Thanks to G. Tracy Mehan III, executive director for government affairs at the
American Water Works Association, who sent me the Expert Panel report: Improving the Evaluation of Household-Level Affordability in SDWA Rulemaking: New Approaches'.
Download 20210413 Household-Level Affordability in SDWA Rulemaking
Here is the EPA cover letter to Radhika Fox, who heads EPA's Office of Water:
Download 20210413 AWWA Cover Letter - Affordability Report
And the AWWA press release for this report:
The American Water Works Association (AWWA) today announced the availability of a new document entitled “Improving the Evaluation of Household-Level Affordability in SDWA Rulemaking: New Approaches,” to help facilitate discussion of U.S. Environmental Protection Agency’s (EPA) analysis of household-level affordability when making regulatory decisions.
AWWA convened a panel of experts led by co-chairs John Graham and Cary Coglianese. Graham, a professor at the Indiana University, was administrator of the Office of Information and Regulatory Affairs at Office of Management and Budget under President George W. Bush. Coglianese is a law and political science professor at the University of Pennsylvania, where he also serves as the director of the Penn Program on Regulation.
The expert panel concluded regulatory actions should simultaneously account for vulnerable people’s access to affordable water service and the need to protect their health. This conclusion is important because when cost-benefit analyses are conducted under the Safe Drinking Water Act (SDWA), it may be assumed all households are willing and able to pay for safer drinking water, even though households vary in their ability to pay.
The expert panel recommended EPA expand its analysis of household-level affordability when performing economic analyses supporting future primary regulatory development under SDWA. Among the suggested changes is to move away from using Median Household Income (MHI) as the sole metric in assessing the impacts of the regulatory structure on affordability and focus more on impacts to households in the lowest 20 percent of income (lowest quintile). Moreover, EPA should seek to use analysis of affordability impacts to inform SDWA policy development (including but certainly not limited to regulatory standard setting) so that it can enhance public health protections while ensuring affordability.
“This report offers a roadmap toward improved analysis of a growing water affordability crisis in the United States,” Coglianese said. “Meaningful universal access to safe, life-sustaining water is increasingly put at risk by infrastructure demands and other factors driving up the costs of basic water services. With better analysis of the scope and causes of these trends, policy decision-makers at the local, state and federal levels will be better able to take the actions needed to ensure everyone has access to a safe and affordable supply of water, no matter their level of income.”
“Most people will think we don’t need affordability analysis because EPA does cost-benefit analysis,” said Graham. “I want to emphasize that cost-benefit analysis, as currently practiced under SDWA, does not address affordability for low-income households. This report will help ensure low-income customers are considered in future rulemaking.”
“In bringing these experts together our goal was to spotlight the growing importance of addressing affordability as a component of sound water policy decisions, including regulatory rule making,” AWWA CEO David LaFrance said. “Ultimately, customers pay to maintain their water systems and services – drinking water, wastewater and stormwater. Decision makers need to consider all customers – particularly lower income customers – in their regulatory policy discussions.”
The document is available for free download on AWWA’s Affordability Resource page.
Finally - the Executive Summary (minus the footnotes):
Executive Summary
Regulatory actions should neither decrease vulnerable persons’ access to affordable water service nor neglect their needs for public health protection. To give due consideration to all members of the public affected by federal water policy, household-level affordability of water services can be evaluated within the SDWA regulatory process both to inform the rule requirements and affect the implementation of the rule to reduce burden on low-income households.Regulations under the SDWA are already subjected to cost-benefit analysis (CBA), so one might ask why is there also a need for affordability analysis? When CBAs are conducted under the SDWA, it is assumed that all households are willing and able to pay the same amount for safer drinking water, even though households vary enormously in their ability to pay. Thus, even if a regulation has greater aggregate benefits than costs for the average household in America, the regulation may still not be affordable for lower-income households. Affordability analysis considers the welfare of low-income Americans.
There is already a specific statutory duty under the SDWA and in longstanding executive order provisions requiring EPA to conduct affordability analysis. In addition, consideration of household-level affordability is an important aspect of evaluating environmental justice concerns. As the technical quality of affordability analysis improves in the future, such analysis can enhance the implementation of public policy to ensure the nation has safe, reliable, accessible, and affordable drinking water.
The panel recommends that, in economic analyses supporting future primary standard development under the SDWA, EPA expand its analysis of household-level affordability. Moreover, the Agency should seek to use affordability analysis to inform SDWA policy development (including but certainly not limited to standard setting) so that it can enhance public health protections while ensuring affordability.
Specifically, the panel suggests that EPA:
1. Analyze rule impacts relative to regional lowest quintile household incomes and costs of living rather than relying solely on comparisons to national median household income.
2. Review and expand on current cumulative cost analyses so as to estimate the anticipated household water bill relative to a series of household-level income metrics for a more complete array of water system sizes. Impacts of combined water, wastewater, and stormwater costs should also be considered.
3. Illustrate the incremental net benefit of the rule on households having different income levels and rule burdens (e.g., exemplars including high net benefit – high cost burden, low net benefit – low cost burden) in addition to continuing to estimate net-benefit analysis for the average US household.
4. Estimate the number and distribution of systems evidencing high potential for affordability challenges from the rule based on community measures of household or community fiscal stress (e.g., percent of homes with incomes at or below 200% of poverty level). Reflect, if possible, the degree of fiscal impact on distressed households and communities.
5. Conduct additional data collection and analysis on specific research questions that will be useful in conducting future affordability analysis, such as on the relationship between costs on lower-income households as estimated in agency regulatory analyses and the actual water rates incurred by such households.
6. Use affordability metrics and estimates to conduct ex-post evaluation of SDWA rules and compare the ex-post findings to the ex-ante estimates for the same rules.
7. Use affordability analyses to identify needs for research and development, modification of federal funding provisions, and recommendations for utility practices (e.g., rate structures) to mitigate affordability stresses.
Four specific new analyses are suggested, as well as a series of suggestions on data sources that could be enhanced to support this analysis. The four new suggested analyses address the following questions:
1. How many households bear the costs and accrue the benefits from a rule option, and what is the income distribution of those households (e.g., by household income quintile)?
2. How are the net benefits of policy options distributed as a function of household income for a cross-section of income strata?
3. What amount of hypothetical federal subsidy would be required to ensure all target water systems can comply without significantly increasing household level burden on lowest quintile? How can this hypothetical subsidy level be compared to the actual level currently available and how much shortfall is there likely to be?
4. Does the rulemaking have consequences that are occurring in a timeframe that overlaps with other water-related regulatory requirements that place an undue burden on financially challenged households (e.g., evaluate single rate payer burden)?
To date, the EPA has sought expert panel review of its response to statutory duties to provide for small-system variances. Given the extensive expert commentary on that provision, our recommendations do not focus on that SDWA provision. Similarly, SDWA includes provisions for general variances and exemptions. Based on available data, these SDWA provisions are so infrequently used as to be an unrealistic strategy for addressing either household-level or community-level affordability constraints.
Policymaking Must Recognize
Water is an essential service that must be available for a home to be inhabitable.
When provided through a utility, drinking water must be adequate in quantity, pressure, and quality to protect public health.
At present the primary source of funding for drinking water service derives from water rates charged to households and businesses receiving service.
Drinking water is one of several water services the costs of which are borne directly or indirectly by the same rate payers.
Enjoy this all! Thanks, Tracy!
“We talk (water) scarcity, yet we have set (some of) our largest cities in deserts, and then have insisted on surrounding ourselves with Kentucky bluegrass. Our words are those of the Sahara Desert; our policies are those of the Amazon River.” - Richard Lamm, former Colorado governor
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