A reasonable expectation
What low-income households pay for essential service in the United States
Over the past 18 months I’ve been working to develop a valid, generalizable depiction of water and sewer affordability in the United States. There’s currently no nationally-representative dataset on water and sewer rates, so my Texas A&M research assistant Jake Metzler and I painstakingly gathered water and sewer rates data from an original, nationally-representative sample of American water utilities.* We then calculated basic single-family residential water and sewer service prices and developed affordability estimates for each utility using the double-barreled methods I published earlier this year.
All that effort is now ready to bear fruit. An initial working paper reports the full methodology and findings in gory academic detail. If there’s interest here, I’ll share more about our findings here over the next few weeks and months – without the academic gore.
Today I’ll start by sketching the basic picture: how we measured affordability, and how affordable water and sewer services are in the US.
The sample & data
We drew our sample from the EPA’s Safe Drinking Water Information System (SDWIS), which SDWIS contains basic system information for the country’s nearly 50,000 water systems. An overwhelming majority of systems serve fewer than 3,300 people, and so a simple random selection would result in a sample of mostly small systems that collectively serve a tiny minority of the total population. So we stratified the sample—that is, we intentionally “oversampled” different kinds of utilities in order to get a wide variety of systems. Our analysis then adjusted mathematically for the sampling procedure to make sure we get truly representative results.
Single-family residential rates data were collected in the summer of 2017. To call the process laborious is an understatement (I’ll probably blog about that some other time!). For most large and medium-sized utilities, rates data were readily available on websites. When rates were unavailable online—especially common among smaller utilities—we inquired by telephone, repeating calls as necessary. Efforts to collect rates data were abandoned after multiple refusals or non-responses. The final dataset included full water and sewer rates data for 329 utilities. That might not seem like much, but it’s a larger sample than most, it’s representative, and we’re highly confident in the validity of the data.
Basic water & sewer as share of disposable income
We measured affordability in two ways; the first is with the Affordability Ratio (AR).
AR estimates basic water and sewer costs as a share of disposable income, which for present purposes is total income minus essential living costs (taxes, housing, food, health care, and home energy), estimated using Consumer Expenditure Survey data. To focus on low-income households, we measure AR at the 20th-income percentile (AR20). The 20th percentile household typically identifies the lower boundary of the middle class. These working poor households have very limited financial resources, but may not qualify for much public assistance.
Here’s what we found:
AR20 averaged 9.7. In substantive terms, that means that in the average utility, a household at the 20th income percentile must spend about 9.7 percent of its disposable income on basic water and sewer service. But AR20 varies widely, from a low of 0.6 to a high of 35.5. As the figure above indicates, AR20 is less than ten for about two-thirds of systems. A handful are very high—but these values reflect very low 20th percentile incomes as much as they do water/sewer costs.
Basic water & sewer in hours at minimum wage
My other way of measuring affordability is to express basic water/sewer costs in terms of Hours’ Labor at Minimum Wage (HM). This approach may not express affordability quite as accurately, but it’s precise and wonderfully intuitive: it represents the cost of water/sewer service in terms of labor. For those of us who have worked at minimum wage at some point in our lives, it is a powerful way to understand the cost of something.
Here’s affordability in the United States measured as HM:
As you’d expect, the distribution is very similar to AR20, ranging from 1.1 to 25.6. The overall average is 9.5, meaning that in the average utility, paying for basic water and sewer service requires about 9.5 hours of labor at minimum wage.
So is water affordable in America?
When confronting affordability, utility leaders are really asking: how much is it reasonable to expect households of limited means to pay? What economic sacrifices are reasonable?
These are ultimately questions about community values. There is no scientific answer to philosophical questions. No metric can define what is “affordable,” but good measurement can help us think about our values.
In the past I’ve suggested AR20 less than 10% and HM less than 8.0 as rules-of-thumb or point of departure to guide discussion. By these guidelines, 51 percent of the sampled utilities are affordable as measured by AR20 and just 39 percent are affordable according to HM.
We’re now in the process of analyzing the policy, organizational, economic, and demographic correlates of affordability. I’ll be publishing and blogging about what we find over the next several months. For now, I hope these figures provide some food for thought and help frame an agenda for tackling a tough issue.
