Following Democrats’ midterm election gains in Congress and key governorships, financial markets initially responded positively, with the Dow Jones Industrial Average rising 3% and the S&P 500 gaining 1.6%. That momentum proved short-lived, however, as the S&P 500 reversed course and ended the week down 2.7%. The market’s initial reaction pointed to investor expectations that greater checks on presidential power, reduced policy uncertainty, and increased scrutiny of the artificial intelligence (AI) boom could reshape the economic landscape.
But what does this mean for the U.S. water sector? Probably less than some might expect, at least over the next two years.
Water infrastructure investment moves slowly. Federal funding can take years to reach projects, while regulatory changes face lengthy legal and administrative processes. President Trump still holds significant executive authority, and recent court decisions have constrained the reach of federal agencies, including the U.S. Environmental Protection Agency (EPA).
The bigger opportunity may not be a dramatic shift in water policy, but instead a more predictable economic environment for water utilities, investors, and suppliers.
The Cost of Uncertainty Is Already Showing Up
The water industry’s investment needs have not diminished. Affording them, however, is becoming more difficult.
Over the past two years, tariffs, trade disputes, inflation, and geopolitical conflicts have pushed up equipment, energy, transportation, and construction costs. For utilities already balancing infrastructure needs against ratepayer affordability, these pressures are beginning to influence procurement decisions and project timelines.
Xylem’s recent earnings are a telling example. Third-quarter 2026 revenues declined approximately 3% to US$2.2 billion, despite 10% organic order growth. Management cited cautious utility spending and delayed equipment purchases, particularly in smart metering. The company’s backlog reached US$5.5 billion, but some large deployments have shifted into late 2027 and 2028.
But Xylem is not alone. The squeeze extends across the supply chain, according to Bluefield Research’s quarterly analysis of 50 leading publicly traded water companies. Kemira expects approximately US$116 million in additional raw material and logistics costs this year, with only half recoverable through pricing. Ecolab has introduced energy surcharges, while other manufacturers are either absorbing costs or adjusting their supply chains.
The impact of uncertainty has become visible in company performance. Average water-related revenue growth among the 50 companies tracked by Bluefield slowed from 6.0% in the first quarter of 2026 to 4.2% in the second, with treatment technology and flow-control manufacturers particularly exposed to inflation and delayed projects.
Greater congressional scrutiny—of any kind—could provide some guardrails against executive orders. It won’t necessarily eliminate tariffs or lower energy prices, but it could make the operating environment more predictable.
For an industry built around multiyear capital investment cycles, predictability has real economic value. Utilities need confidence before committing to major procurement programs, and manufacturers require visibility over the demand horizon before expanding production capacity or investing in new solutions.
Stability may not generate the headlines of another infrastructure spending package, but it is just as important to investment decisions.
Washington Still Has an Infrastructure Problem to Solve
The country has more than 49,000 community drinking water systems and approximately 23,000 wastewater systems connected by 4.6 million miles of distribution and collection pipe.
Nearly one in five gallons of treated water is lost through leakage before reaching customers, according to Bluefield’s analysis. In some cities, including New Orleans, losses have exceeded 70%. The EPA estimates combined drinking water and clean water infrastructure needs of more than US$1.5 trillion over 20 years.
The funding cliff, if it materializes at all, will not be immediate. Of approximately US$40.7 billion in IIJA State Revolving Fund allocations, only US$13.9 billion had reached project-level awards in Bluefield’s latest analysis, leaving a substantial pipeline of projects still moving toward construction and procurement.
One immediate test for the new political actors is the Water Resources Development Act (WRDA) of 2026. The Senate committee’s proposal would authorize US$3.5 billion annually for the Clean Water State Revolving Fund (SRF) and US$3.75 billion to US$4.5 billion annually for drinking water through 2030, while expanding flexibility to address PFAS. The House has advanced a WRDA bill without SRF reauthorization, alongside a separate proposal authorizing just US$1.1 billion annually for drinking water.
However, authorization does not guarantee appropriations, and President Trump has dubbed himself “Mr. Veto,” has the ability to block legislation. Realistically, a new federal infrastructure spending boom is unlikely anytime soon, for a number of political and economic reasons.
What I would like to see is a more serious discussion in Congress about the economic importance of water infrastructure. The U.S. water sector supports nearly 287,000 jobs across utility operations and construction alone, up approximately 29% over the past decade. More importantly, reliable water infrastructure underpins manufacturing, housing development, industrial expansion, and public health. It is not simply something the economy needs to maintain; it is something the economy needs to grow.
Data Centers: Water Is the Political Lever
Data centers are rapidly expanding, and water has emerged as a focal point for public opposition. Reportedly, there were 41 data center development ballot measures across 10 states.
Electricity availability, grid capacity, and rising energy prices may ultimately prove to be bigger constraints on development, but water resonates with communities in a different way. It is essential, local, and personal. People may not understand the complexities of power markets or AI infrastructure, but they understand the implications of competing for local water supplies.
Data centers now account for 8% of Watts Water Technologies’ year-to-date sales, up from just 3% in 2025. Core & Main’s data center sales have nearly doubled, while Xylem reported more than 200% growth in data center orders within its Applied Water business.
Ecolab acquired liquid-cooling specialist CoolIT for US$4.75 billion, building on its US$1.6 billion acquisition of Ovivo Electronics. Ecolab’s Global High-Tech business reported 29% organic growth, demonstrating how data centers and semiconductor manufacturing are reshaping industrial water markets.
Communities are increasingly questioning whether data centers should have priority access to local water supplies, even as demand for efficient cooling, treatment, and reuse creates opportunities for technology suppliers.
The AI boom is therefore creating both commercial opportunities and political risks for water companies. Water may not be the biggest constraint on data center development, but it could increasingly influence where and how quickly projects move forward.
The States Are Where Water Policy Is Moving
The reality is that states are the most influential in water policy, regardless of the noise coming out of Washington. Democrats flipped six governorships, with water featuring in several campaigns. In Texas, Governor-elect Gina Hinojosa called for a moratorium on new data centers and argued that water contracts threatening community supplies should be unenforceable. In Georgia, the country’s second-largest data center construction market, Keisha Lance Bottoms called for a pause on new projects after drought-stressed Atlanta utilities had already rejected some large water requests. Iowa’s Rob Sand ran on nitrate monitoring, public alerts, and farmer conservation incentives.
Voters also acted directly. Louisiana approved Amendment 7 with 65% support, allowing public funds to replace lead service lines on private property, a prerequisite for New Orleans’ estimated US$1 billion program. Arkansas approved a US$500 million water bond referred by a Republican legislature. Corpus Christi voters imposed drought surcharges of up to 280% on refineries and chemical plants. Florida, by contrast, cut local property tax revenue by an estimated US$5 billion, pressuring local water budgets.
Water is becoming increasingly political, from the Colorado River to a data center near you. This may ultimately be the more important outcome of the election, because it matters.
