Written by: Glenn Barnes, Senior Project Director, Environmental Finance Center at UNC Chapel Hill

Assessing AffordabilityWhen the five small water systems in Hampton County, South Carolina decided to band together to create the Lowcountry Regional Water System (LRWS), they, like many other small water systems across the country, faced a number of managerial and financial obstacles. Among these challenges were a flat growth rate, degraded and inadequate infrastructure, artificially low rates, and an economically disadvantaged population. Each of the five communities in this rural county had not only a different rate level but also a different rate structure, with monthly rates for 5,000 gallons of water and sewer service ranging from as low as $36.50 to as high as $62.67. Customer affordability of water service  within the regionalized system became a top concern for the LRWS.


Measures of Affordability

The Lowcountry Regional Water System is not alone. Increasingly, many water and wastewater systems are concerned about whether their services are affordable for their customers.  Perhaps the most common measure of water and wastewater affordability is “Percent MHI”—that is, the percentage of the monthly income the median household within a community would spend for an average monthly amount of water and wastewater (say 5,000 gallons).  It is a measure that typically features as one of the benchmarking dials on the EFC’s Water and Wastewater Rates Dashboards.

There are known problems with using Percent MHI as the only indicator of affordability. It’s better to assess affordability using a range of metrics, not just one, in order to get a more comprehensive view of affordability for different groups of customers.

The Census Bureau’s American Community Survey offers other data that can help us have a more complete picture of affordability.  In addition to reporting the MHI, the American Community Survey has information on Income and Benefits at various income “buckets”—under $10,000, $10,000 to $14,999, $15,000 to $19,999, and so on.  It also shows the percentage of households that are enrolled in social safety net programs like Supplemental Security Income and food stamps.  A recent report and complementary tools released by the United States Conference of Mayors, the American Water Works Association, and the Water Environment Federation also endorse taking a broader view on affordability.

Water and Wastewater Residential Rates Affordability Assessment Tool

Affordability ToolAs part of the regionalization assistance we provided to those Hampton County communities under the Smart Management for Small Water Systems project, the Environmental Finance Center at UNC developed a new tool designed to help the LRWS determine the affordability of the new rates for each community. The Excel-based Water and Wastewater Residential Rates Affordability Assessment Tool is now available for free to any water and wastewater utility that wishes to assess the affordability of their service.

The EFC’s new easy-to-use Excel tool guides a utility to assess the relative affordability of its water and wastewater rates on its residential customers using multiple metrics. Affordability is assessed for the average customer, low-income customers, and a full range of households based on their various income levels. The tool also allows a utility to compare two rate structures side-by-side, enabling the utility to assess the affordability of its current rates alongside alternative rates. Multiple indicators of affordability are built into this model to create a more comprehensive assessment of affordability in addition to Percent MHI.

Data input should take just a few minutes.  Users enter their average monthly bill and then copy and paste select data from the census tables. The tool then does the calculations automatically and shows the results in charts and graphs.

Ultimately, as was the case in Hampton County, it is up to individual water and wastewater systems to decide if their rates are affordable because there is no accepted national standard for the affordability of water and wastewater service.  This tool will help water systems make more informed decisions.

Additional Resources on Affordability