Legislative Options for Financing Water Infrastructure

Claudia Copeland
Specialist in Resources and Environmental Policy

William J. Mallett
Specialist in Transportation Policy

Steven Maguire
Specialist in Public Finance

This report addresses several options being considered by Congress to address the financing needs of local communities for wastewater and drinking water infrastructure projects and to decrease or close the gap between available funds and projected needs. Some of the options exist and are well established, but they are under discussion for expansion or modification. Other innovative policy options have recently been proposed in connection with water infrastructure, especially to supplement or complement existing financing tools. Some are intended to provide robust, long-term revenue to support existing financing programs and mechanisms. Some are intended to encourage private participation in furnishing drinking water and wastewater services.

Six options that are reflected in current or recent legislative proposals, including budgetary implications, are discussed. 

•         Increase funding for the State Revolving Fund (SRF) programs in the Clean Water Act (H.R. 3145 in the 112th Congress) and the Safe Drinking Water Act (H.R. 5320 in the 111th Congress), 

•         Create a federal water infrastructure trust fund (H.R. 3145 in the 112th Congress and H.R. 3202 in the 111th Congress), 

•         Create a “Water Infrastructure Finance and Innovation Act” Program, or WIFIA (H.R. 3145 in the 112th Congress), 

•         Create a National Infrastructure Bank (H.R. 402 and S. 652 in the 112th Congress), 

•         Lift private activity bond restrictions on water infrastructure projects (S. 1813, S. 939 and H.R. 1802 in the 112th Congress), and 

•         Reinstate authority for the issuance of Build America Bonds (included in the Administration’s FY2013 budget request). 

A number of these issues and options have been examined in recent hearings by the House Transportation and Infrastructure Subcommittee on Water Resources and Environment (on February 28 and March 21, 2012) and by the Senate Environment and Public Works Subcommittee on Water and Wildlife (December 13, 2011, and February 28, 2012).

Consensus exists among many stakeholders—state and local governments, equipment manufacturers and construction companies, and environmental advocates—on the need for more investment in water infrastructure. There is no consensus supporting a preferred option or policy, and many advocate a combination that will expand the financing “toolbox” for projects. Some of the options discussed in this report may be helpful, but there is no single method that will address needs fully or close the financing gap completely. For example, some may be helpful to projects in large urban or multi-jurisdictional areas, while others may be more beneficial in smaller communities. It is unlikely that any of the recently proposed options could be up and running quickly, meaning that, at least for the near term, communities will continue to rely on the existing SRF programs, tax-exempt governmental bonds, and tax-exempt private activity bonds to finance their water infrastructure needs.


Date of Report: April 3, 2012
Number of Pages: 23
Order Number: R42467
Price: $29.95

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Davis-Bacon Prevailing Wages and State Revolving Loan Programs Under the Clean Water Act and the Safe Drinking Water Act

Gerald Mayer
Analyst in Labor Policy

Jon O. Shimabukuro
Legislative Attorney

The Davis-Bacon Act requires employers to pay workers on federal construction projects at least locally prevailing wages and fringe benefits. These wages and benefits are the minimum hourly wages and benefits that employers must pay workers. In order to hire and retain workers, employers may pay more than locally prevailing wages or benefits. Supporters of the Davis- Bacon Act maintain that it creates stability in local construction and labor markets and ensures that projects are built by the most skilled and experienced workers. Critics of the act argue that it impedes competition, raises construction costs, and imposes additional administrative requirements on contractors.

The Federal Water Pollution Control Act, commonly called the Clean Water Act (CWA), authorizes appropriations to states to operate state revolving loan funds (SRFs) that finance the construction of wastewater treatment plants. The Safe Drinking Water Act (SDWA) authorizes appropriations for SRFs to finance the construction of public drinking water systems. An issue for Congress is whether to apply Davis-Bacon prevailing wages to projects financed by the state revolving loan programs under the CWA and SDWA.

