Americans rely on wastewater systems to protect public health and the environment. These systems are composed of a network of pipes, pumps, and treatment facilities that collect and treat wastewater from homes, businesses, and industries before it is discharged to surface waters. EPA sets standards for the quality of wastewater that can be discharged under the Clean Water Act. Under this law, the National Pollutant Discharge Elimination System (NPDES) program limits the types and amounts of pollutants that industrial and municipal wastewater treatment facilities may discharge into the nation’s surface waters. During the wastewater treatment process, solid materials, such as sand and grit; organic matter from sewage; and other pollutants are removed from wastewater before it is discharged to surface waters. This treatment helps to ensure that the quality of surface water is not degraded and that it can continue to be used for drinking water, fishing, and swimming. About 16,000 publicly owned wastewater treatment plants exist in the United States, and the American Society of Civil Engineers estimates that between 600,000 and 800,000 miles of sewer pipe help to deliver wastewater to these treatment plants. These systems are primarily publicly owned and provide wastewater service to more than 220 million Americans. Local communities have the primary responsibility to provide funding for wastewater infrastructure. According to U.S. Census Bureau (Census) estimates, in fiscal year 2006 local communities spent about $38 billion on wastewater operations and capital projects, while states spent about $1.3 billion. In addition, the federal government provides financial assistance for wastewater infrastructure, with EPA providing the largest amount through its CWSRF program. Under the CWSRF program, which was established in 1987, the federal government provides capitalization grants to states, which in turn must match at least 20 percent of the federal grants. The states then use the money to provide low-interest loans to fund a variety of water quality projects, and loan repayments are cycled back into the program to be loaned out for other projects. In 2007, states provided CWSRF loans totaling about $5.3 billion to communities and other recipients. Several studies have documented the deterioration in the condition of the U.S. wastewater infrastructure. According to EPA, the majority of the nation’s sewer pipe network was installed after World War II and is reaching the end of its useful life. Similarly, many of the wastewater treatment plants that were upgraded in the 1970s to comply with the Clean Water Act are aging and will need to be upgraded or replaced in the future. The American Society of Civil Engineers recently described the condition of the nation’s wastewater infrastructure as “poor,” and cited a lack of investment in critical components of this infrastructure as a contributing factor to this condition. The deteriorating condition of the nation’s wastewater infrastructure has direct impacts on human and aquatic health. Specifically, many older wastewater systems lack the capacity to treat increasingly large volumes of wastewater, particularly during periods of wet weather. In addition, cracks in sewer pipes allow rain or snowmelt to enter the wastewater system and overwhelm its capacity to adequately treat wastewater. Untreated wastewater can be released during the resulting sewer overflows associated with these wet weather events and introduce significant levels of pollution into local water bodies, which can pose risks to human health and result in beach closures and fish kills. EPA estimates that over 850 billion gallons of untreated wastewater are released annually into U.S. surface waters. Although local, state, and federal governments have invested billions in wastewater infrastructure over the years, studies by EPA and the Congressional Budget Office (CBO) suggest a potential gap exists between what is currently being spent on wastewater infrastructure and estimated future infrastructure needs. EPA’s 2002 analysis estimated a potential gap for wastewater infrastructure capital improvements, along with operations and maintenance, of about $150 billion to $400 billion over the period from 2000 to 2019. CBO estimated a gap of about $60 billion to $220 billion in capital funding alone over this same period. Without additional investment in the nation’s wastewater infrastructure, EPA and other groups have asserted that the environmental and public health gains made under the Clean Water Act during the last three decades could be at risk. However, these studies by EPA and CBO note that this gap is not inevitable, and policy makers and wastewater groups have proposed a variety of approaches to help bridge this gap, including the following: Implement EPA’s Sustainable Water Infrastructure Initiative. This initiative, which is called the Four Pillars, encourages wastewater and drinking water utilities to improve the management of their systems, to systematically plan ahead for infrastructure needs, and to charge the full cost of the service they provide to customers. Charging the full cost would require utilities to charge prices that reflect the costs of building, maintaining, and operating a wastewater system over the long term. Increase funding for the CWSRF. Federal CWSRF capitalization grants to the states had been declining in recent years, despite growing wastewater infrastructure needs. In both fiscal years 2008 and 2009, $689 