Unlocking Hidden Value: How Small Utilities Can Maximize Infrastructure Funding

Small water utilities face unique funding challenges, but with the right approach, they can access millions in infrastructure dollars. Recent federal initiatives have created unprecedented opportunities, with the Infrastructure Investment and Jobs Act providing $11.7 billion through Clean Water State Revolving Funds and USDA offering specialized programs for communities under 10,000 residents. Discover proven strategies—from regional collaboration to technology tools—that help small systems secure critical funding while keeping rates affordable.

Vinod Jose

Founder & CEO

Published :

Apr 30, 2025

A small rural water treatment plant with aging infrastructure alongside a modern funding document. The image contrasts a water tower and treatment facility in a small town setting with a clipboard showing grant applications and financial planning documents, symbolizing the path from infrastructure challenges to funding solutions.

Small water utilities serving populations under 10,000 make up more than 80% of all water systems in America, yet they often struggle the most to secure infrastructure funding. These utilities face unique challenges: limited staff and expertise, smaller revenue bases, and difficulty competing with larger systems for grants and loans. However, with the right approach and tools, small utilities can unlock substantial funding opportunities that many overlook.

The Small Utility Funding Dilemma

Small utilities operate at a significant disadvantage when pursuing infrastructure funding. Their challenges include:

Limited Resources: Many small systems operate with minimal staff who already juggle multiple responsibilities. Finding time to research funding opportunities, prepare applications, and manage complex projects presents a significant hurdle. According to a 2023 report, water utility workforce shortages make accessing infrastructure funding an even bigger task for small systems' overworked staff, despite desperate needs [3].

Technical Capacity Gaps: Smaller utilities often lack specialized expertise in engineering, financial planning, and grant writing—skills essential for successful funding applications. The Bureau of Labor Statistics estimates that 8.2% of existing water operators will need to be replaced annually between 2016 and 2026, creating additional expertise gaps [6].

Creditworthiness Concerns: With smaller customer bases and limited reserves, some small utilities struggle to demonstrate the financial stability that certain funding programs require. From 2010 to 2020, rural communities faced a 41% increase in water and sewer utility rates, compared with just a 27% increase in suburban areas, further straining their financial positions [27].

Competition with Larger Systems: When applying for competitive funding, small utilities may be evaluated against sophisticated proposals from large urban systems with dedicated grant teams. An analysis of EPA Safe Drinking Water Act violation data nationwide found small water systems have been slower to reduce their violations than larger systems [3].

Regulatory Complexity: Keeping up with changing regulations while managing daily operations stretches small utility staff thin, leaving little capacity for strategic funding pursuits. The EPA reports that regulatory requirements for utilities continue to increase due to rising enforcement of long-standing requirements and the creation of new ones [28].

Despite these challenges, small water systems can access numerous funding programs specifically designed for their needs.

Key Funding Programs for Small Utilities

Several programs offer particularly valuable opportunities for small water systems:

USDA Rural Development Water and Environmental Programs: These programs specifically target rural communities with populations under 10,000. They offer a combination of loans and grants with terms as favorable as 75% grant funding for economically disadvantaged communities. The USDA is proud to be the only federal program exclusively focused on rural water and waste infrastructure needs of communities with populations of 10,000 or less [9]. In 2024, Congress provided USDA with substantial funding for rural water infrastructure, with $4 billion last year and $1.9 billion this year to assist with water and wastewater infrastructure in rural communities [12].

Small and Disadvantaged Communities Program: Established under the Water Infrastructure Improvements for the Nation (WIIN) Act and expanded through the Infrastructure Investment and Jobs Act (IIJA), this program provides grants to help underserved communities meet Safe Drinking Water Act requirements. The IIJA invested more than $30 billion for drinking water capital improvements, including funds for "small and disadvantaged communities" [2].

State Revolving Fund (SRF) Small System Set-Asides: Most states allocate a percentage of their SRF funding specifically for small systems. The Infrastructure Investment and Jobs Act provides $11.7 billion through the Clean Water State Revolving Fund, with 49% of funding available as grants or principal forgiveness, which creates a pathway for communities that might not otherwise access traditional CWSRF loans [1].

Technical Assistance Grants: Programs like the EPA's Training and Technical Assistance for Small Systems provide resources to help small utilities build capacity and address technical challenges. The EPA's capacity development program helps small system owners and operators, state and tribal agencies, technical assistance providers, and consumers improve small water systems' finances, management, infrastructure, and operations [25].

Emergency Community Water Assistance Grants: This program helps prevent damage or restore households' and businesses' access to clean, reliable drinking water in eligible rural areas and towns following natural disasters [18].

Strategies for Funding Success

Small utilities can maximize their funding potential through several proven strategies:

Develop a Comprehensive Capital Improvement Plan (CIP): Even a basic CIP documenting infrastructure needs, priorities, and estimated costs significantly strengthens funding applications. It demonstrates foresight and planning capacity to funders. Asset management plans can help improve decision-making to benefit ratepayers and communities, and many states require utilities to implement these plans as a condition of receiving public funds [2].

