The Water Affordability Crisis in the United States

Executive Summary

Water affordability has moved from the margins of utility planning to the center of regulatory, legal, and political debate. The convergence of aging infrastructure requiring $1.2+ trillion in investment over 20 years, emerging contaminant compliance costs (PFAS: $37 billion+), the expiration of the Low-Income Household Water Assistance Program (LIHWAP), and heightened environmental justice scrutiny has created an affordability challenge that no water or wastewater utility can ignore.

Between 12.1 and 19.2 million U.S. households—roughly 9% to 15% of the population—lack affordable access to water services, representing an annual affordability gap of $5.1 to $8.8 billion. This finding, published in the December 2024 Water Affordability Needs Assessment mandated by Congress, represents the first comprehensive federal assessment of water affordability in the nation's history.

The EPA's foundational 2% of Median Household Income (MHI) threshold for wastewater, established in 1997, is increasingly recognized as inadequate, obscuring severe burdens on lowest-income households. The February 2023 updated Financial Capability Assessment Guidance introduced a Lowest Quintile Poverty Indicator as a supplement, but the second Trump administration's March 2026 Federal Register notice (91 FR 14694) requesting public comment on the entire framework signals potential significant revision by May 26, 2026.

LIHWAP, which expired on March 31, 2024, served 1.4 million households with $1.1 billion in assistance before the program ended. Despite legislation (H.R.4733, the LIHWAP Establishment Act introduced July 2025) seeking permanent reauthorization and transfer to EPA administration, no federal successor program exists. This absence represents the most significant gap in the water affordability policy framework.

This research report traces the complete regulatory, legislative, judicial, and industry history of affordability policy from 1995 through March 2026, analyzes detailed state-level data from California, Illinois, Texas, Colorado, and Maryland, reviews customer assistance programs across utilities, and provides a framework for rate design professionals navigating affordability in a complex 2026 regulatory environment.

Federal Regulatory History

Origins: The 1995 Interim Economic Guidance

The EPA's 1995 "Interim Economic Guidance for Water Quality Standards: Workbook" (EPA-823-B-95-002) established the foundation for federal affordability assessment. Published with a Federal Register notice on August 2, 1995, this document introduced the concept of measuring household cost burdens as a percentage of income to determine whether compliance costs were affordable.

The 1997 CSO Financial Capability Assessment Guidance

Published February 1997 as EPA 832-B-97-004, this guidance established the affordability thresholds that have dominated water and wastewater regulation for nearly three decades. It defined three burden categories:

• Low Burden: Cost below 1% of Median Household Income
• Mid-Range Burden: Cost between 1% and 2% of MHI
• High Burden: Cost above 2% of MHI

The 2% of MHI threshold for wastewater became the de facto standard for "high burden." When combined with drinking water costs (approximately 2%), the commonly cited 4.5% of MHI combined threshold emerged, though this figure was never formally codified in a single EPA document—it evolved through practice and subsequent guidance.

1998 Small System Compliance Technology Affordability Criteria (SDWA)

Federal Register 63 FR 42032 (August 6, 1998) established affordability criteria for small water systems (serving 10,000 or fewer persons). The threshold of 2.5% of median household income was applied to determine whether compliance technologies were "affordable" for small systems, which in turn determined eligibility for variance relief under SDWA §1415(e).

The 2002–2003 EPA Affordability Review

In 2002, EPA's Science Advisory Board Environmental Economics Advisory Committee and the National Drinking Water Advisory Council (NDWAC) Affordability Work Group (September 2002–January 2003) evaluated whether existing affordability criteria remained appropriate. The Work Group provided recommendations but no fundamental changes to thresholds resulted.

2014 Financial Capability Assessment Framework Update

EPA expanded the FCA framework significantly, incorporating poverty rates, income distributions, bond ratings, debt levels, and historic rate patterns. This update acknowledged for the first time at the federal level that the 2% MHI threshold masked affordability problems for vulnerable populations.

2020 Trump Administration Proposed Update

Federal Register 85 FR 57916 (September 18, 2020). The proposed update introduced explicit consideration of lowest quintile income households, a poverty index metric, and alternatives to sole reliance on MHI. The final version was posted on EPA's website January 13, 2021, but was withdrawn on January 20, 2021, pursuant to the Biden Administration's regulatory freeze memorandum.

2022 Biden EPA Proposed Revisions

Federal Register 87 FR 10269 (February 23, 2022) proposed two alternative approaches: Modified 1997 methodology with expanded lowest quintile income and poverty indicators, or dynamic financial and rate modeling with revised scheduling benchmarks (15 years for "medium" impact; 20–25 years for "high" impact communities).

