Introduction

National attention to municipal water infrastructure has stemmed from circumstances and events such as water infrastructure damage from extreme weather events (e.g., hurricanes and drought); detection of elevated lead levels in tap water in various older cities and schools; and the need to repair or replace aging water infrastructure. In many communities, drinking water distribution, wastewater collection, and treatment systems may require repair or replacement to maintain levels of service and comply with water treatment requirements.¹ An overarching issue is deferral, for a range of reasons, of local investment in water infrastructure.

A group of private-sector engineers and others report that much of the nation's water infrastructure is deteriorating, threatening public health and/or water quality objectives, and increasing operations and maintenance costs.² The U.S. Environmental Protection Agency (EPA) periodically reports on the capital cost of wastewater and drinking water infrastructure needs. EPA's 2016 report on wastewater estimates that the nation's wastewater treatment facilities will need $271 billion over 20 years to meet federal water quality objectives.³ 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.⁴

Nationwide, communities of varying characteristics may face financial challenges as they manage the need to repair or replace aging water infrastructure.⁵ Most wastewater and drinking water systems provide service to smaller communities. According to EPA's 2016 wastewater needs report, approximately 15,000 systems provide wastewater services to 238.2 million people.⁶ Of these systems, nearly 12,000 (80%) serve communities with populations of fewer than 10,000 individuals.⁷ As of March 2023, EPA's database indicated that nearly 50,000 drinking water systems in the United States regularly serve 25 or more of the same individuals.⁸ These systems provide tap water to approximately 312.7 million people.⁹ Nearly 40,000 (80%) of these community drinking water systems are relatively small, serving 3,300 or fewer people.¹⁰ These small systems have a narrow rate base from which to finance wastewater or drinking water infrastructure improvements.

In addition, cities may face declining populations and declining utility revenues from which utilities can finance water infrastructure repairs.¹¹ Larger community water systems and publicly owned treatment works have larger rate bases from which to finance infrastructure projects needed to maintain levels of service. Leaks from aging water infrastructure may cause revenue losses in drinking water systems, or may contribute to groundwater contamination in wastewater systems. Communities may be challenged to protect water supplies, respond to contamination incidents, and afford projects to repair or replace aging water infrastructure.

In the 117^th Congress, several acts provided appropriations for several financial assistance programs administered by EPA. These programs include the Clean Water State Revolving Fund (CWSRF) and the Drinking Water State Revolving Fund (DWSRF) programs, established under the Clean Water Act (CWA)¹² and the Safe Drinking Water Act (SDWA),¹³ respectively. In addition, the 117^th Congress reestablished the practice of providing funds directly to communities for water infrastructure projects through community project funding/congressionally directed spending (CPF/CDS) items, commonly referred to as earmarks.

Stakeholders have raised concerns with the way funds were earmarked for water infrastructure projects.¹⁴ The FY2022 and FY2023 annual appropriations acts dedicated part of the CWSRF and DWSRF appropriations to earmarks. This diverges from the way that earmarks were previously provided. In appropriations acts from FY1989 to FY2010, earmarked funds for water infrastructure projects were provided separately from SRF appropriations, though within the same EPA account. Earmarked funds are available to communities directly, instead of through either the state-administered CWSRF or DWSRF programs. The distribution of the earmarks among the states differs from the distribution of funds under the SRF programs. The practice of reserving part of SRF appropriations for earmarks and the distribution of those earmarks among the states has garnered interest, given that this practice changes the overall distribution of available water infrastructure funds. As the 118^th Congress considers annual appropriations bills, calculating the effect of this practice on the amount of water infrastructure funds available by state provides information to policymakers during their deliberations, especially given continued concerns about water infrastructure needs and affordability.

This report discusses the key federal financial assistance programs for municipal water infrastructure and analyzes trends in changes to these programs over time. It provides a brief history of the practice of earmarking federal funding for water infrastructure projects. It also analyzes the effect of the 117^th Congress's CPF/CDS items on SRFs, and discusses issues and options regarding this practice.

