Improving a Program That Works: Prioritizing New Jersey Water Bank Projects in Disadvantaged Communities
By almost any measure, New Jersey’s water infrastructure financing program is a success, having provided over $9 billion in low-cost financing for water and wastewater projects since its inception in 1987. The New Jersey Water Bank (NJWB), which administers New Jersey’s State Revolving Funds (SRF), is a partnership between the New Jersey Department of Environmental Protection (NJDEP) and the New Jersey Infrastructure Bank (I-Bank). The NJWB comprises two programs, the Drinking Water SRF (DWSRF) and the Clean Water SRF (CWSRF, focused on public wastewater and stormwater systems). These programs have broadened water utilities’ access to capital funding while saving participating communities an estimated $3 billion compared to financing in the municipal bond market.
But there is an important issue buried within this success story: to what degree has the NJWB addressed the water infrastructure needs of New Jersey’s disadvantaged communities (DACs), many of which face multiple environmental threats but lack the financial capacity to respond? This study, jointly prepared by New Jersey Future and the Environmental Policy Innovation Center (EPIC), examines that question.
No community can thrive, much less reach its full potential, without access to safe, clean water, yet without state assistance many fiscally-distressed DACs are locked in place. States have broad flexibility to create a SRF program that addresses their priorities, and many have innovated aggressively. Several of those measures could benefit DACs if implemented in New Jersey.
Based on EPIC’s review of NJWB awards and associated data from SFY2018 to SFY2022, a very strong correlation exists between the number and amount of CWSRF and DWSRF awards and the size of a community, with larger water utilities receiving a disproportionate share while small communities have lagged considerably. On a per capita basis, however, the value of awards per person served is much more favorable to larger water utilities. The distribution of state assistance should take both factors into account.
NJWB awards and water-related violations also correlate fairly closely, however that assistance does not consider the fiscal condition of the utility involved. These findings reflect New Jersey’s approach to project scoring, which emphasizes water quality issues and providing assistance to as many people as possible. Both of these correlations, community size and violations, are also present on the national level.
It is difficult to isolate the extent of NJWB assistance to disadvantaged communities given the large number of regional water utilities in New Jersey, however DACs serving larger populations appear to have a significant advantage. While there is much to be said for NJDEP’s approach, the recommendations in this report identify how water infrastructure financing could be improved for all of New Jersey’s DACs, including progress toward the federal Justice 40 initiative, a related but not identical program that targets 40% of certain federal aid to communities that are marginalized, underserved and overburdened.
It is important to recognize, however, that the success of any water financing program depends not only on the state, but also the communities that participate. To more equitably distribute funding, both NJWB and local water systems have a vital role to play. While practical obstacles may discourage water systems serving DACs from applying, improvement in project readiness, adherence to basic SRF requirements, and ongoing compliance with water quality regulations are also critical.
Most of the report’s ten policy recommendations could be implemented administratively, without the need for authorizing legislation. Specifically, a more robust method of identifying DACs and maximization of set-aside activities (e.g., to address pre-construction needs, such as planning and design) are highly recommended. The NJWB’s most precious resource, principal forgiveness (PF) funds that do not need to be repaid, should be separately ranked and distributed on a tiered basis to more efficiently recognize the relative needs of different DACs. Existing state funding and a small portion of loan repayments should be redirected to expand the pool of PF and increased provision of 0% interest loans and alternatives to flat caps on PF would help advance DAC projects with high environmental benefits. Finally, state legislation could improve the credit worthiness of severely-distressed DACs, and the state’s congressional delegation should strive to end the recent practice of earmarking federal funds for specific projects, which threatens to undermine the entire SRF program.
These recommendations, which are tempered to account for key tradeoffs and to preserve the program’s essential strengths, provide a baseline for ongoing consideration.
View the full report.
Access the appendix.
Download the Infographic.
