From Rates

Batting .400

On the limits of means-tested assistance programs for water & sewer

Red Sox legend Ted Williams was the last player to bat over .400... in 1941

**Warning: sports metaphor ahead**

Like hitting a baseball, running a means-tested assistance program is hard.

Congress is betting on customer assistance programs (CAPs) as the way to tackle water and sewer affordability. Hot on the heels of the $638 million approved in the December COVID relief bill, Congress doubled down with another $500 million on the program earlier this month. When the first assistance bill passed, I observed that it said little about how the program was to be administered. The latest bill provides even less guidance—fewer than 250 words;* federal and state agencies will likely need several months of rulemaking before the program delivers a dime to customers.

In the end, implementation for low-income bill assistance will fall to the thousands of utilities that provide water and sewer service across the U.S. I continue to receive frequent queries from utility managers who want to address affordability effectively and are exasperated because their CAPs remain under-enrolled. One executive team I spoke with last month was incredulous that their utility lost a huge chunk of CARES funds because they couldn’t get customers to participate in a program that would have forgiven hundreds or thousands of dollars in water/sewer debt. Over and over again, I hear from utility leaders frustrated that their CAPs reach so few qualified customers. “What are we doing wrong?” they ask. “How can we do better?”

Decades of research on means-tested government assistance programs give us good reasons to temper our expectations about what water/sewer CAPs can accomplish. Means-tested programs are unlikely to reach more than a small fraction of the qualified customers--even if utilities do everything right.

Practical limits

Major League Baseball’s season starts this week, and baseball is on my mind. According to the rules, every player can get a hit every time he comes to bat, and so in theory a team can score an infinite number of runs and win by out-hitting its opponents. In reality, however, Major League batters hit in only about 25% of their at-bats. All-star players are better: they might hit around 30% of the time. Hall-of-Fame hitters—the greatest of all time—typically boast career batting averages between .300 and .350. Fewer than 30 players ever hit better than .400 for a season, and the last to do it was Ted Williams in 1941.

So the very best baseball players in the world fail between 60 and 70 percent of the time. That’s because hitting a baseball is difficult. It is nearly universally accepted among American sports fans that hitting a baseball is the hardest thing to do in all of sports. You can be supremely talented, train rigorously, study meticulously, and still fail 70% of the time.

…which brings us to water/sewer CAPs. When confronting affordability challenges, policymakers and utility leaders naturally think of CAPs because they can, in theory, solve their affordability problems with debt cancellation, bill discounts, or even income-indexed rates.

In practice, CAPs reach only small percentage of eligible customers. That’s because administering a means-tested assistance program is hard. Consider what’s involved in making a CAP work:

  • Advertising & outreach. Customers can only participate in a CAP if they know it exists, and so utilities have to educate their customers with advertising and outreach activities. Some customers won’t get the message due to language barriers or because they won’t bother to read or listen to appeals.
  • Weighing participation. Once they know about a CAP, customers will evaluate their own eligibility and weigh the procedural costs of applying against their expected benefits. Some customers will decide that participation is not worth the time needed to apply – especially if they will need to take the bus or arrange for childcare in order to apply.
  • Trust & cooperation. Some customers won’t apply because they don’t trust the government and don’t want to share their income, household size, or other personal information with the utility. Some won’t apply because they refuse to accept assistance as a matter of principle or pride.
  • Certification & audit. Once customers do apply, utility staff or third-party administrators must certify their eligibility; some won’t qualify. Customers who ultimately enroll will have to re-apply periodically to maintain their CAP eligibility. Occasional audits will identify participants who shouldn’t have qualified; those customers will be kicked out of the program. Mistakes and fraud will occur sometimes.

Is it any wonder that few customers wind up enrolling in CAPs?

Patterns of participation

We really don’t know what helps or hurts water/sewer CAP participation because there has never been a rigorous, systematic study of CAP design, implementation or impact.** Participation rates in the handful of utilities I’ve worked with range from below 5% to more than 70% of eligible customers, but most see participation well below 30%. Philadelphia’s celebrated TAP program gets about 25% participation.

