Terrible, horrible, no good, very bad measurement, part 3

As my last couple of posts explain, the conventional method of measuring household-level water affordability is to divide a utility’s average residential bill by its community’s Median Household Income (MHI). If the resulting percentage is less than 2.0 or 2.5 (4.0 or 4.5 for water and sewer combined), then water is deemed “affordable;” if it’s greater, then water is “unaffordable.”

This post explains the fourth, and in my view most serious, problem with the conventional approach: the arbitrary threshold that it uses to define affordability.

An arbitrary standard

I’ve never—and I mean never—seen a theoretical or empirical rationale for a water/sewer affordability standard as a function of %MHI. Apparently the 2%MHI threshold emerged from the mists of federal regulatory history in a 1970s-era USDA rural grant program. At some point EPA began using the metric as part of its regulatory enforcement program. Despite those strange and ill-fitting origins, the 2.0 (or 2.5) %MHI affordability threshold is now held up as a definitive measure of household-level affordability, apparently for no other reason than convention.

The affordability of anything is rarely a strictly yes/no phenomenon—things are more or less affordable relative to the costs of other things and the resources available to pay for them. But rather than deal with those nuances, analysts simply cite precedent and invoke average-bill-as-%MHI as an EPA “standard” (though as I’ve noted before, it’s not an actual EPA standard, and the agency never intended %MHI to be a measure of household-level affordability).

Golden numbers

The 2% or 4%MHI threshold has become what organizational theorists call a golden number. Golden numbers are standards that have no basis in theory or evidence, but are so widespread that they take on independent importance simply by virtue of their familiarity. The trouble with golden numbers like 2%MHI is that they preempt or short-circuit serious deliberation over values. Managers of a utility that satisfies the %MHI threshold can use the standard as an excuse dismiss affordability concern, even if many of its customers struggle to pay their bills.

Worse yet, a golden number like 2%MHI that has a tangential relationship to an EPA guideline puts a veneer of legitimacy on what is ultimately an arbitrary norm. Performance metrics reflect an organization’s values and help guide management toward decisions consistent with those values. In that regard, the golden number that predominates water rate analysis fails fundamentally.

Communities and their elected leaders should set affordability standards consistent with their values. Average bill <2%MHI distorts the affordability picture and distracts from meaningful consideration of the issue.