Federally Supported Water Supply and Wastewater Treatment Programs







Prepared for Members and Committees of Congress



Although the federal government has played a significant role in developing water quality
regulations and standards for municipal and industrial (M&I) water use, it historically has
provided a relatively small percentage of the funding for construction of water supply and
treatment facilities for M&I uses. Yet, several programs exist to assist communities with
development of water supply and treatment projects, and it appears that Congress is more
frequently being asked to authorize direct financial and technical assistance for developing or
treating water supplies for M&I use.
This report provides background information on the types of water supply and wastewater
treatment projects traditionally funded by the federal government and the several existing
programs to assist communities with water supply and wastewater recycling and treatment. These
projects and programs are found primarily within the Department of Agriculture (USDA),
Department of Commerce, Department of Defense (DOD), Department of Housing and Urban
Development (HUD), Department of the Interior (DOI), and the Environmental Protection
Agency (EPA).
The focus of some programs has been enlarged over the years. The Department of the Interior’s
Bureau of Reclamation was established to implement the Reclamation Act of 1902, which
authorized the construction of water works to provide water for irrigation in arid western states.
Congress subsequently authorized other uses of project water, including M&I use. Even so, the
emphasis of Reclamation’s operations was to provide water for irrigation. Similarly, the U.S.
Army Corps of Engineers (Department of Defense) constructed large reservoirs primarily for
flood control, but was authorized in 1958 to allocate water for M&I purposes. Over the past 30-
plus years, Congress has authorized and refined several programs to assist local communities in
addressing other water supply and wastewater problems. These programs serve generally
different purposes and have different financing mechanisms; however, there is some overlap.
Federal funding for the programs and projects discussed in this report varies greatly. For example,
Congress appropriated $829 million in FY2008 for grants to states under EPA’s State Revolving
Fund (SRF) loan program for drinking water facilities and $689 million for EPA’s SRF program
for wastewater facilities; funds appropriated for the USDA’s rural water and waste disposal grant
and loan programs are $535 million for FY2008; HUD Community Development Block Grant
(CDBG) funds (used partly but not exclusively for water and wastewater projects) are $3.6 billion
for FY2008. In contrast, Reclamation’s Title 16 reclamation/recycling program received a total of
$23.6 million for FY2008.
For each of the projects and programs discussed, this report describes project or program
purposes, financing mechanisms, eligibility requirements, recent funding, and the
Administration’s FY2009 budget request.






Introduc tion ..................................................................................................................................... 1
Backgr ound ..................................................................................................................................... 1
Department of the Interior...............................................................................................................5
Bureau of Reclamation..............................................................................................................5
Traditional Multi-purpose and Rural Water Supply Projects..............................................6
Title 16 Projects..................................................................................................................7
Department of Defense....................................................................................................................9
Army Corps of Engineers (Civil Works Program)....................................................................9
Water Supply Act Projects................................................................................................10
Department of Agriculture.............................................................................................................12
Rural Utilities Service (Water and Waste Disposal Programs)...............................................12
Natural Resources Conservation Service (Small Watershed Program)...................................15
Environmental Protection Agency.................................................................................................19
Clean Water State Revolving Fund Loan Program.................................................................19
Drinking Water State Revolving Fund Loan Program............................................................22
Department of Housing and Urban Development.........................................................................24
Community Development Block Grants.................................................................................24
Department of Commerce.............................................................................................................26
Economic Development Administration (Public Works and Economic Development
Program) .............................................................................................................................. 26
Table 1. Federal Water Supply Program/Project Financing.............................................................3
Author Contact Information..........................................................................................................28
Acknowledgments ......................................................................................................................... 28






Although the federal government has played a significant role in developing water quality
regulations and standards for municipal and industrial (M&I) water use, it historically has
provided a relatively small percentage of the funding for construction of water supply and
treatment facilities for M&I uses. Yet, several programs exist to assist communities with
development of water supply and treatment projects, and it appears that Congress is being asked
more frequently to authorize direct financial and technical assistance for developing or treating
water supplies for M&I use. Recent proposals include “rural water supply projects” to be built
and funded by the Bureau of Reclamation in the Department of the Interior (hereafter referred to
as Reclamation), water recycling projects built and partially funded by Reclamation, and
programs for water supply and wastewater treatment projects to be largely funded by the U.S.
Army Corps of Engineers (Corps). Interest also has been growing in expanding the size and scope
of the State Revolving Fund loan programs under the Clean Water Act and the Safe Drinking
Water Act, as well as support for individual wastewater and drinking water projects through
congressionally earmarked grants in appropriations legislation.
This report provides background information on the types of water supply and wastewater
treatment projects traditionally funded by the federal government and the several existing
programs to assist communities with water supply and wastewater treatment. Projects developed
by Reclamation and the Corps typically require direct, individual project authorizations from
Congress. In contrast, projects funded by other agencies are funded through standing program
authorizations. These programs are found primarily within the Department of Agriculture
(USDA), Department of Commerce, Department of Housing and Urban Development (HUD),
and the Environmental Protection Agency (EPA). The key practical difference is that with the
individual project authorizations there is no predictable assistance, or even guarantee of funding
after a project is authorized, because funding must be secured each year in the congressional
appropriations process. The programs, on the other hand, have set program criteria, are generally
funded from year to year, and provide a process under which project sponsors compete for
funding.
For each of the projects and programs discussed, this report describes purposes, financing
mechanisms, eligibility requirements, and recent funding. The report does not address special
projects and programs aimed specifically at assisting Indian Tribes, Alaskan Native Villages, and 1
Colonias, or other regional programs such as those associated with the Appalachian Region or
U.S. Territories.

The federal government has built hundreds of water projects over the years, primarily dams and
reservoirs for irrigation development and flood control, with M&I use as an incidental, self-
financed, project purpose. Most of the nation’s public municipal water systems have been built by
local communities under prevailing state water laws.

1 Colonias typically are rural, unincorporated communities or housing developments near the U.S.-Mexico border that
lack some or all basic infrastructure, including plumbing and public water and sewer.





The Bureau of Reclamation (Reclamation) was established to implement the Reclamation Act of
1902, which authorized the construction of water works to provide water for irrigation in arid
western states. Congress subsequently authorized other uses of project water, including M&I use.
Even so, the emphasis of Reclamation’s operations was to provide water for irrigation. This
emphasis is evidenced in part in the different payment mechanisms that evolved to finance
projects (described below). Similarly, the U.S. Army Corps of Engineers (Corps) constructed
large reservoirs primarily for flood control, but was authorized in 1958 (Water Supply Act of
1958, 72 Stat. 320; 43 U.S.C. § 390b) to allocate water for M&I purposes. In this act, Congress
emphasized the primacy of non-federal interests:
It is declared to be the policy of the Congress to recognize the primary responsibilities of the
States and local interests in developing water supplies for domestic, municipal, industrial,
and other purposes and that the Federal Government should participate and cooperate with
States and local interests in developing such water supplies in connection with the
construction, maintenance, and operation of Federal navigation, flood control, irrigation, or
multiple purpose projects. (43 U.S.C. § 390(b))
Over the past 30-plus years, Congress has authorized and refined several programs to assist local
communities in addressing other water supply and wastewater problems. The agencies that
administer these programs differ in scope and mission. For example, the primary responsibilities
of the Corps of Engineers are to maintain inland navigation, provide for flood and storm damage
reduction and restore aquatic ecosystems, while EPA’s mission relates to protecting public health
and safeguarding the national environment. Others, such as HUD and the Department of
Commerce, focus on community and economic development. Likewise, the specific programs
discussed in this report—while all address water supply and wastewater treatment—differ in
important respects. Some are national in scope (those of USDA, EPA, and the Department of
Commerce, for example), while others are regionally focused (Reclamation’s programs and
projects). Some focus primarily on urban areas (HUD), others on rural areas (USDA), and others
do not distinguish based on community size (EPA, the Corps). In addition, these programs serve
generally different purposes and have different financing mechanisms (some provide grants,
others authorize loans); however, there is some overlap. For example, the rural water and waste
disposal program of the USDA typically authorizes “water delivery” assistance to improve
community water systems and water quality, while EPA’s drinking water infrastructure program is
driven primarily by “end of the pipe” water quality requirements of the Safe Drinking Water Act
(SDWA). Similarly, while the Clean Water Act sets performance standards for discharges of
municipally treated sewage, it also provides financial assistance to municipalities for constructing
and improving treatment facilities in order to comply with the law.
Federal funding for the programs and projects discussed in this report varies greatly. For example,
for FY2008, Congress appropriated $829.0 million for grants to states under EPA’s State
Revolving Fund (SRF) loan program for drinking water facilities and $689.1 million for EPA’s
SRF program for wastewater treatment facilities; funds appropriated for the USDA’s core rural
utilities programs total $535 million for FY2008; HUD Community Development Block Grant
funds (used partly but not exclusively for water and wastewater projects) are $3.6 billion for
FY2008. In contrast, Reclamation’s Title 16 reclamation/recycling program received
approximately $23.6 million for FY2008—funding for the entire agency is $1.2 billion for
FY2008. Collectively, congressional funding for these programs in recent years has been
somewhat eroded by overall competition among the many programs that are supported by
discretionary spending, despite the continuing pressure from stakeholders and others for increased
funding.





