Volume 2, Issue 2 e1176
ORIGINAL RESEARCH
Open Access

Water and sewer affordability in the United States: a 2019 update

Manuel P. Teodoro

Corresponding Author

Manuel P. Teodoro

Department of Political Science, Texas A&M University, College Station, Texas

Correspondence

Manuel P. Teodoro, Texas A&M University, College Station, TX.

Email: [email protected]

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Robin Rose Saywitz

Robin Rose Saywitz

Department of Political Science, Texas A&M University, College Station, Texas

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First published: 14 April 2020
Citations: 23
Funding information Spring Point Partners, Grant/Award Number: N/A
Associate Editor: Peter Mayer

Abstract

This study uses contemporary metrics and data from an original, representative sample of water and sewer utilities in the United States to calculate the affordability of basic single-family residential water and sewer services for low-income households in 2019. Results show that affordability conditions have worsened on average since the last such study in 2017: low-income households must spend an average of 12.4% of their disposable income (up from 10.9%) and/or work 10.1 h at minimum wage (up from 9.9 h) to pay for basic monthly water and sewer services. Analysis suggests that rising prices combine with underlying economic trends to exacerbate affordability.

1 INTRODUCTION

Affordability is a mounting concern for the U.S. water sector as long-deferred infrastructure replacement needs and upgrades have driven utilities to raise prices. Combined with rising costs of living and uneven wage growth, rising prices for water and sewer services can create significant economic challenges for low-income customers. Poor measurement and a dearth of representative data have hindered meaningful research, media coverage, and policy discussions on affordability for these critical services. In an effort to depict affordability more accurately and meaningfully, Teodoro advanced a set of new affordability metrics (2018) and used them to analyze basic residential water and sewer affordability in 2017 across hundreds of utilities in a nationally representative sample (2019).

This study replicates, updates, and expands upon Teodoro's (2019) study of affordability in 2017 with similar nationally representative sample rates in 2019. Following the same measurement methodology, we eschew the conventional focus on average demands and median incomes and instead focus on basic water demands and low-income affordability. Specifically, we evaluate affordability with Teodoro's affordability ratio at the 20th percentile income (AR20) and the transformation of monthly water and sewer bills into hours of labor at minimum wage (HM). Comparisons of affordability in 2017 and 2019 provide a useful picture of short-term national trends in affordability.

The main results of this updated analysis indicate that low-income households must now spend an average of 12.4% of their disposable income and/or work 10.1 h at minimum wage to pay for basic monthly water and sewer services—up from 10.9% and 9.9 h in 2017—but these values vary considerably across utilities. Although about two-thirds of the utilities that appeared in the two samples changed their water and/or sewer rates between 2017 and 2019, the changes were relatively small, with a weighted average increase of US$4.07 a month, not enough to drastically change the affordability measures for most customers. The most analytically notable change over the 2-year period is that utility size was strongly correlated with both measures of affordability in 2017; in the 2019 data, utility size remains significantly correlated with HM but not with AR20. This indicates that the affordability challenge is increasingly acute in larger systems due to a combination of rising essential nonwater expenditures and, in some places, declining 20th percentile income.

We begin with a brief review of research on water and sewer affordability, with an emphasis on measurement that culminates in a summary of the measurement methodology. Discussion then turns to data sources, with a review of past approaches. We review the findings from the prior U.S. national affordability assessment, which used data collected in 2017. We then describe our update, provide a snapshot of water and sewer affordability in the United States in 2019, and discuss changes in affordability since 2017. The article concludes by discussing the meaning of the changes between the 2017 and 2019 results, with a focus on the empirical contributions, directions for further inquiry, and implications for utility management and policy.

2 ASSESSING AFFORDABILITY

Water and sewer affordability is a function of utility prices relative to the prices of other things and the resources that customers have available to pay for them. As in the earlier study, we analyze the affordability of basic water and sewer utility services at the household level. The phenomenon of interest this time is both the extent to which the price of water and sewer services necessary for human health forces tradeoffs by economically vulnerable households in 2019 and the changes in these various measures between 2017 and 2019. Our concern here is for basic water and sewer service for drinking, cooking, cleaning, and sanitation. We are interested in household affordability rather than utility-level financial capability, which refers to a community's overall capacity to pay for its capital and operating needs (Davis & Teodoro, 2014).