February 2023 Final Updated FCA Guidance

Federal Register 88 FR 8044 (February 3, 2023)—the most significant update since 1997. Key changes:

• Three-tier assessment: Residential Indicator (RI), Financial Capability Indicator (FCI), and Lowest Quintile Poverty Indicator (LQPI)
• Expanded FCA Matrix: Combines traditional FCA score with LQPI
• Scope: Applies to permitting, enforcement, water quality standards variances, and antidegradation reviews
• Schedule flexibility: Provides additional scheduling flexibility for high-poverty communities

An editorial correction resulted in a March 2024 revision.

December 2024 Water Affordability Needs Assessment

Mandated by the Infrastructure Investment and Jobs Act (2021), this first comprehensive national assessment found:

• 12.1–19.2 million households (9%–15%) lack affordable access to water services
• $5.1–$8.8 billion annual affordability burden
• $1.2+ trillion in infrastructure investment needs over 20 years
• Trend: Water and sewer costs more than doubled since 2000 in many service areas

January 2025 EFAB Report

EPA's Environmental Financial Advisory Board published "Advancing Water Affordability Nationwide: A Framework for Action" recommending equitable rate structures, low-income assistance programs, and strategies to reduce capital improvement costs while maintaining affordability.

March 2026 FCA Guidance Review

Federal Register 91 FR 14694–14696 (March 26, 2026, Notice 2026-05864). The second Trump administration EPA issued a Request for Comment on the existing FCA Guidance, signaling potential revision. Docket ID: EPA-HQ-OW-2026-1090. Comment deadline: May 26, 2026. The review covers applications to permit schedules, enforcement actions, water quality standards variance decisions, and antidegradation reviews. No formal proposed changes have been published as of March 29, 2026, but this represents the most significant affordability action of the second Trump administration to date.

Congressional Action

Low-Income Household Water Assistance Program (LIHWAP)

Creation:

• Consolidated Appropriations Act of 2021 (P.L. 116-260, signed December 27, 2020): $638 million
• American Rescue Plan Act (P.L. 117-2, signed March 11, 2021): additional $500 million
• Total: approximately $1.1 billion, administered by U.S. Department of Health and Human Services

Performance (June 2021–September 2023):

• 1.4 million households served
• 100,479 water/wastewater service restorations
• 753,558 disconnections prevented
• 679,030 water bills reduced

Expiration and Reauthorization: Expired March 31, 2024. S.3830 (LIHWAP Establishment Act, introduced February 28, 2024) would establish a permanent program. H.R.4733 (introduced July 23, 2025, bipartisan) would reauthorize with $500 million annual funding and transfer administration to EPA.

America's Water Infrastructure Act of 2018

P.L. 115-270 (signed October 23, 2018) extended DWSRF loan terms for disadvantaged communities and required additional subsidy to state-defined disadvantaged communities through SRF programs.

Bipartisan Infrastructure Law (Infrastructure Investment and Jobs Act)

P.L. 117-58 (H.R.3684, signed November 15, 2021) provided historic water infrastructure funding. Key affordability provisions:

• DWSRF: 12%–35% of annual funding as additional subsidy to disadvantaged communities
• BIL enhancement: 49% of BIL-funded supplemental resources must go to disadvantaged communities as grants or forgivable loans
• Total announced FY2024–FY2025: $8.9 billion through CWSRF and DWSRF

WATER Act (Multiple Sessions)

• S.611 / H.R.1417 (116th Congress)
• S.916 / H.R.1352 (117th Congress)
• S.938 / H.R.1729 (118th Congress)
• S.1730 / H.R.3376 (119th Congress)

Additional Legislation

• H.R.10150 (118th Congress) — H2O UP Act
• H.R.5661 (119th Congress) — Water Preservation and Affordability Act
• H.R.7530 (119th Congress) — Assistance for Rural Water Systems Act

Industry Standards & Research

AWWA Affordability Research

American Water Works Association publications including "Thinking Outside the Bill" (2004, 2014, 2022 editions) and "Beyond the Replacement Era: Balancing Compounding Infrastructure Needs with Household Affordability" (2023) represent the most comprehensive industry research. AWWA estimates PFAS compliance costs at $37 billion in upfront national costs, with individual utilities facing $40–$150 million remediation bills.

WEF Guidance

Water Environment Federation's "Affordability of Wastewater Service, 2nd Edition" and "Financing and Charges for Wastewater Systems" (MOP 27, 4th Edition) provide detailed methodologies for rate design and affordability assessment.

Roger Colton's PIPP Framework

Percentage of Income Payment Plan (PIPP) methodology, originally developed for energy assistance and adapted for water by Roger Colton, establishes household bills as a percentage of income. Philadelphia's Tiered Assistance Program (TAP) and other utilities have implemented this approach, saving participants millions in avoided costs.

