Drinking Water State Revolving Fund
(DWSRF): Program Overview and Issues
Mary Tiemann
Specialist in Environmental Policy
February 24, 2012
Congressional Research Service
7-5700
www.crs.gov
RS22037
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Drinking Water State Revolving Fund (DWSRF): Program Overview and Issues
Summary
The Safe Drinking Water Act (SDWA) Amendments of 1996 authorized a drinking water state
revolving loan fund (DWSRF) program to help public water systems finance infrastructure
projects needed to comply with federal drinking water regulations and to meet the act’s health
objectives. Under the program, states receive capitalization grants to make loans to public water
systems (privately and publicly owned) for drinking water projects and certain other SDWA
activities. Since FY1997, Congress has provided more than $16 billion for this program,
including $2 billion in the supplemental funding the American Recovery and Reinvestment Act of
2009 (ARRA; P.L. 111-5). Through June 2010, the DWSRF program had provided a total of
$14.6 billion in assistance and supported 8,519 projects; with the 20% state match, bond
proceeds, and other funds, the program had provided a total of $20.027 billion in assistance.
The Environmental Protection Agency’s (EPA’s) latest (2007) survey of capital improvement
needs for public water systems indicated that water systems need to invest $334.8 billion on
infrastructure improvements over 20 years to ensure the provision of safe water. EPA reports that
this amount is similar to the 2003 needs estimate of $276.8 billion ($331.4 billion when adjusted
to 2007 dollars). The latest survey reflects continued improvement in the reporting of needs for
infrastructure rehabilitation and replacement, and also reporting funding needs related to
compliance with SDWA regulations and security-related needs.
Key program issues include the gap between estimated needs and funding; the growing cost of
complying with SDWA standards, particularly for small communities; the ability of small or
economically disadvantaged communities to afford DWSRF financing; and the broader need for
cities to maintain, upgrade, and expand infrastructure unrelated to SDWA compliance.
ARRA provided $2 billion for the DWSRF program for drinking water infrastructure projects,
and $4 billion for a similar Clean Water SRF to fund municipal wastewater infrastructure projects
in the form of capitalization grant loans. Under the DWSRF program, the supplemental funding
was also allocated as capitalization grants to the states, which states use to provide financial
assistance (subsidized loans and grants) to public water systems for infrastructure projects. The
ARRA supplemental funding, and subsequent appropriations, have come with new requirements
(such as a 20% reserve for “green” projects and the application of Davis-Bacon prevailing wage
requirements to projects receiving any DWSRF funding). States have expressed concern that the
added requirements have reduced their ability to determine project priorities, increased project
costs, and placed new strains on the state/federal partnership.
In the 112th Congress, congressional action has focused on appropriations. For FY2012, the
President requested $999.0 million for the DWSRF program, and Congress provided $919.4
million in P.L. 112-74 (before applying an across-the-board rescission of 0.16%). In this act,
Congress made the green infrastructure reserve discretionary, and expanded the application of
Davis-Bacon requirements to the DWSRF program to include FY2012 and all future years. The
Administration has requested $850 million for the program for FY2013. Other approaches to
financing water infrastructure also have been proposed. For example, H.R. 402 would establish a
National Infrastructure Development Bank, and H.R. 1802 and S. 939 would remove the volume
cap on private activity bonds for drinking water and wastewater facilities; the Senate Finance
Committee’s Surface Transportation Reauthorization bill includes similar provisions.
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Drinking Water State Revolving Fund (DWSRF): Program Overview and Issues
Contents
Introduction...................................................................................................................................... 1
Program Results......................................................................................................................... 2
DWSRF Allotments and Set-Asides ................................................................................................ 3
Drinking Water Infrastructure Needs............................................................................................... 5
Program Issues................................................................................................................................. 7
Legislative Activity and Issues ........................................................................................................ 8
111th Congress............................................................................................................................ 8
American Recovery and Reinvestment Act of 2009 ........................................................... 9
Water Infrastructure Authorizing Bills ................................................................................ 9
112th Congress ......................................................................................................................... 11
Tables
Table 1. Drinking Water State Revolving Fund Program Funding, FY1997-FY2012..................... 3
Contacts
Author Contact Information........................................................................................................... 12
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Drinking Water State Revolving Fund (DWSRF): Program Overview and Issues
Introduction
The quality of water delivered by public water systems has been regulated at the federal level
since enactment of the 1974 Safe Drinking Water Act (SDWA). Since then, EPA has issued
regulations for more than 90 contaminants, and all states (except Wyoming) have assumed
primary responsibility for administering and enforcing the federal drinking water program. The
104th Congress substantially revised the SDWA in 1996 (P.L. 104-182). The amendments were the
culmination of a multi-year effort to amend a statute that was widely criticized as having too little
flexibility, too many unfunded mandates, and an arduous but unfocused regulatory schedule.
