Water Infrastructure: Information on Selected Midsize and Large Cities with Declining Populations
Published: 2016-09-15T00:00:00

Fast Facts:
EPA estimates water and sewer utilities will need to spend $655 billion over the next 20 years to maintain, upgrade, or replace water infrastructure. Many midsize and large cities that lost a large percentage of their population are struggling to replace their pipes and treatment plants. Without improvements, these cities may be at serious risk of more frequent accidental sewage discharges and lead contamination among other things. Concerned that utility rates are increasingly unaffordable for low-income customers, some utilities are reducing water treatment capacity or decommissioning lines in vacant areas to fit current demands.

Highlights:
section_title: Why GAO Did This Study
paragraphs: Many midsize and large cities throughout the United States, including the Midwest and Northeast, have lost a substantial percentage of their population. These cities face the challenge of a corresponding decline in utility revenues from a loss of ratepayers, which makes it difficult to address their water infrastructure needs. Overall, water and wastewater utilities across the United States face substantial costs to maintain, upgrade, or replace aging and deteriorating infrastructure—approximately $655 billion for water and wastewater utilities over the next 20 years according to EPA's most recent estimates.
GAO was asked to review the water and wastewater infrastructure needs in midsize and large cities with declining populations. This report examines (1) the economic characteristics of such cities and their water and wastewater infrastructure needs; (2) strategies that selected cities and utilities have used to address their infrastructure needs and the affordability of their water and wastewater rates; and (3) what existing federal programs and policies, if any, could assist such cities in addressing their needs. GAO analyzed decennial census and American Community Survey data, relevant studies, and utility financial statements for 10 cities with the largest population declines from 1980 through 2010 and 14 water and wastewater utilities in those cities. GAO also reviewed laws, regulations, policies, and guidance for six federal programs; analyzed program and city and utility funding data; and interviewed agency and city officials and representatives from 12 of the 14 utilities.
section_title: What GAO Found
paragraphs: Midsize cities (with populations from 50,000 to 99,999) and large cities (with populations of 100,000 and greater) that have experienced a population decline are generally more economically distressed than growing cities. Specifically, GAO's review of American Community Survey data for 674 midsize and large cities showed that the 99 cities with declining population had higher poverty and unemployment rates and lower median income than cities with growing populations. Little research has been done about these cities' overall water and wastewater infrastructure needs, but the needs of the 10 midsize and large cities that GAO reviewed generally reflected the needs of cities nationally, as identified in needs assessments conducted by the Environmental Protection Agency (EPA). Water and wastewater utility representatives whom GAO interviewed described major infrastructure needs, including pipeline repair and replacement and wastewater improvements to control combined sewer overflows (i.e., wastewater discharges to streams and other water bodies during storms).
Utilities for the 10 cities GAO reviewed used the strategy of raising rates to increase revenues to address water and wastewater infrastructure needs and used other strategies to address concerns about rate affordability for low-income customers. Most of the 14 utilities GAO reviewed raised rates annually to cover declines in revenues related, in part, to decreasing water use from declining populations, or to pay for rising operating and capital expenses. To help address rate affordability concerns, all of the utilities reviewed had developed customer assistance programs, a strategy to make rates more affordable, for example, by developing a payment plan agreeable to the customer and the utility. In addition, most utilities were using or had plans to use one or more cost-control strategies to address needs, such as rightsizing system infrastructure to fit current demands (i.e., reducing treatment capacity or decommissioning water or sewer lines in vacant areas). For example, as part of rightsizing, representatives GAO interviewed for 5 wastewater utilities said that they planned or were considering using vacant areas for green infrastructure (vegetated areas that enhance on-site infiltration) to help control stormwater that can lead to sewer overflows.
As of June 2016, six federal programs and one policy could assist midsize and large cities with declining populations in addressing their water and wastewater infrastructure needs. Cities with declining populations may receive funding from the six programs, managed by EPA, the Economic Development Administration, the Department of Housing and Urban Development (HUD), and the Federal Emergency Management Agency, for such projects. For example, states can use a portion of EPA's Clean Water and Drinking Water State Revolving Funds to provide additional subsidies in the form of principal forgiveness or negative interest loans to cities that meet state affordability criteria, such as median household income. The Birmingham Water Works Board, one of the 14 utilities GAO reviewed, received $11.6 million from the Drinking Water State Revolving Fund in fiscal years 2010 through 2015, including $1.7 million with principal forgiveness to pay for green projects, such as water efficiency projects.
GAO provided a draft of this report to EPA, the Economic Development Administration, and HUD for comment. The agencies provided technical comments that were incorporated, as appropriate.

section_title: Letter
paragraphs: The discovery of lead in the drinking water in Flint, Michigan, in 2015  highlighted the risks that some cities confront in maintaining drinking  water and wastewater infrastructure in the face of declining populations  and deteriorating economic conditions. Indeed, Flint—once a large city  with a peak population of more than 196,000 in 1960 that has declined to  a midsize city with an estimated population of about 98,000 by 2015—is  not unique in the challenges it faces. Many midsize and large cities  throughout the United States, including the Midwest and Northeast, such  as Detroit, Michigan, and Utica, New York, have lost a substantial  percentage of their populations and corresponding revenues from utility  rates. Researchers use “legacy cities” to refer to older industrial cities that  have steadily lost population and jobs since the 1950s or 1960s. On the  whole, researchers note that these cities have increased rates of poverty,  among other effects, and show signs of economic distress. These  researchers also note that a key challenge of population decline is a  decrease in a city’s revenues, while the costs of city services rise.
Water and wastewater (i.e., sewer) utility operations, maintenance, and  replacement costs are usually paid for with revenues raised from rates  charged to customers for drinking water and wastewater services  provided by publicly or privately owned utilities. Water and wastewater  utilities serving cities with declining populations have the challenge of  managing their systems with decreasing numbers of ratepayers, which  causes decreased utility revenues and therefore increases costs to  remaining ratepayers to maintain existing infrastructure designed to  support larger populations. While drinking water and wastewater rates in  the United States have typically been low, they have been increasing in  recent years. According to an American Water Works Association survey,  typical water and wastewater bills for residential customers have  increased due to rate increases from 2008 through 2014 by 41 and 37  percent, respectively. In addition, according to a 2015 study, prices for  water and sewer maintenance continued to rise at a much higher rate  than the overall rate of inflation, in contrast to price trends for other  utilities, including electricity, natural gas, and telecommunications, that  are tracking at or below the rate of inflation. As rates increase to pay for  replacing or rebuilding existing infrastructure, they may become  unaffordable—that is, high enough that some customers may be unable  to pay their water and wastewater bills without financial hardship.
