States Could Do More to Ensure Historically Underinvested in Communities Benefit from Federal Drinking Water Funding

August 12, 2021, Washington, DC–A report released today by the Environmental Policy Innovation Center (EPIC) and the University of Michigan finds the allocation of federal funding to help drinking water systems invest in infrastructure does not always reach the communities in greatest need. 

The reportDrinking Water Equity: Analysis and Recommendations for the Allocation of the State Revolving Funds, evaluated over $25.3 billion in aid provided to drinking water systems in the past decade and found 7.1 percent of eligible drinking water systems have received assistance through the program. While communities with lower water quality and lower median household incomes are more likely to receive SRF funding, small communities and communities with larger minority populations are less likely to receive assistance. The report outlines steps that states could take to increase the reach of their programs and advance water equity. 

“Ensuring that intergovernmental aid reaches the communities with the greatest need is critical to enhancing equity in water access and public health,” said Katy Hansen, EPIC’s Senior Advisor for Water and a lead author of the report. 

Disparities in access to safe, affordable drinking water often stem from unequal investments in infrastructure, leading to lower quality service with serious public health consequences. Drinking water systems serving low-resource communities tend to have less revenue and less access to capital to finance projects. The state revolving funds help address this gap by offering low-interest loans and additional subsidies that do not need to be repaid to drinking water systems. These additional subsidies are particularly important for those serving very low-income communities who cannot afford to repay a loan. Yet, the report found that only 26.6 percent of total assistance was distributed as principal forgiveness, grants, or negative interest loans, despite a federal ceiling of 35 percent for disadvantaged communities.

“Closing the gap in drinking water affordability, access, and safety requires thoughtful and targeted investments and support for communities in greatest need. Federal resources have a large role to play in providing these communities with access to capital and financing they may not otherwise have,” said Sara Hughes, Assistant Professor and director of Water and Climate Policy Lab at the University of Michigan and a co-author of the report. “Low-interest loans and grants can also help drinking water systems keep rates affordable.”

The report makes the following policy recommendations in order to improve the allocation of federal funding for water systems: 

  • improve technical assistance to drinking water systems with limited fiscal capacity, 
  • increase the amount of additional subsidies distributed by states, and 
  • prioritize projects in high poverty and historically under-invested communities. 

“EPIC and the University of Michigan provide a much-needed empirical analysis of distributive equity in the most important drinking water infrastructure financing program operating in the U.S.” said Greg Pierce, co-director of the Luskin Center for Innovation at the University of California, Los Angeles.

Much of the national conversation about state revolving funds focuses on increasing the size of the program. Recent legislative proposals include larger appropriations for DWSRFs. In addition to increasing the size of the program, the funds must reach the communities who need them most.

“With comprehensive infrastructure legislation being advanced in the U.S. Congress, this report underscores the need to direct federal investments to communities and people who have been most impacted by pollution and historic under-investment in clean, safe drinking water,” said Laura Rubin, director of the Healing Our Waters—Great Lakes Coalition. “Not only do we need greater investment in water infrastructure, but we need to expand support for our most disadvantaged communities and enhanced assistance to financially distressed cities and towns.”

The report was funded by the Kresge Foundation, Robert Wood Johnson Foundation, School for Environment and Sustainability and Poverty Solutions program at the University of Michigan, and Spring Point Partners.

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About Environmental Policy Innovation Center (EPIC): The Environmental Policy Innovation Center is a nonprofit organization based in Washington, DC whose mission is to build policies that deliver spectacular improvements in the speed and scale of environmental progress. In our water work, we focus on innovative policies that eliminate disparities across water systems and build public trust in water supplies. www.policyinnovation.org

About the Water and Climate Policy Lab at the University of Michigan: The Water and Climate Policy Lab at the University of Michigan develops research that supports water and climate policy solutions for just, sustainable, and resilient cities. www.waterclimatepolicylab.org