State Revolving Fund (SRF) Programs

The CWSRF and the DWSRF programs are the principal federal programs that help support wastewater and drinking water infrastructure. The CWSRF provides financial assistance for wastewater (e.g., sewer and stormwater) infrastructure projects to publicly owned treatment works and other eligible recipients.¹⁵ The DWSRF provides assistance to public water systems, which may be publicly or privately owned.¹⁶ In both SRF programs, EPA makes grants to states to capitalize a state revolving loan fund. Each state is required to provide a 20% match of its annual capitalization grant. States are authorized to use the CWSRF or the DWSRF to provide primarily subsidized loans to publicly owned treatment works (and other eligible recipients) or eligible public water systems, respectively. 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. 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.

All 50 states and Puerto Rico implement their own SRF programs.¹⁷ EPA allots CWSRF funds among states based on a CWA statutory formula, which provides a minimum share of 0.5% to each state and has effectively been in place since the beginning of the program in 1987.¹⁸ In contrast, 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 1% of the available funds.¹⁹

Both the CWA and SDWA provide for federal oversight of the state programs. For example, states are required to establish priority lists called 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, including municipal compliance;²⁰ 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.²¹

States are required to publish these lists and solicit public comment.²² 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.²³ EPA annually publishes information on activities for both programs.²⁴

Changes to EPA Financial Assistance Programs

Over time, the federal role in supporting municipal water infrastructure has changed. Prior to 1987, a grant program in CWA Title II provided funding for the construction of wastewater treatment facilities and related objectives. The Water Quality Act of 1987 phased out the Title II construction grants program and authorized the CWSRF program and appropriations to capitalize state revolving loan funds.²⁵ The SDWA Amendments of 1996 authorized a complementary program for drinking water infrastructure, the DWSRF.²⁶ Prior to 1996, there was no federal financial assistance program for municipal drinking water infrastructure.²⁷

Since the establishment of the CWSRF in 1987 and of the DWSRF in 1996, several acts have amended the CWA and SDWA to increase flexibilities and/or add new requirements to these programs. In general, these changes reflect an interest in allowing states to provide financial assistance for a wider range of project types or to provide other types of financial assistance than subsidized loans, the traditional financing mechanism of these programs. Among these changes, several have pertained to states' use of "additional subsidization." The authority and requirement for states to provide additional subsidization has been one of the primary instruments that Congress has used to address the affordability of municipal water infrastructure. Such assistance may include principal or other loan forgiveness; grants; negative interest loans; and buying, refinancing, or restructuring debt, which can make infrastructure projects affordable.²⁸

Since the DWSRF was established in 1996, SDWA has authorized states to use up to 30% of their DWSRF capitalization grants for additional subsidization. America's Water Infrastructure Act (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 2014, Congress amended the CWA adding similar authority for states to provide additional subsidization, but not requiring it. IIJA amended the DWSRF and CWSRF additional subsidization provisions to conditionally require states to use 12% of their DWSRF capitalization grants and 10% of their CWSRF capitalization grants for these subsidies.²⁹

Further, annual appropriations acts have also directed states to use minimum percentages of their capitalization grants for additional subsidization. For example, 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. In EPA memoranda from 2022 and 2023, 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.³⁰

These statutory revisions and funding directives reflect an increased interest in providing additional subsidies beyond subsidized loans to communities that may be challenged to afford water infrastructure projects. Yet, some states observe that, even with revisions to authority and/or requirements to provide increased additional subsidization from the SRFs, requests for such assistance outpace amounts available.³¹

Appropriations for the SRF Programs

Figure 1 and Figure 2 provide appropriations for the CWSRF and the DWSRF, respectively.³² Appropriations for the SRFs and other water infrastructure programs are provided within an EPA account, which is currently called the State and Tribal Assistance Grants (STAG) account. 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 in FY2009 $4.0 billion for the CWSRF and $2.0 billion for the DWSRF, in addition to the regular FY2009 appropriations.³³ 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, the Infrastructure Investment and Jobs Act (IIJA; P.L. 117-58) Division J provided five fiscal years of emergency supplemental appropriations for the CWSRF and DWSRF.³⁴ For the CWSRF, IIJA included $11.7 billion for FY2022 through FY2026 and 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 for FY2022 through FY2026, as well as 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. Prior to allotting the funds among the states, IIJA authorizes EPA to reserve certain percentages for EPA administration and for oversight by EPA's Office of Inspector General.³⁵ Further, the annual appropriations acts provided regular appropriations for the SRF programs. These annual appropriations acts included CPF/CDS items for municipal water infrastructure projects.

