The High Cost of Short-Sighted Water Pricing

Water is becoming unaffordable in communities across Michigan and the nation—both urban and rural

Janet Meissner Pritchard is FLOW’s Interim Legal Director

By Jacob Wheeler and Janet Meissner Pritchard

Fran Harju, an 82-year-old resident of Beulah, made a tough decision when her household  water bills more than doubled in 2018 to $717. She paid $322 in 2013, the year she moved into the quaint village with a population of 342 on the eastern shore of Crystal Lake in Benzie County. The sticker shock prompted her to stop watering her lawn and conserve her daily water use in general.

“If the lawn goes brown, and God doesn’t send the rain, then too bad,” said Harju, who added that she’s become more conservative about how she uses her water, though she admits to obsessively washing her hands during the COVID-19 pandemic.

Jacob Wheeler is FLOW’s Communications Coordinator

Harju, a year-round village resident who lives alone, said that despite the surge in the cost of water, she’s still able to pay her monthly bills without making additional sacrifices, which also is true of the many summer-only residents here who own second homes on the magnetic lake  and have disposable income.

For others in Beulah, the situation poses a greater challenge. Village Treasurer Margaret Lumm said that the rising water bills have been a source of stress for many full-time residents who live on a fixed income. One resident receives financial help from the village and is permitted to pay his water bill when he is able. Another Beulah resident, a middle-aged veteran with children, gets help from the local Veterans Affairs office to pay his unaffordable water bill.

“People were going bonkers when the rates raised,” said Lumm. “This is tough for the locals. We’re a pretty tight-knit village.”

According to the Benzie County Record Patriot, Beulah erected a new 150,000-gallon water tower in August 2018 to replace the previous one, which was 85 years old. The village also replaced a series of aging water mains and sewer pipes two years ago. All told, the projects cost around $4 million. Beulah secured a U.S. Department of Agriculture (USDA) loan at 2 percent interest over 40 years to pay for the new water infrastructure.

Village President Dan Smith told the Record Patriot that the USDA required the village to raise consumer water rates in order to ensure the loan would be repaid on schedule. Harju and others saw their quarterly bills explode in April of that year. Much of the added cost was in a “ready-to-serve” fee, which rose from $38.50 to $88.94 per quarter. According to the Record Patriot, the usage rate per 1,000 gallons of water also more than doubled from $3.35 to $7.74. Lumm explained that the “ready-to-serve” charge can exceed the actual quarterly cost of the water itself.

L’Chayim owner Jonathan Clark. Photo courtesy of the Betsie Current.

L’Chayim Delicatessen owner Jonathan Clark said his deli was able to absorb the increased cost of water. But as a landlord who owns several rental apartments in the village, it pained him to pass along the extra ready-to-serve charges to his tenants, many of whom already struggle to find affordable housing in the village and good-paying jobs in the region.

“I feel bad about having to pass on that initial $90 to each unit that I rent,” said Clark. “On top of that, they have to pay for whatever usage they have for water and sewer. It gets expensive really fast.”

Clark felt that the payment system could be more equitable.

“You have to pay the ready-to-serve charge regardless of whether you use a drop of water or not. If you have four apartments, each one has to pay the charge. But a hotel that has 20 units only has to pay for it one time.”

Water Unaffordable in Communities across Michigan and the Nation

Beulah is not alone in this predicament. Across Michigan and the United States—in both cities and small towns—residential water rates have skyrocketed. In fact, a story produced and co-published in July by the Guardian US and Consumer Reports shows that water bills have risen by 80 percent in the past decade for millions of Americans. This water affordability crisis is especially acute and painful during the COVID-19 pandemic, which requires frequent washing.

Millions of ordinary Americans are facing rising and unaffordable bills for running water, and risk being disconnected or losing their homes if they cannot pay, the Guardian’s landmark study found. … Exclusive analysis of 12 diverse cities shows the combined price of water and sewage increased by an average of 80 percent between 2010 and 2018, with more than two-fifths of residents in some cities living in neighborhoods with unaffordable bills.

“More people are in trouble, and the poorest of the poor are in big trouble,” said Roger Colton, a leading utilities analyst, who was commissioned by the Guardian to analyze water poverty. “The data shows that we’ve got an affordability problem in an overwhelming number of cities nationwide that didn’t exist a decade ago, or even two or three years ago in some cities.”

The federal government used to lend a hand and help Americans turn on their faucets. According to the Guardian, federal funding for water systems has fallen by 77 percent in real terms since its peak in 1977—leaving local utilities to raise the money that is needed to upgrade infrastructure, comply with standards for toxic contaminants like PFAS, lead, and algae blooms, and adapt to extreme weather conditions like drought and floods linked to climate change.

