Here, we explore some common approaches to address unaffordable water services at the local, state, and federal scale. While vitally important - we also need to re-imagine how we provide water services in the U.S. to address the underlying problems resulting in unaffordable water for so many. This may include revisiting how we regulate water quality, set minimum wages, and provide social safety nets. There are many struggling households (between 5% and 14% in each state) that earn less what is needed to meet basic needs. The solutions outlined below are by no means an exhaustive list but a roadmap to get started.
The rows of the chart represent the scale of the activity (policy or implementation) from the local to the federal government. The columns represent different solutions. If a space is blank it indicates little or no active role. The household row at the bottom represents the number of households affected by the potential solution with blue persons representing no impact, red persons representing a direct beneficiary and golden persons representing potential, indirect beneficiaries.
Potential solutions for affordability by category
Click on an icon to learn more below
Customer Assistance Programs, or CAPs, use bill discounts, special rate structures, and other means as an approach to help financially constrained customers maintain access to drinking water and wastewater services. The Environmental Policy Innovation Center is one of the few studies we are aware of that has looked at how effective CAPs have been in the U.S. Much of what is described below comes from their report: H2Affordability: How Water Bill Assistance Programs Miss the Mark. The Environmental Finance Center at UNC is another group that has looked at CAPs, particularly the legal pathways for utilities to fund CAPs.
Customer Assistance Programs, or CAPs, are bill discounts, special rate structures, and other means as an approach to help financially constrained customers maintain access to drinking water and wastewater services. CAPs are created and maintained by the utility. However, few water utilities offer CAPs.
In order for a utility to create a CAP, they must have the:
+ maps showing the ability for utilities to implement CAPS from customer revenues
State regulations on rate revenues can differ based on ownership type. This means in some states a privately owned utility can generate revenues to fund a CAP from their customers while a locally owned utility cannot (or vice-versa). In many states, the policies are not clear. Regulations that prohibit using customer revenues to pay for a CAP (subsidize other customers) were often established to ensure fairness between customers. Unfortunately, some of these policies make it difficult or possible for utilities to use rate revenues to subsidize those who cannot afford water services.
There are many utilities providing different water services in the U.S. (why are there so many?), and this has led to the creation of many different types of CAPs with different scope, eligibility guidelines, and level of relief.
The creation and administration of local CAPs programs is limited by state policies, the financial, managerial, and technical capacity of the utility, and often by whether there are local organizations willing to partner in overseeing a CAPs. An estimated 31% of large utilities (serving more than 100,000) have a CAPs and that number decreases with the size of the utility. There is a cost for local utilities to create CAPs, which ironically will likely increase overall utility costs that are then passed down to customers.
Utilities design CAPs to help specific types of households with low-income, with fixed-income, or in crisis to afford their water bills. This is really important given the cost for water services has been rising (how do rising costs affect affordability?). The specific types of households a CAP may seek to reach include senior citizens, those with disabilities, those in crisis (lifelines), and/or low-income customers (definition varies by utility). Many utilities only offer CAPs for homeowners. This is in part because many apartments, particularly in older cities, have a single meter. The apartment collects the water bill and charges renters. The utility does not have a direct line of communication with renters, making it extremely difficult to provide customer assistance. This is a significant problem for utilities wishing to reach low-income customers, many of whom are renters.
Unfortunately, few utilities have a CAPs to help struggling customers, and those that do often have great difficulty finding and enrolling customers into the program for various reasons including an inability to reach renters, social stigma, and the benefit does not exceed the cost to apply. As the recent EPIC report noted, enrollment in CAPs is "notoriously" low despite considerable efforts to reach households. Where data are available, it seems the typical enrollment rate is around 10-15% of eligible households.
CAPs provide essential support to those struggling to pay for water services. The EPIC report found that the average bill discount for an enrolled customer was 33%, ranging from 12% to 80%. Preliminary work exploring CAPs in 40 California utilities and 20 Texas utilities suggests the median savings range between 13% and 35% depending on the type of target customer of the CAP (low-income having the lowest savings relative to senior, disabled, or lifeline customers). The effectiveness of CAPs is difficult to assess given limited data availability.
