October 2025 Vol. 80 No. 10
Features
Inside Infrastructure: Water infrastructure financing and a federal commitment
Eben M. Wyman, Wyman Associates
It seems whenever the federal government looks to cut spending on American infrastructure, programs that fund water, wastewater and stormwater infrastructure are put on the chopping block earlier, rather than later.
Look at federal programs that have been starved over the past 30 years, including the Environmental Protection Agency’s (EPA) Clean Water State Revolving Fund (CW SRF) and Drinking Water (DW) SRF, as well as the U.S. Department of Agriculture’s Rural Utilities Service. While the nation faces water and wastewater financing needs exceeding a staggering $1.2 trillion, the federal government is now looking to gut the programs that have struggled to fill the funding gap, between what is needed and what the government is investing, to address this enduring problem.
Republican control of both chambers of Congress, as well as the White House, has led to considerable progress on a range of business issues, resulting in lower taxes and rolling back overzealous regulatory initiatives put into place by the Biden administration. However, there are infrastructure sectors where the Trump administration, and many in Congress, have proposed unprecedented funding reductions in the budget and appropriations process.
Let’s evaluate the situation with water infrastructure.
Track record of success
The EPA’s CW and DW SRFs are America’s primary federal financing vehicles for municipal water and wastewater infrastructure. Created to provide low-cost financing to states and communities, the SRFs are central to efforts to replace lead service lines, remove emerging contaminants (i.e. PFAS), modernize aging treatment plants and generally refurbish this often out-of-sight, out-of-mind infrastructure.
The SRFs are revolving loan programs administered by states with EPA capitalization grants that, along with matching funds from the states, make up the loan pool. Congress annually appropriates capitalization grants to EPA, which are allotted to states based on statutory formulas and population, miles of infrastructure and age of water and sewer systems within that state.
States must provide a matching contribution (typically 20 percent) and can leverage other funds to solidify a state’s SRF capital base. Over time, loan principal and interest repayments recycle back into the fund, allowing for future lending. States offer low-interest loans, extended terms, and in some cases, subsidies such as principal forgiveness, negative interest rates or grants for disadvantaged communities. To facilitate the process, states also provide project priority lists and eligible uses consistent with EPA rules, giving states flexibility to target local needs and initiate key projects.
The CW SRF focuses on wastewater treatment, stormwater and “nonpoint source activities,” while DW SRF contributes to projects that help water systems meet standards under the Safe Drinking Water Act, including lead service line replacement and actions to address emerging contaminants. Historically, the SRFs have stretched federal dollars considerably because of state matching, loan repayments and other methods to make the most of taxpayer dollars. Since their inception in the mid-1990s, SRF programs have supported tens of thousands of projects and invested billions into upgrading infrastructure.
The COVID-19 pandemic changed the game, and the federal government did what it could to save jobs and put people to work during uncertain times. As part of that, the Infrastructure Investment and Jobs Act (IIJA) of 2021, otherwise known as the “Bipartisan Infrastructure Law,” provided some $55 billion to clean water and drinking water programs, most of which was allocated to the SRF programs. This was to many stakeholders a recognition of the need for a serious federal commitment to this critical infrastructure.
Fast forward to the 2024 Election, which was widely viewed as a rebuke of the Biden administration, and the business community was more than enthusiastic about a Republican “trifecta.” However, the second Trump White House has made it clear that serious reductions in certain federal infrastructure funding programs were part of the plan.
SRF funding facing devastating cuts
The SRF programs have received regular annual capitalization grants bolstered by IIJA supplements. SRF capitalization grants, in recent years, have been roughly $1.6 billion for CW SRF and $1.1 billion for DW SRF, plus supplemental IIJA funding targeted at lead service line replacement, PFAS (“forever chemicals”) and other priorities.
However, the past few years have seen a major shift in the federal commitment to water and wastewater infrastructure funding. President Trump’s FY2026 budget proposed a dramatic reduction in federal SRF capitalization grants, requesting $155 million for the CW SRF and $150 million for the DW SRF – a 90-percent cut from recent annual baseline appropriations. EPA’s FY2026 justification lays out this approach as a shift toward a smaller federal role and more state responsibility.
There has been some pushback from congressional appropriations committees. In July, the House Appropriations Committee’s Interior & Environment draft proposed cuts of about 25 percent to SRF grants, while the Senate Appropriations Committee proposed holding SRF funding at or near FY2025 levels. In short, the House committee sought to reduce annual SRF appropriations, while the Senate committee aimed to protect them.
Another factor that has complicated the already uncertain appropriations process is the redirection of appropriated dollars to earmarked projects pushed by individual lawmakers. When larger shares are earmarked, less is available for formula-based state allotments, which reduces the predictable funding states rely on.
