President’s Budget Blueprint Reduces Overall Federal Support for Water Infrastructure

April 6th, 2017

By Jon Honeck, GOPC Senior Policy Fellow

In March 2017, the Trump Administration released its summary budget blueprint for Federal Fiscal Year (FFY) 2018, which begins October 1, 2017.  The plan signals the administration’s overall intention to cut non-defense domestic programs in order to free up funds for increased military spending.  There is a long road to travel before any parts of the plan are enacted, and many members of Congress have already gone on record expressing reservations about specific elements of the proposal.  Nonetheless, the blueprint creates a starting point for agency budget plans that will be presented to Congress in the coming months.   

This blog discusses the administration’s proposed changes to how the federal government will support investments in water infrastructure.  The Trump Administration’s budget blueprint would eliminate the USDA Rural Development water and wastewater loan program, the Appalachian Regional Commission (ARC), the Community Development Block Grant (CDBG), and the U.S. Department of Commerce – Economic Development Administration (EDA).   The plan would preserve funding for the U.S. Environmental Protection Agency (USEPA) water and wastewater revolving loan funds, although the agency as a whole would face a 31 percent budget reduction, resulting in the elimination of 3,200 agency staff positions and a 45 percent reduction in categorical grant programs.  One of these categorical grant programs provides states with funding for the oversight of local drinking water systems.  It helps pay for the Ohio EPA to monitor local compliance with protocols for the control of lead and other contaminants. 

The budget proposal should be analyzed in the context of the nation’s critical need to modernize drinking water, wastewater, and stormwater infrastructure.  This issue is a high priority for Greater Ohio Policy Center (GOPC) because of its links to economic development, land use planning, and the potential for financial strain on Ohio families and communities (see our recent Water Infrastructure reports).  According to EPA estimates, Ohio water utilities (typically local governments) will need to make capital investments of $26 billion in drinking water and wastewater infrastructure to meet identified needs over the next 20 years.   User charges have been rising steadily, faster than the rate of general consumer inflation. 

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                           Photo courtesy of Wikicommons

The federal government plays a major role in financing water infrastructure investments, although the approach has changed significantly over the decades.  With the passage of the federal Clean Water Act in the early 1970s, Congress created a large grant program to assist local governments with the modernization of wastewater treatment plants and related infrastructure.  The federal government paid 75 percent of project costs in the initial program, which was changed to 55 percent in the 1980s.  This was one of largest federal infrastructure programs since the interstate highway program of the 1950s and 1960s. 

In the late 1980s, Congress phased out the wastewater grant program in favor of a revolving loan approach.  A revolving loan for drinking water infrastructure was added in the late 1990s.  Under the current policy, each year the U.S. EPA provides a capitalization grant to state revolving loan funds which lend directly to local governments at subsidized interest rates.  The state must provide a 20 percent match for the grant.  In FFY 2016, the Ohio EPA received a $75.2 million capitalization grant for its Water Pollution Control Loan Fund, and $23.1 million for the Drinking Water Assistance Fund.   Communities that want a market-rate loan with fewer administrative hurdles can approach the Ohio Water Development Authority, which runs a state-supported revolving loan fund.   

The result of this change in federal strategy is that local communities bear the largest responsibility for financing water infrastructure.  Communities that need a grant to complete their capital project must rely on other sources, which are extremely limited and competitive.  At the federal level, these sources include the USDA Rural Development – Water and Wastewater Loan program, the Appalachian Regional Commission (ARC), the Community Development Block Grant, and the Economic Development Administration.  The USDA and ARC programs are targeted at smaller, low income communities in rural counties that need them the most.  In FFY 2016, USDA Rural Development made 17 grants for a total of $14 million to Ohio communities, and an additional 16 loans for $44.6 million.  The ARC, a smaller agency, made 12 water infrastructure grants for a total of $2.7 million in Ohio.  The CDBG provides several million dollars in Ohio each year for water and infrastructure through its Critical Infrastructure Program.  (For more information on the challenges of water infrastructure in Ohio, see panelist presentations from GOPC’s Investing in Ohio’s Future 2017 Summit and our report Strengthening Ohio’s Water Infrastructure). 

The Budget Blueprint asserts that the USDA and EDA programs are duplicative of the state revolving funds and other programs, and that the CDBG is “not well-targeted to the poorest populations and has not demonstrated results.” The ARC is part of a long list of small, independent agencies slated for elimination.  The administration’s claims deserve close scrutiny from Congress, however.  The underlying issue is whether the federal government has any responsibility to provide grants, and the importance of grants in sustaining investments by small communities.  For small towns, grant funding can provide the missing piece of capital that makes a project affordable.  In Ohio, state and federal agencies have worked together for decades and often find ways to share responsibility for financing projects in small communities.  An interagency Small Communities Environmental Infrastructure Working Group (SCEIG), meets regularly throughout the year to provide advice to local governments seeking financing, and coordinates technical assistance programs. 

The elimination of these three federal programs would make the Ohio Public Works Commission (OPWC) the only significant remaining source of grant funding for water infrastructure in the Buckeye state.  (The EPA revolving loan funds have a limited number of loans that allow partial principal forgiveness.)  Most OPWC projects are prioritized at the local district level, and must compete with transportation projects.  In the context of rising concerns in Ohio and nationally about the affordability of infrastructure, a “one size fits all” approach to financing may backfire. 

For further resources and reports, please visit GOPC’s Sewer and Water Infrastructure Resource Page