The congressional COVID cavalry isn’t coming to save the water sector
The ink was barely dry on a $2 trillion coronavirus response law when Congress started working on a second massive coronavirus relief bill. Water infrastructure was initially high on the congressional priority list for the next phase, with rumors of perhaps hundreds of billions of dollars for water and sewer systems. Structured carefully, a massive infusion of federal funds could help end shutoffs that threaten public health, give immediate relief for utilities reeling from lost revenue, help spur economic recovery through investment in badly-needed infrastructure, and maybe even drive fundamental structural reforms to the water sector. There was palpable excitement in the water sector as legislation was taking shape in April and early May. I even fielded a few inquiries from policymakers looking for guidance on structuring the bill!
On May 15 the House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) bill—an unprecedented $3 trillion package of programs to aid “the economy, public health, state and local governments, individuals, and businesses” in response to the COVID-19 crisis. The bill now sits in the Senate, its final shape and prospects uncertain.
The outcome probably won’t matter much for the water sector, however: the HEROES bill passed by the House provides next to nothing for water and sewer systems, and provisions for low-income water bill assistance are structured in a way that will mainly help customers in large utilities with existing assistance programs. That, my friends, is what Stringer Bell would call a 40-degree day.
Aid for utilities?
Back in late March I argued for a formulaic, conditional grant program that would channel $70 billion in federal assistance directly to utilities that agreed to end shutoffs, ensure service to all occupied residences, forgive financial penalties accrued during the pandemic, and restructure prices to maintain affordability. Grants would be based on the poverty rates of utilities’ service areas. The main merits of the conditional grant model are reach and speed: the program would help nearly everyone, minimize administrative costs to utilities, eliminate qualification processes, and get the water flowing fast to stave off a public health emergency. It would also provide an immediate and durable economic stimulus, as utilities could use these funds flexibly to support jobs and capital investment.
Unfortunately, HEROES provisions for water systems are all conditions and no grants. The bill requires water systems that receive HEROES funds to end shutoffs, safely restore service to customers who had been shut off, and forgive penalties ().
And what do water and sewer utilities receive in exchange for giving up the main mechanism they have for ensuring timely payment? Limited subsidies for low-income assistance programs, and a boatload of administrative work ().
That’s it. That’s all. HEROES includes no categorical grants to water or sewer systems.*
Wither customer assistance?
For a few years now, House Democrats have been pushing for a $1.5 billion Low-Income Household Drinking Water and Wastewater Assistance Program (LIWAP?), a LIHEAP-style policy for water bill assistance. I’ve argued before that a LIHEAP-style program isn’t an awful idea but has some pretty severe limitations. Congress apparently heeded that warning, as §190703 retains the LIWAP label but doesn’t build a new LIHEAP-style program. Instead, it would channel funds through state and Tribal governments to utilities to support water and sewer bill reductions for low-income customers.
Allotments to utilities would be based on federal income and poverty guidelines. In addition to ending shutoffs, restoring service, and forgiving nonpayment penalties, utilities that receive bill assistance funds would be subject to audit. To its credit, the House bill seems to acknowledge administrative burdens on customers associated with such programs: §190703(g) requires utilities to “conduct outreach activities designed to ensure that such households are made aware of the rate assistance” and to notify customers of the assistance that they receive. HEROES allows utilities to spend up to 8% of federal funds on support for administrative processes, but participating utilities would also be subject to mandated state audits.The main problem with this approach is that it puts significant administrative obligations on utilities with relatively little payoff. It is difficult to see why small or medium-sized water and sewer utilities would opt to participate in a program that carries such onerous requirements for a program that will in most cases benefit a small, politically weak minority of their customers. Why would utilities with little organizational capacity agree to heavy shackles with so few shekels? Unfortunately, water/sewer affordability is, on average, worse in smaller systems. HEROES is unlikely to do much for the nation’s neediest water customers.
