Introduction

The condition of the nation's wastewater and drinking water infrastructure systems continues to garner attention. The U.S. Environmental Protection Agency (EPA) periodically reports on the capital cost of wastewater and drinking water infrastructure needs. EPA's 2024 report on wastewater infrastructure needs estimates that the nation's wastewater infrastructure, which includes stormwater systems, will need $630.1 billion over 20 years to meet federal water quality objectives.¹ EPA's 2023 report on drinking water indicates that public water systems need to invest $625 billion in infrastructure improvements over 20 years to ensure the provision of safe drinking water.² In response to an optional survey of selected water systems by the Department of Health and Human Services, these systems reported that an average of 20% of their customers fell behind on water payments in 2022, and that, as a result, such systems assert they may be challenged to support operations, maintenance, and capital improvements.³ Given these findings, interest continues in the costs of projects needed for these systems to comply with federal requirements and maintain levels of service, as well as concerns over the affordability of such projects for communities.

To assist with local water infrastructure projects, Congress has authorized several federal financial assistance programs, and has provided regular, and, in some cases, supplemental appropriations for some of these programs.⁴ Among these are the Clean Water State Revolving Fund (CWSRF), authorized by the Clean Water Act (CWA),⁵ and the Drinking Water State Revolving Fund (DWSRF), authorized by the Safe Drinking Water Act (SDWA).⁶ Under both SRF programs, EPA receives appropriations and allots the funding by formula as grants to the states (including Puerto Rico). Each state uses its federal grant to capitalize revolving loan funds to support local water infrastructure projects.

The 117^th Congress provided increased supplemental funding for these state revolving funds (SRFs) through the Infrastructure Investment and Jobs Act (IIJA; P.L. 117-58). IIJA provided five fiscal years of emergency supplemental appropriations for the SRFs, representing a substantial increase over recent regular appropriations for these programs. The 117^th Congress also reestablished the process (which had been discontinued in 2011) of providing funding directly for specific water infrastructure projects through community project funding/congressionally directed spending (CPF/CDS) items, commonly known as earmarks.

In the 118^th Congress, the Consolidated Appropriations Act, 2024 (P.L. 118-42) provides regular appropriations for the SRFs, and continues CPF/CDS. Just as with appropriations acts in the 117^th Congress, the FY2024 act reserves a portion of each SRF appropriation for CPF/CDS items rather than providing a separate appropriation for CPF/CDS. As such, reserving funds for CPF/CDS effectively reduces the amount of SRF regular appropriations allocated to the SRF programs. Also, through report language, the appropriations committees provide direction to EPA regarding the timeliness of CPF/CDS administration, and direct EPA to propose a legislative structure to allow for state administration of CPF/CDS.

Dedicating a portion of each SRF appropriation to CPF/CDS raises several considerations for Congress, particularly in light of the committees' direction to EPA for a proposal for state administration of CPF/CDS. A key consideration is how this practice changes the distribution of water infrastructure funds among the states. Other considerations may involve who determines which projects receive funding and the financial characteristics of communities that receive funding. Other questions may regard the details of EPA's proposal for CPF/CDS administration.

This report begins with an overview of the SRFs, the key federal financial assistance programs for municipal water infrastructure, and provides a brief discussion on the practice of earmarking federal funding for water infrastructure projects. It also analyzes the effect of the Consolidated Appropriations Act, 2024 (P.L. 118-42) CPF/CDS items on SRFs, and it discusses issues and options regarding this practice.

State Revolving Fund (SRF) Programs

The principal federal programs that help support wastewater and drinking water infrastructure are the CWSRF and the DWSRF programs, respectively. The CWSRF provides financial assistance for wastewater (e.g., sewer and stormwater) infrastructure projects to publicly owned treatment works and other eligible recipients.⁷ The DWSRF provides assistance to public water systems, which may be publicly or privately owned.⁸ In both SRF programs, EPA makes grants to states to capitalize state revolving loan funds. Each state is required to provide a 20% match of its annual capitalization grant.

CWSRF financial assistance is available generally for projects needed for constructing or upgrading (and planning and designing) publicly owned treatment works, among a range of other purposes, including stormwater infrastructure.⁹ DWSRF financial assistance is available for statutorily specified expenditures and those that EPA has determined, through guidance, will facilitate SDWA compliance or significantly further the act's health protection objectives.¹⁰

All 50 states and Puerto Rico implement their own SRF programs.¹¹ For the CWSRF, EPA allots the appropriation among states based on a CWA statutory formula, which provides a minimum share of 0.5% to each state.¹² SDWA directs EPA to distribute DWSRF funds among the states based on the results of the most recent quadrennial needs survey, with each state receiving a minimum of 1% of the available funds.¹³

Both the CWA and SDWA provide for federal oversight of the state programs. For example, states are required to establish Intended Use Plans (IUPs) that identify the projects that will receive SRF assistance in that year. More specifically, the CWA requires states to use capitalization grants first to assure compliance with enforceable deadlines, goals, and requirements of the CWA;¹⁴ and SDWA requires each state to give funding priority to projects that

• address the most serious human health risks,
• are necessary to ensure compliance, and
• assist systems most in need on a per-household basis according to state affordability criteria.¹⁵

