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EGLE warns demand for water loans far exceeds funding; lead-service-line work remains costly
Summary
Paul McDonald, director of the finance division at the Michigan Department of Environment, Great Lakes, and Energy, told the House Appropriations Subcommittee that requests for SRF loans and grants have grown sharply and available capitalization and grant dollars have not kept pace.
LANSING, Mich. ' Paul McDonald, director of EGLE's finance division, told the House Appropriations Subcommittee on Environment, Great Lakes and Energy that demand for water infrastructure funding has surged and the department faces a funding shortfall even as communities apply for billions in assistance.
McDonald described the State Revolving Fund (SRF) programs ' the Drinking Water SRF and the Clean Water SRF ' as central tools EGLE uses to finance municipal water and wastewater projects, and he said recent legislative and federal changes expanded eligible projects but also coincided with rising demand.
For fiscal year 2024, McDonald said the SRF issued 107 unique loan and grant combinations totaling more than $1.7 billion. He said the program provided about $680 million to 42 projects in fiscal 2025 and that drinking-water requests in 2023 exceeded the amount the program had disbursed in the prior 20 years in a single year.
McDonald highlighted programs the agency manages: a small standalone grant unit (six people) that issued 85 grants in 2024 and now manages some 450 grants totaling more than $865 million across 10 programs, and the Michigan Underground Storage Tank Authority (MUSTA/MUSTA fund) functions addressing corrective actions and financial assurance for operating underground storage tanks.
On lead service-line replacement, McDonald said recent federal restrictions limit certain federal funds to replacement of lead service lines only, not to related water-main work. He said the department estimates about 400,000 lead service lines remain to be replaced at an average cost of $9,000 to $10,000 per service line, yielding an estimated remaining need of roughly $3.9 billion to $4.0 billion.
McDonald also described trends that reduce the SRF's flexibility: congressional earmarks and congressionally directed spending that deliver funds directly to localities have reduced EPA capitalization grants that historically allowed the SRF to lower interest rates and provide principal forgiveness. McDonald said principal forgiveness fell from about $35 million in 2021 to $11 million in 2025.
He said the funding situation creates a near-term gap: ARPA and one-time appropriations have been used but are exhausted, and the department faces a projected $260 million "cliff" in available funding unless new dollars are provided. McDonald said EGLE is seeking creative financing and noted the governor's FY26 executive budget recommendation includes a proposed $50 million for lead service-line replacement.
Representative Steckloff raised local sewer overflow concerns affecting Oakland and Macomb counties and cited a report she said found Center Line discharged 2 million gallons of raw sewage during heavy storms. Travis Bosckel, EGLE deputy director, responded that the combined sewer and storm systems were not designed for current storm intensity and said interim measures focus on minimizing stormwater inflow. Bosckel said he did not have "a clear concise answer" for a one-day fix and added, "find billions of dollars and invest it," noting the scale of work and time required for comprehensive solutions.
The subcommittee received the finance briefing; members asked questions but took no formal funding action during the session.
