The U.S. Environmental Protection Agency (EPA) is in the process of finalizing potential changes to the way they calculate and determine how much your city and citizens will be required to spend to comply with Clean Water Act (CWA) obligations that are legally enforceable. EPA was directed by Congress to review and consider revising the 1997 Financial Capability Assessment Guidance that measures customer and community affordability using Median Household Income (MHI) because of concerns that the financial burden to meet unfunded mandates is both substantial and widespread. EPA has used the 1997 Guidance in enforcement actions, like consent decrees, that typically result in the most expensive solutions that are reflected in double-digit rate increases and new charges and fees for stormwater abatement mandates.
The concern expressed by the US Conference of Mayors, National League of Cities and National Association of Counties is that EPA has been considering what to do with the 1997 Guidance and there has been an inadequate level of consultation with local government. The USCM and other local government organizations want EPA to discontinue applying the MHI measurement and place greater weight on measurements from the ground up that considers what it costs to live in a community, and how much of the vanishing discretionary income of our low and middle income households the unfunded mandate will cost.
The slide deck attached makes the case that many communities in the 8 Great Lakes states are struggling and not keeping up with national levels of spending on municipal water and sewer systems. For many cities that do not have economies that are growing at a national average level, increased spending on utility mandates places a greater burden on consumers through rate increases and new fees. While your city may be on par or exceed national levels of utility investment, the assessment presented in the slide deck suggests that without a substantial financial infusion from state and federal government it is overly optimistic to expect the nation’s cities to comply with current and new/revised unfunded mandates.
I urge you to review the slide deck and let us know if you have any questions or comments.
Early signs of the growing affordability problem surfaced when EPA decided to take a prosecutorial approach to compliance with sewer overflow mitigation requirements. The Agency brought enforcement actions against cities that resulted in billion dollar settlements often requiring substantial new investments often accompanied by locking-in double-digit rate increases for many years in the future. The Conference, with a public sector coalition, initiated policy change with the Integrated Planning model that Congress adopted and the President signed into law in January 2019. That policy offers an opportunity for partnering with EPA to find affordable solutions that are timed in synch with our economic growth or decline. The Clean Water Act in its original form promoted the application of flexibility with [city] permittees but over the last 4 decades EPA has not promoted the concept and it needs to be brought back into the compliance equation.
While the Integrated Planning policy was made the law of the land a key driver for the policy, affordability of unfunded mandates, was left unanswered. Congress deferred making a decision on how EPA should deal with the question and instead directed the National Academy of Public Administrators (AAPA) to study the problem and make recommendations to the EPA on what guidance changes they should consider that would bring relief to customer rates. EPA’s reliance on Median Household Income (MHI) to measure the affordability of standards and requirements has been demonstrated to place a substantial financial burden on households below the MHI. A previous USCM study of California communities indicates that then-current water and sewer utility rates and stormwater fees reach up to and above 18 percent of annual household income for a growing segment of the population.
EPA has communicated that they will soon be releasing their new financial capability guidance (or modified 1997 Guidance). The indication from several public sector groups is that EPA may still rely on the MHI financial capability assessment, and that would mean continued pressure to raise sewer/wastewater and stormwater rates to comply with a growing list of mandated local responsibilities.
The report attached here is intended to provide a pre-Covid-19 assessment of local government spending on water and sewer utilities in the Great Lakes states, how that compares to national levels, and to consider the broader local government finance situation in each state. Forty years or more of water and sewer regulations have achieved a vast amount of public health benefits but has also reached cost levels that are not affordable and thus EPA and the Department of Justice are quick to sue cities despite their lack of resources and the growing financial burden on low income households. This report suggests that compliance with EPA’s aggressive regulatory program in the region is indefensibly optimistic without a substantial increase in state and federal financial assistance.