States are required to publish their IUPs and solicit public comment.¹⁶ EPA is required to review the state IUPs to confirm statutory and regulatory compliance. In addition, both the CWA and SDWA require states to report specific information to EPA regarding the implementation of their respective SRF programs. In particular, states are required to submit to EPA an annual report on the CWSRF and a biennial report on the DWSRF. Both statutes require EPA to annually review states' implementation activities and periodically audit state programs.¹⁷ EPA annually publishes information on activities for both programs.¹⁸

Types of SRF Assistance

Under the SRF programs, states primarily provide subsidized loans to support community water infrastructure projects. States also provide "additional subsidization." Such assistance may include principal or other loan forgiveness; grants; negative interest loans; and buying, refinancing, or restructuring debt, which can help make infrastructure projects more affordable.¹⁹

In addition to subsidized loans, the authority or requirement to provide additional subsidization has been one of the primary instruments that Congress has used to address the affordability of water infrastructure projects. Additional subsidization may occur through the authorities of the underlying statute or through requirements in appropriations acts.

Statutory Additional Subsidization

When the CWA first established the CWSRF in 1987, the act did not include the authority to provide additional subsidization.²⁰ In 2014, Congress amended the CWA, adding authority for states to provide additional subsidization, but not requiring it. In 2021, IIJA amended the CWA to require states to use 10% of their CWSRF capitalization grants for additional subsidization, provided sufficient applications.²¹

Since SDWA established the DWSRF in 1996, the act has authorized states to use up to 30% of their DWSRF capitalization grants for additional subsidization.²² America's Water Infrastructure Act of 2018 (AWIA; P.L. 115-270) increased this proportion to 35% while conditionally requiring states to use at least 6% of their capitalization grants for these purposes. In 2021, IIJA amended SDWA to increase the minimum percentage that states were required to use for additional subsidization to 12%. SDWA requires that states provide this additional subsidization to disadvantaged communities only.²³

Appropriations Acts and Additional Subsidization

Annual appropriations acts have also directed states to use minimum percentages of their capitalization grants for additional subsidization. For example, the Consolidated Appropriations Act, 2024 (P.L. 118-42) directs states to dedicate 10% of their CWSRF capitalization grant and 14% of their DWSRF capitalization grant for additional subsidization. The regular appropriations acts have not required states to provide these mandatory percentages of additional subsidization to specific entities, such as disadvantaged communities. Thus, pursuant to the scope of these directives, states can provide additional subsidization to communities regardless of their financial situation or other characteristics.

IIJA supplemental appropriations require states to use 49% of their SRF capitalization grant amount as 100% principal forgiveness or grants, or a combination of these. For the IIJA emergency supplemental appropriations for projects to address emerging contaminants, states are required to use 100% of their capitalization grants as principal forgiveness or grants. IIJA appropriations require that states provide additional subsidization to disadvantaged communities only.

In an EPA memorandum from 2024, the agency clarified its interpretation that the appropriations acts' additional subsidization percentages are "additive" to the SDWA additional subsidization statutory floor of 12% for the DWSRF and the CWA floor of 10% for the CWSRF.²⁴

These statutory revisions and funding directives reflect an increased interest in providing additional funding support beyond subsidized loans to communities that may be challenged to afford water infrastructure projects or, under the CWSRF, for certain types of projects. Yet some states observe that, even with revisions to authority and/or requirements to provide increased additional subsidization from the SRFs, requests in their state for such assistance outpace amounts available,²⁵ though this may not be the case for all states. Dedicating more of existing resources to additional subsidization may affect the sustainability of state SRFs. Additional subsidization is not repaid into the SRFs, reducing the amount that would revolve back to state SRFs to be available for assistance for future projects.²⁶

Appropriations for the SRF Programs

Figure 1 and Figure 2 show appropriations over time for the CWSRF and the DWSRF, respectively.²⁷ Appropriations for the SRFs and other water infrastructure programs are provided within EPA's State and Tribal Assistance Grants (STAG) account.²⁸ From FY2000 through FY2009, annual appropriations averaged about $1.1 billion for the CWSRF and about $833 million for the DWSRF. The American Recovery and Reinvestment Act (ARRA; P.L. 111-5) provided $4.0 billion for the CWSRF and $2.0 billion for the DWSRF in FY2009, in addition to the regular FY2009 appropriations.²⁹ In nominal dollars (i.e., not adjusted for inflation), the annual appropriations for the SRF programs—especially for the CWSRF—increased after ARRA. Between FY2010 and FY2021, annual appropriations averaged about $1.6 billion for the CWSRF and about $1.0 billion for the DWSRF. Appropriations for these programs remained relatively consistent until FY2022.

In the 117^th Congress, IIJA Division J provided five fiscal years of emergency supplemental appropriations for the CWSRF and DWSRF.³⁰ IIJA authorizes EPA to reserve certain percentages for EPA administration and for oversight by EPA's Office of Inspector General, prior to allotting the funds among the states.³¹ Further, the annual appropriations acts provide regular appropriations for the SRF programs. These annual appropriations acts include CPF/CDS items for municipal water infrastructure projects.

For the CWSRF, IIJA included $11.7 billion total for FY2022 through FY2026. It also included an additional $1.0 billion total for this time period to address emerging contaminants. For a breakdown of CWSRF funding by fiscal year, see Figure 1.

