This memo was prepared for and shared with the Biden-Harris administration by the MIT Washington office in June 2021.
Summary
Drinking water is unaffordable and inaccessible for surprisingly many households in US cities. Over the past five decades, federal contributions to water infrastructure spending declined precipitously relative both to spending on transportation and to local and state government spending on water investments (see graphs 1 and 2 below). Coupled with income stagnation of the poorest Americans (see graph 3) and bigger water bills, this has translated into an affordability crisis for household drinking water in this country. A survey of 20 of the largest U.S. cities and 10 regionally representative cities revealed that in the period from 2010-2018, the average monthly cost of water for a family of four using 50 to 150 gallons per person per day increased by over 50 percent [1]. Another recent study estimates that 471,000 U.S. households (or 1.1 million individuals) lacked a piped water connection—and that 73 percent of such vulnerable households were located in metropolitan areas [2]. In the 50 largest metropolitan regions, 53 percent of those without access were people of color and 61 percent were renters [3]. Based on the Environmental Protection Agency’s own 4.5 percent of income affordability benchmark, a 2016 study found that 1 in 10 households in the U.S. were faced with unaffordable water bills [4]. Many low-income families are paying anywhere from 4-19 percent of their monthly earnings on water and sewer bills [5].
See at top Graph 1 Federal Water vs Transportation Investments and Graph 2 Federal, State, Local Water Infrastructure Spending
Source: Value of Water Campaign (2017, p.4) Source: CBO (2015) Public Spending on Transportation and Water Infrastructure, 1956 to 2014
Customer assistance programs, where they do exist, have been unable to address the challenges facing utilities and reach those who need them. Utilities also report difficulty getting the poorest households to apply for support, and often face legal barriers to using rate revenues to assist to their poorest customers [6]. To ensure every American has access to safe, affordable water, the federal government should:
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Provide grant funding to cities to fill water infrastructure funding gaps that user payments alone cannot cover without hiking rates to problematic levels;
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Provide grant funding for low-income customer assistance programs to ensure that households pay for what they can afford and utilities receive the funds required for operations;
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Provide grant funding for research and pilot experiments to determine the most effective strategies for reaching and registering low-income households in customer assistance programs.
An affordability crisis
Over the last decade, water rate increases have far outpaced increases in other goods and services (shown in Graph 3 below). Further, household income growth hasn’t kept up (see Graph 4). This combination is challenging the widespread myth of affordable water coverage in the US—and especially in its cities. In California, for example, one-third of surveyed water systems in 2021 had rates deemed unaffordable by one or more state affordability thresholds. In Texas, over four-fifths of Austin’s low-income residents will face unaffordable bills within the next decade according to a recent investigation [7].
See at top Graph 3: Water/Sewer Rates and Graph 4: Mean Household Income – Lowest & Highest Quintiles
Source: Layne (2019) Water Costs are Rising across the US Source: US Census Bureau
To collect unpaid revenues, utilities use water disconnections, or shutoffs, which can pose health risks and deny access to sanitation. Depending on local policy regarding water liens and their sales, shutoffs can result in home foreclosures or interventions by child protective services. Because of the distribution of water burdens in the country, these threats disproportionately affect communities of color [8].
Why are we seeing such dramatic increases in water prices?
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Deteriorating infrastructure: Updates to our aging water infrastructure require massive capital investments, with costs estimated to be more than $1 trillion over the next 25 years [9]. In some cities, a fear of raising water rates has translated into the delay of necessary updates because of utility dependency on rate-payer revenues, putting water quality at risk. In others, where rates have increased, utilities still face capital investment funding gaps—and anticipate more as a result of COVID. An industry report estimates utilities will need to delay or reduce planned capital investments of approximately USD 5 billion annualized to address pandemic-related cash flow challenges [10].
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Decreased federal funding: EPA appropriations over the past decade have declined by about 20% compared to averages in the 1990s [11]. and decreased federal shares of project costs are leaving states and local governments unable to fill the funding gap.
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Shrinking cities: When city populations decline, required infrastructure investments remain. Water utilities collect more revenue from each user to make up the difference.
