This story was originally published in Public Works.

With water infrastructure costs expected to exceed $1 trillion, a new report shows that only a few states are adequately leveraging federal dollars to shrink the infrastructure funding gap. The new report by the Natural Resources Defense Council (NRDC), “Going Back to the Well” highlights cutting-edge financing strategies for states to better fund the water infrastructure serving millions of Americans.

“Despite the looming funding gap, states aren’t thinking about how to meet that future need and are essentially funding water infrastructure the way you or I would manage our checking account,” said Rob Moore, director of the NRDC’s Water & Climate Team. “Each year, they just add up how much the Environmental Protection Agency (EPA) gives them, plus a small state match, and that’s the amount of assistance they plan provide to help communities fix their drinking water and sewer systems. That’s not going to cut it.”

“Using more creative financial tools, like issuing bonds and using their state revolving funds (SRFs) to issue loan guarantees could greatly expand infrastructure funding. Those increased funds could determine which states are prepared to weather the coming storms,” said Moore.

States have accepted tens of billions of dollars in federal assistance to set up what are known as Clean Water and Drinking Water SRFs. But most states are doing very little to grow the amount of financial assistance they can provide. The NRDC’s new report shows how states could maximize their SRFs and provide more financial assistance to support communities’ water infrastructure needs.

EPA estimates that $745 billion is needed just to meet and maintain existing public health and environmental standards. Another $448 billion to $944 billion will be required to adapt water systems to deal with flooding, sea level rise, droughts, and other impacts of climate change. For example, 2012’s Hurricane Sandy caused more than $5 billion in damage to wastewater infrastructure in New York and New Jersey.

In addition to taking federal dollars, states are allowed to issue bonds to increase their SRFs’ financial capacity, as well as issue loan guarantees to provide credit assistance for water infrastructure projects, making it easier for communities to secure private financing.

However, the vast majority of states do little to expand the financial capacity of their SRF programs. Only New York, Massachusetts, Ohio, and Indiana have regularly leveraged their SRFs through the sale of bonds and steadily increased the capacity of their programs. 28 states have not issued any bonds to expand their SRF financing. Most states have done relatively little. Through 2015, even states like Wisconsin and Pennsylvania, which have relatively large SRF programs, had done little to grow their SRFs using their own resources, instead relying on the incremental growth afforded by annual federal assistance.

The NRDC has identified four actions federal and state governments can take to help close the funding gap to improve the nation’s water infrastructure:

  1. Congress should triple appropriations for the Clean Water and Drinking Water SRFs from the current level of $2 billion to $6 billion annually.
  2. States should make loan guarantees available to more easily and cheaply finance drinking water, wastewater and stormwater projects.
  3. States should leverage additional funding for their SRF programs by issuing bonds.
  4. Congress should allow states that increase the funding of their SRFs to provide additional subsidized assistance in order to meet the needs of low-income communities and catalyze investments in projects that are currently underrepresented in SRF portfolios.

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