Drinking water infrastructure includes treatment and storage facilities and distribution systems (pipes and conduits), while wastewater infrastructure includes sewage collection systems and treatment works. According to EPA officials, there are some 2 million miles of pipe in drinking water systems alone. While estimates vary, the amount needed for future capital investments in water and wastewater infrastructure appears large. According to EPA’s most recent survey of drinking water systems, conducted in 1999, the needs are $150.9 billion over 20 years. A 1996 report on a similar EPA survey of wastewater systems identified needs of $128 billion over 20 years, and a subsequent analysis by EPA estimated an additional $56 billion to $87 billion to correct existing sanitary sewer overflow problems. The Water Infrastructure Network—a consortium of industry, municipal, and nonprofit associations—recently estimated needs of up to $1 trillion over the next 20 years for drinking water and wastewater systems combined, when both the capital investment needs and the cost of financing are considered. The actual future needs will likely be met by some combination of local, state, and federal funding sources. This report is intended to provide information on the amount of federal financial assistance available for drinking water and wastewater facilities in local communities. We use the term “made available” to encompass several forms of federal funding. Because of differences in the programs and in the ways that federal agencies account for their financial assistance, the information that best reflected the amounts made available for drinking water and wastewater facilities came from appropriations, obligations, or expenditures, depending on the agency and the specific program in question. For example, the data for EPA include appropriated amounts for the revolving loan fund capitalization grants to the states for each year; the states may not have loaned the funds (i.e., actually made them available) to local water systems until after the end of the fiscal year in which they were appropriated. In contrast, the data for HUD and Commerce consist of obligated amounts—that is, the amounts of funds allocated by the agencies to drinking water and wastewater infrastructure projects during the fiscal year. For these agencies, we report obligations rather than appropriated amounts because their appropriations are for broader purposes than drinking water and wastewater. In other cases, the data consist of expenditures—that is, funds actually expended during the fiscal year regardless of when they were appropriated or obligated. For the loan programs of the Small Business Administration and USDA’s Rural Utilities Service, the amounts reported are the face value of the loans or loan guarantees that were available to be made for the fiscal year. Because most of these loans are repaid, the ultimate cost to the federal government is significantly less than the face value. Further details on the costs of the loan programs—and the nature and amount of other financial assistance provided by each agency—are included in the following sections of this report. The federal government has been providing financial assistance for wastewater treatment facilities since the enactment of the Federal Water Pollution Control Act Amendments of 1956, which provided grants to local governments for constructing treatment facilities, but limited the federal contribution to 30 percent of eligible construction costs. The Federal Water Pollution Control Act Amendments of 1972, later designated the Clean Water Act, increased the federal share of costs to 75 percent. According to the Congressional Budget Office, federal outlays for wastewater treatment grants rose 10-fold during the 1970s, reaching a high $8.4 billion in 1980. Subsequent amendments in 1981 and 1987, respectively, reduced and then phased out the construction grant program, replacing it with grants to the states to capitalize state revolving funds. As a condition of receiving the federal funds, states are required to contribute to the revolving funds as well. Under the Clean Water State Revolving Fund program, states provide loans to communities to finance wastewater treatment works projects as well as other water quality projects. The 1987 law envisioned that loan repayments, by financing future loans, would allow the state revolving funds to operate without sustained federal support, and authorized appropriations only through 1994. However, the Congress has continued to appropriate funds each year since. For each of the most recent fiscal years—1999, 2000, and 2001—the Congress has appropriated about $1.3 billion for the revolving loan fund program. The first major federal legislation on drinking water, enacted in 1974, was the Safe Drinking Water Act, which required EPA to set standards or treatment techniques for contaminants that could adversely affect human health. The Congress amended the act in 1986 to establish deadlines intended to accelerate EPA’s efforts to set standards for more contaminants and added a number of other significant requirements to be met by EPA and public water systems. In part to help local water systems with the costs of meeting federal standards, the Safe Drinking Water Act Amendments of 1996 established a Drinking Water State Revolving Fund, similar to that under the Clean Water Act, which also requires state contributions. The law authorized appropriations