Drinking water and wastewater treatment systems treat and safeguard the nation's water resources. Drinking water utilities supply safe potable water to customers in both the proper quantity and quality. Wastewater utilities operate facilities that clean the flow of used water from a community. The federal government has had significant involvement with these systems for many years, both through setting standards to protect public health and the environment and through funding to assist them in meeting standards. While funding of water infrastructure programs has been addressed annually through the congressional appropriations process, authorizing legislation affecting policy and program issues was last enacted in 1996 (for drinking water infrastructure) and 1987 (for wastewater infrastructure). More recently, water infrastructure issues have been receiving increased attention by policymakers and legislators. The renewed attention is due to a combination of several factors. Meeting Regulatory Requirements. Financial impacts of meeting regulatory requirements—some new, some long-standing—are a continuing issue for many communities. In the case of drinking water systems, the most pressing rules are the result of standard-setting by the Environmental Protection Agency (EPA) to implement the Safe Drinking Water Act Amendments of 1996 and to update older standards. These rules impose new or stricter drinking water limits on numerous contaminants, including arsenic, radioactive contaminants, microbials, and disinfection byproducts, among others. Additional rules for previously unregulated contaminants, such as perchlorate and radon, are pending. For wastewater systems, principal regulatory requirements mandated by the Clean Water Act have not changed since 1972, and the majority of communities have achieved or are in the process of achieving compliance. The newer issue for wastewater systems is the cost of controls and practices to manage what are termed wet weather pollution problems, such as urban stormwater runoff and overflows from municipal sewers. These requirements are old in the sense that most wastewater utilities have not addressed long-standing wet weather problems, but they also are new because in many communities, specific measures and how to pay for them are only now being identified. Financing Repair or Replacement. A more recent focus by stakeholders is on the need to repair and replace infrastructure that has been in place for decades and will soon fail, many believe. According to the American Water Works Association (AWWA), "We stand at the dawn of the replacement era ... replacement needs are large and on the way. There will be a growing conflict between the need to replace worn-out infrastructure and the need to invest in compliance with new regulatory standards." Over the long term, these stakeholders say, a higher level of investment than is occurring today is required. For both wastewater and drinking water systems, a key concern is that EPA's funding programs, the largest sources of federal assistance, do not, in the main, support repair and replacement; their focus is upgrades and new construction needed to achieve wastewater and drinking water standards. Security. Beyond the traditional infrastructure needs related to regulatory compliance and system repair and expansion, the terrorist attacks of September 11, 2001, generated new investment needs for drinking water and wastewater systems. The national costs of addressing water and wastewater security needs have not been well quantified. In 2002, the AWWA estimated that municipal water systems would have to spend more than $1.6 billion just to ensure control of access to critical water system assets. This estimate did not include the capital costs of upgrades to address vulnerabilities that water system managers have identified in vulnerability assessments, or the costs facing wastewater systems and smaller drinking water systems. EPA's 2009 report on public water system infrastructure needs included $422.0 million for projects to address security needs. EPA concluded that security-related needs were underestimated, as many water systems incorporate these costs into the costs of broader construction projects rather than report them separately. Although EPA has identified a range of security measures that are eligible for funding through traditional infrastructure assistance programs, competition already is severe for these funds, which are primarily used for projects needed to meet regulatory requirements. Problems That Do Not Fit Existing Solutions. Some interest groups argue that traditional federal programs and financing approaches do not fit well with some current types of needs. Points at issue vary, but the common thread is that certain needs are not being well met by programmatic solutions that now exist. In some cases (metropolitan drinking water systems, for example), there is a perception that EPA's programs are more geared to aiding small systems than large ones. In other cases, the concern is how to fund projects with mixed elements (e.g., developing new community water supplies and treating that water, especially in rural areas) that do not meet traditional program definitions, or are seemingly spread across jurisdictions of multiple federal agencies. Still others believe that expanding program eligibility to include water conservation or "green infrastructure" projects could reduce overall needs for capital investment. Another concern arises in small, dispersed communities where on-site treatment systems may be preferable to centralized facilities; however, on-site treatment generally is