Figure 1. Appropriations for Clean Water State Revolving Fund

Source: Prepared by CRS using information from annual appropriations acts, committee reports, and explanatory statements presented in the Congressional Record. 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 2020 dollars calculated from Office of Management of Budget, Table 10.1, "Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2026," at https://www.whitehouse.gov/omb/historical-tables/. The deflator values used for FY2023 through FY2026 are estimates. Notes: "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. The funding levels for FY2024 through FY2026 are likely to change, reflecting funding for the CWSRF through annual appropriations (FY2024-FY2026).

Figure 2. Appropriations for the Drinking Water State Revolving Fund

Source: Prepared by CRS using information from annual appropriations acts, committee reports, and explanatory statements presented in the Congressional Record. Amounts reflect applicable rescissions and supplemental appropriations, including $2.0 billion in P.L. 111-5, $100 million in P.L. 114-254, and $296.1 million in P.L. 116-20. "Real" or 2020 dollars calculated from Office of Management of Budget, Table 10.1, "Gross Domestic Product and Deflators Used in the Historical Tables: 1940–2026," at https://www.whitehouse.gov/omb/historical-tables/. The deflator values used for FY2023 through FY2026 are estimates. Notes: "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. The funding levels for FY2024 through FY2026 are likely to change, reflecting funding for the DWSRF through annual appropriations (FY2024-FY2026).

History of Water Infrastructure Project 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 1987.³⁶ 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.³⁷ 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.³⁸ 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.³⁹ In FY2007, Congress applied a one-year moratorium on earmarks in all appropriations bills.⁴⁰ For the next three years, special project grants appeared in appropriations bills—including EPA's—but in FY2011, no funding was earmarked 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."⁴¹ 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 FY2012.⁴² 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, appropriation acts provided a separate appropriation to the CWSRF in addition to funds for water infrastructure project grants. Similarly, from FY1997 to FY2010, appropriations acts provided a separate appropriation for the DWSRF. Both SRF appropriations and earmarks were provided within the same account as the water infrastructure project grants. With the reestablishment of earmarks, the 117^th Congress 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.

The Consolidated Appropriations Act, 2022 (P.L. 117-103) sets aside for CPF/CDS

• 27% ($443.6 million) of the FY2022 CWSRF appropriation and
• 35% ($397.8 million) of the FY2022 DWSRF appropriation.

The Consolidated Appropriations Act, 2023 (P.L. 117-328) sets aside for CPF/CDS

• 53% ($863.1 million) of the FY2023 CWSRF appropriation and
• 54% ($609.3 million) of the FY2023 DWSRF appropriation.

In the 118^th Congress, the House and Senate Committees on Appropriations have solicited Member requests for such items for FY2024.⁴³

Earmarks in the 117^th Congress

In the 117^th Congress, the appropriations committees issued guidance for Members to follow when submitting requests for CPF in the House or for CDS in the Senate. In both chambers, the committees agreed to limit the amount of CPF/CDS to no more than 1% of discretionary spending. In the House, the Committee on Appropriations issued general guidance for Members to request CPF, including that the requests be aligned with existing requirements under House rules.⁴⁴ The House Committee on Appropriations included new requirements such as prohibiting funding recipients that were "for-profit" entities, limiting the number of CPF requests to 10, and expanding certain transparency requirements.⁴⁵ These expanded requirements included that Members confirm that they and their immediate family had no interest in the project. In addition, the committee required Members to provide information on CPF requests online, and demonstrate community support for the request.⁴⁶ The relevant subcommittees issued additional specific guidance. For the Subcommittee on Interior, Environment, and Related Agencies, Members could submit requests for specific accounts, such as the EPA's STAG account. The subcommittee required CPF 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%. Through this guidance, the subcommittee noted that it would look "favorably upon requests for projects that are listed on a state's most recent Intended Use Plan."⁴⁷ The committee announced that it would require the U.S. Government Accountability Office (GAO) to audit selected items and report to Congress.⁴⁸ Similar requirements were included for Member requests of CPF for FY2023 appropriations.⁴⁹

