 66-70%
85 61-65%
100 <61%

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Table 3 - population trends & unemployment

Additional points for population trends and unemployment are awarded under table 3. Unemployment data will be 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.

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

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Table 4 - scoring for PF percentage

Environmental Loans staff sum the scores from tables 1 through 3 and use the total score to determine the eligible PF percentage in table 4.

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

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Other policies regarding PF

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-only awards

The Environmental Loans Program previously allowed applicants to accept only the principal forgiveness portion of the financial assistance for which they were eligible without taking the remaining costs as a loan. Starting with SFY 2016 this is no longer allowed. In order to be awarded PF, an applicant must accept a loan for additional project costs.

PF Disbursements

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.

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Data sources used

MHI

MHI data comes from the U.S Census Bureau's American Community Survey [exit DNR] (ACS) 5-year estimates. The most recent MHI data for most Wisconsin municipalities is available on the Environmental Loan's MHI page. Some municipalities will have to obtain an MHI from the U.S. Census Bureau, along with documentation of how the MHI was derived from the ACS, and submit it to the department.

Unemployment data

Unemployment data [exit DNR] comes from the Wisconsin Department of Workforce Development (DWD) and is updated monthly. Data used will be the average of the most-recent 12 months available as of the application deadline date.

Population trends data

Population projections are developed by the Wisconsin Department of Administration (DOA) – Demographic Services Center [exit DNR] (DSC). Data used will be the most recent projections for the municipality as of the application deadline date. For sanitary districts, the town's population projection will be used.

Green Tier Legacy Community

Information on becoming a Green Tier Legacy Community can be found at greentiercommunities.org [exit DNR] and DNR's Legacy Communities page. To receive the additional 10% PF for being a Green Tier Legacy Community, the municipality must have signed the Green Tier Charter prior to the financial assistance application deadline date.

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Contact information
Direct questions related to Principal Forgiveness (PF) to:
Becky Scott
Financial Assistance Specialist, Environmental Loans
Bureau of Community Financial Assistance
608-267-7584
Last revised: Thursday June 29 2017