Jeff Hughes is the Director of the School of Government’s Environmental Finance Center and a School of Government Faculty Member
Many essential community and environmental services rely on an enterprise service model in which user fees cover the full cost of service provision. Services such as solid waste collection, water, wastewater, and electricity provide direct benefits to those that use them and in most cases the public is able (if not always happily) to pay a fee to cover those services. These services are run as businesses and as with any business operation, the successful delivery of services requires that the business be run in a financially sustainable manner.
Take the example of a water utility enterprise. A utility that keeps user fees artificially low and ends up not collecting enough revenue to maintain essential water infrastructure, may be popular in the short term with some customers, but in the end may be putting their community’s health at risk and passing on the cost of infrastructure to future customers. The utilities that have recognized this and begun charging the full cost of their services have put their enterprises in better financial order, but in some cases have run into another problem. What happens when financially disadvantaged customers are unable to pay their solid waste, water or electric bill? With state unemployment hovering at 10% and a poverty rate of 17.5%, paying a $75 to $100 water and wastewater bill has become a financial challenge and many utilities have high disconnection rates.
Some utilities have knowingly avoided needed rate increases in order to keep rates low for all customers as a strategy for assuring the most disadvantaged customers can pay. Another more efficient option is to develop a program that targets only the families with an inability to pay.
Electric companies and fuel oil companies do not run their businesses at a loss to keep everyone’s rates low, and it doesn’t make financial sense for other service providers to do the same. The difference is that there is a long history of social programs that help low income families pay heating bills that does not exist in the water sector.
The Low Income Heating and Energy Assistance Program (LIHEAP) directly helps at risk families. Water bill assistance programs where they exist have been created and funded at the local level. Water utilities are reluctant to play the role of social service provider even though at the same time they are increasingly having a business incentive to do something to assist their at risk customers given the high costs of addressing non-payment (disconnections, staff time, charge-offs).
Under NC law, utilities are limited in what they can do, for example they are not allowed to charge lower rates based on customer income. The Taste of Hope program supported by OWASA, administered by a third party charitable organization and voluntarily funded by OWASA customers is a model that works in some areas. Other areas, particularly utilities with a customer base that is very impoverished may have difficulty supporting a program strictly with voluntary donations.
In future blog postings, we’ll look at some other options local governments and communities to help address the essential enterprise service conundrum.