Introduction

The condition of the nation's wastewater and drinking water infrastructure and related financing challenges, as well as the federal role in helping communities meet those challenges, have been perennial subjects of debate and attention in Congress. The U.S. Environmental Protection Agency (EPA) estimates that the capital cost of wastewater and drinking water infrastructure needed to meet statutory water quality and public health requirements and objectives exceeds $744 billion over a 20-year period.¹ A broader water infrastructure survey conducted by the American Water Works Association estimated that, for drinking water alone, the cost to repair aging infrastructure and expand water service to meet growing demand would be $1 trillion over 20 years.²

In the 116^th Congress, Members have introduced numerous bills that would support existing and create new water infrastructure assistance programs. In addition, as efforts to contain the Coronavirus Disease 2019 (COVID-19) have contributed to economic decline and significant job losses, some Members from both the House and Senate have linked these and other infrastructure bills to future economic recovery efforts. For example, the Department of the Interior, Environment, and Related Agencies Appropriations Act, 2021 (H.R. 7612), would provide more than $10 billion in emergency supplemental appropriations for wastewater and drinking water infrastructure. Further, the House-passed Moving Forward Act (H.R. 2) contains provisions that would authorize billions of dollars in wastewater and drinking water infrastructure spending. The chairman of the House Committee on Energy and Commerce, Frank Pallone, linked this bill to economic recovery efforts, saying, "There is no better way to stimulate our economy and create millions of good paying jobs than to modernize our badly aging infrastructure."³ In the Senate, the Committee on Environment and Public Works reported the America's Water Infrastructure Act of 2020 (S. 3591) and the Drinking Water Infrastructure Act of 2020 (S. 3590) on May 11, 2020. The committee chairman, John Barrasso, stated that these bills "will be critical to our economic recovery after the immediate pandemic response is behind us."⁴

As part of the federal government's response to the "Great Recession,"⁵ Congress enacted the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) on February 17, 2009.⁶ ARRA was the largest fiscal stimulus measure passed by Congress to address the economic impacts of the Great Recession.⁷ Among the purposes identified in ARRA were (1) preservation and creation of jobs and promotion of U.S. economic recovery and (2) investment in transportation, environmental protection, and other infrastructure that would provide long-term economic benefits.⁸ To support these and other policy objectives, ARRA included revenue provisions and provided hundreds of billions of dollars in mandatory and discretionary spending, including funding for infrastructure projects in transportation, energy, and other sectors.

This report discusses the ARRA provisions regarding wastewater and drinking water infrastructure funding, which was delivered through the Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF) programs.⁹ The first section provides background information on the CWSRF and DWSRF programs. The second section discusses the ARRA funding levels provided to these two programs in the context of historical and recent funding levels. The third section discusses the ARRA funding requirements and how Congress continued to apply many of these requirements in some form to SRF funds after ARRA. The fourth section discusses the funding results and selected observations from EPA and states regarding ARRA implementation challenges.¹⁰ The final section provides concluding observations.

This report does not evaluate the economic impacts associated with the increased ARRA funding for the CWSRF and DWSRF programs. Other studies have examined ARRA's overall economic impacts, including impacts to the U.S. gross domestic product and unemployment.¹¹

Background: State Revolving Fund Programs

The Clean Water Act (CWA)¹² and the Safe Drinking Water Act (SDWA)¹³ respectively authorize parallel complementary financial assistance programs—the CWSRF and DWSRF—that help finance wastewater and drinking water infrastructure projects needed for compliance and other statutory purposes.¹⁴ The CWSRF program provides financial assistance to a range of eligible recipients—including municipalities, state agencies, and certain private and nonprofit entities—to support a range of eligible projects and activities. These include construction of wastewater treatment works and stormwater systems, management of nonpoint source pollution, and replacement of decentralized systems (e.g., septic tanks), among others.¹⁵ The DWSRF program provides assistance to community water systems and nonprofit noncommunity water systems for projects needed to maintain SDWA compliance or to further the act's health protection goals, among other activities. Eligible projects include installation and replacement of treatment facilities, distribution systems, and certain storage facilities construction, among others.¹⁶