Overall, water and wastewater utilities across the United States are faced  with substantial costs to maintain, upgrade, or replace aging and  deteriorating infrastructure—approximately $655 billion for water and  wastewater utilities over the next 20 years according to the Environmental  Protection Agency’s (EPA) most recent estimates. Across the country,  there are about 52,000 drinking water systems and 16,000 wastewater  treatment plants managed by water and wastewater utilities. Utilities  typically sell municipal bonds to pay for water and wastewater  infrastructure and repay the bonds with a portion of the funds raised by  rates charged to customers. Federal assistance is also available for the  construction and maintenance of water and wastewater infrastructure.
EPA provides grants through two programs—the Drinking Water State  Revolving Fund (SRF) program and the Clean Water SRF program—to  states to capitalize state-level SRF programs. In fiscal year 2015,  Congress appropriated approximately $907 million for the Drinking Water  SRF and $1.4 billion for the Clean Water SRF.
Given the revenue problems facing cities with declining populations and  concerns about affordable utility rates, you asked us to review the  drinking water and wastewater infrastructure needs of midsize and large  cities with declining populations. This reports examines (1) what is  known about the economic characteristics of midsize and large cities with  declining populations and their drinking water and wastewater  infrastructure needs; (2) strategies that selected midsize and large cities  with declining populations and their associated utilities used to address  their infrastructure needs and the affordability of their water and  wastewater rates; and (3) what existing federal programs and policies, if  any, could assist midsize and large cities with declining populations, and  their associated utilities, in addressing their water infrastructure needs.
To examine what is known about the economic characteristics of midsize  and large cities with declining populations and their drinking water and  wastewater infrastructure needs, we reviewed relevant studies and  interviewed experts in water and wastewater utility management, finance,  engineering, and urban planning about infrastructure needs and  population decline. We identified studies and experts through a literature  review and referrals from EPA officials, representatives of water and  wastewater industry associations, and other academic and nonprofit  experts. We defined midsize cities (population 50,000 to 99,999) and  large cities (population 100,000 or greater) using the thresholds defined  by the U.S. Census Bureau and the National League of Cities. We  identified cities with population loss using decennial census data from  1980 through 2010, which we found to be the most extended period for  consistent decennial census data. We then analyzed the Census  Bureau’s American Community Survey 5-year estimates for 2010 through  2014 to identify any economic and demographic trends for midsize and  large cities with any decline in population. Based on our review of  documentation for decennial census data and American Community  Survey data, and statistical analyses of American Community Survey  data, we found both sets of data reliable for the purpose of examining the  economic characteristics of midsize and large cities with declining  populations. To analyze information on water and wastewater needs  nationally, we obtained EPA’s survey data on water and wastewater  infrastructure needs and attempted to match these water utility data with  cities identified in the decennial census data. We reviewed documentation  and interviewed EPA officials knowledgeable about the data and  determined that the data were sufficiently reliable for our purposes of  summarizing national needs. We determined that we could not estimate  the needs of utilities in cities with declining populations overall because,  among other reasons, although EPA surveys a generalizable sample of  utilities for drinking water to estimate national needs, the sample is not  designed to make nationwide estimates of the needs of utilities in cities  with declining populations. We also had difficulties matching EPA data for  utilities with their corresponding cities because utility and city boundaries  do not always correspond. We obtained and summarized EPA’s  national needs data for utilities and compared them to information on  needs we collected for a nonprobability sample of 10 cities.
We used a nonprobability sample of 10 cities to obtain information on the  water and wastewater needs of cities with declining populations and to  examine what strategies the cities, and the utilities associated with them,  used to address their infrastructure needs and the affordability of their  rates. We selected the 10 cities that experienced the greatest percentage  of population loss from 1980 through 2010, using decennial census  data, without repeating cities in any state to allow for geographic  distribution. We also selected for size, choosing 5 midsize and 5 large  cities. The 5 midsize cities we selected were Charleston, West Virginia;  Gary, Indiana; Niagara Falls, New York; Macon, Georgia; and  Youngstown, Ohio. The 5 large cities we selected were Birmingham,  Alabama; Detroit, Michigan; New Orleans, Louisiana; Pittsburgh,  Pennsylvania; and St. Louis, Missouri. Because this was a nonprobability  sample, the findings related to the 10 cities cannot be generalized to all  cities with declining populations. However, the sample highlights the  issues faced by a geographically diverse range of cities and  corresponding utilities that have experienced the greatest population  losses in recent decades. Because cities may be served by multiple  utilities, our sample included the14 utilities from the 10 selected cities, 6  that were responsible for both water and wastewater infrastructure, 4 that  were responsible solely for drinking water infrastructure, and 4 others that  were responsible solely for wastewater infrastructure. We interviewed  city officials for the 10 cities in our sample and representatives willing to  speak with us from 12 of the 14 utilities, which included utilities that  provide drinking water and wastewater services to 9 cities. In the  interviews, we asked about infrastructure needs, infrastructure and  financial condition, funding and management strategies, and challenges  in managing water and wastewater infrastructure. We collected  documentation from the representatives we interviewed from 12 of the 14  utilities. We also reviewed publicly available documents for all 14 utilities,  including the 2 utilities whose representatives did not agree to meet with  us. We reviewed audited financial statements for all 14 utilities for fiscal  years 2012 through 2014, the most recent years available; reviewed  reports from agencies that rate utility and other bonds; and calculated  selected financial indicators, including the debt coverage ratio that reflects  a utility’s ability to repay its long-term debt. We conducted site visits to 6  of the 10 selected cities, based on the geographic distribution and size of  the cities. For the remaining cities, we conducted interviews by  telephone.
To examine what federal programs and policies could be used by midsize  and large cities with declining populations, and their associated utilities, to  help address their water infrastructure needs, we reviewed relevant laws,  regulations, and policies of federal agencies that fund water and  wastewater infrastructure needs and interviewed relevant agency officials  about the programs. The agencies were EPA, the Department of Housing  and Urban Development (HUD), the Economic Development  Administration, and the Federal Emergency Management Agency  (FEMA). We reviewed relevant policy and guidance for program  purpose and eligibility requirements, including any considerations given to  affordability. We also analyzed federal funding data for fiscal years 2010  through 2015 from agency funding reports to determine the amounts the  agencies directed to financing and maintaining drinking water and  wastewater infrastructure, to the extent the data were available. Based on  our review of documentation and information collected from agency  officials, we found these data to be sufficiently reliable for the purposes of  our reporting objectives. We then obtained and reviewed federal funding  provided to the 10 selected cities and their associated utilities.
