Rising cost of water in Michigan leads to affordability problems

The rising cost of water and sewer service in Michigan is consuming a larger share of household income, leading to mounting financial burdens for both families and communities, particularly those with high poverty rates, a new report finds.

The growing affordability problem spreads beyond publicized examples in Detroit and Flint, according to the assessment. Rural areas, small towns, and suburbs have also seen costs rise, though at a slower pace than their urban counterparts. As Michigan agencies prepare to spend hundreds of millions of dollars in the coming years in federal infrastructure and pandemic relief funds, the report authors say that the time was ripe for a deeper understanding of who is hurt by unaffordable water.

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“We’ve known for a while that particular communities in Michigan have challenges with water affordability,” Jen Read, director of the University of Michigan Water Center, told Circle of Blue. “And we’ve known nationally. But we haven’t, in Michigan, had a solid picture of water affordability across the state.”

The report from the University of Michigan Water Center, Michigan State University Extension, and the consulting firm Safe Water Engineering fills in some of those gaps. It found a sharp rise in the number of Michigan households paying more than 5 percent of income on water and sewer services. That number, when adjusting for inflation, grew from 1.6 percent of households in 1980 to 6.7 percent in 2018.

The report offers six recommendations for policymakers to consider. In broad terms they encompass regulatory measures such as prohibiting utilities from turning off water to economically vulnerable households and ordering utilities to report data on water shutoffs and customer debt. The recommendations also relate to government aid, including technical and financial assistance to low-income communities and utilities. Other considerations include forgiving customer debt and engaging communities in planning processes.

Some of these recommendations have been proposed in Michigan and rejected. House Bill 5093, introduced in 2015, would have required water and sewer utilities to report annually on water rates, average monthly bills, and the number of water shutoffs by ZIP code and census tract. It did not pass out of committee.

Utilities are in a pinch trying to balance needed rate increases with providing affordable service. They are raising rates to maintain their systems and meet regulatory requirements for preventing sewage spills and removing drinking water contaminants like PFAS chemicals. Still they are not planning to spend enough. The report estimates a 20-year funding gap of $19.8 billion. That is the difference between estimated needs and estimated spending. Read said those are conservative estimates, but they do not include anticipated federal funding from the recently passed infrastructure bill.

A state-funded assistance program could help customers with high bills while allowing utilities to make needed investments, but it would come with a cost. The report estimates that the annual cost to the state of reducing high-burden water bills to a more manageable level would be between $78.3 million and $146 million, depending on how an unaffordable water bill is defined.

The combination of rising water costs and financial burdens related to the pandemic spurred Congress a year ago to enact the first-ever federal water bill assistance program. Rep. Dan Kildee, whose district includes Flint, said it was imperative.

“No one should go without water because they’re too poor to pay for it,” Kildee said at the Michigan Water Infrastructure Forum, on November 29.

In the last 12 months federal lawmakers approved more than $1.1 billion in water bill assistance, with Michigan receiving $36.3 million. The Michigan section of the American Water Works Association estimates $252 million in overdue water bills statewide. The administrative process for the new federal program, however, is slow. None of those funds has gone to families in need.

What Is Unaffordable?

The rising cost of water and sewer service and the ability of households to afford it are problems that extend beyond Michigan. A national affordability study found that a four-person household in the bottom 20 percent of the income distribution paid an average of 12.4 percent of disposable income on water and sewer in 2019, up from 10.9 percent two years earlier. Disposable income was defined as the money remaining after taxes, housing, health care, food, and home energy.

The concept of water affordability has broadened in recent years. Regulators and public-interest groups were initially concerned about community-level affordability — whether a town’s residents, in aggregate, could raise enough money to operate and maintain their systems while meeting all water quality standards. A community affordability analysis is mandated by the U.S. Environmental Protection Agency when utilities assess the cost of controlling sewage pollution.

Community-level affordability remains a challenge. The struggles of places like Benton Harbor, a low-income, majority Black community dealing with a declining population and high levels of lead in its drinking water, illustrate the health consequences of inadequate funding for system upkeep.

In addition to concerns about communities not being able to maintain their infrastructure, a new problem has emerged, which is whether individual households can afford their water and sewer bills.

For years, water rates were low enough that the cost of service was a negligible fraction of a household’s monthly budget. But in the last two decades water rate increases have outpaced rate increases for other essential services like broadband and energy as water utilities have been forced to confront a backlog of pipe repairs, treatment plant upgrades, and other requirements. At the same time, incomes for people at the bottom of the economic ladder have largely stagnated in purchasing power since the 1970s, adding financial strain along with the rising cost of housing, health care, and other necessities.

“This creates an environment where affordability challenges will develop,” according to Raftelis, a utility consulting firm.

Despite growing attention to affordability, both in Michigan and nationally, there is no general agreement on how the term should be defined. Is a water and sewer bill equal to 3 percent of household income too much? Is 4 percent? How about 5 percent?

The threshold for an affordable water bill is something that each community needs to determine, argues Manny Teodoro, an associate professor at the University of Wisconsin, Madison, who researches water policy. Economic conditions in Detroit are not the same as in Denver or Dallas.

Teodoro, who co-authored the 2019 national water affordability study, has offered alternatives to the percent-of-income metric. Those alternatives include the number of hours worked at minimum wage to pay for water and sewer, and the cost of water and sewer as a percent of disposable income.

As for defining the threshold for an affordable bill, Read of the University of Michigan said that the report authors did not feel it was their responsibility, when financial circumstances vary significantly between households and communities. That definition needs to be a public process, she said.

“It’s a policy conversation that needs to happen between community groups, utilities, and the state,” Read explained.