Legislative Update: EPA and SRFs Face Historic Funding Reductions Under FY2026 White House Proposal

EPA and SRFs Face Historic Funding Reductions Under FY2026 White House Proposal

On May 2, President Donald Trump released his administration’s FY2026 “skinny budget” proposal that increases defense and homeland security investments, offset by a proposed 22.6 percent reduction in nondefense spending–with the largest of those cuts aimed at the Environmental Protection Agency (EPA), including its Clean Water and Drinking Water State Revolving Funds (SRF).  Notably, this proposal is a non-binding preliminary budget document that serves as the President’s “wish list” and policy blueprint, outlining the administration’s high-level spending priorities for the upcoming fiscal year before the formal appropriations process begins in Congress. Also notably, maintaining 2024 funding for SRFs was a key issue at the VI fly-in last month and we received broad bi-partisan support to do so.

An OMB document outlining the major discretionary funding changes shows that the administration seeks to reduce the Environmental Protection Agency’s (EPA) discretionary funding by nearly 55 percent, cutting it from $9.1 billion in FY2025 to $4.2 billion—the lowest level in four decades.   The budget would significantly reduce funding for water infrastructure, environmental justice, and state-level grant programs.

Specifically, the budget proposal reduces EPA’s State Revolving Fund (SRF) by $2.5 billion–nearly 90 percent–arguing that the Clean and Drinking Water SRF program has strayed from its original purpose of providing one-time seed funding for state-run water infrastructure loan programs. The administration contends that Congress has distorted the program through earmarks that bypass state planning and result in non-repayment. It also asserts that the SRFs now duplicate other federal efforts, including EPA’s Water Infrastructure Finance and Innovation (WIFIA) program and USDA’s loan and grant programs. It states that SRFs have already received significant funding through the Infrastructure Investment and Jobs Act (IIJA). The proposal aims to restore the SRFs to their original revolving structure by decreasing funding to $305 million and reducing states’ reliance on ongoing federal appropriations.

Water utilities are opposing the cuts and are urging Congress to maintain current federal levels, emphasizing the SRFs’ essential role in supporting water treatment, stormwater management, pollution control, and other public health and environmental services.  A May 12 analysis by the Northeast-Midwest Institute (NEMWI) warns of severe funding losses for Great Lakes states under the proposal.  NEMWI found that base funding for state revolving funds (SRFs) would be cut by nearly 90 percent, with total impacts varying depending on how much each state relies on Bipartisan Infrastructure Law (BIL) funding. States like New York, which rely more heavily on annual SRF appropriations, would face the steepest losses—up to $200 million or a 25.8% drop in total SRF funding—while Illinois and Minnesota, relying more on BIL funding, would see smaller percentage reductions.

The analysis estimates that all Great Lakes states would experience SRF funding reductions ranging from 16 to 25 percent, severely affecting infrastructure investments. State officials and water sector organizations warn that such cuts would undermine essential functions, including oversight of drinking water systems and long-term infrastructure development. Anthony DeRosa of the Association of State Drinking Water Administrators emphasized that the cuts would widen the existing capital investment gap, harm local communities, and pose risks to public health and economic growth. NEMWI plans to publish a comprehensive report when the full FY26 budget is released and will continue to advocate for sustained funding for Great Lakes water programs during the appropriations process.

The proposal also reduces EPA’s Office of Research and Development by $235 million, though $281 million would remain to support “core mission areas,” while drinking water programs would receive a modest $36 million increase, including targeted support for tribal communities.  The administration criticizes funding for “unrestrained research grants, radical environmental justice work, woke climate research, and skewed, overly-precautionary modeling that influences regulations—none of which are authorized by law.”

Additionally, the Superfund program would face a $254 million cut, justified by the availability of tax revenues and litigation settlements.   The budget also rescinds $1 billion from categorical grants, which it said have “become a crutch for states at the expense of taxpayers.”   The EPA’s environmental justice and atmospheric protection programs would be eliminated, each representing a $100 million reduction.

Zeldin Faces Bipartisan Concerns on EPA Cuts During Senate Hearing

EPA Administrator Lee Zeldin faced bipartisan criticism during a May 14 Senate Interior-Environment Appropriations Subcommittee hearing over the Trump administration’s proposed FY2026 budget, which includes a 55 percent cut to the agency’s funding.  Senators, including Subcommittee Chair Lisa Murkowski (R-AK), expressed particular concern over the Administration’s drastic reduction in funding for the State Revolving Fund (SRF). Murkowski called the proposal “unserious” and criticized the administration’s claims that earmarks justify the cuts.  She argued that lawmakers made sure to approve the funding “in connection with the states to ensure the funding was going to critical clean water and drinking water projects.”  She also emphasized the need for better communication between the agency and Congress, criticizing the EPA for not being transparent about organizational changes and policy decisions.

