The Environmental Protection Agency launched a management study with the Hawaii Department of Health this week to figure out why the state has a $52 million surplus in federal funding for drinking water infrastructure projects.

Each year, the EPA gives the state about $8 million for the Drinking Water State Revolving Fund. The state matches 20 percent of the money and then issues 20-year loans to the counties at low interest rates for projects such as installing new pumps and protecting wells from contamination. But some state and federal officials are concerned the money hasn’t been flowing out to counties as quickly as it should.

The excess money is nearly a third of the total the program has received since it was established in 1997.

“We have been struggling for more than a decade to encourage the counties to make more use of this fund.”

The surplus doesn’t mean Hawaii’s drinking water infrastructure is up to par. Dean Higuchi, spokesman for the EPA, said the agency’s latest national survey found there is a significant need for improvements in Hawaii.

“We’ve identified over a billion dollars in need,” Higuchi said, noting that over 90 percent of that is within the City & County of Honolulu. “It’s not like there’s not a need out there.”

Jill Kuramoto, spokeswoman for the Honolulu Board of Water Supply, said lengthy and stringent requirements to qualify for the loans, along with limits on the agency’s borrowing capacity, have slowed down efforts to utilize the funding.

Still, she said that the BWS has received $37 million from the fund since its inception and that another $19 million in loan agreements are being processed.

Gary Gill, deputy director of environmental services at the Department of Health, acknowledged the counties may be discouraged from participating in the program because of cumbersome conditions, such as a Buy American provision and record-keeping rules.

“We have been struggling for more than a decade to encourage the counties to make more use of this fund,” Gill said.

He added that construction delays can cause the counties to take out loans more slowly than expected. And until recently, it was cheaper for the counties to get bond financing rather than use the program.

Despite the challenges, Gill said the state has been making progress by lowering interest rates, streamlining the loan process and increasing outreach to county officials. The state is also working with the Honolulu Board of Water Supply to refinance several projects costing tens of millions of dollars.

Their efforts are already reaping results. Thanks to lower interest rates, Kuramoto said the BWS plans to borrow another $10 million from the program in fiscal year 2014, a higher amount than past years.

She added that the BWS is establishing a 30-year plan to prioritize capital improvement projects and said the agency will continue to take advantage of the program “in a thoughtful and responsible manner that benefits our ratepayers.”

Gill is optimistic that the situation is improving.

“We’re projecting that the $52 million of available loan money will be drawn down and utilized in the next couple of years as we are seeing more and more projects coming online,” Gill said.

While there’s no time limit for the money to be spent, Higuchi said the agency is worried that Congress might redistribute it if it’s not used.

“At this point, we’ve been pretty lucky there hasn’t been a callback to pull any money back,” Higuchi said.

Out of concern that the funding could evaporate, EPA officials reached out to several state lawmakers earlier this year to inform them of the situation.

Sen. Donovan Dela Cruz sent a letter to the agency last week asking for more details. The senator from Wahiawa said he wants to know whether there is anything the Legislature can do about the matter.

“Is it worth calling a special session if you’re going to lose 50 million bucks? Is it something that we should do interim committee work on?” he said. “I don’t know what steps to take until we get the answers.”

Contact Anita Hofschneider via email at anita@civilbeat.com or on Twitter @ahofschneider

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