How does the Drinking Water State Revolving Fund Work?
The Drinking Water State Revolving Loan Fund (DWSRF) was established by the 1996 amendments to the Safe Drinking Water Act (SDWA).The DWSRF is a financial assistance program to help water systems and states to achieve the health protection objectives of the SDWA. The program is a powerful partnership between EPA and the states. Congress appropriates funding for the DWSRF. EPA then awards capitalization grants to each state for their DWSRF based upon the results of the most recent Drinking Water Infrastructure Needs Survey and Assessment. The state provides a 20% match. As water systems repay their loans, the repayments and interest flow back into the dedicated revolving fund. These funds may be used to make additional loans.
— Source: EPA
MILFORD — Patricia Gall has gotten used to rust stains in her bathtub and shower. The water in the small town of 1,600 runs through old lead pipes and is so high in iron she can’t wash white clothes without staining them.
Many residents refuse to drink the discolored, manganese-tainted tap water coming from the faucet, and instead stock up on bottled water, noted Gall, the Milford town clerk.
But residents’ water quality will soon see a massive improvement after the community landed nearly $7 million from the Indiana's Drinking Water State Revolving Fund. The money will help pay for a new filtration system and replace lead pipes running to around 60 homes.
There’s no chance the town could complete the necessary infrastructure upgrades without the low-interest loan from the revolving fund, which will save approximately $7.6 million in principal and interest, compared to open-market financing. Plus, more than half of the loan will be forgiven and paid for through grants, explained Gall.
“It’s nice to have the ability to get some assistance with some of this, because that’s a pretty big deal for a small system like ours,” she said.
But future projects like the one in Milford could fall by the wayside as Republican lawmakers in Washington eye steep cuts to clean-water funding used by states to update their aging water infrastructure.
With Indiana’s drinking-water quality already ranked as the 12th worst in the nation by U.S. News and World Report, potential cuts will only lead to more Hoosiers using increasingly unsafe water, argued David Van Gilder, senior policy director at the Hoosier Environmental Council.
“This will ultimately hurt regular people who need fresh drinking water,” he said. “There’ll be negative effects on public health, and that almost always means significantly more negative effects to historically disadvantaged communities.”
EVAPORATING FUNDING
President Donald Trump’s budget proposal for 2026 calls for the near-elimination of federal dollars distributed by the EPA to states to use in their revolving-loan programs for water projects.
The proposal would slash current funding from $2.77 billion to $305 million, representing a
nearly 90% reduction that would be largest cut in the program’s history.
Indiana in 2024 received nearly $207 million in federal revolving-loan dollars. Under Trump’s proposal, that would plummet to $72.3 million, according to an analysis by the Environmental Protection Network.
Trump’s push to reduce federal funding for state water projects has already gained traction as GOP lawmakers work to pass what the president has dubbed his “Big Beautiful Bill” that cuts taxes and federal programs, but would raise the national deficit by $2.4 trillion, according to some estimates.
The Senate in May approved a continuing budget resolution that keeps current revolvingloan dollars intact for states, but does away with $1.4 billion in earmarked loan funding for state for water projects.
The White House argues the EPA’s revolving fund wasn’t designed to continually appropriate dollars to states, but instead was intended to only give money to states to set up their own loan programs.
The administration also asserts the funding duplicates other federal grant programs and that, in the end, “states should be responsible for funding their own water infrastructure projects.”
‘WE ARE IN BAD SHAPE’
But expecting states like Indiana to fully pay for needed upgrades is a pipe dream, argued Desi Rybolt, a water policy specialist for Indiana Conservation Voters, an environmental advocacy nonprofit. The state and local communities will need to spend up to $17.5 billion on water and wastewater by 2034, but are on track for a funding gap of $6.5 billion to $8.5 billion, according to a 2016 Indiana University Public Policy Institute report.
In the last three months of 2024, over 80 towns and cities requested $1.14 billion in state revolving fund dollars to help pay for a slew of drinkingwater projects. The program ended up awarding in total $239.5 million to around 40 communities, according to an Indiana Finance Authority report. That equals just 20% of all the requested funding.
The massive cut in federal dollars proposed by Trump would only make Indiana’s funding gap even larger, explained Rybolt.
“Even as it is, we are in bad shape, and we’re going be in even worse shape than we were to begin with,” she said.
That’s a real concern for Milton Clerk-Treasurer Amy Smith. The small town of around 450 residents received nearly $4 million in a forgivable loan this year to replace lead pipes and upgrade its water treatment plant. Still, other pressing infrastructure projects are needed, she explained, like improving their wells and water tower.
With a bare-bones town budget, those projects might never get done if fewer state dollars are available in the future due to federal cuts, Smith worried.
“That’s the dumbest thing that they could ever do, is stop protecting and helping little towns — or any town in the state of Indiana,” she said.
PAYING MORE FOR WATER
The proposed funding cuts could also lead to huge increases in Hoosiers’ water bills, especially those in smaller towns, explained Lorean Johnston, deputy director of the Alliance of Indiana Rural Water.
Many municipalit ies’ water inf rast ructure projects are required to keep up with federal and state regulations. The state revolving loan funding, coupled with forgivable loans, keeps utilities from passing on the full cost of a project to residents.
But with significantly fewer dollars available, more towns would be forced to implement painful waterrate hikes to pay out of pocket for government-mandated projects that can often cost tens of millions of dollars, Johnston explained.
“If we want to maintain that essential service at a rate that doesn’t force someone to debate whether they can pay this bill or that bill, then we definitely need to be able to have the funding to take care of the issues,” he said.
Even in Milford, where over half of the state loan will be forgiven, residents will still see their water rates triple from $32 to $96 in order to pay back the low-interest loan portion of their funding.
“No one is happy that their rates are going up … but at least we’re going to see a noticeable difference in our water quality,” said Town Clerk Gall.
Less funding for water infrastructure projects also means many will be significantly delayed, leading to more expensive repairs in the future as construction costs continue to climb, noted Rybolt with Indiana Conservation Voters. “If you have an infection, the longer you let that infection fester, the worse it’s going to be to fix,” she said. “It’s going to be more painful and it’s going to cost way more time and money.”
Whether Republican lawmakers attempt to fully implement Trump’s proposed cuts to state revolving loan funds remain to be seen, noted Johnston. Providing states with clean water and drinking water dollars has always received strong bipartisan support, he explained.
But with the president’s push to slim down nearly every aspect of the federal government, it seems unlikely the water infrastructure funding will be saved from the chopping block, Johnston speculated.
“It’s definitely looking gloomier than before, at least for the near future,” he said.
Gall said with water funding potentially drying up, she feels lucky Milford could secure its loan this year to complete its long-awaited infrastructure project that will finally bring usable water to town residents.
But she worries many more Indiana communities won’t be as fortunate in the face of Trump’s proposed water cuts.
“If they end up taking the funding away, that’s going to just make everything tighter and tighter,” she said.
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