Over a decade ago, I was sitting in a city council meeting in Illinois and on the agenda was a water rate increase. Over-pumping deep groundwater aquifers had degraded water quality, forcing the community to choose between upgrading infrastructure to meet standards or switching to a new water source like surface water. Either way, money was needed, and the money had to come from somewhere. Someone in front of me handed me a folded note that read "The community spent all the revenue in the water system fund on remodeling city hall and that is why there is none left for the water system infrastructure. Rates are already too high, I can’t afford my water bill, I am doing all I can do to conserve water in my home, and raising rates again is completely unfair!"
A Legacy of Underinvestment
Decades of declining federal investment in drinking water infrastructure have shifted costs to state and local governments [1], even while aging water infrastructure further widens the gap between needed and actual funding. Like skipping car maintenance until the engine fails, this underinvestment threatens the water system, which we depend on for human health and economic growth.
When the bill comes due, community residents most often shoulder the burden, as seen in rising water cost rates and declining affordability. Moreover, the impacts are uneven, with those who are least able to afford it ending up carrying a greater burden in the form of higher water rates and reduced water access. Residents are often hesitant to support rate increases due to factors like a lack of transparent rate-setting processes, transfers from water funds to general budgets, water shut-offs for non-payment, and boil orders from failing infrastructure erode trust.
Factors Affecting Community Water Pricing
Water pricing, known in the water industry as rate-setting, can be complicated. Fortunately, there are industry best practices and guidance available for communities to follow when setting water rates. This guidance emphasizes the importance of setting rates at a level that ensures revenue covers costs, in the same way that your own income needs to cover all your expenses. For water utilities, covering costs ensures that there is adequate funding to support utility operations, maintenance, and infrastructure needed to provide safe, clean drinking water. Therefore, utility costs are a key factor affecting community water pricing.
Just as household costs vary from household to household, so do water utility costs vary from water system to water system. As one example, consider the complex network of underground pipes that are essential infrastructure to convey water from the drinking water treatment plant to homes and businesses. These pipes have been aging since communities first installed them, some laid as much as 100 years ago, and now require upgrades such as replacing pipes made of lead. The age of pipes, pipe material, miles of water pipe, and other factors, vary from community to community. This means that the costs of rehabilitating and replacing them also vary, just as household budget expenses are different for each household.
Setting water rates that support a community’s water system is challenging. The Illinois-Indiana Sea Grant program offers data, information, and tools to tackle the challenge of setting water rates that balance generating sufficient revenue with ensuring water bills remain affordable. Communities can explore the resources and tools below to learn more. While these resources are targeted to water managers and community planners, as a resident, learning more about how your community sets its water rates and plans on investing in this essential infrastructure can help you engage in productive conversations with local leaders in your community about water rate setting policies – whether it be transferring funds from the water utility budget to the general fund, advocating for an affordable water rate, or some other policy.
[1] Even though the Infrastructure Investment and Jobs Act of 2021 reversed this trend, in part, by authorizing large investment water infrastructure, even this large investment falls short of what industry experts believe the needed funding is to close the gap, and continued funding from the federal government is uncertain. To top it off, additional EPA regulations of emerging contaminants like lead and PFAS further escalate the costs of providing safe water.
Resources to learn more
- Water Pricing
- Defining & Measuring Water Affordability: A Literature Review
- Water Affordability Programs & Policies: A National Review
- Water Affordability in Northeastern Illinois: Addressing Water Equity in a Time of Rising Costs
- Full-Cost Water Pricing Guidebook
- Understanding Conservation Pricing
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