Publicly Owned Systems

Most water utilities are owned by local governments, such a municipalities (eg. cities and towns), counties, or special districts. Within a municipality or county, the water utilities can be embedded within a department (e.g. public works) or operated separately. Special districts, which are also referred to as authorities, also own water utilities. For example:

• Municipal authorities in Pennsylvania provide drinking water or wastewater services and can be completely independent of the municipal government or maintain some connection through contracts.
• Special districts in California provide drinking water, wastewater, or stormwater services.
• Municipal Utility Districts (MUDs) in Texas are independent, limited governments authorized to finance utility infrastructure.

Federal or state governments may own community water systems if the previous owner was failing to provide safe, reliable services.

Privately Owned Systems

There are different types of privately owned systems. Three common types include:

• Cooperatives are consumer-owned utilities created to provide drinking water, wastewater, fire protection, or irrigation services. These are often small systems located in rural or suburban areas distant from municipal systems.
• Private companies can be individual companies or large water companies (e.g., American Water, Aqua America, Suez, Veolia) that own many systems in one or more states.
• Individual households may own their own domestic well and/or septic tank.

However, there are far more utilities than required by geography.
A single household may be served by three separate water utilities even though it is all the same water.

Even a single service - such as drinking water - may involve several utilities. For example, one utility might withdraw water and sell that water to many different utilities in the area who treat and distribute water. Similarly, a wastewater utility may collect wastewater from the community and then pay another utility to treat and return wastewater to the environment.

There are efforts to consolidate some utility functions (such as data, management, technology, and financing) to enable managing this One Water more effectively. In some areas, there is a desire to consolidate utilities to create a One utility (this may include telecoms, energy, and other utilities) to improve planning and lower infrastructure costs.

Wastewater utilities have the same functions as drinking water utilities, just in reverse order:

1. Collect the used water from businesses and households with a network of pipes that runs throughout the community and return that water to a treatment plant.
2. Treat the wastewater so it is safe to return to the environment according to federal and state regulations. This requires continual monitoring to ensure treatment is sufficient. The utility maintains records and report to federal and state governments.
3. Store and return the treated water to a lake, stream, aquifer (groundwater) or the ocean.

All of these functions require infrastructure (treatment plants, pipes, tanks, and so on) that must be built, maintained, and replaced over time.

Stormwater (drainage) utilities are primarily trying to improve drainage in the community in order to reduce flooding and remove contaminants before entering streams. Stormwater utilities may:

• Design and build green infrastructure (natural areas that provide habitat, flood protection and so on by mimicking nature).
• Design and build grey infrastructure (e.g pipes) to help water flow to waterways during large precipitation events and reduce flood damage within the city.

In older cities, stormwater utilities may be needed to separate pipes shared with wastewater utilities. During large rain events, these pipes can fill and overflow, result in raw sewage mixed with rain escaping treatment and flowing into neighborhoods and business areas. These are often known as "Combined Sewer Overflows" (CSO). Many towns and cities do not have an official stormwater utility (collecting fees), but carry out these functions through programs within other departments, such as public works and transportation. A 2017 Brookings Report provides a map and some details about stormwater utilities in the U.S.

Stormwater utilities are often formed when there is a need for greater technical and financial capacity to address runoff challenges that come from impervious surfaces (e.g. roads, buildings, sidewalks) that prevent water from soaking into the ground after rain and snow events. Instead, water "runs off" quickly downhill into culverts and streams. This can result in flooding and poor water quality since there is limited contact with soils and vegetation to filter the water before it enters our waterways.

Although they manage water separately, both the CWA and SDWA act:

• were ahead of their time in how they approached ensuring cleaner and safer water.
• included significant federal funding through grants that did not need to be repaid. Later, grants evolved into low interest loans that must be repaid.
• struggle to meet the capacity challenges of small systems while enforcing regulations.
• included cooperation between federal and state governments, with the federal government establishing minimum water quality standards and states can apply for administrative rights to implement and enforce regulations.
• were very successful at improving water quality for many years.
• have not been able to adequately address some of the challenges (e.g., emerging contaminants) or opportunities (e.g., technological advancements) of the 21st century.

