The missing component in water service regionalization debates: equity

December 6, 2021 / Blogs

Regionalization is a common recommendation for water systems seeking to improve economic and operational efficiency in delivering an essential resource: water. While a robust debate continues over its merits and weaknesses, there has been little attention paid to the potentially racially disparate impacts of water service regionalization.

In this blog post, we offer preliminary thoughts on the equity implications of water service regionalization. After providing an overview of regionalization and the apparent omission of racial equity from that conversation, we outline four specific equity considerations that should be addressed in future regionalization work – Affordability, Community Representation, Operational Outcomes, and Exposure to Risk.

Simply put, we cannot assume that regionalization benefits communities with high percentages of low-income residents and people of color in the same way that it benefits more affluent white communities.

We want to stress that we see these four issues as conversation-starters: we do not believe we’ve stumbled on the final word in racial equity in regionalization. Instead, we hope to call attention to a gap in this literature and push this dialogue forward.

What is water service regionalization?

Water service regionalization is the process by which multiple individual water systems consolidate operations, maintenance, and/or financial management. These range in complexity and scope, but even small-scale regionalization – such as service sharing and joint procurement – can be an effective means for municipalities to improve operational efficiency. On the other end of the spectrum, full-scale consolidation requires complex coordination between municipalities, structural change in terms of how the water system is managed, and, often, the construction of new infrastructure.

image by MPC and Daylight adapted from Shared Services in Public Health Toolkit (Mary Hilliker, et al. 2014)

Organizations like the American Water Works Association, Environmental Policy Innovation Center, U.S. Water Alliance, and the University of North Carolina at Chapel Hill have all endorsed regionalization efforts as a means of assisting struggling municipal systems – improving operational efficiency, achieving economies of scale, and giving greater financial stability and access to capital. The Metropolitan Planning Council, too, has had similar praise for service sharing in the context of maintaining green stormwater infrastructure.

Regionalization has also been scrutinized by utility experts, citing that significant costs to create or join a regionalized utility aren’t worth the potential benefits. And qualitative evidence has shown that, while government consolidation may work to foster or mend relationships, municipalities are often forced to make compromises that limit potential benefits, and legislative roadblocks, intergovernmental negotiations, and municipal disputes can all impact the success of efforts to regionalize.

Despite these robust conversations and debates, a racial equity lens is noticeably lacking from related research.

Does water utility regionalization result in more or less equitable outcomes? Unfortunately, the research on this topic can’t tell us much.

The absence of an explicit racial equity framework from this conversation is a bit surprising – regionalization has potentially transformative implications for municipal governance, water supply operations, and service provision. That is, after all, the point of advocating for regionalization: it is a strategy that can transform the very structure of water service provision. Any policy strategy with such wide-ranging effects surely deserves a systematic examination of racial equity:

What are the impacts of regionalization on water bills?
Do residents’ local priorities meaningfully impact regional conversations?
How do financial obligations to the regional utility impact local asset management?
What are the risks of regionalization for municipalities? Who can bear them?

One may argue that these equity questions are implied in current literature…we think racial equity deserves more deliberate, explicit attention.

One may argue that these equity questions are implied in current literature surrounding the economic advantages of regionalization or consolidation. The argument goes like this: if utilities serving high percentages of people of color can achieve operational or financial improvements through regionalization, then racial equity will have been advanced. Fair enough, there may be some implicit guidance to draw from the literature, and one recent study begins to point in this direction.

However, we think racial equity deserves more deliberate, explicit attention. Simply put, we cannot assume that regionalization benefits communities with high percentages of low-income residents and people of color in the same way that it benefits more affluent white communities. We need to thoroughly and explicitly understand how regionalization interacts with racial equity so that racial equity can be advanced rather than diminished while improving utility systems.

Four considerations for racial equity and water service regionalization

So how can we think about regionalization and racial equity? Although answering that question will be a years-long process, we want to offer one modest starting point in this blog post.

For our purposes here, we are answering a basic question about racial equity: how might regionalization unintentionally create or reinforce racial disparities in water utility outcomes? In posing this question, we want to acknowledge that we only scratch the surface of the many nuanced conversations about racial equity. There is clearly much more that needs to be said on this topic.

This analysis focuses on the concept of regionalization and is not a critique of any particular utility or region. Additionally, this assessment focuses on the more complex types of regionalization, up to and including consolidation of physical assets. There is more rigorous work to be done to understand the racial equity implications of service sharing and joint procurement.

With those caveats in place, let’s dive in.

