The U.S. Federal Funding Cliff: Sizing the Decline and Mapping the Exposures for States and Utilities

Federal infrastructure funding for water and wastewater in the U.S. is entering a crucial transition period. Two major programs behind the 2021 to 2026 investment surge—the Infrastructure Investment and Jobs Act’s State Revolving Fund supplemental appropriations and the American Rescue Plan Act’s State and Local Fiscal Recovery Funds—are set to expire concurrently. As a result, the combined annual contribution of major federal programs will decrease by approximately 63%—dropping from US$23.4 billion in 2026 to US$8.6 billion in 2027.

Beyond 2027, the State Revolving Fund, and to a lesser extent, the Water Infrastructure Finance and Innovation Act, will remain the primary sources of federal funding for water infrastructure. However, both programs face existential threats. Congressional earmarks are eroding the long-term health of the State Revolving Fund by diverting funds intended for replenishment through loan repayments. Additionally, the volume of Water Infrastructure Finance and Innovation Act loans has decreased every year since it peaked in 2021. These declines are exacerbated by increasingly complex application requirements and the availability of alternative funding sources for projects.

Looking forward, the impact of this funding cliff will not be uniform across states. Different state programs rely on the American Rescue Plan Act, State Revolving Fund, and the Water Infrastructure Finance and Innovation Act to varying degrees. States that rely heavily on a single program are likely to face a sharper adjustment compared to those with more diversified funding sources.

This Data Insight utilizes Bluefield Research’s federal funding project databases to quantify the scale, structure, and geographic distribution of federal water infrastructure investment since 2021. It highlights where the cliff will hit hardest, how much the Infrastructure Investment and Jobs Act funding remains in the pipeline, which states carry the greatest exposure, and what events in 2026 will shape the future trajectory of federal support beyond this cliff.