Using annual appropriations, EPA makes grants to states to capitalize state revolving loan funds.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 DWSRF state allotments are based on the proportional share of each state's needs identified in the quadrennial drinking water infrastructure needs survey, except that no state may receive less than 1% of available funds.¹⁹ Each year, each state must match 20% of its annual capitalization grant and, for each SRF, develop an intended use plan (IUP) indicating how the allotted funds will be used.²⁰ As outlined in their plans, states provide primarily subsidized loans to publicly owned treatment works (CWSRF) or public water systems (DWSRF), which reduce the cost of such infrastructure projects to communities. Communities repay loans into the fund, thus making resources available for projects in other communities. Over time, the federal grants and state match—combined with funds from loan repayments, leveraged bonds, and other sources—are intended to generate an ongoing, revolving source of water infrastructure funding at the state level.

States may also use the DWSRF and CWSRF to provide "additional subsidization"—such as principal forgiveness and/or negative interest loans—to disadvantaged communities to make projects affordable.²¹ In addition, states can use CWSRF grants to provide additional subsidization for specific types of infrastructure projects, including those that address water or energy efficiency.²²

Both the CWA and SDWA require states to report specific information to EPA regarding the implementation of their respective SRF programs. States are required to submit to EPA an annual report on the CWSRF and a biennial report on the DWSRF. In addition, both statutes require EPA to annually review states' implementation activities and periodically audit state programs.²³

As context, while the SRF programs are the two key federal financial assistance programs for wastewater and drinking water infrastructure, the federal contribution of total public spending is less than some other "infrastructure" sectors.²⁴ According to analysis from the Congressional Budget Office (CBO), state and local governments contribute the vast majority of public funding for wastewater and drinking water infrastructure projects.²⁵ In CBO's analysis, federal spending includes the EPA SRF programs as well as other federal programs (e.g., the U.S. Department of Agriculture's Rural Utilities Service water and waste loan and grant program).²⁶ Infrastructure spending analyzed by CBO includes both spending on capital (e.g., treatment plants, pipes and equipment) and spending on operation and maintenance (O&M) activities. In 2017, CBO data indicate that capital spending accounted for $31 billion and O&M spending accounted for $80 billion in this sector.²⁷ State and local governments contribute the vast majority of spending on O&M activities, as these are generally not eligible for funding by the SRF programs. Figure 1 compares the capital spending (adjusted for inflation) on wastewater and drinking water infrastructure between state and local governments and the federal government. The figure indicates that in 2017, the state and local share of such spending was 89%, while the federal contribution was 11%.²⁸

Figure 1. Comparison of Water Infrastructure Capital Spending by Level of Government (1957-2017) Does not include spending for operation and maintenance activities

Source: CBO, Public Spending on Transportation and Water Infrastructure, 1956 to 2017, 2018, Supplemental Data Tables, https://www.cbo.gov/publication/54539. Notes: For details on CBO's methodology, see CBO, Public Spending on Transportation and Water Infrastructure, 2010, Appendix B, https://www.cbo.gov/publication/21902.

ARRA Funding for the SRFs

ARRA provided funding for infrastructure in a range of sectors. Depending on how one defines infrastructure, the aggregate infrastructure funding totaled between $100 billion and $150 billion.²⁹ ARRA provided $4.0 billion for the CWSRF and $2.0 billion for the DWSRF in FY2009. The Omnibus Appropriations Act, 2009 (P.L. 111-8), enacted on March 11, 2009, provided an additional $689 million for the CWSRF and $829 million for the DWSRF in FY2009. Therefore, the total FY2009 funding for the CWSRF was $4.7 billion and, for the DWSRF, was $2.8 billion. The stimulus funding for the CWSRF and DWSRF was four times larger and 2.5 times larger, respectively, than the FY2008 appropriations for these programs. Unlike regular CWSRF and DWSRF grants from EPA, ARRA waived the requirement for states to provide a 20% match to the federal capitalization grant.³⁰

As a point of comparison, from FY2000 through FY2009, annual appropriations averaged about $1.1 billion for the CWSRF and about $833 million for the DWSRF. Figure 2 illustrates the annual appropriations for the CWSRF and DWSRF programs for FY2000-FY2020, including the ARRA funding in FY2009. In nominal dollars (i.e., not adjusted for inflation), the annual appropriations for these programs—especially for the CWSRF—increased after ARRA. Between FY2010 and FY2020, the annual appropriations averaged about $1.6 billion for the CWSRF and about $1.0 billion for the DWSRF.

