SRF Earmarks Reduce Principal Forgiveness For All States (FY2023-FY2026)

waterresources
Written By Ekta Patel

Each state must provide a portion of its SRF capitalization grant as principal forgiveness, the share of a loan a borrower does not have to repay. States use it to make projects affordable for communities with limited ability to take on debt. Principal forgiveness is calculated as a percentage of each state’s allotment (10–40% for clean water SRFs and 12–49% for drinking water SRFs), with a minimum reserved for state-defined disadvantaged communities and projects meeting state affordability criteria.

Since FY2022, Congress has funded water earmarks from SRF appropriations before EPA calculates state allotments. This, in turn, reduces the amount of principal forgiveness available to states. As such, every state loses principal forgiveness capacity whether or not it receives any water project earmarks. Across FY2023, FY2024, and FY2026, that reduction is approximately $477 million to $1.9 billion nationwide, an average of $159 to $643 million per year. Unlike earmarks, principal forgiveness is directed through publicly vetted state criteria to the communities least able to pay.

This brief quantifies the principal forgiveness loss by state and provides recommendations for state programs and Congress.

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For more information, please see: policyinnovation.org/state-revolving-fund-earmarks

Ekta Patel

Ekta joined EPIC in 2025 as a Senior Policy Analyst in the Water Program. Previously, she served as a Water and Policy Advisor at USAID, where she developed strategies to advance water security and provided technical assistance to water, sanitation, and hygiene projects, with a focus on fragile and conflict-affected settings. Her experience spans water management in the western US, desalination, infrastructure financing, and US and international water governance. Earlier in her career, Ekta was a business analyst and product designer at an education technology start-up. She holds a PhD in Environmental Policy from Duke University and a BA with honors in Environmental Science and Public Policy from Harvard University.

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