It is also important to note that state and local contributions are a significant source of total funds
available to local communities for drinking water and wastewater improvements. For example,
from FY1991 through FY2000, states contributed about $10.1 billion to match $18.0 billion in
EPA capitalization grants for drinking water and wastewater SRFs and made about $13.5 billion
available for these activities under state-sponsored grant and loan programs and by selling general 2
obligation and revenue bonds.
The following table summarizes financial and other key elements of the projects and program
activities discussed in this report.
Table 1. Federal Water Supply Program/Project Financing
Agency and Project/ Type of Federal/ Non-Average FY2008 FY2009
Projects or Program Financial Federal Amount of Funding Funding
Program Purposes Assistance Cost Share Assistance Request
USDOI Multi-purpose De facto loan 0%/100%, Not applicable Not readily (Total
Bureau of projects, with interest bavailable agency
Reclamation which may for M&I uses (Total agency approps.
include M&Ia approps. are request is
$1.2 billion) $871.0 million)
USDOI Wastewater De facto Up to $1.0 million $23.6 million $7.0
Bureau of reclamation agrant (see 25%/75%; million
Reclamation and reuse discussion on dollar limits
(Title 16 of pages 5-9) may apply
P.L. 102-575)
USDOI Exclusively De facto Average of $14.3 million $29.5 million None
Bureau of non-Indian grant (see 64%/26%
Reclamation rural water discussion on (range from
supplya pages 5-9), 15%
plus loan repayment to
80%—some
grants)
US Army Multi-purpose Loans 0%/100%, Not applicable $13.7 million $6.0
Corps of water with interestb million
Engineers projects,
(general) which may a
include M&I

2 U.S. General Accounting Office (now Government Accountability Office), Water Infrastructure: Information on
Federal and State Financial Assistance, November 2001, GAO-02-134, p. 18. Hereafter, GAO Water Infrastructure.





Agency and Project/ Type of Federal/ Non-Average FY2008 FY2009
Projects or Program Financial Federal Amount of Funding Funding
Program Purposes Assistance Cost Share Assistance Request
U.S. Army “Environ-Technical/ 75%/25% Planning and $183.2 million None
Corps of mental planning and design
Engineers infrastruc-design authorizations
(multiple ture”a services; range from $0.5
sections of design and million to $25
WRDAs and construction million; design
annual Energy grants and
and Water construction
Development authorizations
Approps. acts) range from $0.2
million to $180
million
USDA Rural Municipal Loans and 0%/100% for Grants: $535 million $266
Utilities water supply grants loans $619,000 million
Service, Water and waste Up to Direct loans:
and Waste disposal 75%/25% for $1.064 million
Disposal grants (FY2005)
Program
USDA Small Multiple Project 0%/100% $650,000 $50 million $5.0
Watershed activities, but grants and Varies ($30 million million
Program generally must technical according to for total, all
include flood advisory purpose of Watershed for
control services improvement and Flood rehabili-
measures activity Prevention tation
Operations projects
and $20
million for
rehabilitation
projects)
EPA, Clean Municipal Grants to 80%/20% for Average $689.1 million $555
Water State wastewater states to grants to capitalization million
Revolving treatment, capitalize states to grant to state:
Fund (SRF) nonpoint loan funds capitalize $20.8 million
Loan Program pollution SRF loans to SRFs (FY2007)
management, local project 0%/100% Average
National sponsors (Project loans assistance from
Estuary are repaid SRF: $2.57
Program 100% to million
implemen-states) (FY2007)
tation
EPA, Drinking Public water Grants to 80%/20% for Average $829.0 million $842.2
Water State supply: states to grants to capitalization million


Revolving projects capitalize states to grant to state:
Fund (SRF) needed to loan funds capitalize $16.1 million
Loan Program meet federal SRF loans to SRFs (FY2007)
drinking water local project 0%/100% Average
standards and sponsors (Project loans assistance from
to address are repaid SRF: $2.72
serious health 100%) million
risks
(FY2006)



Agency and Project/ Type of Federal/ Non-Average FY2008 FY2009
Projects or Program Financial Federal Amount of Funding Funding
Program Purposes Assistance Cost Share Assistance Request
HUD, Multi-purpose Grants, 70% 100%/0% Not readily $3.6 billion $2.94
Community community of which are available billion
Development development reserved for
Block Grant projects, urban areas
Program which may
include water
and waste
disposal
EDA, Public Multi-purpose Project Generally Average grant $146.4 million $7.2
Works and economic grants 50%/50%; $1.27 million million
Economic development however, may (FY2005)
Development projects, range to
Program which include 80%/20% for
non-rural, non-Indian
non-projects
residential
water and
sewer
a. These projects generally must be authorized by Congress prior to construction.
b. Although the ultimate federal cost-share may be 0%, unless otherwise stated, the federal government may
provide 100% of initial construction costs allocated to M&I use, to be repaid over the life of the loan via
repayment contracts (typically 40-50 years).

The Bureau of Reclamation (Reclamation) was established to implement the Reclamation Act of
1902, which authorized the construction of water works to provide water for irrigation in arid
western states. Reclamation generally manages numerous municipal and industrial water supply
facilities as part of larger, multi-purpose reclamation projects serving irrigation, flood control,
power supply, and recreation purposes. Overall, these facilities serve approximately 31 million
people, delivering a total of approximately 28.5 million acre-feet of water (an acre-foot is enough
to cover one acre of land one foot deep, or 325,851 gallons). Reclamation-funded municipal and
industrial water deliveries total approximately 2.8 million acre-feet and have more than doubled
since 1970. The Bureau is authorized to construct projects only in the 17 western states, unless
otherwise directed by Congress.
Reclamation M&I water deliveries are generally incidental to larger project purposes. However,
since 1980, Congress has individually authorized construction of several “rural water supply”
projects and more than 30 reclamation wastewater and reuse/recycling projects (one recycling
project has been undertaken pursuant to general authorities). The recycling projects, discussed
below, are known as Title 16 projects because they were first authorized in 1992 under Title 16 of
P.L. 102-575. Title 16, the Reclamation Wastewater and Groundwater Studies and Facilities Act,
also authorized Reclamation to undertake specific and general feasibility studies for reclamation
wastewater and reuse projects and to research, construct, and operate demonstration projects.





Historically, Reclamation constructed projects with federal funds, then established a repayment
schedule based on the amount of total construction costs allocated to specific project purposes.
Reclamation project authorizations typically require 100% repayment, with interest, for M&I
water supply facilities; however, on some occasions Congress has authorized other
reimbursement terms. For example, for the non-Indian portion of some Reclamation rural water
supply projects, Congress has authorized 15%-25% repayment levels (85% and 75% federal cost-
share, respectively) and in at least one case (the Perkins County Rural Water Supply System), a
grant of 75% of total project costs. The federal share of costs for Title 16 projects is generally
much lower, as it is limited to a maximum of 25% of total project costs or, for projects authorized
since 1996, a maximum of $20 million. In most cases, the federal share for Title 16 projects is
non-reimbursable, resulting in a de facto grant to local project sponsors.
Unlike many other programs described in this report, Reclamation undertakes projects largely at
the explicit direction of Congress. Local project sponsors may approach Reclamation or the
Congress with proposals for project construction and funding; however, a project must be
authorized by Congress before construction may begin. Because there is no “program” per se,
there are no clear and concise eligibility or program criteria. Two exceptions to this generality are
(1) the statutory authority for the Title 16 projects (Title 16 of P.L. 102-575; see discussion
below), which outlines items to be considered during development of feasibility studies, and (2) 3
new statutory authority for creation of a rural water supply program (P.L. 109-451). Yet, even for
these projects, Congress must authorize construction before it is to begin.
Individual authorization statutes establish project purposes. Generally, M&I projects are part of
larger, multi-purpose projects such as those built for irrigation water supply, flood control, and
hydro power. This is not necessarily so for rural water supply projects, although nearly half of the
rural water supply projects authorized to date are somehow connected to previously authorized
irrigation facilities under the Pick-Sloan Missouri Basin Program (PSMBP), or otherwise related
to water service anticipated but not received under earlier PSMBP authorizations.
Projects are financed and constructed up front by the federal government, and costs for M&I
portions of such projects are generally repaid 100%, with interest, via “repayment contracts.”
Congress generally has authorized more favorable repayment terms for several rural water supply
projects. The federal cost-share for these projects has averaged 64%, but ranges from 15% to 80%
for non-Indian rural water supply projects.

3 Although a new Department of the Interior rural water supply program was authorized in P.L. 109-451, the program is
in early stages of implementation. The new law requires Reclamation to develop and publish implementation criteria,
which the agency is currently in the process of doing.