Figure 2. CWSRF and DWSRF Appropriations: FY2000-FY2020 Not adjusted for inflation

Source: Prepared by CRS using information from annual appropriations acts, ARRA, committee reports, and explanatory statements presented in the Congressional Record. Amounts reflect applicable rescissions but do not include recent supplemental appropriations for specific locations in P.L. 116-20 and P.L. 116-113 or special purpose project grants (often referred to as "earmarks"), which ended in FY2011. For more information, see CRS Report 96-647, Water Infrastructure Financing: History of EPA Appropriations, by Jonathan L. Ramseur and Mary Tiemann.

ARRA Requirements for the SRF Programs

A key purpose of ARRA was to stimulate the economy quickly. To support this objective, Congress delivered wastewater and drinking water infrastructure funding through existing programs. In ARRA, Congress applied a range of new conditions for the funding of the CWSRF and DWSRF programs that differed from the SRF's statutory requirements that applied at the time. As discussed below, in some cases these new funding conditions "created extensive challenges for EPA, states and funding recipients."³¹

In support of the act's overarching objective to stimulate the economy, ARRA generally required that funds be obligated by September 30, 2010. However, the act included shorter deadlines for the SRF program funding. The act directed states to give priority to wastewater and drinking water projects that were "ready to proceed to construction within 12 months" of enactment (i.e., by February 17, 2010)—often described as "shovel-ready"—and required that all SRF funds must be under contract or construction within that time frame. Further, ARRA directed EPA to reallocate funds to other states if any SRF capitalization grant funds were not under contract or construction by February 17, 2010. As discussed below, EPA did not need to reallocate the ARRA funding.

Additionally, Congress applied several new programmatic requirements to ARRA funding to support specific policy objectives. Among these conditions, states were required to use at least 50% of ARRA funds for additional subsidization (e.g., grants) and 20% for "green projects." Projects receiving ARRA funding were required to use American iron, steel, and manufactured goods³² and comply with Davis-Bacon Act prevailing wage provisions.³³ Table 1 discusses these requirements and provides their location in ARRA.

In addition, ARRA included reporting and evaluation requirements that applied to federal agencies, state and local implementing agencies, and ARRA funding recipients. These requirements were intended to provide transparency and accountability for the increased spending.³⁴ EPA was directed to submit, within 30 days of enactment, a report to the House and Senate Committees on Appropriations containing a general plan for expenditure of funds provided by the legislation and, within 90 days, another report providing detailed project-level information associated with the general plan. Federal agencies were required to report on a quarterly basis on implementation.³⁵ Recipients of ARRA funds were required to submit to EPA quarterly reports on expenditure of funds and provide job creation estimates.³⁶

Further, ARRA required the U.S. Government Accountability Office (GAO) and the inspector general offices of federal departments or agencies to report on the use of funds. Inspectors general were required to review any concerns raised by the public about specific investments using ARRA funds and relay findings to department or agency heads and post the findings of such reviews or audits on the internet.³⁷ GAO was required to conduct bimonthly reviews on the use of ARRA funds by selected states and localities.³⁸

Funding Results and Implementation Experience

Pursuant to ARRA reporting directives, GAO issued multiple reports assessing ARRA implementation and documenting how the funds were used. In addition, EPA issued several "lessons learned" reports describing funding outcomes and recounting experiences and challenges from the states concerning implementation.

An evaluation of the economic impacts associated with the increased ARRA funding for the CWSRF and DWSRF programs is beyond the scope of this report. Other studies have examined ARRA's overall economic impacts, including impacts to the U.S. gross domestic product and unemployment.³⁹ This section discusses the funding results and selected observations from EPA and states regarding ARRA implementation challenges.