The SDWA has a Davis-Bacon provision, but the provision predates, and does not apply to, the state revolving loan program. The CWA states that Davis-Bacon prevailing wages apply to projects that are “constructed in whole or in part before fiscal year 1995” with funds from the revolving loan program. Authorization for appropriations expired at the end of FY1994 for the CWA and the end of FY2003 for the SDWA. Nevertheless, Congress has continued to appropriate funds for the SRFs under both statutes.

After the authorization of appropriations for the SRFs under the CWA expired at the end of FY1994, Davis-Bacon coverage was the subject of considerable debate. In 1995, the Environmental Protection Agency (EPA) issued a memorandum stating that projects that began construction after the end of FY1994 did not have to comply with the Davis-Bacon requirements. However, the Building and Construction Trades Department (BCTD) of the AFL-CIO disagreed with EPA’s interpretation of the law. The BCTD argued that Davis-Bacon coverage applied to projects funded by the SRFs as long as Congress continued to appropriate funds for the program. In June 2000, EPA and the BCTD proposed a settlement agreement that would require states to ensure that prevailing wages are paid for work performed on projects funded through the SRF program “for as long as grants are awarded to the states.” The agreement was to take effect in July 2001. Later, the implementation date was moved to September 2001, and then to October 2001. It does not appear that the settlement agreement was ever implemented.

Appropriations legislation enacted in the 112th Congress, for FY2012 and future fiscal years, applies Davis-Bacon prevailing wages to the revolving loan programs under both the CWA and the SDWA. Appropriations for EPA for FY2010 imposed Davis-Bacon prevailing wage requirements on projects funded by either revolving loan program. In November 2009, EPA announced that that Davis-Bacon coverage would apply to any “assistance agreement” entered into during FY2010, whether or not the funds for the projects were from FY2010 or prior year appropriations. The American Recovery and Reinvestment Act (ARRA) provided FY2009 supplemental appropriations funds to the CWA and SDWA SRFs, and required Davis-Bacon prevailing wages on projects funded in whole or in part by the act.


Date of Report: March 28, 2012
Number of Pages: 11
Order Number: R41469
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Clean Air Issues in the 112th Congress

James E. McCarthy
Specialist in Environmental Policy

Air quality has improved substantially in the United States in the 40 years of EPA’s Clean Air Act regulation, but more needs to be done, according to the agency’s science advisers, to protect public health and the environment from the effects of air pollution. Thus, the agency continues to promulgate regulations addressing air pollution using authority given it by Congress more than 20 years ago. In the 112th Congress, Members from both parties have raised questions about the costeffectiveness of some of these regulations and/or whether the agency has exceeded its regulatory authority in promulgating them. Others in Congress have supported EPA, noting that the Clean Air Act, often affirmed in court decisions, has authorized or required the agency’s actions.

EPA’s regulatory actions on greenhouse gas (GHG) emissions have been one focus of congressional interest. Although the Obama Administration has consistently said that it would prefer that Congress pass new legislation to address climate change, such legislation now appears unlikely. Instead, over the last two years, EPA has developed GHG regulations using its existing Clean Air Act authority. On December 15, 2009, the agency promulgated an “endangerment finding” for GHGs under Section 202 of the act. Relying on this finding, EPA finalized GHG emission standards for cars and light trucks on April 1, 2010, and for larger trucks, August 9, 2011. The implementation of these standards, in turn, triggered permitting and Best Available Control Technology requirements for new major stationary sources of GHGs.

It is the triggering of standards for stationary sources (power plants, manufacturing facilities, etc.) that has raised the most concern in Congress: legislation has been considered in both the House and Senate aimed at preventing EPA from implementing these requirements. In the first session of this Congress, the House passed H.R. 1, which contained provisions prohibiting the use of appropriated funds to implement various EPA GHG regulatory activities, and H.R. 910, a bill that would repeal EPA’s endangerment finding, redefine “air pollutants” to exclude greenhouse gases, and prohibit EPA from promulgating any regulation to address climate change. In the Senate, H.R. 1 was defeated, and an amendment identical to H.R. 910 (S.Amdt. 183) failed on a vote of 50-50. In July, the House considered provisions similar to those in H.R. 1 again in H.R. 2584, the Interior, Environment, and Related Agencies Appropriations Act for Fiscal Year 2012; action on the bill was suspended July 28, with more than 150 amendments still pending.

