To amend the Federal Water Pollution Control Act.

Directs the Administrator of the Environmental Protection Agency to make grants: (1) under the Federal Water Pollution Control Act (the Act) to appropriate instrumentalities for the construction of treatment works (including combined sewer overflow facilities) to serve coastal localities; and (2) to States for assistance for the construction of treatment works and alternative wastewater treatment systems to serve small communities. Authorizes appropriations.

Modifies the Act's: (1) definition of "treatment works" to include acquisition of the land that will be an integral part of the treatment process or will be used for ultimate disposal of residues resulting from such treatment and acquisition of other lands, and interests in lands, which are necessary for construction; and (2) policy on cost effectiveness to provide that a project for waste treatment and management undertaken with Federal assistance by any State, municipality, or intermunicipal or interstate agency shall be that system which constitutes the most economical and cost-effective treatment works, subject to specified requirements.

Requires that each permit issued for a discharge from a combined storm and sanitary sewer conform with the combined sewer overflow control policy signed by the Administrator on April 11, 1994. Authorizes the Administrator or a State with an approved program to issue a permit for such a discharge that includes a schedule for compliance with a long-term control plan under the control policy up to 15 years, subject to extension under specified circumstances.

Modifies the Act to allow sums available to each State water pollution control revolving fund to be used only for providing financial assistance to activities which have as a principal benefit the improvement or protection of water quality of navigable waters to a municipality, intermunicipal, interstate, or State agency or other person. Extends the repayment period for loans from a State water pollution control revolving fund for disadvantaged communities. Permits the State, in making a loan to a disadvantaged community, to charge a negative interest rate of not to exceed two percent to reduce the unpaid principal of the loan, subject to specified limitations.

Revises Act provisions regarding the allotment of funds to set forth a table of percentages of sums authorized for various States for FY 1996 through 2000.

Authorizes appropriations.