Measuring Water and Sewer Service Affordability

Section 2: Introduction

Residential water bills have risen consistently since 2010—and annual increases have varied between 8 or 9 percent to 3.1 percent.13 Between 2010 and 2015, there was an overall 41 percent rise in both water and sewer utility service costs.14 Local efforts by stakeholders and policymakers to address affordability have expressed a need for empirical evidence on the extent of unaffordability, what groups those impacts fall on, and how trends have changed over time.15

Water is essential to human well-being. Water is the foundation of health and is used for cooking, bathing, cleaning, and waste disposal. Lack of access to water prevents individuals from full participation in the economy, limiting both their own and their communities’ productivity.16 Special rapporteurs from the United Nations have recently turned attention to the access to clean water and adequate sewer systems as part of the institution’s work on human rights statutes on poverty, water, and sanitation.17 The Detroit Water and Sewer District’s (DWSD) 2014 water shutoffs garnered so much national and international attention that it compelled two UN special rapporteurs to visit the city to speak with stakeholders and impacted communities about the issue.18 The special rapporteurs found that:

Without water, people cannot live a life with dignity… It exacerbates inequalities, stigmatizes people and renders the most vulnerable even more helpless. Lack of access to water and hygiene is also a real threat to public health… In line with the mandates entrusted to us by the Human Rights Council, we would like to underline that the United States is bound by international human rights law and principles, including the right to life as well as the right to non-discrimination with respect to housing, water and sanitation and the highest attainable standard of health. These obligations apply to all levels of Government – federal, state and municipal… When people are genuinely unable to pay the bill, it is the State’s obligation to provide urgent measures, including financial assistance, especially low tariff or subsidies, to ensure access to essential water and sanitation for all. Not doing so amounts to a human rights violation.

At the same time, the special rapporteur explicitly states, “Water and sanitation does [sic] not have to be free.”19 They recognize that addressing affordability is a balancing act between ensuring the human right to water and long-term utility viability.

Between 2014 and 2016, DWSD shut off water to 83,752 homes due to nonpayment,20 and in March 2018 threatened to shut off water to 17,461 more homes after a moratorium on shutoffs ended in early May.21 Utility operators have commented on how they struggle to determine who is able to pay and who is not.22 The spread of residential water shutoffs as a collection strategy erroneously assumes that households can afford to pay. The majority of water shutoffs, particularly residential water shutoffs, are due to arrears accumulated by households’ inability to pay, not a lack of willingness to pay or a desire to "freeload."23 

Water and sewer utilities in the US are considered natural monopolies and rate setting is typically dominated by studies that measure the willingness of users to pay (WTP) for water. However, as wealth, wage, and income inequality accelerate across the US, rates for water and sewer utilities set according to WTP is entirely mismatched to the empirical reality that shows some people are simply unable to pay.24 These studies have also shown that lower-income households are most sensitive to increasing water rates—meaning that if there are any changes in the rates, these are the households most likely to use less.25 In the context of extreme austerity and lack of federal funding, the dominant cost recovery rate-setting model neglects the profound role of water and sewer utilities in public health and other cascading effects inaccessibility can create.26

Experts have pointed out that there is a “business case” to be made that addressing affordability offers utilities financial benefits, not just costs.27 In the fiscal year 2016, Detroit budgeted $1.6 million for costs related to customers' inability to pay, such as account collections activities, service disconnections, and payment plan administration. An additional $7.8 million contract has been signed with a water shutoff contractor for future shutoff expenses between 2018 and 2021.28 Such activities could be effective if payments were simply late, but when households are “genuinely unable to pay the bill” as the UN special rapporteurs point out, those collections activities by the utility are essentially wasted resources and effort, going after money that customers simply do not have. Additionally, analysis by Detroit’s water utility found that decreasing the proportion of income that a water/wastewater bill comprises from 8 percent to 4 percent improves collectability by 25 percent and reduces the probability of shutoff by 10 percentage points.29

For many households, and for the local governments that finance system costs, there are already large problems. Local governments and residents of the GLWA service area are among the people and places facing this problem. However, it is not just Detroit facing unaffordability issues: the infamous Flint lead crisis began when the city decided to change the source of its water in an attempt to lower costs,30 and some smaller cities and townships have faced citizen pushback and even lawsuits over rate issues.31 A recent US Government Accountability Office report analyzing water infrastructure found that Michigan has the largest number of large and midsize cities facing declining populations. Of the 14 large and midsize cities identified, all but four are located in southeastern Michigan. Declining populations further complicate the ability of utilities to spread the costs of the necessary infrastructure investments and are generally more economically distressed than growing populations.32

There are economic as well as humanitarian reasons to provide protections related to affordability. This report will use empirical evidence and novel methods recommended by experts and government review panels to determine the extent of unaffordability, who is impacted, and how utilities can make adjustments to address structural affordability.