CFGFOA Meeting Orlando, Florida March 29, 2019 Nick Smith, CGFM 1 - - PowerPoint PPT Presentation

CFGFOA Meeting Orlando, Florida March 29, 2019 Nick Smith, CGFM

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Some Questions

• 1. What is Affordability?
• 2. How is it Measured?
• 3. Why Are We Discussing It?
• 4. How Do We Address It?
• 5. Will It Be Easy?

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What Is Affordability?

Ability to pay water and sewer bill

“Can they pay?” not “will they pay?”

Typically not referring to an individual,

but a grouping of customers

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Affordability Measurement

Annual water and sewer bill compared to

income

Median Household Income (MHI) is the

common income measurement Environmental Protection Agency (EPA)

Guidance of 4.5%

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Measurement – Rating Agencies

 Fitch – MHI, 2.0% combined water / sewer bill  Moody’s – No quantitative measurement  Standard & Poor’s (S&P) – Market Position

Assessment

 Uses Median Household Effective Buying Income

(MHHEBI)

 Takes MHHEBI and poverty level into consideration  Scores from 1 to 6 (strongest to weakest)

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Issues with Current Measurements

 The issues are not at the median

 Most rates are affordable when compared to MHI  Various income distributions and poverty thresholds

 Some customers do not receive a water bill directly

 “Hard to Reach” customers  Typically passed on through rent

 Does not take other factors into consideration

 Housing  Healthcare  Other essential services

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Other Measurements

 Affordability Ratio at the 20th income percentile

(AR20)

 Dr. Manny Teodoro, Texas A&M  Takes into other essential household expenses, persons

per household, income, and essential water and sewer service

 Minimum Wage Hours

 How many hours does it take to pay for essential

service?

 Poverty Level Income

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Issues Facing the Water Industry

Ranking Issue % Ranked Critically Important 1 Renewal and Replacement of Aging Infrastructure 64 2 Financing Capital 55 3 Public Understanding of Water Systems and Services 50 4 Long‐term Water Supply 50 5 Public Understanding of the Value of Water 44

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2018 State of the Water Industry Report. AWWA

Aging Infrastructure

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Source: American Society of Civil Engineers (ASCE)

Government Spending

12 Source: Public Spending on Transportation and Water Infrastructure, 1956 to 217. Congressional Budget Office

Stagnant Purchasing Power

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Source: For Most U.S. workers, real wages have barely budged in decades. Drew Desilver

Increasing Rates

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Source: For Most U.S. workers, real wages have barely budged in decades. Drew Desilver Source: 2017 Cost of Clean Water Index. NACWA

‐2010 United Nations General Assembly Resolution

Views on Water

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“The human right to water entitles everyone to sufficient, safe, acceptable, physically accessible and affordable water for personal and domestic uses.” “…the right to safe and clean drinking water and sanitation as a human right that is essential for the full enjoyment of life and all human rights.”

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Customer Assistance Programs

 EPA defined CAPs

 Bill discount  Flexible terms  Lifeline rates  Temporary assistance  Water efficiency

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Who Benefits from CAPs?

 Typical customers targeted by CAPs

 Low‐income (most common)  Customers Undergoing Hardship  Senior citizens  Disabled  Military

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Opportunities of CAPs

 Ability to retain customers

 Consistently collecting lower sales revenue as opposed

to infrequent collections

 Cost avoidance

 Collection of bad debt, arrearages, etc.  Shutoff costs, labor, etc.

 Addresses potential political opposition

 Rate increases less likely to disproportionately affect

low‐income customers with a program in place

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Challenges of CAPs

 Process may be confusing for customers  May need additional outreach and education  May reduce signaling for water conservation pricing  Balancing revenue stability with eligibility and

targeting

 Increased social burden for utility staff  Funding

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Legal Pathways

 2017 study completed by the Environmental Finance

Center at the University of North Carolina at Chapel Hill

 Navigating Legal Pathways to Rate‐Funded Customer

Assistance Programs

 Created as a roadmap to help utilities navigate the

legality of funding CAPs through rates

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Noncommission‐Regulated Utilities

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Source: Navigating Legal Pathways to Rate‐Funded Customer Assistance Programs: A Guide for Water and Wastewater Utilities

What Are Our Options?

 Introduce legal language that expressly allows

rate‐funded CAPs

 Argue why a CAP is not affected by limitations /

challenges

 Use another funding method

 Donations, round‐up policies, etc.  Tax revenues / general fund

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“Express Language” Example

 DC Water and Sewer Authority  D.C. Code § 34‐2202.16(b‐1)(1)‐(2)

 “…shall offer financial assistance programs to mitigate

the effect of any increases in retail water and sewer rates

• n low‐income residents of the District, including a low‐

impact design incentive program”

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“Not Affected” Example

 City of Atlanta Department of Watershed

Management

 Atlanta City Code §6‐306,

 Authority to “annually appropriate and donate money,

derived from taxation, contributions, or otherwise, for and to any corporation, company, association, or institution for purely charitable purposes.”