We conducted this performance audit from July 2015 to September 2016  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. A more detailed description of  our scope and methodology is presented in appendix I.
subsections: section_title: Background
paragraphs: Older industrial U.S. cities that have experienced steady, long-term  population declines and job losses, called legacy cities, also have  diminished revenues and ability to provide services, such as drinking  water and wastewater services, according to recent studies. These  cities are largely scattered across the Midwest and Northeast regions.  Two studies identified a number of factors that have contributed to the  cities’ decline, including the loss of major industries, suburban flight, and  reduced housing market demand. These factors have contributed to  such effects as decayed buildings and neighborhoods, or blight;  increased vacant land; and increased rates of poverty. The two studies  also noted that fiscal and other challenges for cities with declining  populations were created by a combination of decreased revenues and  increased costs of city services. With most legacy cities having  experienced peak population levels in the 1950s and 1960s, they have  experienced such declines for a long and sustained period and may have  greater fiscal challenges than other cities.
Many older U.S. cities, including legacy cities, also face water and  wastewater infrastructure problems, including lead pipes in drinking water  service lines that connect the main pipeline in the street to an individual  home or apartment building. In the late 19th and early 20th centuries in  the United States, lead was often used in the construction of drinking  water service lines because of its malleability and ease of use, among  other factors, as described in a National Bureau of Economic Research  study. According to the results of a 2016 American Water Works  Association survey, about 7 percent of the total population served by  U.S. drinking water utilities has either full or partial lead service lines  serving their homes. The survey results also indicate that the highest  percentages of systems with lead service lines are located in the Midwest  and Northeast. Ingesting lead may cause irreversible neurological  damage as well as renal disease, cardiovascular effects, and  reproductive toxicity.
In addition, older U.S. cities, primarily in the Midwest and Northeast, have  wastewater systems constructed as combined sewer systems and face  challenges controlling overflows from these systems, called combined  sewer overflows, during storms. Combined sewer systems collect  stormwater runoff, domestic sewage, and industrial wastewater into one  pipe, unlike sanitary sewer systems that collect domestic sewage and  industrial wastewater in sewer lines that are separated from stormwater  pipelines. Both types of systems may overflow during storm events.  Under normal conditions, the wastewater collected in combined sewer  pipes is transported to a wastewater treatment plant for treatment and  then discharged into a nearby stream, river, lake, or other water body.  However, during heavy rain or snow storms, when the volume of the  wastewater can exceed a treatment plant’s capacity, combined sewer  systems release excess untreated wastewater directly into nearby water  bodies. According to EPA documents, as of September 2015, 859  communities across the country, primarily in the Northeast and Midwest,  have combined sewer systems. According to the results of EPA’s 2012  survey of clean water infrastructure needs, projects to prevent or control  combined sewer overflows, which involve building large holding tanks or  tunnels, will cost about $48 billion over the next 20 years.
subsections: section_title: Federal, State, and Utility Roles in Water and Wastewater Infrastructure
paragraphs: The federal government works in partnership with states to help ensure  drinking water is safe and to protect the quality of the nation’s rivers,  streams, lakes, and other waters. As required by the Safe Drinking Water  Act, EPA sets standards for public drinking water utilities that generally  limit the levels of specific contaminants in drinking water that can  adversely affect the public’s health. Under the Clean Water Act, EPA  regulates point source pollution—that is, pollution such as wastewater  coming from a discrete point, for example, an industrial facility or a  wastewater treatment plant. Most states have primary responsibility for  enforcing the applicable requirements of the Safe Drinking Water Act and  administering the applicable requirements under the Clean Water Act,  and EPA also has oversight and enforcement authority. Generally  speaking, states and EPA may take administrative action, such as issuing  administrative orders, or judicial action, such as suing an alleged violator  in court, to enforce environmental laws such as the Safe Drinking Water  Act and Clean Water Act. An administrative action may be issued as a  consent order, which is an enforceable agreement among all parties  involved, and a judicial action may result in a consent decree, which is  also an enforceable agreement signed by all parties to the action.
The federal government and states also provide financial assistance for  water and wastewater infrastructure, either through grants to states or  grants and loans to cities. EPA’s Drinking Water SRF and Clean Water  SRF programs provide annual grants to states, which states use, among  other things, to make low- or no-interest loans to local communities and  utilities for various water and wastewater infrastructure projects. States  are required to match the federal grants by providing an amount equal to  at least 20 percent of the federal grants. EPA has provided about $18.3  billion to states for the Drinking Water SRF from 1997 through 2015 and  about $39.5 billion for the Clean Water SRF from 1988 through 2015. In  those same periods, states provided about $3.3 billion to the states’  Drinking Water SRF programs and about $7.4 billion to the states’ Clean  Water SRF programs. In addition to the SRF programs, the federal  government can provide financial assistance for water and wastewater  infrastructure projects through two programs that primarily serve a range  of purposes, including assistance with public works projects and providing  housing assistance or economic development assistance. The first  program is HUD’s Community Development Block Grant Program, which  provides federal funding to cities, counties, other communities, and states  for housing, economic development, neighborhood revitalization, and  other community development activities, including water and wastewater  infrastructure. The second program is the Department of Commerce’s  Economic Development Administration’s Public Works Program, which  awards grants to economically distressed areas, including cities that meet  the statutory and regulatory eligibility criteria, to help rehabilitate, expand,  and improve their public works facilities, among other things. In addition,  FEMA’s Public Assistance Grant Program and Hazard Mitigation Grant  Program may provide funding for water and wastewater infrastructure  projects in certain circumstances when the President has declared a  major disaster.
In addition to the funds they use to match federal grants, if required,  states can also provide assistance to help water and wastewater utilities  address infrastructure needs. More specifically, some states have special  programs or funds to pay for water and wastewater projects, and others  use their state bonding authority to provide funds to utilities for projects.  For example, Georgia has the Georgia Fund, which provides low-interest  loans to water and wastewater utilities for water, wastewater, and solid  waste infrastructure projects. Ohio and West Virginia sell bonds to  support utility projects.
Water and wastewater utilities are generally subject to requirements  under the Safe Drinking Water Act and Clean Water Act, respectively,  and are responsible for managing and funding the infrastructure needed  to meet requirements under these acts. To pay for general operations,  maintenance, repair, and replacement of water and wastewater  infrastructure, utilities generally follow a strategy of raising revenues by  charging rates to their customers, according to an American Water Works  Association document. More specifically, utilities charge users a rate for  the water or wastewater service provided, raising these rates as needed.  Utilities generally develop long-term capital improvement plans—from 5 to  20 years—to identify the infrastructure they will need to repair and replace  pipes, plants, and other facilities. To pay for large capital projects, utilities  generally issue or sell tax-exempt municipal bonds in the bond market or  get loans from banks, their state governments, or federal lenders.  According to a 2016 Congressional Research Service report, in 2014, at  least 70 percent of water and wastewater utilities relied on municipal  bonds or other debt to finance their infrastructure needs and sold bonds  totaling about $34 billion, to pay for their infrastructure projects. Utility  bonds are rated by the three major ratings agencies, Moody’s, Fitch, and  Standard and Poor’s.
section_title: Water and Wastewater Rates and Affordability Policies
paragraphs: As water and wastewater utilities increase rates to pay for maintaining old  and building new infrastructure, according to government and industry  groups, rate affordability is a concern, particularly for low-income  customers. According to a 2010 Water Research Foundation study,  one-third of customers in the lowest 20th percentile income level have  had months where they could not pay all their utility bills on time and are  three times more likely to have their service disconnected. The study  also found, when household budgets near poverty thresholds as defined  by the Census Bureau, competing needs may determine whether a  household can pay its utility bills. Furthermore, according to a 2016 Water  Research Foundation study, utility revenues are affected by a reduction in  the average per household indoor water use, which has declined  nationally by 22 percent since 1999 with the increased use of water  conservation appliances like low-flow toilets and clothes washers.
