Clean Water and Drinking Water State Revolving Funds

(State Revolving Funds)

Environmental Protection Agency

Proposed Cut

$2.5B

% Reduction

75.0%

Action Type

reduction

Who Is Served

48,900+ water infrastructure projects since 1987; $650B in needed drinking water infrastructure

Summary

The Clean Water and Drinking Water State Revolving Funds (SRFs) are the federal government's main financing tools for water infrastructure, giving states money to make low-interest loans (and sometimes forgive part of the loan) for wastewater and drinking water projects. Since 1987 the SRFs have backed more than 48,900 projects, but the country still needs an estimated $650 billion in drinking water infrastructure work. The FY2027 budget proposes cutting SRF capitalization grants by $2,500 million, a 75% reduction, on the argument that states can rely on money already sitting in their revolving loan accounts instead of new federal grants.

Who Is Affected

Cities, towns, and rural water and sewer utilities in all 50 states that depend on SRF loans and principal forgiveness to afford projects like replacing lead pipes, treating PFAS chemicals, and fixing aging sewer systems would receive far less federal support. Small, low-income, and disadvantaged communities are hit hardest because they rely most on the 'principal forgiveness' portion of SRF loans, which effectively works like a grant they don't have to repay; state officials, including Wisconsin's environmental loan managers, have said this piece is 'vital to the continued ability of that program to function.'

What this cut would actually mean

With a much smaller annual capitalization grant, states will have less new money to lend, meaning fewer water systems get approved for loans and many get smaller loans with less forgiveness, so communities must borrow more or delay projects like lead service-line replacement and PFAS treatment. Because ratepayers ultimately cover the difference through local water and sewer bills, this shift is likely to raise water rates, especially in smaller and poorer communities that have the least ability to absorb higher costs, while lawmakers from both parties have warned the cuts could slow lead-pipe removal and PFAS cleanup nationwide.

Why this hits Alabama harder

Alabama has many small, rural water systems and aging pipes, especially in the Black Belt region, where some communities still lack basic sewage service. Alabama has received targeted federal help through this program, including recent EPA grants of about $82 million and $43.7 million for drinking water, wastewater, and stormwater upgrades. Because Alabama has more poverty and more rural residents than the U.S. average, its towns rely more heavily on these grants and have less ability to pay for water fixes on their own, so a 75% cut would hit Alabama's small and low-income communities harder than most states.

Biden-Harris Administration announces over $82 million for Alabama drinking water, wastewater and stormwater infrastructure upgrades — EPA news release detailing over $82 million in Clean Water and Drinking Water State Revolving Fund investments for Alabama, part of a larger $5.8 billion national SRF investment.
Biden-Harris Administration Announces $43,716,000 for Water Infrastructure in Alabama Through Investing in America Agenda — EPA news release showing Alabama's SRF allotments, including general supplemental funds and emerging contaminant funds, highlighting how much the state depends on these federal water infrastructure grants.

Sources

FY 2027 EPA Budget in Brief — EPA's own FY2027 budget justification proposing $305 million total for the Clean Water and Drinking Water SRF programs, framed as 'aligning the responsibility of infrastructure funding to the states.'
White House proposes significant cuts to EPA, SRFs in budget proposal — WaterWorld reporting that the FY2027 proposal calls for more than $2.5 billion in savings from the Drinking Water and Clean Water State Revolving Funds.
Steep cuts proposed for EPA draw bipartisan pushback, including from Wisconsin — Wisconsin Public Radio coverage of state officials and senators, including Lisa Murkowski and Tammy Baldwin, warning the SRF cuts would hurt lead-pipe replacement and public health.
FY2026 Appropriations for U.S. EPA Water Infrastructure Programs — Congressional Research Service explainer on how SRF capitalization grants work and how FY2027 funding levels compare to prior years.
The FY2027 Budget Proposes Eliminating $13 Billion in Grants That Cities and Counties Depend On — Analysis describing the SRFs as 'the financing backbone for municipal water and wastewater infrastructure' and detailing the scale of the proposed $2.5 billion cut.