Popular interest in water and sewer affordability in the United States continues to grow, but rigorous, systematic research on the subject remains rare. Most studies that attempt to gauge affordability nationally or across large numbers of utilities emerge from the nonrefereed “gray literature” (Bartlett, Cisneros, Decker, Hartwell, & Warnock, 2017; Jones & Moulton, 2016; Rockowitz et al., 2018; Standard & Poor's, 2018). Before 2019, only a pair of refereed studies attempted to gauge affordability in the United States across large numbers of communities (Mack & Wrase, 2017; Mirosa, 2015). These works provided important insights but suffered from empirical problems that limited their validity. In particular, measurement problems and sample bias plague the majority of past water and sewer affordability studies.

2.1 Measurement

Past empirical assessments of water affordability generally rely on a flawed convention: average water and sewer bills as a percentage of median household income (%MHI), with a combined value less than 4.0 or 4.5 designated as “affordable.” Often erroneously cited as a U.S. Environmental Protection Agency (USEPA) standard for household affordability, the %MHI guidelines as developed by the USEPA were intended to measure community-level financial capability for purposes of negotiating regulatory compliance (USEPA, 1995, 1997; see also National Academy of Public Administration, 2017).

The %MHI convention is an inappropriate method of measuring household-level affordability for at least four reasons. First, average residential demand inflates the cost of water and sewer services because average residential water consumption is much higher than basic needs would dictate. Much of the high-volume consumption that comprises average demand is used for residential outdoor irrigation, not basic health and sanitation (DeOreo, Mayer, Dziegielewski, & Kiefer, 2016). Second, the %MHI convention's focus on median income neglects the most relevant subject of affordability analysis: low-income households (see also Baird, 2010; Rubin, 2001; Stratus Consulting, 2013). Gauging affordability with %MHI obscures these low-income customers. The degree to which %MHI conceals affordability problems worsens as income inequality in a community increases. Third, the %MHI convention does not account for other essential costs of living. For meaningful evaluation of affordability, water and sewer prices as a percentage of total income is less relevant than their prices relative to disposable income or market-adjusted effective buying power (Standard & Poor's, 2018). Finally, the 2.0%MHI or 4.5%MHI thresholds that the USEPA uses as financial capability guidelines have been misapplied arbitrarily as a standard of affordability. Those guidelines are not based on any theory, empirical analysis, or deliberative process, and yet, affordability studies still commonly invoke them (e.g., Cromer & Draper, 2019). Applying these simple binary standards—either “unaffordable” or “affordable” depending on whether average bills fall above or below a threshold—masks important variations within and across utilities.

Seeking to establish a more meaningful and accurate methodology for measuring water and sewer affordability, Teodoro (2018) advanced a pair of alternative metrics: the AR and HM. The AR accounts for basic household water needs and essential nonutility costs:
AR = Cost of basic water + Sewer services Household income Essential nonwater costs (1)

This AR reflects basic water and sewer costs as a share of disposable income. Assessing AR at the 20th percentile income (AR20), rather than at median income, focuses analysis on low-income households. Assessments of welfare economics typically identify the 20th percentile as the lower boundary of the middle class. These “working poor” households have very limited financial resources but may not qualify for many income assistance programs. Basic household water and sewer costs expressed in HM is an intuitively appealing complementary metric.

2.2 Sampling and sources

No comprehensive, national, publicly available data set on water and sewer rates in the United States currently exists. Consequently, studies of affordability often rely on secondary compilations of rates and/or discuss rising system-level expenses, rather than measuring household affordability directly (e.g., Bartlett et al., 2017; Jones & Moulton, 2016). Others rely on proprietary data sets made up of convenience samples (Standard & Poor's, 2018) or nonrandom, skewed samples (Mack & Wrase, 2017). Inferring national affordability conditions from biased samples risks under- or overestimating costs with errors of unknown direction and magnitude. Seeking to address these shortcomings, Teodoro (2019) developed a nationally representative set of U.S. water and sewer rates data by using a randomized, stratified sampling design.