Affordability: In cases where water systems are physically combined, the result in the short-term is less affordable water, not increased affordability. New treatment facilities, transmission mains, and other infrastructure often need to be built when systems consolidate their physical operations. The buy-in cost for the utility can be passed on to ratepayers in the form of a surcharge on bills. While this impact is not unique to low-income communities of color, it may disproportionately impact those already struggling to afford their water bill.

Photo courtesy Anne McCormack

As our research has shown, the cost of water is rising faster than other household expenses. And it’s regressive: as a percent of household income, water bills are highest for the lowest income earners. While cost savings may eventually materialize from water service regionalization, this can take years before the investment is paid off.

We acknowledge that there are cases where a system’s water is unsafe, and changes need to be made to protect public safety. In this context, the cheapest alternative may be to physically consolidate operations with neighbors. For any alternative, though, there are ways that water systems can address affordability while also assuming new costs. (As part of a broader affordability strategy, for instance, utilities can elect to waive the surcharge for households meeting specific income requirements.) In a sense, that’s the point here: we need to center equity in all conversations regarding how to address water infrastructure needs. Otherwise, we may be authorizing heavy burdens for low-income residents.

Community Representation: Given the history of systemic racism in the United States – manifesting as disinvestment and under-development in Black and Brown communities – it matters who is at the table for decision-making and their position in terms of voting power. An individual water system must carefully balance local infrastructure needs with the ability to pay. Water infrastructure must be maintained, and much of it needs to be replaced. But raising rates too high can burden existing customers and dissuade new development.

Municipalities can engage community members to arrive at a rate that supports an agreed-upon level of service, but this is harder for the governing body which oversees a regional utility. All systems must set rates to pay for the cost of operating the infrastructure (and purchase water, if applicable). In a regionalized system, these costs are apportioned among members, and municipalities must set rates accordingly or simply divert a larger portion of existing rates to the regional body. Depending on the governance structure, a community can be outvoted with no recourse but to pay, which might mean deferred maintenance of local infrastructure and more costly emergency repairs down the road.

Operational Outcomes: In most cases, joining a regionalized utility is equivalent to changing water sources. Little changes in terms of local infrastructure. Perhaps treatment facilities are no longer needed or pipes constructed to receive water from a new source. But joining a regional utility does not generally result in new local infrastructure – the reservoirs, pumps, pipes, meters, and other stuff required to deliver water from the source to tap. We have not seen any examples where local infrastructure becomes jointly owned by all of a regional utility’s members. This means, if an individual water system had old, leaky infrastructure before, joining a regional utility will not change this.

Any cost-savings related to economies of scale and operational efficiency can take years to realize, as previously mentioned. During this time, asset management needs may be delayed while the financial obligations of regionalization are met. Given that infrastructure condition is often worse in Black and Brown communities, race is a strong nationwide indicator of water quality violations, and lead service lines are more prevalent in Illinois’ communities of color, it is all but certain that Black and Brown communities will suffer more from deferred investments in local water infrastructure.

Exposure to Risk: Given all of this, communities of color have more to lose from water service regionalization. If a community enters into exploratory conversations and elects not to proceed, the cost of initial investments (e.g., analysis, preliminary design) will not be recouped and represent a lost opportunity to invest in other infrastructure priorities. If regionalization succeeds, ratepayers may bear an unsustainable burden and the municipality itself may be forced to make tradeoffs in terms of where customer rates get invested.

If indeed there are benefits to water service regionalization, without directly addressing the equity implications these exposures to risk may cause the low-income community of color to refrain from exploring the option or not even being invited to the table.

Closing Thoughts

So where does this leave us? We know this blog post just begins to address the questions it raises about racial equity. We have intended to highlight important things to consider and what can go wrong when they’re not. Past research and policy debates into the merits and weaknesses of water service regionalization, in our view, have lacked these vital components and must be expanded to consider the impacts to historically marginalized communities.

This is intended as a conversation starter. What racial equity considerations need to be centered in this conversation? Have you run across research that accounts for racial equity implications in regionalization?

We are deeply grateful to the following for their support of MPC’s robust water agenda: the Charles Stewart Mott Foundation, Crown Family Philanthropies, the Gaylord and Dorothy Donnelley Foundation, Grand Victoria Foundation, the Joyce Foundation, McDougal Family Foundation, and the Prince Charitable Trusts.

This blog’s co-author, Sarah J. Howe, is a Master of Urban Planning & Policy candidate at the University of Illinois at Chicago with an environmental planning concentration. She is interested in climate change preparedness and mitigation, rural development, community health, and all things water.