The main beneficiaries of the $1.5 billion HEROES water assistance program will be large systems that already run assistance programs, since their administrative and audit processes are already in place.**
HEROES funding would allow those large utilities to expand or extend benefits, and maybe boost their administrative capacity.
HEROES act? More like ZEROES act, amirite?
I dunno, man. The bill is more than 1,800 pages and funds everything from unemployment insurance to suicide prevention to wildlife biosurveillance. I sure didn’t read the whole thing, and there’s undoubtedly a lot of good stuff in there. The direct cash benefits at the heart of the bill will surely help lots of people. But the HEROES bill that emerged from the House of Representatives does little for water affordability directly, doesn’t help water/sewer systems generally, and certainly does not provide sufficient leverage to achieve more fundamental reforms to the water sector. The bill does give members of Congress the chance to take a position on water affordability and claim credit for tackling shutoffs. Whatever its fate in the Senate, the HEROES bill has accomplished those political goals.
Systemic reforms to the U.S. water sector remain needed and possible, but will likely have to wait until COVID-19 recedes and a new Congress arrives.
*There’s one exception: HEROES allocates $20 million to the Bureau of Indian Affairs to support Tribal water provision, which really need help with capacity. More on this topic coming soon!
**Friends on Capitol Hill tell me that large utilities lobbied for this program.
for a federal low-income water bill assistance program
The ink is barely dry on the $2 trillion coronavirus response law, but there are rumblings that a another relief bill will be at the top of the agenda when Congress reconvenes later this month. The latest noises out of Speaker Pelosi’s office indicate that the next bill will focus on immediate relief for families, small businesses, health systems, and local governments.
When it comes to household water affordability relief, the perennial favorite proposal is a federal means-tested assistance program for low-income families modeled after the Low Income Home Energy Assistance Program (LIHEAP). A $1.5 billion LIHEAP-style relief program for water was part of the House proposal for the last COVID-19 relief bill, but it was cut from the final bill and never enacted. The proposal is likely to be resurrected in the next bill.
Over the past week I’ve had several conversations with utility executives, policy experts, and government leaders about how Congress might best provide water relief in this ongoing and rapidly-moving pandemic. This post summarizes thoughts that have emerged from those conversations, and explain why I’m sympathetic but lukewarm on the idea of a federal LIHEAP-style program for water in this moment of crisis.
Redistributive programs come in two basic flavors: means-tested and entitlements.* Means-tested programs provide benefits to individuals and households who demonstrate need and whose resources (income, assets) fall below specific thresholds. People must apply for these benefits, and government bureaucrats evaluate applications to see that they meet program rules. Procedures for auditing and appeals accompany these processes. Those who receive benefits must reapply periodically in order to maintain eligibility. Benefits decline or disappear as incomes grow. Familiar means-tested assistance programs include TANF (“welfare”), SNAP (formerly Food Stamps), Section 8 housing, and LIHEAP.
Entitlement programs provide public benefits to qualifying individuals and households regardless of their need or resources—rich, middle-class, and poor households all may receive assistance. People are not required to demonstrate need or report income and assets to government agencies to get the benefits. K-12 education is a great example at the state/local level. School districts don’t require families to demonstrate financial need before enrolling their children, and millions of wealthy and middle-class kids attend school at the public expense across the country. Medicare and Social Security pensions are the two biggest federal examples: rich or poor, the government provides these programs whether or not their recipients “need” them.
It should come as little surprise that means-tested programs often carry a social stigma and entitlement programs are perennially popular.
LIHEAP for water?
Many local utilities provide some kind of means-tested assistance. With 50,000 community water systems operating across the country, these programs vary widely in design and administration.** No statewide water assistance programs exist, although California is building one. There is no federal low-income household assistance program for water or sewer bills. The closest analog is LIHEAP.
A LIHEAP-style water program is a fine idea in theory: it targets the needy population and helps pay for an essential but often expensive service. The program is familiar to the community advocacy crowd, and a network of state and local social service organizations already exists to help administer the program. But there are at least four big reasons to worry about federal LIHEAP-for-water as a cornerstone of affordability policy.