One-Year Funding Deadline

In a 2010 report,⁴⁰ GAO cited EPA as stating that all 50 states met the deadline to have ARRA-funded projects under contract by February 17, 2010 (i.e., one year after enactment). As discussed above, ARRA waived the 20% state match requirement for ARRA SRF funds in order to "expedite the use of funds" by the recipients.⁴¹ The waived matching requirement likely contributed to states meeting the one-year time frame. Without such a waiver, some states may have required current-year budget increases in order to provide a match, which may have needed state legislative approval.

ARRA funds supported more than 3,000 water infrastructure projects.⁴² CWSRF projects included wastewater treatment, sanitary sewer overflow, and new sewers. DWSRF projects included construction of transmission and distribution lines and projects to treat and store drinking water.

In 2011, GAO reported that two years after ARRA enactment, states had drawn down from the Treasury approximately 80% of the CWSRF funding and 83% of the DWSRF funding of the ARRA provided funds.⁴³ This may indicate that, in some circumstances, a project that met the ARRA time frame for contracting may still have been months away from actual construction or implementation. Specific ARRA-funded projects likely had varying time frames for construction.

Wastewater and drinking water projects can take multiple years to complete. Figure 3 illustrates the rate at which ARRA-funded projects were completed under the CWSRF and DWSRF programs. As the figure indicates, at the end of FY2013, funding recipients had completed 66% of the CWSRF projects and 83% of the DWSRF projects funded through ARRA.⁴⁴ Certain ARRA-funded projects, such as water meter installations, may have had shorter timelines than other ARRA-funded projects, such as water treatment plant construction or sewer line replacement.

Figure 3. Cumulative Percentage of ARRA SRF Funding Based on Year of Project Completion As of September 30, 2013

Source: Prepared by CRS with data from EPA, American Recovery and Reinvestment Act, Quarterly Performance Report, FY2013 Quarter 4, 2013, https://archive.epa.gov/recovery/web/html/.

Both EPA and GAO reported that the added requirements for ARRA funds and the statutory deadline for contracting changed states' SRF funding priorities. In some cases, the changes resulted in previously prioritized projects being bypassed for the projects that were consistent with ARRA funding conditions. For example, states reported postponing projects with greater environmental or public health benefits in favor of projects that could meet the 12-month contracting deadline. In addition, an EPA report stated that the one-year deadline "made it difficult for water projects to take advantage of green infrastructure or innovative technology options."⁴⁵ According to this report, these ARRA requirements were complex, EPA clarified guidance as questions arose to address implementation issues, and the workload for states and EPA associated with the mandates alone was significant.

In addition, EPA stated that the scale of funding provided by ARRA and the associated requirements, including the one-year time frame for contracting, posed significant workload challenges for states and EPA.⁴⁶ Relatedly, the 2011 GAO report found that "the deadline was the single most important factor hindering the ability of [economically disadvantaged communities] from receiving funding … because these communities typically do not have funds to plan and develop projects."

Green Reserve Requirement

ARRA required states to use at least 20% of the funds be reserved for "green" projects. Although GAO reported that states met (or exceeded) this requirement, this funding requirement presented implementation challenges. ARRA identified general categories of green reserve projects, including "green infrastructure, water or energy efficiency improvements or other environmentally innovative activities." As illustrated in Figure 4, expenditures involving energy efficiency in the CWSRF and water efficiency in the DWSRF accounted for more than half of the green reserve projects funded by ARRA. The wastewater sector offers a wider range of project opportunities to improve energy efficiency (particularly at wastewater treatment plants) and more opportunities for "green" infrastructure (e.g., stormwater runoff reduction projects). As discussed below, most of the DWSRF water efficiency projects supported by ARRA funding were water meter installations.

Figure 4. Breakdown of ARRA Green Reserve Project Funding Dollars in millions

Source: Reproduced from GAO, Recovery Act: Funds Supported Many Water Projects, and Federal and State Monitoring Shows Few Compliance Problems, GAO-11-609, June 2011, https://www.gao.gov/assets/330/320224.pdf.