Generally, local governments and organizations such as irrigation, water, or conservation districts,
may approach the Bureau and /or Congress for project support. All construction project funding
must be appropriated by Congress. As noted earlier, Reclamation only works on projects located
in the 17 western states (32 Stat. 388; 43 U.S.C. §391 et seq.), unless specifically authorized.
Funding information for the M&I portions of multi-purpose projects is not readily available. Total
Reclamation appropriations for FY2008 were $1.2 billion. The total FY2009 appropriations
request for Reclamation is $871.0 million. Funding for exclusively non-Indian rural water supply
projects in FY2008 was $29.5 million; the Administration has requested no funds for these
projects for FY2009. The Administration developed its FY2009 request for rural water supply
projects by prioritizing projects serving tribal needs and nearing completion. The average amount
of assistance for rural water supply projects is $14.3 million.
Reclamation carries out its water supply activities in 17 western states as authorized by the
Reclamation Act of 1902, as amended (32 Stat. 388; 43 U.S.C. §391 et seq.).
Title 16 of P.L. 102-575 directs the Secretary of the Interior to develop a program to “investigate
and identify” opportunities to reclaim and reuse wastewater and naturally impaired ground and
surface water (e.g., desalination of brackish groundwater). The original act authorized
construction of 5 reclamation wastewater projects and 6 wastewater and groundwater
recycling/reclamation studies. The act was amended in 1996 (P.L. 104-266) to authorize another

18 construction projects and an additional study, and has been amended several times since,


resulting in a total of 37 projects authorized for construction. Water reclaimed via Title 16
projects may be used for M&I water supply (non-potable and indirect potable purposes only),
irrigation supply, groundwater recharge, fish and wildlife enhancement, or outdoor recreation.
The general purpose of Title 16 projects is to provide supplemental water supplies by
recycling/reusing agricultural drainage water, wastewater, brackish surface and groundwater, and
other sources of contaminated water. Projects may be permanent or for demonstration purposes.
Partial grants. Project construction costs are shared by the federal government and a local project
sponsor or sponsors. The federal share is generally limited to a maximum of 25% of total project
costs and in most cases the federal share is non-reimbursable, resulting in a de facto grant to the
local project sponsor(s). In 1996, Congress limited the federal share of individual projects to $20
million in 1996 dollars (P.L. 104-266). The federal share of feasibility studies is limited to 50% of
the total, except in cases of “financial hardship;” however, the federal share must be reimbursed.





The Secretary may also accept in-kind services that are determined to positively contribute to the
study.
Reclamation carries out water supply activities in 17 western states as authorized by the
Reclamation Act of 1902, as amended (32 Stat. 388; 43 U.S.C. §391). Hence, the water
reclamation and wastewater recycling program is limited to projects and studies in the 17 western 4
states unless otherwise specified. Authorized recipients of program assistance include “legally
organized non-federal entities,” such as irrigation districts, water districts, and municipalities.
Construction funding is generally limited to projects where (1) an appraisal investigation and
feasibility study have been completed and approved by the Secretary; (2) the Secretary has
determined the project sponsor is capable of funding the non-federal share of project costs; and
(3) the local sponsor has entered into a cost-share agreement with Reclamation.
Reclamation notes in its budget justification document for FY2009, as it has for several years,
that it will mainly focus on projects that have been supported in the President’s budget requests in
prior years. Unlike other water supply or wastewater treatment programs administered by the
EPA, USDA, or HUD (discussed below), Reclamation’s Title 16 projects are statutorily
authorized construction projects. While Reclamation has the authority to undertake general
appraisal investigations and feasibility studies, it generally has interpreted the Title 16 language
as requiring specific congressional authorization for the construction of new projects.
During the 108th and 109th Congresses, several oversight hearings were held on the Title 16
program; however, no legislation updating the overall program authorization has been enacted
since the 1996 amendments. The FY2009 budget justification document also notes that the
agency released in October 2007 an internal Directives and Standards to increase the consistency
and effectiveness of the program by establishing feasibility study requirements for prospective
Title 16 projects and a review process for these studies. The Directives and Standards did not
establish a mechanism for prioritizing authorized projects.
The total appropriation for the Title 16 program in FY2008 was $23.6 million. The
Administration’s FY2009 request is $7.0 million. Prior year program funding ranged from a high
of $47.2 million in FY1998 to a low of $12.6 million in FY2007 expenditures. Projects
authorized prior to the 1996 amendments ranged in size from $152 million ($38 million for
Reclamation’s share), to $690 million ($172 million for Reclamation’s share). Post-1996 project
authorizations have been much smaller in size, ranging from $10 million ($2 million for
Reclamation’s share) to $280 million ($20 million for Reclamation’s share). More than $600
million in federal funds would be required to complete already authorized Title 16 projects. The
Senate Committee on Appropriations, in report language accompanying FY1998 Energy and
Water Development Appropriations, noted its concern about the potential costs of this program,
stating that local sponsors who proceed on their own prior to a federal commitment to the project

4 For example, P.L. 106-566 authorizes the Secretary of the Interior to conduct general planning and research activities
in the State of Hawaii, and P.L. 109-70 authorizes construction of three projects in Hawaii.





“do so at their own risk” (S.Rept. 105-44). The committee also noted its support for criteria to
prioritize the authorized projects awaiting funding.
The statutory authority for the reclamation wastewater and reuse program is the Reclamation
Wastewater and Groundwater Study and Facilities Act, Title 16 of P.L. 102-575, as amended (43
U.S.C. 390h et. seq.); the Reclamation Recycling and Water Conservation Act of 1996 (P.L. 104-
266); the Oregon Public Land Transfer and Protection Act of 1998 (P.L. 105-321); the 1999 Water
Resources Development Act (P.L. 106-53, Section 595); the Consolidated Appropriations Act for
FY2001 (P.L. 106-554, Division B, section 106); a bill amending the Reclamation Wastewater
and Groundwater Study and Facilities Act (P.L. 107-344); the Consolidated Appropriations Act
for FY2003 (P.L. 108-7, Division D, section 211); the Emergency Wartime Supplementals Act of

2003 (P.L. 108-11); the Irvine Basin Surface and Groundwater Improvement Act of 2003 (P.L.


108-233); a bill amending the Reclamation Wastewater and Groundwater Study and Facilities Act
(P.L. 108-316); and the Hawaii Water Resources Act of 2005 (P.L. 109-70). Reclamation
published program guidelines in December 1998 and internal Directives and Standards for the
program’s feasibility study review process in October 2007; formal regulations have not been
promulgated. For information, see http://www.usbr.gov/pmts/writing/guidelines/ and
http://www.usbr.gov/recman/DandS.html .
[This section prepared by Betsy A. Cody and Nicole T. Carter, Specialists in Natural Resources
Policy, Resources, Science, and Industry Division (707-7229) and (707-0854), respectively.]

Under its civil works program, the U.S. Army Corps of Engineers (Corps, Department of
Defense) operates water resources projects throughout the country to meet the agency’s
navigation, flood damage reduction, and environmental missions. In many cases, this
infrastructure provides multi-purpose benefits, including hydroelectric generation, benefits for
fish and wildlife, recreation, and municipal and industrial (M&I) water supply. More than 153
Corps reservoirs store 9.5 million acre-feet of M&I water. The Corps has been given only limited
authority for M&I water supply. M&I water supplied from Corps reservoirs generally is
incidental to the infrastructure’s primary purposes. The provision of M&I water is subject to
availability, and the associated costs are 100% a local, nonfederal responsibility.
The Water Supply Act of 1958 (Title 3 of P.L. 85-500) authorized the Corps to recommend
economically justified M&I water supply storage space in new or existing reservoirs. Although it
is possible to retrofit previously constructed projects to supply M&I users, the planning for such
needs is not an explicit Corps responsibility. In its policy manual (Engineer Publication 1165-2-
1), the agency states that it “recognizes a significant but declining federal interest in the long
range management of water supplies and assigns the financial burden of supply to users.”





Although federal policy generally remains that community water supply is largely a local
responsibility, communities, particularly rural and small communities, increasingly have come to
Congress for assistance with water infrastructure. Since 1992, Congress has authorized the Corps
to assist local communities with municipal water supply and treatment needs not necessarily
associated with other Corps projects; these authorizations have been either for a project in a
specific location, or for a program for a defined geographic area. At the Corps, these projects for
municipal water supply and wastewater (including treatment, and distribution/collection facilities)
or surface water resource protection and development are called “environmental infrastructure.”
The Corps’ involvement in these projects varies according to the specifics of the authorization.
Sometimes the Corps is responsible for performing the work; under other authorizations, the
Corps uses appropriated funds to reimburse nonfederal sponsors for their work.
Before 1992, the Corps generally was not involved with environmental infrastructure projects;
since 1992, congressional authorization has resulted in the Corps contributing to or being
authorized to contribute to more than 400 environmental infrastructure projects. Appropriations,
however, have not kept pace with authorizations; only a subset of authorized Corps
environmental infrastructure projects have received appropriations. The Clinton and Bush
Administrations generally left environmental infrastructure projects out of their Corps budget
requests. The Bush Administration’s FY2009 request continued this trend by seeking no funds for
studies or construction of environmental infrastructure projects. Since 1992, Congress has added
funds to numerous environmental infrastructure projects during its consideration of the
President’s request. For example, the omnibus Consolidated Appropriations Act, 2008, Division
C, Title I, (P.L. 110-161) included more than $183.2 million in appropriations for environmental
infrastructure projects. Since 1992, the Corps has received more than $1 billion in appropriations
for environmental infrastructure activities.
A Water Resources Development Act (WRDA) is the typical legislative vehicle for Corps
authorizations. Beginning with Sections 219 and 313 of WRDA 1992 (P.L. 102-580), Congress
has authorized the Corps to assist local interests with technical planning and design and design
and construction assistance for environmental infrastructure projects. Subsequent WRDAs
authorized new environmental infrastructure projects, and raised the funding ceilings and
availability of direct grants for many of the projects previously authorized. Congress also has
authorized Corps environmental infrastructure activities in selected appropriations legislation.
As with Reclamation’s rural water supply and Title 16 projects, the future implementation of
authorized local infrastructure projects has the potential to create a new, and perhaps competing,
mission to the Corps’ traditional navigation, flood control and aquatic ecosystem restoration
missions. Because the environmental infrastructure authorizations are generally specific to a
geographic locations or region, are funded individually through congressional appropriations, and
are not part of a national Corps program per se, there are no clear and/or consistent project or
program criteria.
The following discussion describes projects carried out under the Water Supply Act of 1958.