First, the extreme fragmentation of the water sector makes managing water bill assistance administratively costly in ways that it isn’t for energy. LIHEAP coordinates with the 3,200 electrical utilities and 1,400 gas utilities across the United States. There are 50,000 community water systems, and roughly 40,000 of those are very small, serving fewer than 3,300 people and employing just a handful of staff. Affordability is often most dire in these very small utilities in rural communities. Billing systems in these lightly-staffed utilities are often primitive and poorly-suited to coordinate with social service agencies. Making a LIHEAP-type program work for water will take months and significant investments in administrative systems and organizational capacity on the utility-side.
Second, like all means-tested programs, LIHEAP puts an administrative burden on the very people that it seeks to help. Learning about the program, applying, demonstrating eligibility, ensuring receipt, appealing decisions, and reapplying are time-consuming and sometimes humiliating processes. These costs may be especially significant for people with low literacy or limited English proficiency. Potentially eligible people may forego benefits if the application process is too burdensome, if they perceive a social stigma associated with public assistance, or if they do not trust government.
Third, forty years of experience with LIHEAP demonstrates the limits of the program. Historically, LIHEAP has reached an average of just 16% of eligible households. That’s not 16% of all households, that’s 16% of the population that qualifies for the program. The all-time high-water mark for LIHEAP outreach came during the 2009-2010 recession response, when the program helped 22% of eligible households. In other words, at its very best, LIHEAP failed to reach 78% of the people who needed it.
Finally, it is unclear that a LIHEAP-style program would address the immediate need to stop water shutoffs and reconnect every household during a public health crisis. Even assuming the most optimistic administrative scenario, LIHEAP-style assistance will take several weeks or months to work its way from the U.S. Treasury to state governments to social service organizations and finally into water billing systems. After all that, the program’s impact on shutoffs and reconnections will still depend on local practices.
I don’t hate the idea of federal low-income assistance for water. A LIHEAP-style program would surely help many people and could be an important part of a systemic strategy to improve the American water sector. But such a program would do little to alleviate the immediate COVID-19 crisis and could blunt political momentum for more comprehensive and meaningful reform.
Last week I blogged about how the federal government could move swiftly to help keep water and sewer services flowing everywhere during the COVID-19 crisis. My idea is a one-time conditional, formulaic grant program to support water utilities that agree to end residential shutoffs, restore service universally, forgive outstanding penalties, and structure prices to meet affordability standards. It’s an unorthodox and admittedly blunt instrument, designed to tackle a short-term crisis as quickly as possible, with the lowest management costs and least administrative burden on families. Sustainable solutions for the water sector will require more fundamental reforms to the way that we govern, finance, and manage these critical systems after the pandemic has passed.
*Tax expenditures are also redistributive, but I’m trying to keep this post short so I’m leaving them aside.
**To my knowledge, there has never been a systematic study of water assistance program effectiveness over a larger number of utilities.
How the federal government might end shutoffs & keep water flowing during the COVID-19 crisis
The COVID-19 crisis has escalated America’s water and sewer affordability challenge into a full-blown health emergency. Many low-income households struggle to pay for these essential services in the best of times, and the specter of shutoffs for non-payment now threatens to worsen the pandemic. It’s hard to wash hands, cook at home, and maintain adequate sanitation without water service.
In response to the fast-moving crisis, scores of utilities are suspending shutoffs and restoring service for the duration of the pandemic. That is a prudent move in this emergency, but suspending shutoffs and restoring service carries significant financial risks for utilities and does not fundamentally solve the affordability problem, even in the short-run. An end to shutoffs does not mean an end to high prices, late fees, or penalties. When the crisis passes, many customers will still have outstanding balances running into the thousands of dollars and once again face the threat of shut-offs. Meanwhile, in plenty of places shutoffs continue even as COVID-19 rages.
Federal water bill relief?