Manuel Teodoro's Metrics Research

Teodoro's work on alternative affordability metrics (AR20—affordability ratio at 20th percentile income; HM—hours at minimum wage) published in the Journal AWWA (2018, 2020, 2024) has influenced EPA's thinking on lowest-quintile indicators.

NAPA 2017 Study

National Academy of Public Administration's "Developing a New Framework for Community Affordability of Clean Water Services" (October 2017) recommended comprehensive affordability assessment including rate design, customer assistance programs, and affordability metrics.

UNC Environmental Finance Center

National Water Affordability Dashboard and ongoing research provides publicly accessible data on utility rates and affordability across the nation.

The MHI vs. Lowest Quintile Debate

The fundamental debate in affordability policy centers on whether measures should use median household income (which excludes the poorest households' disproportionate burden) or focus on lowest-income households. Academic research by Goddard, Ray & Balazs (UC Berkeley/Othering & Belonging Institute) has documented that EPA's 4.5% MHI guideline fails to capture actual affordability for lower-income households. The 2023 FCA Guidance's LQPI represents a compromise but leaves unresolved the question of whether lowest-quintile metrics should replace or supplement MHI analysis.

Key Court Cases

Taylor v. City of Detroit

U.S. District Court for the Eastern District of Michigan, filed July 9, 2020. Detroit's water shutoff crisis—over 20,000 residential disconnections—represents the largest affordability-related litigation. Plaintiffs (ACLU of Michigan, NAACP Legal Defense Fund) allege due process violations, equal protection violations, and Fair Housing Act violations. DWSD billing errors resulted in retroactive sewage charges exceeding $115 million. The case has a pending preliminary injunction motion (filed December 2022); the city has refrained from resuming shutoffs while negotiating a revised income-based affordability plan.

Pickett v. City of Cleveland

U.S. District Court for the Northern District of Ohio (Case No. 1:19-cv-02911), filed December 2019. NAACP Legal Defense Fund brought a class action on behalf of Black residents challenging Cleveland Water's practice of converting unpaid water bills to liens on residential properties. Evidence showed 95% of water shutoffs between January 2017 and July 2018 occurred in Census tracts with majority-Black populations. The Sixth Circuit's June 2025 decision (No. 24-3395) affirming class certification is significant, allowing the disparate-impact theory claim under the Fair Housing Act to proceed, potentially establishing precedent for affordability-linked discrimination claims.

DeKalb County, Georgia Water Affordability

Superior Court of DeKalb County, Georgia. NAACP Legal Defense Fund analysis found 15% of DeKalb County residents received unaffordable water bills, projected to exceed 20% with upcoming rate increases. Since 2016, thousands of residents received unexplained bills of $500–$1,000 or more. The litigation resulted in Georgia legislature passing sweeping water affordability legislation in 2024, representing one of the first successful legislative outcomes driven by affordability litigation.

Flint Water Crisis Class Action

Settled 2023 for $626 million (majority paid by State of Michigan). While primarily a water quality case, the Flint settlement has significant affordability implications, exposing how infrastructure underinvestment in lower-income, predominantly minority communities creates compounding public health and financial burdens.

Philadelphia Water Rate Cases

Ongoing, most recent filing March 31, 2025. Community Legal Services has been active in Philadelphia rate cases, negotiating protections for low-income customers through the Tiered Assistance Program (TAP), one of the nation's most developed percentage-of-income programs for water. TAP saved participating customers an estimated $13 million between September 1, 2024, and August 31, 2025.

Baltimore Sewage Consent Decree

January 2026 deadline extension motion. Baltimore officials moved to extend the consent decree compliance deadline from 2036 to 2046, citing affordability concerns. This case illustrates the tension between environmental compliance timelines and ratepayer affordability—the core issue the FCA framework is designed to address.

State Analysis: California

Regulatory Framework

AB 685 (Human Right to Water Act, 2012) made California the first state to legislatively recognize the human right to water. Codified in Water Code Section 106.3, it declares that "every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes."

SB 1255 (Public Water Systems Rate Assistance Program, 2023–2024) creates a universal opt-out water rate affordability program for all public water systems with more than 3,300 connections, covering over 95% of Californians. Targets approximately 5 million low-income Californians with tiered bill credits: 20% credit for bills under $90/month; 35% for $90–$120/month; 50% for bills over $120/month. Implementation begins January 1, 2025, for systems with 3,300+ connections; full implementation by July 1, 2027.

SB 998 (Water Shutoff Protection Act, 2017) applies to urban and community water systems (>200 connections). Key protections: minimum 60-day nonpayment period before disconnection; mandatory payment assistance programs. Financial hardship defined as household member receiving CalWORKs, CalFresh, Medi-Cal, SSI/SSP, CA WIC, or household income below 200% of federal poverty level.