Among the key provisions, the 1996 amendments authorized a drinking water state revolving loan
fund (DWSRF) program to help public water systems finance projects needed to comply with
SDWA regulations. A key provision, Section 1452, authorized a drinking water state revolving
loan fund (DWSRF) program to help public water systems finance improvements needed to
comply with federal drinking water regulations and to address the most serious risks to human
health. The law authorized the Environmental Protection Agency (EPA) to make grants to states.
A state uses its annual capitalization grant from EPA to “capitalize” the state’s revolving loan
fund to provide an ongoing source of water infrastructure funding for communities generally
through repayment of loans to the state fund. States must match 20% of their annual grant and
develop intended use plans each year indicating how the allotted funds will be used. States may
use the DWSRF to provide loans and other assistance to eligible public water systems for
expenditures that EPA has determined will facilitate SDWA compliance or significantly further
the act’s health protection objectives. Eligible projects include installation and replacement of
failing treatment facilities, distribution systems, and certain storage facilities. Projects to replace
aging infrastructure are eligible if they are needed to maintain compliance or to further public
health protection goals. Projects to consolidate water supplies also may be eligible. This program
is patterned after the Clean Water Act SRF (CWSRF) program for financing municipal
wastewater treatment projects that was authorized under the Water Quality Act of 1987.
Public water systems that are eligible to receive DWSRF assistance include community water
systems (whether publicly or privately owned) and not-for-profit noncommunity water systems.1
States generally may not provide DWSRF assistance to systems that lack the capacity to ensure
compliance with the act or that are in significant noncompliance with SDWA requirements, unless
these systems meet certain conditions to return to compliance. Systems owned by federal
agencies are not eligible. Although the law authorizes assistance to privately owned community
water systems, some states have laws or policies that preclude privately owned utilities from
receiving DWSRF assistance.2 Because many of the nation’s 52,000 community water systems
(especially small systems) are privately owned, this limitation has raised issues in such states.
1 A community water system is one that serves at least 15 service connections used by year-round residents or that
regularly serves at least 25 year-round residents. Noncommunity water systems regularly provide water to people, but
not year-round (e.g., schools and workplaces with their own wells).
2 Some states have legislative or regulatory restrictions on providing DWSRF assistance to private systems. According
to EPA, some states have made a policy decision to restrict assistance to private systems because of concerns about
endangering the tax-exempt status of bonds issued to provide the state match. In 2003, EPA reported that 21 states had
provided DWSRF assistance to private systems, 12 states had restricted assistance to private systems, and 17 states did
not have restrictions, but had not yet provided assistance to private systems. States restricting assistance to private
systems include Alabama, Arkansas, Colorado, Georgia, Kansas, Louisiana, Mississippi, Nebraska, North Carolina,
Oklahoma, Tennessee, and Wyoming. Source: U.S. Environmental Protection Agency, The Drinking Water State
(continued...)
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The SDWA as amended authorized appropriations for DWSRF capitalization grants at a level of
$599 million for FY1994 and $1 billion annually for each of FY1995 through FY2003, for a total
appropriations authority of $9.6 billion. Although the authorization of appropriations expired in
2003, the program has continued to receive funding.
For each of FY2008 and FY2009, Congress provided $829.0 million through regular
appropriations acts. The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5)
provided another $2 billion for water infrastructure projects via the DWSRF program, for a
combined total of roughly $2.83 billion for FY2009. (See ARRA discussion in the “Legislative
Activity” section below.)
For FY2010, in P.L. 111-88, Congress approved $1.39 billion for the DWSRF. For FY2011, the
President requested $1.29 billion, and under several continuing resolutions, the program was
generally being funded at FY2010 levels (through March 4, 2011, under P.L. 111-322). The full-
year continuing resolution (P.L. 112-10) reduced the level to $965.0 million for FY2011 ($963.1
million after applying an across-the-board rescission of 0.2%).
For FY2012, the President requested $999.0 million, and Congress provided (P.L. 112-74) $919.4
million, before applying an across-the-board rescission of 0.16%. This amount brings cumulative
DWSRF program appropriations to some $16.4 billion for FY1997 through FY2012. For
FY2013, the President has requested $850 million. Table 1 provides annual funding levels for the
program since its inception in 1997.
Program Results
In contrast to direct grants for construction projects, which would not create an ongoing funding
source, the revolving fund program was designed to provide seed money to states in the form of
capitalization grants to help generate a sustainable source of funding in each of the states over
time. Through June 2010, cumulative funding for federal capitalization grants provided in annual
appropriations reached $12.3 billion. When combined with the 20% state match, bond proceeds,
loan principal repayments, and other funds, a total of $19.8 billion in DWSRF funds was
available for loans and other assistance during this time frame. Also through June 2010, 8,519
projects had assistance agreements, and 5,248 of these projects had been completed; total
assistance provided by the program reached $20.027 billion.3
(...continued)
Revolving Fund Program: Financing America’s Drinking Water from the Source to the Tap, Report to Congress, EPA-
918-R-03-009, May 2003, pp. 36-37, http://www.epa.gov/ogwdw/dwsrf/pdfs/dwsrf_congressreport-main.pdf.