As with many of the other ARRA funding conditions, the green reserve provision was a new requirement for both EPA and state agencies, as the SRF provisions in the CWA and SDWA did not require a portion of funds to be used for "green" projects. The green reserve provision in ARRA included general categories of project types; it did not include definitions for the terms or categories (e.g., green infrastructure and environmentally innovative activities). Consequently, state agencies were uncertain as to which projects would satisfy the green reserve condition. EPA published guidance that addressed green project reserve eligibilities on March 2, 2009, and subsequently issued four additional documents to clarify its initial guidance on green project reserve.⁴⁷ A 2010 inspector general report found that a lack of clear EPA guidance on the "green requirement" caused confusion and disagreements as to which projects were eligible.⁴⁸ In addition, according to the 2011 GAO report, "in certain cases state officials said they had to choose between a green water project and a project that was otherwise ranked higher to address water quality problems." That is, states selected "green projects" over projects that were prioritized for SRF financial assistance based on compliance with water quality or public health requirements.

To receive an ARRA capitalization grant, states were required to submit an IUP reflecting the green project reserve and other ARRA funding requirements.⁴⁹ In contrast to ARRA, the CWA and SDWA criteria for SRF project prioritization emphasized compliance, water quality or public health benefits, and economic need and did not target "green" infrastructure projects specifically.⁵⁰ Given the one-year time frame, EPA encouraged states to use their existing IUPs to identify projects that would be eligible for the ARRA green reserve. Most states did not have a sufficient number of conforming projects in their existing IUPs to fulfill the 20% "green reserve."⁵¹ In the absence of sufficient projects, EPA required states to issue solicitations for green project applications.⁵² Several states reported re-issuing solicitations for green projects after EPA clarified its initial guidance,⁵³ which resulted in further implementation delays. Some 38 states had to conduct additional solicitations to attract clean water "green" projects, and 35 states had to solicit to attract drinking water green reserve projects.⁵⁴ To attract participation, 15 states offered 100% subsidization for clean water green projects.⁵⁵

The green reserve requirement was particularly challenging under the DWSRF program, which is focused on public health. In general, state agencies implementing DWSRFs had fewer project options to satisfy the green reserve conditions than did agencies implementing CWSRF programs.⁵⁶ This is, in part, due to the CWSRF project eligibilities, as some green projects more directly support the environmental quality objectives of the CWA.⁵⁷ As Figure 4 indicates, water efficiency projects accounted for the majority of green reserve projects in the DWSRF, and "new water meters in previously unmetered areas [accounted] for a substantial percentage of these water efficiency projects."⁵⁸ These water meter installation projects helped states achieve their "green reserve" funding requirement for the DWSRF and meet the one-year time frame for contracting. As stated by EPA, "water meter projects were quickly able to meet shovel-ready status, as compared to projects that involve intensive planning, such as water and wastewater treatment."⁵⁹

Additional Subsidization Requirement

ARRA required states to use at least 50% of their allotment of funds for the SRFs as additional subsidization (e.g., forgiveness of principal, negative interest loans, or grants). According to the ARRA conference report:

[T]his provision provides relief to communities by requiring a greater Federal share for local clean and drinking water projects and provides flexibility for States to reach communities that would otherwise not have the resources to repay a loan with interest.⁶⁰

States exceeded the requirement that 50% of the funds be provided as additional subsidies. Of the total ARRA funds awarded, GAO reported that states provided 76% of CWSRF funds and 70% of DWSRF as additional subsidies (e.g., forgiveness of principal or grants).⁶¹

State approaches to the additional subsidization requirements for ARRA funds varied. Under SDWA, states have discretion to offer additional subsidization in their DWSRF programs. While some states had offered additional subsidization prior to ARRA, other states had to adopt legislative changes to authorize SRF programs to provide assistance other than loans.⁶² Other states emphasized loans in order to build the "revolving" capacity of their DWSRFs.

