Lead Service Line Replacement Program State Fiscal Year 2026 Draft Priority List Published
Due to continued high demand for financial assistance, loan capacity limitations are expected to impact state fiscal year 2026 Lead Service Line (LSL) Replacement Program applications.
For the state fiscal year 2026 funding cycle, the Wisconsin Department of Natural Resources (DNR) received 47 applications from 29 municipalities for lead service line replacement projects by the June 30, 2025 submittal deadline, requesting $182 million in funding. Note that any LSL applications submitted after the competitive June 30, 2025 application deadline for principal forgiveness are considered supplemental applications and are not eligible for state fiscal year 2026 funding.
Draft Priority List Published
At this time, the DNR's Environmental Loans Section is able to share the state fiscal year 2026 LSL Replacement Program draft priority list, which is available on the Project Lists and Intended Use Plans webpage. We are providing this draft priority list at this time instead of a list with funding allocations because the U.S. Environmental Protection Agency (EPA) has not yet released the new LSL allocations for federal fiscal year 2025. The DNR will publish the funding list after we receive the Bipartisan Infrastructure Law (BIL) LSL capitalization grant allocation from the EPA.
The draft priority list ranks submitted LSL applications in priority score order and breaks the requested costs between "Private Side Costs" and "Remaining Costs." The DNR is prioritizing private side construction and filtration (i.e., pitcher filters, point-of-use devices) costs for BIL LSL funding allocations. If you have questions about how the costs for your project were split, please contact Kate Leja-Brennan at Kathryn.Leja@wisconsin.gov or Dan Noreika at Daniel.Noreika@wisconsin.gov.
Federal LSL Funding Limitations
We anticipate that there will not be enough BIL LSL funding for all state fiscal year 2026 applicants. The BIL LSL principal forgiveness will first be allocated to private side costs in a two-pass allocation. If any principal forgiveness is remaining after this two-pass allocation, the principal forgiveness allocation will move to the remaining costs. Available loan funding will also be allocated to the private side costs first, and then, if any loan funds remain, the allocation will move to the remaining costs side.
Optional Safe Drinking Water Loan Dollars
Since we anticipate that there will not be enough BIL LSL funding for all state fiscal year 2026 applicants, we have reserved at least $40 million in base Safe Drinking Water Loan Program loan funds that will be made available to LSL applicants who did not receive a full funding allocation. These base Safe Drinking Water Loan Program funds will be at the standard subsidized loan interest rate (either 55% or 33% of the market rate, see the DNR's Interest Rates webpage), rather than the 0.25% rate offered for loan funds from the BIL LSL capitalization grant.
Any financial assistance agreements (loans) for LSL projects that include private side costs will be secured by taxable bonds and subject to the higher taxable bond interest rate. The LSL projects are not eligible for general Safe Drinking Water Loan Program principal forgiveness. The LSL funding will be awarded in a separate financial assistance agreement from any other Safe Drinking Water Loan Program projects.
Reimbursement Resolution
If an applicant will be utilizing base Safe Drinking Water Loan Program funding for a financial assistance agreement that does not include any private side costs, they should plan to pass a reimbursement resolution so they can secure the loan with a tax-exempt bond and avoid the higher interest rate. The market rate for loans issued on a taxable basis is slightly higher than the market rate for loans issued on a tax-exempt basis.
The reimbursement resolution is a municipal resolution required by the Internal Revenue Service declaring the municipality's official intent to reimburse a municipal account with proceeds from a tax-exempt bond or promissory note. Municipal borrowers typically secure a base Safe Drinking Water Loan Program loan by issuing a tax-exempt revenue or general obligation bond to the program.
Municipalities receiving LSL awards have three pledge options for repayment of the loan portion: a water revenue pledge; a general obligation note pledge; or an alternative revenue pledge. Under all these scenarios, when costs related to private lead service line replacements are included, the bonds are considered taxable due to the private activity.
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