3 Program statistics are available at http://www.epa.gov/safewater/dwsrf/dwnims.html. For further discussion of the
DWSRF program, see EPA Report to Congress, Drinking Water State Revolving Fund: Investing in a Sustainable
Future, EPA 816-R-08-002, March 2008, http://www.epa.gov/safewater/dwsrf.html.
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Table 1. Drinking Water State Revolving Fund Program Funding,
FY1997-FY2012
(in millions of dollars, nominal dollars not adjusted for inflation)
Fiscal Year
Authorizations
Appropriations
1997 $1,000.0
$1,275.0
1998 $1,000.0
$725.0
1999 $1,000.0
$775.0
2000 $1,000.0
$816.9
2001 $1,000.0
$823.2
2002 $1,000.0
$850.0
2003 $1,000.0
$844.5
2004 —
$845.0
2005 —
$843.2
2006 —
$837.5
2007 —
$837.5
2008 —
$829.0
2009 —
$829.0
2009
$2,000.0
ARRA Supplemental
2010 —
$1,387.0
2011 —
$963.1
2012 —
$919.4
2013 (request)
—
($850.0)
Total $16,399.0a
Sources: Prepared by CRS using the most recent information available from House, Senate, or conference
committee reports accompanying the annual appropriations bills that fund EPA and Administration budget
documents, including the President’s annual budget requests as presented by OMB, and EPA’s accompanying
annual congressional budget justifications. “ARRA” refers to the American Recovery and Reinvestment Act of
2009 (P.L. 111-5). FY2012 enacted amounts are as presented in P.L. 112-74 and the conference report (H.Rept.
112-331), which do not reflect a 0.16% across-the-board rescission required in Section 436 of P.L. 112-74. EPA is
directed to apply this rescission to the amounts specified in the law.
a. Funds available to states are reduced by amounts EPA sets aside from the annual appropriation. For
example, EPA reserved $2 million to reimburse small systems for monitoring for unregulated contaminants,
and 1.5% for grants to Indian tribes (roughly $19.26 million for FY2011).
DWSRF Allotments and Set-Asides
Under SDWA Section 1452(a)(1), EPA is required to allot DWSRF funds among the states based
on the results of the most recent quadrennial needs survey (discussed below). Each state and the
District of Columbia must receive at least 1% of available funds, and as much as 0.33% of the
total appropriation must be made available for grants to the Virgin Islands, the Commonwealth of
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the Northern Mariana Islands, American Samoa, and Guam.4 Before distributing funds among the
states, EPA sets aside from the annual DWSRF appropriation $2 million to pay for monitoring of
unregulated contaminants in small and medium systems, and 1.5% for grants to Indian tribes and
Alaska Native Villages ($12.26 million for FY2011). EPA is also authorized to reserve annually
up to $30 million to reimburse states for operator training and certification costs if separate
funding is not provided under Section 1419 of the SDWA; EPA reserved the full amount for
several years, but reserved none after FY2003, as state training programs had matured. To provide
technical assistance to small systems, EPA may reserve up to 2%, with a $15 million cap;
however, funding for this activity is provided under Section 1442, and EPA has not set aside
funds for this purpose.5
The SDWA also includes several set-asides and directives that apply to states. These provisions
offer states flexibility in tailoring their individual DWSRF programs to address state priorities.
They also demonstrate the emphasis that the 1996 amendments placed on enhancing compliance,
especially among smaller systems. The act requires states to make available at least 15% of their
annual allotment for loan assistance to systems that serve 10,000 or fewer persons, to the extent
that the funds can be obligated to eligible projects. The act also allows states to use up to 30% of
their DWSRF grant to provide additional assistance, such as forgiveness of loan principal or
negative interest rate loans, to help economically disadvantaged communities (as determined by
the state).
Among other optional set-aside provisions, states may reserve as much as 4% of their DWSRF
allotment to cover the costs of administering the DWSRF program and an additional portion to
help pay the costs of other mandates added by the 1996 amendments. Specifically, states may set
aside as much as 10% for a combination of the following: public water system supervision
programs, technical assistance through source water protection programs, state capacity
development strategies, and operator certification programs. To use DWSRF funds for these
purposes, states must match these expenditures with an equal amount of state funds. States may
use an additional 2% of funds to provide technical assistance to systems that serve 10,000 or
fewer persons. States also have the option of using as much as 15% for a combination of the
following: loans for the acquisition of land or conservation easements; loans to implement
voluntary source water protection measures; technical and financial assistance to systems as part
of a capacity development strategy; and development and implementation of ground water
protection programs. Expenditures may not exceed 10% for any one of these activities. (Other
SDWA provisions include funding authority for several of these programs and activities.)
