Conference Speakers Discuss Innovative Solutions for Equitable, Affordable Water Financing

“We owe our citizens water quality,” said André Sayegh, mayor of Paterson, at the fourth annual Jersey Water Works Conference in Newark on Dec. 7. Due to a variety of infrastructure challenges — aging water and sewer pipes, lead in drinking water, stormwater management, and combined sewer overflows — quality is hard to achieve. To address these issues, more than 300 attendees spent the day exploring infrastructure solutions and celebrating the collaborative’s progress toward improving New Jersey’s water systems.

Several speakers emphasized the connection between water and health. “We place our citizens’ health above everything,” Sayegh said.

Keynote speaker Manuel P. Teodoro, an assistant professor at Texas A&M University, said, “Water and sanitation systems save more lives than all the hospitals in the world.” Yet lead and contaminants such as PFAS threaten to undermine that achievement. New Jersey recently became the first state to institute a regulatory standard for PFNA, but the state is still struggling to remove lead from water in Newark and other municipalities across the state. 

New Jersey Department of Environmental Protection Commissioner Catherine McCabe pointed out that environmental justice communities often suffer the brunt of water problems: “Children are still walking in sewage-tainted water, trying to get to school after it rains in Camden.” The NJDEP’s environmental justice initiative seeks to support communities that have historically suffered the worst environmental impacts in the state.

Prof. Teodoro’s research found that violations of the Safe Drinking Water Act are most likely to occur in communities that are low-income and nonwhite. Crises like the Flint, Michigan, case aren’t isolated incidents—they’re a nationwide problem that is just coming to light. Noting an increase in the number of politicians nationwide who have spoken about water issues, Teodoro said, “Faith in water systems has been shaken, and communities are demanding accountability.”

A loss of faith can have real consequences for people’s choices when it comes to drinking water. This was a major focus of the morning panel, moderated by Howard Neukrug, executive director of The Water Center at Penn. Nina Gallagher, director of research and evaluation at University of Pennsylvania’s ImpactED, studied water customer feedback from more than 8,000 Philadelphia residents over a three-year period. Forty percent of Philadelphians reported drinking bottled water at home instead of tap. While taste and convenience factored into their purchasing decisions, these residents were also concerned about safety. This finding has prompted Philadelphia Water to launch a rebranding campaign.

The Challenge of Affordability

Another challenge water systems face is maintaining affordability for customers. Teodoro quoted Abel Wolman, an engineer who influenced the establishment of the Clean Water Act: “Just as there is no escape from the hydrologic cycle, there is no escape from the dollar.” Utilities should provide high-quality service at a reasonable cost, while also remaining financially solvent.

“We are at an extraordinary moment for water affordability,” Teodoro said. Federal grant support for water systems has declined. Communities have underinvested in their infrastructure, which is aging and often at its breaking point. At the same time, families are dealing with increased costs for housing and healthcare, leading to overall financial strain.

In order to study affordability effectively, said Teodoro, it is necessary to use metrics that make sense. The most widely used affordability equation takes a municipality’s average water bill and divides it by the median income, resulting in the percentage of income spent on water (two percent or less is considered affordable). However, because median income households typically do not struggle to pay water bills, Teodoro proposed two alternatives. The first involves looking at the percentage of disposable income that a 20th-percentile-income home spends on water. In this equation, the average water bill — which can be skewed by high-volume consumers — is replaced by basic per capita water and sewer usage, multiplied by household size. From the household income, Teodoro subtracts essential expenses such as housing, energy, food, and healthcare, leaving a clearer picture of disposable income. Basic water and sewer service cost divided by disposable income provides Teodoro’s affordability ratio.

Teodoro’s second measure of affordability expresses a water bill in terms of hours worked at minimum wage. While not as sensitive as the affordability ratio to non-water living costs, this metric communicates tangibly the human reality of water bills.

While academics can devise all types of equations and metrics for evaluating water affordability, Teodoro pointed out, that doesn’t resolve the fundamental issue of how much water should cost. “I’m not here to peddle easy answers,” he said, “I’m here to ask hard questions.” How much should households of limited means have to pay for water? What share of disposable income is reasonable to ask a low-income family to pay? How many hours should a working-class employee have to work to pay for water?

Teodoro proposed that the affordability ratio should be less than or equal to 10 percent of a household’s disposable income—or, in terms of time, working up to eight hours at minimum wage. When a bill exceeds that amount, it can start to constrain economic opportunity.

Measures for addressing affordability can include rate design (specifically, designing rates that are inexpensive at the basic service level, but escalate rapidly at higher volumes), customer assistance programs, and reducing costs—through operational efficiency, not through poor performance.