The EPIC report made several policy recommendations for utilities with CAPs or who are interested in establishing a CAP.
Rate structures set the rules for how a utility calculates customer charges. A utility designs their rate structures to meet multiple goals such as revenue stability, cost recovery, promote conservation, and affordability. You can learn more about rate structures and how they are used to calculate customer bills here. The Environmental Finance Center at the University of North Carolina has many resources exploring rate design and has a tool to assess the affordability of residential rates. This potential solution involves designing rate structures so they provide "enough" water to meet basic needs at low costs.
There has been much research around rate structures for affordability that we are summarizing briefly here. In general, the most popular rate structure for affordability purposes are increasing block structures, which means the cost for each gallon of water or cubic foot increases with higher water use. The "block" refers to the range of water use that is charged the same price. Low volumes of water (such as the first 2000 gallons of water used) are charged a very low price. Some utilities consider it "free", but often the cost has been embedded within the fixed service charge. The ideal rate design for affordability purposes is highly debated and cannot be separated from the other purposes of rates. For example, the rates must be sufficient to recover costs, there are often rules about treating customers within the same class equally (in other words wealthier customers may not be allowed to subsidize poorer customers), they may be designed to encourage conservation or to provide revenue stability. All of these goals are embedded within rate structures and those goals will vary from utility to utility.
(1) They must recover the full cost of operations from their customers. (2) They may encourage behavior by largely increasing the cost of water with high usage. (3) They may improve affordability by making fixed costs and low usage inexpensive and increase rates for usage above those estimated as needed to meet basic needs. Developing rate structures to meet all three goals (and more) is difficult.
The theory is that lower fixed rates and lower costs for basic water usage gives low-income customers the opportunity to lower their bill by using less water. However, no matter how rates are structured a higher percentage of a low income households revenue will go towards paying for water services than a household with higher incomes. It is also very difficult to design rates because how much water is "enough" water? This is particularly challenging since household sizes vary from 1 person to 8 or more persons. Additionally, in some utilities, low-income households primarily rent or live in multi-family units that have a different rate structure from residential households and may not benefit from affordable rate structures.
Rate design is something all utilities must do; however, not all utilities have the capacity to create rate structures designed for affordability. This may be a challenge due to state policies governing rate design (especially between private and public utilities) and the capacity of the utility to design and administer such a program. Some utilities, particularly wastewater utilities recover costs through a single fixed charge to households. This may be due to lack of metering or access to metered data or not having the data systems necessary to administer more complicated bills.
Utilities that design rates for affordability are applying those rates to all households. However, some utilities distinguish apartments as residential customers, some as multi-family customers, and some as commercial customers. The utility may design affordable rates for residential customers but not carry those designs to multi-family or commercial customer classes. Furthermore, many apartments have a single meter for all residents (which will be a very high water usage each month and not benefit from affordable rate designs) and then divide the bill among their residents. Another challenge is that low-income households may occupy older buildings or rental properties that are not water efficient (either old fixtures or leaking pipes). These households will inevitably have higher water usage and not be able to benefit from affordable rate designs unless coupled with a water efficiency program. While affordable rates theoretically could apply to all households, they in practice may be unable to do so.
The effectiveness of rates designed for affordability is difficult to assess given limited data availability. We are not aware of any study that has done this analysis; however, literature to date suggests that rate design cannot achieve affordability objectives on its own.
Gregory Pierce at UCLA has written an article summarizing research and listing some recommendations around rate structures. There are many organizations that have thought deeply about rate design for affordability including Raftelis, the American Water Works Association, and the Institute of Public Utilities at Michigan State.
Water efficiency programs are designed to reduce the amount of water a household uses, and by extension, their water bill. While there has been extensive study on the effect of water efficiency programs on how much water has been used, we are not aware of studies showing the affect on household affordability. Much of the description here comes from an excellent summary by Pierce et al. of approaches to addressing the affordability challenges of water services
Water efficiency programs are designed to reduce household water use by helping households adopt water efficient technologies (such as tap fixtures and low-flush toilets), landscape changes to reduce watering, and leak detection and repair. These programs are voluntary and often find that higher income households are more likely to participate in these programs because they have the money to upgrade fixtures. If the water efficiency programs are not subsidized or offer payment plans, then low-income households do not have the luxury to participate. This is problematic, especially because low-income households are more likely benefit from water efficiency programs because they often live in places with leaky fixtures that undermine their ability to conserve water. Additionally, many renters do not have the ability to participate in a water efficiency program to lower their bill (nor would they accrue all the benefits if water is charged a fixed cost or by a shared meter). Similarly, because landlords do not pay the cost of water, they may have little incentive to participate in these programs.
