All 50 states, plus the District of Columbia and Puerto Rico operate two State Revolving Funds (“SRF”). These SRF funds consist of the Drinking Water State Revolving Funds and the Clean Water State Revolving Funds (or Water Pollution Control Revolving Fund in Colorado). The Drinking Water Revolving Funds and Clean Water Revolving Funds function like environmental infrastructure banks by distributing low interest rate loans for water quality projects. Loan repayments are recycled back into individual SRF programs. The funds are capitalized in part by federal and state contributions. For every dollar contributed by the federal government, states contribute 20 cents.
Some of the SRF funds (including Colorado’s) leverage their funds to increase the amount of capital available for loan assistance by issuing municipal bonds. Typically, proceeds of the bonds are used for loans to governmental agencies for infrastructure development, and the SRF funds are invested in investment grade securities. These investments are pledged to the bondholders as additional collateral, thus assuring a strong rating on the bonds, and the interest on the investments is used to pay subsidies to the SRF program’s borrowers.