To allow use of multi-purpose Corps reservoirs to allocate “excess” supplies of stored water to
local governments or organizations for municipal and industrial use. The Water Supply Act of
1958 does not authorize the Corps to sell or allocate quantities of water. The contracts are for
space in the reservoir and do not guarantee a fixed quantity of water. The Corps delivers the water
if it is available in the storage space without significantly affecting the authorized purposes of the
Corps project. The act also does not authorize the Corps to make significant modifications to its
projects in order to provide for M&I water supply.
Projects are financed up front by the federal government, and costs for M&I project purposes are
repaid 100%, with interest, via long-term (typically 30-50 year) repayment contracts.
The Water Supply Act, as amended in 1986, requires that (1) water supply benefits and costs be
equitably allocated among multiple purposes; (2) repayment by state or local interests be agreed
to before construction; (3) the water supply allocation for anticipated demand at any project not
exceed 30% of the total estimated cost; (4) repayment shall be either during construction (without
interest), or over 30 years (with adjustable interest rates); and (5) users reimburse the Corps
annually for all operation and maintenance or replacement costs. Those required conditions
reflect changes adopted in the Water Resources Development Act of 1986, which reaffirmed a
100% non-federal cost share for water supply projects with the up front agreement; limited
assistance for “future” storage to 30%; reduced the repayment period from 50 to 30 years; and
added the yearly operation and maintenance reimbursement.
Occasional exceptions—albeit increasingly frequent—to the Corps’ general authority have been
enacted by the Congress to provide individual instances of relief in hardship circumstances and to
target federal financial or technical assistance to demonstration projects defined by environmental
restoration or water conservation objectives. Otherwise, the Corps’ general direct involvement in
providing water supplies is limited to emergency/disaster relief, including drought conditions and
natural disasters (e.g., flooding resulting from Hurricane Katrina). Some short-term sales of
“surplus” storage, as well as seasonal water storage (conservation) can be made adjunct to normal
project operating procedures.
The Corps’ general water supply contribution is considered to be self-supported, based on
repayments, and is not published in budget documents.
Water Supply Act of 1958 (Title III of P.L. 85-500, as amended, 72 Stat. 320; 43 U.S.C. § 390b).
For information on the Corps’ civil works program, see http://www.usace.army.mil/
public.html#Civil.





[This section prepared by Nicole T. Carter, Specialist in Natural Resources Policy, Resources,
Science and Industry Division (707-0854).]

The USDA administers grant and loan programs for water and wastewater projects, with
eligibility limited to communities of 10,000 or less. USDA prefers making loans to finance water
and waste disposal projects; grants are made only when necessary to reduce average annual
charges to a reasonable level for the area.
These programs are administered at the national level by the Rural Utilities Service (RUS) at
USDA. RUS allocates program funds to the Rural Economic and Community Development
(RECD) state offices through an allocation formula based on rural population, poverty, and
unemployment. District RECD offices actually administer the programs locally. In recent years,
approximately 65% of loan funds and 57% of grant funds have been obligated to water projects;
the remainder have been obligated to waste disposal projects.
There is heavy demand for water and waste disposal funds. In January 2000, RUS had a backlog
of approximately $3.3 billion in grant and loan applications for its water and waste disposal 5
assistance programs. In addition to this, EPA’s 2001 drinking water infrastructure needs survey
showed over $31 billion needed by small water systems serving 3,300 or fewer people over the
next 20 years to install, upgrade, or replace infrastructure to ensure safe drinking water. The 2004
EPA wastewater needs survey reported that small communities with a population under 10,000
need to spend $17 billion for their wastewater facilities to meet water quality objectives of the
Clean Water Act.
The purpose of these programs is to provide basic human amenities, alleviate health hazards, and
promote the orderly growth of the nation’s rural areas by meeting the need for new and improved
rural water and waste disposal facilities. Funds may be used for installation, repair, improvement,
or expansion of rural water facilities, including costs of distribution lines and well-pumping
facilities.
USDA provides grants and loans for water and waste disposal projects. There is no statutory
distribution formula. Funds are allocated to states based upon rural population, number of
households in poverty, and unemployment. There are no matching requirements for states.

5 U.S. Department of Agriculture, 2001 Budget: Explanatory Notes for the Committee on Appropriations, vol. 2, pp.
22-22, 22-23. The 2002 farm bill (P.L. 107-171) authorized USDA to use $360 million in Commodity Credit
Corporation monies for a one-time reduction in the backlog of qualified, pending grant and loan applications for water
systems and waste disposal systems.





Water and Waste Disposal Loans. The Rural Development Act of 1972 authorized establishment
of the Rural Development Insurance Fund under the Consolidated Farm and Rural Development
Act. Among other activities, this fund is used for loans (direct and guaranteed) to develop storage,
treatment, purification, or distribution of water or collection, treatment, or disposal of waste in
low-income rural areas. Loans are repayable in not more than 40 years or the useful life of the
facilities, whichever is less. USDA makes either direct loans to applicants or guarantees up to

90% of loans made by third-party lenders such as banks and savings and loan associations.


Loan interest rates are based on the community’s economic and health environment and are
designated poverty, market, or intermediate. Poverty interest rate loans are made in areas where
the median household income (MHI) falls below the higher of 80% of the statewide nonurban
MHI, or the poverty level, and the project is needed to meet health or sanitary standards;
generally, this is the lowest of the three loan interest rates. The market rate is adjusted quarterly
and is set using the average of a specified 11-bond index. It applies to loans to applicants where
the MHI of the service area exceeds the statewide nonurban MHI. The intermediate rate applies to
loans that do not meet the criteria for the poverty rate and which do not have to pay the market
rate; generally, this rate is less than the market rate. As of January 2008, applicable interest rates 6
were: poverty, 4.5%; intermediate, 4.375%; and market, 4.375%. Interest rates on guaranteed
loans are negotiated between the borrower and the lender.
Water and Waste Disposal Grants. Grants for the development costs of water supply and waste
disposal projects in rural areas also are authorized under the Consolidated Farm and Rural
Development Act. Only communities with poverty and intermediate rate incomes qualify for
USDA grants. An eligible project must serve a rural area that is not likely to decline in population
below the level for which the project was designed and constructed so that adequate capacity will
or can be made available to serve the reasonably foreseeable growth needs of the area.
Grant funds may be available for up to 75% of the development cost of a project and should only
be used to reduce user costs to a reasonable level. Grants are only made after a determination of
the maximum amount of loan that a community can afford and still have reasonable user rates.
Grants, which typically provide 35%-45% of project costs, may be used to supplement other
funds borrowed or furnished by applicants for project costs, and may be combined with loans
when the applicant is able to repay part, but not all, of the project costs. Priority is given to
projects serving populations of less than 5,500.
Emergency and Imminent Community Water Assistance Grants. RUS also is authorized to help
rural residents where a significant decline in quantity or quality of drinking water exists or is
imminent and funds are needed to obtain adequate quantities of water that meet standards of the
Safe Drinking Water Act or the Clean Water Act. Grants, ranging from $10,000 to a maximum of
$500,000, are provided for projects to serve a rural area with a population of 10,000 or less that
has a median household income not in excess of the statewide nonmetropolitan median household
income. Grants for repairs, partial replacement, or significant maintenance of an established
system cannot exceed $150,000. Communities use the funds for new systems, waterline
extensions, construction of water sources and treatment facilities, and repairs or renovation of
existing systems and may be made for 100% of project cost. Applicants compete on a national
basis for available funding. The 2002 farm bill (Farm Security and Rural Investment Act of 2002,
P.L. 107-171) authorized $35 million per year through FY2007 for this program and made