These lackluster figures are not surprising to those who study means-tested public assistance programs in the U.S.. Consider participation in these federal assistance programs:

  • SNAP (formerly known as Food Stamps): 84% participation.
  • TANF (formerly AFDC or “welfare”): 47%.
  • Social Security Disability Insurance: 45%.
  • Low Income Home Energy Assistance Program (LIHEAP): 16%.

The last of these is the most relevant to water/sewer utilities, as LIHEAP is the model for the new federal water bill assistance program. SNAP, TANF, and SSDI provide much greater benefits than LIHEAP—hundreds to more than a thousand dollars monthly. These are decades-old, professionally administered programs, and still they struggle with enrollment. Frankly, it’s a wonder that any water utility manages to achieve participation of 30% or more. Like a baseball player, a utility that manages to bat above .300 is probably an all-star.

What to do?

None of this means that CAPs are useless; these programs can be very important for those who receive benefit But nobody really knows what works and what doesn’t with water/sewer CAPs, so federal and state agencies should resist dictating CAP design and implementation tactics. Instead, utilities should be encouraged to try lots of approaches, experiment, and measure and report outcomes. For example, utilities could try multiple CAP advertising and outreach methods targeted at random to different neighborhoods or households, and then measure which (if any) correlate with participation. Utilities can try different forms, enrollment, and renewal procedures. These measures should be isolated to the extent possible in order help gauge how much procedural changed affects participation. Utility managers should resist the urge to simply imitate what other communities have done without evidence that their measures worked.

Most of all, utility managers and policymakers from Capitol Hill to City Hall should be sober in their expectations about what CAPs can accomplish in pursuit of affordable water. Utilities can do everything right and still reach fewer than half of the customers who need help. A baseball team can’t win with hitting alone—pitching, fielding, and baserunning are just as important. Just so, meeting the affordability challenge will require a comprehensive strategy that includes economies of scale, technology, rate design, and resource efficiency alongside means-tested CAPs.




*Happily missing from the new bill is a program name that generated the hideous acronym LIHDWWEAP. Hooray!

**Frequent readers will recognize this common refrain. A new article in WIREs Water reviews research on policy strategies for water affordability and shares my basic outlook on the state of the science: ¯\_()_/¯

Ted Williams’ 1941 Boston Red Sox led the American League in batting with a team average .283, but finished 17 games behind the New York Yankees. The Yankees’ balanced hitting, pitching, and defense led them to an AL Pennant and World Series victory that year—a lesson to baseball and utility managers alike.

Ready, Fire, Aim

Managing the $638 million low-income water & sewer assistance in the federal COVID relief package

As frequent readers of this page likely know, the COVID relief bill that Congress passed in December included $638 million for low-income water and sewer bill assistance. Despite its high-falootin’ mouthful of a name, the Low-Income Household Drinking Water and Wastewater Emergency Assistance Program (LIHDWWEAP?*) has the feel of a last-minute provision tossed into the package. The $638M program got just 1.5 pages in Section 533 of the mammoth 5,593 page law, with little guidance on how the program will be structured or administered. Meanwhile, a new presidential administration has just taken office and is still trying to get organized. Advocates, regulators, and water sector managers are puzzled about how to manage the program and what it might mean for future federal forays into water affordability; I’ve been fielding lots of calls and messages on this issue over the past month.

Frequent readers also know that there are good reasons to be sober in our expectations of how much means-tested assistance can really help water affordability. But means-tested assistance is what Congress has cooking, and it's a useful part of an affordability strategy. So here I’ll do my best to summarize what we know about LIHDWWEAP (I’m going to call it LĬD-wēp , or LID-weep) administration and offer some ideas to the people charged with putting it into action.

LĬD-wēp

Section 533 doesn’t say much about how LIHDWWEAP is supposed to work, but here are the basics. The program is to be administered by the Department of Health and Human Services (HHS), not EPA. That’s important because HHS already runs LIHEAP, the federal Low-Income Home Energy Assistance Program; Congress probably figures water utilities are a lot like energy utilities.**

These folks don’t do much with water & sewer systems… yet

HHS will not administer LIHDWWEAP directly. Rather, the program is structured as a set of grants to state and tribal governments. HHS is supposed to allot grants to each state and tribe based on the size of their populations under 150% of federal poverty levels and the share of the population that spends more than 30% of monthly income on housing. HHS hasn’t yet set the allotment formula, and it’s going to take at least several months of rulemaking before a dime gets to the states.