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A changing climate: Climate changes are affecting source water supply and quality. Further, climatic uncertainties make it difficult to accurately forecast water management costs, and investments in stormwater management and resilience measures are increasing utilities’ long-term capital costs. Without funding apart from user fees, expenses translate into rate hikes or new stormwater fees. Costs are passed onto users, regardless of their ability to pay. This is a regressive policy which needs adjustment to ensure that rate-payers alone are not carrying the costs of negative externalities created by climate change.
How are utilities and cities attempting to manage increasing unaffordability?
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New income-based rate structures are one way of increasing affordability, but in states such as Michigan [12] and California [13], legal and political barriers may limit their use. Shutoff moratoria keep vulnerable households connected to water, but many temporary Covid-19 moratoria are ending or have already ended.
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Some utilities offer customer assistance programs (CAPs) to help low-income, disabled, or elderly customers with debt assistance, bill discounts, or extended payment plans. Yet many utilities struggle to make connections to populations in need of assistance. CAPs are themselves underfunded and insufficient in the face of the structural income inequalities prevalent in many U.S. cities, where household incomes of the lowest quintile have remained stagnant while those of the highest quintile have sky-rocketed.
Recommendations
Given the challenges facing cities trying to provide safe, reliable water at an affordable price, the federal government should take three important steps to address the affordability crisis and increase equity:
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Grants should be available annually to cities to cover water infrastructure gaps that user bills alone cannot cover.
To meet increasing water demands, update decades-old systems nearing their end of life, build resilience, and ensure water is available to all families, water utilities will require more funding than user revenues alone can provide. To relieve pressure on cities and families and avoid a further spiraling of the affordability crisis in years to come, continually available city grants, rather than one-time capital investments, are needed to fill the funding gap to ensure that families do not face ever-increasing water bills. Utilities will face the need for critical infrastructure upgrades over different points in time, reflecting the different lifespan of physical infrastructures in their water systems. The American Jobs Plan includes funding for replacement of lead pipe service lines, but community water needs, the opportunity to create meaningful jobs, and the required capital investments for long-term sustainability go far beyond just eliminating these pipes over the next decade. New bills such as H.R.3291 and H.R.3293 recognize the urgent need for water debt relief, and H.R.3292 would establish an ongoing ability to provide federal affordability assistance, acknowledging the immense costs utilities will face over the next several decades as systems reach their end of life. The $56 billion in the Plan for water infrastructure improvement grants and loans will be extremely helpful, but continued grant funding, more than one-time capital financing, is needed to enable utilities to keep water bills low for families in need. Although S.914 provides some useful funding and federal cost sharing for small, rural, and disadvantaged communities, the majority of its capital is provided through the state revolving funds (SRFs), which operate largely through loans or debt refinancing and have been seriously diminished as a funding resource over the past five decades. Project financing alone cannot ensure that project costs are not translated into increasing water rates for low-income families. Both the Low-Income Water Customer Assistance Programs Act (H.R.3292) and S.914 both also call for national affordability needs assessments in line with this recommendation.
Based on previous EPA gap analysis [14] and state estimates, funding for such subsidies might require anywhere from $10-40 billion allocated yearly to repair our water systems and keep household bills affordable. State needs assessments or an updated EPA gap analysis can inform the exact size of these subsidies. As a reference value, in its 2021 needs assessment, California determined that it lacked $4.7 billion in funding to cover capital costs and user subsidies over the next 5 years. The EPA should ensure that states have the resources they need to assess their funding gaps.
Beyond simply an increase in financing dollars for SRFs, annual grants will serve as a more precise instrument for enabling communities to target their investments in the future of their water supply and system without denying access to lower-income populations.
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Federal grant funding for low-income customer assistance programs (CAPs) can ensure that households most in need pay only for what they can reasonably afford while helping utilities recover their real costs.
