For decades, the Clean Water and Drinking Water SRFs have been the nation’s primary long-term water infrastructure financing system. Unlike one-time grants, SRFs recycle loan repayments into future investment — continuing to generate financing capacity for communities decades after the original federal dollars were appropriated. States and local governments already carry the overwhelming majority of the cost. According to a February 2025 Congressional Budget Office study, state and local governments provided 96% of public funding for water infrastructure — including both drinking water and wastewater systems — in 2023, while the federal government provided 4%.⁵ Federal capitalization through the SRFs isn’t a handout; it’s a targeted investment that leverages far greater state and local resources. Even so, current funding no longer matches the need. Congress authorizes $3.25 billion annually for each SRF program through FY2026, but the Environmental Protection Agency’s own needs surveys identify approximately $630 billion in clean water infrastructure needs and approximately $625 billion in drinking water infrastructure needs over the next 20 years — national needs exceeding $1.2 trillion.⁶ ⁷ ⁸ And FY2027 is the first year without the supplemental funding that came through the Infrastructure Investment and Jobs Act (IIJA), just as states need it most.¹

A portion of the regular annual SRF appropriation is reserved each year for Community Project Funding/Congressionally Directed Spending (CPF/CDS), commonly called earmarks, before the remainder is distributed to states by formula. In FY2026, that reservation was 54% of the Clean Water SRF (CWSRF) appropriation and 64% of the Drinking Water SRF (DWSRF) appropriation.¹ ² For the past five years, this effect has been substantially offset by IIJA supplemental funding, which added $2.6 billion annually to each of the CWSRF and DWSRF — $5.2 billion combined every year — on top of the regular appropriation.¹ IIJA funding expires at the end of FY2026.

IIJA supplemental funding masked the impact of the earmark carve-out on SRF capitalization for the past five years. That offset ends in FY2027. FY2021 is the last fiscal year with no CPF/CDS carve-out and no IIJA supplemental funding — a clean, pre-earmark baseline.⁴ Comparing that baseline to FY2027, even after excluding the earmark carve-out from the FY2027 figure entirely, shows CWSRF funding falling 59.4%, DWSRF falling 64.1%, and combined funding falling 61.3%.³ ⁴ States are not returning to pre-earmark funding levels in FY2027. They are falling far below them.