*Collecting rates data is surprisingly difficult labor-intensive. Jake and I wrote a fun article on that topic–look for it next month.
Sometimes progress is visible in what you don’t see
Earlier this week I had the pleasure of speaking to the annual conference of the California Water Association, an organization of that state’s investor-owned water utility companies. The theme of the day was affordability. The California Public Utilities Commission and State Water Resources Control Board are working hard to craft rules and guidelines for affordability in the Golden State, with clear implications for the state’s utilities.
During the conference several speakers took to the stage to talk about efforts underway in California to ensure affordability as communities grapple with water infrastructure and supply costs. We heard from utility managers, state agency bureaucrats, and state legislators. These were not dilettantes or casual observers; these were experienced people well-versed in water policy, and I heard lots of exciting things about steps and directions the state and its utilities are taking.
But one of the most exciting things about the conference was something I didn’t hear and didn’t see. In an all-day meeting on the subject of water affordability, nobody mentioned average-bill-as-percent-of-median-household-income.
Indeed, I’m a bit embarrassed to admit that I was the first to mention the %MHI standard when I launched into my familiar attack on that miserable metric. I’ve been excoriating that metric in rooms full of water folks since 2006.
I can do it in my sleep. But the attack wasn’t necessary in that room on that day. The audience was receptive to more careful measurement and analysis—even if the results weren’t pretty or comfortable.
Good policy requires good measurement. In the case of water affordability, good measurement begins with abandoning bad measurement. The California water community has apparently taken that first step; maybe it’s a sign that the rest of the nation is ready to follow. The quiet disappearance of a number from conversation might seem like the smallest of small victories, but policy revolutions begin with such changes in analytical frameworks.
How utility people—and everybody else—think about water issues
Each year the American Water Works Association (AWWA) conducts a survey of its members on the State of the Water Industry (SOTWI). The survey seeks to “identify and track significant challenges facing the water industry.” Among other things, the SOTWI survey asks respondents about their perceptions of various water issues, and so broadly gauges attitudes within the water sector.
It’s common for water sector folks to lament that the public doesn’t understand water issues. After several years of responding to SOTWI and reading the results, I wondered: How does the public perceive water issues? How closely do attitudes within the industry align with those of the general public?
Organizations like Texas A&M’s Institute for Science, Technology & Public Policy (ISTPP) offer a way to answer those questions scientifically. In the summer of 2015 I worked with ISTPP colleagues to deploy a nationally representative mass public survey of attitudes toward energy, agriculture, and environmental issues in the United States. The ISTPP survey yielded nearly 2,000 respondents. As part of the ISTPP survey, we included several items about water policy taken directly from the SOTWI survey. Identical wording and question structure provides an extraordinary opportunity to compare attitudes within the water sector (the “pros”) against attitudes in the general public (the “Joes”).
The SOTWI questionnaire included 34 items; from among these we selected 11 items that directly ask the respondents’ perceptions of water issues such as water resources, capital, and affordability for low-income households. All 11 attitudinal questions are based on a five-point scale: unimportant (1), slightly important (2), important (3), very important (4), and critical (5).
Convergence & divergence
Some interesting patterns emerged. Average values ranged between 3.2 and 4.6 among the Pros, with infrastructure replacement emerging as a clear #1 priority. The general public averaged 3.10-4.11, with long-term supply availability as the top value. Ordinal rankings—that is, which issues were more or less important relative to each other—were fairly consistent between Pros and Joes.
But the really interesting picture emerges when we look at the disparities in average scores across the eleven issue area. This graph shows the difference in average score for Pros minus average for Joes:
The most striking disparities are at the top and bottom of the graph. Water sector respondents perceive infrastructure replacement, regulatory compliance, and source water protection as much more important than does the public. Meanwhile, the public evidently views low-income affordability as significantly more important than does the water sector.
Together, these results offer clues about the areas of relative harmony and dissonance between the American water sector and the American public. Water organizations and utility communications staff should perhaps concentrate on developing effective ways to convey the significance of infrastructure replacement, regulatory compliance, and source water protection.
By the same token, these findings suggest that low-income affordability matters much more to the public Joes than to water sector Pros. It stands to reason that taking affordability seriously can help utility leaders legitimize their own priorities to the public.