3 AFFORDABILITY UPDATE

This study calculates affordability metrics using original data collected during the summer of 2019, following the same sampling techniques used in the earlier study but significantly expanding the total sample. The data analyzed here constitute a representative sample of U.S. water utilities and are used to calculate the affordability of basic single-family residential water and sewer services for low-income households. The following section of the article discusses the data sources and sampling and measurement methodology.

3.1 Frame and sample

The present study's sampling frame is the USEPA's Safe Drinking Water Information System (SDWIS). The SDWIS contains basic system information and regulatory compliance data for each of the country's nearly 50,000 community water systems. The overwhelming majority of the utilities in the United States serve populations of less than 3,000. Therefore, a purely random sample would likely result in a sample of mostly utilities with populations less than 3,300 and very few medium and large utilities, where the majority of the U.S. population resides. In addition, almost half of the very small utilities are privately owned, while larger systems are more frequently owned by local governments.

To obtain a representative sample that provides empirical leverage on important correlates of affordability, we stratified the sampling frame in two ways: by public versus private ownership and then by the USEPA's five population strata. This study uses the same sample of water utilities analyzed in the prior study, plus an additional 70 utilities sampled using the same SDWIS sampling frame. The smallest stratum (systems serving fewer than 3,300 people) was dropped from the sample due to the difficulty of securing data on reliable rates for very small systems and because they collectively serve a very small minority of the total U.S. population. Utilities serving U.S. territories are also excluded from the sample. In the present study, the final sample includes 82 public utilities and 22 private, utilities in each of the four population strata, for a total of 414 utilities. We applied inverse probability poststratification weights to parametric calculations and regression estimates, which allows us to obtain unbiased population inferences with the stratified data set.

As this study explores the combined affordability of both essential drinking water and sanitary sewer services, an accompanying sewer system was identified for each sampled water utility. In 67% of the cases in the 2019 sample, a single organization provided both water and sewer services to the same geographic location (e.g., a city government that operates water and sewer utilities for its own city or a joint water–sewer special district). In the remaining cases, we identified separate organizations that provided the sewer service for the city or county identified in the SDWIS service area.

3.2 Data sources

We collected single-family residential water and sewer rates for the sampled utilities directly between May and July, 2019. The 2019 sample was expanded from 2017, with 82 local government utilities randomly sampled from each of four size strata (up from 75 per stratum in 2017) and 22 private utilities in each stratum (up from 16 in 2017). For 86% of the utilities, rates were available online on the utility websites. We contacted the remaining 14% of utilities directly by telephone, email, and postal mail. Sewer rates were unavailable in 14 cases because the water system's service area had no sanitary sewer service or refused to provide the information; accordingly, those utilities are excluded from the analysis presented here. Only one utility was entirely unwilling to provide rates information. The final data set of utilities with complete water and sewer rate data includes 399 of the 416 sampled utilities (95.9%). Table 1 shows the final number of utilities in each of the four strata used in the 2017 and 2019 analyses. The utilities in the 2019 sample serve a combined population of almost 44 million, covering an additional 6 million more customers than the 2017 sample.

Table 1. Sampled U.S. utilities, 2017 and 2019
Strata (population served) 2017 2019
Local government Private Local government Private
Very large (100,000+) 75 16 81 21
Large (50,001–100,000) 70 15 82 20
Medium (10,001–50,000) 60 13 77 22
Small (3,300–10,000) 57 10 79 17
Total 262 54 319 80

The remaining data used in this study come from SDWIS, the U.S. Census Bureau's 2017 American Community Survey (ACS) 5-year estimates, and the 2016 and 2017 Consumer Expenditure Surveys. The SDWIS provided data on the population served, ownership, primary water source, and Safe Drinking Water Act (SDWA) violations over the past 5 years. Demographic and income data for the cities served by the water utilities were obtained from the ACS. Accurately matching demographic and income data to special-district, county, and private utility jurisdictions is challenging because utility service areas do not always correspond perfectly with municipal boundaries. We used the same method to match demographic and income data to special-district, county, and private utility jurisdictions, as in the earlier study, to ensure consistency between samples: where utilities served multiple cities or unincorporated areas, the city identified with the city's mailing address in SDWIS was used. We also directly collected the applicable minimum wage data for 2019 for every utility's jurisdiction.

