US water infrastructure funding earmarks could reduce long-term investment capacity by $19.4 billion, according to a new report from the Environmental Policy Innovation Center (EPIC).
The report, Revolving No More: How Earmarks Are Draining America’s Water Funds, highlights how congressional earmarks are altering the structure of State Revolving Funds (SRFs), one of the United States’ primary financing mechanisms for water infrastructure projects.
US water infrastructure funding earmarks threaten long-term investment
US water infrastructure funding earmarks are increasingly converting SRF loans into one-time grants, reducing the ability of funds to be recycled and reinvested over time.
SRFs have historically provided nearly $230 billion in financing for drinking water, wastewater and stormwater projects. However, the report warns that ongoing earmarking could result in a net loss of $19.4 billion over the next 20 years—equivalent to around 5,700 projects.
Thirty-nine states are expected to experience net losses, averaging approximately $550 million per state.
Impact on utilities and communities
The report also highlights operational impacts, including reduced funding for state agency staff who manage SRF programmes. Over a three-year period, agencies have already lost an estimated $59 million annually in staffing support.
In addition, funding aimed at supporting small, rural and under-resourced communities has declined significantly, with losses estimated between $480 million and $1.9 billion.
These changes could limit the ability of utilities to plan and deliver essential infrastructure upgrades, particularly in regions with limited financial resources.
Cliff edge risk after 2026
Temporary funding increases provided through the Infrastructure Investment and Jobs Act (IIJA) have masked some of the impacts. However, once this funding expires after fiscal year 2026, states could face a sharp reduction in available financing.
The report suggests that, when combined with continued earmarking, total SRF funding could fall by as much as 90%.
Denise Schmidt, Director of Water at EPIC, said the shift from loans to grants undermines the sustainability of the financing model, reducing the number of projects that can be supported over time.
Dr Timothy Male, founder of EPIC, added that converting loans into grants eliminates billions in potential financing without reducing federal spending.
Calls for policy reform
EPIC has outlined a series of recommendations to restore the effectiveness of SRFs, including ending the practice of earmarking within these programmes and funding earmarks through separate appropriations.
Other proposals include issuing earmarks as loans rather than grants and increasing transparency around long-term financial impacts.
The findings highlight the importance of maintaining sustainable financing mechanisms as the US faces growing investment needs in water infrastructure.
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