“A water emergency threatens every corner of our country,” water justice advocate Mary Grant from Food and Water Watch, said in reaction to the Guardian’s research. “The scale of this crisis demands nothing short of a fundamental transformation of our water systems. Water should never be treated as a commodity or a luxury for the benefit of the wealthy.”

“High-cost low-quality water is a national issue . . . . the federal government is clearly not playing the role it needs to play,” said Howard Neukrug, director of the water center at the University of Pennsylvania and former head of Philadelphia’s water department.

Water Affordability is Not Just an Urban Issue

Many water utilities in Michigan shut off water services when the debt piles up. On March 20, in the context of the Coronavirus pandemic, Michigan Governor Gretchen Whitmer ordered all residential water services to be restored, providing relief to thousands of shut-off households throughout the state. That order was scheduled to expire at the end of December, but was prematurely halted in early October with the Michigan Supreme Court’s ruling invalidating the Governor’s pandemic-related emergency orders. A bill is pending before the Michigan legislature to reinstate the moratorium. This bill is currently expected to be considered on November 4 or 5.

Water shutoffs in Michigan’s cities — including Detroit, Flint, and Benton Harbor — with large numbers of residents impacted, rightfully command the headlines and generate movements for moratoria, but the water affordability crisis is real in rural Northern Michigan as well. Data collected by the Department of Environment, Great Lakes, and Energy (EGLE) as part of efforts to ensure the restoration of water services to all Michigan households during the Coronavirus pandemic indicates that more than 1,600 households in rural counties were without water due to shutoffs for nonpayment in early 2020, at the onset of the COVID-19 pandemic.

Fewer Rural Residents to Shoulder the Load

Beulah is one of many villages that have seen water rates rise in order to pay for infrastructure upgrades. A direct assistance program passed by the Michigan Legislature included $25 million in direct assistance to help Michiganders pay their water bills and provide some measure of protection against potential shut offs. To-date the assistance program has helped over 75,000 Michigan water-insecure households in cities, villages, and townships across the state address water bill arrearages that have accumulated during COVID.

Kaleva, in rural Manistee County, had one of the lowest water rates in the State of Michigan as recently as 20 years ago, according to Village Trustee Rick Schafer, who is also superintendent of the village’s water department. Kaleva was required by the Michigan Department of Environment, Great Lakes, and Energy (EGLE) in October 2019 to drill a new village water well and replace lead service lines, which the village plans to do in 2021. The current well was built in 1952. Water rates will rise to $48 per month in January 2021; they are currently $40 per month. Kaleva received a $2.3 million grant and a $1.17 million loan, both from the USDA, to cover costs.

But the number of rate-paying citizens in Kaleva to shoulder that burden is dropping fast. Between 2000 and 2010, the village’s population decreased by 7.7% to 470, according to U.S. Census statistics. The median household income in Kaleva as of 2010 was less than $31,000 with 17.4% of the population officially below the poverty line. The departure of NABCO’s industrial plant — which manufactures starters, alternators and solenoids for the automobile industry — cost Kaleva 150 jobs when the company closed its distribution and production operations in 2006. Unlike Beulah, Kaleva is not a tourist destination with lakeside second homes owned by part-time residents who help shoulder the economic load.

EGLE Encourages Asset Management Plans for Water Infrastructure

More and more villages and cities, alike, are taking a look at their water infrastructure, and determining how to improve it, and how to pay for it. EGLE encourages communities to develop  asset management plans for their drinking water, wastewater, and stormwater management systems, as “a tool for water systems to plan for future financial needs, estimate the full cost of water service, and to ensure a sustainable utility,” states EGLE’s website. “The asset management rule in Michigan’s Safe Drinking Water Act aims to ensure that water systems are considering all costs as they plan for the future.” According to EGLE’s Brian Thurston, each community of more than 1,000 residents must create an asset management plan. 

Among other requirements, changes to the Safe Drinking Water Act—in the wake of the Flint water crisis—requires that lead service lines be replaced, even the two-foot gooseneck section that connects pipes to a water main. Most lead pipes in Michigan were installed prior to World War II. After the war, flexible copper became more common and replaced lead lines. The State of Michigan requires that 5% of a municipality’s lead pipes must be replaced each year starting in 2021.

“If you have 300 lead pipes, that becomes real costly,” said Mike Engels, an instructor with the Michigan Rural Water Association, which is funded through the USDA Rural Development program. “Call any city in Northern Michigan: if their water system was (installed) prior to World War II, they’re gonna have to replace them.”

Raising Rates Incrementally, or Tearing Off the Band-Aid

Engels, who works statewide with communities of fewer than 10,000 residents, says that some towns and municipalities raise their water rates incrementally before they find themselves in a situation where they have to take out loans to pay millions of dollars to replace a water tower or service lines, and pass a sudden and hefty rate increase onto citizens.

“Some raise them a little bit at a time instead of ripping off the Band-Aid,” said Engels. “Rules forcing communities to replace lead pipes make them charge customers what they need to charge instead of what they want to charge,” added Engels.