The Senate Committee on Appropriations considered CDS requests for specified agencies and accounts, including the EPA's STAG account.⁵⁰ The committee included a number of requirements 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 is available on a publicly accessible congressional website in a searchable form at least 48 hours before the vote.⁵¹ As in the House, the committee also included additional new measures such as requiring GAO to audit selected items and report to Congress.⁵² These requirements remained in place when the committee received CDS requests as a part of deliberations on the FY2023 appropriations measure.⁵³

The amount of earmarked funds for water infrastructure projects increased between FY2022 and FY2023. In addition, earmarked funds were dedicated to an increased number of projects; at the same time, the average amount provided per project also increased. For FY2022, Congress provided funds for 485 projects, at an average amount of $1.7 million per project. For FY2023, 715 projects received an average of $2.0 million per project.

Not all states and territories received earmarked funds. For both FY2022 and FY2023, Congress did not earmark funds for projects in Indiana, Montana, North Dakota, South Dakota, Wyoming, and the District of Columbia or for Puerto Rico, American Samoa, and Guam. Of states and territories receiving earmarked funds, these funds were not evenly distributed. Some states and territories received a higher proportion than others. Table C-1 and Table C-2 provide the total EPA STAG account CPF/CDS for projects by state or territory for FY2022 and FY2023, respectively.

Effect on Amounts Available for Water Infrastructure Projects

This section analyzes the effect 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 at the amount available by state narrowly from the Consolidated Appropriations Act, 2021 (P.L. 117-103), and the Consolidated Appropriations Act, 2022 (P.L. 117-328). Then, the report 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.

In the 117^th Congress, the process of earmarking funds from the regular appropriations for the CWSRF and DWSRF effectively reduced 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 annual appropriations acts remains the same, though the CPF/CDS amounts are distributed directly to recipients rather than through SRF programs.

The effect of this reduction in funding available for SRFs is spread by formula among the states, 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 method of distribution of CPF/CDS items depends, in part, on which CPF/CDS projects Members request, selection criteria from the appropriation committees, inclusion in the joint explanatory statement, and other factors and considerations, which may not be publicly available.

Through analyzing the distribution of CPF/CDS together with the reduction in state SRF allotments, this report identifies the differences in the distribution of federal water infrastructure funding among the states compared to the SRF allotment methods of the CWA and SDWA. For some states, the amount of water infrastructure funding—as CPF/CDS and through the SRF capitalization grant—may have increased. As stated above, the 117^th Congress provided no CPF/CDS for water infrastructure projects in some states, territories, and for tribes. As such, these entities received smaller grant amounts in regular appropriations during the 117^th Congress than if CPF/CDS were not reserved.

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. The effect can be assessed by comparing differences in nominal values among states, by examining the different funding amounts states received with the addition of CPF/CDS with a hypothetical scenario in which state received only SRF capitalization grants where CPF/CDS funding was not reserved. 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 to the hypothetical scenario without CPF/CDS). Table 1 provides the average and median nominal differences in water infrastructure funds availability associated with this practice.

The Consolidated Appropriations Act, 2022 (P.L. 117-103)

As discussed above, the Consolidated Appropriations Act, 2022 (P.L. 117-103) sets aside 27% of the CWSRF appropriation for CPF/CDS. Due to this practice, 29 states (including Puerto Rico), the District of Columbia, American Samoa, Guam, the Northern Mariana Islands, and the tribes received less in clean water infrastructure funding, as compared to if states received CWSRF capitalization grants and CPF/CDS were not reserved.⁵⁶ Setting aside part of the CWSRF appropriation for CPF/CDS reduced by 27% the amount of P.L. 117-103 clean water infrastructure funding available for the states, territories, and tribes that received no earmarks. For 16 of the states that received earmarks, the amount of CPF/CDS allotted to those states did not compensate for the 27% reduction in the amount available. As such, these states received less in CPF/CDS and CWSRF capitalization grants than if CPF/CDS were not reserved from the CWSRF appropriation.

The total amount of the funding shifted from states, territories, and tribes that received less funding to the 22 states and the U.S. Virgin Islands that received more was $160.3 million. On average, the entities received $4.7 million less in clean water infrastructure funding, while the 22 states and the U.S. Virgin Islands received approximately $7.0 million more.⁵⁷ For context, the average FY2022 CWSRF state capitalization grant or territorial or tribal grant amount was $20.9 million. Figure 3 provides the decrease or increase in the amounts available by state, territory, or for the tribes, as compared to distributing the FY2022 CWSRF appropriation without reserving CPF/CDS.

