“ if federal government didn't tax people so much, the state and local government could tax them more instead, to cover bigger share of the costs.”

I upvoted you and agree.

This is exactly my point, the power is at the federal level, and the state and municipalities rely on funds from ‘above’.

Here are some EPA federal grants for municipal water systems:

https://www.epa.gov/ground-water-and-drinking-water/drinking...

Sewer overflow grant:

https://www.epa.gov/cwsrf/sewer-overflow-and-stormwater-reus...

I Googled “epa muni water grants”.