of $9.6 billion through 2003; actual appropriations through fiscal year 2001 have totaled $4.4 billion. From fiscal years 1991 through 2000, nine federal agencies made about $44 billion available for drinking water and wastewater capital improvements. Four agencies—EPA, USDA, HUD, and Commerce— account for about 98 percent of the total. The remaining federal assistance, which totaled about $1.1 billion over the 10 years, was provided by the Appalachian Regional Commission, the Federal Emergency Management Agency, the Department of the Interior’s Bureau of Reclamation, the Small Business Administration, and the U.S. Army Corps of Engineers. Of the nine federal agencies that provided financial assistance for drinking water and wastewater infrastructure from fiscal years 1991 through 2000, four of them—EPA, USDA’s Rural Utilities Service, HUD, and Commerce’s Economic Development Administration—accounted for about 98 percent of the total. EPA and USDA alone accounted for over 85 percent of the assistance. Over 82 percent of the total assistance was provided in the form of grants; the remainder consisted of loans and loan guarantees. Although the programs differed in terms of eligibility criteria, allowable uses, and funding priorities, for the most part, the financial assistance was available to a broad range of entities. EPA’s financial assistance came primarily in the form of grants to the states to capitalize the Drinking Water and Clean Water State Revolving Funds, which are used to finance improvements at local drinking water and wastewater treatment facilities, respectively. The states lend money from the funds to local communities or facilities for improvements needed to comply with the Safe Drinking Water Act or Clean Water Act and to protect public health or water quality. According to EPA, money invested in the funds provides about four times the purchasing power over 20 years compared with what would occur if the money were distributed as grants because the revolving fund money gets recycled when loans are repaid and funds then become available for new loans. (See fig. 2 for a breakdown of EPA’s financial assistance for infrastructure projects during the period that we reviewed.) To obtain the capitalization grants, states are required to match 20 percent of the federal grant money. Under the Drinking Water State Revolving Fund, EPA regularly updates the allotments to the states based on their proportional share of the needs identified in EPA’s periodic surveys. Allotments from the Clean Water State Revolving Fund derive from the percentages specified in the 1987 amendments to the Clean Water Act. The percentages were based on several factors, including the states’ respective wastewater treatment needs, as reflected in EPA’s 1976 and 1980 needs surveys. Drinking water projects designated as priorities for financial assistance are those that (1) address the most serious risk to human health, (2) are necessary to ensure compliance with Safe Drinking Water Act requirements, and (3) will assist systems most in need on a per household basis, according to state “affordability” criteria. Under the Clean Water Act, states have greater flexibility. While the states must similarly establish a priority ranking system for their projects, they are not bound to fund these projects in priority order. Decisions on which projects receive what assistance are based on considerations of the severity of local water pollution problems and other factors. USDA’s Rural Utilities Service provides direct loans, loan guarantees, and grants to construct or improve drinking water, sanitary sewer, solid waste, and storm drainage facilities in rural communities, as part of the Rural Community Advancement Program. Among other things, the program is designed to provide basic human amenities, alleviate health hazards, and promote the orderly growth of rural areas by financing new and improved rural drinking water and waste disposal facilities. From fiscal year 1991 through fiscal year 2000, USDA provided about $12.5 billion under this program. (See fig. 3 for a breakdown of USDA’s financial assistance during the period that we reviewed.) In general, to be eligible for USDA assistance, a facility must serve a rural area with a population of 10,000 or less and must be unable to finance its needs from its own resources or obtain other credit at reasonable rates and terms. Priority for USDA assistance is given to public entities in areas with populations of less than 5,500 and requests that involve the consolidation of small facilities or utilities serving low-income communities. Grants and loans (or loan guarantees) are made directly to local entities, including municipalities, counties, or other political subdivisions of states, nonprofit corporations, such as cooperatives, or Indian tribes. To obtain grant assistance, the median household income of the applicant’s service area must fall below the statewide nonmetropolitan median household income. Grants are limited to amounts required by applicants to establish reasonable user rates and cannot exceed 75 percent of eligible project costs. Thus, local grantees must provide matching funds. For loans and loan guarantees, the allowable loan term is limited to 40 years, the useful life of the facilities, or the maximum allowable term under state law, whichever is shorter. HUD’s Community Development Block Grant program is intended to aid in the development of viable urban communities.