3.3 Affordability measurement

We measured affordability using the two-pronged approach detailed in Teodoro (2018). The monthly price of basic single-family residential water and sewer services was calculated for a family of four at 50 gallons per capita per day (gpcd) or 6,200 gal per month. The present study does not assess the affordability of private wells and septic systems or the affordability of water service for agricultural, commercial, or industrial uses. The 50-gpcd standard is a typical assumed minimal residential wastewater flow for purposes of sewer system design (Bowne, Naret, & Otis, 1994), meant to reflect basic indoor water use. The Texas Water Development Board (2004) and California State Water Resources Control Board (2018) have adopted 50 gpcd as a standard for basic indoor water use. The value of customer-assistance programs was not included in price calculations as the goal is to measure affordability in the absence of policy intervention. The sample-weighted average monthly price was $39.99 for water and $43.72 for sewer services, for a total of about $83.72. These prices were the numerators for AR20 and HM calculations. Combined, these prices reflect an overall increase in average water and sewer prices of about 5.1% relative to 2017 (discussed further, below).

Values of AR20 require estimates of disposable monthly income for a family of four at the 20th percentile income in a given utility's service population. Data for gross income at the 20th percentile were drawn from the ACS' lowest-quintile upper limit. Essential nonwater expenditures were estimated with a regression model, which used Bureau of Labor Statistics Consumer Expenditure Survey data to estimate expenditures on taxes, housing, health care, food, and home energy. Coefficients from that model were combined with ACS data on demographics and income for each utility to estimate essential expenditures at the 20th percentile income for a family of four. Subtracting these essential expenditures from 20th percentile income yielded the denominator for AR20. Calculating HM simply required dividing monthly combined basic water and sewer prices by the locally applicable minimum wage.

4 RESULTS: WATER AND SEWER AFFORDABILITY IN THE UNITED STATES, 2019

Table 2 provides a descriptive summary of AR20, HM, and the other variables used in the subsequent analysis. Figures 1 and 2 show the overall distribution of AR20 and HM, respectively. The weighted average AR20 is 12.4, ranging from 1.4% to greater than 100%; for analytical purposes, AR20 is capped at 100.0%. Values of HM range from 1.6 to 27.0 with a weighted average of 10.1. Although AR20 and HM were moderately correlated in 2017 (ρ = .61), in 2019, the correlation between the two affordability metrics is considerably weaker (ρ = .33). We discuss the reasons for this change in greater depth below.

Table 2. Descriptive summary of 2019 U.S. data
Variable Mean 95% mean CI Minimum Maximum
HM 10.14 [9.5, 10.74] 1.57 27.04
AR20 12.42 [10.91, 13.93] 1.42 100
Special district 0.23 [0.18, 0.29] 0 1
Private 0.20 [0.15, 0.25] 0 1
Groundwater source 0.49 [0.42, 0.55] 0 1
Purchased water source 0.30 [0.24, 0.36] 0 1
SDWA violations 32.87 [25.94, 39.79] 0 2,257
Population served (log) 9.42 [9.31, 9.52] 8.12 14.66
Population served (thousands) 25.25 [25.21, 35.28] 3.32 2,319.60
  • Note: n = 399. Poststratification weights applied in parameter calculations.
  • Abbreviations: AR20, affordability ratio at the 20th percentile income; CI, confidence interval; HM, hours of labor at minimum wage; SDWA, Safe Drinking Water Act.
Details are in the caption following the image
Single-family residential affordability ratio at the 20th percentile income (AR20) in the United States, 2019
Details are in the caption following the image
Basic single-family residential water and sewer prices in hours of labor at minimum wage (HM) in the United States, 2019