Any utility, or any partnering organization, can set up a water efficiency program. Water efficiency programs can be a part of a water conservation program (which often includes other activities such as messaging, rate design, and so on).
Higher income households are more likely to participate in water efficiency programs unless those programs offer rebates or cover the full cost of services for low-income households. Participation rates can vary wildly depending on the water efficiency program and the age of houses in the community. Communities with a lot of new housing may not experience much benefit from water efficiency programs.
We are not aware of a comprehensive study exploring the revenue savings from participating in a water efficiency program. However, studies have looked at overall household water usage changes. From 1999 to 2016 the average indoor water use has decreased by 22% as new homes adopt more water efficient technologies and older homes replace broken fixtures. This is not including the presence of water conservation programs. A study specifically exploring the impact of water conservation programs in three utilities California found a 5% reduction in water use that translated to a 3% to 25% reduction in household bills depending on the household and the rate structures.
Utility financing refers to how a utility borrows money to pay for large expenses that exceed their reserves. In other words, how a utility borrows money. Since customers are the primary way revenue is generated to pay off debt (see how do utilities finance infrastructure), the way utilities finance infrastructure has an indirect impact on rates and affordability. EPA estimates that 472.6 billion is needed over the next 20 years to replace aging drinking water and wastewater infrastructure and $271 billion is needed for wastewater infrastructure in the next 10 years. As utilities make these financial investments, user fees will increase to cover the costs since customers are the primary source of utility revenues. From 2012 to 2018, monthly drinking water rates increased by 31%, and it is projected that 36% of households will not be able to afford the cost of drinking water by 2024 (Drinking Water Report Card). Since the costs of infrastructure improvements and new treatments (such as regulating PFAS and PFOA) are passed on to utility customers, understanding utility financing is crucially important for affordability.
Much of the discussion around utility financing comes from a recent article written by Richard Greer: A review of public water infrastructure financing in the United States and Erika Smull et al. (in review). Affordability is linked to utility financing because the financing of infrastructure projects are ultimately paid for by customers over time. There are several ways to finance projects and none are mutually exclusive. Utilities may have State Revolving Funds for one project and municipal bonds for another and engage in a Public-Private-Partnership on a third project. Here, we outline the following utility financing options:
+ Learn about State Revolving Funds (SRFs)
The federal government has provided significant funding for the planning, design, and construction of treatment facilities for drinking and wastewater utilities as regulations are passed to protect public and environmental health. The Clean Water Act (CWA) in 1972 included the creation of a major public works financing program for wastewater treatment plants with the federal government providing grants covering up to 75% of capital infrastructure costs because requiring the best available technology is enforceable. Since 1970s, Congress has authorized $65 billion and appropriated more than $94 billion in funding. In 1987, an amendment to the CWA shifted the financial burden from federal grants to state and local loans through a State Revolving Fund (SRF) that must be repaid by customers. The legislation authorized $18 billion over nine years; however, Congress has continued to provide annual appropriations since 1994.
Data from a CRS report: Funding for EPA Water Infrastructure
Similarly, the Safe Drinking Water Act (SDWA) in 1974 required public water systems to adopt certain treatment technologies to ensure the water provided was safe for the public. The majority of medium or smaller utilities could not afford the required treatment technology. In a 1996 amendments, Congress created a drinking water SRF (DWSRF) that authorized EPA to make grants to states, who then distribute funds as loans to utilities. States must provide a 20% match for federal grants and each state is guaranteed to receive 1% of appropriated funds. Similarly, Congress intended the capitalization of the DWSRF to last for 10 years, but they have continued to authorize funds. The 1996 amendments also required EPA to prioritize assisting smaller utilities by providing funds not just for capital infrastructure, but also to support building financial, managerial, and technical capacity.