For the DWSRF, IIJA included $11.7 billion total for FY2022 through FY2026. It also included an additional $15 billion total for this time period for lead service line replacement projects and associated activities and an additional $4.0 billion total for this time period to address emerging contaminants. For a breakdown of DWSRF funding by fiscal year, see Figure 2.

Figure 1. Appropriations for the Clean Water State Revolving Fund (CWSRF) (in nominal and real dollars)

Source: Prepared by CRS using information from annual appropriations acts, committee reports, and explanatory statements presented in the Congressional Record. Notes: Amounts reflect applicable rescissions and supplemental appropriations, including $4.0 billion in P.L. 111-5 and $52.5 million in P.L. 116-20. "Real" or 2023 dollars calculated from Office of Management and Budget, Table 10.1, "Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2026," https://www.whitehouse.gov/omb/historical-tables/. The deflator values used for FY2024 through FY2026 are estimates. "ARRA" denotes supplemental appropriations provided by the American Recovery and Reinvestment Act (P.L. 111-5). "IIJA" denotes supplemental appropriations provided by the Infrastructure Investment and Jobs Act (P.L. 117-58). "EC" denotes CWSRF supplemental appropriations dedicated to projects to address emerging contaminants. General Program, or "GP," denotes supplemental appropriations provided to the CWSRF for the range of statutory eligibilities. "CPF/CDS" denotes the portion of CWSRF appropriations dedicated to community project funding/congressionally directed spending. The funding levels for FY2025 and FY2026 are likely to change, reflecting funding for the CWSRF through annual appropriations.

Figure 2. Appropriations for the Drinking Water State Revolving Fund (DWSRF) (in nominal and real dollars)

Source: Prepared by CRS using information from annual appropriations acts, committee reports, and explanatory statements presented in the Congressional Record. Notes: Amounts reflect applicable rescissions and supplemental appropriations, including $4.0 billion in P.L. 111-5 and $52.5 million in P.L. 116-20. "Real" or 2023 dollars calculated from Office of Management and Budget, Table 10.1, "Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2026," https://www.whitehouse.gov/omb/historical-tables/. The deflator values used for FY2024 through FY2026 are estimates. "ARRA" denotes supplemental appropriations provided by the American Recovery and Reinvestment Act (P.L. 111-5). "IIJA" denotes supplemental appropriations provided by the Infrastructure Investment and Jobs Act (P.L. 117-58). "EC" denotes DWSRF supplemental appropriations dedicated to projects to address emerging contaminants. General Program, or "GP," denotes supplemental appropriations provided through the DWSRF for the range of statutory eligibilities. "LSL" denotes supplemental appropriations provided to the DWSRF for lead service line (LSL) replacement projects and related activities. "CPF/CDS" denotes the portion of DWSRF appropriations dedicated to community project funding/congressionally directed spending. The funding levels for FY2025 and FY2026 are likely to change, reflecting funding for the DWSRF through annual appropriations.

Earmarks

The practice of earmarking a portion of an EPA account for specific wastewater treatment and other water quality projects began with the FY1989 appropriations. In FY1989, FY1990, and FY1991, earmarked funds were provided solely for projects that Congress had authorized in the Water Quality Act of 1987. Beginning in FY1992, Congress also earmarked funds for a number of projects not specifically authorized in the Clean Water Act or the 1987 CWA amendments.³² Further, from FY1989 to FY1994, earmarked funds were provided to wastewater treatment projects. In the FY1995 appropriations act, two drinking water projects were provided earmarked funds.³³ As such, through the process of earmarking, Congress provided grants for drinking water system projects, which were not available before the establishment of the DWSRF in 1996. Appendix B contains details about the number of projects that received earmarked funding and total funding earmarked to water infrastructure projects as well as SRF appropriations.

Support of earmarks and their purposes has changed over time. In the 110^th Congress (2007-2008), the House and Senate codified earmark disclosure requirements into their respective chamber rules with the stated intention of bringing more transparency to the earmarking process.³⁴ In FY2007, Congress applied a one-year moratorium on earmarks in all appropriations bills.³⁵ For the next three years, special project grants appeared in appropriations acts—including those providing funding to EPA—but in FY2011, Congress did not provide earmarks for congressional water infrastructure projects. In the 112^th Congress (2011-2012), the House and Senate began what has been referred to as an "earmark moratorium" or "earmark ban."³⁶ The House extended the ban on earmarks under the Republican Conference rules, and the chairman of the Senate Appropriations Committee announced a moratorium on earmarks for FY2011 and FY2012.³⁷ The earmark disclosure rules in both the House and Senate have remained in place. The moratorium on congressional earmarks continued until the 117^th Congress.

From FY1989 to FY2010, appropriations acts provided a separate appropriation to the CWSRF in addition to funds earmarked for water infrastructure project grants. Similarly, from FY1997 to FY2010, appropriations acts provided earmarks for drinking water projects and a separate appropriation for the DWSRF. Both SRF appropriations and earmarks were provided within the same appropriations account.