This is particularly problematic in the House legislation, where substantial member-directed allocations have affected how much of the SRF appropriations reach state priority project lists. While most in industry do not object to earmarks, there has been objection to a “robbing Peter to pay Paul” scenario that comes with redirecting programmatic SRF funding.
Earlier this year, an ad-hoc coalition of construction organizations representing contractors, labor unions, manufacturers, engineers and other service priorities, wrote letters to House and Senate appropriators in support of preserving and fully funding the SRF programs and encouraging lawmakers to fund earmarks without raiding annual SRF appropriations.
According to this coalition, “efforts to reduce the federal commitment to America’s environmental infrastructure continue. At a time when EPA estimates that more than $1.23 trillion will be needed over the next 20 years to address drinking water, wastewater and stormwater infrastructure needs, we respectfully suggest cutting SRF funding would be an unfortunate step in the wrong direction.”
Regarding congressional earmarks, the group goes on to say that “funding diverted from the SRF programs for earmarked projects is provided in the form of direct grants, not revolving loans, and SRF dollars do not ‘revolve’ back into the SRF programs as low-interest SRF loans currently do. Therefore, in addition to the chronic underinvestment over the past several decades, the diversion of programmatic SRF funds to CDS projects will only exacerbate the ongoing problems facing federal aging water infrastructure financing programs.”
The coalition suggests that while the construction industry supports additional funding for important water and sewer projects across the country, project-specific funding should be provided in addition to robust SRF appropriations, not in place of them.
Snapshot of an uncertain future
It is evident that, recognizing appropriations process over the past few years, SRF funding is in flux. The Trump administration is clearly looking at deep cuts in funding. House appropriators are pushing for notable reductions, albeit not to the extent the White House is seeking. The Senate Appropriations Committee would largely preserve level SRF funding, which is not even close to what is needed to close, or even put a dent in, the water infrastructure funding gap.
Several factors will shape SRF funding in the coming years. First, IIJA supplemental funding expires in 2026, which will increase the importance of annual appropriations for ongoing needs. States may respond to tighter federal grants by increasing their own contributions, offering more subsidies, or expanding innovative financing through bonding and revolving loan leveraging methods. However, state budgets are also constrained. Leaving states the responsibility to make up for large federal cuts is politically and practically difficult, to say the least.
Recent regulatory efforts also come into play. EPA’s infrastructure needs assessments continue to show large gaps – billions in wastewater and drinking water investments are required for aging systems, treatment upgrades, and contamination responses. New rules for PFAS, lead replacement, etc. will increase both the need and pressure for more funding. In that environment, maintaining or increasing SRF capitalization is a logical policy response; cutting it risks leaving states and systems without affordable financing.
Factor in the issue with earmarks and redirection of SRF appropriations, and it’s clear that a long-term solution is sorely needed. If earmarks remain large, states will see less predictable formula funding, which complicates long-range planning. Policymakers and stakeholders must find a way to separate SRF formula funds from discretionary earmarks.
The SRF programs are proven, flexible engines for water infrastructure investment, leveraging federal capitalization to produce sustained state-level lending. However, the budget cycles over the past few years have exposed a stark choice. Congress can protect SRF capitalization grants (as proposed in the Senate) or the federal role could be sharply reduced as the administration has requested. With IIJA one-time supplements gradually ending, annual capitalization grants again determine how much low-cost, long-term financing states can offer.
For the construction industry, the immediate priorities are clear. We must monitor and influence the FY2026 appropriations outcome to preserve capitalization grants and limit cannibalizing earmarks. The SRF programs should be reauthorized to provide policy reforms that improve SRF effectiveness and equitable access.
If policymakers do the right thing, by restoring or growing SRF capitalization, these programs should continue to be the backbone of U.S. water infrastructure financing. If appropriation cuts prevail, states and systems will face harder choices, and the national progress on lead pipe removal, PFAS response, and system resilience could slow substantially.
This is a matter of political will. Our water and sewer systems across the country are still a low priority to lawmakers, at least until they fail and raw sewage is released in their communities and waterways. Both the DW SRF and CW SRF should be provided with $3.25 billion each in FY 2026, as authorized, and long-term funding alternatives should be explored.
Expanded use of private activity bonds and other ways to spur public-private partnerships are certainly promising, but they will not sufficiently replace the role of public water infrastructure programs. To repair and rebuild this vital environmental infrastructure, strong political will and bold action are essential.
For advocacy groups interested in the future of water infrastructure, now is not the time to be on the sidelines.
ABOUT THE AUTHOR: Eben Wyman is a veteran advocate for key underground utility and pipeline associations. He can be contacted at eben@wymanassociates.net.
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