The movement from federal grants to state-managed revolving loans accomplished two important tasks. First, it shifts the responsibility for project selection and partial financing to state governments more familiar with their local governments and needs. Second, it recognized the financial need far exceeded the capacity of the federal government to provide grants. Instead, the combination of federal (seed money), state (20% match), and local (repays loans over time with low interest) creates a growing amount of money to continue drawing from in the future.
Figure from Hansen et al. (in review). A link to the paper will be added once published.
+ Learn about the municipal bond market
The municipal bond market is approximately 4 trillion USD. The massive size of the market is due to the diverse range of state and local government entities that rely on the market to finance their infrastructure, which tends to require large upfront fixed costs. The market includes state governments, local governments, utilities, schools, transit authorities, hospitals, and public housing. Approximately two-thirds of the nation’s infrastructure is financed with municipal bonds.
Bonds work similarly to loans where an issuer (such as a utility) borrows money from the market (private investors) and must repay the debt plus interest over time. Municipal bonds are sometimes exempt from federal income tax, which benefits the issuers and investors alike and has also driven the use of municipal bonds. Increasingly, municipal bonds are taxed. Most water utilities issue revenue bonds instead of general obligation bonds, meaning the bonds are secured solely by the revenue the water utility generates, and not the taxing power of the municipality. Many utilities have increasingly relied on municipal bonds since the late 20th century, which exposes the utilities to risk from market and economic trends. Risk comes from interest rates, credit ratings, tax policy revisions, increased investor demand, and financial crises.
The utility issues debt to the market. The credit rating influences the willingness of investors to fund the loan, which in turn impacts interest rates (higher credit ratings tend to have lower interest rates). A rate covenant is established (i.e. a utilities commitment to establish rates sufficient to repay the loan) and the loan is issued.
Let's look at a simple example to see how credit ratings can influence affordability. In this example, a utility needs $10 million dollars for an infrastructure project. They will pay the $10 million dollars over 30 years at equal increments each year. The money to replay the loan comes from their customers - here it is the 5,000 households they serve. The interest rate for the loan is tied to the credit rating of the utility. Here, we assume that each downgrade from AAA is a 0.5% increase in the interest rate.
If the utility had a AAA rating they will add 2% interest each year to the principle. Over the course of 30 years, customers pay an additional 3.1 million to cover interest. If the utility had a CCC rating, their customers would pay 7.75 million. The costs are spread across 5,000 households over 30 years. This means a household with the AAA rating would pay $87.33 extra each year to finance this project ($7.28 more each month - an extra hour of labor at the federal minimum wage). A household with the CCC rating would pay $118.33 (35.5% more than an AAA rating) each year or $9.86 more each month.
The above example assumes that the population for the utility remains the same over 30 years! However, populations and businesses move over time. If the utility taking out the 30 year loan experience population loss and shrank to 3,500 households, then the remaining customers must still pay the remaining debt. In this instance, the AAA rating household would pay $10.40 a month, which is $3.12 more than when there were 5,000 households (43% increase in monthly bill). The opposite is also true. If the utility grew to 8,000 households then the cost per customer to finance this project would decrease to $4.55 for the AAA rating. This is $2.73 less than when the utility served 5,000 households (37% decrease in monthly bill).
+ Learn about public-private-partnerships
At the start of the 1900's most water utilities were privately owned, often by industries that needed to provide water for their business and for their workers. As rules around municipal debt changed, local governments began buying water utilities from private owners. Today, utilities are turning back to the private sector with the growing costs of infrastructure.
Public-private partnership (PPP) is an arrangement between the public sector (utility) and the private sector to achieve an objective. The arrangement is solidified through contracts that detail how risks, resources, responsibilities, liabilities, and authority are shared. An important and unique feature of PPPs is that risk can be transferred from the public sector to the private sector and the private sector is often able to move more quickly than the public sector to accelerate the implementation of infrastructure projects. Depending on the contract, the risk could be absorbing the costs of a specific project if the private sector is only designing and building infrastructure. The risk could extend towards regulatory risks if the public sector contracts with the private sector to also operate infrastructure. Ultimately, full privatization transfers financing, regulatory, and customer risk to the private industry. At this point, the risk for the public sector is the loss of control over the utility and water services. The majority of PPPs for the water industry in the U.S. are operate and maintain contracts (see Public-Private Partnerships for Transportation and Water Infrastructure). In general, Private Partner revenues from water utility partnerships has hovered around $1.9 billion each year.