Affordability Metrics

The State Water Resources Control Board uses a primary benchmark of 1.5% of MHI. Water is considered unaffordable when costs exceed this threshold. Additional definitions:

• Disadvantaged Community (DAC): MHI at or below 80% of statewide MHI
• Severely Disadvantaged Community (SDAC): MHI at or below 60% of statewide MHI

Customer Assistance Programs

EBMUD Customer Assistance Program (operating since 1987; 10,000+ enrollments as of August 2024): 50% discount on standard bimonthly service charge; 50% discount on home water use; 35% discount on wastewater charges. Funded through non-rate revenue.

LADWP Assistance Programs: Discount rates for low-income families, seniors, disabled persons. LIHWAP (through March 2024): 8,000 customers received $11 million in credits.

California Low-Income Water Rate Assistance (LIRA): Established through AB 401, includes volumetric surcharge mechanisms and meter service charge discounts.

Affordability Data

Systems with unaffordable rates: 21% of California water systems have rates exceeding 1.5% of MHI, serving 18% of residents. 94 systems (3%) face high affordability burden; 311 systems (10%) face medium burden. Among DAC/SDAC communities, 23% of systems face medium-to-high burden vs. 9% in non-disadvantaged areas.

Average bills: Typical single-family household: $70–$120/month. State average approximately $66/month. San Francisco: up to $123/month. Small systems charge on average $32/month more than larger systems for the same volume.

Rate trends: 4.1% annual average increase over 12 years; 24.1% increase in combined water/sewer bills from 2019–2024.

Failing systems: Nearly 400 public water systems on the failing list. 56% serve disadvantaged communities; 67% serve majority communities of color.

Recent Developments

$600 million proposed plan to help low-income households absorb rising water bills through credits on electric/gas bills, EBT cards, or income tax rebates—addressing the LIHWAP sunset gap.

SAFER Program: Over $831 million in grants distributed; 251 systems returned to compliance; 900,000+ Californians gained access to safe, affordable drinking water.

Racial Equity Action Plan (2023–2025): SWRCB implementing racial equity tools across all programs.

State Analysis: Illinois

Regulatory Framework

Illinois does not have a formal, statutorily defined affordability standard. The Illinois Commerce Commission (ICC) regulates investor-owned water utilities including Illinois American Water (~383,000 customers) and Aqua Illinois (~273,000 customers). The commonly referenced industry threshold is 3–4.5% of household income.

December 2024 ICC Decision: Approved $110 million rate increase for Illinois American Water (28–30% reduction from $152 million request). Expanded income-based discount to 10–80% credit for customers earning up to 300% of federal poverty level (~$93,600/family of four), effective July 1, 2025.

Disconnection Protections (Effective January 1, 2024): Utilities cannot shut off service during National Weather Service heat advisories/warnings (90°F+). Low-income LIHEAP/PIPP applicants receive 30 days protection plus 45 additional days if approved.

Affordability Data

Chicago Water Debt Crisis: More than 220,000 delinquent accounts owing collectively over $421 million. Lowest-income households pay approximately 10% of income on water (double the EPA 4.5% threshold). Black majority census tracts pay an average of 19% of income on water bills.

Rate trends: Northeastern Illinois bills doubled 2008–2018; recent approvals continue to drive increases.

Lead service line crisis: Approximately 400,000 lead service lines in Illinois; Chicago alone has 337,000. Water bill increases driven by lead line replacement costs represent significant affordability burden.

Customer Assistance Programs

Illinois American Water Income-Based Discount (Effective July 1, 2025): 10–80% monthly bill credit based on income. Eligibility: up to 300% of federal poverty level.

Chicago Utility Billing Relief (Effective March 1, 2020): Reduced water bill rates, elimination of late payment penalties, shutoff prevention, and debt relief for qualified residents. Senior exemption: 50% reduction on total water/sewer bills.

LIHWAP (Ended March 2024): $42 million total authorization. Some counties still disbursing.

State Analysis: Texas

Regulatory Framework

Texas does not have a statewide affordability standard. The Public Utility Commission of Texas (PUCT) regulates approximately 2,000 water and wastewater systems serving about 18 million Texans. Investor-owned utilities are PUCT-regulated; municipal systems are locally regulated. Texas Water Development Board (TWDB) administers State Revolving Fund programs.

PUCT Chapter 24: Requires utilities to serve water and sewer without discrimination; medical hardship provisions; water service allowed to be shut off only for nonpayment with proper notice. No affordability standard specified beyond federal benchmarks.

