It is not that affordability hasn’t always been a concern, but a recent look at some important data now suggests that affordability has become a major concern for providers of water and sewer utility services in the US. For the first time since the 1950’s, personal income in the United States has experienced negative annual growth; meaning personal income has actually fallen in real terms for the first time in almost 60 years. This is no surprise to those who read the daily news and understand the recession’s deepening hold on the US economy, but utility providers may want to pay special attention because while water and sewer rate increases were never popular, they are even less so when family income is declining instead of increasing.
This decrease in personal income coincides with the water and sewer industries’ growing need for capital investment. Aging infrastructure for water and sewer systems causes major service disruptions and damage to residences, businesses, and even to local waterways. Stepwise Advisors reports that the US Conference of Mayors said that community leaders expect that capital spending on water and sewer infrastructure could possibly quadruple from current levels.
What constitutes true ‘affordability’ is based on multiple definitions, but the EPA holds that a utility fee is unaffordable if it is greater than 2.5% of median household income. This baseline measurement is interesting when taken into context with the way water is used and water rates are determined. Older homes in less affluent neighborhoods – presumably with lower income levels – have also been presumed to consume lower volumes of water and therefore would pay less on a monthly basis. This water use model also held that affluent customers would simply consume more and would therefore pay more.
Many assume that affluence equates to higher water usage, and this has been one rationale used to argue for increasing unit prices for increased usage levels (i.e. inclining block rates). However, that argument is often incorrect. In Milwaukee, for example, research shows that water usage was highest in older neighborhoods and found an inverse correlation between household income and water usage: the lowest incomes had the highest usage (Milwaukee Wisconsin Journal Sentinel, July 17, 2010).
Relatively higher usage in older neighborhoods is very much a possibility in every community due to newer homes being constructed under newer building codes with more stringent plumbing requirements that tend to conserve water; older homes were not subject to those codes and have older plumbing fixtures that tend to use more water (including more sewage thanks to older toilets and sinks).
So, while there is increasing pressure to increase water and sewer rates to pay for very expensive infrastructure replacements, the burden on customers is also becoming more severe in relative terms as their own personal incomes decline. Older neighborhoods with lower household incomes could actually be using more water than originally thought, and therefore the impact on those customer bills is even more pronounced. It is very possible that affordability in your community may be a more difficult thing to measure than just comparing the average utility bill to the median household income (the method the EPA uses).
Author Jason Mumm is a widely respected among Utility Consultants and Water fees Consultants. With many years of experience assisting utilities manage infrastructure expenditures and consumer fees, Jason provides services through his company – StepWise Advisors. Check here for free reprint licence: Utilities Concerned For Affordability.
