Average price of water in 30 large cities showed smallest annual increase since 2010, survey finds.
By Brett Walton
Circle of Blue
In the third year of the Trump administration, Congress and the White House have repeatedly discussed a multi-trillion dollar investment in the country’s roads, dams, levees, telecommunication networks, power grids, drinking water pipes, and sewage treatment plants.
Neither side has agreed on such a plan, and a deal seems out of reach at the moment. For drinking water infrastructure, Congress has preferred instead to fortify existing loan funds and grant programs. The country’s metropolitan centers, by and large, are taking advantage of those incremental measures. They are also forging ahead on their own, not waiting on Beltway politics to be resolved before making investments to prepare their water systems for the decades ahead.
Those investments are reflected in the cost of drinking water, which is rising but not as steeply as in previous years. In its latest annual survey of water prices in 30 major U.S. cities, Circle of Blue found that the average price of residential drinking water for a family of four using 100 gallons per person per day rose 3.2 percent last year. It was the smallest increase since the survey began in 2010, and it continues a decade-long deceleration in water rate increases for this group of cities.
For a family of four using 50 gallons per person per day, the average price grew by 3.6 percent, also the lowest figure in the survey’s 10-year history. Six cities did not change their rates.
We’re always optimistic for additional funding from Congress. But in the meantime, we have to provide for our customers here and now.”
“We’re always optimistic for additional funding from Congress,” Kathryn Sorensen, director of the Phoenix Water Services Department, told Circle of Blue. “But in the meantime, we have to provide for our customers here and now.”
The largest increases were clustered in Arizona and California, states vulnerable to drought, climate change, and other natural hazards that are poised to constrain water supplies. To prepare, cities in these states are spending billions of dollars on water recycling facilities and distribution systems. They aim to cut reliance on distant rivers, store more water underground, and protect crucial pipelines and dams from being cracked by earthquakes.
At the 50-gallon level, Fresno led the way with a 14.7 percent increase. Baltimore (9.7 percent), Chicago (9.6 percent), San Jose (8 percent), Tucson (7.9 percent), Phoenix (7.5 percent), and San Francisco (7.4 percent) also were among the highest increases.
“It’s the infrastructure,” Jeffrey Raymond, spokesman for the Baltimore Department of Public Works, told Circle of Blue when asked about the city’s rate increase. Baltimore has increased its rates by 9 percent or more in eight of the last nine years.
Investing in the Future
Baltimore, with its consistently large rate increases, is an outlier. Many cities in the survey have slowed the pace of water rate increases in recent years. That deceleration could be attributed to several factors. One is that cities are foregoing the shock of large increases in favor of a more incremental approach. Chicago and Houston link annual rate increases to changes in local inflation, recently 1 percent to 3 percent per year. Chicago’s overall increase is tied to a surcharge dedicated to plugging holes in the city’s pension fund. That surcharge is not included in its base rate.
Other cities, mindful of the burden of high water bills, are looking beyond the rate payer for funds. In Atlanta, a 1 percent sales tax provides additional revenue for water and sewer projects. Poorer residents still pay the tax when buying apples and toothpaste, but out-of-town visitors and commuters are contributing to the upkeep of the water system, too. The voter-approved tax brought in $145 million in fiscal year 2018 and $1.7 billion since it was introduced in 2004. Atlanta has not raised water rates since 2012.
Another factor is timing. Large increases earlier in the decade that launched ambitious capital projects may have now flattened out.
San Francisco is one of those cities at the end of a spending spree. San Francisco Public Utilities Commission is nearing completion of a $4.8 billion outlay that is designed to protect its expansive water system from earthquakes. Some 160 miles of large-diameter pipelines and aqueducts connect San Francisco’s Bay Area residents to Hetch Hetchy, the Sierra Nevada reservoir that provides the bulk of the city’s water. Those pipelines cross three faults as they traverse the state.
“We’re over the hump as far as capital project rate increases are concerned,” Erin Franks, SFPUC’s acting rates administrator, told Circle of Blue.
There are always assets to maintain, Franks said. But the utility hopes to tame future rate increases. Rates in San Francisco increased between 6 percent and 18 percent per year since 2011. Those increases trickled down to San Jose’s municipal water system, which is a wholesale customer of SFPUC.
In Arizona, the worry is less about the risks of shaking land than about shrinking rivers. Phoenix, which sources most of its water from the Colorado River, is contemplating an increasingly arid future in which the canyon-carving icon is no longer able to provide as much water as it used to.”
Phoenix, which sources most of its water from the Colorado River, is contemplating an increasingly arid future in which the canyon-carving icon is no longer able to provide as much water as it used to.”
The city has planned for that possibility, Sorensen said. Over decades, it has taken water from the Central Arizona Project canal that it did not immediately need and allowed it to soak into sandy aquifers, squirreling it away for drier days. There are missing links, though. Some of those banked supplies are inaccessible to the city’s current treatment and distribution system without additional infrastructure.
Phoenix’s rate increase will cover a $300 million network of transmission lines and pump stations that will allow it to shuttle the banked water around town. It’s part of a five-year, $1.5 billion capital plan. Included in that plan is $525 million for repairing some of the city’s 7,000 miles of water distribution pipes.
