Adequate and stable base funding is critical for the longevity of State Revolving Fund Programs
Base funding for crucial water infrastructure projects were cut by congressional earmarks, setting a dangerous precedent that hurts all states and their communities in the long-term. This base funding must be maintained and increased for the health and safety of American communities.
By Stephanie Vo, Senior Water Policy Associate
Congressional earmarks included in the 2023 Appropriations Act cut into half of states’ water financing that flows through the State Revolving Fund (SRF) programs. While EPIC’s analysis of these earmarks shows that overall earmarks went to localities with higher poverty rates, there are over 200 cases of outliers, in which earmarks went to much more affluent communities. This diversion of funds robs more overburdened and underserved communities that would have otherwise benefitted from SRF assistance.
In light of the threat of earmarks, EPIC sent a letter to the Office of Management and Budget in early March underscoring the importance of maintaining base funding levels for the SRF programs. Base funding, which is authorized in the Infrastructure Investment and Jobs Act (IIJA) at over $4 billion each for the Clean Water and Drinking Water SRFs for Fiscal Year (FY) 2024, is crucial to ensure the long-term integrity and capacity of the SRFs to meet communities’ urgent and extensive water infrastructure needs over the long term. We see four reasons why ensuring adequate and stable base funding is crucial:
Earmarks further reduced the funds available for SRFs by cutting into base SRF appropriations that were already well below the amounts authorized.
Earmarks will hurt all states in the long term because they bypass states’ policy frameworks for directing SRF assistance where it is needed most.
Earmarks further disadvantage all states over the long term by reducing the amount of repaid loans that circle back into the state revolving funds.
Communities’ water infrastructure needs are growing–and supplemental funds won’t be able to cover that need.
Earmarks further reduced the funds available for SRFs by cutting into base SRF appropriations that were already well below the amounts authorized.
Before lawmakers can carve out earmarks, Congress must authorize an amount of money that can be spent on an item, like the SRFs. IIJA authorized base and supplemental funding for the SRF programs for fiscal years 2022-2026.
The federal budget process for the SRFs then begins when the White House proposes a budget for that fiscal year–this budget proposal does not bind Congress to spend a certain amount on the SRFs, but it does state the president's position for budget negotiations that lead to congressional appropriations.
Once Congress appropriates funds via legislation, only then can agencies, like EPA, make payments from the federal Treasury. For SRFs, IIJA authorized both base and supplemental funds, but only appropriated the supplemental funds. Thus, for FY 2022-2026, Congress must pass additional legislation to appropriate base funds and is currently in the process of negotiating appropriations for FY 2024.
The tables below show the gap between the level of base funding Congress authorized and the level of base funding appropriated–over $2 billion each year for both the CWSRF and DWSRF. This gap is widening as IIJA authorizations increase and White House budgets and congressional appropriations remain the same. Any earmarked appropriations take away from the base funding and further increase this gap.
The tables below show the gap between IIJA-authorized SRF amounts and appropriated amounts.
| Clean Water SRF | FY 22 | FY 23 | FY 24 |
|---|---|---|---|
| Authorized in IIJA | $4.0 billion | $4.35 billion | $4.64 billion |
| White House Budget | $1.87 billion | $1.64 billion | $1.64 billion |
| Appropriated | $1.64 billion | $1.64 billion | TBD |
| Appropriated Amount Below Authorization | -$2.36 billion | -$2.71 billion | TBD |
| Drinking Water SRF | FY 22 | FY 23 | FY 24 |
|---|---|---|---|
| Authorized in IIJA | $3.5 billion | $3.85 billion | $4.1 billion |
| White House Budget | $1.36 billion | $1.13 billion | $1.13 billion |
| Appropriated | $1.13 billion | $1.13 billion | TBD |
| Appropriated Amount Below Authorization | -$2.37 billion | -$2.72 billion | TBD |
Earmarks bypass states’ policy frameworks for distributing funds to where they are needed most, and will hurt all states in the long term.
States have policies and programs to distribute SRF funds. Prior to receiving a federal capitalization grant, a state must explain in a publicly noticed Intended Use Plan the policies that determine how the funds will be distributed within the state. The vast majority of SRF assistance is provided to communities as low-interest loans, with some state-defined disadvantaged communities receiving additional subsidies such as forgivable loans. In contrast, earmarks go out as full grants—something almost unheard of in SRF programs—to communities that are not vetted through the normal SRF policies and processes. Earmarks skip past all of these tested program structures and public engagement opportunities. State SRF policy frameworks do still need improvements to yield better projects and more equitable outcomes, and we support the work being done in this space to do so. However, these concerns should be addressed by reforming state policies and processes that determine how SRF funds are distributed—not by opening a side channel for earmarks that bypass state SRF program policies and processes.
Earmarks further disadvantage all states over the long term by reducing the amount of repaid loans that circle back into the state revolving funds.
In bypassing these state SRF programs, earmarks also take away from loans that would be repaid and circle back into the program. We estimate that for every dollar not used to capitalize SRFs, the loss to SRF programs nationwide will be 26 percent greater, relative to the amounts earmarked. This means that $2.3 billion earmarked will actually be a $2.9 billion loss, based on average loan terms and interest rates of 30 years and 2 percent, respectively. This loss only considers the circulation of earmarked funds over the initial 30-year loan term, so given the nature of revolving funds, this loss would continue to compound over time. Over the long term, earmarks negatively impact all states, even those whose delegations benefit from earmarks over the short term.
Communities’ water infrastructure needs are growing–and supplemental funds won’t cover that need.
The EPA recently published its 7th Drinking Water Infrastructure Needs Survey and Assessment, showing that the estimated costs to address drinking water infrastructure needs over the next 20 years have increased 32 percent from $473 billion to $625 billion in just over five years. The EPA is currently conducting its first Clean Watersheds Needs Survey in over a decade, which will likely show huge increases in wastewater and stormwater infrastructure needs from the 2012 estimate, $271 billion. Supplemental funding from IIJA, which is about $43 billion combined for the DWSRF and CWSRF, is substantial, but will only help cover a portion of the tremendous amount of investment that America’s water infrastructure actually needs. This further demonstrates the necessity of securing stable yearly base funding for the SRFs without cuts by earmarks. Even though IIJA authorized increased base appropriations for SRFs, Congress has generally based appropriations on previous years’ funding levels–which has led to small to no changes despite the growing community and environmental needs as well as increased Agency responsibility. To close our persistent water infrastructure funding gap, Congress should look at the water infrastructure needs of communities and states – as indicated by the increased needs estimates – to establish baseline funding, rather than building appropriations based on previous years’ funding levels.
Water infrastructure may be getting a lot of attention and increased supplemental funding, but persistent and growing water infrastructure needs and threat of earmarks show that it is not enough. We will continue to advocate for base funding for SRF programs at the levels authorized in IIJA, in order to strengthen the capacity of the SRFs to maintain and improve the Nation’s water infrastructure over the near and long term.