SB 7 (2025): Authorizes $2.5 billion new SRF allocation for water and wastewater infrastructure, prioritizing aging systems and disadvantaged communities. Proposition 4 funding mechanism approved by voters.

Affordability Data

Average bills: TML 2025 water/wastewater survey: $96 combined monthly for 5,000 gallons (19.2% year-over-year increase from 2024–2025). Houston bills: $130–$160/month combined. SAWS (San Antonio): $96 combined.

Rate increases: Steepest in the nation. Texas utilities raising rates 15%–20% annually to fund infrastructure and PFAS compliance.

Disparities: Hill Country study by Environmental Defense Fund found Hispanic residents (46% of population) pay premium rates while comprising only 12% of agricultural operations. Colonias: an estimated 2.4 million people in Texas borderland colonias lack adequate water/wastewater infrastructure.

Winter Storm Uri Impact (2021): $130 million in water and wastewater system damage across Texas. Low-income households experienced the most severe service disruptions.

Customer Assistance Programs

SAWS (San Antonio Water System) Affordability Programs: 14 programs including Uplift Program (14% discount for eligible customers), emergency assistance, and flexible payment plans.

Houston Water Programs: 50% discount program for low-income households; emergency assistance; flexible payment arrangements.

LIHWAP (Ended June 2024): $38 million to 96,691 households. No statewide successor program.

State Analysis: Colorado

Regulatory Framework

Colorado Public Utilities Commission regulates water and wastewater utilities. No statewide affordability standard; federal EPA benchmarks apply (2.5% water, 2% wastewater of MHI). However, Colorado is uniquely forward-thinking on affordability, with dedicated PUC Utility Bill Help program and aggressive PFAS regulation.

Colorado Affordability Metrics: PUC applies EPA benchmarks with focus on lowest-quintile impact analysis. Utilities must demonstrate financial capability using traditional FCA matrix plus poverty indicators.

Affordability Data

Average bills: $87–$245/month for water depending on community (6,000 gallon service level). Combined water/sewer average: $130. Parker, CO: $157/month; Sterling Ranch: $245/month—among highest in nation.

Cost drivers: Infrastructure aging; wildfire impacts on water quality; PFAS treatment; new development costs in high-growth areas like Denver metro.

Rate trends: Approximately 4.5% annually projected through 2028.

Customer Assistance Programs

Colorado PUC Utility Bill Help: Maximum assistance: 6% of household income. Administered by Energy Outreach Colorado and Project COPE.

Aurora Water Cares: $400–$500 annual assistance for eligible low-income customers.

Denver Water/MHUW Partnership: Assistance for eligible customers through Metropolitan Housing and Urban Wastewater.

State Analysis: Maryland

Regulatory Framework

Maryland Public Service Commission regulates 22 water and water/sewage systems, but majority of Maryland's water systems are municipal and NOT PSC-regulated. Maryland currently lacks comprehensive statewide affordability standards. Baltimore City and WSSC (Water and Sewer Systems Commission serving Montgomery and Prince George's Counties) are the largest utilities.

MDE Regional Water Governance Initiative (2025): 13-member Baltimore regional work group established to develop improved governance structures among Baltimore City, Baltimore County, Howard County, Carroll County, and Harford County.

Affordability Data — Baltimore Water Crisis

This represents the most severe affordability crisis in the nation.

• Current bills: February 2025: $130.15–$142.73/month; projected July 2025: $155/month; projected July 2026: $168/month (30% cumulative increase)
• Historical: Water bills increased 500% over two decades
• Burden: More than 50% of Baltimore residents cannot afford their water bills; some billed at 10%+ of income
• Unpaid bills: $12 million in unpaid water bills in 2023–2024 alone
• Cost drivers: Chemical costs up 22%; infrastructure bids 14% above engineering estimates; Moody's downgraded sewer bonds

WSSC Rate Increases: FY 2024: 7% increase; FY 2025: 8.5% increase; FY 2026: 9.5% increase.

Water Liens and Tax Sales: More than 41,000 Baltimore homes put up for tax sale, often over debts less than $1,000. Maryland Legal Aid filed lawsuit in July 2024 challenging auction process as unconstitutional. 2025 settlement paused federal lawsuit in exchange for payment plans.

Customer Assistance Programs

Baltimore City — Water4All Program: Caps water/sewer bills at 1%, 2%, or 3% of annual household income depending on household size. Eligibility: income below 200% of federal poverty level (~$53,000/family of four). Complementary programs: PromisePay (flexible payment) and Emergency Assistance.

WSSC Water Programs (Montgomery & Prince George's Counties): CAP: up to $247/year credit; Water Fund: up to $500/year through Salvation Army; flexible payment plans through Promise partnership.

LIHWAP (Ended March 31, 2024): Maximum assistance: $2,000 per household. No successor program established.

