STRATUS CONSULTING STRATUS CONSULTING

Prepared for:

RMSAWWA JITAC Lunch

Prepared by:

Bob Raucher and Janet Clements

Stratus Consulting

Boulder, CO

February 20, 2014

Assessing the Affordability of

Water and Wastewater-Related

Services

STRATUS CONSULTING

Overview

What does “Affordability” mean?

Why is affordability important to you

and the water sector?

How is affordability measured?

What can you and your utility do to

help?

What does Affordability Mean?

• Affordability

– Ability of individual customers to pay

without undue hardship

• Financial capability

– Ability of utility to finance capital

infrastructure investments

.

STRATUS CONSULTING

Why is affordability important?

Social responsibility

– Desire to provide an essential service to

all members of the community

Political acceptability

– Elected officials’ desire to “not raise taxes”

Fiscal prudence

– Minimize arrearages, generate predicable

revenue stream

STRATUS CONSULTING

How is Affordability applied in

the water sector?

Relief from regulatory obligations

– Delay or adjust compliance mandates

– Enable spending on other priorities, obligations

Open the gateway to rate increases

– Facilitate valuable utility investments (e.g.,

infrastructure renewal, water resources)

Guide payment assistance programs

STRATUS CONSULTING

EPA Affordability Criteria

To relieve undue economic stress

from federal wastewater-related

mandates

Indicates when EPA might provide flexibility

– Compliance standards (1995)

– Schedule (1997)

No official utility-oriented affordability metrics

for drinking water-related mandates

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EPA Affordability Guidance

Two-tiered economic “test”

1. Preliminary screening analysis

– “Residential indicator” based on city-

wide median household income (MHI)

2. Secondary screening analysis

– “Financial capability indicator” based on

a suite of fiscal metrics

STRATUS CONSULTING

1. Municipal Preliminary Screener

(Residential Indicator – RI)

The 2% Rule

%

income householdMedian

householdpercostpollutionwatertotalAverageX

Communities with a mid-range to large impact must

conduct a secondary screening analysis . . .

Low economic impact: < 1% of MHI

Mid-range economic impact:

between 1% and 2% of MHI

Large economic impact: > 2% of MHI

STRATUS CONSULTING

2. Secondary Screening Analysis:

Utility Financial Capability Indicator (FCI)

EPA 1997 Affordability Guidance

NACWA. 2013. The Evolving Landscape for Financial Capability Assessment: Clean Water Act Negotiations and the

Opportunities of Integrated Planning.

STRATUS CONSULTING

Limitations of EPA Guidance for

Residential Affordability

MHI is a poor indicator of economic

distress or community well-being

Does not capture impacts across

highly diverse communities

Snapshot approach

Does not capture impacts to

landlords and/or public housing

authority

10%

12%

14%

16%

18%

20%

22%

24%

26%

$45,000 $46,000 $47,000 $48,000 $49,000 $50,000 $51,000 $52,000

% o

f P

eo

ple

in

Po

ve

rty

Median household income

Nationwide

NYC

MHI is a Poor Indicator

of Poverty and Affordability

13

US and NYC Income Distributions

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Limitations of EPA Guidance

for “Utility Financial Capability”

Fiscal realities for municipalities much more

challenging today than in mid 1990s

– Access to and cost of borrowing

– Unfunded liabilities (e.g., pensions)

Property tax levels overlooks burden

of other local taxes and fees

Comparing local unemployment rate to national

level does not reflect local economic hardship

STRATUS CONSULTING

What’s a Utility To Do?

Use WEF-AWWA-USCM Guidance!!

STRATUS CONSULTING

EPA May Consider Additional

Analyses

EPA’s 2001 Guidance states:

“ . . .States may also use alternative

analyses and criteria to support this

determination, provided they explain the

basis for these alternative analyses and/or

criteria”

Jointly sponsored by AWWA, WEF,

and U.S. Conference of Mayors

Assessing the Affordability of Federal

Water Mandates: Issue Brief

Affordability Assessment Tool

for Federal Water Mandates

New Affordability Assessment

Resources

http://www.awwa.org/resources-tools/water-

utility-management/affordability-assessment.aspx

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What’s Included in the Tool?

Background on affordability issues

Limitations of EPA’s approaches

for assessing affordability

Presentation of alternative metrics

Relevant data sources

Spreadsheets and templates

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Better Measures of Economic Need

Impact on low- and fixed-income households

Identify at-risk households by

– Income distribution

– Poverty rates

– Unemployment

– Neighborhood

– Household type

Housing burden and other nondiscretionary

spending

Residential Affordability of

Wastewater Services: NYC Example

If bills were to increase by

50%, 36% of households are

estimated to have sewer bills

2% of MHI.

Rate increases that elevate bill to

2% of median Census tract MHI

Average bill as % of MHI by income bracket

Income bracket % of NYC

households*

Median

income

within

income

bracket**

Average sewer bill as

% of bracket MHI

2012 50% real

rate

increase***

All incomes $ 48,743 0.94% 1.4%

Less than $20,000 23% $ 9,100 5.03% 7.54%

$20,000 to $39,999 20% $ 29,200 1.57% 2.35%

$40,000 to $74,999 24% $ 55,000 0.83% 1.25%

$75,000 to $99,999 10% $ 85,000 0.54% 0.81%

$100,000 to $199,999 17% $ 128,970 0.35% 0.53%

$200,000 or more 6% $ 290,000 0.16% 0.24%

*2010 ACS Data

**2009 iPUMS data used for median incomes within brackets

**Since 2009, rates have increased more than 50%. Since 2008, rates have increased more than 74%.

Residential Affordability of

Wastewater Services: NYC Example

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Socioeconomic Indicators:

Income Distribution (Atlanta)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Pe

rce

nta

ge o

f h

ou

seh

old

s

Household income

US Atlanta

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Income Distribution for

Elderly Households (Atlanta)

0%

5%

10%

15%

20%

25%

Perc

enta

ge o

f h

ou

seh

old

s

Household income

Elderly households All households

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Summary: WEF-AWWA-USCM

Guidance

Helps utilities consider which metrics apply to

their community

Provides specific data sources and instructions

for accessing those data

Provides spreadsheets/templates for data entry

and outputs

Highlights where environmental justice issues

can be raised

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Federal Policy Issues Raised in

the Guidance

Need to consider drinking water mandates, and

other water supply spending needs

– Jointly with wastewater and stormwater costs

Need to enable localities to prioritize across all

their water-related investments

– In concert with EPA’s new Integrated Planning

and Permitting Program (IPPP)

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What Can You Do to Assist

Customers in Need?

Shrink bills for low- income households

– Lifeline and other rate design options

– Conservation and leak detection programs

– Discounts

Facilitate bill payment (and avoid arrearages)

– Billing practices (e.g., monthly vs. quarterly)

– Income assistance

– Link/referrals to other social services

STRATUS CONSULTING

Thank you!

Bob Raucher braucher@stratusconsulting.com

Janet Clements jclements@stratusconsulting.com

AWWA-WEF-USCM Brief and Toolkit:

http://www.awwa.org/resources-tools/water-utility-

management/affordability-assessment.aspx