6 For current interest rates, see http://www.usda.gov/rus/water/int-rate.htm.





funding for it mandatory through reservation of 3% to 5% of appropriated water and waste
disposal grant funds. Amounts provided through this program have been quite variable over time.
In FY2007, $6.9 million was distributed to projects in 14 states.
Eligible entities are municipalities, counties, and other political subdivisions of a state; 7
associations, cooperatives, and organizations operated on a not-for-profit basis; Indian tribes on
federal and state reservations; and other federally recognized tribes. USDA’s loan and grant
programs are limited to community service areas (including areas in cities or towns) with
population of 10,000 or less. To be eligible for assistance, communities must have been denied
credit through normal commercial channels. Also, communities must be below certain income
levels. Loans and grants are made for projects needed to meet health or sanitary standards,
including Clean Water Act and Safe Drinking Water Act standards and requirements. Section
6012 of the 2002 farm bill (P.L. 107-171) authorized $10 million per year through FY2007 for
USDA to make grants to private nonprofit organizations for the purpose of providing loans to
eligible individuals for construction, refurbishing, and servicing of individually owned household
water well systems. Loans are limited to $8,000 per water well system. Section 6002 of P.L. 107-
171 authorized $30 million annually through FY2007 in grants to nonprofit organizations to
capitalize revolving loans for water and waste disposal facilities.
From FY1991 to FY2000, USDA provided about $12.5 billion under its rural water and waste 8
disposal loan and grant programs. Prior to enactment of the 1996 farm bill (P.L. 104-127), these
grants and loans, as well as other USDA rural development assistance, were authorized as
separate programs. In P.L. 104-127, Congress consolidated 14 existing rural development grant
and loan programs into three categories for better coordination and greater local involvement.
This program is called the Rural Community Advancement Program (RCAP). The three
components are the Rural Utilities Service (RUS), Rural Community Facilities, and Rural 9
Business and Cooperative Development programs.
Beginning with USDA’s FY1996 appropriation (P.L. 104-37), Congress consolidated the water
and waste disposal grant and loan appropriations in a single Rural Community Assistance
Program. Funds available through appropriations for water and waste disposal grants and loans
for FY2008 are $535.4 million. For FY2009, the President’s budget requests $265.6 million in
appropriations for these programs. According to the budget justification, this proposal will
support $1.6 billion in program activity, counting both appropriations and repaid loan monies still
available, because of flexibility in RCAP to transfer funding among programs. Also, with the
relatively low interest rate on loans, more rural communities are able to afford to repay loans, so

7 Rural electric cooperatives are private entities that build and manage rural utility systems. The 1990 farm bill (P.L.
101-624) authorized rural coops to expand from their traditional electricity and telephone services. An estimated 80 to
90 rural electric coops (less than 10% of the total number of coops nationwide) currently are involved in some aspect of
drinking water or wastewater management, with the majority dealing with drinking water management.
8 GAO Water Infrastructure, pp. 10-11.
9 RCAP is designed to give RECD state offices flexibility in targeting financial assistance to community and regional
needs. Thus, within the three components of RCAP, up to 25% of funds can be transferred between programs within
any state, as long as transfers do not result in changes in the national funding stream of more than 10%.





that the overall program should be able to operate at a higher loan-to-grant ratio and thus a lower 10
federal subsidy. In addition to the traditional grants and loans in FY2008, USDA also has
available $993,000 for grants to provide loans for individually-owned water well systems and
$495,000 to capitalize revolving loans for water and waste disposal systems. The FY2009 budget
requests no funds for these assistance activities.
Statutory authority for the water and waste disposal loan and grant programs is the Consolidated
Farm and Rural Development Act, as amended, Section 306, 7 U.S.C. 1926. Regulations for these
programs are codified at 7 CFR Parts 1778-1780. For additional information on RUS water and
environmental programs, see http://www.usda.gov/rus/water/index.htm. For program information
and contacts, see http://12.46.245.173/pls/portal30/
SYST EM.PROGRAM_T EXT _ RPT. SHOW?p_a rg_name s=prog_nbr&p_arg_value s=10.760.
[This section prepared by Claudia Copeland, Specialist in Resources and Environmental Policy,
Resources, Science and Industry Division (707-7227).]
The United States Department of Agriculture (USDA) Watershed and Flood Prevention
Operations Program (often referred to as the Small Watershed Program) authorizes activities
under four closely-related authorities that are administered by the Natural Resources
Conservation Service (NRCS). Two of these authorities, known as P.L. 566 and P.L. 534,
authorize NRCS to provides technical and financial assistance to state and local organizations to
plan and install measures to prevent erosion, sedimentation, and flood damage and to conserve, 11
develop, and utilize land and water resources. The other authorities are an emergency program
and a newer rehabilitation authority, enacted in 2000, that is discussed at the end of this section.
This set of activities is often referred to as the Small Watershed Program because the vast
majority of the projects have been built under the authority of P.L. 566, the Watershed Prevention
and Flood Protection Act of 1954. This act encourages smaller projects which are authorized by
the Chief of the NRCS. Larger projects must be approved by Congress. P.L. 566 is called the
Small Watershed Program because no project may exceed 250,000 acres, and no structure may
exceed more than 12,500 acre-feet of floodwater detention capacity, or 25,000 acre-feet of total
capacity. The Senate and House Agriculture Committees must approve projects that need an
estimated federal contribution of more than $5 million for construction or include a storage
structure with a capacity in excess of 2,500 acre feet; and if the storage structure has a capacity in

10 U.S. Department of Agriculture, USDA Budget Summary 2009Explanatory Notes, Rural Development. p. 24-10.
11 The Emergency Watershed Protection Program component is used to restore the natural functions of a watershed
after a natural disaster has occurred, and to minimize the risks to property and life posed by floods by purchasing
easements on flood plains. Appropriations vary widely from year to year, and activity levels can vary widely both from
year to year and place to place. Spending is usually authorized in emergency supplemental legislation. In FY2005, for
example, $300 million was authorized to respond to damage caused by hurricanes in calendar year 2005. As of early
2008, no funds have been appropriated for this program.





excess of 4,000 acre feet, approval is also required from the Senate Environment and Public
Works Committee and the House Transportation and Infrastructure Committee.
Under P.L. 566, 1,744 projects had been authorized through FY2007. Of that total, 1,013 have
been completed, while 350 others are active. Also, 158 were subsequently deauthorized, 182 are
inactive, and 41 have reached the end of their project life. The number of projects is no longer
growing; no new projects were added in FY2006, and only one had been added in FY2005 and
five in FY2004. At the same time, the backlog of authorized projects that await funding is 12
substantial, and is estimated to be $1.42 billion currently. The funding backlog estimate
decreased by $10 million from the preceding year, as the number of inactive projects decreased
from 187 to 182 during the same time period.
Most all of the P.L. 566 projects (1,468 of 1,744) are designed to provide flood control benefits.
About half the projects provide multiple benefits. Other benefits include drainage (313 projects),
public recreation (313), erosion (316), water quality (213), public water supply (218), fish and
wildlife (162), and water conservation (44). Among the overall social and community benefits
that NRCS identifies are 27,800 domestic water supplies and more than 48 million people.
According to NRCS, municipal water supply was more popular in earlier years, and project
sponsors have not been proposing this as a purpose as frequently in recent years.
Each P.L. 566 project is initiated by a local project sponsor. Project sponsors provide assistance in
preparing plans and installing whatever measures are needed to implement those plans. The
Natural Resources Conservation Service (NRCS) in USDA works with the project sponsor to
develop the plan, provides the necessary technical assistance, and may assist in all aspects of
planning and construction. Either NRCS or the local organization may administer construction
contracts.
The 11 projects that were specifically authorized under P.L. 534 are each much larger and more
expensive then P.L. 566 projects. These projects, which encompass a total of almost 37.9 million
acres, an area slightly larger than Iowa, are divided into component projects in sub watersheds.
NRCS reports that 397 work plans for sub-watersheds encompassing almost 30 million acres
have been completed. With the exception of the two smallest projects, the estimated federal costs
for each of these projects ranges from more than $40 million to more than $330 million. Three of
the projects have been completed, and work on the remainder continues in one or more sub-
watersheds.
Both laws have similar objectives and are implemented following similar procedures. Both
programs fund land treatment, and nonstructural and structural facilities for flood prevention,
erosion reduction, agricultural water management, public recreation development, fish and
wildlife habitat development, and municipal or industrial water supplies. Structural measures can
include dams, levees, canals, pumping plants, and the like. Local sponsors agree to operate and
maintain completed projects. USDA estimates that benefits to the country totaled more than $1.6
billion in FY2006. Municipal water supplies was grouped within non-agricultural benefits, which
totaled almost $560 million.

12 Three states account for almost half the backlogTexas ($293 million), Oklahoma ($234 million), and Mississippi
($179 million).





