The Trump administration's 2027 Environmental Protection Agency budget would slash by 90% state revolving loan funds, which make up a significant corner of the municipal bond market, in order to push responsibility for water infrastructure funding down to the states.
EPA chief Lee Zeldin defended the cuts at a recent Congressional hearing, saying lawmakers for years have drained the program anyway by diverting it for earmarks.
"It's not a revolving fund anymore, and that's the issue," Zeldin said at an April 28 House Energy and Commerce Subcommittee on Environment hearing on the fiscal 2027 EPA budget.
"There's a reason why the revolving fund is not revolving [and that] is because there are members who take money out of the revolving fund, and they give it as earmarks to members of their district," he said. "So, a great conversation that could be had right now is how do we ensure that the revolving fund is revolving, that you can fulfill the original Congressional intent?"
State revolving funds for drinking and wastewater act as the primary federal funding for states, which then often leverage the money by issuing municipal bonds, most of which feature triple-A ratings, to make low-interest loans to cities, counties, water districts and other governmental entities to finance infrastructure projects.
The EPA estimates that drinking water, wastewater and stormwater systems need at least
The proposed EPA budget totals $4.2 billion, a 52%, or $4.6 billion, cut from the enacted 2026 level. The near-elimination of the revolving funds comes because "states should be responsible for funding their own water infrastructure projects," according to the
The Drinking Water State Revolving Loan Fund would be cut to $150 million from $1.12 billion, according to the Association of Metropolitan Water Agencies. The Clean Water State Revolving Fund would total $155 million.
The administration called for the same deep cuts in its fiscal 2026 budget — a proposal that Congress rejected when it appropriated $8.8 billion for the EPA.
At the House EPA hearing last month, Democratic lawmakers criticized the proposed cuts.
"Ninety-six percent of water utility expenses are paid for by nonfederal sources, primarily customers," said Ranking Member Rep. Paul Tonko, D-N.Y. "If the federal government further reduces its financial commitment, people inevitably will see their water bills go up, especially as systems work to reduce risks from lead, PFAS and other public health issues," he said. "It is an understatement to say that I am concerned by the direction of the EPA."
Rep. Jake Auchincloss, D-Mass., asked Zeldin how local governments will cover the cost of getting rid of pollutants in their water systems.
"Well, first off, as I referenced earlier, what we don't do in our proposed budget is factor in how much you are going to want to raid the SRF for earmarks," Zeldin said. "That's a decision for you to decide to make. Now, I'm not weighing in on the merits ... but at the same time, the president's FY 2027 budget proposal is not going to propose your earmarks for you."
"You're in charge of the EPA budget, you're not in charge of earmarks and hope is not a strategy," Auchincloss said.
"I'm not hoping that members of Congress are going to raid it, I know that members of Congress are going to raid it, and they've been doing it for a long time," Zeldin said.
Clean water advocates like AMWA have been pushing Congress for weeks to reject the Trump proposal, said Dan Hartnett, AMWA's chief policy officer. In its most recent
In fiscal 2026, 64% of drinking water SRF funds were diverted to earmarks and 54% of clean water SRF funds were diverted, the groups said.
"A revolving fund relies on the funding staying within the system so it can be continually lent out and repaid but [the earmark program] diverts money from the annual base funding of the SRF programs," the letter said. "Strongly funding base SRF funding will reduce the negative effects of [earmarks] on the SRFs, ensuring that states continue to have the ability to fund priority projects while returning revolving dollars to the program."
The proposed EPA spending plan would also cut the Water Infrastructure Finance and Innovation Act program by providing $8 million to administer the program, but no additional funding to provide project financing, according to AMWA. The WIFIA program totaled $72 million in fiscal 2026.