To further enhance public water system compliance, the 1996 amendments added new capacity
development and operator certification requirements. The law required EPA to withhold part of
the DWSRF grant from any state that did not meet these mandates. Section 1420 required states
to establish capacity development programs that include (1) legal authority or other means to
ensure that new systems have the technical, financial, and managerial capacity to meet SDWA
requirements and (2) a strategy to assist existing systems that are experiencing difficulties in
4 For FY2010, Congress authorized EPA to reserve up to 1.5% of the appropriated DWSRF funds for territories (P.L.
111-88).
5 DWSRF state-by-state allotments and set-asides are available at EPA’s website, http://www.epa.gov/safewater/dwsrf/
allotments/index.html.
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coming into compliance. 6 States also were required to adopt programs for training and certifying
operators of community and non-transient non-community water systems.
Congress designed the DWSRF program to give states implementation flexibility. Congress
provided states flexibility in setting priorities between the SDWA and Clean Water Act SRF
programs to accommodate the divergent drinking water and wastewater needs and priorities
among the states. The SDWA authorized states to transfer as much as 33% of the annual DWSRF
allotment to the CWSRF or an equivalent amount from the CWSRF to the DWSRF. The act
authorized these transfers through FY2001. In 2000, EPA recommended that Congress continue
to authorize transfers between the SRF programs to give states flexibility to address their most
pressing water infrastructure needs. Subsequent conference reports to accompany EPA fiscal year
appropriations have authorized states to continue transferring funds between these programs.
Drinking Water Infrastructure Needs
SDWA Section 1452(h) requires EPA to assess the capital improvement needs of eligible public
water systems and to report to Congress every four years.7 Concurrently, and in consultation with
the Indian Health Service and Indian tribes, EPA must assess needs for drinking water treatment
facilities to serve Indian tribes (§1452(i)).8 EPA is required to distribute the DWSRF funds to the
states based on the results of the latest needs survey. Eligible systems include nearly 53,000
community water systems (publicly or privately owned) and 21,400 not-for-profit nontransient
noncommunity water systems.
EPA conducted its third survey of capital improvement needs for public water systems in 2003.9
Based on this survey, EPA estimated that systems needed to invest $276.8 billion on drinking
water infrastructure improvements over 20 years to comply with drinking water regulations
and/or to ensure the provision of safe water. EPA reported that the amount exceeded the 2001
needs survey estimate of $165.5 billion (in 2003 dollars) by more than 60%. EPA attributed the
large increase to several factors. The 2003 survey included funds needed for compliance with
several regulations (including the revised arsenic and radium rules) and pending rules for radon
and other contaminants. It also identified $1 billion in security-related needs. Most significantly,
water systems made efforts to improve their reporting of needs for infrastructure rehabilitation
and replacement, which EPA determined had been under-reported in the previous surveys.
Issued in 2009, the latest (2007) needs survey estimated that public water systems need to invest
$334.8 billion on infrastructure improvements over 20 years (2007 through 2026) to achieve
regulatory compliance and ensure the provision of safe water. EPA reported that this amount is
similar to the 2003 needs estimate of $331.4 billion, when adjusted to 2007 dollars. The agency
noted that the survey reflects the use of more consistent methodologies for needs estimation
6 42 U.S.C. §300g-9.
7 42 U.S.C. §300j-12(h).
8 42 U.S.C. §300j-12(i).
9 Environmental Protection Agency, Drinking Water Infrastructure Needs Survey and Assessment: Third Report to
Congress, June 2005. EPA 816-R-05-001. This and earlier needs surveys are available online at http://www.epa.gov/
safewater/needssurvey/index.html.
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among the states, and continued improvements in reporting of needs related to infrastructure
rehabilitation and replacement.10
Although all of the infrastructure projects in the needs assessment would promote the health
objectives of the act, EPA reported that just 16% ($52.0 billion) of the funding needed was
attributable to SDWA regulations, while $282.8 billion (84%) represented nonregulatory costs.
Most nonregulatory funding needs typically involve installing, upgrading, or replacing
transmission and distribution infrastructure to allow a system to continue to deliver safe drinking
water. These system problems often do not cause a violation of a drinking water standard, but
projects to correct infrastructure problems may be eligible for DWSRF funding if needed to
address public health risks. Projects attributable to SDWA regulations (including proposed
regulations) typically involve the upgrade, replacement, or installation of treatment technologies.
The survey presented the 20-year needs estimates by category: transmission and distribution,
treatment, source, storage, and other. The largest needs category, installation and rehabilitation of
transmission and distribution systems, accounted for $200.8 billion (60%) of total 20-year needs.
Water treatment needs constituted the next largest category, accounting for $75.1 billion (22%) of
total needs, while water storage accounts for $36.9 billion (11%), and source (projects needed to
obtain safe water supplies, including rehabilitation and installation of wells) accounts for $19.8
billion (6%) of total 20-year needs.