Sen. Tammy Baldwin (D-WI) echoed Murkowski’s concerns, warning that the proposed budget “decimates” the SRFs and would directly harm communities facing serious water quality issues, such as lead contamination and PFAS exposure.  Murkowski and Baldwin repeatedly challenged Zeldin to explain how such cuts could be justified to families and farmers relying on safe public water systems, only to have Zeldin continue to blame the use of earmarks for reducing funding over the years.   Baldwin firmly retorted, “You’re hearing, I hope strongly, from this committee that we are committed to restoration of those funds because they serve such a vital function in our communities.”

Democrats on the committee focused on the administration’s decision to freeze grant programs created under the Biden administration, such as the environmental justice grants and the Greenhouse Gas Reduction Fund. Ranking Member Jeff Merkley (D-OR) accused Zeldin of unlawfully impounding approximately $24 billion, arguing the budget proposal undermines science and federal responsibilities. Zeldin rejected the constitutional concerns and said he would not “waste” tax dollars. He also cited an appellate court stay following a district court ruling against the agency’s cancellation of greenhouse gas grants, adding that inquiries about specific grants should be submitted in writing.

Senator Mike Rounds (R-SD), who also had impoundment concerns, suggested Congress may restore much of the funding regardless of the administration’s request. Meanwhile, Senator Patty Murray (D-WA), ranking member of the full Appropriations Committee, harshly criticized the overall vision of the budget, saying it aims to dismantle the EPA and is abandoning the agency’s responsibility to states. In a related policy development, the EPA also announced plans to delay compliance deadlines for PFAS drinking water standards to 2031 and initiate a rescind-and-reconsider process for certain PFAS regulations introduced under the previous administration.

Administrator Zeldin will testify before the House Appropriations Committee on May 15. The House Energy and Commerce Subcommittee on Environment is also planning a Fiscal Year 2026 EPA budget hearing on May 20.

Johnson Advances Budget Reconciliation as House Energy and Commerce,  Ways and Means, and Agriculture Unveil and Pass Their Titles

The House Republican majority is approaching a key milestone in its reconciliation effort to advance the party’s domestic policy agenda. After completing intensive markups, the Ways and Means, Energy and Commerce, and Agriculture Committees passed their respective portions of the reconciliation bill (H. Con. Res 14) along party lines. The House Budget Committee is scheduled to meet Friday, May 16, to formally compile the bill’s 11 sections, though it cannot make changes. If approved, the legislation will move to the Rules Committee on Monday to set the stage for a House floor vote later in the week, in line with Speaker Mike Johnson’s goal to finalize the package by May 22, before Congress leaves for the Memorial Day Recess.

However, several internal GOP disputes threaten to complicate the bill’s passage. Members of the SALT Caucus are pressing for a higher cap on the state and local tax deduction than the $30,000 level currently proposed, and Speaker Johnson is in active negotiations to secure their support. Simultaneously, fiscal conservatives in the House Freedom Caucus demand that Medicaid work requirements take effect sooner than 2029, arguing the current proposal does not sufficiently curb spending. Additionally, some moderate Republicans have expressed concerns about the accelerated phaseout of clean energy tax credits, possibly in the Senate, which could prompt further revisions. The reconciliation package’s fate now depends on whether Johnson can reconcile these competing demands within the GOP conference.

On May 13, the House Energy and Commerce Committee approved the reconciliation bill’s energy and environment portions, which target a broad range of Biden-era climate and clean energy programs while promoting Republican priorities in fossil fuel development and regulatory streamlining. The legislative text includes provisions aimed at achieving at least $880 billion in deficit reduction or new revenue, with the energy, environment, and communications subtitles projected to reduce the deficit by $197 billion from 2025 to 2034, according to a preliminary Congressional Budget Office (CBO) estimate.

The energy subtitle bill proposes rescinding unobligated funds from the Inflation Reduction Act (IRA), including resources for the Department of Energy’s Loan Programs Office. It also introduces expedited permitting processes for natural gas and other energy infrastructure projects, funded by application fees and shielded from judicial review. The bill also establishes a $10 million “De-Risking Compensation Program” to reimburse developers for losses if permits are revoked for major energy projects.

The environment subtitle includes broad repeals of environmental provisions from the Inflation Reduction Act (IRA) and associated Clean Air Act sections. Specifically, it eliminates programs and rescinds unobligated funds related to clean heavy-duty vehicle grants, zero-emission port equipment, and the Greenhouse Gas Reduction Fund. Additional rescissions include funding for diesel emissions reduction, air quality monitoring at schools, and grants supporting environmental justice, biofuels data collection, and low-emissions electricity outreach. The bill also repeals funding for EPA initiatives aimed at improving permitting efficiency, environmental product labeling, corporate greenhouse gas reporting, and the Methane Emissions Reduction Program. These actions represent a comprehensive rollback of IRA-funded environmental programs and grants, with the justification that such spending is either duplicative, inefficient, or contrary to the administration’s fiscal priorities.