million was appropriated for the CWSRF program, which was below the average from 2000 to 2007 of about $1.2 billion. Some proponents of the CWSRF have recommended increasing federal appropriations for this program and the program has recently received additional federal funding. The American Recovery and Reinvestment Act of 2009 appropriated $4 billion in funding for the CWSRF program, and the President’s budget request for fiscal year 2010 asks for an increase in funding for the program. In addition, some have suggested increasing the pool of available CWSRF funds by encouraging more states to use their federal capitalization grants as collateral in the public bond market. This practice, known as “leveraging” allows states to borrow additional money to lend out through the CWSRF. Currently, about 27 states leverage their capitalization grants. Establish a national infrastructure bank. Three bills were introduced in the 110th Congress that proposed establishing a national infrastructure bank or other entity that would provide financing for a variety of infrastructure projects, including wastewater infrastructure projects. This entity would independently evaluate projects and determine the m appropriate way—through loans, grants, or other financial tools—to finance them. Encourage public-private partnerships. Historically, wastewater infrastructure has commonly been owned and operated by public entities, such as local municipalities. However, other approaches exist where private entities can provide services such as designing, constructing, or operating infrastructure projects, including wastewater systems. In recent years, these partnerships have become more common in the transportation sector. Lift private activity bond restrictions on wastewater projects. Private activity bonds are tax-exempt bonds issued by state or local governments to provide special financing benefits for qualified projects. These bonds are used to provide financing to private businesses for certain facilities, such as airports, electric and gas distribution systems, mass transit systems, solid waste disposal sites, and wastewater plants. Because private activity bonds are exempt from federal tax, states and municipalities can borrow money at lower interest rates. However, states are limited in the amount of private activity bonds that they can issue annually. While certain projects such as airports and solid waste disposal facilities are exempt from this cap, wastewater infrastructure facilities are subject to this cap. Removing this restriction could increase the level of low-interest financing available for wastewater projects. Create a federal clean water trust fund. Establishing a clean water trust fund could help to provide a dedicated source of federal funding for wastewater infrastructure. Federal trust funds, such as the Highway and the Airport and Airways Trust Funds, are used to account for funds that are dedicated for spending on a specific purpose. Unlike trustees of private trust funds, a federal agency may exercise a greater degree of control over its trust fund. As authorized by law, the federal government may control the fund as well as its earnings and raise or lower future trust fund collections and payments or change the purposes for which collections are used. Three main issues would need to be addressed in designing and establishing a clean water trust fund, according to stakeholders. These issues include: how a trust fund should be administered and used; what type of financial assistance should be provided for projects; and what activities should be eligible for funding. Administration and use of a trust fund. Stakeholders told us that designing a clean water trust fund would involve deciding what agency or entity would administer the fund and whether the trust fund would be used to fund the CWSRF or a separate program. A majority of stakeholders (15 of 20) responding to our questionnaire expressed the view that a trust fund should be administered through an EPA-state partnership like the current CWSRF program. However, as figure 1 shows, stakeholders differed in their views on how a trust fund should be used. About a third of stakeholders (7 of the 20) expressed the view that a trust fund should be used only to fund the existing CWSRF. Stakeholders cited several reasons for this view, including their interest in building on the success of the CWSRF program, avoiding the redundant administrative costs associated with establishing a new wastewater infrastructure program, and providing a dedicated funding source to increase available funding for the CWSRF program. Three of 20 stakeholders that responded to our questionnaire said that a trust fund should not be used to support the existing CWSRF, but rather to fund a separate and distinct wastewater infrastructure program. One of these stakeholders told us that the CWSRF does not prioritize funding to wastewater systems with the greatest needs. Stakeholders we interviewed said that CWSRF loan amounts can sometimes be inadequate to meet the needs of large urban areas that have large and costly infrastructure projects and that smaller communities may lack the administrative capacity to go through the process of applying for a CWSRF loan. In addition, our past work has found that states vary in the way they allocate CWSRF funds for small or economically disadvantaged communities and that some states have placed limits on the amount of CWSRF funding any one borrower can receive in a single year.