With the reestablishment of earmarks in FY2022, Congress has used a different approach for providing funds to CPF/CDS items. Instead of providing a separate appropriation for earmarks within an account, portions of the CWSRF and DWSRF appropriations were set aside for earmarks. The funds reserved for CPF/CDS are distributed directly to recipients, instead of to states' SRF programs. Thus, the reservation of funds effectively decreases the total amount available for allotment as state capitalization grants. In the first session of the 118^th Congress, the number of earmarks and funding amounts dedicated to earmarks were higher than those provided in the first session of the 117^th Congress. Table 1 provides specific details for each appropriations act.

FY2024 CPF/CDS

During the development of the FY2024 appropriations bills, the appropriations committees issued guidance for Members when submitting requests for CPF in the House or for CDS in the Senate. Both chambers' guidance limited the amount of CPF/CDS to a percentage of discretionary spending. The House Committee on Appropriations limited the amount of CPF to no more than 0.5%, while the Senate Committee on Appropriations' limit for CDS was no more than 1.0%.³⁸ As in the 117^th Congress, both House and Senate committees require the U.S. Government Accountability Office (GAO) to audit selected CPF/CDS items and report to Congress.³⁹

House CPF Guidance

For FY2024 CPF requests, the House Committee on Appropriations issued general guidance that continued many of the requirements added by the 117^th Congress. These include requiring that the requests be aligned with existing requirements under House rules,⁴⁰ and prohibiting funding recipients that are "for-profit" entities.⁴¹ Similar to guidance in the 117^th Congress, Members in the 118^th Congress had to publicly certify that they and their immediate family have no financial interest in the requested project, provide information on CPF requests online, and demonstrate evidence of community support for the request. In addition, for FY2024, the House Committee required Members to demonstrate a "federal nexus" for each project request.⁴² The House Committee on Appropriations increased the number of CPF requests that Members could submit from 10 to 15.⁴³

The relevant subcommittees issued additional specific guidance. For the Subcommittee on Interior, Environment, and Related Agencies, Members could submit FY2024 CPF requests for EPA's STAG account only.⁴⁴ Members could rank their CPF requests.⁴⁵ CPF were required to meet certain conditions, namely that these projects are otherwise eligible for the CWSRF or DWSRF, and that CPF recipients provide a minimum cost share of 20%.⁴⁶

Senate CDS Guidance

For FY2024, the Senate Committee on Appropriations accepted CDS requests for specified agencies and accounts, including but not exclusively EPA's STAG account.⁴⁷ The committee continued requirements from the 117^th Congress to limit certain earmark practices or prohibit earmarking projects for certain entities, such as "for-profit" entities. These include existing earmark disclosure requirements such as prohibiting a vote on a motion to proceed to consider a measure or a vote on adoption of a conference report, unless the chair of the committee or the majority leader (or designee) certifies that a complete list of earmarks and the name of each Senator requesting each earmark are available on a publicly accessible congressional website in a searchable form at least 48 hours before the vote.⁴⁸ As in the House, the Senate Committee on Appropriations required Members to certify that neither they nor their immediate family have a financial interest in the project.⁴⁹

CPF/CDS Items

P.L. 118-42 dedicates just over half (i.e., $1.41 billion) of the combined SRF regular appropriations (i.e., $2.76 billion) to 1,022 drinking water and wastewater project earmarks. This represents an increase in the number of earmarked projects compared with the 117^th Congress. Specifically, P.L. 118-42 dedicates $787.7 million to 552 wastewater infrastructure projects, and $631.7 million to 470 drinking water infrastructure projects. These 1,022 projects received on average $1.4 million, which represents a decrease compared with the average amount provided by the 117^th Congress. Table 2 provides statistics for the earmarks provided by recent appropriations acts.

Table C-1 provides the total EPA STAG account CPF/CDS for projects by state or territory for FY2024. From publicly available data, the number of CPF/CDS requests that met the committees' criteria is not clear. Accordingly, it is unclear if all CPF/CDS requests that met the criteria received funding in FY2024, or if some portion of projects that met the committees' criteria for requested CPF/CDS was not funded. As such, summary statistics regarding the distribution of CPF/CDS among the states may not reflect prioritization, but provides data regarding CPF/CDS distribution. For example, 45% of the total amount of wastewater CPF/CDS were allocated to projects in 10 of the 47 states that received CPF/CDS. For drinking water CPF/CDS, 46% of the total amount of drinking water CPF/CDS were allocated to projects in 10 of the 45 states that received CPF/CDS. Among these 10 states, two (Alaska and Nebraska) receive the statutory minimum DWSRF capitalization grant allotment.

In addition, the amount of CPF/CDS dedicated to specific projects varies. The difference between the amounts of CPF/CDS dedicated to individual projects likely depends on the specific amount of CPF/CDS that a Member requested for each project. For wastewater, funding for CPF/CDS projects ranged from $23.6 million for a project in South Dakota to $80,000 for a project in Nebraska. Among the 10 projects that received the largest wastewater earmarks, the average amount provided was $9.7 million. For the 10 projects that received the smallest CPF/CDS, the average amount provided was $141,000. Of the $787.7 million in wastewater earmarks, $437.9 million originated from Representatives' requests, $295.1 million originated from Senators' requests, and $54.6 million originated from requests made jointly by House and Senate Members.⁵⁰