Figure 3. Change in P.L. 117-103 Clean Water Infrastructure Funds

Source: CRS from the joint explanatory statement accompanying the Consolidated Appropriations Act, 2022 (P.L. 117-103) 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. 117-103 clean water infrastructure funds as a result of the reservation of funds for CPF/CDS and distribution of CPF/CDS, compared to a hypothetical scenario wherein 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.

P.L. 117-103 set aside 35% of the DWSRF appropriation for CPF/CDS. Due to the reservation of funds for CPF/CDS, 33 states (including Puerto Rico), the District of Columbia, the territories, and tribes received less in drinking water infrastructure funding, as compared to if CPF/CDS was not reserved.⁵⁸ As authorized by SDWA, EPA reserved approximately $13 million from the FY2022 appropriation for unregulated contaminants water system monitoring, drinking water contaminant health effect studies, and American iron and steel oversight prior to allotting the DWSRF appropriation among the states.⁵⁹ Accordingly, the amount available for allotment as DWSRF capitalization grants was further reduced. Setting aside 35% of the DWSRF appropriation for CPF/CDS resulted in a 36% reduction in the amount of available drinking water infrastructure funds for the states, territories, and tribes that received no earmarks. For 20 of the states that received earmarks, the amount of CPF/CDS allotted to those states did not compensate for the 36% reduction in the amount available for DWSRF capitalization grants.

The total amount of funding shifted from the states, territories, and tribes that received less to the 18 states that received more was $162.8 million. On average, the reduction by state, territory, or tribes was approximately $4.2 million, while the average increase for the 18 states amounted to $9.0 million.⁶⁰ For context, the average FY2022 DWSRF state capitalization grant or territorial or tribal grant amount was $12.5 million. Figure 4 provides the decrease or increase in the amounts available by state, territory, or for the tribes, as compared to distributing the FY2022 DWSRF appropriation without reserving CPF/CDS.

Figure 4. Change in P.L. 117-103 Drinking Water Infrastructure Funds

Source: CRS, from the joint explanatory statement accompanying the Consolidated Appropriations Act, 2022 (P.L. 117-103) 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. 117-103 drinking water infrastructure funds as a result of the reservation of funds for CPF/CDS and distribution of CPF/CDS, compared to a hypothetical scenario wherein 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.

The Consolidated Appropriations Act, 2023 (P.L. 117-328)

The Consolidated Appropriations Act, 2023 (P.L. 117-328) set aside 53% of the CWSRF appropriations for CPF/CDS items. Due to this practice, 28 states (including Puerto Rico), the District of Columbia, the territories, and tribes received less in clean water infrastructure funding, as compared to if states received CWSRF capitalization grants and CPF/CDS were not reserved.⁶¹ Setting aside part of the CWSRF appropriation for CPF/CDS reduced by 53% the amount of available P.L. 117-328 clean water infrastructure funds for the states, territories, and tribes that received no earmarks. For 21 states and the Northern Mariana Islands, which received earmarks, the CPF/CDS was less than the 53% reduction in the amount available, and as such, these states received less than if CPF/CDS was not reserved from the CWSRF appropriation.

For clean water infrastructure funding, the total amount of shift in funding from the states, territories, and tribes that received less to the 23 states that received more is $243.2 million. On average, the 28 states, the District of Columbia, tribes, and territories received $7.2 million less in clean water infrastructure funding.⁶² On average, the remaining 23 states received approximately $10.5 million more in clean water infrastructure funding.⁶³ The average FY2023 CWSRF state capitalization grant or territorial or tribal grant amount was $13.6 million. Figure 5 provides the decrease or increase in the amounts available by state, territory, or for the tribes, as compared to distributing the FY2023 CWSRF appropriation without reserving CPF/CDS.

Figure 5. Change in P.L. 117-328 Clean Water Infrastructure Funds

Source: Calculated by CRS from the joint explanatory statement accompanying the Consolidated Appropriations Act, 2023 (P.L. 117-328) 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. 117-328 clean water infrastructure funds as a result of the reservation of funds for CPF/CDS and distribution of CPF/CDS, compared to a hypothetical scenario wherein 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.

