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March/April 2023

Drawing the lines: How defining “disadvantaged communities” impacts water infrastructure in the West

Misbah Husain


  • Discusses the history and the importance of water infrastructure in the United States.
  • Addresses the variability of the States’ definitions of “disadvantaged communities” and how some communities that genuinely struggle to obtain safe water might be ultimately excluded from certain financial assistance.
  • Looks at how increased access to data and engagement of stakeholders could improve the welfare of vulnerable communities.
Drawing the lines: How defining “disadvantaged communities” impacts water infrastructure in the West
2009 Gaetan Allouche via Getty Images

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The importance of infrastructure

The story of California—and of the American West—is a story of water infrastructure. The region’s sustained growth is owed entirely to the development of complex networks of canals, aqueducts, wells, and other mechanisms to harness distant water. Yet as these systems age, they become ineffective and susceptible to extreme shifts in climate conditions. According to the American Society of Civil Engineers’ 2019 and 2021 report cards, both California and the nation as a whole rate between “mediocre” and “poor” for their water infrastructure. This indicates significant risk for drops in drinking water quality, access to clean water, and more.

The Western United States, in particular, is at a critical juncture. Water levels in Lakes Mead and Powell (the nation’s largest reservoirs) have plummeted after years of unyielding drought conditions, with some experts doubting whether they will return to normal in our lifetimes. The Colorado River, which irrigates several of the nation’s fastest-growing cities, is draining faster than it is replenished. Surrounding populations may find themselves struggling to afford rising water bills or completely without water in the near future.

Not surprisingly, these burdens are unevenly distributed, concentrating their impact on low-income or minority communities. Such communities often cannot afford to make necessary improvements to their water infrastructure, threatening their access to clean, safe drinking water. The 2021 Infrastructure Investment and Jobs Act (Infrastructure Act) aimed to address these concerns through the allocation of over $50 billion across five years to fund water infrastructure projects nationwide. To date, this remains the single largest investment ever made in the nation’s water infrastructure.

Federal funding for water infrastructure: State revolving funds

The Infrastructure Act delivers the lion’s share of its funding through reauthorization of the Drinking Water State Revolving Fund and the Clean Water State Revolving Fund (Funds). The U.S. Environmental Protection Agency (EPA) administers this funding to states, which establish their own programs to fund projects within their borders. Some examples of projects eligible for financing through the Funds include drilling wells, lead service line replacement, and development of green infrastructure.

Both Funds are “revolving” funds, meaning a specific amount of capital is designated for the program and must be maintained for subsequent assistance. In practice this means the funding assistance provided through these programs predominantly takes the form of loans, albeit below-market-rate interest loans, that eligible entities pay back following a project’s completion. However, even low-interest rate loans place too great a burden on disadvantaged communities with meager financial resources. To alleviate this concern, states are permitted to deliver a proportion of financial assistance as “principal forgiveness”—essentially a grant—to eligible recipients.

Disadvantaged communities and the Infrastructure Act

Congress’ intent in passing the Infrastructure Act was twofold: to increase the total funding available for infrastructure projects, and to ensure that historically underfunded or otherwise “disadvantaged” communities benefit from financial assistance. To this end, the Infrastructure Act uses the terms “disadvantaged communities” and “affordability criteria” when discussing eligibility. The Infrastructure Act, however, does not explicitly define these terms, instead assigning this task to the states.

In doing so, Congress bestowed upon states incredible control over the funding’s implementation. States’ definitions of “disadvantaged communities” vary considerably, both in terms of the specific metrics utilized and the degree to which they impact the final classification. Depending on how a definition is crafted, some communities that genuinely struggle to obtain safe water might be ultimately excluded from certain financial assistance.

Current definitions and next steps

Classifying “disadvantaged communities” poses a significant challenge for states trying to address need while managing finite resources. Most states feature median household income (MHI) in their criteria. However, using MHI alone might mask the true costs burdening a community, such as when the cost of living in a community is relatively high compared to income. As of FY2022–2023, California recognizes several “tiers” of disadvantaged communities, or “DACs”: small, expanded small, small severely disadvantaged, and medium DACs. All tiers consist of communities with an MHI below 80 percent of the statewide MHI and are further differentiated based on the population served or number of service connections. Other states deviate from this approach. In Idaho, for example, a disadvantaged community is one where the annual cost of drinking water service exceeds 2 percent of income. In Oregon, a disadvantaged community is any community whose MHI falls below the state MHI.

The breadth of these approaches is positive and reflects the diversity within each state. However, all definitions may be improved by including certain metrics. In March 2022, the EPA’s Division of Drinking Water issued a memorandum discussing the definition of “disadvantaged communities” for water infrastructure funding. In it, the EPA suggested a variety of potential criteria that states could incorporate into their definitions including the percentage of the population utilizing public benefits, the degree of unemployment, or the relative affordability of the community. Nevada, for example, has just revised its definition from solely considering MHI to one that examines economic, environmental, and health issues a community faces. Wyoming, on the other hand, turned to a points system used to weigh factors based on income, population, and unemployment. As conditions or understandings of a state’s population change, it could revise the weight afforded to each factor. Utilization of a tiered system, like California, could likewise ensure that the greatest proportion of aid is delivered to those with the most need.

Defining “disadvantaged communities” may always be an iterative process. Regardless, through increased access to data and engagement of stakeholders, states can greatly improve the welfare of their most vulnerable communities.