Utilities and community groups alike have reported that CAPs have been both underfunded and have not been reaching their target populations. State legislation can prevent utilities from using ratepayer revenues to fund CAPs [15]. Further, reaching vulnerable populations is not straight-forward and requires different assistance enrollment strategies in diverse contexts [16]. With utilities already struggling to fund basic infrastructure improvements, they are unable to divert further funding into community outreach programs that can build CAP enrollment for those who need it most. Federal funding for effective assistance programs can allow utilities to establish and improve outreach to those struggling with their water bills, enabling stronger CAPs that not only improve equity in water access for those on the margins, but also benefit utility financial health and decrease administrative costs [17].
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Support for research on strategies to reach and engage affected populations with customer assistance programs will help make these initiatives more effective.
To systematically improve outreach, funding for studies and pilot programs to determine effective methods of targeting and enrolling populations in need across diverse cities and regions can help utilities across the United States find innovative and locally effective ways of administering assistance. By identifying both general and context-specific strategies for success, we can ensure that communities can manage increasing costs in a way that does not jeopardize access to clean water to any American, regardless of income, class, or race.
Authors
Laura Chen, Undergraduate Researcher, Department of Chemical Engineering;
Gabriella Carolini, Associate Professor of Urban Planning and International Development, Department of Urban Studies and Planning;
Lawrence Susskind, Ford Professor of Urban and Environmental Planning; MIT Vice-Chair, Program on Negotiations at Harvard Law School, Department of Urban Studies and Planning
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Walton, Brett. (2018) Price of Water: Utilities Revise Household Water Rate Formulas https://www.circleofblue.org/2018/water-management/pricing/price-of-water-2018/
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Meehan, Katie, Jason R. Jurjevich, Nicholas M. J. W. Chun, Justin Sherrill (2020) Geographies of insecure water access and the housing–water nexus in US cities. Proceedings of the National Academy of Sciences Nov 2020, 117 (46) 28700-28707; DOI:10.1073/pnas.2007361117
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Ibid.
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Mack, Elizabeth, Wrase, Sarah. (2017) A Burgeoning Crisis? A Nationwide Assessment of the Geography of Water Affordability in the United States. PLOS ONE 12(4): e0176645. https://doi.org/10.1371/journal.pone.0176645
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Jones, Patricia A., Moulton, Amber. (2016, May). The Invisible Crisis: Water Unaffordability in the United States. Unitarian Universalist Service Committee. https://www.uusc.org/waterreport/uusc-invisible-crisis/
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Walton, Brett (2016). Water Bill Assistance for the Poor Hindered by State Laws. https://www.circleofblue.org/2017/water-management/water-bill-assistance-poor-hindered-state-laws/
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Lakhani, Nina (2020) Millions of Americans Can’t Afford Water, as Bills Rise 80% in a Decade. https://www.consumerreports.org/personal-finance/millions-of-americans-cant-afford-water-as-bills-rise-80-percent-in-a-decade/
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Montag, Cory. (2019, May). Water/Color: A Study of Race and the Water Affordability Crisis in America’s Cities. NAACP Legal Defense and Educational Fund, Inc. https://www.naacpldf.org/wp-content/uploads/
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American Water Works Association. (2012, Feb). Buried No Longer: Confronting America’s Water Infrastructure Challenge. American Water Works Association. https://www.awwa.org/Portals/0/AWWA/Government/
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Raftelis (2020). The Financial Impact of the COVID-19 Crisis on US Drinking Water Utilities.
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Congressional Research Service. (2019, Apr 10).Water Infrastructure Financing: History of EPA Appropriations. Federation of American Scientists. https://fas.org/sgp/crs/misc/96-647.pdf
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Owens, Keith A. (2016, Feb 10). Making water affordable for Detroiters: DWSD's affordability plan. Michigan Chronicle. https://michiganchronicle.com/2016/02/10/making-water-affordable-for-detroitersdwsd-
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Public Policy Institute of California. (2014) Paying for Water in California: Technical Appendices. https://www.ppic.org/content/pubs/other/314EHR_appendix.pdf
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Walton, Brett (2016). Water Bill Assistance for the Poor Hindered by State Laws. https://www.circleofblue.org/2017/water-management/water-bill-assistance-poor-hindered-state-laws