Among the CPF/CDS amounts provided to specific drinking water projects, funding for CPF/CDS projects ranged from $12 million for a project in Arkansas to $72,000 for a project in Nebraska. Among the 10 drinking water projects that received the largest earmarks, the average amount provided was $7.1 million. For the 10 drinking water projects that received the smallest earmarks, the average amount provided was $174,000. Of the $631.7 million in drinking water CPF/CDS, $383.3 million originated from Representatives' requests, $192.9 million originated from Senators' requests, and $55.4 million originated from requests made jointly by House and Senate Members.⁵¹

Not all states received earmarked funds. For FY2024, Congress did not earmark any funds for projects in Montana, North Dakota, Wyoming, and Puerto Rico; based on publicly available data, it appears that Members did not submit CPF/CDS requests for projects in these areas.⁵² Further, Congress did not provide earmarks to the District of Columbia, American Samoa, the U.S. Virgin Islands, or Guam. (Of these areas, only the U.S. Virgin Islands received earmarks in the 117^th Congress.) Members of Congress requested earmarks for tribal projects associated with a specific state.⁵³ Congress did not set aside CPF/CDS funds specifically for tribes.

Effect of Earmarks on Amounts Available for Water Infrastructure Projects

This section analyzes the effects of earmarking a portion of the regular SRF appropriation for CPF/CDS on the amount of water infrastructure funds available by state. First, it looks only at the amount available by state from the Consolidated Appropriations Act, 2024 (P.L. 118-42). Then, the section considers how the IIJA supplemental appropriations for the SRFs interacts with the effect of earmarking a portion of the regular SRF appropriations for CPF/CDS.

The 118^th Congress continued the process established in the 117^th Congress of earmarking funds from the regular appropriations for the CWSRF and DWSRF.⁵⁴ This process effectively reduces the amount available for state SRF capitalization grants as well as the amounts set aside for grants to tribes and territories. The funds for CPF/CDS items support water infrastructure projects, so the total amount available for water infrastructure projects from the FY2024 appropriations act remains the same, though the CPF/CDS amounts are distributed directly to recipients rather than through SRF programs. A key difference between state SRFs and CPF/CDS is who decides which projects to fund. For the CPF/CDS amount, Congress determines directly which projects receive funding instead of the states via the SRFs.

The effect of this reduction in SRF funding is distributed uniformly among state SRFs, as EPA uses either a statutory formula or the latest drinking water infrastructure needs survey to determine state allotments of CWSRF and DWSRF capitalization grants, respectively. The distribution of CPF/CDS depends, in part, on which CPF/CDS projects Members request, which projects meet the selection criteria from the appropriation committees, and which projects are ultimately selected for inclusion in the joint explanatory statement. It may also depend on other factors and considerations that are not publicly available.

The magnitude of the effect of shifting a portion of the SRF appropriations from being distributed via the SRFs to being distributed as earmarks can be presented in several ways. For example, the effect can be assessed by comparing the different nominal funding amounts states received with the addition of CPF/CDS to a hypothetical scenario in which states received only SRF capitalization grants and CPF/CDS funding was not reserved. Figure 3 and Figure 4 present these comparisons. While some states received more funding due to CPF/CDS items, other states received less water infrastructure funding from annual appropriations acts as a result of this practice (compared with the hypothetical scenario without CPF/CDS). Table 3 provides the average and median nominal differences in water infrastructure funds availability associated with this practice, as compared with a hypothetical scenario in which CPF/CDS was not reserved from the SRF appropriations. It also provides the average actual amounts of SRF grants and CPF/CDS dedicated to states.

Clean Water Infrastructure Funding Changes

Figure 3 provides the decrease or increase in the amounts available by state, territory, or for tribes, as compared with the hypothetical scenario of distributing the FY2024 CWSRF appropriation without reserving CPF/CDS. As identified in Table C-1, four states (including Puerto Rico), DC, three territories, and the tribes did not receive earmarks in P.L. 118-42. The CWSRF appropriation set-aside for CPF/CDS reduced by 48% the total amount of funding for these entities.

Results were mixed for states that received earmarks. For instance, 22 of the 47 states (and the Northern Mariana Islands) that received earmarks in FY2024 received less in combined CPF/CDS and CWSRF capitalization grants relative to a hypothetical scenario in which CPF/CDS was not reserved from the CWSRF appropriation.

The FY2024 CPF/CDS process resulted in a funding shift of $220.6 million from the states, territories, and tribes that received less funding to the 25 states that received more. The former entities each received, on average, $6.9 million less in clean water infrastructure funding, while the latter 25 states each received, on average, approximately $8.8 million more.⁵⁵ For context, the average FY2024 CWSRF state capitalization grant or territorial or tribal grant amount was $14.8 million. This comparison does not include state capitalization grants from the IIJA supplemental appropriations, which are discussed below. Table C-1 provides state-by-state comparisons.

Figure 3. Change in P.L. 118-42 Clean Water Infrastructure Funds

Source: Calculated by CRS from the joint explanatory statement accompanying the Consolidated Appropriations Act, 2024 (P.L. 118-42) and CWA formula found in 33 U.S.C. §1285(c)(3) as modified by EPA. Notes: These figures identify the change in available P.L. 118-42 clean water infrastructure funds as a result of the reservation of funds for CPF/CDS and distribution of CPF/CDS, compared with a hypothetical scenario in which CPF/CDS was not reserved. State abbreviations are listed. For territories, "AS" denotes American Samoa, "GU" denotes Guam, "MP" denotes Northern Mariana Islands, and "VI" denotes U.S. Virgin Islands.