not eligible for federal aid. At issue for Congress is whether to modify existing programs to address such problems, or to address them in legislation individually and case-by-case. Other Legislative Models and Activity. Legislative approaches for other types of infrastructure—especially surface transportation and aviation—have suggested possible new models for water infrastructure financing. The federal highway and mass transit and aviation programs generally are supported by trust funds derived from fees and taxes paid by users of those systems and facilities. Some proponents of water infrastructure spending, concerned about a gap between needs and available funds, believe that a federal water trust fund could supplement existing federal resources. However, unlike surface transportation and aviation, there is no comparable dedicated trust fund for water infrastructure, or easily identifiable revenue source for such a fund. Other possible new sources of assistance also have recently been discussed, including a national infrastructure bank or a program of federal assistance similar to the Transportation Infrastructure Finance and Innovation Act (TIFIA) program. Who Should Pay. Every level of government is facing tremendous budgetary pressures to reduce spending while still funding priorities. Historically, federal programs provided much of the support for local water infrastructure projects, but that role has changed, particularly as a result of shifting of federal programs from grants to loans, but also due to declining federal resources. At issue is what role can the federal government play in local project financing, and what should the federal role be in setting and supporting local priorities. This report identifies a number of issues receiving attention in connection with water infrastructure. It begins with a brief review of federal involvement, describes the debate about funding needs, and then examines key issues, including what is the nature of the problems to be solved; who will pay, and what is the federal role; and questions about mechanisms for delivering federal support, including state-by-state allotment. Recent congressional and Administration activity on these issues also is briefly reviewed. The federal government has a lengthy history of involvement with wastewater and drinking water systems. The history of financial assistance is longer for wastewater than for drinking water, however. EPA has the most significant role, both in terms of regulation and funding. The Water Pollution Control Act of 1948 (P.L. 80-845) was the first comprehensive statement of federal interest in clean water programs. While it contained no federally required goals, limits, or even guidelines, it started the trickle of federal aid to municipal wastewater treatment authorities that grew in subsequent years. It established a grant program to assist localities with planning and design work, and authorized loans for treatment plant construction, capped at $250,000 or one-third of construction costs, whichever was less. With each successive statute in the 1950s and 1960s, federal assistance to municipal treatment agencies increased. A construction grant program replaced the loan program; the amount of authorized funding went up; the percentage of total costs covered by federal funds was raised; and the types of project costs deemed grant-eligible were expanded. In the Federal Water Pollution Control Act Amendments of 1972 (P.L. 92-500, popularly known as the Clean Water Act, 33 U.S.C. 1251 et seq . ), Congress totally revised the existing federal clean water law, including with regard to wastewater systems. At the time, there was widespread recognition of water quality problems nationwide and frustration over the slow pace of industrial and municipal cleanup efforts under existing programs. In the 1972 law, Congress strengthened the federal role in clean water and established national standards for treatment, mandating that all publicly owned treatment works achieve a minimum of secondary treatment (defined in EPA regulations as removing 85% of incoming wastes), or more stringent treatment where necessary to meet local water quality standards, and set a July 1, 1977, deadline for meeting secondary treatment. A number of new conditions were attached to projects constructed with grants. In exchange, federal funds increased dramatically. The federal share was raised from 55% to 75%, and annual authorizations were $5 billion in FY1973, $6 billion in FY1974, and $7 billion in FY1975. In 1977, the grant program was reauthorized through FY1982; annual authorizations were $5 billion for each of the last four years covered by that act ( P.L. 95-217 ). Some restrictions were imposed, including requirements that states set aside a portion of funds for innovative and alternative technology projects and for projects in rural areas. In addition, the types of eligible projects were limited in order to focus use of federal funds on projects with environmental benefits in preference to projects aiding community growth. When the program was again reauthorized in 1981 ( P.L. 97-117 ), Congress and the Administration agreed to significant restrictions, out of concern that the program's wide scope was not properly focused on key goals. Budgetary pressures and a desire to reduce federal spending also were concerns. Annual authorizations under this act were $2.4 billion, the federal share was reduced to 55%, and project eligibilities were limited further. The 1972 law required a "needs survey" every two years to adjust the statutory allotment formula by which grant funds were divided among the states.