Running water and indoor plumbing are so central to modern life that most Americans take them for granted. But these services aren’t free, and millions struggle to afford them.
Since 1981, the federal government has helped low-income households pay energy costs through the Low-Income Home Energy Assistance Program. But there wasn’t a national water aid program until Congress created a temporary version as part of the COVID-19 response. Now the House-passed Build Back Better Act includes $225 million for grants to states and tribes to help reduce the cost of water services for low-income households.
As an economist specializing in environmental and natural resource issues, I’m encouraged to see this idea gaining support. I believe the U.S. can learn from Chile, which has run an effective national water assistance program for 30 years.
Subsidies for essential water use
There are hundreds of water and sewer customer assistance programs around the world, including programs in many U.S. cities. Three major problems undercut their effectiveness.
First, because utilities have to fund their assistance programs from their own budgets, they typically charge “non-poor” customers higher rates and use those payments to subsidize low-income customers. State regulations often forbid this.
Second, in areas with high poverty, too many customers need help and there are not enough non-poor customers to foot the bill.
Agencies such as the World Bank often cite Chile’s water aid program as a model. It aims to ensure that households don’t pay more than 3% of their income for enough water to meet their essential needs, which Chile pegs at 15 cubic meters per month — about 4,000 gallons.
Eligible customers apply to their city government every three years. Once enrolled, they immediately see reductions in their bills, based on their poverty level, for that first 15 cubic meters of water use. If households use more, they pay unsubsidized prices for whatever they use above that level.
In the late 1990s, Chile launched a major expansion of its sewage treatment plants. Water utilities raised rates to pay for this initiative, and subsidies grew as well. Chile found a way to pay for water and sewer investment while still protecting the poor.
The U.S. Environmental Protection Agency estimates that an average U.S. household uses approximately 9,000 gallons per month, but one-third of this is for gardens and lawns. Reliable national data on U.S. household water usage is nearly nonexistent, and there is no estimate of how much water low-income households use.
To estimate what a program like Chile’s might cost here, my team at Washington State University compiled a database of water and sewer rates. We estimate that a program covering the full cost of 4,500 gallons of water per month for households at or below the poverty line would cost approximately $11.2 billion annually if 70% of eligible households participate. In total, we estimate that 11.8 million households would receive an average subsidy of $67 per month.
Providing federal help
This idea builds on a well-known program with a long track record. It would place less of an administrative burden on the many small U.S. water systems serving fewer than 500 people. And it could be quickly implemented by adding water providers as approved vendors for electronic benefit transfer (EBT) card payments.
Eligibility for SNAP is set at 138% of the poverty line, and an estimated 84% of eligible households participate. With these parameters, we estimate that a program covering 100% of the cost of 4,500 gallons of water per month would cost $17 billion annually.
Economists agree that water should be more expensive in many places to give local governments and ratepayers incentive to conserve and plan for a water-scarce future. But without federal funding, poor households will continue to fall behind on their bills and experience the indignity and health risks of having their water turned off. I believe Chile’s experience shows how a national program can get water prices right while protecting the poor.
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