4.1 Affordability by ownership

Differences in rates between publicly owned and private utilities continue to be subjects of frequent interest. Figure 3 depicts average AR20 and HM by three types of utility ownership (private, municipal government, and special districts); Figure 4 shows affordability by region. Average AR20 does not vary significantly by ownership. Private utilities' AR20 average of 11.3 was less than municipal utilities' average of 12.6 and less than special-districts' 13.4, but none of these differences are statistically significant by conventional standards. Affordability measured as HM also does not vary significantly by ownership, although private utilities average 12.0 HM, which is about an hour and 45 min more than the special-district average and 2 h and 30 min more than the weighted average for municipal utilities. The differences between the two measures of affordability suggest that 20th percentile incomes are, on average, higher in communities served by private utilities relative to special-district and municipal utilities.

Details are in the caption following the image
Mean affordability ratio at the 20th percentile income (AR20) and hours of labor at minimum wage (HM) by U.S. utility ownership, 2019
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Mean affordability ratio at the 20th percentile income (AR20) and hours of labor at minimum wage (HM) by U.S. region, 2019

4.2 Correlates of affordability

A large set of affordability data on diverse utilities provides an opportunity to investigate the relationship between affordability and organizational variables. To that end, some simple statistical models are offered here as a descriptive exploration. The goal here is not to evaluate theoretical claims but rather to provide an initial picture of important correlates of affordability.

Table 3 reports the results of ordinary least-squares regression models that estimate AR20- and HM-only utility characteristics drawn from the SDWIS. The models include dummies (1/0) for special-district and private ownership (municipal utilities are the reference category) and primary water source (groundwater or purchased water, with surface water as the reference category). The models also include a count of Safe Drinking Water Act (SDWA) health violations over the past 5 years to account for changes in performance that might correlate with affordability. Finally, the models include utility size, measured as the natural log of the population served by the utility. The logarithmic transformation is important because the effects of scale on affordability are expected to be nonlinear, with the greatest effects at the lower end of the distribution. For example, the substantive difference between a utility that serves a population of 10,000 and one that serves 75,000 is greater than the difference between utilities that serve 500,000 and 565,000. All models use poststratification weighting.

Table 3. Correlates of U.S. water and sewer affordability at the 20th percentile income and hours of labor at minimum wage
Dependent variable: AR20 Dependent variable: HM
Coefficient (robust SE) p value Coefficient (robust SE) p value
Special district ownership 0.35 (1.89) .86 0.58 (0.77) .46
Private −1.04 (1.54) .50 2.51 (0.90) <.01
Groundwater source −2.61 (1.96) .18 −0.63 (0.77) .42
Purchased water source −2.42 (2.11) .25 0.01 (0.82) .90
SDWA violations 0.01 (0.01) .20 0.00 (0.00) .31
Population served (log) −0.95 (0.56) .09 −0.52 (0.23) .02
Intercept 23.12 (5.84) 14.65 (2.40)
R2 0.02 0.06
n 399 399
  • Note: Ordinary least-squares regression. Poststratification weights applied in estimation.
  • Abbreviations: AR20, affordability ratio at the 20th percentile income; HM, hours of labor at minimum wage; SDWA, Safe Drinking Water Act.

Among utility characteristics, no characteristic emerges as a consistently strong, statistically significant predictor of affordability, and the overall model fit is weak. Although utility size negatively predicts AR20 and HM—that is, affordability improves as a utility's size increases—for AR20, the correlation falls short of conventional standards of statistical significance (p = .10). The strong relationship between size and HM is consistent with the idea that larger utilities enjoy economies of scale that translate into more affordable rates. The somewhat weaker correlation with AR20 suggests that underlying distributions of income and other essential costs of living may affect larger systems more than they do smaller systems.

4.3 Changes in affordability, 2017–2019

Resampling the same utilities that were analyzed in 2017 affords us the unique opportunity to analyze how affordability changes over time. We calculated the mean weighted changes discussed throughout this section by subtracting the mean weighted averages from 2017 from the mean weighted averages in 2019 (Table 4). The mean weighted change in total water and sewer charges is +$4.07 in 2019, which can be broken down into a +$3.23 mean change in water charges and a +$0.84 mean change in sewer charges.

