By Todd Hagen, Senior Municipal Advisor
and Jon Cameron, Senior Municipal Advisor | Managing  Director

How to Plan for Funding Lead Service Line Replacement

The federal bipartisan Infrastructure law (also known as the Infrastructure Investment and Jobs Act or IIJA) invests $15 billion to identify and replace lead service lines. Some states, including Minnesota, have contributed additional funds toward this national initiative. All federal dollars are being distributed through the states’ Drinking Water Revolving Fund (DWRF) loan and grant programs.

Local communities are responsible for the implementation and construction work to replace lead service lines (both public and privately owned) and now that many of the initial pilot projects are underway, we’re quickly learning the primary “dos and don’ts” relative to bringing these complicated initiatives to fruition. Below are three best practices that apply to both Wisconsin and Minnesota.

Best Practice #1:  Identify Public vs. Private Ownership   

It’s important to understand the ownership of your existing lead service lines. In some cities, private property owners own the service line from the building to the lateral in the middle of the street; in other cities the line from the lateral to the stub at the property line is publicly owned. Different funding sources and rules apply to public vs. privately owned infrastructure, so be sure to establish clear ownership before you seek financing.

Best Practice #2: Carefully Scope Your Project with Your Engineer

Many communities may wish to replace lead service lines in conjunction with a planned street and utility project. From a contracting perspective, it is probably easier to put the whole project in one scope of work. However, that will subject the entire initiative – including the street and utility main portions – to the federal requirements governing the DWRF dollars earmarked for lead service line replacement. Those requirements include items such as “Build America Buy America” and prevailing wage obligations that may make a project more expensive and lengthen lead times for obtaining materials. So, convenience aside, it may be more prudent to separate the scopes of work into separate contracts.

Best Practice #3: Commit to Community Engagement

As municipalities work to identify or update lead service line inventories, develop replacement project plans, and evaluate available funding options, community engagement will quickly rise to priority number one relative to ensuring a successful initiative.  To execute a strong community outreach and engagement program, consider the following:

• Start early, message often! If local government officials have been largely silent to-date relative to the health risks associated with lead or the existence and location of lead service lines within a community, a sweeping announcement of an upcoming replacement project will only incite angst and financial concerns among constituents.  Instead, develop a cascading outreach plan that coordinates with each phase of the project plan, so the community receives information they can easily digest and gains an understanding of what’s happening next.
• Be transparent. Removing lead from drinking water is a public health imperative. It’s important for all community members to know why lead services lines need to be removed, where they are, what the work entails and when it will take place, and how much it will cost. Disseminate messaging that is honest, clear, and concise.
• Ensure equitable access to information. Every individual consumes information differently and there may be many in any given community who face barriers to accessing content through certain channels. To ensure all community members can access the same information, be sure every new message is transmitted via U.S. mail, e-mail, dedicated webpage or microsite, and social media.
• Welcome community participation and feedback. When people feel they are invited to be an active part of a public project and that their voices matter, communities can pave a much smoother path toward project completion. It’s important to host community open houses or town hall meetings over the course of the project – especially after sharing more complex information or financial impacts – so constituents have an opportunity to take learn more, ask questions, and share concerns. Consider also developing FAQs for the project’s web presence and print-based mailers.

Funding Lead Service Lines in Wisconsin

The Safe Drinking Water Fund Loan Program is Wisconsin’s primary funding source municipalities will leverage for lead service line replacement. The program has approximately $81 million available for the 2025 State fiscal year (ending June 30, 2025) which consists of a mix of grant and low interest loan financing.  Funds are awarded to municipalities annually, based on applications by June 30th.

Historically, private lead service line funding was administered through the State of Wisconsin Lead Service Line Replacement Program and was 100% grant-based for replacing the private portion of water service laterals. While the IIJA now infuses significant additional money for private lateral replacement, it also requires that 49% of the funds be awarded to disadvantaged municipalities or census tracts in the form of principal forgiveness. That means, while any municipality can apply for funding through the program, only those that meet the prescribed definition of “disadvantaged” for the community itself or its population will qualify for principal forgiveness. This shift in funding composition presents a significant challenge for local governments that now must secure loan funding for a portion of their replacement project, as well as administer repayment of that debt from private customers.

