July 2026 EPA OIG Audit Confirms Water Earmark Award Delays: Recommendations for Congress
According to EPA’s Office of Inspector General (OIG) July 2026 audit (Report No. 26-P-0043), EPA has not awarded 44% of the water earmark funds Congress appropriated in FY2022 and FY2023. As of September 2025, more than $1 billion of $2.3 billion, which accounts for 510 of 1,198 earmarked projects over those two years, had no signed grant agreement at all.
Since FY2022, these earmarks have been funded by diverting them from Clean Water and Drinking Water State Revolving Fund (SRF) appropriations before EPA calculates each state’s capitalization grant, consuming approximately 55% of the FY2026 CWSRF appropriation and 65% of the FY2026 DWSRF appropriation. EPIC estimates this diversion will reduce states' water infrastructure financing capacity by $19.4 billion over 20 years.
The EPA OIG audit documents what happens to the diverted dollars: a substantial share sits at EPA for years without an award, a public progress report, or a binding award deadline. This brief walks through what the audit found and lays out four recommendations for Congress:
Fund water earmarks through a separate, additive EPA budget line instead of carving them out of the SRFs
Put earmark awards on a one-year statutory clock, consistent with the standard EPA already applies to the SRFs
Require annual, public, project-level reporting on earmark awards
Recapture funds that miss the deadline through the SRF reallotment process EPA already runs.
For more information, please see: policyinnovation.org/state-revolving-fund-earmarks