 Georgia Supreme Court case law supports business

case

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2018 Federal Poverty Level (FPL)

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Family Size Number of Children None One Two Three One Person $13,064 N/A N/A N/A Two People 16,815 17,308 N/A N/A Three People 19,642 20,212 20,231 N/A Four People 25,900 26,324 25,465 25,554 Five People 31,234 31,689 30,718 29,967

Source: U.S. Census Bureau

Case Study #1 – Detroit

 Water Residential Assistance

Program (WRAP)

 Assistance up to $1,000

per household

 $25 monthly bill credit

 Home water audits  Home repairs up to $1,000  Must be at or below 150%

• f poverty threshold

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Case Study #2 – Philadelphia

 Tiered Assistance Program

(TAP)

 Water bill based on income

compared to federal poverty levels

 Various other programs

 Zero interest loans on repairs  Conservation assistance  Payment agreements

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Upper Limit Percent of FPL Monthly Bill 50% 2% 100% 2.5% 150% 3%

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Types of Charges

 Account Charge

 Billing and customer service related charges

 Base Charge

 Accounts for fixed costs associated with capacity, peak

flows, etc.

 Variable Charge

 Accounts for costs that vary based on quantity of water

used and other costs not included above

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Fixed Charges

 Fixed charges promote revenue stability

 Does not fluctuate with consumption  Rating agencies view higher fixed charge recovery as a

strength

 Some utilities use minimum charges and include a

flow allowance within the base charge

 Higher fixed charges may disproportionately affect

low‐income customers

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How Utilities Respond to Cost Recovery Needs

Rank Category Response ‐ % 1 Shift more of cost recovery to fixed fees 33 2 Change in growth related fees 25 3 Shift to increasing block structure 16 4 Increasing financial reserves 14 5 No changes 11 5 Implement rate stabilization reserves 11 6 Revenue diversification 6 7 Incorporating seasonal rates 5 8 Shift to decreasing block structure 2

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Source: 2018 State of the Water Industry Report. AWWA

Typical Rate Structures

 Decreasing block  Uniform volumetric  Increasing block  Increasing‐decreasing block  Flat rate

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Rate Structure Survey

Rank Rate Structure Response ‐ % 1 Increasing block 50 2 Uniform volumetric 29 3 Decreasing block 16 4 Increasing‐decreasing block 4 5 Flat Rate 1

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Source: AWWA Water and Wastewater Rate Survey

Increasing Block Structure

 Promotes conservation

 Lower priced initial block  Certain levels of use are quasi‐fixed so a portion of fixed

charges may be allocated to variable

 High consumption customers contribute to increased

fixed costs over time

 Allows low‐income and low use customers to affect

their bill

 May reduce revenue stability if conservation signals

are followed

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Water Budget Rates

 Form of increasing block rate structure  Based on estimated water needs of the particular

customer’s efficient use

 Charged based on efficient and inefficient use  Two customers could pay different amounts for same use

 Requires more customer data  Often more costly to implement

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Lifeline Rates

 Another form of increasing block structure  Subsidized first block to cover basic water needs

 Often priced below marginal cost

 Low income does not necessarily mean low use  Can apply to all of the residential class

 Not targeted to low‐income customers

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Using Data – Detroit

 Shutoffs have an inverse relationship to income

 Inability to pay increases, but at a decreasing rate when

comparing total bill to income

 Link between income and usage

 Low income customers had low usage  Case to be made for increasing block structure  Lower first block rate directly reaches low income

customers

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Other Rate Considerations

 Evaluate growth related fees (impact fees)

 Growth pays for growth

 Indexed rates

 Potential for smaller increases

 Surcharges

 Droughts or disasters

 Review rates and overall plan annually

 Make sure assumptions are still valid

(budget, consumption, capital, etc.)

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Ten Attributes of EUM

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Lifecycle Costs

 Lifecycle costs include:

 Initial capital cost  Annual operating costs  Renewal and replacement cost

 Long‐range planning and asset management helps:

 Keep costs down over time  Avoid rate shock

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Targets and Policies

 Operating reserve targets

 Between 60 and 150 days of operating expenses

 Rate stabilization

 Help phase‐in rates and weather periods of decline

 Emergency / disaster reserves  Capital / renewal and replacement reserves

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Communication

 Regularly communicate to all stakeholders  Involve the public

 What is the customer’s perception?

 Focus on value being provided  Consistent messaging  Necessary for rate adjustments and CAP enrollment

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Balancing Act

 Water underpriced vs. affordability  Revenue stability vs. affordability  Data and analysis is essential!

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Low‐Income Home Universal Service Fund Energy Assistance Program (LIHEAP) Weatherization Assistance Program (WAP)

Lessons to Learn: Other Industries

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Legislation

 Senate Bill 3564 / S.3015

 A bill to amend the Safe Water Drinking Act and Federal

Water Pollution Control Act

 Establish pilot programs to assist low income

households

 H.R. 1673

 Water Affordability, Transparency, Equity, and

Reliability Act of 2017.

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Summary

 Affordability can be addressed in multiple ways:

 Customer assistance programs  Rate design  Effective utility management

 They can all work together!  We will continue to hear about affordability

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Resources

 Legal Pathways to Rate‐Funded Customer Assistance Programs:

A Guide for Water and Wastewater Utilities

 https://efc.sog.unc.edu/resource/navigating‐legal‐pathways‐rate‐

funded‐customer‐assistance‐programs‐guide‐water‐and

 EPA ‐ Drinking Water and Wastewater Utility Customer

Assistance Programs

 https://www.epa.gov/sites/production/files/2016‐

04/documents/dw‐ww_utilities_cap_combined_508.pdf

 Safeguarding Water Affordability

 https://bipartisanpolicy.org/wp‐content/uploads/2017/09/BPC‐

Infrastructure‐Safeguarding‐Water‐Affordability.pdf

 UNC Dashboard

 https://efc.sog.unc.edu/resource/florida‐water‐and‐wastewater‐

rates‐dashboard

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Nick Smith, CGFM Public Resources Management Group, Inc. (PRMG)  nsmith@prmginc.com  407.628.2600

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