January 22, 2021
 

Darcy Bostic, Morgan Shimabuku, Mike Cohen, Lillian Holmes, and Walker Grimshaw

Critical revenue losses by water utilities demand financial intervention

Water systems across the country are facing budget shortfalls as a result of the pandemic and need assistance. For small water systems (systems serving 10,000 people or fewer) total budget shortfalls are estimated to be $4 to 6 billion, primarily caused by decreased demand, delayed payments, and additional costs for protective equipment and sick time.

At the end of 2020, an estimated 12 million workers still remained unemployed due to job loss or other impacts from the pandemic. These individuals, in addition to those already unemployed or struggling to make ends meet prior to the pandemic, are unlikely to be able to afford regular monthly bills, such as for water. This only adds to utility revenue challenges.

In this blog post, we explore the compounding crises of water system revenue loss and customer debt due to the pandemic. Then, we point to some immediate and longer-term solutions that could address these challenges.

Water systems, especially small systems, have been hard hit during the pandemic


The three main drivers of utility revenue shortfalls during the pandemic are: 

  1. Non-payment of water bills, especially as residential water use increases, but the economic recession continues;
  2. Reductions in water demand from commercial and industrial users; and
  3. Increased operating costs associated with protecting workers from COVID-19 and providing increased hazard and overtime pay.

Many utilities face budget shortfalls that predate the pandemic. These debts have only been exacerbated by the economic effects of COVID-19. 

Many utilities face budget shortfalls that predate the pandemic. These debts have only been exacerbated by the economic effects of COVID-19.

Water systems of all sizes are caught with fixed or increasing expenses but rapidly decreasing revenue. For example, the Village of Chama in New Mexico operates a water system that serves about 1,000 people. Chama’s main source of income is tourism, which declined steeply during the pandemic. In May and June 2020 the village had to solve breakdowns at their drinking water treatment plant. Repairing the water system cost the village about $500,000, 55 percent of its yearly budget, depleting Chama’s financial reserves.  

Another challenge for water systems has been maintaining sufficient supplies of PPE throughout the pandemic. Sultana Community Services District (SCSD) is a small water system in Tulare County, California that has seen a 30 percent reduction in revenue during the pandemic. SCSD Board President Michael Prado, Sr. noted that purchasing PPE supplies for utility staff has imposed a large and unanticipated financial burden, in addition to requiring considerable time to find and acquire. Some utilities have also faced staffing shortages when employees contracted COVID-19, forcing potentially exposed employees into quarantine. Imperial Irrigation District, a wholesale water provider and electric utility in southern California, noted that since March 2020 188 out of 658 employees have tested positive for coronavirus.

A national debt and affordability crisis is growing

The national water affordability crisis is not new. From 2010 to 2018, water and sewer rates rose 80 percent, hurting low-income families most acutely. In addition, Black and Brown communities are disproportionately impacted by high water rates and penalties for non-payment. Low-income communities of color often pay more for their water and are more likely to face harsher penalties as a result of non-payment. For example, Black households make up 14 percent of American households receiving water service, but experience 29 percent of utility disconnections after a notice of non-payment.

Black households make up 14 percent of American households receiving water service, but experience 29 percent of utility disconnections after a notice of non-payment.

To prevent additional losses associated with non-payment, utilities commonly implement shut-offs. Service disconnections exacerbate our public health crisis, removing water and shelter amidst a pandemic and in communities that are experiencing the highest rates of COVID-19. Shut-off moratoriums have been imposed in only nine states, preventing utilities from removing service, but seven of those have set expiration dates ending as early as March 2021.

California case study: Support for low-income customers also benefits utilities 

California is one of the nine states imposing a water-shutoff moratorium. California is also the only state to statutorily recognize the Human Right to Water. In spite of this commitment, millions stand to lose their drinking water at the end of the moratorium. Recent results from surveys of water systems in California reveal nearly $1 billion in water-bill related customer debt that has accumulated since March 2020. Nearly 155,000 California households hold water-bill related debts of more than $1000, and approximately 12 percent of households in the state hold at least some amount of water-bill related debt. Lifting the moratorium would exacerbate the current public health emergency, especially in under-resourced and historically excluded communities. Without financial assistance, customers already facing record highs of unemployment will sink further into debt while utilities continue to lose revenue. 

Solutions are coming but more are needed to address both household water debt and utility-level lost revenue 

Lawmakers should prioritize water affordability legislation to protect public health and support the most vulnerable U.S. households. “Those water bills are going to come due,” said Jonathan Nelson, the policy director at the Community Water Center in an interview with Cap Radio. “Not only is there no plan for what to do about that crisis of water debt and potential mass water shutoffs next year, but we don’t even know the full scope of the problem.”

Fortunately, there is some action being taken to help those most vulnerable to losing water access due to inability to afford their bills. In California, two new bills have been introduced that could help fill the gap for customers struggling to pay their bills. The first, Senate Bill (SB) 222 establishes a water assistance fund for low-income rate payers experiencing economic hardship. The second, SB 223, expands protections for customers who are faced with having their water shut off because of inability to pay their bills.  

At the federal level, Congress included $638 million for low-income water assistance, the first federal funding of low-income assistance for water bills. The extra infusion will help, but still leaves states and water utilities with significant deficits. There is an estimated $4 billion in need for water bill assistance nationally. The federal government has a low-income rate assistance program for energy bills, the framework of which could be leveraged to deliver the separate funding for water bill assistance. Early drafts of the next stimulus bill by the Biden administration include assistance for low-income renters with water and energy bills and debt.

In the long term, states or the federal government could eliminate late and reconnection fees, especially for low-income customers who are more likely to be disconnected as a result of non-payment; such a program would benefit many customers of color. For example, California’s privately owned utilities, regulated by the Public Utilities Commission, may not charge more than $25 for reconnection during working hours and $40 during off-hours, whereas urban water systems, regulated by the State Water Resources Control Board, may charge up to $300 for customers that do not meet low-income criteria. Reconnection fees should be limited for all low-income customers in any water system.

Emergency grants and loans, PPE supplies, and funding for infrastructure improvements and maintenance deferred during the pandemic can help systems with revenue shortages stay afloat. Additionally, solutions that involve securitizing debt can protect utilities from insolvency, especially while interest rates for corporate borrowing remain low.

Understanding the scale of water system financials nationally is also unclear. Most states don’t require water systems to report the scale of customer debt or water shutoffs. States should prioritize data collection of household utility debt and number of water shutoffs in order to map the scale of the problem and track progress on solutions. 

Finally, immediate assistance for ratepayers late on their water bills is needed. As a supplement to federal programs, states should be implementing their own low-income assistance programs. “They need it now,” says Michael Prado, Sr., SCSD Board President. “If we don’t get relief soon, it’s going to be bad, they [SCSD customers] are going to get loans to pay [their] water bill.” If customers can pay their water bills, utilities are also able to stay in operation. Solutions for customers are solutions for utilities as well.

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