The cost of water and sewer services is rising three times faster than inflation in the USA, and that expense hits low-income households disproportionately. Research by Georgia Tech economist Casey Wichman reveals that, for one in seven households, the monthly water bill comprises more than 4.5 percent of monthly household income---a threshold commonly used for determining water affordability---and that rises, on average, to 8.1 percent of monthly income for the poorest one-tenth of households. Wichman, together with co-author Diego Cardoso, also found that affordability concerns are positively correlated with race. Their research results have implications for how to view water affordability across the U.S. and for how to design distributional policies effectively.
In order to estimate annual water expenditures, Wichman compiled an extensive database of water and sewer prices for nearly half the United States population. He says, “Our data set includes 92,445 census block groups from 521 counties across 42 states. The data set covers approximately 145 million people as of 2016.” The study documents water affordability concerns in the U.S. across income, geography, and race. From this, Wichman and Cardoso examine how policies can be designed to help low-income households.
Rather than use county-level data on median household income, the study focused on the more accurate Census block-group-level socioeconomic characteristics and typical levels of consumption. “We demonstrate that using median household income at the county level drastically understates the extent of the water affordability problem relative to using the full income distribution within Census block groups,” Wichman says. (A Census block group contains 300 to 6,000 people).
In their scenarios for low-income assistance, the researchers considered a uniform lump-sum transfer/rebate or a 50% rate discount for eligible households. These programs would be funded either by a uniform water rate increase or a local income tax on relatively wealthy households. They show that policies that provide a lump-sum rebate to low-income households are more effective at redistributing the burden borne by low-income customers than offering marginal incentives for water and sewer consumption.
By Gita Smith