Drinking Water Infrastructure Funding Changes

Figure 4 provides the decrease or increase in the amounts available by state, territory, or for the tribes, as compared with distributing the FY2023 DWSRF appropriation without reserving CPF/CDS. As required by P.L. 118-42, EPA reserved $12.0 million from the FY2024 DWSRF appropriation for unregulated contaminants water system monitoring. As authorized by SDWA, EPA can reserve additional amounts for American iron and steel oversight prior to allotting the DWSRF appropriation among the states.⁵⁶ Accordingly, the amount available for allotment as DWSRF capitalization grants was reduced further than just by the CPF/CDS amounts.

As identified in Table C-1, six states (including Puerto Rico), DC, three territories, and the tribes did not receive earmarks in P.L. 118-42. The DWSRF appropriation set-aside for CPF/CDS reduced by 57% the total amount of funding for these entities.

Results were mixed for states that received earmarks. For instance, 19 of the 45 states (and the Northern Mariana Islands) that received earmarks in FY2024 received less in combined CPF/CDS and DWSRF grants relative to a hypothetical scenario in which CPF/CDS was not reserved from the DWSRF appropriation.

The FY2024 CPF/CDS process resulted in a funding shift of $185.3 million from the states, territories, and tribes that received less funding to the 26 states that received more. The average reduction for each state, territory, or tribes was approximately $6.0 million, while the average increase for each of the 26 states that received more amounted to $7.1 million.⁵⁷ For context, the average FY2024 DWSRF state capitalization grant or territorial or tribal grant amount was $8.3 million. Table C-1 provides state-by-state comparisons. This comparison does not include state capitalization grants from the IIJA supplemental appropriations, which are discussed below.

Figure 4. Change in P.L. 118-42 Drinking Water Infrastructure Funds

Source: Calculated by CRS from the joint explanatory statement accompanying the Consolidated Appropriations Act, 2024 (P.L. 118-42) and DWSRF formula based on the latest drinking water infrastructure needs survey, authorized by 42 U.S.C. §300j–12(a)(1)(D). Notes: These figures identify the change in available P.L. 118-42 drinking water infrastructure funds as a result of the reservation of funds for CPF/CDS and the distribution of CPF/CDS, compared with a hypothetical scenario in which CPF/CDS was not reserved. State abbreviations are listed. For territories, "AS" denotes American Samoa, "GU" denotes Guam, "MP" denotes Northern Mariana Islands, and "VI" denotes U.S. Virgin Islands.

Infrastructure Investment and Jobs Act

For FY2024, IIJA provided the SRF programs with emergency supplemental appropriations, which are additional to the regular FY2024 appropriations provided by P.L. 118-42. No CPF/CDS funding was reserved from the IIJA SRF appropriations. Accordingly, the effect of reserving funds for CPF/CDS items from FY2024 regular appropriations on state SRF programs is partially offset by these IIJA appropriations.

An assessment of this effect is complicated. Different ways of considering the IIJA supplemental appropriations lead to different tradeoffs, which create challenges when choosing an analytical approach. For example, some of the IIJA supplemental appropriations for the SRFs are dedicated for specific project types, such as those to address emerging contaminants or lead service line replacement projects, and the size of the IIJA appropriations dedicated to specific project types also varies.

For FY2022 to FY2026, the IIJA CWSRF supplemental appropriations available for the full range of CWA eligibilities total $11.73 billion. Similarly, for the DWSRF, IIJA provides a total of $11.73 billion from FY2022 to FY2026 for the full range of DWSRF eligibilities. In addition to these "general" IIJA SRF appropriations, for FY2022 through FY2026, IIJA supplemental appropriations dedicated to specific project types are $15.0 billion total for the DWSRF for lead service line replacement projects, a total of $4.0 billion for the DWSRF for projects to address emerging contaminants, and a total of $1.0 billion for the CWSRF for projects to address emerging contaminants. Some of these appropriations are allocated under different allotment formulas than those used for the general SRF programs.⁵⁸ As these differences make state and fiscal year comparisons more complicated, one analytical approach is to focus only on the IIJA supplemental appropriations dedicated to the general SRF programs.⁵⁹

The approach of focusing on only the IIJA appropriations for the full range of SRF eligibilities presents tradeoffs. It does not recognize the scale of IIJA SRF appropriations dedicated to specific projects. For example, for FY2024, IIJA provides $2.4 billion each to the CWSRF and DWSRF for the full range of eligible projects, and it provides an additional $3.8 billion for the DWSRF dedicated to specific project types (i.e., projects for emerging contaminants and lead service line replacement) and $250 million for the CWSRF specifically for emerging contaminant projects. An approach that does not consider the $3.8 billion in supplemental DWSRF appropriations and $250 million in supplemental CWSRF appropriations would understate the offsetting effect of the IIJA appropriations, as states will use this funding to support those specific projects. Regarding the costs of these projects, EPA's needs survey estimates that the costs to replace lead service lines would range from $50 billion to $80 billion (in 2021 dollars). By comparison, EPA estimated that $420.8 billion (in 2021 dollars) is needed for drinking water transmission and distribution infrastructure projects.⁶⁰

As discussed above, IIJA provides $2.4 billion each for the CWSRF and DWSRF for FY2024. Table 4 indicates that the overall effect of the practice of reserving funds for CPF/CDS items from SRF appropriations is partially offset as the IIJA appropriations for the SRF general programs increase the amount provided to states as capitalization grants.