Aside from sharing risks and improved efficiency, collaboration with the private sector can also bring benefits in terms of more experience and innovation (e.g. around a new technology or data analytics). The private sector potentially benefits by profiting from new market and investment opportunities as greater economies of scale can be reached. PPPs tend to be the solution of last resort for distressed cities. Often, if a private entity accepts a distressed city, rate increases are needed to address the plethora of challenges already present. However, because PPPs are for-profit, the increase of rates are often met with outrage and suspicion, particularly if the problems leading to privatization have not been addressed. In some instances, cities are buying back their systems from private companies (see examples).
Each financing mechanism carries different financial risks for utilities, and by extension, the rates customers pay. Federal grants carry the least risk (no debt is taken). Utilities carry the risk in municipal bond markets. They can potentially alleviate risk by insuring the bond; however, the bond market is influenced by global markets and exposes utilities to market risks. Lastly, PPPs share the risk between public utilities and private investors. The type of partnership formed sets the parameters for how risks are shared. As costs have risen and federal support has not (as intended by original law makers), there has been an increasing transition from reliance on federal and state dollars to private dollars indirectly (municipal bond market) and directly (public-private partnerships).
Data: Congressional Budget Office.
Not all projects are eligible for all types of funds and not all utilities are in need to finance infrastructure projects at this moment. However, at some point a utility must finance infrastructure (whether new or to replace aging infrastructure). All the literature we found focused on drinking water utilities. We do not know the effect of financing on wastewater utilities.
Hansen et al. (link will be provided once published) found that 6.7% of eligible drinking water systems have received DWSRF assistance in the last decade. States typically offer loans at 20 years with very low interest rates (1.5 to 2%). States design their programs to determine how funds are allocated and how to prioritize awards. We are not aware of a similar study exploring participation in CWSRF at this time.
A 2013 report by American Water Works Association and the Water Environment Federation estimated that 70% of drinking water utilities have participated in the municipal bond market to fund infrastructure. It is likely the percentage has increased as the federal government has lowered interest rates following the 2008 financial crisis (and again in 2020 with the COVID pandemic).
We do not have any data on the percent of water infrastructure that has been built from PPPs; however, we can explore the trend of fully privatized drinking water systems. Estimates of privately owned water systems serving communities typically are around 15% in 2002 (e.g., National Research Council), and account for the types of systems that would adopt these financing options. However, if you look all Community Water Systems, 48 to 54% are privately owned (includes non-profits, hospitals, schools, and mobile home parks). A recent GAO report found ownership data in the SDWIS database to be outdated and unreliable. A 2017 Washington Post article showed wide variability in the percent of private water systems by state.
large uncertainty in this number
Utilities obtain most of their revenue, including revenue used to pay debt, from their customers. This means all households are influenced by financing choices. For example, in the municipal bond market, households are currently responsible for 46% of all state and local government debt (see the Tax Policy Center). Since many water and sewer bonds are revenue bonds, this percent is even higher. At the end of 2019, state and local governments had $3.85 trillion in outstanding debt. Whether paying through state and local taxes, or by increased costs of service, all households are affected by the municipal bond market.
Aside from grants, financing capital infrastructure goes hand in hand with increases in water service rates to cover the new debt. However, the size of the increase is dependent on how the infrastructure was financed. A 20 year loan at 1.5% interest (common SRF loan) will result in a smaller increase than 30 year bond at 4% interest. We also don't know the savings of engaging with different types of PPPs. However, a GAO report found that monthly bills for fully privatized utilities tended to $15 to $21 more expensive each month than public utilities. While some PPPs might reduce total costs and improve affordability, fully privatized systems tend have higher rates and create greater affordability challenges. It is unclear if the higher costs are because these systems were privatized due to pre-existing problems (such as non-compliance, high debt, and deferred investments) that are expensive to address or it they are driven by for-profit motives. In the CBO report 25% of utilities expressed a cost-savings from a PPP; however, we do not know how those cost savings translated to affordability. It is also difficult to translate improvements in regulatory performance, with its obvious public health implications, to greater equity and affordability.
but benefits from improved compliance and public health are not captured
Figure from Hansen et al. In Review. Link will be provided once published. Each dot represents a utility receiving DWSRF funding.