EPA has taken action on a number of other air pollutant regulations, too, generally in response to court actions remanding previous rules. Remanded rules have included the Clean Air Interstate Rule (CAIR) and the Clean Air Mercury Rule—rules designed to control the long-range transport of sulfur dioxide, nitrogen oxides, and mercury from power plants through cap-and-trade programs. Other remanded rules included hazardous air pollutant (“MACT”) standards for boilers and cement kilns. EPA is addressing the court remands through new regulations, four of which have already been promulgated, but many in Congress view the new regulations as overly stringent. The House has passed three bills (H.R. 2250, H.R. 2401, and H.R. 2681) to delay or revoke the new standards and change the statutory requirements for their replacements.

In addition to the power plant and MACT rules, EPA is also reviewing ambient air quality standards (NAAQS) for ozone, particulates, and other widespread air pollutants. These standards serve as EPA’s definition of clean air, and drive a range of regulatory controls. The revised NAAQS also face opposition in Congress. As passed by the House, H.R. 2401 would amend the Clean Air Act to require EPA to consider feasibility and cost in setting NAAQS, and H.R. 1633 would prevent EPA from setting standards for ambient concentrations of rural dust.


Date of Report: March 14, 2012
Number of Pages: 30
Order Number: R41563
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International Climate Change Financing: The Climate Investment Funds (CIF)

Richard K. Lattanzio
Analyst in Environmental Policy

The United States contributes funding to various international financial institutions to assist developing countries to address global climate change and other environmental concerns. Congress is responsible for several activities in this regard, including (1) authorizing periodic appropriations for U.S. financial contributions to the institutions, and (2) overseeing U.S. involvement in the programs. Issues of congressional interest include the overall development assistance strategy of the United States, U.S. leadership in global environmental and economic affairs, and U.S. commercial interests in trade and investment. This report provides an overview of two of the larger and more recently instituted international financial institutions for the environment—the Climate Investment Funds (CIF)—and analyzes their structure, funding, and objectives in light of the many challenges within the contemporary landscape of global environmental finance.

The CIF are investment programs administered by the World Bank Group that aim to help finance developing countries’ transitions toward low-carbon and climate-resilient development. Formally approved by the World Bank’s Board of Directors on July 1, 2008, the CIF are composed of two trust funds—the Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF)—each with a specific scope, objective, and governance structure. The CTF provides financing for demonstrating, deploying, and diffusing low-carbon technologies that have the potential for longterm avoidance of greenhouse gas emissions. The SCF—a suite of three separate funds, including the Pilot Program for Climate Resilience (PPCR), the Forest Investment Program (FIP), and the Scaling Up Renewable Energy Program in Low Income Countries (SREP)—supports the least developed countries in their efforts to achieve low-carbon, climate-resilient development. Overall, donor countries have pledged $6.5 billion to the funds since September 2008 in support of programs in 45 developing countries. The U.S. pledge totals $2 billion. For FY2010, Congress approved $375 million for the CIF (the Consolidated Appropriations Act, 2010, H.R. 3288; P.L. 111-117); for FY2011, Congress approved $234.5 million (the Department of Defense and Full- Year Continuing Appropriations Act, 2011, H.R. 1473; P.L. 112-10); and for FY2012, Congress approved $234.5 million (the Consolidated Appropriations Act, 2012, H.R. 2055; P.L. 112-74). For FY2013, the Administration has requested $235 million for the fund.