The practice of funding CPF/CDS items from FY2023 DWSRF appropriation resulted in less water infrastructure funding for 25 states (including Puerto Rico), the District of Columbia, the territories, and tribes than if the DWSRF appropriation was distributed according to SDWA Section 1452.⁶⁴ Similar to FY2022, EPA reserved $12.7 for unregulated contaminant monitoring, drinking water contaminant health effect studies, and American iron and steel oversight prior to allotting the FY2023 DWSRF appropriation among the states as capitalization grants.⁶⁵ Setting aside 54% of the DWSRF appropriation for CPF/CDS resulted in a 55% reduction in the amount of available drinking water infrastructure funds for the states, territories, and tribes that received no earmarks. For those states that received earmarks, 16 states did not receive enough CPF/CDS to compensate for the 55% reduction in the amount of drinking water infrastructure funding available.

The total amount of the shift in funding from the states, territories, and tribes that received less to the states that received more is $212.5 million. On average, the 25 states, the District of Columbia, the territories, and tribes received nearly $6.9 million less in drinking water infrastructure funding.⁶⁶ On average, the remaining 26 states received approximately $8.2 million more in drinking water infrastructure funding.⁶⁷ For context, the average FY2023 DWSRF state capitalization grant or territorial or tribal grant amount was $8.8 million. Figure 6 provides the decrease or increase in the amounts available by state, territory, or for the tribes, as compared to distributing the FY2023 DWSRF appropriation without reserving CPF/CDS.

Figure 6. Change in P.L. 117-328 Drinking Water Infrastructure Funds

Source: Calculated by CRS from the joint explanatory statement accompanying the Consolidated Appropriations Act, 2023 (P.L. 117-328) 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. 117-328 drinking water infrastructure funds as a result of the reservation of funds for CPF/CDS and distribution of CPF/CDS, compared to a hypothetical scenario wherein 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.

IIJA Supplemental Appropriations

As discussed above, IIJA provided the SRF programs with emergency supplemental appropriations, which are in addition to the regular appropriations from P.L. 117-103 and P.L. 117-328. For FY2022 and FY2023, the addition of IIJA supplemental appropriations for the SRFs increases the amount provided to states as SRF capitalization grants. No CPF/CDS were reserved from the IIJA emergency supplemental appropriations for the SRF programs. Accordingly, the effect of reserving funds for CPF/CDS items from regular appropriations on state SRF programs is affected by these IIJA appropriations.

An assessment of this effect is complicated. There are different ways of considering the IIJA supplemental appropriations, and tradeoffs exist when choosing an analytical approach to consider such appropriations. 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. 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. In addition, some portions of these funds are allocated under different allotment formulas than those used for the SRFs.⁶⁸ 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.⁶⁹

This approach examines how the IIJA appropriations for the SRF general programs interact with the effect of earmarking part of the regular SRF appropriations for CPF/CDS. Looking only at the IIJA SRF appropriations for the SRF general programs, may not recognize the scale of the IIJA SRF supplemental appropriations dedicated to lead service-line replacement and emerging contaminants. States typically use the IIJA SRF appropriations dedicated to specific project types to fund water infrastructure projects.

For FY2022, IIJA provided $1.9 billion for each of the CWSRF and the DWSRF. After considering these IIJA appropriations, the same states including Puerto Rico, territories, and the tribes received less in water infrastructure funding than they would have if the IIJA and regular appropriations were distributed via the SRF programs. The effect of the practice of reserving funds for CPF/CDS items from the CWSRF and DWSRF P.L. 117-103 appropriations is mitigated by IIJA. For example, the states, territories, and the tribes that received no earmarks for clean water infrastructure projects received 13% less in clean water infrastructure funding after considering the FY2022 IIJA supplemental appropriation for the CWSRF general program. For drinking water infrastructure, the states, territories, and tribes that received no earmarks for projects received 14% less in drinking water infrastructure funding after considering the FY2022 IIJA supplemental appropriation for the DWSRF general program.