Municipalities awarded loan and principal forgiveness amounts, or only a loan, are provided the choice of using a general obligation or revenue pledge to secure a Safe Drinking Water Loan. Regardless of the pledge associated with the loan, the intent would normally be to use water system revenues to repay the debt. The primary issue related to this traditional approach is that local governments aren’t allowed to recover the cost of replacing privately owned assets through conventional water rates.

To deal with this problem, the State developed an alternative that allows communities to create and administer municipal loan programs for lead service line replacement. Under this option, municipalities make loans to private property owners and implement a special charge that becomes the basis for repaying the municipality’s financing. To establish this funding recovery method, a municipality must first adopt a “Lead Service Line Replacement Ordinance” designed to comply with State Statute 66.0627(8)(ag)2. requiring property owners to replace lead service lines. The municipality must then adopt a second ordinance for “Lead Service Line Replacement Financing” designed to establish the loan program and the special charge repayment mechanism. The financing ordinance authorizes a municipality (lender) to enter into a financing agreement with a property owner (borrower) for repayment of the cost of the lead service line replacement over a designated period of time. It further specifies that the loan repayment amount will be considered a special charge, and each year’s annual installment payment will  be set out on the property tax bill. Much like a property tax, the special charge is also considered a lien against the property pursuant to Wisconsin Statute 66.0627.

Local governments collecting funds under this program must place special charges into a segregated fund and cannot consider them revenue for the water utility. However, all special charges can be used as a pledged revenue source if the municipality wishes to structure the Safe Drinking Water Fund Loan as a revenue obligation. The special charges can also be used as a revenue source to abate any required tax levy if a municipality issues a Safe Drinking Water Fund Loan with a general obligation pledge.

If you are considering creating a municipal loan program for lead service line replacement, it’s important to collaborate with your engineer, municipal advisor, and bond counsel for the adoption of the necessary ordinances, and the mechanics and administration of the program. To learn more, Visit the Wisconsin DNR’s dedicated Environmental Improvement Fund Loan microsite to help educate communities on available lead service line replacement funding options.

Funding Lead Service Lines in Minnesota

There are estimated to be 100,000 lead service lines in Minnesota and the state expects to receive approximately $340 million in federal IIJA funding for replacement projects over five years. Those funds must be structured so that at least 50% is distributed as a loan, while the remainder may be a grant. The Minnesota Legislature appropriated another $240 million of grant funding to be used in conjunction with the federal funds and established a goal of replacing all lead service lines by 2033. All funding will be administered through the Minnesota Public Facilities Authority’s Drinking Water Revolving Fund Program.

All privately owned lead service line replacement projects will be 100% grant funded, sidestepping some of the issues discussed above as important considerations for Wisconsin communities. Costs to replace publicly owned lead service lines will initially be funded with a combination of grant and 0% loans. However, upon project completion the loan portion will be taken out with grant funds so no long-term repayment will be necessary.

The first step in obtaining funding is for cities to submit project proposals to the Minnesota Department of Health for placement on the Drinking Water Project Priority List. Proposals should explain how projects will coordinate the replacement of public and privately owned lead service lines and be coordinated with watermain replacement initiatives.  Proposals must also describe how the recipient will prioritize areas in the community that:

• Pose an imminent threat to public health and safety
• Target areas where children have elevated blood lead levels
• Target areas where there are children under the age of five
• Serve schools, licensed child-care facilities, or other properties known to be used disproportionately by large numbers of children, lower-income residents, and other disadvantaged communities

Project proposals may be submitted each year during March to the Minnesota Department of Health and cities may have multiple initiatives on the Project Priority List for different service areas. When a city plans to proceed with construction for a specific project in the coming year, it must submit a request in the spring to the Minnesota Public Facilities Authority to place that project on the next year’s Intended Use Plan. The Public Facilities Authority is currently accepting requests for the 2025 Intended Use Plan.

The Minnesota Department of Health also has grant funds available to help cities complete lead service line inventories.

Whether you’re working in Wisconsin or Minnesota, replacing lead service lines is a critical public health priority that requires careful coordination and project implementation.  We recommend working closely with your engineer, state agency, and municipal advisor to ensure you’re well poised to get the lead out!

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