As part of its lending responsibilities, the Rural Utilities Service (RUS) at USDA (see discussion
above) makes loans to local organizations to finance the local share of the cost of installing,
repairing, or improving facilities, purchasing sites and easements, and related costs for projects
authorized under both laws. Loans are limited to $10 million; they must be repaid within 50
years; and the cost-share assistance may not exceed the rate of assistance for similar projects
under other USDA conservation programs. NRCS and the local organization must also agree on a
plan of work before a loan is obligated. In 2008, an estimated 60 borrowers had loans with a total
outstanding value of $15.6 million. Congress did not appropriate funds for new loans in either
FY2006 or FY2007. Available data do not show how many of the cumulative 495 RUS loans
have been applied to water supply projects.
Some of the oldest projects that have exceeded their design life (the design life is 50 years, and
dams were constructed starting in 1948) need rehabilitation work to continue to protect public
health and safety by reducing any possibility of dam failure, and to meet changing resource
needs. In 2007 alone, 775 dams reached the conclusion of their design life. That number will
continue to grow each year, and by 2015 will total more than 4,300. In response to that concern,
Congress passed a new rehabilitation program in Section 313 of the Grain Standards and
Warehouse Improvement Act of 2000 (P.L. 106-472) as an amendment to the 1954 law. It
authorized appropriations of $5 million in FY2001, increasing each year to $35 million in
FY2005, to make structural improvements to meet safety and performance standards and extend
the life of the project. It required the federal government to pay 65% of the total rehabilitation
costs but no more than 100% of the actual construction cost, and prohibited spending for
operations and maintenance. Rehabilitation projects also provide an opportunity to modify
projects to provide additional benefits, including municipal water supplies.
Since FY2000, Congress has appropriated more than $148 million for rehabilitation projects, and
these funds have been allocated among 25 states. By September 30, 2007, 160 rehabilitation
projects had been funded, and 64 dams in 13 states had been completely rehabilitated. In addition,
project sponsors requested a total of $137 million to restore 112 dams in 27 states in FY2007.
NRCS calculated the benefits of the 64 completed projects to total almost $6.0 million in reduced
monetary losses. It identified more than 90,000 individuals and more than 5,400 homes and
businesses and 300 farms and ranches that benefit in some way from the projects.
In 2002, Congress amended this program in Section 2505 of the 2002 farm bill (P.L. 107-171) to
provide higher and increasing levels of discretionary funding through FY2007, and also
mandatory funding for the first time. Under the legislation, the mandatory funding level rose from
$45 million in FY2003 to $65 million in FY2007 (dropping to $0 in FY2008), while the
discretionary funding level also rose from $45 million in FY2003 to $85 million in FY2007.
(Provisions in both the House- and Senate-passed versions of the 2007 farm bill, pending as of
early 2008, would continue to fund this program.)
The purpose of the programs is to provide technical and financial assistance to states and local
organizations to plan for, install, and rehabilitate watershed projects. Project purposes may
include watershed protection, flood prevention and control, water quality improvements, soil
erosion reduction, rural municipal and industrial water supply, fish and wildlife habitat
enhancement, and water conservation. Almost all projects address flood prevention and control.





Partial project grants, plus provision of technical advisory services. Financing for water projects
under the small watershed program varies depending on project purposes. The federal
government pays all costs related to construction for flood control purposes only. Costs for non-
agricultural water supply must be repaid by local organizations; however, up to 50% of costs for
land, easements, and rights-of-way allocated to public fish and wildlife and recreational
developments may be paid with program funds. Additionally, sponsors may apply for USDA
Rural Utilities Service (RUS) Water and Waste Program loans to finance the local share of project
costs. Participating state and local organizations pay all operating and maintenance costs.
State agencies and qualified local organizations can apply to participate in this program and
sponsor or cosponsor an application. Qualified organizations include soil and water conservation
districts; municipalities; counties; watershed, flood-control, conservancy, drainage, irrigation, or
other special purpose districts; Indian tribal organizations, irrigation and reservoir companies,
water users associations, or similar organizations not operated for profit. Other organizations can
endorse project applications. To be eligible for funding, a proposed project must meet several
criteria, including (1) having an approved watershed plan, (2) having environmental, economic,
and social benefits that exceed project costs; and (3) having no critical environmental issues.
There are no population or community income-level limits on applications for the Small
Watershed Program; however, all projects must have flood control as one of their purposes and
must be located within small watersheds (250,000 acres or less).
The budget request for FY2009 seeks no funding for Watershed and Flood Prevention Operations
and seeks $5.9 million for the rehabilitation program—almost the same as the FY2008 request.
However, it is a substantial decrease from FY2008 funding provided in P.L. 110-161, which
provided $30 million for Watershed and Flood Prevention Operations and $20 million for
Watershed Rehabilitation. In previous years, the Watershed and Flood Prevention Operations
appropriation had included numerous instances of congressionally designated funds for specified
projects; sometimes the total value of these designated grants approached the total appropriation.
Also in previous years, limits had been placed on how funding could be spent by limiting the
amount available for technical assistance, and for carrying out activities related to the Endangered
Species Act. However, in FY2008 Congress provided funding for only a few specific projects. In
most years recently, the Administration (regardless of which party controls the White House) has
requested significant funding reductions which Congress has rejected, although FY2006 was the
first time, at least in many years, that the Administration had called for no funding, and it has
done so each year since then. In prior years, Congress had always responded by appropriating
funds, usually in amounts that were similar to the preceding year. In the late 1980s and early
1990s, for example, annual appropriations averaged around $160 million, although the President’s
budget requests were often for lower amounts.
Historically, overall watershed funding ultimately has varied a great deal from year to year. Much
of this variation is the result of appropriations for the emergency component, which is enacted in
emergency supplemental appropriations and varies widely from year to year. Some consider the





overall watershed program to be a public works effort that supports local employment and
economic development (and therefore might support additional funding in the current economic
setting), while others consider it to be a “pork barrel” program that provides support to projects
that are frequently of limited merit.
The Flood Control Act of 1944, P.L. 78-534, as amended, 58 Stat. 907 (33 U.S.C. 701b-1);
Watershed Protection and Flood Prevention Act of 1954, P.L. 83-566, as amended, 68 Stat. 666
(16 U.S.C. 1001-1006). Regulations are codified at 7 CFR Part 622. For information, see
http://www.nrcs.usda.gov/programs/watershed/index.html or http://12.46.245.173/pls/portal30/
SYST EM.PROGRAM_T EXT _ RPT. SHOW?p_a rg_name s=prog_nbr&p_arg_value s=10.904.
[This section prepared by Jeffrey Zinn, Specialist in Natural Resources Policy, Resources,
Science and Industry Division (707-7257).]

The Clean Water Act prescribes performance levels to be attained by municipal sewage treatment
plants in order to prevent the discharge of harmful wastes into surface waters. The act also
provides financial assistance, so that communities can construct treatment facilities in compliance
with the law, which has the overall objective of restoring and maintaining the chemical, physical,
and biological integrity of the nation’s waters.
In historic terms, funding under the Clean Water Act has been the largest federal program for
wastewater treatment assistance. Since 1973, Congress has appropriated more than $78 billion in
program grants. Funds are distributed to states under a statutory allocation formula and are used
to assist qualified projects on a priority list that is determined by individual states. These funds
are used to assist states and localities in meeting wastewater infrastructure needs most recently
estimated by EPA and states at $221 billion nationally for all categories of projects eligible for
federal assistance under the law.
In 1987 Congress amended the Clean Water Act (P.L. 100-4) and initiated a new program of
federal capitalization grants to support State Water Pollution Control Revolving Funds (SRFs).
Prior to 1989 (when the SRF program became effective), states used their allotments to make
grants to cities and other eligible recipients. Since 1989, federal funds (grants of appropriated
funds) have been used to capitalize state loan programs, or SRFs, with states providing matching
funds equal to 20% of the federal funds to capitalize the SRF. All 50 states, plus Puerto Rico,
participate in the clean water SRF program. Over the long term, the loan programs are intended to
be sustained through repayment of loans to states, thus creating a continuing source of assistance
for other communities. Rural and non-rural communities compete for funding; rural areas and
other small communities have no special priority, nor are states required to reserve any specific
percentage for projects in rural areas. Nevertheless, rural areas are not shut out of the program.
EPA data indicate that since 1989, nationally, 63% of all loans and other assistance (comprising

23% of all assistance) have gone to assist communities with 10,000 people or fewer.





The clean water SRF program is intended to provide assistance in constructing publicly owned
municipal wastewater treatment plants, implementing nonpoint pollution management programs,
and developing and implementing management plans under the National Estuary Program.
Clean water SRFs may provide seven general types of financial assistance: making loans; buying
or refinancing existing local debt obligations; guaranteeing or purchasing insurance for local debt
obligations; guaranteeing SRF debt obligations (i.e., to be used as security for leveraging the
assets in the SRF); providing loan guarantees for sub-state revolving funds; earning interest on
fund accounts; and supporting reasonable costs of administering the SRF. States may not provide
grants from an SRF. Loans are made at or below market interest rates, including zero interest
loans, as determined by the state in negotiation with the applicant. All principal and interest
payments on loans must be credited directly to the SRF.
Eligible loan recipients are any municipality, intermunicipal, interstate, or state agency.
Projects or activities eligible for funding are, initially, those needed for constructing or upgrading
publicly owned municipal wastewater treatment plans. As defined in Clean Water Act section
212, devices and systems used in the storage, treatment, recycling, and reclamation of municipal
sewage are eligible. These include construction or upgrading of secondary or advanced treatment
plants; construction of new collector sewers, interceptor sewers or storm sewers; and projects to
correct existing problems of sewer system rehabilitation, infiltration/inflow of sewer lines, and
combined sewer overflows. Operation and maintenance is not an eligible activity. All funds in the
clean water SRF resulting from federal capitalization grants are first to be used to assure
maintenance of progress toward compliance with enforceable deadlines, goals, and requirements
of the act, including municipal compliance. Following compliance with the “first use”
requirement, funds may be used to implement nonpoint source management programs and estuary
activities in approved State Nonpoint Management Programs and estuarine Comprehensive
Conservation and Management Plans, respectively. Since the clean water SRF program was
established in 1989, $2.6 billion has been used to assist 8,654 nonpoint management projects;
none has gone to estuary management plan activities.
EPA also administers a small grant program to help small, disadvantaged rural communities with
fewer than 3,000 people address their wastewater treatment needs. A community can qualify for
hardship assistance if it meets certain criteria: it lacks access to centralized wastewater treatment
or collection systems or needs improvements to on-site treatment systems; a proposed project will
improve public health or reduce environmental risk; the community’s per capita income is less
than 80% of the national average; and its unemployment rate exceeds the national average by 1
percentage point or more. The hardship grants program is intended to complement the clean water
SRF program, because states assist eligible rural communities by supplementing an SRF loan
with hardship grant assistance. States have flexibility in how they manage the hardship grants
program and are responsible for selecting projects. For example, in addition to construction