The CIF are just one set of financial mechanisms in a larger network of international programs designed to address the global environment. Accordingly, their effectiveness depends on how the trust funds address programmatic issues, build upon national investment plans, react to recent developments in the financial landscape, and respond to emerging opportunities. Proponents of the CIF point to several factors in support of the funds, including an innovative programmatic design, a country-led investment process, and a balanced governance structure with enhanced stakeholder engagement. Proponents of the multilateral development banks’ (MDBs’) role in environmental assistance emphasize several advantages to financing climate programs through the World Bank Group, including its commitment to private sector development, its capacity to leverage large cofinancing arrangements, and its possession of fiduciary standards and institutional expertise. However, critics highlight several factors of concern with the CIF and their Trustee, including a lack of transparency, coordination, and “polluter pay” responsibilities; a potential for new conditionalities, additionalities, and increased debt burdens on developing countries; and a prior economic development policy at the World Bank that is considered a conflict of interest for environmental protection.


Date of Report: March 1, 2012
Number of Pages: 21
Order Number: R41302
Price: $29.95

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International Environmental Financing: The Global Environment Facility (GEF)

Richard K. Lattanzio
Analyst in Environmental Policy

The United States contributes funding to various international financial institutions to assist developing countries to address global climate change and other environmental concerns. Congress is responsible for several activities in this regard, including (1) authorizing periodic appropriations for U.S. financial contributions to the institutions, and (2) overseeing U.S. involvement in the programs. Issues of congressional interest include the overall development assistance strategy of the United States, U.S. leadership in global environmental and economic affairs, and U.S. commercial interests in trade and investment. This report provides an overview of one of the oldest international financial institutions for the environment—the Global Environment Facility (GEF)—and analyzes its structure, funding, and objectives in light of the many challenges within the contemporary landscape of global environmental finance.

GEF is an independent and international financial organization that provides grants, promotes cooperation, and fosters actions in developing countries to protect the global environment. Established in 1991, it unites 180 member governments and partners with international institutions, nongovernmental organizations, and the private sector to assist developing countries with environmental projects related to six areas: biodiversity, climate change, international waters, the ozone layer, land degradation, and persistent organic pollutants. GEF receives funding from multiple donor countries—including the United States—and provides grants to cover the additional or “incremental” costs associated with transforming a project with national benefits into one with global environmental benefits. In this way, GEF funding is structured to “supplement” base project funding and provide for the environmental components in national development agendas. GEF partners with several international agencies, including the International Bank for Reconstruction and Development, the United Nations Development Program (UNDP), and the United Nations Environment Program (UNEP), among others, and is the primary fund administrator for four Rio (Earth Summit) Conventions, including the Convention on Biological Diversity (CBD), the United Nations Framework Convention on Climate Change (UNFCCC), the Stockholm Convention on Persistent Organic Pollutants (POPs), and the United Nations Convention to Combat Desertification (UNCCD). GEF also establishes operational guidance for international waters and ozone activities, the latter consistent with the Montreal Protocol on Substances that Deplete the Ozone Layer and its amendments. Since its inception, GEF has allocated $10 billion—supplemented by more than $47 billion in cofinancing— for more than 2,800 projects in 168 countries.

GEF is one mechanism in a larger network of international programs designed to address the global environment. Accordingly, its effectiveness depends on how the fund addresses programmatic issues, builds upon national investment plans, reacts to recent developments in the financial landscape, and responds to emerging opportunities. Critics contend that the existing system has had limited impact in addressing major environmental concerns—specifically climate change and tropical deforestation—and has been unsuccessful in delivering global transformational change. A desire to achieve more immediate impacts has led to a restructuring of the Multilateral Development Banks’ (MDBs’) role in environmental finance and the introduction of many new bilateral and multilateral funding initiatives. The future of GEF remains in the hands of the donor countries, including the United States, that can choose to broaden the mandate and/or strengthen its institutional arrangements or reduce and replace it by other bilateral or multilateral funding mechanisms.


Date of Report: March 1, 2012
Number of Pages: 29
Order Number: R41165
Price: $29.95

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