Last week Congress passed a monumental $2 trillion economic rescue package in response to the COVID-19 crisis sweeping the country. During the helter-skelter Capitol Hill negotiations over the COVID-19 bill, House members proposed $1.5 billion in water assistance relief for low-income households. Modeled after LIHEAP, the federal low-income energy assistance program, the proposal would have provided financial assistance to income-qualified households to help pay for water bills through existing LIHEAP administrative processes. The proposal didn’t make it into the bill that finally reached President Trump’s desk.
Although the water bill assistance would surely have helped many, it would likely have made little difference in the big picture. For starters, while $1.5 billion is a lot of money, means-tested assistance programs are costly to administer and burdensome for customers who need help. This sort of relief can help, but will take time to work its way through administrative processes and into consumers’ accounts to prevent shutoffs. Even at their best, means-tested programs help a small fraction of the eligible population—historically LIHEAP has reached only about 16% of those eligible for assistance. Complicating matters is the extreme fragmentation of the U.S. water sector, with 50,000 mostly small water systems operating across the country. Some of the poorest Americans live in small communities where utilities’ and social service organizations have limited capacity to administer assistance. The need for immediate relief in the face of a pandemic demands faster, farther-reaching action.
Bigger, bolder, faster action*
So what might work better? I’ve long argued that pricing, not assistance programs, is the best way to tackle water affordability. With the pandemic upon us and a massive, emergency need for universal in-home water and sanitation, it’s worth considering a similarly massive, emergency financial response. Here’s an outline of a scheme that could quickly end shutoffs and maximize short-term affordability relief with the lowest management cost to utilities and zero administrative burdens on customers.
The federal government should provide formulaic, conditional grants directly to water utilities. Grants would be awarded as a percentage of each utility’s budgeted 2020 annual rate revenue, with the percentage equal to the community’s poverty rate. For example, Seattle Public Utilities’ 2020 budget calls for $205 million in water revenue and about 12% of its population lives in poverty, so its grant would be $24.6 million. Detroit’s budgeted water rate revenue for 2019-2020 is $131 million and its poverty rate is 33%, so its grant would be $43.2 million.
In exchange for this cash injection, utilities would have to meet simple conditions on pricing and customer administration. Specifically, for the duration of the national COVID-19 pandemic, utilities would:
- End residential shutoffs for non-payment;
- Restore service to all occupied residences currently shut off;
- End residential foreclosures and financial penalties for non-payment or service restoration;
- Forgive all outstanding penalties, fees, and interest on residential water accounts;
- Structure prices so that 6,000 gallons of monthly residential water and sewer service costs less than $58 (eight hours of labor at federal minimum wage).
All community water systems that operate on a fee-for-service basis would qualify, including municipal, tribal, special district, and investor-owned systems. Utilities could use the money to offset revenue losses due to COVID-19 crisis, fund assistance programs, or maintain and improve capital.
Federal funds would be channeled from EPA through existing state Drinking Water Revolving Funds directly into utility coffers, requiring very little additional administrative capacity. There would be no administrative burden at all on customers. Administration for very small systems could be managed through state or county governments.
With annual water utility revenue totaling something like $70 billion and a national poverty rate of 11.8%, the program would end up costing around $8.5 billion dollars. For another $10 billion we could extend the program to cover sewer revenue, too. Until last week, those would seem like absurdly large sums, but they’re rounding errors in the $2 trillion-dollar package that Congress just approved.
Emergency & aftermath
To be clear, this isn’t a carefully considered, meticulously modeled plan—it’s an idea meant to get water flowing immediately in response to an urgent need. These are big, blunt policy instruments, but the proposal outlined here could be introduced on Monday, signed into law by Wednesday, and water service restored in communities across the country by Friday. In a pandemic every moment matters.
Lasting, sustainable solutions for the water sector will require more fundamental reforms to the way that we govern, finance, and manage these critical systems. I hope that once the COVID-19 storm fades, a renewed commitment to improving the American water sector is one of its silver linings.
*Thanks to Wendi Wilkes for prompting and helping me think this through via Twitter. She deserves a share of the credit if you like this idea, but no blame if you hate it.