The bill would repeal Biden administration vehicle emissions and fuel economy standards for model years 2027 and beyond, citing concerns about de facto mandates for electric vehicles. The text does not address the Superfund program and specific savings from the environmental subtitle were not disclosed in the committee’s summary.

The House Ways and Means Republicans voted to advance their comprehensive 389-page, $3.8 trillion tax amendment to their reconciliation package, embedding key priorities from President Donald Trump’s campaign, including temporary tax exemptions for tipped and overtime wages, expanded business tax relief, and the phase-out of clean energy incentives. The plan would permanently extend parts of the 2017 tax law and boost deductions for pass-through businesses, while introducing new benefits like a $4,000 deduction for seniors and “MAGA accounts” for young children. While the amendment omits changes to the top individual income tax rate and other politically sensitive provisions, it seeks to raise revenue through caps on itemized deductions for high earners and limits on state and local tax (SALT) deductions.

The business provisions revive several lapsed incentives, including full expensing for R&D investments, equipment purchases, and interest deductions for five years. While the 21 percent corporate tax rate remains unchanged, new deductions and manufacturing-related write-offs are included to mirror Trump’s campaign proposal for a lower manufacturing tax rate. A generous pass-through business income deduction is increased from 20 to 23 percent. The amendment also expands tax credits for employers offering parental leave and child care, further reflecting the administration’s pro-business posture.

The package proposes sunsetting numerous clean energy tax credits from the IRA, including those for EVs, clean hydrogen, and energy-efficient home improvements, while curtailing their transferability. It phases out production and investment credits for clean and nuclear electricity over a multi-year timeline. Some clean energy credits, like those for sustainable aviation fuel, would be extended through 2031 to align with other provisions. To offset costs, the bill introduces higher taxes on university endowments and philanthropic foundations, a new tax on remittances, and reduced amortization for sports team purchases—though it preserves carried interest and the current top tax bracket.

The proposal also raises the federal debt limit by $4 trillion, extending borrowing authority likely into 2026.

House Panel Advances NEPA Overhaul with Fast-Track Reviews and Limited Oversight

The House Natural Resources Committee advanced its budget reconciliation title to advance US energy dominance and make sweeping changes to the National Environmental Policy Act (NEPA) by expediting project permitting and limiting environmental oversight.  The Committee approved the bill in a largely party-line vote on May 7 after a marathon markup.  The measure includes provisions allowing project sponsors to pay 125% of the cost of an environmental review in exchange for expedited deadlines—six months for environmental assessments and one year for environmental impact statements—with judicial review eliminated.

House Republicans project that increased fossil fuel production on federal lands could generate approximately $15 billion in deficit reduction over the next decade, significantly exceeding the House Natural Resources Committee’s original $1 billion target within the broader reconciliation framework. The committee’s proposal mandates more frequent onshore and offshore oil and gas lease sales, including quarterly onshore auctions and expanded offshore leasing in the Gulf of Mexico and Alaska’s Cook Inlet. It also promotes coal, hardrock mining, and geothermal energy development on public lands.

Over 100 Democratic amendments, including efforts to strike the NEPA changes, were rejected.   One GOP amendment added during markup mandates the sale of thousands of acres of public land in Nevada and Utah. The final vote was 26–17, with Rep. Adam Gray (D-CA) joining Republicans in support, citing the bill’s inclusion of $2 billion for California water storage, though he warned he would oppose the broader reconciliation package if tied to Medicaid or nutrition cuts. Senate Democrats may challenge the NEPA provisions under reconciliation rules that restrict measures with only incidental budgetary impact.

EPA Rewrites TSCA Framework Rule as D.C. Circuit Holds Litigation in Abeyance

A recent decision by the U.S. Court of Appeals for the D.C. Circuit to place litigation over the Biden-era Toxic Substances Control Act (TSCA) framework rule in abeyance has cleared the way for the Trump EPA to proceed with its planned rewrite. The United Steelworkers et al. v EPA litigation, brought by industry groups and labor unions, challenged the procedural rule governing how the EPA evaluates existing chemicals under the TSCA.  Although the court declined to remand the rule back to EPA, legal experts say the abeyance gives the agency sufficient leeway to propose a new rule, which the Trump EPA intends to release in June and finalize by April 2026. Both EPA and industry had pushed for the case to be paused to allow for new rulemaking, a move seen as routine practice in the D.C. Circuit when agencies plan substantial regulatory revisions.

Under the direction of Nancy Beck, the Trump EPA has already laid out its intentions to overhaul the 2024 rule, reversing key aspects such as the Biden administration’s “whole chemical” risk determination approach and reconsidering how to factor in worker protections and community impacts. The agency also plans to reevaluate the process by which manufacturers can request chemical risk evaluations, whether to revise completed evaluations, and whether to publish occupational exposure values. These revisions would align more closely with the 2017 procedural rule from the first Trump administration and reflect long-standing industry concerns about regulatory burdens under the Biden framework.