Both acts focus on treating already polluted water rather than addressing the sources of pollution. This is a far more expensive route. Expenses are also rising as we are discovering the presence of medicines, chemicals, nutrients, and so on that were previously undetected. These emerging contaminants may negatively impact human health and require water service providers to invest in new treatment technologies. How we regulate water matters and must be able to adapt so that public health is protected from emerging contaminants, water quality is safe for the environment, and the costs of treatment and regulation are affordable.

There is a lot to unpack about both these acts, how they work, and how they have been amended over time. You can read summaries of these acts in the 2019 Aspen-Nicholas Water Forum Report.

There is a long-standing debate around whether water is a public good or a private commodity, and consequently whether all people in a community should be guaranteed access to water or if they must buy access.

Water can be considered a public good because it is essential for life and economic prosperity. Public goods are present when the benefits to the public are non-excludable, meaning everyone benefits from an activity (e.g. everyone downstream of a dam benefits from flood protection). Large-scale water infrastructure (e.g., dams and levees) provide public goods such as navigation, flood protection, water supply, and recreation. Water, used in this manner, is a common pool resource that can be used by many for different purposes. Because of these broadly distributed benefits, the federal government often funds large-scale water infrastructure.

Water itself, as opposed to large-scale infrastructure, behaves more like a commodity because it is finite, excludable (meaning different people cannot drink the same glass of water), and dispersed geographically (contained in watersheds and aquifers). This description more aptly describes the beneficiaries of local water services infrastructure (e.g. drinking water and wastewater) where the benefits are largely constrained to the scale of a community (although downstream communities are impacted by decisions made upstream). Those benefiting from local services fund drinking water and wastewater infrastructure through fees tied directly to the services provided. Here, water services are a “local public good” because they are provided to the community (public good), but are funded through direct payment from customers based on usage (commodity).

Households or individuals without access to public water and sewer systems rely on bottled water (solely a commodity), private wells, and septic systems. Water as a commodity, particularly bottled water, is incredibly expensive compared to water as a local public good.

Fixed Charge (also referred to as service or base charges)
This part of a bill is the same each billing period. The fixed charge reflects that some of the costs of providing water services do not change no matter how much water a customer uses, such as ongoing maintenance on the water mains, pipes, and pumps. Fixed costs may depend on customer type (e.g. residential, multifamily, commercial, industrial) or the meter size (often measured in inches). Utilities without metered water use, or utilities where wastewater utilities do not have access to metered drinking water utility data, may use a fixed charge to recover all costs of service. For stormwater, there may be a fixed cost for each single-family residential home, often depending on the size of the household or the impervious area.

Usage Charge (also referred to as volumetric, variable, or commodity charges)
The amount billed each month changes depending on how much water a customer uses. Every gallon of water used has to be stored, pumped, cleaned, treated, and delivered to customers. Usage charges are typically based on a cost for some unit of water (thousand gallons or hundred cubic feet) used by the household. Usage costs may include all water used or may begin after an initial volume of water that is included in the fixed charge. For example, the fixed charge might include the first 2,000 gallons of water used, meaning customers only have to pay when they use more than 2,000 gallons in a billing cycle.

• Flat Charge - the same cost for each unit of water consumed. The priority is often for simplicity and fairness.
  

  Cost	Start at	End at
  $4.00 per 1,000 gallons	0 gallons	max usage

• Increasing Block Charge - the cost of water increases as more water is consumed. The priority is often to conserve water by increasing costs for higher usage.
  

  Cost ($ per 1,000 gallons)	Start at (gallons)	End at (gallons)
  $2.00	0	4,000
  $4.00	4,001	8,000
  $6.00	8,001	50,000
  $12.00	50,001	max usage

• Decreasing Block Charge - the cost of water decreases as more water is used. The priority is often to encourage large water users to remain and is less often used for residential customers.
  

  Cost ($ per 1,000 gallons)	Start at (gallons)	End at (gallons)
  $6.00	0	4,000
  $4.00	4,001	8,000
  $2.00	8,001	50,000
  $1.00	50,001	max usage

• Zonal Charge - the cost of water is based on whether usage falls within a certain range of volumes, persons, bedrooms, areas, or other units of measurement. This approach is rarely used for water and wastewater charges, but is very common for stormwater. In the example below, if your home was 5,000 square feet you would pay $4.000 a month instead of paying $4.00 for every square foot between 0 and 10,000 square feet (as in a commodity charge). If your home was larger, say 12,200 square feet - you would pay $10.00 a month.
  

