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Board hears warnings about shrinking grant funds as staff proposes 2026'27 Clean Water SRF intended use plan
Summary
Division of Financial Assistance staff previewed the 2026'27 Clean Water State Revolving Fund intended use plan and warned that IIJA supplemental funds end after 2026 and congressional earmarks have reduced base allocations, creating a growing gap between small-community wastewater needs and available nonrepayable funds; staff recommended scoring adjustments and partial grant plus loan approaches.
State Water Board financial staff on May 19 previewed the draft 2026'27 Clean Water State Revolving Fund (CWSRF) intended use plan and cautioned that future federal grant capacity for principal forgiveness and grants will shrink after 2026, when Infrastructure Investment and Jobs Act (IIJA) supplemental funds end.
Mike Downey, assistant deputy director in the Division of Financial Assistance, said the division expects to execute roughly 40 agreements this fiscal year for close to $1 billion, including small-community wastewater grants and large water-recycling loans. He told the board: "We're expecting about 40 agreements this year, for almost a billion dollars," and highlighted the program's reliance on repayments and available capitalization grants to maintain loan capacity.
Lisa Hong (DFA) described the FY26 federal outlook as approximately $252 million in capitalization grant funds (base + IIJA), with IIJA supplemental funds ending after 2026. She said congressional earmarks have reduced base allocations in recent years and that the combination of lower future federal funds and rising project costs will constrict the clean-water program's nonrepayable assistance for small and disadvantaged communities.
Staff proposed program changes for 2026'27: updated CWSRF scoring and affordability considerations to add some small-dollar projects to the fundable list; a $15 million grant maximum for Prop 4 water recycling construction grants (with a two-phase cap for very large projects, reflecting limited FY26 funding); and revised caps and eligibility for small-community wastewater planning and construction grants and principal forgiveness. Bridget Chase (DFA) stressed that small-community project costs have risen sharply and that the IUP proposes loan components for secondary (non-priority) projects to stretch limited grant dollars.
Board members pressed staff on implications for communities that cannot take loans. Board Member Nicole Morgan said she was concerned that marking incomplete secondary-priority applications "withdrawn" if they decline loans would erase the record of community need; she urged the board and staff to preserve the applications for tracking and future prioritization. Staff replied that the draft IUP's caps and scenarios are intended to manage scarce grant resources while encouraging planning now so projects can be ready when funds are available.
The IUP draft is open for written comment through May 27; staff expects to return to the board on July 7 for adoption. The packet and draft IUP describe proposed funding targets, fundable-list scenarios and proposed grant/loan terms for water recycling, stormwater, and small-community wastewater programs.