The 2007 Needs Survey also included $422.0 million for projects to address security needs.
However, EPA concluded that security-related needs were underestimated, as many water systems
incorporate these costs into the costs of broader construction projects rather than report them
separately.
For further perspective, the needs survey breaks down the 20-year needs estimates according to
system size and ownership. Large community water systems (serving more than 100,000 people)
accounted for $116.3 billion (36%) of total 20-year need; medium systems (serving from 3,301 to
100,000 people) accounted for $145.1 billion (45%); and small systems (serving 3,300 or fewer
people) accounted for $59.4 billion (19%). Not-for-profit noncommunity water systems have
estimated needs of $4.1 billion. American Indian and Alaska Native Village water systems have
combined estimated 20-year needs of $2.9 billion. The estimated needs reported by American
Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands
totaled $889.4 million.
EPA noted that the total needs estimate may be conservative for several reasons: (1) systems are
required to meet stringent documentation criteria when identifying needs; (2) many systems did
not fully understand their security needs at the time of the assessment; (3) capital improvement
plans often cover fewer than 10 years, while the survey tries to capture 20-year estimates; and (4)
the survey is limited to eligible needs, thus excluding projects related to dams, raw water
reservoirs, fire protection, operation and maintenance, and future growth.
Other needs assessments have also been prepared, including EPA’s 2002 Gap Analysis. This study
identified potential funding gaps between projected needs and spending from 2000 through 2019.
EPA estimated a potential 20-year funding gap for drinking water capital and operations and
10 Environmental Protection Agency, 2007 Drinking Water Infrastructure Needs Survey and Assessment: Fourth
Report to Congress, EPA 816-R-09-001, March 2009, http://www.epa.gov/safewater/needs.html.
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maintenance ranging from $45 billion to $263 billion, depending on different scenarios.11 (For
more information on this study and other needs assessments, see CRS Report RL31116, Water
Infrastructure Needs and Investment: Review and Analysis of Key Issues, by Claudia Copeland
and Mary Tiemann.)
Program Issues
With the authorization of the DWSRF program, Congress acted to help public water systems
finance infrastructure projects needed to achieve or maintain compliance with SDWA
requirements and protect public health. While this federal/state program provides an important
means for addressing drinking water needs, a substantial gap remains between financing needs
and available funds. The 2007 needs survey identified $334.8 billion in drinking water
infrastructure needs over 20 years, while the DWSRF program was authorized at $9.6 billion over
seven years (FY1997-FY2003). The appropriated amounts, augmented by the state match,
leveraging, repayments, and interest earnings, have created significant financing capacity among
the state DWSRFs. However, many expect a funding gap to persist, and new SDWA requirements
are expected to drive up future estimates of needs.
Other SDWA mandates are eligible for DWSRF funding, thus increasing competition for these
resources. The DWSRF program embraces competing objectives, and thus, this competition is
perhaps unavoidable. On the one hand, the fundamental purpose of the program is to capitalize
revolving funds in the states in order to generate a perpetual source of funding for drinking water
projects. On the other hand, Congress authorized multiple set-asides to fund other drinking water
program priorities and requirements, such as system compliance capacity assurance, operator
certification, and small system technical assistance. Overall, states may use as much as 31% of
their grant for the set-asides and another 30% to provide loan subsidies to economically
disadvantaged communities. While these options offer states flexibility to tailor their programs to
meet individual needs, using funds for these activities could significantly erode the corpus of state
funds and slow the rate at which they become capitalized. A concern for states is that, to the
degree that Congress relies on the DWSRF to fund other SDWA requirements instead of
providing separate appropriations, the potential of the DWSRF program is diminished.
Perhaps a larger issue is the need for communities to address drinking water infrastructure needs
that are outside the scope of the DWSRF program. Communities typically must address several
categories of infrastructure requirements unrelated to SDWA compliance and, thus, ineligible for
DWSRF assistance. These categories include future growth, ongoing rehabilitation, and operation
and maintenance of systems. EPA has reported that outdated and deteriorated drinking water
infrastructure poses a fundamental long-term threat to drinking water safety, and that in many
communities, basic infrastructure costs can far exceed SDWA compliance costs. As reported in
EPA’s most recent (2007) drinking water needs assessment, just 16% of the 20-year estimated
need is attributable to SDWA regulations. Although the DWSRF program does not address certain
categories of needs and excludes many noncommunity water systems from coverage, with this
program Congress has added a major tool to the mix of federal, state, and local initiatives
intended to help communities ensure the safety of water supplies.
11 U.S. Environmental Protection Agency, Clean Water and Drinking Water Infrastructure Gap Analysis Report, EPA
816-R-02-020, September 2002.
