The Environmental Policy Innovation Center (EPIC), a policy research organization focused on accelerating environmental progress, has published a new report with a start warning about the long-term damage that congressional earmarks are inflicting on the State Revolving Fund (SRF) programs — the Clean Water SRF and the Drinking Water SRF — the primary federal mechanism for financing water infrastructure in the United States.
SRFs operate as revolving loan programs: the federal government distributes money to states, which in turn offer low-interest loans to communities for water infrastructure projects. As those loans are repaid, the money is re-lent to finance new projects, allowing a single federal dollar to support multiple rounds of investment over time. Earmarks — provisions inserted by individual members of Congress that direct funding to specific projects in their districts — break this cycle. Rather than being issued as loans that return to the system, earmarked funds are distributed as one-time grants that are spent once and gone. Congress maintained a moratorium on earmarks from 2011 to 2021, but reinstated them in 2022, and they have grown dramatically since, now accounting for more than half of annual SRF appropriations in some years.
EPIC's 20-year cash flow analysis projects a cumulative net loss of $19.4 billion in SRF financing capacity — enough to fund approximately 5,700 water infrastructure projects. Thirty-nine states are projected to lose more than they gain, with an average loss of $550 million each. Even states receiving significant earmark funding are not spared: Texas secured nearly $138 million in earmarks across three fiscal years, yet faces a projected $2.1 billion net loss across both SRF programs over two decades.
The damage extends beyond headline numbers. States have already lost an estimated $59 million annually in administrative capacity to manage their programs, while affordability subsidies for small, rural, and economically constrained communities — known as principal forgiveness — have been reduced by between $480 million and $1.9 billion across FFY23, FFY24, and FFY26.
Perhaps the most pressing near-term concern is an impending funding cliff. Since 2021, supplemental funding provided through the Infrastructure Investment and Jobs Act — a major federal infrastructure package — has significantly boosted SRF resources, temporarily masking the erosion caused by earmarks. When that supplemental funding expires at the end of federal fiscal year 2026, the underlying damage will become fully visible: states will face an average 75% drop in federal SRF funding compared to current levels — deepening to roughly 90% if earmarks continue.
EPIC outlines six recommendations to address the problem, five directed at Congress and one at states:
- Stop earmarking SRF appropriations altogether
- If earmarks continue, fund them through separate appropriations rather than carving them out of SRF budgets
- Where earmarks do occur, issue them as loans rather than grants, so repayments flow back into the system
- Deduct earmarks from the receiving state's own allotment, preventing states that receive no earmarks from effectively subsidising those that do
- Require regular impact assessments showing how earmarks affect long-term SRF capacity
- State agencies should better coordinate the announcement of SRF-funded projects with Congressional delegations — making SRF investments more visible could reduce the political pressure to use earmarks in the first place
