For States and Localities, a Sudden Rush of Federal Water and Sewer Funding

It may be easy to miss amid the persistent partisan clashes in Congress, but there is a growing concern among federal lawmakers of all stripes about the condition of the country’s water infrastructure. 

That concern has translated into millions of dollars in the American Rescue Plan Act that can be used for water improvements by states and localities­, and more funding could be coming down the pipe in a bipartisan infrastructure bill.

“We’re very happy that there’s this renewed focus on investing in water infrastructure at the congressional level,” says Tommy Holmes, the legislative director of the American Water Works Association, an industry group. 

The attention on shoring up systems that provide drinking water, sewer and stormwater services is the culmination of many crises, Holmes says. 

The Flint water crisis that started in 2014 and lasted five years exposed how vulnerable people are to lead poisoning in their drinking water. A growing awareness about the prevalence and health effects of PFAS – the so-called forever chemicals that have been used in everything from Teflon to firefighting foam – also has drawn attention to drinking water contamination. And the coronavirus pandemic exposed more problems, as workers who lost their jobs struggled to pay water bills and utilities.

“All of that,” Holmes says, “has focused Congress’ and the public’s attention.”

That concern has been reflected in laws that Congress has passed and bills that it is debating. The biggest development so far for water systems has been the passage of the $1.9 trillion American Rescue Plan Act that President Biden pushed through in his first weeks in office. ARPA includes $350 billion in direct aid to states and local governments. 

While the money was designed to help state and local governments weather the economic shocks of the pandemic, many states and cities found themselves in better financial positions than they had imagined even a few months before. That means they can use the windfall money from the federal government for other priorities, including water infrastructure.

Water improvements are especially attractive, because the law explicitly authorizes state and local governments to spend part of their rescue money for that purpose. Preliminary guidance from the U.S. Treasury Department indicated that money for such projects doesn’t have to be spent until 2026.

Most states and local governments are still in the early stages of deciding how best to spend the federal rescue package money. However, a few have indicated that they would use a substantial amount on water infrastructure. For example:

• Bozeman, Montana, plans to spend most of the $12 million it is expected to receive on water-related projects. It will spend about $3.4 million on drinking water infrastructure and nearly $6.5 million for sewer improvements that are intended to help spur economic growth.
• On New York’s Long Island, Suffolk County plans to use $46 million of its federal allocation to connect area homes and business to sewer systems. The county has been working for years to add sewer hook-ups to replace septic systems, which have caused algae blooms that frequently close nearby beaches and created other problems.
• Louisiana legislators set aside $300 million from ARPA to improve community water and sewer systems. A new commission of 10 lawmakers will determine how the money is distributed.

Infrastructure Package in the (Water) Works

Meanwhile, water system officials are keeping tabs on the back and forth over a federal infrastructure package championed by Biden. 

In his pitches for his infrastructure bill, the president has repeatedly called for the replacement of all lead service lines for drinking water in the country. Lead pipes are especially prevalent in older cities like Chicago, and if the chemical composition of the water is not properly maintained, they can leech lead into drinking water. Lead is a neurotoxin that is especially harmful to children. 

It seems likely that Congress will increase the resources for water utilities to address other needs, as well.

In early July, for example, the U.S. House of Representatives passed a $715 infrastructure bill that included money for roads, passenger rail, transit and water systems. The framework is seen as the House’s more ambitious response to the outlines of an infrastructure deal hammered out between Biden and a bipartisan group of U.S. senators.

The House proposal, called the Invest in America Act, would authorize up to $117 billion in drinking water projects over five years. Of that, $45 billion would go to replacing lead pipes and another $53 billion would be directed toward the Drinking Water State Revolving Fund, a loan program for water utilities that states administer.

The measure also includes $51 billion for wastewater infrastructure. The bulk of that – $40 billion – would be directed to the Clean Water State Revolving Fund, another state-administered loan program to help water utilities.