EPA addresses the affordability of water and wastewater utility rates in  several different ways, including the following.
The Safe Drinking Water Act authorizes states to provide additional  subsidization to disadvantaged communities, which are service areas  that meet state-established affordability criteria.
Under the Safe Drinking Water Act, EPA must under some  circumstances identify variance technology that is available and  affordable for public water systems serving a population of 10,000 or  fewer to meet new drinking water standards. As established in  EPA’s 1998 variance technology findings, its most recent policy  regarding drinking water affordability, EPA continues to use drinking  water bills above a national-level 2.5 percent of median household  income as affordability criteria to identify affordable compliance  technologies.
The Clean Water Act authorizes states to provide additional  subsidization to benefit certain municipalities, including those that  meet state affordability criteria, in certain circumstances. We refer to  municipalities that meet the affordability criteria as disadvantaged  communities in this report.
In 1994, EPA issued its Combined Sewer Overflow Control Policy,  which remains in effect, to provide guidance for permitting and  enforcement authorities to ensure that controls for combined sewer  overflows are cost-effective and meet the objectives of the Clean  Water Act. Under the policy, implementation of combined sewer  overflow controls may be phased in over time depending on several  factors, including the financial capability of the wastewater utility.  EPA issued guidance in 1997 on how to assess a city’s financial  capability as a part of negotiating schedules for implementing Clean  Water Act requirements. The guidance considers wastewater costs  per household that are below 2.0 percent of median household  income to have a low or midrange effect on households.
In 2016, EPA’s Water Infrastructure and Resiliency Finance Center,  which was created in 2015 to provide expertise and guidance on  water infrastructure financing, published a report on customer  assistance programs that utilities across the United States have  developed to help their low-income customers pay their bills.
EPA’s Environmental Financial Advisory Board (a group created to  provide expert advice on funding environmental programs and projects),  the U.S. Conference of Mayors, industry groups, and others have  critiqued EPA’s definition of affordability and have suggested that EPA  use other measures to assess the effect of water and wastewater bills on  low-income households and a community’s overall financial capability.  For example, in 2007 and again in 2014, EPA’s Environmental Financial  Advisory Board recommended that EPA use the lowest 20th percentile of  income—as opposed to 2.5 percent of median household income—as a  measure of a household’s ability to afford a rate increase, when  assessing the affordability of infrastructure to control combined sewer  overflows on low-income customers. In 2013, the U.S. Conference of  Mayors issued a tool for assessing affordability that using EPA policies  considers a cost increase of less than 4.5 percent for water and  wastewater bill as affordable. Based on discussions with local  governments and in response to these critiques, EPA has taken steps to  clarify its guidance with memorandums issued in 2012 and 2014, which  describe flexibilities in applying affordability indicators.
Legislation has been introduced to address the affordability of increases  in utility rates. One bill, the Water Resources and Development Act of  2016, introduced in the Senate in April 2016, would provide a definition of  affordability that differs from current EPA definitions and would require  EPA to update its financial capability guidance after a National Academy  of Public Administration study on affordability. Another bill would provide  federal assistance to help low-income households maintain access to  sanitation services, including wastewater services. According to industry  reports about the proposed legislation, the proposed program is similar to  the Department of Health and Human Services’ Low Income Home  Energy Assistance Program that provides assistance to low-income  households to help pay their heating bills.
section_title: Midsize and Large Cities with Declining Populations Are More Distressed Compared with Growing Cities, but Little Is Known about Their Water Infrastructure Needs
paragraphs: Midsize and large cities with declining populations are generally more  economically distressed, with higher poverty and unemployment rates  and lower per capita income than growing cities. Little research has been  done on the water and wastewater infrastructure needs of cities with  declining populations, but the needs of 10 selected midsize and large  cities we reviewed generally reflected the needs of cities nationally.
subsections: section_title: Midsize and Large Cities with Declining Populations Generally Have Higher Rates of Economic Distress Than Growing Cities
paragraphs: Of the 674 midsize and large cities across the nation that had a 2010  population greater than 50,000, 99 (15 percent) experienced some level  of population decline from 1980 to 2010. As shown in figure 1, about half  of these 99 midsize and large cities (50) are in the Midwest; 28 percent  (28) are located in the Northeast; and 21 percent (21) are located in the  South. None of these midsize and large cities with declining populations  was located in the western states. Michigan and Ohio have the largest  numbers of midsize and large cities with declining populations—each with  14 cities.
Based on our analysis of the Census Bureau’s American Community  Survey data (5-year estimates for 2010 through 2014), cities with  declining populations have had significantly higher rates of poverty and  unemployment and lower household income—characteristics of economic  distress—compared with growing cities of the same size. Compared  with midsize and large cities that had growing populations over the same  time, cities with declining populations had higher estimated poverty rates  (23.6 percent compared with 16.5 percent), higher estimated levels of  unemployment (12.5 percent compared with 9.2 percent), and lower  estimated median household income ($40,993 compared with  $57,729),as shown in table 1. These differences become more stark  when cities with the greatest rates of population loss are compared with  cities with the greatest rates of growth. Specifically, the 19 cities that lost  20 percent or more of their population had an average poverty rate of  31.4 percent compared with an average of 16.3 percent for cities with 20  percent or more growth. Moreover, unemployment in cities with the  greatest estimated population loss was 16.5 percent compared with 9.1  percent in highest growth cities, and median household income was  $32,242 compared with $58,140.
Another distinguishing factor for cities with declining populations is high  levels of vacant housing and low median home values. On average, cities  with declining populations had 13.5 percent of their housing stock vacant,  and growing cities had vacancy rates of 8.6 percent. Cities with the  greatest population loss had nearly 20 percent vacant housing stock (19.7  percent), compared with 8.5 percent in cities with the most population  growth. Cities with declining populations also had much older housing  stock (average house being built in 1954 compared with 1976) and lower  median home values ($137,263 compared with $253,522).
