TIrroughout the debate over re-authorization of the Safe Drinking Water Act (SDWA), it has been clear that members of both Houses of Congress are keenly aware of the financial burden facing the owners of small water systems in their efforts to comply with the 1986 and future amendments to the SDWA. The most reliable source of funds for drinking water and wastewater improvements for small systems has been the Water and Waste Disposal Loan and Grant Program administered through the Rural Utilities Service (RUS) of the USDA's Rural Development mission area. This report provides some background of the RUS loan and grant program. Specific attention is directed towards New York's Rural Development efforts where we develop small system cost models related to treatment and distribution improvements. Over the past 50 years, RUS has been the primary source of low-cost financing to rural water and waste disposal systems, providing over 35,000 loan and grant funding packages totaling nearly $18 billion. Despite the recent increases in obligations in nominal terms, the real purchasing power of these funds has yet to rebound to pre-1980 levels. Due to EPA's efforts to enforce the 1986 and later amendments to the SDWA, combined with the aging of water system infrastructure, the demand for these funds consistently outweighs available obligation levels. Data from nearly 150 small water system improvement projects in New York State receiving RUS funding are evaluated to determine the extent of improvements related to SDWA regulations. Operating revenues and expenses are relatively similar across the state; however residual funds for future capital improvements after reducing net incomes by principle and interest payments are nonexistent. While public water systems should not accumulate large surplus funds, the small residuals remaining are surely insufficient to support any major capital improvements in the future. The costs of treatment varied widely by treatment technology and system size. An indirect cost function was specified regressing annualized treatment and operating costs on system population, water source, and treatment variables. While the economies are substantial for very small systems, for some technologies, they are nearly exhausted at service populations of around 3,300. An indirect cost function for distribution and transmission improvements was specified. These models are useful in comparing the tradeoff between economies of size of treatment to the associated diseconomies of distribution and transmission.