Some states opted to offer 100% of ARRA funds in principal forgiveness.⁶³ One state reported that additional subsidization expedited the contracting process as applicants did not have to complete credit reviews.⁶⁴ In the long term, as subsidy recipients do not repay funds to the SRF, offering 100% of ARRA funds as subsidies limits the future availability of repayments for loans for other infrastructure projects. On the other hand, ARRA's additional subsidization requirement was intended to support water infrastructure projects in communities that otherwise may not have the resources to repay a loan with interest.⁶⁵

"Buy American" Requirements

Congress required the use of American-produced iron, steel, and manufactured goods in projects that received ARRA funding.⁶⁶ As with some of the other ARRA funding requirements, EPA and the states had little previous experience implementing these funding conditions.⁶⁷ In April 2009, the Office of Management and Budget (OMB) published government-wide guidance in the Federal Register to assist agencies in implementing this and other ARRA requirements.⁶⁸ Several days later, EPA issued its guidance for implementing the "Buy American" requirements under the SRF programs.⁶⁹ EPA subsequently published additional clarifying guidance documents, some of which were revised on several occasions.⁷⁰

According to an EPA study, although participant support for the "concept of buying American-made products was strong … participants noted many instances in which the Buy American requirements were so resource intensive and time consuming that projects were delayed simply to meet the requirement."⁷¹

As states used their existing IUPs to identify projects, such project applications had to be amended to include the ARRA "Buy American" requirements, which may have contributed to delays in contracting.⁷² Some project funding recipients sought waivers of these requirements, which EPA could grant on a project-by-project basis.⁷³ EPA found that offering a waiver for a product (e.g., wind turbine) rather than a project may have assisted with a more expeditious obligation of funds.⁷⁴

Davis-Bacon Requirements

A number of state agency officials had prior experience with the Davis-Bacon provisions, as these labor requirements applied to CWSRF projects in the beginning years of the program (FY1989-FY1995) and in the CWA Title II Construction Grants program (the precursor to the CWSRF program).⁷⁵ In addition, some states had experience with their own fair labor wage standards.⁷⁶

Some stakeholders observed that Davis-Bacon and other ARRA mandates hindered the "the push to obligate and spend funds quickly."⁷⁷ Part of the implementation challenge may have been due to uncertainty regarding the requirements. According to an EPA report, "all states and funding recipients complained about the onerous and confusing Davis-Bacon process."⁷⁸ Applications for SRF funding from states' existing IUPs had to be amended to include the Davis-Bacon requirements, which further challenged efforts to use existing projects from state IUPs to meet the one-year time frame for contracting.⁷⁹ In addition, some states identified eligible parties who chose not to apply for or withdrew from the ARRA funding process due to the additional costs related to the ARRA funding requirements, such as the Davis-Bacon requirements.⁸⁰

Reporting Requirements

As discussed above, ARRA required quarterly reporting from federal agencies that were in charge of implementing ARRA funding programs. States were required to submit weekly reports on usage of ARRA funds, and EPA published weekly reports to a website specifically for ARRA.⁸¹ Some states noted the importance of transparency and publicly available data. Others questioned the utility of the added reporting data, observing that the data they were providing under the SRF program was broadly duplicative to existing SRF reporting requirements.

ARRA also required recipients of funds to provide quarterly reports on spending details and estimates of job creation provided by the ARRA funding. In general, states conducted the recipient reporting requirements for the SRF programs. While most of the required data elements were relatively "straightforward and familiar," state officials noted that the ARRA requirement to report jobs data, coupled with quarterly deadlines, presented implementation challenges for the states.⁸² In addition, the OMB guidance describing the method for calculating jobs data changed several times during ARRA implementation.⁸³ States noted that these changes led to confusion and required additional time to implement, as the new guidance was discussed among EPA regions, states, and local recipients.⁸⁴

Subsequent Changes to the SRF Programs

In the years following ARRA, Congress has variously applied versions of ARRA requirements to the SRF programs in specific years through appropriations acts and, in some cases, has incorporated similar provisions into the underlying statutes. These requirements and the subsequent changes to the CWSRF and DWSRF are identified in Table 2.