Democrats authored the bill. While it received some Republican support, most GOP lawmakers opposed the measure.

On the other hand, a narrower bill that was focused solely on water infrastructure passed the Senate with broad support in late April.

The upper chamber’s bill, which passed on an 89-2 vote, would spend up to $35 billion over five years on water infrastructure. That includes nearly $15 billion each for both the clean water and drinking water state revolving funds. 

While the Senate bill’s authorization levels might look small compared to the House’s levels, it would still nearly double the money for the drinking water fund in the first year and increase those levels after that, says Holmes from the AWWA. The House bill starts with almost quadrupling the money available for drinking water loans, and it includes more increases after that.

Nevertheless, both plans are early in the legislative process. 

The House and Senate need to reach an agreement on the size and shape of the new money. That could come as part of the larger infrastructure package that Biden is pushing or as a separate deal. That framework would set out the maximum amount Congress could spend on those programs.

That would be first step in Congress’ two-step process for deciding how to spend money. The next step would be to appropriate the money, but lawmakers could decide to appropriate less money than they originally authorized.

‘A Lot of Wheels in Motion’

With negotiations over the infrastructure package and deliberations over the final ARPA rules ongoing, Holmes says, “there are a lot of wheels in motion at once.”

Liz Royer, the executive director of the Vermont Rural Water Association, is advising her members to focus their efforts for now on getting towns to consider water-related improvements as officials decide how to spend their federal funds allocation.

Vermont Gov. Phil Scott, a Republican, has proposed spending $170 million of the state’s rescue money on water-related projects, but those are mostly big-ticket items such as improving stormwater treatment, reducing sewer overflows in cities with combined sewer and stormwater systems, and building new water systems in small communities that lack them.

But Royer says that would leave some of the smallest water systems, especially those that are run by fire districts instead of towns, with few options to get money from the state. That’s why she’s encouraging rural water systems to tell town officials about their needs instead.

“It’s the smaller infrastructure needs: replacing a couple of manholes, replacing a pump station or replacing a roof on a water reservoir that seem to make sense,” she says. 

“You’re not going to do a loan application [through the state revolving funds] for a $10,000 or $20,000 project,” Royer explains. “But some of these very, very small systems may only have 50 customers, so for them to do an upgrade that’s going to cost $25,000 is going to be a big hit to their customers with low incomes.”

Mike Keegan, a regulatory analyst for the National Rural Water Association, says one of the biggest hurdles for water systems to get a share of the federal money will be educating local officials about the opportunity.

“It’s anomalous, the way the federal government is giving out this money. It’s new,” he says. 

“People ask, ‘What do you mean? It’s cash? I don’t have to pay it back? I can use it on certain things and one of those things is water?’” Keegan says. “The answers are all ‘yes,’ but the local government has to get the education and then you have to get the political will or pressure to do it.” 

But the process is new for cities that have their own water utilities, too, notes Carolyn Berndt, the legislative director for sustainability for the National League of Cities. 

“You don’t have to apply to the state,” like in many federally supported loan programs, she says. “Your state is not picking winners and losers. This is a local government’s money. They are the deciders as to what projects they will fund.”

And the range of projects that are eligible, according to the Treasury’s interim guidance, is very broad, she notes. It includes items such as replacing lead pipes, preventing cyberattacks, upgrading stormwater systems, improving conservation and implementing water re-use initiatives.

The Treasury guidelines have also been helpful to counties planning water upgrades, adds Eryn Hurley, an associate legislative director for the National Association of Counties. Counties can use the recovery act funds in combination with other sources of revenue to pay for improvements, and they have five years to spend the money, she notes.

Plus, Hurley adds, the Treasury Department clarified that local governments could use the federal funds to hire consultants and contractors who work on administering the grant money. “That is really helpful that that is an eligible expense,” she says, “especially for counties that are less familiar or less experienced with this sort of process.”