In turn, state governments will send funds to water utilities. Each state will have its own method for allocating funds to utilities and rules for the use of those funds. Section 533 says only that LIHDWWEAP is supposed to reduce water bill debt or service rates for “low-income households, particularly those with the lowest incomes, that pay a high proportion of household income for drinking water and wastewater services.” The law does not define “low-income” or “high proportion.” Section 533 directs HHS to use existing administrative procedures to the extent possible, but ultimately it will be up to water and sewer utilities to get the LIHDWWEAP money to the people who need it.

Implementing LIHDWWEAP

Congress just told HHS, hundreds of state and tribal agencies, and tens of thousands of utilities to provide means-tested assistance for low-income water/sewer customers. To be blunt, nobody really knows how to do that. Many utilities currently provide means-tested assistance or rate reduction programs, but to my knowledge there has never been a systematic study of U.S. water assistance program design, implementation or impact. We’re more or less flying blind here.

All I can say definitively about LIHDWWEAP implementation is:

¯\_(ツ)_/¯

Having said that, I’ve worked with lots of utilities, I've seen a lot of assistance programs, and I know some things about water rates and public management. So with all appropriate caveats, here are some thoughts on how to implement the version of LIHDWWEAP that Congress just created. In crafting these educated guesses, I assume that state agencies and utility managers want to help low-income people as quickly and effectively as possible, and that strategic positioning for future LIHDWWEAP is a secondary concern.

Counsel for state administrators

Once HHS determines your state’s LIHDWWEAP allotment:

  1. Use a simple formula to allocate funds. Don’t bother trying to gather data on arrears or water debt and run sophisticated analyses to see which utilities “need” the most funding. That will take time and require data that lots of utilities can’t get readily, and funding is pretty meager anyway (it works out to about $10 for every person in the U.S. with income under 150% of poverty) so complexity would just slow things down. Just distribute funds to utilities as a function of service population and poverty rate. Where water and sewer services are offered by different organizations, just split them in half. No need for fancy allocation methods.

  2. Build a two-tiered system. Your state has hundreds of water and sewer utilities. A few of them are large, serving tens of thousands to maybe more than a million people. Those big utilities are professionalized organizations with hundreds to thousands of employees. But most of your state’s water and sewer utilities are very small, serving populations of less than 10,000 and employing fewer than a dozen people—maybe just one or two part-timers. Set up separate LIHDWWEAP implementation processes for big and small systems. The right size cut-off will vary from state to state, but I’d suggest a threshold of something like 50,000 in service population.

  3. Give big systems funds and get out of the way. Those large utilities probably have pretty good billing and accounting systems to track water/sewer debt, and they have a good idea how many customers may need assistance—lots of big utilities already have means-tested assistance, debt forgiveness, or rates in place. Send these big utilities their share of the LIHDWWEAP funds and let them use existing programs or create locally-tailored systems to get funds to customers who need it. Ask for a simple one-page report at the end of the year to tell you how they spent the money and how much they have left.

  4. Set up third-party administration for small systems. Your state’s small utilities already have a lot on their plates. Many have antiquated billing systems—maybe even paper ledgers—and poor or hard-to-manage account records. Most won’t have the organizational bandwidth to do the accounting, auditing, and reporting for LIHDWWEAP, let alone the capacity to handle means-testing. Even moderately-sized utilities (serving say 25,000) will not want to invest in administration of a LIHDWWEAP program that isn’t very generous. Instead, allocate funds to small systems, and then set up boilerplate memoranda of understanding (MOUs) that pool the small systems’ funds into funds to be administered by regional or county-level social service agencies that already manage means-tested programs. Allow funds to be distributed to any income-qualified resident of the small systems’ service areas. Don’t bother tying back benefits to specific bills or water debts.

Counsel for utilities

Once your state administrator allocates your LIHDWWEAP funds, they will probably come with some rules. Everything that follows carries the caveat: “…if state and federal regulations allow.”

Paperwork a'comin! Let's try to keep it simple.