Pursue Regional Collaboration: Partnering with neighboring small systems can create economies of scale, share costs for technical expertise, and make applications more competitive. Regional approaches often receive preferential consideration from funding agencies. Formal and informal collaboration with neighboring utilities and community partners can boost capacity to address infrastructure and affordability concerns together [29].

Leverage Technical Assistance Providers: Organizations like Rural Community Assistance Partnership (RCAP), National Rural Water Association (NRWA), and state rural water associations offer free or low-cost assistance with funding applications and technical requirements. NRWA has identified over 100 non-federal actions that can be performed at no cost to utilities through their state associations [12].

Focus on Compliance and Public Health: Projects addressing regulatory violations or documented public health risks typically receive priority in funding decisions. Clearly documenting these connections strengthens applications. In 2023, ten states along the Mississippi River saw increases in violations newly reported by small water systems, indicating ongoing compliance challenges [3].

Understand Affordability Metrics: Many programs provide more favorable terms based on measures like Median Household Income (MHI) and user rates as a percentage of MHI. Understanding how your community ranks on these metrics is essential. Small, disadvantaged communities usually face water rates that exceed levels considered affordable because of their small base of ratepayers [2].

Coordinate Multiple Funding Sources: Combining funding from different programs ("braiding") can maximize grant components and reduce local cost burden. For example, one case study shows a city qualified for a $900,000 SRF interest-free loan, received commitments from the federal Rural Utilities Service for a $1.3 million grant and $50,000 loan, plus $400,000 from HUD [5].

Technology as a Game-Changer

Modern data intelligence platforms are transforming how small utilities approach funding challenges:

Funding Match Automation: Advanced platforms can automatically identify programs matching a utility's specific profile and needs, eliminating hours of research. The EPA's Water Finance Center provides tools to help communities identify appropriate funding sources [25].

Application Optimization: Data analytics can highlight the most compelling elements to emphasize in applications based on successful funding patterns. This is particularly valuable when small utilities face potentially duplicative application requirements when applying to multiple programs [4].

Documentation Support: Smart systems streamline the gathering and presentation of supporting data required for applications. Engineers have estimated that preparing additional preliminary engineering work could cost anywhere from $5,000 to $50,000, and additional environmental analysis could add $500 to $15,000 to a community's costs [4].

Deadline Management: Automated tracking of application windows and requirements prevents missed opportunities. This is crucial as federal and state agencies have worked to develop coordinated processes, including a standard engineering report that communities can use to apply for funding from multiple agencies [4].

Compliance Verification: Technology can verify eligibility requirements are met before investing time in applications. This addresses the concern that rural communities typically pay for drinking water and wastewater infrastructure through rates charged to users, but often don't have enough users to share the cost of major projects while maintaining affordable rates [4].

Success Stories: Small Systems Making Big Gains

Coventry Fire District No. 1, Vermont: This small utility received a $298,000 loan and a $992,000 grant from USDA Rural Development to upgrade their water system. The project included replacing deteriorated water lines and adding an arsenic, iron, and manganese removal system to address health and safety issues and comply with the Vermont Water Supply Rule [16].

City of Justin, Texas: The city successfully applied for a SWIFT (State Water Implementation Fund for Texas) loan in 2017 for an enhanced water loss control and conservation program. They received $12 million in funding for design and construction of major water mains, utilizing the program's convenience and flexibility to secure low-interest financing [20].

Woodland-Davis Clean Water Agency, California: This joint powers authority for small communities assessed potential climate impacts using the EPA's Climate Resilience Evaluation and Awareness Tool (CREAT). This allowed them to evaluate several drought management strategies to strengthen their system's operational resilience in the face of extreme drought conditions [22].

Okieville Highland Acres Mutual Water Company, California: In this rural community, residents were historically reliant on drought-vulnerable domestic wells. In 2016, after forming a new water system, they secured a $500,000 emergency community water assistance grant from USDA to invest in water supply infrastructure [7].

Centerville, Iowa (Population 5,500): By leveraging data analytics to identify optimal funding sources, this small utility secured $8.2 million for water system improvements, with 75% in grants and forgivable loans, keeping rate increases minimal.

Moving Forward: Action Steps for Small Utilities

1. Assessment: Conduct an honest evaluation of infrastructure needs, financial capacity, and technical capabilities.

2. Planning: Develop even a basic capital improvement plan documenting priorities and timelines.

3. Research: Identify funding programs aligned with your community's profile and needs.

4. Partnership: Connect with technical assistance providers and neighboring utilities.

5. Technology: Consider how data intelligence tools can streamline the funding process.

6. Application: Prepare compelling applications emphasizing compliance, public health, and community impact.

7. Management: Develop systems to track deadlines, requirements, and documentation.

Small utilities face unique challenges, but they also have unique opportunities in today's funding landscape. By understanding available programs, implementing smart strategies, and leveraging modern technology, small water systems can transform their infrastructure funding outcomes and ensure sustainable operations for decades to come.