Recent Developments

Lead Service Line Replacement: $40 million state investment announced March 2026. Approximately 14,000 lines in Prince George's and Montgomery counties expected to require replacement, with work beginning 2026.

Baltimore Consent Decree: Original 2002 consent decree extended from 2030–2035 to 2046, citing affordability. Between 2023–2025, combined outfalls released over 78 million gallons of untreated sewage.

Shutoff Protections: Maryland has NO winter moratorium for water shutoffs (unlike electric/gas). SB 710 (Water Utilities Shutoff Protections) was sponsored with hearing February 2024; status pending.

Customer Assistance Programs Comparison

Customer assistance programs have become essential to water affordability policy, compensating for inadequate metrics and regulatory gaps. The following table summarizes major CAP structures across states and utilities:

Affordability Metrics & Rate Design

The MHI Debate in Detail

The fundamental debate that will drive affordability policy through 2026 and beyond centers on whether affordability measures should use median household income or focus on lowest-income households.

MHI approach: Easier to apply uniformly; provides community-level snapshot; masks variation within communities. In a community with $50,000 MHI, the 2% MHI threshold translates to $1,000/year ($83/month). But a household at 20th percentile income ($15,000) spending $1,000/year on water is spending 6.7%—a severe burden masked by the MHI average.

Lowest-quintile approach: More precise; captures actual burden on poorest households; requires household-level data. Goddard, Ray & Balazs research demonstrates that households in the lowest income quintile face water affordability burdens 3–5 times higher than MHI-based analysis suggests.

The 2023 EPA Guidance compromise: Maintains MHI-based RI and FCI but adds LQPI as a supplement. The Expanded FCA Matrix allows communities with high poverty concentrations to receive schedule flexibility even if MHI-based analysis appears moderate. However, this compromise leaves unresolved the question of whether lowest-quintile metrics should replace or supplement MHI analysis—a question the March 2026 FCA review will likely address.

Alternative Metrics

AR20 (Affordability Ratio at 20th Percentile): Household water cost divided by 20th percentile disposable income. Provides clear picture of burden on lowest-income households. Teodoro (2018, 2020) research recommends using AR20 alongside traditional MHI metrics.

Hours at Minimum Wage (HM): Water bill expressed as hours of federal minimum wage labor. Teodoro and Colton frameworks convert bills into labor hours needed to pay (e.g., $100/month water bill at $7.25/hour = 13.8 hours minimum wage labor). Intuitive and understandable but less precise for regional variation.

Percentage of Income Payment Plans (PIPP): Roger Colton's framework caps household bills as percentage of total income. Philadelphia TAP, Baltimore Water4All, and other utilities implement PIPP with tiers: 1% for lowest-income households; 2–3% for moderate-income; standard rates for higher-income. Protects against unaffordable bill increases automatically.

Rate Design Implications

Understanding affordability metrics is essential for rate design, because metric choice determines regulatory flexibility and utility revenue requirements.

• Fixed charges: Disproportionately impact low-income households. A $50/month fixed charge consumed 5% of income for a $12,000/year household; 1% for a $50,000/year household. Affordability-conscious utilities are implementing income-graduated fixed charges (AB 205 in California).
• Tiered/seasonal rates: Can improve affordability if lower tiers are generously sized (e.g., Philadelphia: 10,000 gallons/month baseline at lowest rate). If tiers are narrow, low-income households quickly exceed baseline and pay premium rates.
• Surcharges: Environmental compliance surcharges, infrastructure surcharges, PFAS treatment surcharges disproportionately impact all households but are particularly severe for low-income. Affordability-conscious utilities phase in surcharges or fund them through CAPs.
• Assistance mechanisms: CAPs funded through rate surcharges (adding cost to non-participating customers) vs. general fund or grant revenue create political tension. Percentage-of-income CAPs encourage participation and reduce cross-subsidization arguments.

The Revenue Feedback Cycle

A critical dynamic in water affordability: As bills increase, some customers stop paying, creating bad debt. Utilities recover bad debt costs through rate increases on paying customers, which drives further bill increases and more non-payment. This cycle is particularly severe in low-income communities.

Detroit experienced this acutely: As bills increased 15%+ annually (driven by infrastructure and pension cost recovery), disconnections climbed to 20,000+ annually, creating $1.5+ billion in accumulated bad debt. The utility was forced to pursue aggressive collection including property liens and shutoffs—ultimately triggering litigation (Taylor v. Detroit) and public pressure to implement income-based CAPs.

The policy implication: Utilities cannot simply raise rates indefinitely to fund infrastructure without affordability mechanisms. The revenue feedback cycle ensures that at some point, cost recovery attempts fail because households disconnect, move, or litigate. Strategic utilities implement CAPs and affordability metrics proactively to avoid this cycle.