  1. Use existing programs. If you already have a means-tested assistance or discount program that seems to work, just funnel the LIHDWWEAP funds into it and expand outreach and eligibility as much possible. In many cases the new program won't give very much money. Many existing programs target specific segments of the population (e.g., elderly, disabled); these should be expanded to include any income-qualified customers.
  2. Focus on shut-offs. If you don’t already have a means-tested assistance/discount program or your program doesn’t work very well, use LIHDWWEAP funds to manage (preferably eliminate) shut-offs for nonpayment. Setting up, publicizing, and administering an effective assistance program takes a lot of time. To help people right away, stick the LIHDWWEAP money into a dedicated account. When a residential customer account falls into serious delinquency and is at risk of shutoff, contact the customer and ask if (s)he qualifies for assistance by whatever guidelines are adopted locally. Make that process as easy as possible. If a customer slated for shut-off qualifies, just use the LIHDWWEAP funds to pay off the debt and maintain service. You can do this literally up to the moment when the utility crew shows up to shut the water off (but preferably earlier). Once a permanent assistance/discount program is up and running, any remaining LIHDWWEAP funds can supplement it.
  3. Work together. All of this stuff is easier to manage in larger organizations. If your utility doesn’t have the organizational capacity to take on LIHDWWEAP administration, cooperate with other utilities and/or organizations in your area to save on administrative costs while helping your customers in need.

Portentous LIHDWWEAP

LIHDWWEAP might have been a congressional afterthought jammed into an overstuffed emergency relief package, but it portends more federal water assistance to come. LIHEAP-style assistance seems to be the congressional Democrats’ preferred instrument for addressing water affordability. Congress and HHS will be watching as states and utilities grope toward administrative processes. Next time Congress takes up LIHDWWEAP, they'll probably have more than 300 words to say about how to carry it out




*Y’all Capitol Hill people really need to think through the acronymic implications of the names you stick on programs.

**They’re not, really.

We badly need such a study, but serious evaluation (i.e., rigorous analysis, not cherry-picked case studies) won’t be easy or cheap. Got a couple hundred grand to sponsor such a study? HMU!

Echoes of Vizzini

No, EPA did not propose affordability guidelines for municipal utilities

Affordability!

Late last week the EPA published in the Federal Register some proposed new guidelines for evaluating sewer utilities’ financial strength. In press releases and public comments, water sector and local government organizations lauded the proposal as an important action on “affordability,” and a few news outlets dutifully reported on the EPA’s new water "affordability" guidance. Likely most people would think that means lower water bills for low-income households.

But the EPA’s proposed guidelines have little to do with affordability as most of us think about that word—the guidelines are not about ensuring that low-income Americans can pay for water. Rather, the proposal is about whether communities have sufficient resources to pay for water pollution controls required under federal law. In practical terms, the new guidelines are about whether sewer utilities have to comply with the Clean Water Act in a timely manner.

Understanding what’s going on here requires understanding a bit about sewers, the Clean Water Act, and why utility managers think about “affordability” differently from the rest of us.  

Clean Water Act and local economics

Municipal sewer systems must meet a variety of pollution control rules under the federal Clean Water Act. Many of these rules require major investments in infrastructure and ongoing operational and maintenance costs. Often these costs can be quite high, especially in older communities that operate combined sewers that suffer significant sewage overflows during rainstorms. Overflows can cause raw sewage to run into rivers, lakes, and coastal waters, with attendant damage to health and environmental quality. The Clean Water Act aims to reduce, mitigate, and eventually eliminate such pollution. Recognizing that pollution controls are expensive, Congress built into the law provisions that a allow sewer utility to delay compliance with water pollution controls if compliance would outstrip its “economic capability.”

Yuck.

With few exceptions, sanitary sewer utilities in the U.S. are owned and operated by local governments. In practice, then, when sewer systems face significant Clean Water Act compliance costs, local officials sometimes try to negotiate delayed compliance with EPA or state environmental regulators by arguing that their communities have insufficient economic resources to comply with the law.

To evaluate these claims, EPA conducts a Financial Capability Assessment (FCA)—an appraisal of water pollution control costs relative to a community’s overall economic resources. This appraisal is supposed to be holistic, capturing a range of economic indicators. Since 1997, a key element of EPA’s assessment methodology has been the residential indicator, which is intended to reflect the impact of sewer system costs on rate payers. The residential indicator is the average sewer bill as a percentage of the community’s median household income (%MHI). When that value exceeds 2.0%, EPA considers pollution control costs to be “high” and potentially eligible for delayed compliance.