Sorensen does not want to be thrust suddenly into an emergency. The panic in Cape Town in 2018 was an instructive example for Phoenix, she reflected. When a severe three-year drought depleted the South African city’s reservoirs, authorities had no backup plan. They ended up restricting residents to 13 gallons of water a day.
“When the drought hit there, they were not ready,” she said.
Despite its rate increase, Phoenix still has the lowest prices in the survey for customers who use water sparingly.
Federal Loan Programs in High Demand
The cities in this survey are large enough that they can finance large capital projects by issuing their own bonds. But some take advantage of government loans that offer lower interest rates, longer repayment terms, and more flexibility in when the money is spent.
Phoenix was invited to apply for a WIFIA loan, a program established by Congress in 2014 and administered by the U.S. Environmental Protection Agency. Los Angeles was also invited to apply for a WIFIA loan to finance half of a $378 million upgrade to the Tillman wastewater treatment plant. The project will produce high-quality water that will replenish groundwater basins used as drinking water sources. San Diego, already a WIFIA loan recipient, is financing just under half of its $1.4 billion wastewater recycling facility through the program.
The $2.3 billion initial round of WIFIA funding supported 12 projects. For the current round of funding, targeted at $5 billion, 39 projects were selected to apply. Sorensen called it an “important program” for her utility.
WIFIA is the younger sibling to a much broader water infrastructure loan program. The state revolving fund, established for drinking water projects in 1996, acts like a bank.”
The state revolving fund, established for drinking water projects in 1996, acts like a bank.”
Fresno is using revolving fund loans to finance four-fifths of a $429 million water system improvement project. The low-interest loans represent a significant savings over market rates. The average interest rate for revolving fund loans in 2018 was 1.6 percent, according to the EPA. That is the amount that Fresno is paying, a discount of $220 million over the life of the loan compared to other financing options, according to Fresno Public Utilities.
San Diego also plans to use up to $650 million from the state revolving fund for its wastewater recycling project, called Pure Water, which is expected to provide one-third of the city’s drinking water by 2035. Brian Mandell, the city’s debt manager, told Circle of Blue that the fund is the cheapest source of loan financing. But the purse is finite and competition for loans is stiff. Expanded funding is an area that Congress could help with, he said. “There’s only limited funding. More could be made available.”
Keeping Water Affordable
Though the rate of increase has slowed, the rising price of water continues to raise questions about affordability for households at the bottom of the income distribution.
Even single-digit increases add up over time — the nominal price of water, not taking inflation into account, more than doubled in Baltimore and climbed two and a half times higher in San Francisco over the last decade. At the same time, a utility that delays repairs is inviting even larger bills down the road. Appropriate spending and reasonable rates are a balancing act, acknowledged Franks.
“We’re concerned about affordability, but we can’t let the infrastructure decay,” Franks said.
One of the most forceful responses in the last year came from Chicago, where Mayor Lori Lightfoot, days before taking office, said she would prohibit the water department from shutting off water service to households that are late paying their bills.
“Water is a basic human right,” Lightfoot, who was elected in April, said on May 17. “And when you cut somebody off from water, you’re effectively evicting them and putting them on the street. We will not do that in the city. That is a heartless act.”
The Chicago Department of Water Management has a temporary moratorium on water shutoffs until a new policy can be finalized, Megan Vidis, a department spokesperson, told Circle of Blue.
Other utilities are revamping how they pay for aid programs. Austin Water, which serves about a million people in the Texas capital, instituted a line-item charge in 2018 to fund its bill assistance program for low-income residents. The fee — $0.15 per 1,000 gallons – is expected to generate $9.4 million this year. Funds will also pay for leak repairs for residents enrolled in the assistance program.
A separate charge “provides transparency” to customers about the costs of the program, David Anders, assistant director of financial services, told Circle of Blue.
The pricing survey, though useful, has limits. For one, the numbers do not reflect average household bills. The cost of water is a significant factor in how much an urban American family uses. Higher prices generally result in lower usage. Households in cities with high water rates, like San Francisco or Seattle, may still have water bills that are comparable to other areas because consumption is lower.
A second limitation is that the survey is narrow. There are roughly 50,000 community water systems in the United States. This assessment looks at only 30 of the largest, which typically display better financial strength, greater economies of scale, and fewer health violations than their smaller counterparts. And it does not consider stormwater fees or sewer rates, which in many cities are far higher than drinking water rates.
The strength of the survey, though, is its annual accounting of the change in prices for three scenarios in which monthly water use remains constant. It is useful for identifying financial and pricing trends that influence the water bills of tens of millions of American residents.
Prices are based on single-family residential rates and are current as of April 1, 2019. Rates include fixed fees, volumetric fees, and surcharges. Average monthly prices for cities with seasonal rates were calculated using seasonal weighting. The fixed fees cited in the article are for 5/8 inch meters, a common size for residential connections.
Correction: An earlier version of this story omitted a fee in Chicago’s water rates. Adding that fee changed the national average from a 3 percent increase to 3.2 percent increase at the 100-gallon level, and from a 3.4 percent increase to a 3.6 percent increase at the 50-gallon level.