Table 4. Descriptive summary of change in U.S. rates between 2017 and 2019
Variable Mean 2017 (US$) Mean 2019 (US$) Change in means (US$) Change in means (%)
Total water and sewer charges 79.65 83.72 4.07 5.1
Water charges 36.77 39.99 3.23 8.78
Sewer charges 42.89 43.72 0.84 1.94
First gallon, total 36.68 40.89 4.22 11.50
First gallon, water 16.53 18.68 2.15 13.03
First gallon, sewer 20.16 22.20 2.05 10.19
Change in AR20 10.97 12.42 1.45 13.20
Change in HM 9.90 10.14 0.24 2.44
  • Abbreviations: AR20, affordability ratio at the 20th percentile income; HM, hours of labor at minimum wage.

Subtle but important shifts in the distribution of incomes and expenditures contributed to a worsening affordability picture overall. From 2017 to 2019, weighted mean monthly essential expenditures for a family of four at the 20th percentile income increased by $86.92, and weighted mean monthly income at the 20th percentile rose by $98.79; Table 5 reports these changes. However, the changes in 20th percentile income and essential expenditures were uneven, as Figure 5 shows. Over this 2-year period, 20th percentile income crept slightly higher, but the distribution of essential expenditures were markedly higher: the share of utilities with essential expenditures under $750 per month fell from 37.8% to just 15.7%. Meanwhile, the share of utilities with essential expenditures ranging from $750 to $1,250 jumped from 51% to greater than 70%. The rest of the distribution remained roughly similar from 2017 to 2019. These results reflect an uneven impact of overall economic changes: sluggish income growth at the low end of the distribution, coupled with rising costs of living for low-income households.

Table 5. Essential expenditures and 20th percentile income in the United States, 2017 and 2019
2017 2019
Mean 95% CI Mean 95% CI
Essential expenditures $853.68 [$815.10, $892.25] $940.60 [$910.46, $970.75]
20th percentile income $1,845.07 [$1,720.10, $1,963.43] $1,943.79 [$1,836.54, $2,051.04]
  • Abbreviation: CI, confidence interval.
Details are in the caption following the image
Percentage change in mean affordability ratio at 20th percentile income (AR20) and hours of labor at minimum wage (HM) by US utility ownership

These changes affect water and sewer affordability. Between 2017 and 2019, HM increased by just over 2%, and AR20 increased sharply from 10.87 to 12.42—a 13.2% increase. In terms of region (Figure 6), the South and Northeast experienced the greatest mean changes in AR20 (+3.3 and -1.96, respectively), while the West increased by 1.52 relative to 2017. The results for change in HM are slightly different, with the Midwest experiencing the greatest average change in HM at approximately +1.3 h in 2019 and other regions experiencing only slight increases by 2019. Municipal utilities and special districts saw greater average increases in AR20 (+2.05 and +2.44, respectively) compared with private utilities (+0.53). Changes in HM did not vary as much by ownership (Figure 7), with special district HM increasing by +0.61 and municipal utilities by +0.31 but private utilities experiencing a decrease in HM by −0.04.

Details are in the caption following the image
Percentage change in mean affordability ratio at 20th percentile income (AR20) and hours of labor at minimum wage (HM) by US region
Details are in the caption following the image
Distribution of monthly 20th percentile income and essential expenditures in the United States, 2017–2019

A handful of utilities experienced reductions in water and sewer charges, HM, and AR20, but these were rare, and mostly due to changes in rate structure. Although more than two-thirds of the 325 utilities that appeared in both the 2017 and 2019 samples changed their water prices, only 60 changed their rate structures. Table 6 summarizes these changes. The results are similar for sewer rates as about two-thirds changed prices, but just 56 of 296 sewer utilities changed their rate structures between 2017 and 2019. For water utilities, the most common rate structure change was from uniform or declining block to inclining block, with 23 utilities changing, opting for more progressive rates. Nineteen changed to declining block, and 11 changed to uniform block. For sewer service, the most common rate structure change was also to inclining block (21 utilities), followed by 17 changing to uniform and 9 changing to declining block.