This approach isn’t great, but it’s not a crazy way to evaluate community-level financial capability.* Still, the residential indicator has been much-maligned in the water sector and was the subject of a comprehensive critique from the National Academy of Public Administration three years ago. Last year AWWA, WEF, and NACWA joined forces to advance a new analytical framework to guide FCA instead of %MHI. The AWWA/WEF/NACWA methodology incorporated local poverty levels and sought to evaluate Clean Water Act compliance costs in terms of their potential impacts on household sewer bills at the 20th percentile income.

What EPA is proposing

Still with me? Great. The proposal that EPA released last week is a revision to the FCA guidelines with two broad alternatives. Much of the proposal aligns wiht the methodology favored by AWWA/WEF/NACWA. Under the Alternative 1, EPA retains the traditional %MHI residential indicator and the suite of economic indicators in its existing methodology, but would add assessments of local poverty prevalence and potential rate impacts on 20th percentile income households. Alternative 2 would allow utilities to use a “dynamic financial and rate model” to evaluate the impacts of Clean Water Act compliance costs on customers.** At the heart of the new proposal are a pair of tables that integrate the old and new methodologies:

Alphabet soup

More alphabet soup

Recognizing the underlying distribution of economic conditions by accounting for poverty and 20th percentile incomes is an important advancement. Under either alternative, these guidelines are marked improvements on the status quo in that they provide a more complete, nuanced economic picture of the communities that sewer utilities serve.

Still, it’s important to keep the purpose of all this analysis in mind: under either alternative, the FCA would inform EPA’s negotiations with sewer utilities over compliance schedules. The point of these guidelines is to determine whether and how much sewer utilities ought to delay compliance with the Clean Water Act. Compared with current practices, the proposed guidelines are more flexible and could in some instances lead to more permissive regulation.

Financial Capability ≠ Affordability

EPA did not propose guidelines on affordability for low-income water or sewer customers. Under the proposal, EPA could consider low-income customer assistance programs (CAPs) as part of its overall assessment, but nothing in the proposed guidelines requires or even encourages CAPs. The proposed guidelines would not oblige utilities to structure rates in ways that constrain prices for conservative or low-income customers. Indeed, a utility that was looking for ways to delay investments would actually have an incentive to set more regressive prices: high fixed charges and declining block rates would make FCA metrics look worse, and so help justify compliance control delays.

So despite the rhetoric in headlines and press releases, these guidelines really aren’t about affordability in the way that most of us understand the term. Sure, delayed Clean Water Act compliance will reduce a sewer utility’s revenue needs. But EPA doesn’t regulate rates under the Clean Water Act, and so there’s no guarantee that financial savings from Clean Water Act noncompliance will accrue to low-income customers. In short, these guidelines are not about low-income affordability, they’re about utility finances and water pollution.

Don’t blame EPA for this confusion—they’ve been scrupulously clear and consistent that their guidelines are about financial capability. Regrettably, the industry press releases and news stories have been waving an affordability banner where it doesn’t quite belong.

Can communities afford clean water?

All this confusion over terminology invites reflection on what affordability really means. When municipal sewer utility leaders declare that they can’t “afford” to comply with the Clean Water Act, they’re making a political judgment that spending on other things or keeping taxes and service rates low is preferable to following water pollution rules. That is the prerogative of local policymakers. Communities need to pay for many important things, and clean water is just one of them. The democratic process is meant to help us sort out our collective priorities.

That’s why there’s more at stake here than pedantry. In expanding the meaning of “financial capability” to recognize the distribution of incomes in communities, these guidelines invite us to think about the distribution of environmental conditions in the same communities. The proposed guidelines don’t contemplate whether foregoing water pollution control in the name of “affordability” really helps or hurts low-income households. Do working class folks benefit when a city has low utility bills, but faces frequent and ongoing sewer overflows? Who suffers when raw sewage flows into rivers, lakes, and harbors because utilities can’t “afford” Clean Water Act compliance?

Using the right words compels us to confront these uncomfortable questions, and focuses our attention to what FCA guidelines mean where the sewage meets the street.



*%MHI is, however, terrible, horrible, no-good, very bad way to measure low-income household affordability.

**This alternative is going make rate consultants happy.