The USDA Water and Waste Disposal Loan and Grant Program in Texas: Who Qualifies and How It Works

What does the USDA Water and Waste Disposal program pay for?

Water, sewer, solid waste and storm water facilities, plus the costs of getting them built. USDA Rural Development's Texas program page lists the acquisition, construction or improvement of:

• Drinking water sourcing, treatment, storage and distribution
• Sewer collection, transmission, treatment and disposal
• Solid waste collection, disposal and closure
• Storm water collection, transmission and disposal

In some cases, related costs can be covered too. The page names legal and engineering fees, land, water and land rights, permits, equipment, start-up operations and maintenance, interest during construction, and buying facilities to improve service or prevent its loss.

The program rule, 7 CFR Part 1780, limits interest during construction and initial operating expenses to loan funds, not grant money (Section 1780.9).

Who is eligible for USDA water and waste disposal money in Texas?

A public body, nonprofit or tribe serving a rural area that cannot borrow elsewhere on reasonable terms. Part 1780 breaks that into several tests:

• Applicant: a public body such as a city, county, district or authority; a nonprofit controlled by a local public body or with broad local ownership or membership; or an Indian tribe (Section 1780.7)
• Area: a rural area, meaning one not in a city or town of more than 10,000 people by the latest decennial Census (Section 1780.3). The Texas page adds tribal lands in rural areas and colonias.
• Credit: you certify in writing that you cannot finance the project from your own resources or from commercial credit at reasonable terms
• Authority: you can own, build, operate and maintain the facility, and borrow and repay
• Feasibility: taxes, assessments or user fees cover operation, maintenance, reserves and debt

The facility itself can sit outside the rural area. Section 1780.7 lets USDA finance a facility located in a non-rural area, but only the portion that serves rural areas.

What are the loan terms and interest rates?

Fixed rates for up to 40 years, set by the project's need and the area's median household income. The term is the shortest of the facilities' useful life, any limit in state law, or 40 years (Section 1780.13).

USDA sets three rates each quarter:

• Poverty rate: 60 percent of the market rate, capped at 5 percent, for projects needed to meet health or sanitary standards where median household income is below the higher of the poverty line or 80 percent of the statewide nonmetropolitan median
• Intermediate rate: 80 percent of the market rate, capped at 7 percent, where median household income is no more than 100 percent of that statewide figure
• Market rate: for everyone else, based on a municipal bond index

You get the lower of the rate at approval or at closing unless you choose otherwise. The Texas office quotes the current rate for a specific project.

When does USDA add a grant to the loan?

When a grant is needed to keep user costs reasonable, funds are available and your income figures qualify. Section 1780.10 sets the ceilings as a share of eligible project costs:

• Up to 75 percent where median household income is below the higher of the poverty line or 80 percent of the statewide nonmetropolitan median, and the project fixes a health or sanitary problem
• Up to 45 percent where income is above that line but no more than 100 percent of the statewide figure
• No grant where income is above 100 percent

These are maximums, and available funds can lower them. A grant also cannot push user costs below what similar systems charge.

How do you pair USDA money with TWDB funding?

Plan the package with both agencies from the start. The Texas program page says USDA encourages partnerships with other federal, state, local, private and nonprofit funders. Four points shape a Texas package:

• Use the coordinating committee. TCEQ's summary of the Texas Water Infrastructure Coordination Committee describes it as one-stop shopping for water and wastewater funding, with TWDB, USDA Rural Development, TCEQ and the Texas Department of Agriculture among its members. Systems can attend its meetings to talk through funding.
• Split by service area. If a project also serves a city of more than 10,000 people, USDA can fund only the rural portion. A state loan such as the TWDB DFund may cover the rest.
• Keep the other loan reasonable. A USDA grant cannot pay project costs when the other loan funding is not at reasonable rates and terms, or when that other funding is a guaranteed loan under 7 CFR Part 1779 (Section 1780.10).
• Avoid duplication. TWDB's Rural Water Assistance Fund rule, 31 TAC §365.24, keeps an application from going to the board when a USDA obligation would duplicate TWDB funding for the same project, or when you canceled one, unless you show good cause.

How do you apply for a USDA Water and Waste Disposal loan?

Any time of year, through RD Apply or your local Rural Development office. The Texas page says applications are accepted year round, on an ongoing basis from October 1 to September 30.

Section 1780.33 lists what the first application includes:

• Form SF 424.2
• State intergovernmental review comments, or a copy of the filing for that review
• A preliminary engineering report
• Written certification that other credit is not available
• Financial statements, audits and organizational documents that show eligibility
• An environmental review under 7 CFR Part 1970
• Your taxpayer identification number

The preliminary engineering report is where your engineer defines the project and the alternatives considered. You can submit it early for a preliminary review.

Is your system ready to apply?

A no on any of the first three items stops the application, so start there.

1. Is the service area rural, outside any city or town of more than 10,000 people?
2. Are you a public body, a locally controlled nonprofit or a tribe?
3. Can you certify that commercial credit on reasonable terms is not available?
4. Do you know your service area's median household income against the statewide nonmetropolitan median?
5. Will user rates cover operation, maintenance, reserves and debt?
6. Is a preliminary engineering report under way?
7. Have you told TWDB and any other funder about the USDA application?

Then ask the Rural Development office which rate tier and grant ceiling apply, and whether another funder belongs in the package.

Our project funding work for utilities and municipalities starts with those same questions.

A note on limits: this is general education from USDA's Texas program page and 7 CFR Part 1780, current as of October 2026. Rates change quarterly and grants depend on available funds, so confirm details with your local Rural Development office.

Frequently asked questions

Is a Texas town of 12,000 people eligible?

Not for service inside the town. The rule defines a rural area as one not in a city or town of more than 10,000 people. A facility that also serves rural areas can be funded for the rural share.

Can a water supply corporation apply?

Yes, if it is a nonprofit controlled by a local public body or with broad local ownership or membership, and it meets the credit and rural area tests.

How long is a USDA water and waste disposal loan?

Up to 40 years, limited by the useful life of the facilities and any limit in state law.

I'm the board president of a rural Texas water supply corporation and our plant needs new filters. Can USDA money pay our engineering and legal fees too?

Yes. Legal, engineering, administrative, environmental and planning fees are eligible costs under Section 1780.9. Ask the Rural Development office how it treats fees you pay before the loan closes.

I manage a Texas city of about 4,000 people, and we already have a TWDB loan offer for our sewer plant. Can we still ask USDA for a grant on the same project?

You can ask, but plan for three checks. Your income figures must qualify for a grant. The TWDB loan must be at reasonable rates and terms. And if any of the money comes from TWDB's Rural Water Assistance Fund, its rule on duplicate USDA funding applies. Talk to both agencies early.

Related resources

• The Rural Water Assistance Fund (RWAF)
• The Economically Distressed Areas Program (EDAP)
• The Texas Clean Water State Revolving Fund (CWSRF)
• The Texas Drinking Water State Revolving Fund (DWSRF)

Building a USDA application for a rural Texas system?

Send us your system map, the problem you need to fix and your connection count. We will help you scope the preliminary engineering report and line up the funding partners.

We specialize in:

• Funding applications and engineering reports
• Water and sewer utility design
• Water distribution system design
• Lift station and force main design
• Construction administration

Modern Engineering Solutions, McKinney, Texas. Contact: (214) 833-6748 or mod-eng.com