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Legislative Activity and Issues
In recent years, House and Senate committees have held hearings on the clean water and drinking
water SRF programs, infrastructure needs, and funding issues and options. Funding bills have
been introduced repeatedly. A fundamental and persistent question has concerned the long-term
federal role in water infrastructure financing. A newer subset of questions concerns how the latest
recession, economic recovery efforts, and deficit reduction efforts might affect the type and level
of federal involvement. For example, how might deficit reduction objectives impact recent
congressional efforts to develop a small system grant program or sustainable funding source, such
as a water infrastructure trust fund? Other persistent water infrastructure issues include the gap
between funding and estimated needs; the growing cost of complying with SDWA standards,
particularly for small communities; the ability of small or economically disadvantaged
communities to afford DWSRF financing; and the broader need for cities to maintain, upgrade,
and expand infrastructure unrelated to SDWA compliance. Another issue for the states concerns
the new requirements, not present in the SDWA, that Congress has imposed on state capitalization
grants through ARRA and subsequent appropriations acts. These include a 20% Green Project
Reserve and Davis-Bacon prevailing wage conditions. (See discussion below.)
Despite ongoing legislative interest, budgetary constraints and other concerns have posed
challenges to efforts to enact new water infrastructure funding legislation. In the face of large
needs, scarce federal resources, and debate over the federal role in funding water infrastructure,
EPA, states, and utilities have increasingly focused on alternative management and financing
strategies to address costs and promote greater financial self-reliance among water systems.
Strategies include establishing public-private partnerships, improving asset management, and
adopting full-cost pricing for water services. Such approaches are meant to improve the financial
and managerial sustainability of water systems; however, they may be limited in their ability to
fully meet needs, particularly among poorer communities and small water systems. Consequently,
interest in exploring new infrastructure financing options—such as an infrastructure bank—and
expanding federal assistance has persisted.
111th Congress
In the 111th Congress, water infrastructure funding issues received early attention in the context of
economic stimulus proposals. Consideration of such proposals raised a number of issues. For
example, how might project readiness be balanced against traditional program priorities? Given
multiple considerations—including speed and efficiency in creating jobs, public health need,
economic need, or ensuring urban/rural equity or equity among the states—how would priorities
be set? And how many projects were shoveled ready? The American Water Works Association
estimated that at least $10 billion in drinking water infrastructure projects were “ready to go” and
could move forward rapidly given funding.12 The U.S. Conference of Mayors estimated that
$15.36 billion in identified “ready to go” water and wastewater projects could generate 133,000
jobs.13 Although much uncertainty surrounded estimates associated with the potential benefits of a
stimulus package, the backlog of water infrastructure projects was much larger than any proposed
12 American Water Works Association, Massive Stimulus Program Being Readied; Congress Needs to Hear from
Drinking Water Sector, Washington, DC, Report, December 11, 2008.
13 U.S. Conference of Mayors, Mainstreet Economic Recovery, “Ready to Go” Jobs and Infrastructure Projects, p. 1.
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level of funding. Water sector advocates asserted that stimulus funding was especially needed to
address a nationwide backlog of projects pending that had been hampered by the credit crisis.
American Recovery and Reinvestment Act of 2009
The stimulus debate resulted in the supplemental appropriations package, the American Recovery
and Reinvestment Act of 2009 (ARRA; P.L. 111-5). ARRA included $2 billion for drinking water
infrastructure projects to be administered through the DWSRF program, and $4 billion for
wastewater infrastructure projects through the Clean Water SRF program. Congress waived the
20% state match requirement for these grants. ARRA required states to use at least 50% of the
funds to further subsidize loans (including forgiveness of principal, negative interest loans, and
grants) to eligible recipients. States also were required to reserve at least 20% of the funds for
green infrastructure, water efficiency improvements, or other environmentally innovative
projects. A key program change was that ARRA applied Davis-Bacon prevailing wage
requirements to construction projects that received assistance of any kind from these funds. (This
requirement had not been applied previously to the DWSRF program.)14 The act also required
American steel, iron, and manufactured goods to be used in construction and repair of water
infrastructure projects that received ARRA funding.
ARRA provided that, notwithstanding the existing state project rankings, priority for the
supplemental funding would go to projects on state priority lists that were ready to proceed to
construction within 12 months of enactment (by February 17, 2010). The EPA administrator was
directed to reallocate funds that were not under contract or construction by that date. All states
met this deadline, and no funds were redistributed.15
Water Infrastructure Authorizing Bills
Beyond the stimulus debate, drinking water and other water infrastructure issues received
attention. In 2009, the Senate Environment and Public Works Committee reported, amended, S.
