States Differ Over What's a 'Disadvantaged' Community

When it shelled out $50 billion in the infrastructure law to improve water quality around the nation two years ago, Congress said it wanted about half of the money to go to disadvantaged communities. The problem is that Congress never defined what a disadvantaged community is and left it up to states to decide.

That isn’t going so well for some disadvantaged communities, said Erik Olson, senior strategist on health, food and agricultural policy for the Natural Resources Defense Council (NRDC). “Some communities that really need money aren't getting it while some communities that maybe don't need it as much are getting the money."

The issue appears to be that what states consider to be disadvantaged differs so much that, as of December, no two states had the same definition, Becky Hammer, NRDC’s deputy director for federal water policy wrote in a blog post.

The disparate definitions have led to some impoverished communities being forced to pay back loans for water projects because they aren’t meeting a state's definition to receive grants to cover the costs.

The Infrastructure Investment and Jobs Act distributes loans through two federal programs—one to prevent water pollution through the Clean Water State Revolving Fund, and the other to address problems like lead pipes through the Drinking Water State Revolving Fund. 

In terms of the clean water program, for example, nine states consider a community as disadvantaged if it’s small.

Take Illinois. It only excuses local water agencies from repaying loans for projects if they serve fewer than 25,000 people under a “small community rate.” And those with fewer than 10,000 people can also have loans forgiven under a “hardship rate.”

That’s a problem for larger communities with impoverished areas, like Chicago. “For a city the size of Chicago, having a [population] cap means that the city is going to get very little money towards a massive problem,” Olson said. The fact that the city has “by far the largest population of low-income people of any community in the state, is a problem as far as we're concerned.”

NRDC is hoping the U.S. Environmental Protection Agency will step in and stop states from spending more of the infrastructure act’s funding for loans until they change their definitions. The EPA, though, hasn’t signaled that it’s willing to go that far and appears willing to let states come up with their own definition.

At a hearing in March before the Senate’s Environment and Public Works Committee, Sen. Shelley Moore Capito of West Virginia, the committee’s top Republican, pressed Radhika Fox, the EPA’s assistant administrator in charge of water policy, to let states decide how to define what disadvantaged means.

The relationship between the agency and states is a “partnership,” Fox responded. But ultimately, “Yes, absolutely, the states are in the driver's seat,” she said.

Still, the agency has said that the definitions some states are using are a problem. 

“A key priority of [the infrastructure law] is to ensure that disadvantaged communities benefit equitably from this historic investment in water infrastructure,” Fox wrote in a March 8 memo to states on how they will be allowed to use the funds. But a “barrier” to that, she wrote, is making population a “determining factor” in deciding who will get the help. “EPA strongly encourages states to amend their affordability and disadvantaged community definitions.”

The agency has been discussing with states how they should define which communities should be considered disadvantaged. And some states are considering making a change.

Illinois officials are thinking about eliminating the maximum number of people an agency serves in order to have their loans forgiven, at least for removing lead pipes, said Kim Biggs, a spokeswoman for the state’s Environmental Protection Agency.

“This change would allow any size community to possibly obtain principal forgiveness for an SRF loan for lead service line replacement,” she said.

That’s a positive step, Olson said. But larger communities in the state would still not be considered disadvantaged for other kinds of water projects like preventing water pollution.

Washington state’s health department, which gives the drinking water loans to local governments, announced on Thursday that it is planning to change its definition.

The department has been deciding which disadvantaged communities will get the loans by looking at whether smaller or rural communities are considered disadvantaged under a Climate and Economic Justice Screening Tool developed by the White House’s Council on Economic Quality, said Jocelyne Gray, a state drinking water environmental engineer. 

The database looks at factors like which areas are low-income or are disproportionately being hit with the impacts of climate, health, housing or other social problems. 

Currently, only communities with fewer than 3,300 people are considered disadvantaged. They can also be determined to be disadvantaged if they are in a county with fewer than 100 people per square mile, or if it is less than 225 square miles.

But Gray said her department believes a change is needed. “We are aware that disadvantaged populations and communities within urban areas are excluded from receiving the additional subsidy,” she said.  A different definition would “protect public health by broadening the types of infrastructure improvements that would qualify for DWSRF loans” through the infrastructure law, the agency said in a notice Thursday.

The notice didn't say how the definition might change, but Gray said it would “define disadvantaged as communities in rural areas and urban areas, and small water systems and within large water systems.”

States have different ways of defining whether a community is disadvantaged when evaluating loans for drinking water and those for wastewater projects.

Washington state’s ecology department, which administers the clean water loans, looks at factors like an area’s household income and how much a project would raise rates, said Jeff Nejedly, the department’s water quality financial services manager.

Washington state does allow those loans to go to bigger communities to fund projects that serve small numbers of people. But generally speaking, the state forgives loans mainly to districts that serve less than 25,000 people. 

The state decided to focus on helping small communities because larger areas can spread out the cost of paying back the money to more ratepayers than in smaller communities, he said in an email.

Nejedly acknowledged the concerns of critics.“We are aware that disadvantaged populations and communities within urban areas are less likely to be eligible to receive the additional subsidy,” he said. But rather than changing its definition, he said, the department is considering what it can do to help lower rates for low-income people in urban areas.

Some experts, like Deirdre Finn, executive director of the Council of Infrastructure Financing Authorities, think it makes sense for states to prioritize letting small communities not repay their loans.

“Smaller communities are less likely to have the revenue to be able to pay for the infrastructure, because they have so few ratepayers,” said Finn, whose organization is made up of state agencies that administer the loans. And it should be up to the states to decide what a disadvantaged community is. “The state demographics are so wildly different. I mean, Montana is so different than New York. California is so different than Missouri. And so states established their definitions,” she said.

Another thing to consider, she said, is that the money water agencies repay to states goes toward giving out loans to fund other projects. So allowing big cities to not repay their loans would reduce the amount of money available to help small rural communities.

“It's a question of where we put these limited resources to get projects built that wouldn't otherwise be built,” Finn said.

Some states embrace that philosophy and don’t intend to change their definition of what constitutes a disadvantaged community. South Carolina’s Department of Health and Environmental Control plans to keep its policy of only forgiving loans to communities with fewer than 10,000 people and a household income less than the state’s median. The state does consider some larger areas to be disadvantaged, but only if they don’t qualify to be able to get a low-interest loan, agency spokesman Ron Aiken said in an email.

“It's correct that large systems in urban areas serve diverse communities, which can include disadvantaged neighborhoods,” he said.

As “transformational” as the infusion of funding is, Aiken said it still isn’t enough to cover all the needs of even the state’s small communities. 

“Because needs exceed the available funding,” Aiken said the agency has been working closely with  local communities to figure out which ones have the “the greatest need and greatest public health benefit.”