In FY2023, an increased portion of the P.L. 117-328 SRF appropriations went to CPF/CDS items (i.e., 53% of the CWSRF appropriation and 54% of the DWSRF appropriation). This was offset by IIJA FY2023 supplemental appropriations, which were $300 million higher for each of the SRFs than in FY2022. The states, territories, and the tribes that received no earmarks for clean water infrastructure projects received approximately 13% less in clean water infrastructure funding after considering the FY2022 IIJA supplemental appropriation for the CWSRF general program. For drinking water infrastructure funding, the states, territories, and tribes that received no earmarks received approximately 19% less in available drinking water infrastructure funding after considering the FY2023 IIJA supplemental appropriations for the DWSRF general program.

As shown in Table 2, 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.

Observations and Options

The 117^th Congress's approach to funding the CPF/CDS items is different from the manner in which Congress provided earmarks for water infrastructure projects in the past. The current approach redirects part of the SRF appropriation to fund water infrastructure projects outside of the SRF framework. As regular appropriations for the SRF programs remained level from FY2021 to FY2023, this practice of earmarking funds for projects meant that states received smaller SRF capitalization grants from annually appropriated funds. By fiscal year, however, the total appropriations provided to the SRFs from both regular appropriations and IIJA supplemental appropriations in the 117^th Congress outpaced the nominal value of SRF appropriations provided in earlier years; thus, the effect of earmarking on the regular SRF appropriations for CPF/CDS items is partially mitigated due to the scale of supplemental appropriations from IIJA.

Several questions and observations emerge after analyzing the practice of reserving a portion of the regular SRF appropriations for CPF/CDS. One question regards the determination of funding levels for the SRF programs and CPF/CDS. An assessment of the historical appropriations for the SRF programs indicates that from FY2018-FY2023 funding levels for the SRF programs were relatively stable. The addition of CPF/CDS reservation resulted in a reduction in water infrastructure funding for states with no CPF/CDS, as compared to a hypothetical situation where no CPF/CDS were reserved and the appropriations were distributed in accordance with the SRF programs. This practice may create an incentive to request earmarks, as not doing so reduces the amount of water infrastructure funding provided to projects within a state. Also, the amount of CPF/CDS also matters, as some states received less CPF/CDS than the SRF reduction as a result of the practice. A primary observation is that the IIJA supplemental appropriations for the SRF general programs appear to partially mitigate the effect of this practice on state SRF programs, by providing supplemental funds to states, territories, and tribes.

This approach to earmark funding for water infrastructure projects presents several tradeoffs that Congress may consider. For example, the practice of providing CPF/CDS for water infrastructure projects from SRF appropriations alters the process of who decides which water infrastructure projects will receive funding, shifting the direct decisionmaking regarding a particular project from state program officials to Members of Congress. 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 under an SRF subsidized loan or additional subsidization, or other program. 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. Some stakeholders have raised concerns about the state's role in developing the intended use plan (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.⁷⁰

The reestablishment of the practice of earmarking coincides with congressional interest in water infrastructure affordability. Earmarking funds for specific projects is potentially another mechanism by which Congress assists communities by reducing the cost of water infrastructure projects. The degree to which earmarking is being used for this objective is unknown. One question for policymakers may regard the characteristics of communities receiving earmarked funding, such as their financial demographics. To receive CPF/CDS, communities are required to provide a minimum cost share based on the CWA and SDWA provisions for the SRF programs.⁷¹ These statutes require states to deposit a 20% match of their capitalization grants. Therefore, CPF/CDS recipients are generally required to provide a cost share of 20%.⁷² By comparison, unless they receive additional subsidization, most communities that receive SRF assistance are required to repay 100% of the funded project cost. 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.

To address concerns of transparency, the 117^th Congress added a number of requirements to CPF/CDS items such as online disclosures and auditing of selected projects by GAO. The guidance from the appropriations committees does not include requirements for CPF/CDS projects to be on a state's IUP, though the House subcommittee guidance favored requests that were on a state's IUP. Under the CWSRF programs, states are required to prioritize projects for CWA compliance. Under the DWSRF programs, states are required to prioritize drinking water 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. Further, the distribution of state SRF capitalization grant allotments is determined either by CWA formula,⁷³ or based on each state's drinking water capital infrastructure need.

