Easing SRF Anxiety: Understanding Changes To Funding And How To Secure It

By Christian Bonawandt

State Revolving Funds (SRFs) have long been an effective funding mechanism for water, wastewater, stormwater, and natural infrastructure projects. Unfortunately, recent changes to SRF allotments seem to indicate that less money may be available in the future. This has led many would-be borrowers to worry that potential projects may have to be delayed or sidelined. In a recent episode of Water Online Live, host Kevin Westerling was joined by Joseph Kane, Fellow at Brookings Metro, and Ashley Lucht, Director of Community Finance at Quantified Ventures, who helped address these concerns and offered advice for how to secure project funding.

Are The SRFs Going Away?

The current proposed federal budget for fiscal year 2026 includes major cuts to SRFs, with an estimated 89% reduction in federal allotments. Lucht noted that set-asides, a crucial component of SRFs, are among the distributions that will be most impacted. Calculated as a percentage of the federal capitalization grant, set-asides are used to support state programs, including staffing and technical assistance providers who aid communities in accessing SRFs. Significant cuts in federal grants mean a reduction or the elimination of these set-asides.

Additional subsidies will also be impacted, Lucht added. These offerings include grants that don’t require repayment or principal forgiveness and are intended to make SRF loans more affordable for disadvantaged communities. Like set-asides, additional subsidies are a percentage of the federal capitalization grant, which again means far fewer will be available under the proposed budget.

Impact On Loan Availability

While SRFs are designed to revolve, the initial federal capitalization grants provide the foundational money that states match and leverage. As such, the planned cuts will result in far less new money entering into the system annually from the federal government.

As a result, Lucht explained, states may face challenges in starting or continuing projects, or have to operate on a reduced budget, especially if they have historically relied on set-asides for staffing and have not been charged administrative fees on revolved loans. This could impact some utilities’ ability to efficiently process and administer loans.

“Even if these resources are available, it can be very difficult for utilities to access and have the time and flexibility to go through the application process,” added Kane. “And a big reason for that is the staffing issues. This is a particular problem for smaller utilities.”

He added that these challenges are compounded by a lack of clarity in state planning documents and the effort required to navigate the process.

Should Utilities Panic?

While the news of the proposed budget is deeply disappointing and will certainly have a negative impact on the industry, there is no reason to panic. SRFs were designed as revolving loan programs, which means they are largely self-sustainable even without new federal money. “The amount of money that comes into these programs on an annual basis from loan repayments far outweighs or outstrips the amount of money that's coming in from the federal government and from the state match,” Lucht said.

This core mechanism means that, if the system operates as intended, the money should continue to flow, she added. Both the Clean Water SRF (CWSRF), created in the late 1980s as an amendment to the federal Water Pollution Control Act, and the Drinking Water SRF (DWSRF), created by 1994 amendments to the Safe Drinking Water Act, have been lending money out and bringing it back in for decades, even as federal allotments have varied.

In addition, Kane insisted the SRFs are not a “silver bullet.” Although they are a significant vehicle for funding, especially with the recent, combined $43 billion infusion from the Infrastructure Investment and Jobs Act and Inflation Reduction Act, SRFs are far from the only tool at the disposal of utilities and states. He noted that SRFs represent only a small portion of the estimated $744 billion needed for water infrastructure funding across the country over the next 20 years. Utilities have always required monetary resources beyond the SRFs to finance projects, and they will have to rely on those alternatives more so moving forward. This includes WIFIA (Water Infrastructure Finance and Innovation Act), the municipal bond market, state-specific grant programs (e.g., for green infrastructure), and philanthropic resources.

What Else Can Utilities Do?

Regardless of the federal cuts, Lucht advised that utilities should start by checking whether their state offers pre-development, pre-construction, or planning loan money. This funding could help in hiring engineers, hydrogeologists, or architects to prepare a system for an SRF application. She also recommended patience, as SRFs are not “fast money.” She explained, “You’re talking 24 months from when you raised your hand for wanting money to when you could potentially put a shovel in the ground.”

To overcome capacity constraints in accessing funding, Kane suggested utilities also engage in larger community collaborations and sector partnerships. This includes working with educational institutions, non-profits, and labor groups to address broader workforce issues. “There's very much a shared responsibility here — particularly, I would stress, at a state level,” he said.