Concluding Observations

To address the economic impacts of the Great Recession, ARRA provided hundreds of billions of dollars in mandatory and discretionary spending delivered through both new and existing programs. A primary objective of ARRA was economic stimulus to preserve and create jobs. To support this objective, ARRA provided funding for infrastructure in a range of sectors, including $6 billion in supplemental appropriations for the CWSRF and DWSRF programs. Congress may consider the degree to which funding such projects would help achieve their specific policy goals. Whether federal dollars could provide more of a stimulus by supporting other economic policy tools (e.g., tax cuts) is beyond the scope of this report. Below are several points involving the experience with ARRA specific to the EPA SRF programs that may be informative for policymakers considering future economic stimulus measures.

In contrast to the CWSRF and DWSRF capitalization grants provided through annual appropriations, ARRA SRF funds did not require a 20% match from the states. This waiver likely contributed to states' success in meeting the one-year contracting requirement. Without the waiver, some states may have required current-year budget increases in order to provide a match, which would have generally required state legislative approval. Without the ARRA waiver, the 20% state match may have leveraged an additional $1.2 billion for the SRF programs above the appropriated amount in ARRA. If policymakers consider substantial funding increases for the SRF programs in future stimulus proposals, a state-match waiver may raise issues for consideration, including the feasibility of states to provide additional funds within a fiscal year and the trade-off between the increased amount of available funds provided by a state contribution and the spending time frame. During the Great Recession, states may not have had sufficient funds to match ARRA's funding due to reduced revenue from state tax sources and/or potential limitations on borrowing from state-level balanced budget requirements.

In addition to the one-year contracting deadline, ARRA funding included several new conditions and priorities that differed from the existing statutory requirements. Subsequent to ARRA, Congress applied versions of many of the ARRA funding requirements to the SRF programs through appropriations acts and, subsequently, through amendments to the underlying statutes (see Error! Reference source not found.). State and federal SRF program administrators now have more than a decade of experience implementing many of the funding conditions included in ARRA, although some of the details of the conditions have changed over time. For example, both SRFs now include a narrower requirement to use American-made iron and steel products in SRF funded projects, with certain exceptions. Davis-Bacon prevailing wage requirements now apply to projects receiving assistance from either SRF. In terms of the green reserve condition, annual appropriations provisions have directed states to use a percentage (e.g., 10% in the Further Consolidated Appropriations Act, 2020 [P.L. 116-94]) of their CWSRF capitalization grants for "green" projects, while under the DWSRF program, states have discretionary authority to finance such projects.

Although states met ARRA's deadline and funding conditions, stakeholders reported that the one-year contracting deadline combined with the added funding conditions presented substantial implementation challenges for EPA, states, and local governments. For example, according to one report, "it took a tremendous amount of extra effort from all stakeholders to attain EPA's ARRA goals."⁸⁵ In addition to the implementation challenges, in some cases the ARRA funding deadline and funding conditions altered states' SRF funding priorities (at least temporarily) for their previously ranked projects or selected projects needed for compliance with water quality or public health requirements.

The ARRA SRF funding results and implementation experience may be relevant in the 116^th Congress as policymakers consider legislative options to stimulate the economy and/or meet other policy objectives through increases in water infrastructure spending. Considerations involve the broad policy objectives of stimulus legislation and how to efficiently achieve such objectives, perhaps while supporting other policy goals, including statutory priorities such as protecting public health and environment and infrastructure assistance. Policy options to achieve certain objectives vary and may depend on the degree and nature of the economic impacts being addressed (e.g., recovery from COVID-19-related economic impacts). Some policy objectives may involve trade-offs among competing priorities and may require differing tools for evaluation.

In the case of funding wastewater and drinking water infrastructure as a means of achieving policy goals, the practicalities of wastewater and drinking water infrastructure projects may be relevant. In general, water infrastructure projects often involve complicated planning and construction efforts that span multiple years. Regarding the objective of quickly stimulating the economy, one consideration is whether to provide funding through existing programs, such as the SRF programs, or through new programs. For existing programs, a consideration is whether or how to apply new conditions to the funding to further certain policy objectives, as occurred with ARRA. If funding were to be delivered through new programs, various considerations―program structure, development time frames, rulemakings, or other related implementation considerations―may arise.