Affordability in America, 2023 | Part 3
little known fact: the Dollars Trilogy films were utility management allegories
Higher prices don’t necessarily create affordability problems. Across the United States, water and sewer prices are up an average of 20-25% over the past six years, but remain an amazing value. With an average combined price of about $95 a month, these continuous, life-sustaining services still cost just 1.5% of median household income nationwide. However, down at the low end of the income distribution it’s a different story.
This is the third and final post in a series analyzing nationally representative water/sewer rates data collected biennially from 2017-2023. The first post showed how much water and sewer prices changed over that period. The second showed how changes in rate structures are making water/sewer prices more regressive in over time in ways that exacerbate affordability problems. This post puts it all together, using my favored metrics to assess the impacts of these trends on low-income utility customers. As we’ll see, there’s a little good, a little bad, and some truly ugly.
The good
A handy and intuitive way to measure affordability is to calculate the hours that someone would have to work at minimum wage in order to pay for a month of water and sewer service, and so Hours at Minimum Wage (HM) is one of my go-to affordability metrics.* As we collect rates data, my researchers also log local minimum wages.
Nationwide average HM values for water and sewer at 6,200 gallons a month have remained steady since I first started collecting nationally representative data:
A Few Dollars More
In 2017, a month of single-family residential water/sewer service at 6,200 gal. required an average of 9.5 hours of labor at minimum wage; since 2019 HM been effectively unchanged at about 10.0.** That’s because minimum wages are increasing as fast or faster than utility bills in much of the country. Many states and local governments have now pegged their minimum wages to inflation, so they ought to keep up more or less with rising water/sewer bills in the years to come. Minimum wage is still the federally mandated $7.25/hour in many states, however, which makes HM a less useful metric in those places. Still, in an era of rising utility prices and high general inflation, stable water/sewer buying power for low-wage workers is good news.
The Bad
The picture gets a lot less rosy with my other favored affordability metric, the Affordability Ratio at the 20th percentile income, or AR20. This metric is the price of basic water/sewer service as a percentage of discretionary income, which offers a more nuanced and accurate depiction of the tradeoffs that working-class families face when paying their utility bills. AR20 is sensitive to differences in the local costs of essential expenses like food, medicine, health care, housing, energy, and taxes, which can vary widely over time and space.
Here’s the national trend in AR20 over the past six years:
The median AR20 in my sample increased from 7.5 in 2017 to 8.7 in 2023. In substantive terms, that means that for the median utility in 2023, basic water/sewer service for a family of four at the 20th percentile of income cost about 8.7% of that family’s discretionary income. That is a nontrivial increase.
But what’s alarming is the sharp rise in average AR20, which more than doubled from 12.4 in 2019 to 25.0 in 2021. When that number came up three years ago, I hoped that it was a COVID hangover, but the high average AR20 value persisted into 2023. That’s bad, and reflects a confluence of factors: rising overall prices, more regressive rate structures, and surging inflation—especially for housing and energy. What’s more, the startling divergence of mean from median AR20 suggests a widely skewed distribution. Sure enough:
For more than half of utilities, combined water/sewer AR20 values were at or below 10 in 2023—a level that I’ve used as a rule-of-thumb threshold for evaluating affordability. Affordability problems in those communities are probably manageable. AR20 values ranged between 10 and 50 for another roughly 30% of utilities, indicating serious affordability challenges. But the really disturbing thing is that big spike out at the right-hand side of the graph: AR20 was greater than 50 for about 10% of utilities. For 31 of the utilities in our sample, calculated AR20 was greater than 100, meaning that essential expenses and water/sewer costs combine for more than 100% of household income at the 20th percentile. That’s unaffordable by any definition.
Something different is happening in the long tail of that distribution; a small minority of utilities face severe affordability challenges. What explains those extreme values?
The Ugly
In a word, poverty.
There’s virtually no correlation between AR20 and total monthly water/sewer price, but holy pants look at the relationship between AR20 and 20th percentile income:
Prices are all over the place, but the extreme high AR20 values are all in utilities with low-to-moderate prices. But all of the extreme high AR20 values are at the low end of the income distribution. For utilities with AR20 over 50, 20th percentile annual income averaged $13,278. With income that low, water bills are going to be unaffordable no matter how low they are.
Consider Trenton, New Jersey, for example. In 2023, Trenton charged a total of $59.12 a month for water and sewer service at 6,200 gallons—about 40% lower than the national average. But the 20th percentile income in Trenton was just $13,045 in 2022. After estimated essential expenses, a four-person household in Trenton would have just $84 in discretionary income. The resulting AR20 value of 70.0 indicates a severe affordability problem in Trenton, but one driven mainly by low incomes, not high water or sewer prices. For most communities with extreme affordability challenges, the problems are far more about income than rates.
A Fistful of Dollars
The affordability picture that emerges isn’t pretty, but it isn’t horrible in most of the United States. For most utilities, affordability conditions are pretty good, or at least manageable, even with rising rates. But for a small minority of utilities, the picture is ugly: working class wages have not kept pace with inflation, leaving low-income households strapped. That these macroeconomic factors are largely beyond utilities’ control is little comfort to people facing shutoffs for nonpayment.
The tools that utilities have at their disposal can do a great deal to safeguard affordability. But tackling the affordability challenges where they are most severe will require deeper structural and institutional changes to society and economy.
*The California Public Utilities Commission now uses HM as one of its official measures of affordability.
**All four years’ HM values are within the statistical margin of error. Practically speaking, national average HM hasn’t changed for the past six years.
†Hey look! The California PUC uses AR20 to measure affordability, too!
Manny, this is great work. I was at a rate increase hearing yesterday in my hometown and it was interesting to see that over 60% of the customers were at the minimum billing rate. This means that low volume users in low income households are paying considerably more that other users. We need to keep looking at the impact of water and sewer before we just blindly pass rate increases that negatively impact low income families.