Table 6. Summary of changes in U.S. rate structures between 2017 and 2019
Water Sewer
Changed in rate structure 60 56
Changed in total price 221 208
Added fixed charge 11 14
Changed to inclining block 23 21
Changed to declining block 19 9
Changed to uniform 6 17
Total 325 296

To understand where in the pricing scheme these increases are coming from, we analyzed the first-gallon prices for water and sewer services. The first-gallon price is the price a customer pays for using any water at all: any fixed charges plus the price of the first unit of water or sewer service. For example, if there is a $20 fixed charge for water service and the first 100 cubic feet of water is $2.00, then the first-gallon price for water service is $22.00. Figure 8 shows the percentage change in average combined first-gallon water and sewer bills, as well as the percentage change in total bill at 6,000, 12,000, and 20,000 gal. As Figure 8 shows, the first-gallon water and sewer prices increased at a far greater rate (14.2%) than the bills at moderate to high volumes. In contrast, the average bill at 20,000 gal increased by only 8.0%. Considered together, these results show how changes in rate structure have shifted water and sewer systems' relative cost burdens from high-volume to low-volume customers.

Details are in the caption following the image
Percentage change in average monthly water and sewer bill, 2017–2019

5 DISCUSSION

This study provides a descriptive summary of water and sewer affordability for low-income households in the United States in 2019. Results indicate that households at the local 20th percentile income level must spend an average of 12.4% of their disposable income and/or work 10.1 h at minimum wage to pay for basic monthly water and sewer services. These figures are markedly increased compared with their values in 2017.

The main drivers behind the increase in AR20 between 2017 and 2019 were increases in total water and sewer charges, increases in essential expenditures, and stagnant or—more alarmingly—decreasing 20th percentile incomes in some cases. All three of these factors contributed to increasing the mean AR20 in 2019. The increase in essential expenditures was especially meaningful in communities where essential expenditures were already high and the 20th percentile income was already low. Even small changes in water and sewer charges can have a substantial impact on affordability where disposable income is very low. This reality is reflected in the far more dramatic rise in AR20 (+13.2%), compared with the more modest increase in HM (+2.4%).

The effect of essential expenditures and 20th percentile income can also be seen in Figure 3, where private utilities have a lower average AR20 than municipal utilities or special districts. The main reason for this counterintuitive result is that 20th percentile income is, on average, about $1,000 higher for customers served by private utilities compared with municipal-utility customers. The difference between private utilities and special districts even more striking: average 20th percentile income is around $4,000 higher for private utilities than for special districts. Meanwhile, customers of municipal and private utilities have almost the same average essential expenditures, $967.58 and $964.58, respectively; special-district customers have lower average essential expenditures at $878.23 monthly. These underlying differences help explain why private utilities' average AR20 is relatively low, even as their average HM remains relatively high.

The changes in rate structure and first-gallon price shows that utilities are continuing to push more of their total costs into the fixed costs as part of their pricing strategies (Walton, 2018). Eleven water utilities and 14 sewer utilities that did not previously have fixed charges added them between 2017 and 2019. Moreover, as observed earlier, first-gallon prices increased faster between 2017 and 2019 than did the overall water and sewer prices analyzed here.

Among the system characteristics analyzed here, utility size remains the most notable correlate of HM, although it is not as strongly correlated with AR20 as it was in 2017. Larger utilities may enjoy economies of scale that translate into more affordable rates for low-income customers. However, nonwater/sewer essential expenditures appear to be rising faster in larger systems, and for that reason, AR20 and HM are less closely correlated than they were 2 years ago.

5.1 Limitations

As with any empirical study, this one has limitations. The AR20 calculations here rely on estimates of disposable income developed with a regression model built with national data, which necessarily introduces measurement error to AR20 values. The degree to which this measurement error mischaracterizes affordability for a given utility depends on how much local consumer expenditures vary from national patterns, but so long as the error is randomly distributed across the data set, estimates of AR20 and parametric calculations do not suffer from significant bias, and any inferential analyses will favor a null finding. Similarly, the 50-gpcd basic water use level assumed in the analysis may not align with basic use in all utilities. This assumption is reasonable for crafting an overall national assessment and identifying important correlates of affordability but may not be appropriate for evaluating affordability in a particular utility.