Cities with declining populations also had some significantly different  demographic characteristics than cities with growing populations. The 99  cities with declining populations had a higher estimated share of African  American residents than cities with growing populations (28.5 percent  compared with 11.1 percent) and a lower estimated share of the  population with bachelor degrees (24.4 percent compared with 32.5  percent). (See table 2 for details on characteristics.)
section_title: The Water and Wastewater Needs of Selected Midsize and Large Cities Resemble Those of Cities Nationally, although Little Research Has Been Done on Those Needs
paragraphs: Academic research on U.S. cities with declining populations has been  conducted for over a decade but has not focused on the water and  wastewater infrastructure needs of these cities. The few studies and EPA  reports we identified on water and wastewater infrastructure needs in  cities with declining populations focused on the feasibility and challenges  of rightsizing infrastructure, that is, downsizing or eliminating underutilized  infrastructure to meet reduced demands. Among other challenges to  rightsizing infrastructure, the studies described significant capital costs in  decommissioning existing infrastructure and physical difficulty in removing  components in depopulated areas without affecting the entire water or  wastewater system. These studies also provided information on other  strategies for maintaining underutilized water infrastructure in cities with  declining populations. These strategies include using asset management  to establish maintenance priorities and repair schedules; coordinating  projects for water, wastewater, road, and other infrastructure to gain cost  efficiencies; and using vacant lands for stormwater management  generally and to help control sewer overflows as part of rightsizing. In  addition, the studies highlighted the financial challenges of utilities  managing water and wastewater infrastructure in cities with declining  populations, resulting from decreasing revenues from fewer ratepayers,  and personnel challenges of these utilities because of reductions in  personnel to achieve cost savings.
subsections: section_title: Drinking Water Infrastructure Needs
paragraphs: EPA’s 2011 drinking water needs survey found that nationally, the largest  infrastructure needs identified, by estimated costs, addressed two areas:  distribution and transmission systems and drinking water treatment  infrastructure. Distribution and transmission systems include pipelines  that carry drinking water from a water source to the treatment plant or  from the treatment plant to the customer. Drinking water treatment  infrastructure includes equipment that treats water or removes  contaminants. Consistent with EPA’s national estimates, representatives  we interviewed from seven of nine drinking water utilities for the 10 cities  identified pipeline repair and replacement as a major need. For  example, representatives from one utility told us that its distribution  pipelines were approximately 80 years old and that within the next 15 to  20 years almost all of them will need to be updated. Representatives from  another utility said that almost all 740 miles of the utility’s pipelines need  to be replaced. At roughly $100 per foot, replacing all pipelines will cost  more than $390 million. Representatives from seven of the nine drinking  water utilities said that their utilities had high leakage rates (sometimes  reflected in estimates of nonrevenue water), ranging from about 18 to 60  percent, above the 10 to 15 percent maximum water loss considered  acceptable in most states according to an EPA document and indicating  the need for pipeline repair or replacement. (See app. III for details of  utilities’ drinking water infrastructure needs for the 10 cities.)
Of the 10 utilities we reviewed that were responsible for drinking water  infrastructure, representatives from 6 noted that they were aware that  some portions of their or their customer-owned portions of service lines  connecting individual houses or apartment buildings to the main water  lines contain or may contain lead, although most of these utilities did not  express concern about the risk of lead in their water. In addition,  representatives we interviewed from 5 drinking water utilities out of the 10  we reviewed named treatment plant repair and replacement as one of  their greatest needs. Representatives from one utility told us that the  utility’s water treatment plant is over 100 years old and is in need of  replacement or backup, which they said would cost an estimated $68.6  million. The clear well in the plant, that is, the storage tank used to  disinfect filtered water, was built in 1908. If the tank fails, the main source  of potable water for customers would be interrupted, leaving the  community without water.
section_title: Wastewater Infrastructure Needs
paragraphs: EPA’s 2012 wastewater needs survey found that the largest infrastructure  needs for wastewater systems fell into three categories: combined sewer  overflow correction (i.e., control of overflows in combined sewer systems);  wastewater treatment, or infrastructure needed to meet treatment under  EPA standards; and conveyance system repair, or the infrastructure  needed to repair or replace sewer pipelines and connected components  to maintain structural integrity of the system or to address inflow of  groundwater into the sewer system. Consistent with EPA’s national  estimates, utilities serving 7 of the 10 cities we reviewed face high costs  to control combined sewer overflows. (See app. IV for details of utilities’  wastewater infrastructure needs for the 10 cities.) According to EPA’s  wastewater needs survey, estimated costs for infrastructure  improvements to control combined sewer overflows for wastewater  utilities serving 7 of the 10 cities we reviewed ranged from $7.1 million to  $1.98 billion. In addition, representatives we interviewed from wastewater  utilities that serve 5 of the 10 cities we reviewed said that they needed to  repair or replace their treatment plants. For example, representatives  from one utility said that 90 percent of the utility’s original wastewater  treatment plant, which was built in 1938, was still in place and required  constant attention to keep it running. Finally, representatives we  interviewed from wastewater utilities providing services to 9 of the 10  cities we reviewed discussed collection system repair as a major need.  For example, representatives from one utility said that the city sewer lines  date back to the mid-1800s. They recently replaced two blocks of the  oldest section of sewer lines for $3 million.
section_title: Utilities in Selected Cities Have Been Raising Rates to Help Address Infrastructure Needs and Using Customer Assistance and Cost Control Strategies for Rate Affordability
paragraphs: Our sample of 14 utilities in the 10 cities we reviewed used the traditional  strategy of raising rates to increase revenues to address their  infrastructure needs, although representatives from half of them said that  they had concerns about rate affordability and their future ability to raise  rates. All utilities we reviewed also had developed one or more types of  customer assistance programs, a strategy to help low-income customers  pay their bills. In addition, most utilities were using or had plans to use  one or more cost control strategies to address their infrastructure needs,  such as asset management (i.e., identifying and prioritizing assets for  routine repair or replacement versus emergency repair) or rightsizing to  physically change infrastructure to meet current demands (e.g., reducing  treatment capacity or decommissioning water lines and sewer lines in  vacant areas).
subsections: section_title: Utilities in Selected Cities Have Raised Rates to Increase Revenues for Water and Wastewater Infrastructure Needs but Have Concerns about Keeping Rates Affordable
paragraphs: Our sample of 14 utilities in the 10 cities we reviewed used the traditional  strategy of increasing revenue—raising rates as needed and selling  bonds to pay for their infrastructure needs. Of the 14 utilities we reviewed,  most raised rates annually, and all but 2 utilities had raised rates at least  once since 2012. (See app. V for utilities’ operating revenues, operating  expenses, and rate changes.) In addition, according to our review of the  utilities’ financial statements, 11 of 14 experienced a decline in revenues  in 1 of the years from 2012 through 2014, and over these years raised  utility rates, which helped make up for lost revenues or cover increasing  operation and maintenance costs. In contrast, the remaining 3 utilities for  which we reviewed available financial statements had increasing  revenues over the same period. Of the 3 utilities, 2 also raised rates by  more than 9 percent or greater in 2 or more consecutive years from 2012  through 2014; the other utility was privately owned and operated and  maintained steady revenues with an overall increase of less than 1  percent.
