With the up-and-down jumps in appropriations, “You really don’t ever know if you’re going to get funding this year,” said Rod Geisler, Clean Water State Revolving Fund administrator with the Kansas Department of Health and Environment, leading many to turn to leveraging their clean water funds, taking on sizable debts to ensure adequate state matches.³⁵

When a state opts to leverage, it borrows the money for its matching CWSRF contributions from the private market. The program requires states to match 20 cents on every federal grant dollar they receive.
The process works like this: a state receives one dollar in federal grant funding. It then borrows its matching portion from the bond market at an average rate of 5 percent. Combining the borrowed match and the federal grant dollar, the state loans a community $1.20 at a rate of two percent.

One year later, the state has accrued .01 cents of interest on its debt, but it has earned .024 cents – nearly two and a half times as much – on the loan it issued. When the community repays that loan, the returning interest should give the state money to cover its own debt, with some left over to contribute to future projects.

As noted above, CWSRF loans average an interest rate less than half that of those issued by the private sector. States pay much higher interest on their private debts than communities do on their state debts, but the larger overall size of the community’s loan will ideally enable the state to pay back its creditors.

“We leverage the bejeezus out of our program,” Geisler said. Leveraging had allowed Kansas to meet what would otherwise be unmanageable needs at reduced costs, because Wall Street will lend the state money at even lower interest rates than the market average. Even so, he said, “We’ve pretty much hit our max capability on the program… we’re very heavily in debt, but it’s all covered.” Without federal grants, the terms of Kansas’ loans would likely be far less friendly.

Leveraging is also far from a one-size-fits-all approach. Nevada’s leveraging program ran into financial trouble as interest rates on its debts rose higher than the state’s ability to collect on returning loans, forcing the state to withdraw from the bond market. Nevada is currently consulting a financial specialist to retool its program and “see how we want to structure leverage… if we want to leverage at all,” said CWSRF manager Morris Kanowitz.³⁶

<previous | next >