U.S. water sector policy changes

By Dr. Reshmina William and Cristina Ahmadpour

The U.S. water sector is facing a wave of uncertainty in the wake of recent federal actions that could significantly impact funding, workforce stability, and infrastructure costs. At Isle, we are closely monitoring these developments to help industry leaders navigate the shifting landscape and prepare for potential disruptions.

Executive Order 14154: A Pause on Federal Infrastructure Funding

On January 20, 2025, the Trump Administration issued Executive Order 14154, “Unleashing American Energy,” temporarily halting the disbursement of funds under the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA). A subsequent directive from the Office of Management and Budget (OMB) instructed agencies to pause any activities related to federal financial assistance, including climate-focused initiatives tied to the Green New Deal.

Although the OMB directive was rescinded on January 29, 2025, following legal challenges, some agencies continue to freeze the disbursement of IIJA and IRA funds. This has triggered ongoing litigation and created significant uncertainty for infrastructure projects reliant on federal support.

State Revolving Funds (SRFs) remain largely unaffected, and the Environmental Protection Agency (EPA) continues to distribute funds to grant and loan recipients. However, IRA and IIJA funding tied to climate resilience, mitigation, and diversity, equity, and inclusion (DEI) initiatives remain vulnerable. Notably:

• $32 billion in IRA-authorized grants have not been awarded, including $20.5 billion allocated for EPA programs.
• FY26 IIJA funds, including supplements for SRFs, are still in limbo.
• Key funding streams for greenhouse gas reduction and Justice40 provisions are at risk, particularly those under the Department of Energy, EPA, and Bureau of Reclamation.

Federal Workforce Reductions: Delays in Environmental Regulation

The U.S. Department of Government Efficiency (DOGE) has mandated significant reductions in the federal workforce, impacting the EPA’s ability to advance regulatory initiatives. In the past month:

• 1,100 probationary EPA employees have been terminated, with 168 more placed on administrative leave.
• Additional layoffs are anticipated, potentially slowing the rollout of critical environmental regulations.
• Regulations that may be delayed include new ambient water quality criteria for per- and polyfluoroalkyl substances (PFAS) and sewage sludge risk assessments.

New Tariffs: Rising Costs for Water Infrastructure

On March 4, 2025, the administration implemented sweeping tariffs, including:

• A 25% tariff on imports from Canada and Mexico.
• A 20% tariff on imports from China.
• A 10% tariff on Canadian energy imports.

These measures are expected to increase costs for water infrastructure projects, particularly for materials like steel and aluminum. The National Utility Contractors Association (NUCA) reports that nearly 25% of U.S. construction steel and 50% of aluminum are sourced internationally, meaning these tariffs could significantly impact supply chains. Additionally, the Association of Equipment Manufacturers (AEM) estimates that tariffs could increase U.S. production costs by 7%, compounding financial pressures on utilities and engineering firms.

Industry Sentiment: How Water Leaders Are Responding

During a March 2025 gathering hosted by Isle in Washington, D.C., 55 water infrastructure leaders shared their perspectives on these policy shifts. Key takeaways included:

• Planning for Resilience: Despite funding uncertainties, utilities should continue designing projects to remain shovel-ready. Delays in planning could lead to increased costs and missed opportunities when funding becomes available.
• Adapting Grant Strategies: Organizations may need to revise language in funding proposals, particularly regarding references to environmental justice and climate change, to align with shifting federal priorities.
• Exploring Alternative Financing: Utilities with strong credit ratings are considering municipal bonds over WIFIA loans to mitigate uncertainty and secure lower interest rates.
• Opportunities for Innovation: The administration is expected to favor projects co-located with industry and manufacturing. This could unlock new regional partnerships focused on water reuse, security, and sustainability.

Looking Ahead

The U.S. water sector is navigating a period of significant change, but with strategic planning, utilities and industry leaders can position themselves for long-term success. At Isle, we remain committed to supporting our partners through informed analysis, collaborative solutions, and a forward-thinking approach to water infrastructure development.

What are your thoughts on these federal actions? How is your organization adapting to the evolving funding landscape? We welcome your insights and invite you to continue the conversation.

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