America’s public funding landscape is changing rapidly. As Congress continues to make appropriations decisions, federal agencies revise grant programs, and states finalize budgets for the coming fiscal year, one trend has become increasingly clear. State and local governments are entering a period where documented public needs are growing faster than available public funding.
Federal and state dollars continue to support some important projects, but the extraordinary funding surge of the past is giving way to a more constrained and uncertain fiscal environment. America has entered a new and more difficult phase.
The extraordinary federal funding that became available after the pandemic helped state and local governments stabilize budgets, launch delayed projects, and address long-standing needs involving transportation, water, broadband, housing, and community facilities. While those capital investments produced visible results, decades of deferred infrastructure maintenance remain unaddressed. State and local officials are confronting a widening mismatch between the amount of public funding available and the cost of the projects they are expected to deliver.
Several of the largest temporary funding sources are now approaching their statutory conclusion; state revenue growth has slowed, and infrastructure needs continue to rise.
The clearest example is the American Rescue Plan’s $350 billion State and Local Fiscal Recovery Funds program. It provided flexible funding assistance that governments could use for water and sewer infrastructure, broadband, public health, housing, and other governmental services. All that funding must be spent by the end of 2026. No comparable federal program is scheduled to replace it.
By the end of 2026, local governments can no longer look to the program for project funding support. Communities will again depend primarily on traditional grants, state appropriations, local bond elections, user fees, and other revenue sources for critical needs that impact citizen services.
The Infrastructure Investment and Jobs Act is reaching a similar turning point. The law authorized a five-year surge in transportation, water, broadband, energy, and resilience funding. But fiscal 2026 is the final year for the law’s current appropriations. Unless Congress extends or replaces those funding levels, the pipeline of newly funded projects will begin to narrow even while previously announced projects remain active.
Water infrastructure illustrates both the scale of current federal assistance and the size of the remaining problem. The EPA announced $7.2 billion in fiscal 2026 allotments through the Drinking Water and Clean Water State Revolving Funds. Part of that funding, however, has already been reduced. Congress lowered the law’s fiscal 2026 lead-service-line replacement appropriation by $125 million. Now, the EPA estimates that approximately 4 million lead and galvanized service lines still require replacement nationwide.
Critical water needs extend far beyond lead pipes. EPA’s latest drinking water assessment earlier identified $625 billion in capital improvements that will be needed over the next two decades for water mains, treatment facilities, storage systems, and other drinking water assets. More recently another national clean water assessment identified at least another $630 billion in needs involving wastewater treatment, sewer systems, and stormwater infrastructure. Together, those studies document more than $1.25 trillion in water-related capital needs.
Transportation funding remains substantial as well. The U.S. Department of Transportation is making $1.5 billion available through the fiscal 2026 BUILD grant program for surface transportation projects with significant local or regional impact. At least $75 million is reserved for planning, preparation, and design. The program is important, but it is competitive, and available funding is small when compared with the number and estimated cost of projects currently on the priority lists of cities, counties, states, ports, and transit agencies.
Federal resilience funding presents another example. FEMA announced $1 billion in March of this year for the combined fiscal 2024 and fiscal 2025 Building Resilient Infrastructure and Communities funding allotment. Grant funding can support projects involving floods, fires, earthquakes, hurricanes, and other hazards. While the funding is significant, when divided nationally among state, local, and all other Tribal applicants at a time when disaster mitigation and recovery costs are placing historic pressure on public budgets, the amount is extremely small.
Other infrastructure needs remain immense. The American Society of Civil Engineers estimates that approximately $9.1 trillion in funding will be required to bring America’s infrastructure across 18 categories into a state of good repair. Its 2025 national report card awarded an overall grade of C, the highest grade since the organization began issuing the assessments. However, nine of the 18 infrastructure categories remained in the D or D-plus range.
The improved grade demonstrates that sustained investment produces results. But the data clearly reinforces the concern that progress will slow if the recent level of federal assistance is not maintained.
Most states are not financially positioned to replace the expiring federal funding. As of July 1, 2026, 45 states had enacted full-year budgets for fiscal 2027. According to the National Association of State Budget Officers, the proposed 2027 budgets that governors have proposed only call for a median spending increase of only 0.6 percent. Many states are also using targeted spending reductions, vacant-position eliminations, revenue increases, and other measures just to balance their budgets.
A majority of states are expected to finish fiscal 2026 with revenues above their original estimates, but substantial year-end surpluses are considered unlikely. States are predicted to enter 2027 with slow revenue growth, fewer surplus dollars, federal policy changes, and continuing demands for spending.
There is no national data that accurately measures how much state governments provide to local governments. That’s because states classify assistance differently. The national trend is nevertheless clear. State budgets are growing slowly while local governments are losing access to temporary federal funding. At the same time, states must continue funding education, corrections, employee health benefits, pensions and disaster response, leaving fewer resources available to assist local governments with critical infrastructure investments.
The funding problem is compounded by rising project costs. Even where appropriations remain level, the same amount of money will finance fewer miles of roadway, fewer water-system improvements, fewer affordable housing units and less money to spend on deferred maintenance for public facilities.
The issue facing public officials is therefore not the disappearance of all government funding. Federal and state programs will continue to support thousands of projects, but the concern is that extraordinary funding is receding while documented critical needs are expanding.
State and local officials must still address deteriorating roads and bridges, aging water systems, housing shortages, flood-control needs, schools, public safety facilities, ports, airports, broadband networks and other essential assets.
This reality is changing how public projects will be financed. Increasingly, government leaders will be required to combine federal grants, state appropriations, local bond proceeds, revolving loans, user revenues, infrastructure banks, public-private partnerships and private capital. Large projects will be less likely to rely on a single appropriation and more likely to require multiple funding sources and carefully structured financing plans.
America is not running out of worthwhile public projects. It is moving into a period when assembling the funding to deliver projects will become much more difficult. The immediate challenge for state and local government will not be deciding what to build or repair; it will be to determine how to pay for projects that cannot be postponed.
America is entering a period that will require unprecedented collaboration among government, private industry, investors, nonprofit organizations, and financial institutions. Public funding alone is unlikely to meet the nation’s growing infrastructure needs. The communities that make the greatest progress will likely be those whose leaders successfully assemble innovative partnerships and financing strategies that bring together both public and private resources to ensure that America’s infrastructure remains strong, its communities remain resilient, and the nation remains globally competitive.
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