House bill chops water funds to states

States would suffer deep cuts in water infrastructure funding they receive through state revolving funds, which make up a significant corner of the municipal bond market, under a bill passed Friday by the U.S. House of Representatives.

The fiscal 2024 Department of the Interior, Environment, and Related Agencies appropriations measure, House Bill 4821, totals $37.4 billion for the various agencies, 13% below fiscal 2023 levels.

The Clean Water State Revolving Fund is reduced by 67% to $535 million in fiscal 2024 from $1.64 billion in fiscal 2023, according to the National Association of Clean Water Agencies.

The Drinking Water State Revolving Fund is cut by 59% to $461 million from $1.13 billion in 2023.

The bill cuts SRF funding to a “terminal level, effectively killing these vital programs supporting public clean water utilities,” the association warned in an Oct. 31 letter to the House.

State revolving funds for drinking and wastewater act as the primary federal funding for states, which then often leverage the money by issuing municipal bonds, most of which feature triple-A ratings, to make low-interest loans to cities, counties, water districts and other governmental entities to finance infrastructure projects.

For the last several years, lawmakers have protected SRF funding levels. The 2021 Infrastructure Investment and Jobs Act allocated an additional $3 billion for each fund. As advance appropriations, the IIJA money can’t be touched, but Republicans are using that money as part of the rationale for cutting annual baseline appropriations, said Nathan Gardner-Andrews, NACWA’s director of advocacy.

“Depending on how this plays out, I think we’re looking at the very real possibility that we will see cuts [to SRFs] for the first time in a long time,” Gardner-Andrews said. “The less money that goes into the revolving funds, the less projects the states can fund.”

The IIJA money runs out in two years, Gardner-Andrews noted.

“Once the baseline funding is cut, the chance that it will get [replenished] down the road is very, very slim,” he said.

Adding to the funding constraints is that the House bill includes significant earmarks for specific projects, which further lower baseline appropriations, he said. When the earmarks are taken into account, the amount leftover for the clean water fund totals around $100 million, he said.

“It really is a proverbial perfect storm,” Gardner-Andrews said. “Cutting SRFs and taking out the earmarks means less money to revolve down the road and the funds will atrophy in that way in the future.”

The Office of Management and Budget warned that the bill would cut SRF funding by 90% when the earmarks are taken into account, according to an Oct. 30 statement of administration policy on the House bill.

“This would limit states’ ability to fund their highest priority water needs and operate their programs effectively,” the statement said, adding Biden would veto the bill if it makes it to his desk.

A bipartisan Senate bill keeps SRF funding level with fiscal 2023, but the threat of cuts remains possible when the House and Senate bills hammer out differences in conference committee, Gardner-Andrews said.