Overall, state SRFs received more funding in FY2024 than FY2023. IIJA SRF supplemental appropriations are $201 million higher for FY2024 than in FY2023 ($2.4 billion vs. $2.2 billion). When combined with the regular appropriations, the increase in IIJA appropriations means that state SRF programs will receive 9% more in CWSRF funding in FY2024 than in FY2023, and they will receive 6% more in DWSRF funding.

Concluding Observations

The practice of earmarking funds from the SRF appropriation raises several considerations, particularly in light of the magnitude of the needs. Adjusted for inflation, drinking water systems are estimated to need $32.7 billion annually for infrastructure improvements, and wastewater infrastructure needs are estimated at $32.9 billion annually.⁶¹ Considering this context, some questions may arise regarding the role of earmarks in supporting congressional priorities.

A primary difference between the CPF/CDS and the SRF frameworks is who decides which projects receive funding, and how the distribution of funding among the states is determined. Under the SRF programs, the distribution of state SRF capitalization grant allotments is either determined by CWA formula⁶² or based on each state's drinking water capital infrastructure need. In addition, states develop intended use plans (IUP) that contain priority lists of projects that the state expects to fund with that year's capitalization grant. EPA reviews these lists to ensure that the projects on a state's IUP comply with the statutory priorities. For example, SDWA requires states to prioritize projects that address the most serious human health risks, projects that are needed to comply with federal drinking water regulations, and projects that assist the most disadvantaged systems.⁶³ A question for policymakers may be whether similar priorities to those under the SRF programs were considered during the CPF/CDS selection process.

Members of Congress may want to direct funding to a project in a specific community for a number of reasons. In some cases, a community may have been unsuccessful in seeking state approval to fund a project through the SRF framework or other applicable programs. Further, Members may wish a more direct role given considerations regarding the timing of water infrastructure projects. For some, the cost of a project financed through a state loan could be deemed unacceptably high, because repaying the loan would result in increased user fees that may be challenging for ratepayers. In addition, Members may want to directly assist communities that may be challenged in applying for SRF assistance or may lack the capacity to do so. In addition, some stakeholders have raised concerns about the state's role in developing the IUP to receive SRF assistance, particularly additional subsidization, and whether states are effectively able to identify projects in communities that may struggle to apply to the SRFs.⁶⁴ Aside from the reasons listed above, earmarks may also go to projects for other reasons, and/or earmarks may play a role in a broader context.

The combination of annual appropriations and IIJA SRF funds have increased the total amount of water infrastructure funding for all states as compared with before IIJA. An incentive may exist for states and communities to request CPF/CDS, as not doing so reduces the amount of water infrastructure funding available for projects within a state. This raises the question of how the total and project-specific funding levels for CPF/CDS are determined. SRF appropriation levels have generally remained level since about FY2018, while the amount that Congress has dedicated to CPF/CDS increased between FY2022 and FY2023 and remained level between FY2023 and FY2024. The amount of CPF/CDS allotted to some states did not compensate for the reductions in SRF grants arising from all CPF/CDS items. In certain states, the CPF/CDS state allotment resulted in increases over 100% compared with a scenario without CPF/CDS (see Table D-1 and Table E-1). IIJA SRF appropriations partially offset this effect, and states, territories, and tribes will receive more SRF funding in FY2024 than in FY2023.

Another question for policymakers may involve the characteristics of the communities that receive CPF/CDS. Based on available data, the specific characteristics, such as financial demographics, of communities receiving earmarks are not clear, as there are no requirements or reporting mechanisms to record such data. CPF/CDS recipients are required to provide a minimum cost share of 20% based on the CWA and SDWA provisions for the SRF programs.⁶⁵ The remaining costs of projects are directly covered by CPF/CDS, making these projects more affordable for communities.⁶⁶ By contrast, most communities that receive SRF assistance are required to repay 100% of the funded project cost, although some communities may receive additional subsidization. For the IIJA supplemental appropriations for the SRFs, however, states are required to dedicate 49% to 100% of their capitalization grant amount to additional subsidization. Therefore, some SRF loans may not have to be fully repaid; these loans may be subsidized or forgiven.⁶⁷

As in the 117^th Congress, the committees required certain oversight and transparency requirements for CPF/CDS items, such as online disclosures and auditing of selected projects by GAO. Some stakeholders have noted challenges identifying specific projects or the characteristics of the communities served by those projects.⁶⁸ Relatedly, GAO's audit of FY2022 CPF/CDS provides certain information regarding the types of projects and entities that received CPF/CDS funding.⁶⁹ For FY2023, GAO presented an assessment of CPF/CDS administered by each federal agency rather than for EPA specifically.⁷⁰