projects, states may use hardship assistance to provide training, technical assistance, and
education programs on the operation and maintenance of wastewater treatment systems. The
program began with a $50 million appropriation in FY1996 (P.L. 104-134), and funds remain
available until expended. Through June 2007, $54 million in EPA rural hardship grants and state
matching funds had been awarded to 119 projects nationwide. Nearly three-quarters of the
communities that have received rural hardship grants have used the funds in combination with
SRF loan assistance.
In 2000, Congress authorized separate Clean Water Act grant funding for projects to address
overflows from municipal combined sewer systems and from municipal separate sanitary sewers.
Overflows from these portions of municipal sewerage systems can occur especially during
rainfall or other wet weather events and can result in discharges of untreated sewage into local
waterways. This program, contained in the FY2001 Consolidated Appropriations Act (P.L. 106-
554, Division B, section 112), authorized $750 million per year in FY2002 and FY2003. The
funds would only be available for appropriation if Congress also appropriated at least $1.35
billion in each of the years for the clean water SRF program. Under the program, grants to a
municipality or municipal entity could be used for planning, design, and construction of treatment
works to intercept, transport, control, or treat municipal combined and separate sewer overflows.
However, no funds were appropriated for this program either in FY2002 or FY2003; thus, wet
weather projects continue to compete with other water infrastructure projects for available Clean
Water Act funds.
Since the first appropriations for the clean water SRF program in FY1989, Congress has provided
$26.1 billion in grants to capitalize SRFs. Through June 2007, federal funds, together with state
matching contributions and repaid loans, have been used for $62.9 billion in SRF assistance to
support 20,711 SRF loans and debt refinance activity. Most recently, Congress appropriated
$689.1 million for FY2008 (P.L. 110-161), $395 million less than in FY2007. For FY2007, the
President’s budget requests $555 million for the clean water SRF program, 19.5% less than the
FY2007 funding level.
Statutory authority for the clean water SRF program is the Clean Water Act, as amended, Sections
601-607, 33 U.S.C. 1381-1387. Regulations are codified at 40 CFR §35.3100. For additional
information, see http://www.epa.gov/owm/cwfinance/cwsrf/index.htmor http://12.46.245.173/pls/
portal30/
SYST EM.PROGRAM_T EXT _ RPT. SHOW?p_a rg_name s=prog_nbr&p_arg_value s=66.458.
[This section prepared by Claudia Copeland, Specialist in Resources and Environmental Policy,
Resources, Science and Industry Division (707-7227).]





The Safe Drinking Water Act (SDWA) requires public water systems to comply with federal
drinking water regulations promulgated by EPA. Through these regulations, EPA has set
standards to control the levels of approximately 90 contaminants in drinking water, and more
regulations are under development. To help communities meet these federal mandates, Congress
amended the SDWA in 1996 to establish a drinking water state revolving fund (DWSRF) loan
program. The program is patterned closely after the clean water SRF, and authorizes EPA to make
grants to states to capitalize drinking water state revolving loan funds. States use their DWSRFs
to provide assistance to public water systems for drinking water projects.
States must match 20% of the federal capitalization grant and develop annual intended use plans
that indicate how allotted funds will be used (including a project priority list). The law generally
directs states to give funding priority to projects that (1) address the most serous health risks; (2)
are needed to ensure compliance with SDWA regulations; and (3) assist systems most in need on
a per household basis, according to state affordability criteria. Additionally, states must make
available at least 15% of their annual allotment to public water systems that serve 10,000 or fewer
persons (to the extent the funds can be obligated to eligible projects). In recent years, roughly

72% of DWSRF assistance agreements and 37% of funds have gone to these smaller systems.


Capitalization grants are allotted among the states according to the results of the most recent
quadrennial survey of the capital improvements needs of eligible water systems. Needs surveys
are prepared by EPA and the states, and the most recent survey (2003) estimated that public water
systems need to invest a minimum of $276.8 billion over 20-years to ensure the provision of safe
drinking water and compliance with federal standards.
This state-administered program provides assistance for infrastructure projects and other
expenditures that facilitate compliance with federal drinking water regulations or that promote
public health protection or source water protection.
States may use the DWSRF to make low- or zero-interest loans to public water systems, and loan
recipients generally must repay the entire loan plus any interest. DWSRFs may also be used to
buy or refinance local debt obligations, to guarantee or purchase insurance for a local obligation,
as a source of revenue or security for payment of principal and interest on state revenue or
general obligation bonds if the proceeds of the sale of the bonds are deposited into the DWSRF,
and to earn interest on DWSRF accounts. States also may use up to 30% of their annual DWSRF
grant to provide additional subsidies (e.g., principal forgiveness and negative interest rate loans)
to help economically disadvantaged communities of any size. (A disadvantaged community is one
in which the service area of a public water system meets affordability criteria established by the
state.)





Drinking water systems that are eligible to receive DWSRF assistance include community water
systems, whether publicly or privately owned, and not-for-profit noncommunity water systems.
Federally owned systems are not eligible to receive assistance from this program.
Projects eligible for DWSRF assistance include (1) capital investments to upgrade or replace
infrastructure in order to continue providing the public with safe drinking water; (2) projects
needed to address violations of SDWA regulations; and (3) projects to replace aging infrastructure
(e.g., source water improvement projects and treatment facilities, storage facilities, transmission
and distribution pipes, and consolidation with other systems). Assistance may also be available
for land acquisition, project design and planning, and for a range of security measures, including
vulnerability assessments and infrastructure improvements.
Projects and activities not eligible for funding include projects primarily intended to serve future
growth or to provide fire protection, construction of dams or reservoirs (except reservoirs for
finished (treated) water), monitoring, and operation and maintenance. Ineligible systems include
those that lack the financial, technical or managerial capacity to maintain SDWA compliance and
systems in significant noncompliance with any SDWA regulation (unless the project is likely to
ensure compliance).
The act authorized appropriations for DWSRF capitalization grants at a level of $599 million for
FY1994 and $1 billion annually for FY1995 through FY2003, for a total appropriations authority
of $9.6 billion. Since the program was first funded in FY1997, Congress has appropriated
approximately $10.3 billion, including $837.5 million for each of FY2006 and FY2007, and $829
million for FY2008. The President requested $842 million for FY2009.
Through June 2006, EPA had awarded $7.33 billion in capitalization grants, which, when
combined with the 20% state match, bond proceeds, interest payments and other funds, amounted
to $12.83 billion in DWSRF funds available for providing loans and other assistance. Total
assistance provided by the program, through June 30, 2006, reached $11.03 billion. The states had
entered into 4,768 assistance agreements and supported 4,985 projects.
The statutory authority for the DWSRF program is the Safe Drinking Water Act Amendments of
1996 (P.L. 104-182, Section 1452, 42 U.S.C. 300j-12). EPA promulgated an interim final rule for
the program on August 7, 2000 (65 FR 48285), and adopted it as final on January 12, 2001 (66
FR 2823). Regulations are codified at 40 CFR §35.3500. DWSRF program information,
regulations, facts and figures are available at http://www.epa.gov/safewater/dwsrf.html. For
further information and contacts, see http://12.46.245.173/pls/portal30/
SYST EM.PROGRAM_T EXT _ RPT. SHOW?p_a rg_name s=prog_nbr&p_arg_value s=66.468.
[This section prepared by Mary E. Tiemann, Specialist in Environmental Policy, Resources,
Science and Industry Division (707-5937).]






