PODCAST TRANSCRIPT REPORT: New Mexico’s Capacity to Effectively Manage Clean Water Infrastructure Funds Faces Challenges ----- KellyJune: Hello, and thank you for joining us today for another podcast by the U.S. Environmental Protection Agency Office of Inspector General. I’m KellyJune, spokesperson for the EPA OIG, and with me is Matt Jacobs, a project manager in the Office of Special Review and Evaluation. Welcome, Matt. Matt: Thanks, KellyJune. I’m glad to be here. KellyJune: The OIG released a report titled New Mexico’s Capacity to Effectively Manage Clean Water Infrastructure Funds Faces Challenges, which details an evaluation that you and your team recently completed. Let’s start with what spurred your team to undertake this project. Matt: It would be helpful to start with some background. The EPA has a Clean Water State Revolving Fund Program, which provides low-cost financing to communities for water infrastructure projects. The EPA receives money for the program from Congress, and then passes it on to the states and territories. For simplicity, I’ll just use the term state to mean both state and territory going forward. Each state puts the money it receives into what is called a state revolving fund, which acts as a sort of self-sustaining bank. In other words, the state awards loans from the Clean Water State Revolving Fund to finance eligible water infrastructure projects, and then as those loans are repaid, the state uses the repaid principal and interest to fund new projects. In November of 2021, when Congress passed the Infrastructure Investment and Jobs Act, it gave the EPA 11.7 billion dollars in supplemental funding over five years for the Clean Water State Revolving Fund Program. To put this in perspective, the five years before it passed the IIJA, Congress gave the program a total of 7.9 billion dollars via annual appropriations. Because of the IIJA, the EPA, and therefore the states, are receiving essentially 4 billion dollars more than they have traditionally received in a five-year period. KellyJune: Hmm. That is a significant increase in funds. How are the EPA and the states managing that influx? Matt: And that question is the crux of why we initiated the project. We know limited capacity can adversely impact a grantee’s ability to effectively manage and implement federal grants, so it is important that the EPA understands each state’s capacity to administer and manage this significant increase in funds. Without adequate capacity, the risk of fraud, waste, and abuse of those taxpayer dollars increases. To that end, my team initiated a series of Clean Water State Revolving Fund capacity reviews of the states. KellyJune: Will you review all the states as part of this series? Matt: No, my team doesn’t have the resources to review the capacity of all the states, so for our series, we targeted our reviews to states that we found to be at the highest risk of having a low capacity to manage and use the supplemental funds. In executing these reviews, we hope to identify both state-specific and overarching risks and challenges. KellyJune: Okay, the first report in your series, then, will focus on New Mexico. What were the results of your review? Matt: We found that New Mexico had the financial and organizational capacity to manage the IIJA funds given to its Clean Water State Revolving Fund, but it faces challenges in its stakeholder capacity. In other words, the state may not be able to attract an adequate number of loan recipients to apply for and use the money, which means the money may sit idle and won’t be used as intended for public health and water quality improvements. New Mexico also faces human-capital-related challenges in that it is not fully staffed and may have difficulty managing the increased workload that such an influx of money would cause. KellyJune: And have you identified other states for review yet? Matt: South Carolina is the second state we selected for a capacity review, and we announced that project in January of this year. You can look up the project notification on our website, www dot epaoig dot gov, under “Our Work” and then under “Projects.” Search for project number O S R E dash F Y 2 4 dash 0 0 4 3. We expect to complete this review and release the associated report later in 2024. We haven’t announced subsequent states for review, but, if and when we do, we’ll post project notifications of those reviews on our website. KellyJune: Matt Jacobs, project manager for EPA OIG Office of Special Review and Evaluation, thank you for talking to us today, and to our listeners, thanks for joining. Be sure to check out the full report on New Mexico’s capacity to manage clean water infrastructure funds, as well as other OIG reports and project notifications, on our website at www dot epaoig dot gov.