Michigan residents pay more for water than they can afford. Drinking water, wastewater, and stormwater costs have gone up steadily in recent years, with one study estimating that 6.7 percent of Michigan consumers, or 668,000 Michigan residents, now pay more than what is affordable. In light of these alarming trends, We the People of Detroit, Freshwater Future, and the National Wildlife Federation commissioned a study by Moonshot Missions to assess solutions for this growing crisis. Moonshot examined possible affordability programs in six Michigan communities of various sizes, locations, and income distributions.
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Background:
Water bills are affordable when customers can consistently pay their bills without taking away money from other key expenses, such as food, housing, and electricity. For the purposes of this study, we used 2% of household income as the measure of affordability (which is the U.S. EPA’s threshold). A water affordability program is considered feasible if it reduces rates for households struggling to afford their water bills without creating significant impacts on revenue needs for the water utility or other customers.
Studied Communities:
The six communities were chosen to represent the full range of demographics in Michigan: Benton Harbor, East Lansing, Grand Rapids, Flint, Houghton, and Ishpeming.
Community size: 6,400 to 200,000
Community median household income: $21,917 to $50,103
Community poverty rates: 14.7% to 45.4%
Community monthly average water costs: $44.76 to $127.38
Research Question:
Can drinking water rates be structured to provide affordability without causing financial hardship to the utility and its customers?
Methods Analyzed:
Fixed discount program: Examines the effect of providing varying discount levels to households below the poverty and measuring increase on other categories of customers required to meet revenue targets.
Income threshold program: Examines the effect on monthly costs for non-qualifying households using 125% Federal Poverty Level as the threshold for eligibility.
Water burden program: Examines the effect on monthly costs to non-qualifying households using a household water burden of 2% as the threshold for eligibility.
Findings:
In all circumstances, some form of affordability program could be applied that would benefit qualified households in a meaningful way, without significantly impacting revenue requirements or other ratepayers. Such programs could be further supported by implementing new cost-savings steps (e.g., procurement policies), generating additional revenue (e.g., new water hook-up fees), and obtaining Federal and State funding.
Key Recommendations:
Communities should evaluate an affordability program for their customers for equity and financial reasons.
Affordability programs should utilize financial tools such as those available through Environment Finance Centers.
Communities should consider additional cost reduction and revenue enhancement strategies to reduce overall revenue requirements.