Senate Lawmakers Want to Overhaul How Wastewater Funds are Divided

The Democratic and Republican heads of the Senate committee overseeing public works voiced support Wednesday for changing the way that the federal government distributes billions in funding for sewer and wastewater projects, in part because no one seems to understand why the funds have been divvied up among states the way they have been for the last 34 years.

But the discussion over the Clean Water State Revolving Fund before the Senate Environment and Public Works Committee also underscored the difficulties that would lie ahead in reaching an agreement over reworking the funding formula.

“Given the complexity of the issue, we have our work cut out for us,” acknowledged Sen. Shelley Moore Capito, of West Virginia, the top Republican on the committee.

A push to send more of the funding to growing states like Arizona was met with resistance from senators in other areas who fear states like Alaska or West Virginia would lose money as a result.

“Any changes to the formula would likely result in some states seeing increases and others seeing decreases,” noted Laura Watson, director of the Washington State Department of Ecology. 

Watson, chairwoman of the Environmental Council of the States’ water policy committee, said her group was not taking a position on how the money should be distributed differently.

Despite differing views among lawmakers on the specifics of an overhaul, there was agreement that the funding formula the EPA has been using for decades has problems.

A 2016 EPA report found that “most states do not currently receive appropriated funds in proportion to their reported water quality needs or population,” Jonathan Ramseur, a specialist in environmental policy at the Congressional Research Service, told the committee.

The way the federal dollars are distributed meets the water quality needs of only 17 states, he said. And when it comes to the needs of growing states, the formula only provides adequate funding to 14.

The revolving fund program, created by Congress in 1987, provides federal aid for projects and upgrades involving wastewater treatment and stormwater systems, managing water pollution and replacing septic tanks.

States, which provide a 20% match to go along with the federal dollars they receive, primarily use the funds to provide subsidized loans to publicly owned water treatment and stormwater systems. Communities repay the loans and then states can use the paid back money for other projects, creating a revolving source of water infrastructure funding. 

However, Sen. Mark Kelly, an Arizona Democrat, who is pushing to see growing states like his get more of the funding, expressed frustration that it’s not known why Congress decided to distribute the funds between states the way it did.

Asked by Kelly to explain the reasoning behind the funding formula, Ramseur said the formula appears to factor in states’ existing needs and their population. But “the legislative history does not explicitly describe the factors or how they’re weighted,” he said.

In addition, Kelly noted that the formula hasn’t been changed to reflect the assessments the EPA does every four years on states’ needs. It would be “kind of ridiculous” for Congress not to change the formula, Kelly said. “We don’t know how the formula was created and it’s not updated to account for evolving needs or changing populations in states.”

Under the current system, “states like Arizona, which have significant and growing water need challenges, are forced to do more with fewer federal resources,” Kelly argued.

Sen. Marco Rubio, a Florida Republican, proposed that the Infrastructure Investment and Jobs Act passed last year change the formula so that states will keep their current levels of funding, but any increase in funding for the program beyond those levels would go to states based on population growth. 

The amendment, however, was not included in the bipartisan infrastructure act.

Sen. Tom Carper of Delaware, the committee’s Democratic chairman, said the inclusion of $11.8 billion in additional funding for the revolving fund—part of the $55 billion for water infrastructure projects in the IIJA—made it a good time to reexamine the formula. “More could certainly be done to adapt the formula for changes in climate, population, and infrastructure age,” he said.

Lawmakers, however, gave no timeline for coming up with a proposal for changes.

Carper said the discussion brought to mind an album by the band Chicago: “Only the Beginning.”

Opposition to Growth-based Formula

Senators balked at exclusively basing funding on population growth.

“A population-only-based formula is not satisfactory to meet the different needs around the country -- urban and rural, declining populations, growing populations,” Capito said.

Such an approach would ignore other issues, she added. “Need varies across and within the states, based on population growth or reduction, the age and condition of existing infrastructure, and the unique public health, environmental challenges, and development needs of impacted communities,” Capito said.

“It is essential to me that rural communities are treated appropriately,” she said.

“I’m concerned about formulas that are too heavily dependent on population,” agreed Sen. Dan Sullivan, an Alaska Republican.

“In my state, we have over 30 communities that have households with no infrastructure. No wastewater infrastructure at all. Zero,” he said, “The people of Alaska refer to the system of honey buckets, which sounds sweet but it’s not sweet at all.”

Kyle Dreyfuss-Wells, chief executive officer of the Northeast Ohio Regional Sewer District Board and a member of the board of the National Association of Clean Water Agencies, said the funds are critical to communities. Her district has received $200 million to build a storage tunnel to reduce combined sewage to Lake Erie, she said.

The funding was used to finance the project at about half the interest rate the district could have gotten on its own—saving the project $50 million. 

Dreyfuss-Wells did not take sides on the debate but said, “We cannot forget older communities, like Cleveland, with aging infrastructure, increased regulatory requirements, poverty and declining populations. The issues in growing and older communities may be different, but the need for SRF funding is the same.”