States face a steep fiscal cliff for water infrastructure grants. The Environmental Protection Agency’s (EPA) grant funding nearly quadrupled under the Infrastructure Investment and Jobs Act (IIJA), with nearly 85% going to state formula grants for water infrastructure. Without continued appropriations, states could lose ~$10 billion in annual water infrastructure formula funding in fiscal year (FY) 2027. This comes at a time when EPA estimates the nation needs more than $1.25 trillion in water infrastructure investment over the next 20 years.
This publication is the second installment of reports that examine grant funding in the IIJA, which appropriated billions of dollars over FYs 2022-2026 for infrastructure investment. The first report, Special Analysis 26-03, takes a birds-eye view of IIJA grant funding generally and provides background on the IIJA’s structure. It concluded that the largest fiscal cliffs were for certain highway programs (bridges and electric vehicles) and water infrastructure programs.
Since release of the first report, the House Transportation and Infrastructure Committee approved the BUILD America 250 Act (H.R. 8870), which would replace the IIJA. That bill funds surface transportation programs but includes no appropriations outside of the Department of Transportation (DOT). It also proposes a significant boost in highway bridge funding, quelling one main concern identified in the first report.
This report turns to EPA programs, which Special Analysis 26-03 identified as the steepest fiscal cliff. It examines the magnitude and composition of IIJA-funded EPA grants, the implications of discontinuing these appropriations for lead service line replacement and PFAS treatment, and the smaller cliffs facing non-water EPA programs.