  Cost ($)	Start at (square feet)	End at (square feet)
  $4.00	0	10,000
  $10.00	10,001	20,000
  $20.00	20,001	max size

A bill combines both fixed and usage charges

Surcharges
These may also be additional costs that are temporary or beyond the direct control of the utility (e.g., a utility purchases water from another utility, sometimes called a pass-through or pass-by fee). Surcharges may be fixed, for example, each household pays an extra $2 per month to cover a debt payment. Surcharges may be based on water usage, such as paying $1.25 per 1,000 gallons to pay for another utility to treat wastewater.

• Grants are "free" money that do not need to be paid back by the utility. Grants were much more common in the mid-1970s and early 1980s when the Clean Water Act and Safe Drinking Water Act were new and the federal government was helping local utilities finance infrastructure to comply with the new regulations.
• Loans are usually provided through State Revolving Funds (SRFs) from the Environmental Protection Agency (EPA). Small, rural utilities may receive loans from the US Department of Agriculture programs. Here, the utility is borrowing money to build infrastructure now and repaying the loan over time (often 20 to 40 years). Government loans historically had much lower interest rates than the market (1 to 2%). However, since the 2008 Housing Market Collapse, market interest rates have become more comparable to government interest rates. The importance of low interest rates is that the amount of additional money the utility owes for borrowing money is lower.

Schematic showing how SRF's work and the influence of SRF's on customers

Prior to the 1990s, the municipal bond market for water utilities was small. However, some policy changes increased the use of bonds with over 100 billion USD for water and sewer utilities each year since 2000. Bonds work similarly to loans where a utility borrows money from the market (private investors) and must repay the debt + interest over time. The federal response to the 2008 and 2020 financial crises has been to reduce federal interest rates, which has resulted in very low interest rates in the market that reduce the costs of borrowing. Additionally, municipal bonds are tax exempt, which has also driven the use of municipal bonds, although this advantage has declined as federal tax rates have been reduced. Many utilities have increasingly relied on municipal bonds, 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 multiple financial crises.

Schematic showing how municipal bonds work and the layering of risk

The market collapse in 2008 lowered the credit rating of several utilities in Pennsylvania - highlighting risk from credit ratings and financial crises

Figure comes from Smull et al. paper in review (link will be added once available)

The infrastructure in our water systems reflects the history of a city and is designed to last for decades. Water infrastructure in Rust Belt cities were built in the late 1800s with thick, cast iron pipes (life expectancy of 120 years). As cities grew, cast iron pipes in the 1920s became thinner along with their life expectancy (100 years) and pipes laid post World War II had a life expectancy of 75 years. The timing to replace pipes in older cities all fall between 2000 and 2030, creating significant cost burdens today.

After WWII, there was an explosion of small water systems in suburban areas to accommodate the swelling Baby Boomer generation and “white flight” (learn more here). These systems were often not built to enduring standards and must be rebuilt when consolidated. Rust Belt cities are plagued by shrinking populations and declining incomes as industry and people moved out, sometimes to a nearby suburb, stranding infrastructure assets. Shrinking populations and/or declining incomes leave a smaller revenue base for utilities to maintain the fixed costs of day-to-day operations, let alone finance replacing infrastructure.

Average life expectancy of water mains and the timing of replacement

Data from GAO 2002. Water Infrastructure: Information on financing, capital planning, and privatization.

Some cities, particularly in the Sun Belt region, have experienced much of their growth in the last few decades. Rather than replacing already built infrastructure, they are paying for new infrastructure, much of which is sprawling and more expensive to build, maintain, and operate. The risk is two-fold. First, infrastructure must be laid in advance of the population, creating risk for stranded capacity should the expected population growth fail to materialize. Second, economies and jobs may change or transition, along with population, as has occurred in the Rust Belt region.

The industrial era focused on economic development and growth. Unfortunately, much of this growth also harmed entire social and ethnic groups and environmental health. Cities formed around industries to provide infrastructure to house laborers, create energy, and supply water and sanitation. While private companies initially owned much of the water infrastructure in cities, an 1849 Committee on Public Health noted that “… water is so intimately connected to the health of a city, that the municipal authorities should rank this among the most important of their public duties…”. When laws changed so that local governments could take on debt, they began buying water systems from private companies. By 1910, most major cities owned their water systems and water services were provided throughout a city because the risk of epidemics spread by water-borne diseases, such as cholera, was so great that a city could not risk to fail to provide services to all customers, regardless of race (similar to the shut-off moratoria that took place at the start of the COVID-19 pandemic).