Data from Smull et al. In Review
Regionalization means a lot of different things to different groups. Here, we think of regionalization as a range of integrative strategies from informal partnerships, to merging staff and resources, to the physical consolidation of infrastructure. The goal of regional integration is to combine efforts and resources that allows multiple parties to create benefits - at lower costs - that could not be achieved alone. In theory, regionalization is thought to improve household affordability because economies of scale can be reached - meaning the cost per household decreases once a certain number of households are being served by the utility. However, in practice, the effects of regionalization on affordability vary. Federal and state governments are increasingly encouraging small utilities with significant compliance challenges to be acquired by higher capacity utilities to improve economies of scale, technical expertise, and access to capital.
There are a plethora of water service providers in the U.S. (see why are there so many water service providers). For drinking water utilities alone, 8% of the 50,000+ systems provide service to 83% of the population in the U.S. while 55% of the systems are very small (serving 500 or fewer persons) and serve 2% of the population. Very small and small systems include those in rural areas where there are not many options, but also those serving suburbs, estates, mobile home parks, and so on located near cities and town.
The presence of many systems, particularly smaller systems, result in several financial disadvantages that can increase the costs for households. For example:
Regionalization, or the integration of utility functions, can be informal or formal. Agreements between utilities may emerge voluntarily or be mandated. Various institutional arrangements facilitate regionalization, ranging from informal cooperation to formal ownership transfer. Structural regionalization (also referred to as consolidation), physically connects water system infrastructure with a full transfer of ownership. Nonstructural regionalization coordinates and combines operation, management, or governance of functions (such as billing, water testing, and so on).
Figure from 2018 Aspen-Nicholas Report, adapted from EPA. 2009. Gaining Operational and Managerial Efficiencies through Water System Partnerships.
The number of systems varies considerably between states. This makes sense because states come in different sizes, with different populations, and different geographies. The more elevation changes, rivers, distances between cities, and other geographic features that increase the costs of moving water, the more likely it will be more cost effective to have different utilities serving those areas (see why do the costs of water services vary between utilities). In other words, some fragmentation is necessary.
The states are ordered by the median number of people served per system from highest (left) to lowest (right). States in this study as of July 2021 are highlighted, along with Kentucky.
A 2002 EPA study estimates that regionalization is a viable option for many systems since 86% of small or very small systems are located within 5 miles of another system and 98% are located within 10 miles. This only includes some type of physical regionalization or consolidation. However, regionalization can be around functions (i.e. sharing the same administrative or financial staff). It can also include privatization, where a single entity owns multiple utilities across the state or nation. While these systems are not physically consolidated, the administrative functions are consolidated.
Some states encourage or mandate regional consolidation through planning activities or for non-compliant water systems. For example, Kentucky and Alabama are two states that mandated widespread consolidation of utilities with Kentucky decreasing the number of public water systems from 2,178 in 1974 to 440 today. The profile for Kentucky drinking water systems is very different from other states, with 61% of the systems serving classified as medium or larger (compared with 20% in other states).
In theory, all households within a utility can benefit indirectly from regionalization. For example, two similar utilities that undertake some type of regionalization can now remove redundancy between the systems and share the remaining costs among more customers. When the agreements are on the informal side of the spectrum, the benefits may differ between utilities and may not appear as a decrease in rates but as deferring rate increases for a time. When utilities move towards physical consolidation and privatization, the effect on household rates and affordability can vary wildly. Perhaps customers in a small suburban utility that consolidates with a nearby city utility will notice a decrease in their bills. However, that is not always the case. For example, one utility may be functioning well while another utility has consent decrees and large deferred capital costs. In these instances, utilities may charge different rates to different service areas, at least for a time, to avoid penalizing those in the struggling utility. Some utilities may include a surcharge to newly acquired service areas covering the charges of administrating the consent decree or of debt payments previously held by the system prior to acquisition. Some utilities simply charge different rates to customers in the service areas of newly acquired systems.
