Funding Options for Resilient and Equitable Water Resources Investments

This section gives some examples of financing for resilient and equitable water resource investments from different levels of government (federal, state, and local) and from sources outside the public sector.

Federal Funding

Decades ago, federal funding was the main source of funding for water infrastructure projects. In 1977, not long after passage of the Clean Water Act and Safe Drinking Water Act, the federal government funded 63% of water infrastructure costs. Essentially, the federal government was imposing requirements on municipalities to provide safe drinking water and treatment, but the federal government paid the majority share of the costs of meeting these requirements. Since that time, financial support for water utility infrastructure has eroded away. By 2014, the share of water supply and treatment infrastructure costs covered by the federal government has slipped to a mere 9%.^{See footnote 1} This essentially leaves municipal ratepayers disproportionately carrying the burden of infrastructure investment. Frontline communities struggle the most with funding water systems. As a result, many utility water systems are too underfunded to supply drinking water or to provide suitable wastewater treatment at a time when many treatment systems are deteriorating.

• The U.S. Department of Housing and Urban Development (HUD) Community Development Block Grant (CBDG) funds can be used for such purposes as flood protection, water quality, and water supply for lower-income communities. CDBG-DR (Disaster Resilience) can be used to rebuild water systems following disasters including climate disasters such as flooding.^{See footnote 2} The Tehama, California case study discussed using CDBG funds to help low-income homeowners pay for a portion of the cost of elevating their homes.
• The U.S. Environmental Protection Agency provides funding for water infrastructure including revolving funds for clean water^{See footnote 3} and safe drinking water^{See footnote 4} as well as the small grants program discussed above. USEPA also administers funds from the Water Infrastructure Finance and Innovation Act (WIFIA) of 2014.^{See footnote 5} 
• Federal Emergency Management Administration funds can be used for disaster assistance. These include the FEMA Public Assistance Grant Program and Hazard Mitigation Assistance programs (Hazard Mitigation Grant Program, Pre-Disaster Mitigation Program, and Flood Mitigation Assistance).^{See footnote 6} Funding from Hazard Mitigation Grant Program was used in the initial years in the buyout program by Charlotte-Mecklenberg discussed above.
• The U.S. Department of Agriculture (USDA) provides funding for rural water and wastewater infrastructure.^{See footnote 7} USDA’s Rural Development Rural Development Water and Environmental Program (WEF) can be used to improve water and wastewater infrastructure in rural communities with populations less than 10,000 people.^{See footnote 8}

State Funding

The federal clean water and drinking water revolving funds are administered by states. These were the primary sources of funds for infrastructure until the passage of WIFIA.^{See footnote 9} For example, the California Infrastructure and Economic Development Bank’s Infrastructure State Revolving Fund Program can be used by municipalities to fund such projects as drainage, water supply, and flood control, environmental mitigation measures, sewage collection and treatment, and water treatment and distribution.^{See footnote 10} California SB 200 provides “nearly $1.5 billion in combined funding to address the lack of safe drinking water in some communities across the state.”^{See footnote 11} The act puts priority on funding disadvantaged communities in the state. In New York, the Clean Water Infrastructure Act makes available $3 billion in investments to clean and drinking water infrastructure projects across the state.^{See footnote 12} Funds from Pennsylvania’s PENNVEST program, which funds sewer, stormwater, and drinking water projects by municipalities, were used to help fund the green infrastructure project in Chester.^{See footnote 13} 

Local Funding

As noted in the introduction to this section, the burden of funding infrastructure projects falls mainly on municipalities. They must work diligently to obtain funding from other sources such as the federal and state governments, as well as the private sector. For example, the Charlotte-Mecklenburg buyout program was initiated with the help of FEMA funding but is now mainly funded through municipal revenue sources. Sacramento’s Leak Free program is funded from the city’s coffers, although it was initiated with a grant from the State of California.

Private Funding

Public-private partnerships (PPPs), a joint effort between the public and private sectors, are increasingly the preferred approach to funding municipal infrastructure. The investments must yield a satisfactory rate of return to private investors. The U.S. Environmental Protection Agency’s Water Finance Center discusses public-private partnerships to obtain private investment in public infrastructure.^{See footnote 14} One example is Washington DC’s DC Water Environmental Impact Bond, which attracted private investors to help pay for green infrastructure as part of Washington's Water’s Clean Infrastructure Project (see Green Infrastructure section). Private investors limit the financial risk to DC Water if the green infrastructure performs below expectations, but can reap financial rewards if the program exceeds expectations.^{See footnote 15} The private firm Corvias helped manage the public-private partnership that helped fund green infrastructure investments in Chester, Pennsylvania.

Philanthropic Funding

In general, funding from nonprofit organizations such as philanthropies does not appear to be aimed at funding municipal water infrastructure, but it can be used for supporting services and building community outreach. For example, following the lead in the water crisis in Flint Michigan, ten foundations pledged a combined $125 million to help Flint recover.^{See footnote 16} The money would support such activities as having technical experts review the plans for addressing the water quality problems and promoting civil engagement and local decisionmaking to help ensure that frontline communities are part of the decisionmaking process that addresses the water problems.^{See footnote 17}