The combination of increasing water system costs and decreasing federal funding for water infrastructure is “exacerbating water affordability concerns” in the United States, according to a report released by the National Association of Clean Water Agencies (NACWA) on December 14. In response, the association is calling for federal funding for low-income water customer assistance programs, a stance that has the support of other key water-related organizations.

The need for such customer assistance programs is only expected to grow in the coming years. A recent report from Fitch Ratings predicts that U.S. water and wastewater agencies will need to continue raising rates in 2023 simply to cover inflation and increased operational costs.

Many factors

Besides inflation, many factors have contributed to the increased costs faced by water and wastewater agencies, according to NACWA’s report, which is titled The Growing U.S. Water Affordability Challenge and the Need for Federal Low-Income Water Customer Assistance Funding. 

“Over the past several decades the cost of providing public clean water and drinking water services has risen – communities need to maintain and upgrade aging infrastructure, comply with ever-more-strict regulatory mandates, address increasingly complex water quality challenges related to nutrients and emerging contaminants, and improve system resilience to climate change and extreme weather,” NACWA’s report states.

Against the backdrop of these increasing costs, federal support for water infrastructure has declined significantly in recent decades. In 1977, the “federal government spent $76 per person in 2014 dollars on water utility capital investment,” NACWA’s report notes. “By 2014 that support fell to just $10.74 per person.”

At the same time that ratepayers have had to pay a larger share of water utility capital investments, income for 90% of households has barely kept pace with inflation. Since 2000, rising rates have placed an even heavier burden on those least able to afford them. “The average annual wastewater service charge for a single-family household ($551) has risen at twice the rate of inflation as measured by the Consumer Price Index (CPI) between 2000 and 2021,” according to NACWA’s report.

Rate increases likely

Rate increases will only intensify the issue of affordability. Utility rates are expected “to increase by approximately 4% per year from 2022 through 2026,” according to NACWA’s report. 

Cost pressures will continue to squeeze U.S. water and wastewater agencies in 2023, according to the U.S. Water and Sewer Outlook 2023 that Fitch Ratings released on December 6. Fitch described the outlook for the U.S. water and sewer sector in 2023 as “deteriorating.”

“Strong headwinds related to general inflationary pressures, notably higher chemical, labor and power costs, and weaker economic growth are expected to contribute to weaker financial performance,” Fitch’s report says. “This could lead to a weakening in credit quality across the sector, if not offset with commensurate rate adjustments to keep pace with the higher cost environment.”

Such challenges likely will result in continued rate increases, exacerbating affordability concerns within the sector. An “acceleration in rate adjustments sustained in 2023 is expected to weaken affordability,” Fitch’s report says.

Such concerns will persist into the future. “Longer-term, affordability remains a concern as utilities around the country look to increase capital spending to maintain or improve assets that will necessitate ongoing rate adjustments,” according to Fitch’s report.

Permanent program needed

For its part, NACWA calls on the federal government to create a permanent program to help low-income residents pay their water and wastewater bills. (In 2021, Congress created the federal Low Income Household Water Assistance Program to provide grants that enable utilities to help poor households pay their water bills. However, the program as passed is temporary in nature.)

“Allocating funding in this manner will provide targeted relief to the households and utilities with the greatest level of need, bolstering and expanding the existing customer assistance programs that many utilities already have in place, which currently lean on a patchwork of unstable sources of funding from philanthropy to fluctuating local budgets,” according to NACWA’s report.

The proposed program has the support of the Association of Metropolitan Water Agencies (AMWA), says Dan Hartnett, the association’s chief advocacy officer. “AMWA believes there must be consideration of a permanent, federally funded water assistance program in any discussion about helping low-income households pay their water bills,” Hartnett says. 

Such a program also would help to ensure the financial stability of water utilities themselves, Hartnett says. Such entities “rely on a consistent revenue stream from their customers in the form of timely water bill payments to continue operations,” he says, “so it poses significant budgetary challenges if a portion of the utility’s customer base is unable to afford the water rates necessary to pay for these expenses.”

A permanent, federally funded customer assistance program should be modeled after efforts to provide vouchers for housing or the existing federal Low Income Home Energy Assistance Program, which helps low-income households pay their energy bills, says Tracy Mehan, the executive director of government affairs for the American Water Works Association (AWWA). 

“We don't have anything comparable for water and wastewater utility customers,” Mehan says. “We think it'd be a wonderful and necessary complement to straight-up infrastructure funding.”

Offsetting growing costs

Additional federal funding for water and wastewater infrastructure also could help rein in utility costs and reduce the financial burdens on those least able to pay, said Oluwole 'OJ' McFoy, the general manager of the Buffalo Sewer Authority, in a December 14 news release issued by NACWA.

“One-third of Buffalo’s 276,000 residents live below the poverty line,” McFoy said. “And with $500 million in lead service lines to replace and an additional $500 million in combined sewer overflow repairs, we face steep challenges. Our capital investment needs equate to roughly $3600 per person. What we need to do is restore a stronger federal responsibility for funding water infrastructure to ensure that we don’t put an impossible burden on the most vulnerable families in our community.”

AMWA agrees that additional federal funding is needed to help defray costs associated with the “increasingly complex regulatory landscape facing water systems,” Hartnett says. Faced with the prospect of “new federal regulations related to everything from emerging contaminants like PFAS and the reporting of major cybersecurity incidents,” water utilities need more federal dollars, he says. “It is appropriate for the federal government to offer additional funding assistance to help local water systems and their ratepayers offset new costs associated with compliance,” he says.

As necessary as they are, customer assistance programs do nothing to solve the underlying problem of affordability, says Lauren Patterson, a senior policy associate in the Water Policy Program of the Nicholas Institute for Energy, Environment & Sustainability at Duke University. “Assistance does not address affordability,” Patterson says. “Affordability requires utilities to make investments to ensure safe, reliable water services that ultimately reduce long-term costs so they are in line with income increases and inflation.”

“At the end of the day, affordability is about the intersection of the cost of services and the ability to pay,” Patterson says. “Finding ways to reduce long-term cost increases will be very important, and for those with low-incomes or in crisis, having some type of assistance or minimum amount of guaranteed water is important.”

Avoiding shutoffs

A key goal of customer assistance programs is to obviate the need for utilities to shut off water service or impose property liens in response to the failure of customers to pay their bills. A report released by the U.S. Water Alliance on November 10 highlights the deleterious effects of these punitive measures and calls on utilities to take steps to avoid having to conduct them.

Titled The Path to Universally Affordable Water Access: Guiding Principles for the Water Sector, the report lists six steps that utilities can take to improve affordability and reduce shutoffs and liens:

• Utilities can lead the way and practice balancing financial concerns with universal water access.

• Join the nationwide movement to fund water as an essential, public good.

• Build a utility culture grounded in support, compassion, and collaboration. 

• Gain insight and extend capacity through partnerships with community and social services organizations. 

• Connect water affordability to housing, energy, and other equity challenges.

• Focus on policies that support everyone.

The alliance’s report notes that solutions to the affordability issue will require action by more than just utilities themselves. 

“Utilities can take steps to minimize shutoffs with the tools at their disposal locally, but they can’t do it all on their own,” the report says. “State and federal governments have a key role to play in ensuring ongoing funding for water infrastructure — whether through identifying funding to support water infrastructure and services, by holding upstream polluting industries accountable for actions that impact water treatment costs, or by creating an enabling environment for equitable services, there are several paths forward.”