This paper has been prepared by the U.S. Environmental Protection Agency's Office of Water as part of its State Funding Study. It examines the need for increased funding to support implementation of state program requirements under the Clean Water Act and the Safe Drinking Water Act. It then identifies alternative financing mechanisms that can be used, together with general revenues, to fund state water quality programs. It also describes several financial management options that are designed to maintain control over and provide flexibility in managing program resources, as well as institutional arrangements that can offset program costs and leverage state resources. Finally, it lists steps that EPA can take to support the use of alternative financing mechanisms by states and assist states in closing the funding gap in water programs.