Devils (and angels) in the details, Part 3
In early January the California Water Board released its draft proposal for a statewide low-income water bill assistance program. My last couple posts summarized the proposal and discussed the perverse incentives for rate design that the subsidy might create. Continuing the theme of unintended consequences, this one looks at what the statewide assistance program might mean for poor-performing small water systems.
All else equal, when it comes to water systems, bigger is better. Water and sewer systems require big infrastructure investments and lots of operating costs to work. When those costs can be spread across large numbers of people and businesses, the average price of water is lower. That makes utilities textbook examples of economies of scale.
Less obviously, the organizations that operate utilities also are subject to economies of scale. Larger organizations can hire and retain higher-quality employees and maintain specialized personnel. As my past research work with David Switzer has shown, these advantages help larger water systems take advantage of human capital in ways that smaller systems can’t.
Larger systems also enjoy significant financial advantages. Larger customer bases tend to be more economically diverse, providing a degree of financial stability to a utility. Financial markets favor large utilities, too, allowing them access to finance capital at lower interest rates than their smaller cousins.
Thing is, just as in the rest of the United States, most of California’s water utilities are really, really small. More than three quarters of California’s 2,800 water systems serve fewer than 3,300 people, but collectively serve just 2% of the state’s population. Meanwhile, the 183 largest systems serve 80% of the state’s population.
Small system struggles
Unfortunately, small systems tend to suffer disproportionately from poor water quality. Here’s the correlation* between annual Safe Drinking Water Act health violations and utility size in California, based on EPA data from 2010-2018:
Affordability also correlates with system size. So do poverty, income, and unemployment. My recent analysis of water and sewer rates nationwide shows that, all else equal, both AR20 and HM decline as utilities increase in size—that is, on average, water and sewer affordability gets better as utilities get bigger.
That small systems struggle is no secret, and California has in recent years sought to encourage system consolidation through a variety of carrots and sticks. The process is slow, however, and fraught with political conflict. Consolidation is not a panacea, and there are plenty of struggling large and medium-sized systems. But the data are clear on this point: on average, with water utilities, bigger is better.
Props and levers
What does all this have to do with low-income assistance? The proposed program would transfer significant resources from relatively affluent to relatively poor communities. In many cases, those communities are served by the small, perennially underperforming utilities that too often provide lousy water quality at very high prices. Financial pressures from ratepayers are among the strongest incentives for small utilities to consolidate. A low-income assistance program will disproportionately benefit customers of those systems (which is good), but could inadvertently prop up systems that would otherwise move toward consolidation due to financial pressures (which is bad). To some failing small systems, low-income assistance could be financial life support system.
But if structured correctly and implemented carefully, low-income water assistance could help drive small system consolidation. Financial assistance for low-income customers could make consolidation more attractive for the larger utilities and private firms that might otherwise be reluctant to take on the responsibility for troubled small systems with less affluent customers. More directly, the state could make assistance funds contingent on consolidation or compliance with SDWA management requirements. Statewide assistance might be a potent lever to push recalcitrant small systems toward consolidation and its blessings.
That’s why statewide low-income water bill assistance should not be considered in isolation, but rather as part of a comprehensive strategy to improve water systems. The same applies to any plan for a national water affordability assistance program.
Whether a statewide assistance program would prop up failing small systems or lever them into consolidation and sustainability will depend in large part on the administrative structures and processes used to implement the program. I’ll take up those administrative angels and devils in my next post.
*Fitted with a negative binomial regression.
†There are probably another dozen or so studies that I could link here.
Some observations about the new law & what it tells us about the politics of water infrastructure in America
The Senate recently passed the America’s Water Infrastructure Act (AWIA) by a 99-1 vote; today President Trump signed it into law. AWIA is pretty slender as federal infrastructure bills go, weighing in at 332 pages and 70,000 words.
What follows are some thoughts about AWIA’s main water infrastructure provisions and what they tell us about the state of water policy and politics in America. This isn’t really a coherent essay or an exhaustive commentary; it’s a series of cursory observations on the bits that strike me as interesting.
What’s new in Title II
Titles I, III, and IV include some important provisions, but much of it is garden-variety authorizations for sundry projects and studies, along with some light regulatory housekeeping. As a careful observer of water policy, the most interesting parts to me come in Title II—Drinking Water System Improvement.
Sections 2014-2015 have received the most public attention, as they include increases in federal grants along with changes to the State Drinking Water Revolving Fund program. Those funds will help with infrastructure investment, but is really a drop in the trillion-dollar bucket of America’s water infrastructure needs. That money will make a splash ahead of the midterm elections (more on that later), but isn’t all that interesting from a policy perspective.
Here’s what I find most intriguing in Title II:
- Sec. 2001: Indian Reservation Drinking Water. Literally the first section of Title II is a marked expansion of grant programs for tribal drinking water infrastructure—$20 million annually for the next four years.
That isn’t much in the grand scheme of American infrastructure, but it’s potentially huge for some tribal systems. My research with Mellie Haider & David Switzer has found that tribal facilities lag far behind non-tribal facilities in regulatory compliance, in part because tribes weren’t eligible for the vast federal grants available in the 1970s and 1980s. Sec. 2001 is a step toward correcting that. More generally, it’s fascinating that this program is the very first thing in Title II.* Hopefully this prominent spot in the AWIA presages greater efforts to build tribal drinking water capacity.