Appendix A: Affordability Metrics Reference

Appendix B: State Comparison Tables

Affordability Standards Comparison

Average Monthly Bills and Rate Trends

Appendix C: Legislative Tracker

Federal Legislation

• LIHWAP (Low-Income Household Water Assistance Program): P.L. 116-260 (2020); P.L. 117-2 (2021); expired March 31, 2024. Reauthorization: S.3830 (118th Cong.); H.R.4733 (119th Cong., introduced July 2025, bipartisan, no floor vote as of March 2026).
• America's Water Infrastructure Act of 2018: P.L. 115-270 (October 23, 2018). Expanded DWSRF loan terms for disadvantaged communities.
• Bipartisan Infrastructure Law (Infrastructure Investment and Jobs Act): P.L. 117-58 (H.R.3684, November 15, 2021). Total announced FY2024–FY2025: $8.9 billion (CWSRF + DWSRF).
• WATER Act (Multiple Sessions): S.611 / H.R.1417 (116th); S.916 / H.R.1352 (117th); S.938 / H.R.1729 (118th); S.1730 / H.R.3376 (119th). No passage as of March 2026.
• H2O UP Act: H.R.10150 (118th Cong.). No passage.
• Water Preservation and Affordability Act: H.R.5661 (119th Cong.). Introduced but no floor vote.
• Assistance for Rural Water Systems Act: H.R.7530 (119th Cong.). Rural water assistance focus.

State Legislation (5-State Focus)

• California: AB 685 (Human Right to Water, 2012); AB 401 (LIRA, 2015); SB 998 (Shutoff Protection, 2017); AB 205 (Income-Graduated Fixed Charges, 2022); SB 1255 (Public Water Systems Rate Assistance, 2023–2024, implementation 2025–2027).
• Illinois: No formal affordability statute. ICC decisions drive policy (December 2024: approved Illinois American Water $110M increase with expanded income-based discount effective July 2025). SB 710 (Water Utilities Shutoff Protections) pending.
• Texas: No formal affordability statute. SB 7 (2025): $2.5 billion new SRF allocation.
• Colorado: SB 23-238 (Small Communities Water and Wastewater Grant Program, April 2023). No formal affordability statute.
• Maryland: No formal statewide affordability statute. Local ordinances govern (Baltimore Water4All ordinance; WSSC CAP authority). SB 710 (Water Utilities Shutoff Protections, pending).

References

EPA Federal Register Notices and Guidance

• EPA, "Interim Economic Guidance for Water Quality Standards: Workbook" (EPA-823-B-95-002, 1995)
• EPA, "Combined Sewer Overflows—Guidance for Financial Capability Assessment and Schedule Development" (EPA 832-B-97-004, February 1997)
• 63 FR 42032 (August 6, 1998) — Small System Compliance Technology Affordability Criteria
• 71 FR 10671 (March 2, 2006) — Small Drinking Water System Variances Affordability Methodology Revision
• EPA, "Financial Capability Assessment Framework for Municipal Clean Water Act Requirements" (2014)
• 85 FR 57916 (September 18, 2020) — Proposed 2020 FCA Update
• 87 FR 10269 (February 23, 2022) — Proposed 2022 FCA Revisions
• 88 FR 8044 (February 3, 2023) — Final Updated CWA FCA Guidance
• EPA, "Clean Water Act Financial Capability Assessment Guidance — March 2024 Revision"
• EPA, "Water Affordability Needs Assessment: Report to Congress" (December 19, 2024)
• EPA EFAB, "Advancing Water Affordability Nationwide: A Framework for Action" (January 2025)
• 91 FR 14694 (March 26, 2026) — FCA Guidance Request for Comment (Docket EPA-HQ-OW-2026-1090)

Federal Legislation

• Safe Drinking Water Act, §1415(e), §1416 (42 U.S.C. §300g-4, §300g-5)
• P.L. 104-182 (1996 SDWA Amendments)
• P.L. 115-270 (America's Water Infrastructure Act of 2018, October 23, 2018)
• P.L. 116-260 (Consolidated Appropriations Act of 2021, December 27, 2020) — LIHWAP creation
• P.L. 117-2 (American Rescue Plan Act of 2021, March 11, 2021) — LIHWAP additional funding
• P.L. 117-58 (Infrastructure Investment and Jobs Act, November 15, 2021)
• S.3830 / H.R.4733 (LIHWAP Establishment Act, multiple sessions)
• S.611 / S.916 / S.938 / S.1730 (WATER Act, multiple sessions)
• H.R.10150 (H2O UP Act); H.R.5661 (Water Preservation and Affordability Act); H.R.7530 (Assistance for Rural Water Systems Act)