Racial inequity became embedded within water and sanitation systems through housing policies. In the 1920’s, population was growing faster than the housing market could expand. This contributed to the National Mortgage Crisis of the 1930s and the Great Depression. To ensure such a housing crisis would never occur again (at least not until 2008), the Federal Housing Administration (FHA) was created. The FHA enabled segregation for over 30 years (1934 to 1968) by guaranteeing the loans of white Americans while refusing to guarantee loans to African Americans or in areas with high African American populations. The systematic denial (directly or indirectly) of various services to residents of specific, often racially determined, communities is known as redlining. Many state and local governments promoted the use of racially restrictive covenants in deeds to prevent the sale of homes to African American families, while private real estate agents used blockbusting to convince white families to leave communities with growing African American populations at a premium and then resold those homes to African American families at inflated prices.

Home Owner’s Loan Corporation maps assigned grades to communities that reflected their mortgage security. Red (redlining) zones were ineligible from government insured loans. Comments often reflect racial reasons as shown for D22 above. Interactive maps are available here: http://dsl.richmond.edu/panorama/#maps

These policies encouraged "white flight” to suburbs and concentrations of African American populations in cities became poorer due to redlining policies that kept wealth away. The ensuing disparity continues today. African American incomes are on average 61% of white incomes and African American wealth is 5% of white wealth. Most middle-class families gained their wealth from home equity, homes that many were able to purchase through FHA policies decades earlier. Since African American families were prohibited from buying homes, buying homes with good interest rates, or buying homes in desirable locations, they could not accrue the same wealth. After 1968 FHA technically allowed African Americans to buy homes anywhere, many homes remained unaffordable to those who lacked the baseline wealth.

What does this have to do with water services?

Racial segregation at the scale of neighborhoods and census tracts had implications for the development of local water and wastewater utilities after WWII. As residential segregation increased, municipalities could more easily exclude communities of color from water and sewer services through a practice known as under-bounding, whereby municipalities selectively annexed white neighborhoods into the town’s official boundaries while ignoring African American neighborhoods. This type of under-bounding has occurred across the country. For instance:

• Zanesville, OH did not construct municipal water lines in African American neighbors in the 1950s
• Roanoke, VA did not extend water and sanitation lines to the nearby predominantly African American town of Hollins
• Central Valley, CA rural Latinx communities were discouraged from incorporating and did not receive the infrastructure funds available to neighboring towns

Have you ever wondered while there are so many poor inner cities struggling to afford their water system while surrounded by wealthier suburbs that each have their own systems? At least part of the reason is because white flight moved money to the surrounding suburbs where they could afford to build separate waters systems, removing important financial resources from older utilities. The ability to pay for water systems has become more divided as the racial, and often income, composition of cities became more homogenous (i.e. some systems have a lot of poverty while others have very little). Indeed, in the example of Pittsburgh, 69% of the Pittsburgh Water & Sewer Authority identified as white while that number increased to 94% in the Hampton Shaler Water Authority. As cities have begun to gentrify we see this trend reversing in some areas. Now there are many small, suburbs that are struggling to afford their utilities.

In the early 1970s, Congress passed legislation to protect the quality of our streams and lakes (Clean Water Act in 1972; CWA) and the public health of drinking water (Safe Drinking Water Act in 1974; SDWA). These laws were passed in response to public outcry to 41% of water systems were not meeting health guidelines and jeopardized the health of millions and major rivers were repeatedly catching fire. Both the CWA and SDWA ensure water quality by requiring specific types of treatment to remove specific contaminants (see more).

Both acts included significant federal funding through grants to finance the initial infrastructure needed for local governments to meet these new regulations. Over time, these funds transitioned from grants to loans that have to be repaid. This placed greater financial responsibility onto local and state governments to maintain and upgrade the infrastructure needed for water treatment. While there was an effort to disburse funds equitable, those funds are going to cities (and their utilities) whose capacity to apply for grants and loans were shaped by decades of discriminatory practices. The results is that poorer communities may lack the political power to access safe water supplies and/or regulations are not enforced because the community does not have the financial resources to fix the underlying problem. It remains challenging for small water systems and those serving majority low-income communities to access state and federal dollars.