The Importance of Asset Management

Several speakers highlighted asset management as a way to maximize existing infrastructure with limited funding. David Harpell, executive director of Jackson Township Municipal Utilities Authority, described it as “a risk-based approach to capital planning.” Asset management plans involve creating an asset inventory (including water mains, treatment plants, etc.), evaluating the condition of those assets, and prioritizing critical and vulnerable segments of the system for repair. For example, a water main leading to a hospital might have higher priority for repair funding than one serving a residential subdivision. Despite its common-sense appeal, asset management is harder than it sounds. Harpell noted that a town might have 180 miles of water mains. All those pipes are underground, and the purveyor may not know their precise location and condition.

McCabe said asset management plans are essential for increasing the resilience of current water systems and lowering costs over time. As part of the Water Quality Accountability Act, NJDEP is requiring water systems to have asset management plans in place by April 2019. As McCabe put it, “The best way to avoid emergency repairs is to get ahead of the game.”

A hopeful example can be found in Camden County Municipal Utilities Authority. Andy Kricun, the authority’s executive director and chief engineer, believes utilities are responsible not only for cleaning the water, but also for serving as anchor institutions that create multiple benefits for their communities. In a city with a low median income and high unemployment, CCMUA has addressed affordability by instituting various measures for cost efficiency. This includes a rigorous asset management plan and judicious use of the state revolving fund. CCMUA used low-cost financing from the New Jersey Infrastructure Bank to construct various energy efficiency projects. Because of NJIB’s low interest rates, CCMUA’s annual debt service payments are lower than its annual savings in electricity and maintenance costs for the new equipment.

The results are striking. In 1996, CCMUA’s rate was $337 per household per year. Twenty-two years later, it was $352 per household — a reduction of more than 40 percent in inflation-adjusted dollars. Because Camden hosts the regional wastewater plant, city residents get an additional 40 percent discount on that rate, reducing it to $220 per household. That’s a big difference in a city where the median annual income is $26,000.

The Need for Continued Investment

Ultimately, water systems require investment. Lester Taylor, Esq., partner at Florio Perrucci Steinhardt & Cappelli, described the challenges confronting East Orange’s water utility during his tenure as mayor. The utility had been badly managed for many years, and it was burdened by debt. Furthermore, its poor performance had limited East Orange’s economic growth, as there were not enough operational wells to provide water to new developments. Despite its financial struggles, the water board had not raised rates sufficiently to maintain operations. Taylor held several public forums where residents were presented with the case for raising water rates. It would maintain jobs, stabilize taxes, and facilitate economic development. With public support, Taylor raised the rates and transformed the utility into an industry leader.

Because of New Jersey’s dense development and large areas of impervious cover — surfaces like roofs and parking lots that cannot absorb stormwater — funding is also needed for stormwater management. Sen. Bob Smith spoke of proposed legislation that would allow municipalities or other jurisdictions to charge annual stormwater fees to property owners with significant amounts of impervious cover. The money would fund infrastructure for managing and treating runoff. While new fees can face public resistance, Smith said it’s all a matter of framing. He asked whether people would be willing to pay $3 per month for their children’s heath, clean and lead-free water, and protection of water sources. Smith said, “When you pay your water bill for the year, it’s the best bargain in New Jersey.”

Margaret Bowman, program director of Spring Point Partners, discussed the role impact investors can play in funding infrastructure through innovative financing mechanisms, such as pay-for-performance bonds. Impact investors look at social and environmental returns first, placing less emphasis on maximum financial return. They can come in with “small, quick” money to help municipalities try something new.

Innovative Ways Forward

Despite New Jersey’s many infrastructure challenges, speakers identified exciting paths for moving forward. Alex Warwood, workforce development director at Philadelphia Water Department, summarized his efforts to align human resources with his organization’s mission. The water workforce is aging and does not represent the demographics of its customers, providing an opportunity to bring in new talent. Wardwood has done outreach to teach students about the water industry as a lucrative career path. He has also established partnerships with organizations like PowerCorpsPHL, providing workforce training to “disconnected young adults and returning citizens.”

Kricun has borrowed the PowerCorps idea, using it to develop a local workforce in Camden. One hundred and eighty people have gone through Camden’s program. Camden’s PowerCorps dovetails with Kricun’s ideal of creating multiple benefits through his work. In an industry where as many as 50 percent of professionals are eligible for retirement within the next three years, it provides a pipeline of talent — which is especially meaningful in a city that needs jobs.

Teodoro spoke of the Water Quality Accountability Act’s potential for putting New Jersey at the forefront of transforming the water sector. Its rules will generate data that can lead to a better understanding of affordability and other critical industry issues. But Teodoro didn’t like the word “Accountability,” as it suggests blame rather than success.

“What about calling it the Water Quality Achievement Act?” he asked. This legislation, he said, should be seen as an opportunity for excellence. When the data the act requires is collected, he said, “we will know the full nexus of the relationship between cost, affordability, water quality, system performance, environmental quality and capital investment. We will be able to quantify the health and economic benefits of investment in water.” Overall, Teodoro is hopeful that the water sector will shift from fear of failure toward a vision of achievement. “I have great faith in the people of the water sector here and elsewhere to find a way forward.”