Staff at rural, small, and tribal (RST) water utilities often operate in remote, hard-to-reach areas, and face aging infrastructure with limited financial resources. These challenges threaten their core mission of providing safe, reliable, and affordable water services. To build resilience and sustainability, RST staff are increasingly adopting innovative and flexible financing strategies to unlock new opportunities for system upgrades, adapt to changing conditions, and lay the groundwork for future growth. This blog provides an overview of various financing resources – such as federal grant and technical assistance programs, state revolving funds, green bonds, and environmental impact bonds – that should be integral to any water utility toolbox.
Bridging the Water Infrastructure Financing Gap: Critical Strategies for Rural, Small, and Tribal Communities
Climate change directly impacts the ability of drinking water and wastewater utilities to deliver reliable and affordable services. For example, according to the EPA, increased severe rainfall due to climate change leads to pollutant runoff and sedimentation, often overwhelming stormwater systems and negatively impacting local water quality. Drought conditions reduce water sources and raise contamination concentrations, increasing treatment costs. Additionally, saltwater intrusion from sea-level rise and algal blooms from higher water temperatures further challenge water quality and infrastructure management.
These impacts are especially severe for utilities in RST communities across the United States, which often face aging infrastructure, remote locations, limited economies of scale, and constrained budgets. McKinsey & Company reports that over 60% of water utilities could experience climate-related disruptions by the early 2030s, with many unprepared for these risks. Only 10% of small water utilities have formal adaptation plans.
Funding shortages mainly drive the aging climate-vulnerable infrastructure. The Environmental Protection Agency (EPA) estimates that nationwide, utilities will need approximately $629.1 billion between 2021 and 2040. Over half of this need pertains to RST utilities: Tribes require $4.1 billion, and small/medium sized systems (serving 100,000 or fewer people) need $373.2 billion. Additionally, new clean water infrastructure investments are estimated at $630.1 billion from 2022 to 2041, with tribes accounting for $4.66 billion.
Without sufficient funding, RST communities face disproportionate risks: water shortages, contamination, system failures, and health disparities –risks that intensify with climate impacts. Investing in water infrastructure now is vital to protect public health, promote environmental justice, and maintain affordability long-term.
Below are five essential financing mechanisms that should form the core of any water utility’s financial strategy.
EPA’s Environmental Finance Centers
The Environmental Finance Centers (EFCs) are a nationwide network of university based centers, coordinated through the EPA’s EFC Network (EFCN) and providing tailored technical and finance assistance to utilities in RST communities. They focus on enhancing utility capacity to plan, finance, and sustainably operate water, wastewater, and stormwater systems.
EFCN’s services come at no cost to systems. Services include finance readiness assessments, capital planning, rate analyses, asset management, water loss reduction, grant and loan navigation, financial modeling, stakeholder engagement, and training workshops. EFCs also offer free templates, toolkits, and case studies that simplify complex tasks like applicant preparation and blended finance structuring.
To get assistance, contact the EFC Network. Be prepared with a brief project description, population served, utility type and size, current rates, capital needs, and any deadlines you’re working under. EFCs can connect you with funding partners, help improve applications, and provide on-site training—making them a trusted resource for affordable, sustainable solutions.
EPA’s Water Infrastructure and Resilience Finance Center
The EPA’s Water Infrastructure and Resilience Finance Center (WIRFC) is an online hub offering financing options and technical assistance. Its Water Finance Clearinghouse features searchable databases of funding sources and guidance materials, helping utilities identify suitable financing options efficiently.
The databases can be filtered by financing sources (e.g., federal, local, private), sector, utility size, eligible uses, and eligible applicants. Users can create accounts to save resources, suggest new opportunities, or propose edits.
USDA’s Rural Utilities Service Water and Environmental Programs
USDA Rural Development’s Water & Environmental Programs (WEP) provides flexible funding— direct loans, grants, and loan guarantees — to help rural communities develop, fund, and maintain drinking and wastewater systems. It emphasizes long-term sustainability, public health, and infrastructure replacement.
Funding can support treatment facilities, distribution systems, stormwater, solid waste, reliability upgrades, and planning activities. Eligible applicants include rural municipalities, special purpose districts, Tribes, and nonprofits serving rural areas. USDA also offers technical assistance to help communities develop projects and navigate application processes.
Start by reviewing options on USDA’s WEP website and contacting your local USDA field office to discuss eligibility, scope, and financing strategies.
State Revolving Funds
EPA supports two State Revolving Funds (SRFs) – the Clean Water State Revolving Fund (CWSRF) and the Drinking Water State Revolving Fund (DWSRF) – that help utilities finance infrastructure projects. Each state manages its own SRF, capitalized by EPA grants and a 20% state match, with program details varying by location.
SRFs offer a range of financial assistance to lower project costs and expand access to capital, including:
- Below-market-rate loans with a terms up to 30 years
- Principal forgiveness or grants for certain projects
- Refinancing or debt purchase to reduce debt service
- Guarantees and insurance to improve market access and lower interest rates
- Use of funds as collateral for debt or guarantees
- Set-asides for technical assistance and capacity-building, especially for small systems.
Projects eligible for CWSRF funding include:
- Construction or upgrade of new, publicly-owned treatment works and decentralized wastewater treatment systems
- Nonpoint source pollution management, including green stormwater infrastructure
- Water conservation, efficiency, and reuse projects
- Energy efficiency improvements in plant operations
Projects eligible for DWSRFs must fit under the following six categories:
- Treatment – install or upgrade treatment facilities to meet water quality standards
- Transmission, distribution, and storage – replace pipelines, tanks, and pumps
- Source water protection and development – protect or develop surface and groundwater sources
- Consolidation or extension of service – connect failing systems or extend service to areas with a demonstrated public health need
- Planning, design, and other predevelopments activities that enable construction
- Other public water system infrastructure improvements, including projects to replace lead service lines and address emerging contaminants.
Environmental Impact Bonds
Environmental Impact Bonds, or EIBs, are a debt financing tool with a Pay-for-Performance structure, linking investor repayment to environmental outcomes. Investors (Purchasers) receive principal and interest plus a Performance Payment based on pre-determined environmental benchmarks. This setup incentivizes project implementers to meet or exceed environmental goals and deliver tangible benefits.
EIBs have been used to finance green stormwater infrastructure (GSI) cities like Washington, D.C., Atlanta, and Buffalo. These projects use natural solutions such as rain gardens, green roofs, permeable pavements, and wetlands to manage flooding, improve water quality, and enhance resilience.
While smaller or tribal communities may face challenges scaling EIBs, the core principle remains applicable: outcome metrics tailored to local environmental projects can foster innovation and stakeholder collaboration. With clear reporting and accountability, EIBs promote sustainable infrastructure development that delivers measurable environmental benefits.
Conclusion
Addressing water infrastructure needs in rural, small, and tribal communities is both a challenge and an urgent priority. Innovative financing creates critical pathways to bridge funding gaps, support resilient systems, and adapt to climate change. Tools such as EIBs, SRFs, USDA funding, and federal grant programs, combined with resources like the EFCs and Water Finance Clearinghouse, empower communities to secure and effectively utilize funds.
Investing today protects public health, advances environmental justice, and ensures affordability for future generations. RST communities are not alone – they can leverage diverse resources and foster partnerships to overcome financial barriers and implement tailored, sustainable solutions. Proactive investment now will help ensure all communities have reliable, safe, and affordable water resources for years to come.