Water Service Issues and COVID-19: Recent Congressional Funding

Water Service Issues and COVID-19: Recent Congressional Funding

INSIGHTi

Water Service Issues and COVID-19:
Recent Congressional Funding
April 2, 2021
Several water service issues have garnered increased congressional attention during the Coronavirus
Disease (COVID-19) Pandemic. Among these, some are long-standing concerns over household water-
rate affordability and the condition of municipal water infrastructure. Other issues have emerged as water
systems and/or local governments have experienced COVID-19-related revenue shortages, which may
affect water systems’ operations, maintenance, and/or financial sustainability.
During the pandemic, Congress has enacted a number of proposals to address these and other issues. To
address water-rate affordability, the Consolidated Appropriations Act, 2021 (P.L. 116-260) provided $638
million for water or wastewater rate assistance on behalf of low-income households. The American
Rescue Plan Act (ARPA; P.L. 117-2) included another $500 million for such assistance, and provided
$350 billion for state and local governments for COVID-19-related purposes, among them water or sewer
infrastructure investments.
This Insight briefly reviews water system financial practices, and identifies some challenges for water
service providers and their customers raised by the pandemic. It also discusses recent congressional
actions to address these issues.
Water System Financial Sustainability
For drinking water and wastewater services, customers’ bills typically support the costs to capture, treat,
and convey water. The U.S. Environmental Protection Agency (EPA) states that full cost pricing for water
systems includes “past and future operations, maintenance, and capital costs.” Water pricing structures
vary (e.g., tiered rates or flat rates). Some publicly owned water systems may use other sources of local
revenue to offset operation costs or use some water-rate revenue for other municipal purposes. While
systems generally have flexibility in determining a pricing structure, certain privately owned systems
(and, in some states, publicly owned systems) are subject to state and local requirements that control rate
changes.
Several factors may influence the cost of providing water service, including investments needed to repair
infrastructure, expand service, or comply with regulatory requirements. Some systems offer programs to
assist low-income customers with water bill payments, such as individualized payment plans or customer
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assistance programs (CAPs). However, some states prohibit the use of rate revenues to fund CAPs. Other
states face potential legal challenges in doing so. Some water systems have previously disconnected
service to certain delinquent accounts.
COVID-19-Related Impacts on Water Systems
The public and private sector and individuals have taken actions to control the spread of COVID-19 (e.g.,
school and business closures). The decline in economic activity has constrained municipal budgets, which
may affect publicly owned water systems. Further, many more households are facing financial hardship
due to economic losses, and may have difficulty paying water bills. During the pandemic, numerous water
systems have committed to continuing service to nonpaying customers or have restored connections to
delinquent accounts. Water systems may have made social distancing accommodations by changing work
schedules, had to manage unexpected absences, and contracted with operators when other personnel were
ill. These operational changes would increase costs.
State and local actions requiring water service continuity (shut-off bans) and closures of non-essential
businesses may reduce revenues. Non-residential users, including businesses, typically account for
roughly 40% of water supplied by systems. Lower demand from commercial and industrial high-volume
users may cause substantial revenue losses. Together, these revenue losses (estimated at $13.9 billion
annually) may challenge water service providers’ ability to operate and maintain systems without
increasing water rates. Though, through summer 2020, several water systems reported changes in water
use consumption (from non-residential to household water use) that resulted in higher-than-average billed
revenues.
Reduced water-rate revenues may affect a system’s financial capacity to repair water infrastructure.
During the pandemic, concerns over the disruption of the supply of safe and reliable drinking water have
heightened due to the importance of water to handwashing and other public health measures. Repairs
needed to restore water services in Texas and Mississippi that were disrupted by winter storms have
increased attention on the pandemic’s impact on water systems’ capacity to quickly fund such capital
investments.
Recent Congressional Funding
To address such issues, Congress has taken two approaches: (1) providing temporary assistance to pay for
or offset water rates on behalf of households, and (2) supporting water and sewer infrastructure
investments as an eligible use of funding provided to state and local governments.
P.L. 116-260 provided $638 million for a new Low-Income Household Drinking Water and Wastewater
Emergency Assistance Program (Division H, Title V, §533) to be administered by the Department of
Health and Human Services (HHS). Congress appropriated an additional $500 million for low-income
water assistance in ARPA (§2912).
Funds will be made available to states and tribes to assist low-income households with their water and
wastewater services bills. The HHS Secretary is to calculate state (defined in ARPA to include the
territories) and tribal grants based on the percentage of households at or below 150% of the federal
poverty line and the percentage of households spending more than 30% of their income on housing (a
measure of cost-burden). Payments are to be made to water providers, and, per P.L. 116-260, HHS may
use procedures from other low-income assistance programs to administer funds. This may mean that HHS
will use processes similar to those it uses in administering the Low Income Home Energy Assistance
Program. As of the date of this Insight, HHS had not yet announced grants or processes for low-income
water assistance.

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Both P.L. 116-260 (Division N, Title V, §501) and ARPA included funds (nearly $47 billion total) for an
Emergency Rental Assistance Program. Funds are available for utility bills as well as rental assistance,
including water bills. A separate Homeowner Assistance Fund in ARPA (funded at $9.961 billion) is also
available to pay water bills, in addition to its availability for mortgage payments, insurance, and other
utility bills.
ARPA Section 9901 included $350 billion for state (including tribes and territories) and local
governments for a broad range of COVID-19 response activities, including for “necessary investments in
water, sewer, or broadband infrastructure.” The extent to which this funding would be used to make such
investments is unknown, given the range of eligible activities.

Author Information

Elena H. Humphreys
Libby Perl
Analyst in Environmental Policy
Specialist in Housing Policy

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