The purpose of the present study is to measure and describe affordability in terms of the financial tradeoffs created by water and sewer rates; the present data set includes no information about water supply conditions, demand patterns, sewer flows, wastewater strength, service quality, or system financial and physical conditions. In other words, the present analyses do not account for water and sewer services' quality (except insofar as SDWA violations measure quality). As such, the affordability figures provided here do not reflect the value of water and sewer services or capture utility-level tradeoffs involving cost and quality. Affordability is important but not necessarily the most important aspect of water and sewer service. This national assessment of water and sewer price impacts on low-income customers allows water sector leaders and policymakers to evaluate affordability alongside other utility goals.

Although this study's sample allows for more nationally representative analysis than most previous research, it is nonetheless limited. For example, the present sample does not provide the statistical power necessary to analyze state-level policy effects on water and sewer affordability. The labor intensity of data collection for water and sewer rates (especially for very small systems) remains a serious barrier to larger-sample studies. Finally, the two-wave time series (2017 and 2019) limits our ability to infer trends in affordability. We hope, in the future, to capture changes in these utilities over a longer period.

5.2 Directions for future research

A clear avenue of study is to connect affordability with utility-level financial policies and practices. Capital financing arrangements and rate design, for example, have potential implications for low-income affordability. How do fixed and volumetric rate structures relate to low-income affordability? How do inclining-block, declining-block, and uniform rates affect affordability? Does affordability necessarily stand in tension with other ratemaking goals such as equity, efficiency, and revenue stability? Or can rate design help accomplish these goals simultaneously? What is the relationship between affordability and system development charges and other capital connection fees? An analysis of affordability across many utilities can provide empirical leverage on these questions.

The relationship between utility operating and capital costs and affordability is another important direction for future inquiry. Which aspects of utility organization and management account for the relationship between size and affordability observed here? How do present and deferred capital maintenance and replacement costs relate to affordability? How do regulatory requirements affect affordability? How does affordability relate to other aspects of utility performance, such as water quality, system loss, capital replacement schedules, workplace safety, financial strength, and so on? Do state and federal grant and loan programs simply lower utility costs, or do they translate into more affordable water and sewer service for low-income households? Unfortunately, no comprehensive national data for utility system conditions and performance currently exist beyond the USEPA's compliance data sets.

Finally, the increasing use in the United States of utility rates to fund stormwater and surface water management may require analysts and researchers to include these prices in future assessments of affordability, at least for communities that fund surface water management in this way.

5.3 Implications and applications

Are water and sewer service affordable in the United States? What is “affordable” is ultimately a normative question and suggests a philosophical inquiry beyond the scope of this study. Although no specific level of AR20 or HM defines affordability in an objective sense, Teodoro (2018) suggests values of AR20 less than 10% and HM less than 8.0 as rules of thumb to guide policy consideration. By these guidelines, 60% of the sampled utilities are affordable as measured by AR20, and 39% are affordable according to HM. However, affordability varies considerably across utilities, providing managers, regulators, and policymakers with a valuable snapshot of the varied affordability landscape. This picture and the preliminary analyses reported here suggest that smaller utilities and communities with severe income inequality may be particularly vulnerable to affordability challenges. These factors bear consideration as governments and water sector leaders seek to maintain affordability while fulfilling their environmental and public health missions.

We close with a reminder about the dangers of comparing affordability metrics across utilities when making policy or management decisions. A national profile of affordability and comparative analyses are useful for developing broad regulatory strategy or assessing the water sector nationally. However, comparative affordability analysis is not appropriate for setting policy in any specific utility, as local infrastructure and socioeconomic conditions vary in ways that can make comparisons deceptive. More fundamentally, affordability is a household-level phenomenon, and for this reason, cross-utility comparisons are not especially useful. The price of basic water service in Denver and Detroit is not meaningful to a low-income family in Dayton. Utility leaders should seek to maintain affordability levels that are consistent with their own communities' goals and values.