The Civil Rights movement in the 1960s created a unified voice for social justice. Social injustices are prevalent in housing, employment, municipal services, education, and not surprisingly – environmental protection. In the 1980s, the Environmental Justice movement discovered greater evidence that those suffering from environmental injustices were disproportionately low-income and racial minority groups. These communities are more likely to live near hazardous sites, where they are exposed to greater contaminants and suffer the health and economic impacts). Resulting medical bills are expensive, generating further economic disparities. Well known examples include:

• “Cancer Alley” impacts on African American communities by petrochemical manufacturers,
• uranium mining on Navajo lands,
• and pesticide exposure among predominantly Latinx farm workers.

Some environmental inequity is intentional, some began intentionally and is now perpetuated by the inertia of the status quo, and some began unintentionally and continues to be perpetuated.

Environmental injustices start with industry being given the right to pollute before proving harm, rather than having to prove no harm before being given the right to pollute. The negative impacts from industrial pollution are born by the public, particularly low-income and minority communities. Land use controls are often used to put locally unwanted land uses in minority communities that lack the voice or political capital to advocate for “Not-In-My-Back-Yard.” There is also a history of putting unwanted land uses in minority communities to drive residents out, effectively serving as a “taking” of property. If all communities were given an equal voice and political power, the rate of environmental degradation would likely slow. However, private industries are often the needed employers for many low-income communities, which inhibits many communities from raising concerns as they must choose between employment and health.

The legacy of many yesterdays brings us to today

Water systems are an essential infrastructure within communities. Our water systems were shaped by the legacy of inequality and environmental injustice that have shaped, and continue to shape, the communities they serve. It can be seen in the water crises that have too often made the news:

• In California, drought led to over-pumping of aquifers that left agricultural and rural communities without access to water and some remain without access today.
• The lead crisis in Flint, MI revealed a city-sized utility knowingly provided visibly contaminated water to its citizens, predominantly under-served communities of color.
• Lead crises in Pittsburgh, PA, Camden, NJ, and Newark, NJ continually highlight links between water contamination, poverty, and race.
• The prevalence of perchlorate health impacts for the past 20 years has been overshadowed by growing concerns of PFOA and PFAS in drinking water supplies that wealthy industries have left for communities to pay to clean up.
• The discovery of tropical parasites in Lowndes County, AL due to inadequate sanitation and the widespread presence of raw sewage is unfathomable to many.

The occurrence of massive water shutoffs in major cities have led to repeated outcries for the human right to water. Racism continues to manifest as white communities get green infrastructure projects while communities of color receive grey infrastructure, and those communities of color that do receive green infrastructure often contribute to gentrification. A warming climate with more frequent and intense flood events disproportionately impact poor, minority communities and agricultural lands. Communities facing the greatest water stress and threat to water security include dis-invested urban areas, rural areas, unincorporated areas, and Native American lands.

Inequities are embedded within many water systems and it is a "wicked" problem. And there is opportunity as we enter a season of replacing much of our aging infrastructure and revisiting water quality legislation passed more than 50 years ago in light of technology advances and emerging contaminants. We have an opportunity to rethink how we manage water as we modernize our nation's water infrastructure. There is opportunity to provide water services more equitably. The problems of inequity are bigger than water and the solutions need to be too.

Many essential services have conventional recommendations about how much of a households income should go to various essential services:

• shelter/housing: less than 30% of your income
• energy services: less than 6% of your income
• water services: less than 4.5% of your income
• insurance (car/health): less than 6.5% of your income
• taxes (assuming low income): around 11% of your income
• food: depends on household size, but lets assume $400 a month ($4,800 annually)
• wifi/internet: lets assume $50 a month for basic speeds ($600 annually)

A household would need to make at least $12,855 to break even assuming no assistance. Between 5.5% (New Hampshire) and 13.6% (Mississippi) of households were estimated to earn less than $12,855. Social safety nets (such as Low Income Home Energy Assistance Program (LIHEAP) for energy, Supplemental Nutrition Assistance Program (SNAP) for food, and rental assistance) are administered separately. Yet, a household struggling to make ends meet for one service is likely struggling to make ends meet in all essential services.