Utilities Ask if Federal Rescue Funding Will Be Enough

 

Authors: Jennifer Tavantzis, Manager (Email) and Joselyn Rodriguez, Associate Consultant (Email)


A sound action plan will help utilities prepare to help their customers

As utilities juggle soaring delinquent customer bills, increasing operating costs, and overcoming the costs associated with COVID and natural disasters in some states, the federal government has enacted the American Rescue Plan Act of 2021. The act includes broad financial support for local governments and individuals, but will it be a rescue plan for public utilities as well?

The act funds $500 million for grants to states and tribes to assist low-income households with the cost of water and wastewater service and is in addition to the initial $638 million provided in the December 2020 FY21 Consolidated Appropriations Act. In both pieces of legislation, the grants are largely without restrictions or qualifications, though their dispersal is tied to the proportion of households at or below 150% of the federal poverty level and those spending more than 30 percent of monthly income on housing. Fund are to be provided to public water systems to reduce arrearages and/or rates charged to low-income households.

$1.1 billion is the just about the size of California’s unpaid water bills, where 12% of households have overdue bills. This funding must be disbursed to states by the end of the fiscal year, September 30, 2021, and it is widely anticipated that funds will be distributed to each State’s administrator of the existing Low Income Home Energy Assistance Program (LIHEAP).

Water sector associations have applauded Congress’ acknowledgement of water affordability concerns and its explicit attempts to address those concerns through this dedicated funding, particularly since the help for customers comes without a requirement that utilities continue to hold off on shut-offs for non-payment. But the bill has other aid that might be helpful to consumers struggling with affordability issues as well.

In addition to the water bill assistance, the legislation includes a myriad of other types of support that water utility customers could leverage to pay down outstanding debt or keep up with current bills. They are:

  • $1,400 per person direct payments for individuals earning less than $75,000, phasing out at $80,000 (or double for married couples). Individuals could start receiving the payments as soon as this month, and cash payments are estimated to benefit approximately 85% of Americans.
  • $21.55 billion, less some funding for administration and oversight, through September 30, 2027 for rental assistance (Sec. 3201) and nearly $10 billion through September 30, 2025 for homeowner assistance (Sec. 3206). Funds can be used to pay utility costs and arrears.
  • Supplemental unemployment benefits, at $300 per week on top of state benefits, are through September 6, 2021. For households earning under $150,000, the first $10,200 of the unemployment benefits are not taxable for federal income tax purposes.
  • Expanded child and earned income tax credits

Each of these funding sources is managed in a different way but will ultimately result in cash available to individuals to use for household needs.

What Utilities Can do Now

Many utilities instituted a moratorium on water shutoffs during the pandemic in acknowledgement of the idea that water is integral to public health. That change was never intended to last forever. Recently, some utilities have reinstated collection and enforcement (including shutoffs) practices, and others are planning for a return to normal in the not-too-distant future.

To help customers manage water debt and avoid enforcement activity, utilities themselves have an important role to play.

The first step is to get in line now, and make your case known. This may mean starting your own line if need be. If your utility is part of a municipal entity start spelling out your needs to your city manager or mayor and get a plan in place to reach out to your governor’s office. If your utility is independent, contact your governor’s office directly. If you can build a coalition with other utilities and water sector associations in your region to make your case that may be a good tactic. Your governor’s office may not have immediate direction about how funds will be distributed but getting the message across that your utility wants this aid and the sooner you can get it the sooner you can help the people that rely on your utility for water and wastewater service is critical. The funding will probably go to a state agency as it does with LIHEAP but getting your state’s leadership interested will result in faster disbursement.

Once you know the ball is rolling in your state, you must be prepared to administer a program to distribute the money to customers in need. See Raftelis’ earlier article, “Water Bill Relief is Coming” about setting up customer assistance programs to reduce arrearages or charge lower rates.

Utilities must also communicate to customers about all potential avenues for support. This means notifying customers of the support available and where to get it. The more information shared directly with customers, the more likely they are to be able to pursue those options.

The common thread here is effective communication. For existing or new customer assistance programs, utilities must communicate with customers about how to apply, what the eligibility criteria are, and what to expect. They must convey to customers what other resources are available that can be used toward water utility payments. Most importantly, utilities must convey to customers the importance of managing water debt and keeping up with bills.

Looking to the Future – Water Affordability

Even before the pandemic, increasing water rates represented a growing affordability challenge. A Raftelis survey showed 35% of utilities were already concerned about affordability before the pandemic started, and these concerns continue to grow. While the direct infusion of funds, and the funds available indirectly that customers may use to pay water bills, may help deal with current affordability problems, they do little to offset the future rate increases that will continue to stress lower-income households.

Awareness around water utility bill affordability is growing, as demonstrated by dedicated funding in the two recent pieces of legislation, but awareness is not a solution. Both utilities and government have an important role to play in finding long-term solutions. Utilities should be engaging in long-term financial and program planning, including planning for infrastructure investment and proactive maintenance (which in the long run is less expensive than emergency repairs). Long-term planning also creates the opportunity to identify achievable programmatic efficiencies that help keep costs down.

Similarly, utilities have an opportunity to rethink the way they are charging for services. Some rate structures have household affordability at the center, while others promote water conservation or other priorities. While an affordability-centered rate structure may not be right for all communities, it may be worth considering for those with growing concerns.

Is this enough for Customers or Utilities?

In short, $1.1 billion is a drop in the bucket in terms of customer’s water utility arrears. However, this funding, plus what other funding customers can pull together from other sources will help alleviate some of the immediate concerns for customers. This legislation will provide relief, but not resolution.  If the federal government continues to have a role in coming up with solutions for water affordability, we may be able to provide longer term relief for customers.

Infrastructure Investment

The most important way government (at many levels) can play a role in long-term water affordability is through investment infrastructure and providing access to low-interest loans for capital projects. The American Rescue Plan Act of 2021 includes over $130 billion in funding directly to states, cities, and counties to use for replacing lost revenue due to COVID-19. Investing in water infrastructure is one of the allowable uses of these funds (Sec. 603), and it represents a huge opportunity for local and state governments to set utilities up for greater success in the future.

Recent weather events that threw much of the Central and South United States into chaos served as a highly public reminder that insufficient investment in infrastructure can cause people to lose access to safe drinking water for prolonged periods of time and can be incredibly costly to resolve. Investment in that same infrastructure will reduce the likelihood of catastrophic outcomes.

Over recent decades direct investment in utility infrastructure at the federal and state level has become more and more rare, leaving water customers to pay the “true cost” of the service. The funding available through this legislation may be a useful one-time offset, if used for this purpose, but will not provide long term relief. Rather federal and state governments can do their part to make more funding available for utilities to borrow at low costs, as they do currently through the Water Infrastructure Finance and Innovation Act (WIFIA) and State Revolving Fund (SRF) programs.

The U.S. Congressional committees just revealed a new climate change bill, the CLEAN Future Act, that would provide more funding to these programs. This bill would authorize over $4 billion for the drinking water SRF in 2022 and 2023. This is a major increase when looking at the past two years where SRF programs received only $1.1 billion. This act would also provide a $500 million grant program for installing treatment for per- and polyfluoroalkyl substances (PFAS), an emerging contaminant of concern for drinking water utilities, for 2022-2031. While still in the early stages, we may see the bill in Congress by early April.  This is exactly the kind of involvement utilities need to see from the federal government.

The American Rescue Plan Act of 2021 is a step in the right direction for federal government involvement in water affordability issues and providing relief to low-income customers, even if only for the short-term.