The administration of FY2022 and FY2023 CPF/CDS garnered congressional attention during the development of FY2024 appropriations. The House Committee on Appropriations identified its frustrations with the timeliness of EPA's administration of FY2022 and FY2023 CPF/CDS.⁷¹ The Senate Committee on Appropriations stated its frustration with EPA's "delayed engagement" on "potential solutions to help resolve" a backlog of CDS projects.⁷² The joint explanatory statement accompanying P.L. 118-42 directs EPA to identify ways, aside from increases in staffing, to improve the timeliness and efficacy of CPF/CDS administration, including proposed legislative text to allow states, instead of EPA, to elect to administer CPF/CDS.⁷³

Pursuant to the CWA and SDWA, the SRFs authorize states to provide technical assistance to communities that may lack the capacity to apply for SRF financial assistance. In contrast, the direct funding approach of CPF/CDS does not include technical assistance for communities. This difference may raise concerns about the relative efficiency of providing funding directly to projects through CPF/CDS versus through the state-administered SRF programs. Should EPA's proposal to improve CPF/CDS administration include more programmatic elements, such as technical assistance, another question may involve the degree to which CPF/CDS administration begins to resemble an authorized federal assistance program as compared with direct funding.

The House and Senate Committees on Appropriations are accepting requests for CPF/CDS for FY2025.⁷⁴ Whether those funds are provided as a separate appropriation or as a set-aside from the SRF appropriation remains to be seen. For FY2025, Congress may choose to limit CPF/CDS items, stop the practice of providing CPF/CDS altogether, increase funding for CPF/CDS items, or change the manner in which funds are provided for these projects. Further, authorizing committees with jurisdiction over the SRF programs may wish to hold oversight hearings or engage in other oversight activities related to the practice and any potential impacts among stakeholders, or related to EPA's proposal to address CPF/CDS administration.

Specific to earmarks, a consideration for authorizing committees could involve the role of CPF/CDS in supporting statutory policy objectives such as prioritizing needed projects and/or supporting lower-income communities. Taken together, the reestablishment of earmarks, revisions to SRF programs intended to address affordability for communities, and increased appropriations for the SRF programs are emblematic of ongoing congressional interest in municipal water infrastructure funding.

Appendix A. Appendix Outline

Appendix B includes a summary table (Table B-1) of earmarked funds for water infrastructure projects by fiscal year. The dollar amounts included in Table B-1 are not adjusted for inflation. The table also identifies the number of water infrastructure projects funded from the earmarks and the appropriations for the CWSRF and DWSRF by fiscal year.

Appendix C includes Table C-1, which identifies (1) the amount of earmarked funds by entity (state, territory, DC, and the tribes); (2) each entity's allotment of the SRF appropriations available for capitalization grants from the Consolidated Appropriations Act, 2024 (P.L. 118-42); and (3) hypothetical amounts of the SRF appropriations for each entity if CPF/CDS were not reserved from SRF appropriations from P.L. 118-42.

Appendix D contains Table D-1, which has eight columns. The second column shows the amount of CPF/CDS by entity (state, territory, DC, and the tribes) for FY2024. The third column shows each entity's allotment of the FY2024 regular CWSRF appropriation without including the portion of the CWSRF appropriation going to the CPF/CDS. The fourth column includes each entity's share of FY2024 IIJA supplemental appropriation for the CWSRF general program.

The fifth column identifies the sum of each entity's share of the CWSRF appropriations from the FY2024 regular appropriations act and from the FY2024 IIJA supplemental appropriation, and CPF/CDS. The sixth column identifies each entity's share of FY2024 regular and IIJA appropriations for the CWSRF in a hypothetical scenario in which the CPF/CDS is not reserved from the regular CWSRF appropriation.

The seventh column identifies the difference between the fifth and the sixth columns, thereby showing the difference due to the reservation and distribution of CPF/CDS from the CWSRF appropriations. The eighth column shows this difference represented as a percent of the hypothetical allotment of FY2024 regular and IIJA CWSRF appropriations. Note that IIJA supplemental appropriations dedicated for emerging contaminants projects are not included.

Appendix E contains Table E-1, which has eight columns. The second column shows the amount of CPF/CDS by entity (state, territory, DC, and the tribes) for FY2024. The third column identifies each entity's allotment of the FY2024 regular DWSRF appropriation without including CPF/CDS. The fourth column includes each entity's share of the FY2024 IIJA supplemental appropriation for the DWSRF general program.

The fifth column identifies the sum of each entity's tribal share of the FY2024 regular appropriations act and the FY2024 IIJA supplemental appropriation for the DWSRF, and CPF/CDS. The sixth column identifies each entity's share of FY2024 regular and IIJA appropriations for the DWSRF in a hypothetical scenario in which the CPF/CDS is not reserved from the regular DWSRF appropriation.

The seventh column identifies the difference between the fifth and the sixth columns, thereby showing the difference due to the reservation and distribution of CPF/CDS from the DWSRF appropriations. The eighth column shows this difference represented as a percent of the hypothetical allotment of FY2024 regular and IIJA DWSRF appropriations. Note that IIJA supplemental appropriations dedicated for emerging contaminants projects and lead service line replacement projects are not included.

Appendix B. Water Infrastructure Project Grants

Appendix C. CPF/CDS Items and SRF Capitalization Grants

Appendix D. Clean Water Infrastructure Funding

Appendix E. Drinking Water Infrastructure Funding