The United States faces a clean water capital gap of nearly $780 billion by 2026, according to an Engineering News-Record analysis of U.S. Environmental Protection Agency data, an amount that could dwarf all federal and state borrowing commitments combined.
“That number is very much in the ballpark of what utilities are seeing,” said Nathan Gardner-Andrews, chief advocacy and policy officer for the National Association of Clean Water Agencies (NACWA). “It’s all basically on the backs of local governments and taxpayers now that the money from the infrastructure act is drying up.”
ENR analysis of EPA data shows that even five years of SRF funding would meet less than 6 percent of the nation’s projected 2026 clean water need.
EPA 2022 Clean Watershed Needs Survey; Clean Water SRF 2024 Annual Report. ENR chart.
The forecast, based on growth trends from EPA’s 2022 Clean Water Basin Needs Survey and its 2024 State Clean Water Revolving Fund (SRF) annual report, shows that even with record appropriations, federal funding will cover less than 2 percent of documented need each year.
Gardner-Andrews said the federal government is “almost nowhere in a meaningful way” as funds from the Jobs and Infrastructure Investment Act of 2021 are cut.
The EPA has begun approving larger Water Infrastructure Finance and Innovation Act (WIFIA) loans (141 agreements worth $22 billion in credit assistance funding $48 billion in projects through early 2025), but system expansion is outpaced by inflation, aging networks and climate-driven demand.
Gardner-Andrews credited WIFIA with “working very well,” but noted recent administrative delays. “We’ve only seen one loan close since January,” he said. “We have been told that these loans should flow again once the contract reviews are completed.”
Conversely, he said the SRF program “has its pros and cons.” While it gives states “a better finger on the pulse of local needs,” he added, “the extra layer of bureaucracy can slow down projects.”
A recent survey by the American Water Works Association highlights the same local constraints. “Capital improvement funding rises to top priority … only 41% of utilities feel very or fully able to cover costs through rates and fees,” the group reported in its State of the Water Industry 2025 summary.
Unless state and local agencies move faster to prepare eligible projects, most of the backlog will remain unfunded when the next EPA survey cycle opens in 2026.
“The issue is not willingness to lend,” Steffanie Crossland, manager of the EPA’s CWSRF National Performance Branch, said in the agency’s 2024 Annual Report. “It is helping utilities develop projects that meet the eligibility requirements for innovative and resilient infrastructure.”
A market that is growing faster than its funding
EPA’s 2022 Clean Watershed Needs Survey, the most recent national data set, released in April 2024, documents $630.1 billion in needed investment in wastewater, stormwater, decentralized, and nonpoint source systems.
ENR analyzed this data, along with SRF lending and disbursement records, applying the 2012-2022 growth rate to current borrowing trends to project capital needs through 2026. This forecast suggests total demand could increase from $760 billion to $785 billion over two years.
Over the same period, annual SRF lending is projected to fall from $9.4 billion in 2024 to just around $10.6 billion in 2026, covering about 1.4% of total need. Even if WIFIA continues to add about $4 billion a year in new assistance, the deficit will expand faster than it can be financed.
“This is not a funding issue, the money is available, but a project packaging issue,” said Ken Pantuck, who oversees the EPA Region 3 revolving funds program. Speaking during a 2024 EPA Regional Webinar on Water Infrastructure Financing, he said communities that design for automated water metering or reuse early on “can access completely different funding streams.”
A June 2025 audit by the US Government Accountability Office reinforced this point, concluding that the 1987 formula used to distribute SRF funds no longer reflects the areas with the greatest need. Thirty-one states would receive increases of up to 260 percent under a revised model, according to the report.
Smarter projects, uneven absorption
EPA data shows how project types are changing. Between 2013 and 2023, 179 projects funded by the Clean Water SRF incorporated automation, real-time control or digital twin systems, collectively funded for about $12.5 billion. About 63% added new supervisory control and data acquisition (SCADA) networks, while others deployed automated measurement and analytics.
In Cincinnati, the Metropolitan Sewer District’s SRF-supported real-time monitoring network, completed in 2016, reduced combined sewer overflows by 61 percent, preventing an estimated 557 million gallons of untreated discharge each year.
“These are not glamorous projects,” said Maureen Hodgins, director of the Water Research Foundation’s research program, speaking at WEFTEC’s Smart Water Systems Research Update. “But they are the connective tissue of a modern system: how you get data, how you run the pumps and how you avoid flood events.”
More than half of innovation loans over the past decade went to systems serving fewer than 25,000 people, and nearly 30% benefited communities classified as disadvantaged under the EPA’s climate justice criteria.
However, many smaller utilities still struggle to prepare full engineering and environmental documentation before loan windows close.
Gardner-Andrews said the problem goes beyond paperwork. “For many utilities, especially smaller or medium-sized utilities, it’s not just about the money,” he said. “It’s about having the staff and the technical expertise to navigate all the requirements.”
The EPA’s Decentralized Wastewater Treatment Systems Financing Guide cites about $500 million in SRF loans for bundled or pooled systems, evidence that decentralized treatment is emerging as a viable alternative where municipal expansion is unfeasible.
The race towards 2026
As the 2026 survey cycle approaches, the urgency is no longer abstract. States must obligate the 2025 SRF tax allocations ($8.9 billion in clean water and drinking water programs) within two years or risk federal clawback. Each missed cycle delays compliance updates and increases future bids.
Half of the nation’s projected 2026 clean water investment need is concentrated in 10 states, led by California and New York, according to ENR’s analysis of EPA data.
EPA 2022 Clean Watershed Needs Survey; Clean Water SRF Annual Report 2024. ENR chart.
The infrastructure act’s technical assistance funding helped smaller utilities compete, Gardner-Andrews said, but that support will expire. “The real uncertainty now is what happens after fiscal year 2026,” he said. “From then on, not only will the infrastructure act funds disappear, but the entire SRF authorization will expire unless Congress acts.”
NACWA’s top priority, he added, is to achieve reauthorization at current funding levels. “If we go back to pre-law infrastructure levels of about $1 billion to $1.5 billion a year, we’re going in reverse,” Gardner-Andrews said. “Some state programs could go into a death spiral because there won’t be enough to go around.”
Six states (New York, California, Florida, Virginia, Louisiana, and Georgia) account for 42% of the total national need, while West Virginia and New Mexico rank highest per capita.
With most major consent decrees still active, failure to modernize means higher penalties and tighter regulatory scrutiny.
“The trail of data, from CWNS to CWSRF to WIFIA, shows a funding system that is evolving faster than many utilities realize,” Crossland said in the same report. “If design teams can combine innovation with eligibility, they can capture the opportunity before it moves elsewhere.”
Gardner-Andrews said rising construction costs put more strain on budgets. “We’re hearing from members that project bids are coming in 20 to 50 percent higher than expected; fees and material shortages are driving up costs for everything from pumps to pipe fittings.”
ENR’s forecast suggests that the “smart systems” share of SRF-funded work could double from 13% in 2023 to about 25% in 2026, representing a $5-6 million annual submarket for automation-ready design and modular construction.
But without faster permitting and project packaging, much of that work could miss the next two fiscal windows, pushing the nation’s documented clean water gap toward $800 billion before the next survey closes.
“The window for congressional action is closing quickly,” Gardner-Andrews said. “If reauthorization doesn’t happen before next September, we risk losing momentum just as the next poll cycle begins.”