To our knowledge, we have not seen a large-scale study that explores the effect of regionalization on household bills. Instead, we have seen studies on the potential impact or case studies on specific impacts.
The Water Infrastructure and Resiliency Finance Center explored the potential financial impact of regionalization on utilities. In their study, they found the cost per person to operate the water system decreased from $394 per year in very small systems to $109 per person in very large systems in Indiana (more than 3 times as expensive).
A case study of three small systems that merged in Minnesota found a 30% to 50% reduction in some of operational costs (such as utilities billing). A joint study by the US Water Alliance and EFC found that the cost of consolidation minimizes changes to rates experienced directly by customers in the short-term; however, over the long-term rates increased slower than expected prior to regionalization. They also found that rate equalization (i.e. the rates paid by customers in different utilities) are not guaranteed. Even when rates do not decrease when regionalization takes place, projected rate increases are often reduced and long-term affordability improves. Privatization, when a private company takes ownership of a utility, has had a mixed effect on water rates and affordability.
Recommendations come from the U.S. Water Alliance, Environmental Finance Center, the Environmental Policy Innovation Center, Manny Teodoro, and the Aspen Institute based on the following: Strengthening Utilities Through Consolidation, Utility Consolidation to Achieve Healthy Equity, The Plan, and Reaching Watershed Scale.
The federal Low-Income Household Water Assistance Program is a newly created, temporary program designed to provide emergency relief to households struggling to pay for water services. This program is in response to the financial crisis created by COVID-19 on many Americans who could no longer afford water services. Water utilities suffered the financial hardship of nonpayments and additional costs to continue providing water services in the pandemic (e.g. acquiring protective personal equipment and moving towards virtual operations). The pandemic has amplified the growing financial crisis facing both households and utilities.
The COVID-19 pandemic brought the water affordability crisis to federal attention as the pandemic caused the loss of millions of jobs while elevating the crucial importance of all households having access to water services to protect public health through good hygiene. Only 9 months after COVID-19 was declared a pandemic, Congress appropriated $638 million in funding for the Low Income Household Water Assistance Program (LIHWAP) to assist low-income households with water and wastewater bills. Three months later, the American Rescue Plan Act appropriated an additional $500 million in emergency funds for LIHWAP (read more). Similar to the federal assistance program for energy (LIHEAP), these funds will be granted to states and those states may use the funds to assist low-income households by providing funding water service providers that can be used to reduce arrearages (i.e. money customers owe the utility) and bills for low-income households.
LIHWAP is providing $1.14 billion to help residents pay their water bills, avoid shut-offs, and reconnect households to water systems that were disconnected due to non-payment. However, LIHWAP is currently designed as a temporary program to provide emergency relief.
LIHWAP is a new program that is currently being implemented. As of early June, $166.6 million (15%) has been released to establish the program (read more).
LIHWAP currently has $1.14 billion available to assist low-income households with water affordability challenges. However, California alone estimated $1 billion in water debt across the state with 1.6 million households (1 in 8) having water debt (read more). While half of California households owe less than $200, nearly 10% owed over $1,000 in January 2021. The $60 to $70 million designated by LIHWAP for California addresses 6 to 7% of their water debt (if the full amount went to debt and not towards administering the program). We do not know the accumulated water debt of other states and cannot assess the maximum potential of LIHWAP to address short-term affordability challenges.
It is important to note that when households cannot pay for water services, water service providers experience financial hardship and growing debt. In California, 130 systems serving mostly low-income areas were experiencing extreme financial difficulty in January 2021.
LIHWAP is a new program but it could benefit from lessons learned by how state and local actors implement other federal assistance programs. Since most utilities do not have a CAP and those with a CAP struggle to get high enrollment, the states may look to provide automatic assistance for households already participating in other federal assistance programs or they may choose to focus on forgiving arrearages based on utility accounts rather than distribution money directly to households.
The 2020 Aspen-Nicholas Water Forum report provided some recommendations for a federal water assistance program. While these recommendations may not apply to a crisis program (such as LIHWAP), they may help to guide the development of a more permanent program in the future.