Court Cases

• Taylor v. City of Detroit (E.D. Mich., filed July 9, 2020, pending)
• Pickett v. City of Cleveland, No. 1:19-cv-02911 (N.D. Ohio); affirmed 6th Cir. No. 24-3395 (June 2025)
• William Henderson et al. v. Vasu Abhiraman et al. (Superior Court, DeKalb County, GA, 2024)
• Flint Water Crisis Class Action (settled 2023, $626 million)
• Philadelphia Water Rate Cases (ongoing, most recent March 31, 2025)
• Baltimore City Sewage Consent Decree (2002, extension motion January 2026)

Industry and Academic Publications

• AWWA, "Beyond the Replacement Era: Balancing Compounding Infrastructure Needs with Household Affordability" (2023)
• AWWA, "Thinking Outside the Bill" (2004, 2014, 2022 editions)
• WEF, "Affordability of Wastewater Service, 2nd Edition"
• WEF, "Financing and Charges for Wastewater Systems" (MOP 27, 4th Edition)
• NAPA, "Developing a New Framework for Community Affordability of Clean Water Services" (October 2017)
• Teodoro, M.P., "Measuring Household Affordability for Water and Sewer Utilities," Journal AWWA (2018)
• Teodoro, M.P., "Water and Sewer Affordability in the United States: A 2019 Update," AWWA Water Science (2020)
• Teodoro, M.P., "Water and Sewer Price and Affordability Trends in the United States, 2017–2023," Journal AWWA (2024)
• Goddard, J.J., Ray, I., and Balazs, C., "Water Affordability and Human Right to Water Implications in California," PLOS ONE (2021)
• Goddard, J.J., Ray, I., and Balazs, C., "How Should Water Affordability Be Measured in the United States? A Critical Review," WIREs Water (2022)
• Brookings Institution, "Millions of Americans Lack Affordable Water Access" (2025)
• Pacific Institute, "The Role of Metrics in Water and Wastewater Affordability Programs in the United States"

State Sources (By State)

• California: SWRCB Human Right to Water; 2024 SAFER Needs Assessment; CPUC Affordability Criteria; PPIC Water Affordability; EBMUD, LADWP, Cal Water CAP programs; California Water Code §106.3, AB 401, SB 998, SB 1255, AB 205
• Illinois: ICC Decisions (December 2024); American Water Newsroom filings; CUB/AARP statements; Illinois Commerce Commission Consumer Information; Illinois Legal Aid Online LIHWAP; IL DCEO LIHWAP
• Texas: PUCT Chapter 24 Rules; PUCT FaucetFacts; TDHCA LIHWAP Guidance; SAWS Affordability Programs; Texas Water Development Board; TML Water/Wastewater Survey; TWDB Proposition 4 FAQ
• Colorado: Colorado PUC Affordability; PUC Utility Bill Help; Aurora Water Cares; Energy Outreach Colorado; CDPHE SRF; SB 23-238 Small Communities Grants; CWCB Wildfire Ready Watersheds
• Maryland: MDE Regional Governance Initiative (2025); Maryland PSC Water Regulation; USCCR Maryland Water Affordability Report (2022); Baltimore DPW Affordability Programs (Water4All); WSSC CAP and Water Fund; Maryland DHS LIHWAP; Maryland American Water programs

Data Sources and Reports

• EPA, "Water Affordability Needs Assessment: Report to Congress" (December 2024) — primary source for 12.1–19.2M household finding and $5.1–$8.8B gap
• UNC Environmental Finance Center, National Water Affordability Dashboard
• Bluefield Research, "U.S. Water and Sewer Bill Increased 24% in Five Years" (rate trend data)
• NACWA, "Cost Analysis of PFAS on Biosolids" (2020, Rev. 1)
• American Water Newsroom, Illinois American Water Rate Filings (January 2026); Maryland American Water Rate Case (March 2026)
• Baltimore Brew, "Baltimore's Water and Sewer Rates" (December 2024, February 2025, January 2026)
• Maryland Legal Aid, "Lawsuit on Baltimore Tax Sale Auctions" (July 2024)
• Greenberg Traurig, "Water Legislation from the 89th Texas Legislature" (water affordability analysis)
• Environmental Defense Fund, "Hill Country Water Disparities Study" (Texas affordability and environmental justice)

This report is for informational and planning purposes only. It does not constitute legal or financial advice. Regulatory developments are ongoing; verify current status with primary sources before relying on this information for compliance or rate-setting decisions. Last updated April 2, 2026.

At NewGen Strategies & Solutions, helping utilities navigate complex affordability challenges and rate design is our mission. If you're facing affordability pressures and need a defensible strategy, we'd love to hear from you.