Most of the 14 utilities we reviewed used a common rate structure  through which customers were charged a modest base rate plus a larger  variable rate by volume of water used, according to studies conducted on  utility rates. Such a rate structure produces reduced revenues as the  amount of water used and sold decreases. In addition to the decline in  water use and revenues that many utilities are experiencing nationally,  utilities with declining populations are further affected by reduced water  sales to fewer ratepayers and face additional declines in revenues.  Furthermore, according to representatives we interviewed from some of  the utilities, declining populations resulted in operational changes that  increased operating costs for their utilities. For example, utility  representatives told us that when water sits for extended periods, such as  in storage, it may lose its chlorine residual, which allows bacteria and  viruses to grow and multiply. For wastewater systems, reduced water flow  during dry weather has resulted in stronger sewage sludge and solid  deposits that require an adjustment of wastewater treatment processes,  according to utility representatives.
Even with increased rates, many of the utilities we reviewed deferred  planned repair and replacement projects and consequently expended  resources on addressing emergencies, such as repairing water pipeline  breaks. One water utility management professional estimated that  emergency repairs can cost three to four times more than regular repairs.  Specifically, representatives we interviewed from half of the utilities willing  to speak with us (6 of 12) described themselves as being more reactive in  repair and replacement of drinking water and wastewater infrastructure.  Representatives from these utilities also told us that they do not have  sufficient funding to meet their repair and replacement needs, and some  noted large backlogs of planned repair and replacement projects. For  example, representatives from one of the utilities we reviewed told us that  the utility’s current level of investment would result in the replacement of  its water and wastewater infrastructure in 400 years, versus replacement  within the industry standard of up to a100 years (or a replacement  schedule at 1 percent of infrastructure per year). The 5-year capital plan  for another utility we reviewed deferred nearly two-thirds of the listed  capital improvement projects because of lack of funding. Representatives  from another utility described plans to spend about $8 million to replace  water pipelines, but learned that they should be investing about twice as  much to maintain their existing service levels, based on recent modeling  of the system.
With increased rates, representatives we interviewed from more than half  of the utilities willing to speak with us identified concerns with keeping  customer rates affordable. Specifically, representatives we interviewed  from 7 of 12 utilities expressed concern about the affordability of future  rate increases for low-income households (i.e., those that have incomes  in the lowest 20th percentile income level). Affordability of water and  wastewater bills is commonly measured by the average residential bill as  a percentage of median-income households. Our analysis of the water  and wastewater rates charged in fiscal year 2015 by the 14 utilities we  reviewed showed that rates for both water and wastewater bills were  considered affordable for customers at or above median-income  households. However, these rates were higher than the amount  considered to be affordable for low-income customers in 9 of 10 cities we  reviewed (see fig. 2). The U.S. Conference of Mayors estimated  combined annual water and wastewater bills of more than 4.5 percent of  income as unaffordable based on EPA policies. In 4 of the 10 cities we  reviewed, the average water and wastewater bill was more than 8 percent  of income for low-income households.
While they are generally concerned about affordability of rates,  representatives from few of the utilities we interviewed said that they  planned to change their rate structures, although changes can generate a  more reliable and predictable revenue stream to cover costs, according to  a 2014 utility study. Of the representatives we interviewed from 12 of  the 14 utilities, representatives for 2 utilities said that they were interested  in making rate structure changes that would increase cost recovery and  that they planned to make incremental changes over time. In addition, 1  utility—Jefferson County, which provides wastewater services to  Birmingham—had already made significant changes to its rate structure  to stabilize revenues and to meet requirements for exiting bankruptcy.  This utility replaced the minimum charge with a monthly base charge  scaled by meter size for all customers. The utility also altered its rate  structure for the volume of water used for residential customers from a flat  fee per volume of water used to an increasing block rate structure where  higher fees are charged for incremental blocks of increased water usage.  A 2014 Water Resource Foundation study stated that utility  representatives hesitate to make rate structure changes because of the  potential to significantly alter customers’ monthly bills, and highlighted the  need for stakeholders and utility board members to undertake an  education and communication strategy when making such changes.
In addition to their concerns about the affordability of rates, a few  representatives we interviewed said that they expect to have future  challenges using bond funding because of the rate increases needed to  pay for them. Specifically, representatives we interviewed from 2 of the 12  utilities willing to speak with us—Gary Sanitary District and the city of  Youngstown—said that they expected the increased rates would be  difficult to afford for residents of the two cities where the median  household income is about half the national average and the poverty rate  is above 37 percent. All 12 of the utilities whose representatives we  interviewed have used bond funding to help finance their water and  wastewater infrastructure needs. Of the 14 utilities we reviewed, 10 had  strong to very strong ability to pay long-term debt as indicated by fiscal  year 2014 debt service coverage ratios we calculated, 2 had moderate  ability, and 2 had poor or weak ability. In addition, for 8 of the 14 utilities,  their bonds as of June 2016 were ranked within an A level range by the  ratings agencies, indicating that they were expected to be able to cover  the annual payments for these bonds (see app. VI for the utilities’  financial indicators).
section_title: All of the Utilities in the Selected Cities Developed Customer Assistance Programs as a Strategy for Addressing Concerns about Affordability of Water and Wastewater Rates
paragraphs: All 14 of the utilities we reviewed had developed one or more types of  customer assistance programs as a strategy to make rates more  affordable for customers who had financial difficulty paying their bills. For  5 of the 14 utilities we reviewed, more than 25 percent of their customers  were late in paying their bills. Two of the utilities—Detroit Water and  Sewerage Department and Gary Sanitary District—had particularly large  numbers of customers who were unable to pay their bills, which was  reflected in the lower estimated revenue collection rates of about 86  percent of in-city customers in Detroit and 69 percent of Gary Sanitary  District customers, respectively, compared with collection rates averaging  98 percent by the other 8 utilities we reviewed where data were available.  For both of these utilities, collecting payments from customers was a  challenge, and shut off of water and wastewater services was not  uncommon. For example, Detroit Water and Sewerage Department  representatives told us that they were still struggling with collections and  had lost from $40 million to $50 million in forgone revenues annually for  the past few years because of the low collection rate, and had budgeted  an additional $1.6 million in fiscal year 2016 to cover expenses related to  collecting on delinquent accounts. Similarly, a Gary Sanitary District  representative told us that even with rate increases of 30 percent in 2011,  revenues had not increased correspondingly and water service shutoffs  had increased because customers were unable to pay their bills.  According to collections information provided by Gary Sanitary District, in  fiscal year 2015, approximately 21 percent of accounts were shut off  because of nonpayment. (See app. VII for details on rates and billing  collections information for the 14 utilities we reviewed.)