The Department of Housing and Urban Development (HUD) administers assistance primarily
under the Community Development Block Grant (CDBG) program. CDBG funds are used by
localities for a broad range of activities intended to result in decent housing in a suitable living
environment. Water and waste disposal needs compete with many other public activities for this
assistance, including historic preservation, energy conservation, housing construction, lead-based
paint abatement, urban renewal projects, recreation facilities, home ownership assistance, and
others. Program policy requires that at least 70% of funds must benefit low- and moderate-
income persons. The use of CDBG funds is intended to reflect a balance between local flexibility
and national targeting to low- and moderate-income persons.
After subtracting amounts specified in appropriations acts for special-purpose activities, 70% of
CDBG funds are allocated by formula to approximately 1,175 entitlement communities
nationwide, defined as central cities of metropolitan areas, metropolitan cities with populations of
50,000 or more, and statutorily defined urban counties (the entitlement program). These funds are
not available for projects in rural communities. The remaining 30% of CDBG funds is allocated
by formula to the states for distribution to non-entitlement, smaller communities (the state
program) for use in areas that are not part of a metropolitan city or urban county, and these funds
may be available for rural community water projects. The 70/30 split and allocation formulas are
provided for in law. According to data from HUD, in recent years (2001-2007), water and sewer 13
improvement projects accounted for 9-10% of all CDBG funds disbursed nationally. From
FY1991 through FY2000, HUD provided over $4 billion in block grants, plus $39.9 million for 14
projects specified in appropriations laws, for drinking water and wastewater projects.
The primary goal of this program is the development of viable communities by providing decent
housing, a suitable living environment, and expanding economic opportunities, principally for
low- and moderate-income persons.
The entitlement communities and states receive a basic grant allocation each year and know in
advance the approximate amount of federal funds that they will receive annually. Grantees access
their CDBG funding through a consolidated plan process in which states and localities establish
their local priorities and specify how they will measure their performance. In the CDBG program
for smaller communities, grants are distributed out of state allocations to units of general local
government which implement approved activities. States may retain a percentage of funds to

13 U.S. Department of Housing and Urban Development, “Use of CDBG Funds by All Grantees.” See
http://www.hud.gov/offices/cpd/communitydevelopment/budget/disburse
mentreports/profiles/National_Expenditure_FY07.xls.
14 GAO Water Infrastructure, pp. 11-13.





cover the costs of administering the program and providing technical assistance to local
governments and nonprofit organizations.
Eligible CDBG grant recipients include states, local governments, the District of Columbia,
Puerto Rico, Guam, the Virgin Islands, American Samoa, and the Commonwealth of the Northern
Marianas. Eligible activities include a wide range of projects such as public facilities and
improvements, housing, public services, economic development, and brownfields redevelopment.
State grantees must ensure that each activity meets one of the program’s three national objectives:
benefitting low- and moderate-income persons (the primary objective), aid in the prevention or
elimination of slums or blight, or assisting other community development needs that present a
serious and immediate threat to the health or welfare of the community. Under the state program
which assists smaller communities, states develop their own programs and funding priorities and
have considerable latitude to define community eligibility and criteria, within general criteria in
law and regulations.
For FY2008 (P.L. 110-161), Congress provided $3.59 billion for CDBG funds, of which
approximately $1.08 billion is available for smaller communities under the state non-entitlement
program. For FY2000, the President’s budget requests $2.94 billion for the CDBG program. The
budget indicates that the Administration continues to support legislation proposed by HUD in
2006 and again in 2007 to reform the program to more effectively contribute to local community
and economic progress. This legislation, the CDBG Reform Act, proposes formula changes
(which have remained essentially the same since 1978) in order to better target funds to
community development needs and to create a minimum grant threshold.
Statutory authority for the CDBG program is Title I of the Housing and Community Development
Act of 1974 (42 U.S.C. 5301 et seq.). Regulations are codified at 24 CFR Part 570. Regulations
covering the CDBG state program are codified at 24 CFR Part 570, Subpart I (§570.480).
For more program information on CDBG entitlements grants, see http://www.hud.gov/offices/
cpd/communitydevelopment/programs/entitlement/ or http://12.46.245.173/pls/portal30/
SYSTEM.PROGRAM_TEXT_RPT.SHOW?p_arg_names=prog_nbr&p_arg_values=14.218. For
information on the CDBG state program, see http://www.hud.gov/offices/cpd/
communitydevelopment/programs/stateadmin/ or http://12.46.245.173/pls/portal30/
SYST EM.PROGRAM_T EXT _ RPT. SHOW?p_a rg_name s=prog_nbr&p_arg_value s=14.228.
[This section prepared by Claudia Copeland, Specialist in Resources and Environmental Policy,
Resources, Science and Industry Division. For additional CDBG program information, contact
Eugene Boyd, Government and Finance Division (707-8689).]






The Economic Development Administration (EDA), Department of Commerce, is authorized to
provide development assistance to areas experiencing substantial economic distress. Economic
development grants for community water and sewer projects are available through the Public
Works and Economic Development Program.
Under this federally administered program, public works grants are made to eligible applicants to
revitalize, expand, and upgrade their physical infrastructure. These investments are intended to
enable communities to attract new industry, encourage business expansion, diversify local
economies, and generate or retain long-term jobs in the private sector through improvements
needed for establishing or expanding industrial or commercial enterprises in distressed regions.
Economic development grants may be used for a wide range of purposes, but frequently have a
sewer or water supply element. Types of projects funded include industrial parks, expansion of
port and harbor facilities, redevelopment of brownfields, and water and wastewater facilities
primarily serving industry and commerce. According to GAO, from FY1991 through FY2000,
EDA provided $1.1 billion in grants to local communities for drinking water and wastewater 15
projects. Federal law requires that units of government retain ownership of EDA-funded
projects. Because EDA grants must directly encourage employment generation, these grants
generally are not available for rural residential sewer and water supply development.
The purpose of the program is to promote long-term economic development and assist in the
construction of public works and development facilities needed to initiate and support the
creation or retention of permanent jobs in the private sector in areas experiencing substantial
economic distress.
EDA provides grants directly to approved applicants. Grants generally may not exceed 50% of
project costs, although severely depressed areas may receive supplementary grants, bringing the
total federal share up to 80% of costs. Projects located within designated Economic Development
Districts may receive an additional 10% bonus grant for public works projects, and certain Indian
tribes may receive 100% grants. On average, EDA grants fund 50% of project costs. Credit may
be given toward the non-federal share for in-kind contributions, including contributions of space,
equipment, and services. No minimum or maximum project amount is specified in law.

15 GAO Water Infrastructure, pp. 13-14.





Public works grants may be made to states, cities, counties, an institution of higher education or a
consortium of such institutions, and other political subdivisions, Indian Tribes, the Federated
States of Micronesia, the Marshall Islands, Commonwealths and Territories of the United States,
and private or public not-for-profit organizations acting in cooperation with officials of a political
subdivision of a state or Indian Tribe.
Qualified projects must fill a pressing need of the area and: (1) be intended to improve the
opportunities for the successful establishment of businesses, (2) assist in the creation of additional
long-term employment, and (3) benefit long-term unemployed or underemployed persons and
low-income families. Projects must also fulfill a pressing need and be consistent with the
comprehensive economic development plan for the area, and have an adequate share of local
funds. In addition, eligible projects must be located in areas that meet at least one of the following
criteria: low per-capita income, unemployment above the national average, or an actual or
anticipated abrupt rise in unemployment.
For FY2008, Congress provided appropriations totaling $146.4 million for EDA’s Public Works 16
and Economic Development grant program (P.L. 110-161). For FY2009, the President’s budget
requests $100 million in total for EDA’s economic development assistance programs (which also
include planning, trade adjustment assistance, and research and evaluation), representing a $149.1
million overall decrease from FY2008. Under the request, the bulk of these monies would go to
EDA’s Economic Adjustment Assistance Program, while $7.2 million would be designated for
public works investments (a reduction of $139.2 million from FY2008). The request is intended
to achieve Administration goals of streamlining the federal delivery system for economic and
community development programs across the federal government. For several years, the
President’s budget has proposed initiatives to consolidate economic development assistance
across government, focusing on regional programs, rather than projects that are limited by
discrete programmatic limitations. Congress has not endorsed the proposed changes.
The statutory authority for the Public Works and Economic Development Program is the Public
Works and Economic Development Act of 1965, as amended, P.L. 89-136 (42 U.S.C. 3131, 3132,
3135, 3171), and Title II, P.L. 105-393 (42 U.S.C. 3211). Regulations are codified at 13 CFR
Chapter III, Part 302, 305, 316, and 317. For more program information, see http://12.46.245.173/
pls/portal30/
SYST EM.PROGRAM_T EXT _ RPT. SHOW?p_a rg_name s=prog_nbr&p_arg_value s=11.300.
[This section prepared by Claudia Copeland, Specialist in Resources and Environmental Policy,
Resources, Science and Industry Division. For additional EDA program information, contact
Eugene Boyd, Government and Finance Division (707-8689).]

16 CRS Report RS21370, "Agricultural Commodity," "Agricultural Product," "Farm Product" and Related Terms:
Definitions for Federal Policy, by Geoffrey S. Becker





Claudia Copeland, Coordinator Mary Tiemann
Specialist in Resources and Environmental Policy Specialist in Environmental Policy
ccopeland@crs.loc.gov, 7-7227 mtiemann@crs.loc.gov, 7-5937
Betsy A. Cody Nicole T. Carter
Specialist in Natural Resources Policy Specialist in Natural Resources Policy
bcody@crs.loc.gov, 7-7229 ncarter@crs.loc.gov, 7-0854


The authors acknowledge contributions to earlier versions of this report by Jeffrey A. Zinn, now retired
from CRS.