The federal government has provided the state one-point-five billion dollars to make loans and grants to water systems across the state.
But since October 2012, about a half billion dollars remains unspent.
EPA Regional Administrator Jared Blumenfeld says in many cases the money has been committed, but the projects are not "shovel-ready".
As a result, other communities' drinking water needs remain unmet.
"We need to make sure that there's a schedule for how to spend it properly and do it quickly," says Blumenfeld. "There are many projects out there. Our last estimate is that California has about 39-billion dollars of drinking water infrastructure needs."
California's Department of Public Health administers the drinking water program. It has 60 days to come up with a plan to spend the money, or risk losing it.