At a minimum, nearly all of the utilities we reviewed (13 of 14) entered  into payment plans or agreements with customers with unpaid bills (see  table 3). In some cases, payment plan assistance was described as more  informal or ad hoc, with flexibility to develop a plan that is agreeable to  the customer and the utility, depending on the customer’s ability to pay.  Other utilities had formalized payment plan programs or policies, requiring  a customer to make an initial minimum payment on the outstanding bills,  and then accepting payment of the remaining amount in monthly  installments over a period of time. In addition, overall, half of the utilities  we reviewed (7 of 14) offered direct assistance to low-income, elderly, or  disabled customers through bill discounts or assistance to eligible  customers in good standing, short-term assistance with unpaid bills (e.g.,  credit for payment of outstanding water and wastewater bills) and with  minor plumbing repairs (e.g., for leaks that can increase water use and  monthly bills), or some combination of these three types of assistance.
Different rate structures, such as a lifeline rate or reducing fixed charges,  can assist low-income or financially constrained customers, according to  a 2010 Water Research Foundation Study and EPA’s 2016 report on  customer assistance programs, but few of the 14 utilities we reviewed use  such structures. For example, through a lifeline rate, a utility can provide  its customers with a minimum amount of water to cover basic needs at a  fixed base charge. When a customer uses more water than the minimum  allotment, the utility increases the rate charged, which in turn increases  the customer’s bill. Lifeline or other alternative rates may be targeted to  low-income customers, but none of the utilities we reviewed provided  special rates based on income. Representatives we interviewed from one  utility said that they consciously revised the utility’s rate structure to  include lifeline rates to address the needs of customers who could not  afford higher rates. An additional 3 of the 14 utilities we reviewed had rate  structures that included some volume of water usage with their fixed base  charge. Representatives we interviewed from a few utilities (3 of 12) told  us that charging special rates for low-income customers is not an option  because of local or state laws that do not allow the utilities to differentiate  rates among customers. For example, Detroit’s Blue Ribbon Panel on  Affordability’s February 2016 report noted potential legal constraints in the  state of Michigan in implementing an income-based rate structure, where  customers pay a percentage of their income toward their water bills.
section_title: Most Utilities Were Using Cost Control and Efficiency Strategies to Address Their Water and Wastewater Infrastructure Needs
paragraphs: Most of the utilities (13 of 14) we reviewed were using or had plans to use  one or more strategies to address their water and wastewater  infrastructure needs by controlling costs or increasing the efficiency of the  physical infrastructure or overall management of the utility. For example,  asset management can help utilities more efficiently identify, prioritize,  and plan for routine repair or replacement of its assets, versus facing  costly emergency repairs. Table 4 shows the strategies used by the 14  utilities we reviewed, including asset management, major reorganization,  and rightsizing physical infrastructure to meet current demands.
Overall, the most common cost control and efficiency strategy used by  the 14 water and wastewater utilities we reviewed was asset  management. Some of the utilities (4 of 14) had asset management  programs in place, and most of the remaining utilities had plans for or  were in initial stages of implementing the strategy. In contrast, we found  that the other strategies—rightsizing, major reorganization, expanding the  utility’s customer base, and public-private partnerships—were used to a  limited extent by the utilities we reviewed. In particular, rightsizing was  among the least-used strategies. Many of the utility representatives we  interviewed told us that rightsizing was not practical or feasible. For  example, even with vacant housing averaging 21 percent in these cities,  according to American Community Survey data (5-year estimates, 2010  through 2014), representatives of some utilities reviewed (6 of 14) told us  that decommissioning water and sewer lines was not practical or feasible  because they did not have entirely vacant blocks or needed to maintain  lines to reach houses that were farther away. However, as part of  rightsizing, representatives we interviewed for five wastewater utilities  said that they have incorporated in their plans, or were considering using,  vacant lands for green infrastructure to help control stormwater runoff that  can lead to sewer overflows. Green infrastructure uses a range of  controls, such as vegetated areas, stormwater collection, or permeable  pavement, to enhance storage, infiltration, evapotranspiration, or reuse of  stormwater on the site where it is generated. (See app. VIII for  information on utilities’ use of cost control strategies).
section_title: Six Federal Programs and One Policy Could Assist Midsize and Large Cities with Declining Populations in Addressing Their Water Infrastructure Needs
paragraphs: While not specifically designed to address the water infrastructure needs  of midsize and large cities with declining populations, six federal  programs and one policy we reviewed could provide these cities with  some assistance. As of June 2016, none of the six federal programs we  reviewed administered by the four agencies that fund water and  wastewater infrastructure needs were specifically designed to assist such  cities in addressing their water infrastructure needs. Yet most of the 14  utilities we reviewed received funding from one or more of these  programs for their water and wastewater infrastructure projects. In  addition to these programs, under EPA’s 1994 Combined Sewer Overflow  Policy, cities or utilities meeting eligibility criteria can take a phased  approach over an extended period to build the needed infrastructure to  correct combined sewer overflows and comply with the Clean Water Act.
subsections: section_title: None of the Six Federal Programs We Reviewed Were Specifically Designed to Assist Cities with Declining Populations in Funding Water and Wastewater Infrastructure Needs
paragraphs: None of the six federal programs we reviewed that can fund water and  wastewater infrastructure needs were specifically designed to provide  funds to cities with declining populations for water and wastewater  infrastructure projects. The programs are as follows:
Drinking Water and Clean Water SRF programs. Under the Safe  Drinking Water Act and Clean Water Act, EPA provides annual grants  to states to capitalize their state-level Drinking Water and Clean Water  SRF programs, and states can use the grants to provide funding  assistance to utilities, including low- or no-interest loans, among other  things. Overall, the state Drinking Water SRF and Clean Water SRF  programs help reduce utilities’ infrastructure costs, increase access to  low-cost financing, and help keep customer rates affordable. The  federal laws establishing the SRF programs do not specifically  address cities with declining populations, although states are  generally authorized to use a percentage of their capitalization grants  to provide additional subsidies to disadvantaged communities. States  provide additional subsidies in the form of principal forgiveness or  negative interest rates, which reduce loan repayment amounts. The  amounts that states set aside for additional subsidies vary from year  to year based on requirements in annual appropriations acts and state  funding decisions. Most of the 10 states in which the 10 cities in our  review were located used median household income as one indicator  for disadvantaged communities for both Drinking Water and Clean  Water SRF programs.