One result of earmarking a portion of the regular SRF appropriations for CPF/CDS items is that less water infrastructure funding is subject to statutory oversight and transparency requirements for the SRFs, such as EPA review of state IUPs, periodic audits of state SRF programs, and state annual reports for the CWSRF or biennial reports for the DWSRF. However, the scale of IIJA supplemental appropriations for the SRFs means that the effect of this outcome is mitigated by the supplemental funding available for state oversight. Further, the requirements for GAO to audit a sample of projects selected for CPF/CDS is an added transparency measure, as no parallel GAO auditing requirement is in the CWA and SDWA statutory provisions for the SRFs.

The preceding discussion identifies some of the issues under debate regarding broader water infrastructure needs as well as concerns related to CPF/CDS items. The 118^th Congress appears to be considering continuing to provide funds directly to projects through CPF/CDS.⁷⁴ Whether those funds are provided as a separate appropriation or set-aside from the SRF appropriation remains to be seen. The 118^th Congress may choose to limit CPF/CDS items, stop the practice, 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. Taken together, the reestablishment of earmarks, revisions to SRF programs intended to address affordability, and increased appropriations for the SRF programs are emblematic of continuing congressional interest in municipal water infrastructure funding.

Appendix A. Appendixes Outline

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

Appendix C includes Table C-1 and Table C-2. Table C-1 provides (1) the amount of earmarked funds by state or territory; (2) each state's, territory's, and the tribal allotment of the SRF appropriations available for capitalization grants from the Consolidated Appropriations Act, 2022 (P.L. 117-103); and (3) hypothetical amounts of the SRF appropriations for each state, territory, and the tribal allotment if CPF/CDS were not reserved from SRF appropriations from P.L. 117-103. Table C-2 provides (1) the amount of earmarked funds by state or territory; (2) each state's, territory's, and the tribal allotment of the SRF appropriations available for capitalization grants from the Consolidated Appropriations Act, 2023 (P.L. 117-328); and (3) hypothetical amounts of the SRF appropriations for each state, territory, and the tribal allotment if CPF/CDS were not reserved from P.L. 117-328.

Appendix D provides two tables for clean water infrastructure funding allotments. Table D-1 covers FY2022, and Table D-2 covers FY2023. Within each table, there are eight columns. The second column shows the amount of CPF/CDS by state and by territory for that fiscal year. The third column provides each state's, territorial, or tribal allotment of the regular CWSRF appropriation without including the portion of the CWSRF appropriation going to the CPF/CDS. The fourth column includes each state's, each territory's, or the tribal share of that fiscal year's IIJA supplemental appropriation for the CWSRF general program. The fifth column provides the sum of each state's, each territory's, or the tribal share of the CWSRF appropriations from that fiscal year's regular appropriations act and from that fiscal year's IIJA supplemental appropriation, and CPF/CDS. The sixth column provides each state's, territory's, or the tribal share of that fiscal year's regular and IIJA appropriations for the CWSRF in a hypothetical scenario where the CPF/CDS was not reserved from the regular CWSRF appropriation. The seventh column provides the difference between the fifth and the sixth columns, thereby showing difference due to the reservation and distribution of CPF/CDS from the CWSRF appropriations. The eighth column provides this difference represented as a percent of the hypothetical allotment of that year's regular and IIJA CWSRF appropriations. Note that IIJA supplemental appropriations dedicated for emerging contaminants projects are not included.

Appendix E provides two tables for drinking water infrastructure funding percentages. Table E-1 covers FY2022, and Table E-2 covers FY2023. Within each table, there are eight columns. The second column shows the amount of CPF/CDS by state and by territory for that fiscal year. The third column provides each state's, territorial, or the tribal allotment of the regular DWSRF appropriation without including CPF/CDS. The fourth column includes each state's, each territory's, or the tribal share of that fiscal year's IIJA supplemental appropriation for the DWSRF general program. The fifth column provides the sum of each state's, each territory's, or tribal share of that fiscal year's regular appropriations act and that fiscal year's IIJA supplemental appropriation for the DWSRF, and CPF/CDS. The sixth column provides each state's, territory's, or the tribal share of that fiscal year's regular and IIJA appropriations for the DWSRF in a hypothetical scenario where the CPF/CDS was not reserved from the regular DWSRF appropriation. The seventh column provides 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 provides this difference represented as a percent of the hypothetical allotment of that fiscal year's 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 by State

Appendix D. Clean Water Infrastructure Funding

Appendix E. Drinking Water Infrastructure Funding