Towns that still have lead gooseneck pipes that need to be replaced include Bellaire, in Antrim County, and Elberta, in Benzie County.

“Every system is different to operate because of the age of a well and whether or not the water needs to be treated,” said Engels. “No one is overcharging, no one is pocketing money.”

Under the public trust in water, everyone in the state has a right to access the waters of the state for their sustenance and sanitation needs. When utilities charge for water, they are not really charging for the water itself, which cannot be commodified. Rather, they are charging for the service of delivering the water to one’s tap (and treating the wastewater that goes down one’s drain). These services require the infrastructure of our human-built drinking water and wastewater systems.

Help is on the Way: New State Investments in Water Infrastructure and Water Affordability 

On October 1, Michigan Gov. Gretchen Whitmer announced $500 million in investments in clean water that she declared to be a significant step forward in solving Michigan’s water infrastructure crisis.

The new investment package will provide grants for much-needed water infrastructure projects such as replacing lead service lines, addressing failing or inadequate wastewater infrastructure that contributes to violations of water quality standards, and increasing green infrastructure to reduce risk of flooding and other wet-weather impacts that can lead to water quality problems.

Three features of this investment package are particularly welcome. First, the bulk of the new investments ($417 million) will be made as grants, rather than loans, to fund water infrastructure projects, and a substantial portion of these grant funds will be directed to disadvantaged communities. This is important because the severe decline in federal and state grants for water infrastructure since the late 1970s has led to an overreliance on water ratepayers to repay bonds and loans used to finance much-needed infrastructure projects, resulting in soaring water rates that are unaffordable for households struggling to make ends meet.

Second, Gov. Whitmer’s funding package includes $7.5 million to develop affordable water rates and other affordability programs. Implementing affordable rate structures, such as income-based rates, and other affordability programs, will further relieve the burden on struggling rate payers, greatly reduce the likelihood of household water shutoffs, and ensure more reliable revenues for water utilities. Third, the package also includes $35 million to address failing septic systems, which are contaminating rivers, lakes, groundwater, and private wells in some communities across Michigan, which currently faces an estimated annual water infrastructure shortfall of $800 million.

More Action Needed to Achieve Equitable and Sustainable Funding for Water Infrastructure

During the 20th century, small and large cities and towns across Michigan and the United States benefited from extensive federal investments in public water systems. Today, local taxpayers and ratepayers bear the burden of assessing, operating, maintaining, and financing water infrastructure with far fewer state and federal subsidies. This overreliance on ratepayers compounds existing inequities. The inability of vulnerable communities to pay for much-needed infrastructure maintenance and upgrades means their needs remain unmet, subjecting these already-vulnerable communities to greater risks of water insecurity and related health, social, and economic impacts.

Overreliance on ratepayers is also unsustainable, not only for households, but also for water utilities that are forced to increase water rates to pay for water infrastructure projects. Water rates might still be manageable for a majority of ratepayers today, but rates are expected to increase sharply, driven in large part by the need to maintain and upgrade neglected water infrastructure. In 2018, the American Association of Civil Engineers gave Michigan a D+ rating for the state of its water infrastructure. Michigan’s 21st Century Infrastructure Commission determined in 2016 that an additional $800 million is needed annually to make the state’s water infrastructure fit for the 21st century, and this estimate did not account for emerging threats to water quality such as PFAS.

Under a business-as-usual trajectory, in which these infrastructure costs are placed on ratepayers, water prices in Michigan and nationally are expected to skyrocket to four times current levels over the next few decades.​​

If water rates rise at projected levels, conservative projections estimate that nationally over 35% of American households will face water bills requiring them to pay more than 4.5% of their household income for water and sanitation, the threshold beyond which water-and-sewer service becomes unaffordable, per the U.S. Environmental Protection Agency, although some analysts set that affordability limit at a much lower 2% of household income. Michigan ranks 12th in the nation for the number of census tracts at high risk for unaffordable water bills by 2023.

FLOW Calls for More State Funding Sources for Water Infrastructure to Relieve the Burden on Residential Ratepayers

FLOW is exploring these issues through its work on water infrastructure and equity. FLOW is calling for more state funding sources for water infrastructure, to relieve the burden on residential ratepayers. Options for substantial and reliable state revenues for water infrastructure that are being explored by FLOW include a graduated income tax, a millionaires surtax earmarked for water infrastructure, and our Public Water, Public Justice (PWPJ) model legislation which, in addition to affirming, in statute, the state’s public trust duty to protect access to safe, clean, and affordable water for the people of Michigan, would also create a new dedicated fund to support water affordability and water infrastructure, with revenues generated from the collection of royalties on water bottling operations.

FLOW Intern Emma Moulton contributed to this report.

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Water is becoming unaffordable in communities across Michigan and the nation—both urban and rural