1005, the Water Infrastructure Financing Act (S.Rept. 111-47). The bill was similar to this
committee’s measure in the previous Congress, proposing to authorize $20 billion over five years
for clean water SRF capitalization grants and $14.7 billion over five years for DWSRF
capitalization grants. As discussed, the states use their annual capitalization grants from EPA to
“capitalize” the state revolving loan fund to provide an ongoing source of water infrastructure
funding for communities generally through repayment of loans to the state. S. 1005 also would
have authorized new grant programs for critical water quality and drinking water infrastructure
14 The Department of the Interior, Environment, and Related Agencies Appropriations Act, 2010 (P.L. 111-88),
included $1.387 billion for the DWSRF program, and applied Davis-Bacon prevailing wage requirements to these
FY2010 funds. Specifically, the act contains the following language in Title 11 under the heading, “Administrative
Provisions, Environmental Protection Agency”: “For fiscal year 2010 the requirements of section 1450(e) of the Safe
Drinking Water Act (42 U.S.C. 300j-9(e)) shall apply to any construction project carried out in whole or in part with
assistance made available by a drinking water treatment revolving loan fund as authorized by section 1452 of that Act
(42 U.S.C. 300j-12).”
EPA guidance on this Davis-Bacon provision extended coverage to include all assistance agreements concluded during
FY2010, regardless of the source of funding. For more information, see CRS Report R41469, Davis-Bacon Prevailing
Wages and State Revolving Loan Programs Under the Clean Water Act and the Safe Drinking Water Act, by Gerald
Mayer and Jon O. Shimabukuro.
15 For additional information and discussion, see CRS Report R40216, Water Infrastructure Funding in the American
Recovery and Reinvestment Act of 2009, by Claudia Copeland, Megan Stubbs, and Charles V. Stern.
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projects. During markup, the committee adopted several amendments, including one to specify
that the Davis-Bacon Act prevailing wage requirement would apply to all projects financed in
whole or in part through a clean water or drinking water SRF. Davis-Bacon language was not
included in the bill as introduced. The full Senate did not take up the reported bill.
The Senate Environment and Public Works Committee had reported a water infrastructure
financing bill in each of the four preceding Congresses. The application of Davis-Bacon
requirements to the DWSRF program has been one of the policy issues that have hampered
further action on these bills. Additionally, a jurisdictional issue has been that, while the Senate
committee has jurisdiction over both the Clean Water Act (CWA) and Safe Drinking Water Act,
this jurisdiction is split in the House between the Energy and Commerce Committee (SDWA) and
the Transportation and Infrastructure Committee (CWA).16 The House Transportation and
Infrastructure Committee reported and the House passed clean water SRF legislation (H.R. 1262)
in the 111th Congress, which proposed to make the clean water SRF more similar to the DWSRF.
The DWSRF is a newer, more flexible program, and in the past several years no companion
reauthorization bill for the DWSRF had been offered in the House. In July 2010, the House
passed one such bill, the Assistance, Quality, and Affordability Act of 2010 (H.R. 5320, H.Rept.
111-524). As passed, H.R. 5320 would have reauthorized the DWSRF for three years (for a total
of $ 4.8 billion), applied Davis-Bacon prevailing wage provisions to projects financed in any way
by a DWSRF, specified certain eligible uses of the fund (such as rehabilitation of aging
infrastructure and projects that improve energy or water efficiency), and made other changes to
this program and the act more broadly. The bill proposed to expand DWSRF program priorities to
include projects designed to improve the economic and environmental sustainability and long-
term viability of water systems. H.R. 5320 was referred to the Senate Environment and Public
Works Committee, where no further action occurred.
The Water Protection and Reinvestment Act, H.R. 3202, as proposed in the 111th Congress would
have established a dedicated water infrastructure trust fund supported by specified product and
corporate taxes rather than general revenues. The trust fund was to be supported by taxes on a
range of products that can affect water quality or treatment costs, such as pharmaceuticals and
personal care products (PPCPs). The bill also would have imposed taxes on water-based
beverages and some corporate profits.
Related legislation in the 111th Congress included companion bills H.R. 537 and S. 3262, the
Sustainable Water Infrastructure Investment Act of 2009. These bills would have amended the
Internal Revenue Code of 1986 to provide that the volume cap for private activity bonds (PABs)
would not apply to bonds for water supply or wastewater facilities. A key purpose of this
legislation was to provide alternative financing for water infrastructure investments. The House
Ways and Means Committee reported the Small Business and Infrastructure Jobs Tax Act of 2010
(H.R. 4849, H.Rept. 111-447), which incorporated the text of H.R. 537 to lift the state volume cap
on tax-exempt PABs for water or wastewater treatment facilities. The House passed the bill, but
no further action occurred during the 111th Congress.
16 For a discussion of Clean Water Act legislation, see CRS Report R40098, Water Quality Issues in the 111th
Congress: Oversight and Implementation, by Claudia Copeland.
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112th Congress
Congressional attention thus far in the 112th Congress has focused largely on appropriations bills.