- Sec. 2002: Intractable Water Systems. In substance, Sec. 2002 isn’t terribly exciting—it just funds a study on water systems that consistently fail to meet regulatory requirements. But this section (along with Sec. 2010, discussed below) signals that Uncle Sam is interested in doing something about perennially poor water systems. Of particular interest are the tens of thousands of small utilities that serve fewer than a thousand customers, many of which lack the financial, physical, and human capacity to operate modern drinking water systems.*
- Sec. 2006-7: School lead testing & drinking fountain replacement. Section 2006 authorizes $75 million over three years to support lead testing in school drinking water lines. Sec. 2007 provides $15 million for school drinking fountain replacement. These programs remain voluntary, however, so its effectiveness will depend on local officials participating proactively. Federalism! As with most aspects of national drinking water policy, this only works insofar as local governments make it work.
- Sec. 2010: Ownership provisions. Innocuously named “Additional Considerations for Compliance,” this section empowers state regulators to “require the owner or operator of a public water system to assess consolidation or transfer of ownership… to achieve compliance with national primary drinking water regulations.” This section is aimed at repeat violators of the Safe Drinking Water Act, and although it’s weak in substance—it doesn’t actually require consolidation or change in ownership—it signals something about the potential direction of future water regulation. More frequent consolidation, privatization, and/or public condemnation of failing water systems may be on the horizon.*
What AWIA tells us about the politics of water infrastructure
AWIA provides more evidence that water infrastructure remains an very hot issue at the moment. A 115th Congress that has been historically contentious—it might struggle to pass a resolution that puppies are cute—just passed an infrastructure law with near consensus. The timing is noteworthy, as well: AWIA arrives just in time for midterm elections. Credit-claiming opportunities abound!
Crucially, none of the funding authorized in AWIA will turn into actual water infrastructure until Congress appropriates funds for it. Conveniently for the 115th Congress, the task of appropriating money for all of that water infrastructure will fall to the 116th.
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Last week I had the pleasure of speaking at the Connecticut AWWA’s annual conference. There I shared a the stage with a team from Providence Water, who told the story of their city’s struggles with lead contamination in drinking water. One of the most surprising things about Providence’s experience is the way that its customers apparently responded to the Flint water crisis.
Lead in Providence
Lead contamination in drinking water is a long-standing problem in Providence. Like many older American cities, Providence has many buildings with lead plumbing. As in Flint, Providence’s water system requires careful corrosion control in its treatment process to limit the release of lead into the drinking water supply. Lead contamination has been detected consistently in Providence’s water system since testing began in 1992—usually hovering just below EPA’s action level of 15 ppb—but it spiked to 30 ppb in 2009 and again in 2013, prompting increased regulatory scrutiny.* According to last week’s presentation, at least one Providence test site yielded lead contamination greater than 200 ppb—far higher than the levels that sparked outrage in Flint. Unlike Flint, where leaders denied and obfuscated lead contamination, Providence has publicly acknowledged and taken steps to address the issue: they’ve changed maintenance protocols and treatment methods, and introduced programs to replace lead service lines in its system.
As part of that effort, in 2014 Providence Water began offering drinking water lead testing for $10 to any customer who wanted it (earlier this year they started offering testing for free). In providing this service the utility also gathers valuable data on its own system. Initial participation in this voluntary testing regime was moderate, with an average of 4.7 customers requesting testing each month over the first two years of the program.
Then something unexpected happened in 2016: Participation in Providence’s lead testing program skyrocketed—after the Flint Water Crisis grabbed national headlines. Water contamination in Flint made Americans everywhere reconsider what comes out of their own taps. The figure below plots monthly voluntary lead testing in Providence from 2014-2017 (blue line); the utility mails its testing brochure in the May/June billing cycle, and so testing jumps in June and July each year.** The graph also shows monthly average Google News Index for coverage of the lead crisis in Flint (red line). Providence Water’s own lead contamination issues emerged in 2009, but when Flint put drinking water into the national spotlight in 2016, Providence citizens took action locally.
Are the people of Providence responding to events in Flint? It’s impossible to be certain, but the circumstantial evidence is strongly suggestive. A lead crisis 700 miles away apparently caused a 400% increase in lead testing participation by focusing Rhode Islanders’ attention on the contamination that they’d been living with for decades.
The water crisis in Flint is the Cuyahoga River fire of our generation: an event that thrust a widespread but underappreciated problem into the national consciousness. Political scientists call these focusing events: harmful, high-profile occurrences that suddenly put previously obscure issues onto the public policy agenda. One important consequence of the newfound attention to drinking water quality is that citizens everywhere think differently about their own utilities and drinking water. They may not deserve it, but utilities everywhere must now grapple with the Flint Water Crisis’ awful legacy. The effects of the Flint Water Crisis on the people of Providence, Rhode Island show such events afar can transform citizens’ interactions with their own local governments.
*No level of lead is healthy according to the CDC, especially for young children.
**Thanks to Providence Water for providing these data.