When $20 Billion Isn't Enough: Water Infrastructure

The Infrastructure Investment and Jobs Act of 2021 included more than $50 billion in funding for drinking water, wastewater and stormwater management projects. It was a welcome federal investment for many communities that have struggled to keep water infrastructure in good repair in recent decades. And it anticipates a growing need for water infrastructure funding as existing systems age and climate change causes more extreme weather. Still, it doesn’t come close to matching the estimated demand in coming decades.

Some states, including many in the West and Southeast, are making extra investments in water infrastructure using flexible funding from an earlier bill, the American Rescue Plan Act. According to new research from the Pew Charitable Trusts, states are spending about 10 percent of the money from the State and Local Fiscal Recovery Funds (SLFRF) program, or around $20 billion, on water infrastructure upgrades. States’ approaches vary widely. Some states, including Idaho, South Dakota and South Carolina, have spent about 60 percent of their SLFRF funding on water, while others, including California, Texas, Minnesota and New York, have used none.

Governing recently spoke with Aleena Oberthur, a project director with Pew's state fiscal policy project, about how states are using federal funds for water needs. The interview has been edited.

Governing: What are the State and Local Fiscal Recovery Funds for, and what are they being used for besides water? 

Aleena Oberthur: The State and Local Fiscal Recovery Funds were part of the American Rescue Plan Act in 2021. Over $350 billion was allocated toward that program, for states, local governments, tribes and territories. Of that, about $200 billion was allocated to state governments and the District of Columbia.

The funds can cover a wide range of government needs and services. It was explicitly stated that they could be used for water, sewer and broadband infrastructure as well as other types of infrastructure.

Governing: Why is the need for water infrastructure funding so great? 

Oberthur: Water utility systems, which are locally managed and so typically are not reflected in the state balance sheet, have been underfunded for years. The share of federal funding that goes to these local water systems for drinking water and what the Environmental Protection Agency (EPA) calls clean water, which covers wastewater and stormwater management, has dropped. In 1977, 63 percent of the funding for capital improvements was covered by the federal government. That dropped to 9 percent by 2017.

Last year, the EPA put out two needs assessments based on state and local needs related to drinking water and clean water infrastructure. Both of them showed a big increase in expected needs. Over the next 20 years, the expected need is over $1 trillion for drinking water and clean water infrastructure. So this big influx of federal money is very welcome for state and local infrastructure, but there’s still a pretty big gap between that and the expected need. And many experts would say the EPA’s needs assessments actually underestimates the need.




Governing: What are the kinds of water projects that states are spending this money on?

Oberthur: There’s a huge variation between states. A bunch of states didn’t spend any money on water infrastructure, whereas a handful of states spent more than 50 percent of their SLFRF funds on it.

There are two groups of states we’re seeing with the highest percent of their SLFRF funds that they’re putting into water infrastructure. That includes Western, Rocky Mountain states which have put in funding to address climate-related water needs, such as more periods of drought and then periods of lots of rain, and then also in anticipation of growing populations.

In the Southeast, we’ve seen a number of states use it to address longstanding inequities and significant public health concerns — places that may be unsewered or unconnected to a wastewater facility or that have a lot of aging infrastructure.

Governing: What other takeaways do you have from doing this research? 

Oberthur: The other thing to note is that with new mandates around lead service line replacement and emerging contaminants, we expect to see the needs grow when considering the cost of responding to those mandates.

These significant investments from the federal government are really welcome but we expect this to be a continuing issue. While these local utility systems are typically responsible for the drinking water and clean water systems, we’re increasingly seeing states finding themselves on the hook, because of water emergencies, or stepping in to play a larger role. They’re looking toward the future with population growth or climate risks, and thinking about how to respond to that.