For FY2011, the full-year continuing resolution (P.L. 112-10, Division B, Title VII, §1738)
provided $965 million for the DWSRF program ($963.1 million after applying the required
across-the-board rescission of 0.2%).17 For FY2012, the President requested $999.0 million, and,
in P.L. 112-74, Congress provided $919.4 million (before applying the 0.16% across-the-board
rescission). In the FY2012 appropriations, Congress further expanded the application of Davis-
Bacon to the DWSRF program:18 “For fiscal year 2012 and each fiscal year thereafter, the
requirements of section 1450(e) of the Safe Drinking Water Act (42 U.S.C. 300j-9(e)) shall apply
to any construction project carried out in whole or in part with assistance made available by a
drinking water treatment revolving loan fund as authorized by section 1452 of that Act (42 U.S.C.
300j-12).”
As discussed, the application of Davis-Bacon prevailing wage requirements to construction
projects funded in any part by DWSRF funds is one of the recently added appropriations
conditions criticized by state financing and regulatory authorities and others for limiting state
program flexibility. This requirement had not been applied historically to this program, although
many states have similar requirements. The FY2012 appropriations also modified the green
infrastructure reserve requirement first added in 2009 ARRA. The green project reserve was
reduced from 20% to 10% for the Clean Water SRF and was made discretionary for states under
the DWSRF. The act also applies Buy American requirements to SRF construction projects.
In addition to appropriations, other legislation concerning infrastructure funding has also been
offered. As in the previous Congress, legislation has been introduced to remove the volume cap
on private activity bonds (PABs) for drinking water and wastewater facilities. These tax-exempt
bonds provide a financing tool to stimulate private sector investment in public projects. Federal
law imposes state bond caps limiting the ability of state and local governments to use PABs to
finance drinking water and wastewater infrastructure projects.19 The Sustainable Water
Infrastructure Investment Act of 2011 (H.R. 1802 and S. 939) would remove the cap to:
accelerate and increase overall investment in the Nation’s critical water infrastructure;
facilitate increased use of innovative infrastructure delivery methods supporting sustainable
water systems through public-private partnerships that optimize design, financing,
construction, and long-term management, maintenance and viability; and provide for more
effective risk management of complex water infrastructure projects by municipal utility and
private sector partners.
Supporters note that the proposed legislation would expand opportunities for private investment
in the water infrastructure market and generate significant private capital at a very low cost to the
17 The rescission is required per Division B, Title I, §1119 of P.L. 112-10.
18 U.S. Congress, House, Conference Report, Military Construction and Veterans Affairs and Related Agencies
Appropriations Act, 2012, 112th Cong., 1st sess., December 15, 2011, H.Rept. 112-331, p. 236.
19 The federal tax code allows state and local governments to use tax-exempt bonds to finance certain projects that
would be considered private activities. Congress uses an annual state volume cap to limit the amount of tax-exempt
bond financing and restricts the types of “qualified private activities” that would qualify for tax-exempt financing to
types of projects specified in the tax code. For a review of private activity bonds, caps, qualified programs, and
congressional action, see CRS Report RL31457, Private Activity Bonds: An Introduction, by Steven Maguire.
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government.20 Others argue against subsidies, generally, and the loss of revenue that would result
from such an approach. Congress generally has limited the use of tax-exempt bonds for private
activities because of concern about their overuse.
Other legislation that would impact water infrastructure projects includes H.R. 1684, the Keep
American Jobs from Going Down the Drain Act. This bill would amend the SDWA and the Clean
Water Act to largely prohibit the use of SRF funds for water project construction, alteration,
maintenance, or repair unless the steel, iron, and manufactured goods used in the project are
produced in the United States. The provisions essentially codify the Buy American requirements
contained in the ARRA supplemental appropriations and subsequent appropriations.
H.R. 395, the Healthy Communities Water Supply Act of 2011, would amend the Clean Water Act
to extend the authorization of appropriations for the pilot program for alternative water source
projects. This bill also would require the EPA administrator, when making grants under the
program, to consider whether a project is located in an area which is served by a public water
system serving 10,000 individuals or fewer. Similar to bills in the past four Congresses, the Small
System Drinking Water Act (S. 999) proposes an alternate approach to address the chronic
shortage of drinking water infrastructure funding relative to needs, particularly among small, rural
communities: S. 999 would amend the SDWA to prevent the enforcement of certain drinking
water regulations unless adequate funding was available.
Taking a different funding approach from the SRF programs, H.R. 402 and H.R. 3259/S. 1550
would establish a national infrastructure development bank that would be used to fund water,
transportation, and other infrastructure.
The debate over debt reduction will likely be a key factor influencing the outcome of any
infrastructure financing proposals in this Congress.
Author Contact Information
Mary Tiemann
Specialist in Environmental Policy
mtiemann@crs.loc.gov, 7-5937
20 See, for example, National Utility Contractors Association, Clean Water Council and Sustainable Water
Infrastructure Investment Coalition Talk Strategy, 2011, http://www.nuca.com/i4a/pages/index.cfm?pageid=2615.
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