Paying for Clean Water

Rates, Funding & Community Affordability

With an aging infrastructure system, new regulatory drivers demanding more spending, and sewer and water rates now nearing $1,000 annually for some households, a vital dialogue has formed around one very basic question: who will pay for all of this?

Funding

The Federal Government has substantially reduced its funding role over the years to below 5 percent of total investment in water and wastewater infrastructure nationally according to the Congressional Budget Office, leaving the burden of clean water compliance and infrastructure investment almost entirely with local utilities and their water customers. The Biden Administration – not unlike the Trump Administration before it – has prioritized federal infrastructure proposals, but differences in proposed approaches and funding levels continue to stymie Congress’ ability to translate these broad proposals into legislation that can be passed into law .

NACWA remains closely engaged as infrastructure negotiations unfold in Washington, D.C. and is committed to ensuring a continual federal funding presence for clean water. The Association has been very successful in recent years in helping secure increased funding in key federal programs, as well as first ever funding for several new funding streams. The Association also remains supportive of other options that can support infrastructure investment, including opportunities with to leverage private sector investment and innovative financing structures. At the end of the day, there will need to be multiple “tools in the toolbox” to help meet the infrastructure funding gap.

Among NACWA’s priorities in the funding arena are the following:

Ensuring Water Infrastructure is on Par with Other Infrastructure Sectors –NACWA continues working hard across Administrations with policymakers in Washington, DC to promote water on co-equal footing with other infrastructure sectors. Increasingly, we are seeing water placed front and center in the federal infrastructure dialogue. Crucially, this recognition for the critical role of clean water is being seen on a bipartisan basis. This is the result of years of hard work by the public clean water sector, and NACWA is committed to ensuring that water continues to be a top-tier infrastructure investment priority for the White House and Congress.

Preserving and Increasing the Clean Water State Revolving Fund (CWSRF) – The CWSRF has been the primary source of federal clean water funding since the end of the construction grants program. It has not kept up with the need, however, and is sometimes targeted for funding cuts. However, thanks to the hard work of NACWA and others, the CWSRF has actually been increased in recent years by Congress. NACWA will continue strong advocacy for robust CWSRF funding.

Supporting the Water Infrastructure Finance and Innovation Act (WIFIA) Program –the WIFIA program is an important new financing option that can allow clean water utilities to leverage federal financial support of needed infrastructure investments. As EPA’s early rounds of WIFIA funding show, clean water projects can receive substantial support through this program. Recent Congressional appropriations also show there is strong support for this important financing tool.

Protecting Tax-Exempt Municipal Bonds – Tax-Exempt municipal bonds have played a key role in helping municipal clean water utilities finance infrastructure investment. They support tens of billions of dollars in clean and safe water investments annually. NACWA worked tirelessly with a broad coalition of groups to preserve this tax exemption in Congress’ 2017 tax reform law and will continue defending this valuable funding source.

Public-Private Partnerships – In an era of constrained governmental resources, public clean water agencies may consider looking to the private sector for financing help. NACWA is supportive of public-private partnership (P3) arrangements when they help further the mission of public clean water utilities and are prudent for public utility ratepayers.

Affordability

Many local governments and their utilities are facing huge affordability challenges. Some have shrinking rate bases, but even those with growing populations have increasing segments of their rate base that are unable to afford the rising costs of clean water. In short, local infrastructure investments are disproportionately impacting the poorest segments of communities across the country.

Addressing this low-income affordability challenge is one of the most critical issues for public clean water utilities, and requires two major initiatives:

Low-income Rate Assistance – Utilities have worked hard to establish local community assistance programs, but the extent of the assistance these programs can provide is constrained by limited local funding sources. The time has come for a national low-income rate assistance program that provides support to the poorest households in a community to help ensure that utilities can set rates that reflect the true cost of clean water services. A national low-income water rate assistance program would also help incentivize clean water utilities to raise rates to ensure the revenue necessary to meet their infrastructure requirements, while at the same time lessening the burden on the poorest households.

NACWA has worked with key congressional champions on both sides of the aisle to promote this concept. In 2020, during the COVID-19 pandemic – which placed ever-greater strain on customer ability to pay and led to sharp increase in water/wastewater utility’s residential arrearages nationwide – Congress responded by providing first-ever emergency funding for low-income water and wastewater ratepayers through the Department of Health and Human Services (HHS).. NACWA is working with HHS, utilities, and myriad partners to help advance implementation of this program in a way that is workable for clean water agencies and as effective as possible in addressing growing arrearages and household hardship in paying for water and sewer service. Looking forward, NACWA continues to advance legislative support for a permanent, reliable federal assistance program by working with multiple stakeholders across the water sector.

Updating EPA’s Affordability Guidance – EPA’s 1997 Affordability Guidance has long been the Agency’s benchmark in determining affordability. This is especially true with federal enforcement actions and consent decrees, which are often the largest drivers of clean water infrastructure that any community undertakes. But the document, which was written in the context of combined sewer overflow compliance, has never been updated and is now grossly outdated and uninformed by modern economic conditions. Most concerning, it continues to rely heavily on median household income (MHI) as the key indicator of affordability.

NACWA has long pushed for revisions to the guidance and continues to do so aggressively in both a regulatory and legislative context. A Congressionally-directed 2017 report from the National Association of Public Administrators (NAPA)—to which NACWA contributed—echoes NACWA’s suggestion about how to reform the guidance. As a result of work by NACWA and others, EPA agreed to revise its affordability documents, including making them more holistic to account for both drinking water and clean water costs.

NACWA, along with the American Water Works Association (AWWA) and the Water Environment Federation (WEF), published a comprehensive evaluation in April 2019 of how EPA can best implement the recommendations made by the 2017 NAPA report The report, Developing a New Framework for Household Affordability and Financial Capability Assessment in the Water Sector, includes an alternative framework to the current reliance on median household income as a singular measure of affordability in regulatory decision-making. In September 2020, EPA took an important step forward in releasing its proposed 2020 Financial Capability Assessment for Clean Water Act Obligations (2020 FCA Document). NACWA has provided comments and urged EPA to move expeditiously to finalize the proposal.

The challenges of infrastructure funding and affordability concerns facing clean water utilities will only grow. The above advocacy priorities are just two facets of addressing the water affordability challenge, and NACWA remains thoughtfully engaged in myriad efforts and conversations with diverse stakeholders from across and beyond the water sector to continue advancing work on water affordability. The public clean water sector is well-positioned to meet these challenges with a combination of innovative solutions, local resources, and a unified national advocacy effort to ensure consistent federal investment support. NACWA is, and will continue to be, a leader in this effort to ensure that every community can pay for clean water.