HUD Community Development Block Grants. HUD provides  federal funding, through the Community Development Block Grant  program, for housing, economic development, neighborhood  revitalization, and other community development activities, including  water and wastewater infrastructure. The department provides block  grant funding to metropolitan cities and urban counties across the  country, known as entitlement communities, and to states for  distribution to non-entitlement communities. Federal law requires  that not less than 70 percent of the total Community Development  Block Grant funding will be used for activities that benefit low- and  moderate-income persons. In 2015, HUD provided $2.3 billion in  block grant funding to entitlement communities, including midsize and  large cities. However, according to department officials we  interviewed, entitlement communities choose to use only a small  portion of the grant funding to support water and wastewater  infrastructure projects. In fiscal year 2015, according to HUD data,  about $43.8 million, or 1.9 percent of block grant funding provided to  entitlement communities, including midsize and large cities, was used  for water and wastewater infrastructure projects.
Economic Development Administration Public Works program.
The administration’s Public Works program awards grants  competitively to economically distressed areas, including cities that  meet the eligibility criteria, to help rehabilitate, expand, and improve  their public works facilities, among other things. A Public Works grant  is awarded if, among other things, a project will improve opportunities  for the successful establishment or expansion of industrial or  commercial facilities, assist in the creation of additional long-term  employment opportunities, or primarily benefit the long-term  unemployed and members of low-income families in the region. In  fiscal year 2015, according to Economic Development Administration  data, the agency provided $101 million as Public Works grants, of  which about $14.9 million or 14.7 percent was used for water or  wastewater infrastructure projects. Agency officials told us that the  program’s main priority is enabling distressed communities to attract  new industry, encourage business expansion, diversify local  economies, and generate or retain long-term jobs in the private  sector. As a result, projects funded with Public Works grants may  include a water infrastructure project, but that water infrastructure  project would be a secondary effect of an economic development  project. Agency officials said that a common water and wastewater  infrastructure project funded by Public Works program grants involves  installing a main drinking water pipeline or sewer line to a new or  renovated industrial park.
FEMA Public Assistance and Hazard Mitigation grant programs.
FEMA’s Public Assistance and Hazard Mitigation grant programs may  provide funding for water and wastewater infrastructure projects when  the President has declared a major disaster, but these programs are  not specifically designed to assist cities with declining populations.  The agency’s Public Assistance program provides grants to states  and others for the repair, restoration, reconstruction, or replacement  of public facilities, including water and wastewater infrastructure  damaged or destroyed by such a disaster. In fiscal year 2015, FEMA  awarded about $6.5 billion for public assistance projects; however, the  agency was unable to determine the portion of public assistance  funding that was used for water and wastewater infrastructure  projects. The agency’s Hazard Mitigation grant program provides  grants for certain hazard mitigation projects to substantially reduce the  risk of future damage, hardship, loss, or suffering in any area affected  by a major disaster. In fiscal year 2015, FEMA awarded about $1.2  billion in grants to states and communities for mitigation projects. Of  that amount, about $8.1 million, or 0.7 percent, was awarded for water  and wastewater mitigation projects, according to Hazard Mitigation  grant program data. Hazard Mitigation grants do not need to be used  for a project within the designated disaster area as long as the project  has a beneficial effect on that area. The grants are competitively  awarded to states, which identify in their applications the mitigation  projects that would be funded with the grants. Cities, including those  with declining populations, can submit applications to the state for  Hazard Mitigation projects for their water and wastewater facilities,  which the state may choose to include its Hazard Mitigation grant  application to FEMA.
While these six programs were not specifically designed to provide  funding to cities with declining populations, such cities or their related  utilities can receive funding from these programs for water and  wastewater infrastructure projects. Table 5 shows the funding that each of  the utilities in our 10 selected cities received from the programs from  fiscal years 2010 through 2015. In total, cities received almost $984  million from the federal agencies.
As shown in table 5, 11 of the 14 utilities we reviewed received Drinking  Water or Clean Water SRF funding from fiscal years 2010 through 2015,  and 1 utility was awarded additional subsidies. Specifically, the  Birmingham Water Works Board received $1.7 million (out of $11.6  million) from the Drinking Water SRF program as an additional subsidy in  the form of principal forgiveness for green projects, or water infrastructure  projects that include energy and water efficiency improvements, green  infrastructure, or other environmentally innovative activities. According to  most of the representatives we interviewed from 12 utilities, SRF funding  is the most common federal funding they receive for water and  wastewater infrastructure projects. Overall, in fiscal year 2015, 41 states  provided about $416 million, or 23 percent, of their Drinking Water SRF  program funds for water and wastewater infrastructure projects in  disadvantaged communities, and 31 states provided about $648 million,  or 12 percent, of their Clean Water SRF program funds for such projects  (see fig. 3).
Representatives we interviewed from some utilities said that it is difficult  to use SRF funding because the total amount of funding available  statewide is limited; states restrict the amount of funding available to  individual projects; and states prioritize projects that address Safe  Drinking Water Act and Clean Water Act compliance issues, such as  acute violations of drinking water standards or health advisory levels.
Also shown in table 5, 1 of the 14 utilities we reviewed, the Sewerage and  Water Board of New Orleans, received Community Development Block  Grant funds for water and wastewater infrastructure projects from fiscal  years 2010 through 2015. Officials in Youngstown, Ohio, also told us that  some block grant funding was awarded to faith-based organizations to  provide low-income residents with various types of housing and other  assistance, which may include assistance with paying utility bills. None of  the 14 utilities we reviewed received the Economic Development  Administration’s Public Works funding for water or wastewater  infrastructure projects from fiscal years 2010 through 2015. The FEMA  programs—Public Assistance and Hazard Mitigation—provided nearly 50  percent of total federal funding for water and wastewater infrastructure  received by cities we reviewed in fiscal years 2010 through 2015.  Specifically, 2 of the 14 utilities we reviewed—the Sewerage and Water  Board of New Orleans and the Charleston Sanitary Board—received  Public Assistance grants from FEMA after flood events in fiscal years  2010 through 2015. In addition, 2 of the 14 utilities we reviewed—the  Birmingham Water Works Board and the Sewerage and Water Board of  New Orleans—received Hazard Mitigation grants.
section_title: EPA’s Combined Sewer Overflow Policy May Help Cities with Declining Populations
paragraphs: In addition to providing assistance through SRF funding, EPA has a  policy—the Combined Sewer Overflow Policy—that could help cities with  declining populations. The policy, adopted in 1994, allows a city or utility  to extend its implementation schedule—the period of time it has to build  the necessary infrastructure to control combined or sanitary sewer  overflows—under consent decrees entered into with EPA or the state, or  administrative orders issued by EPA or state permitting authorities. An  extended implementation schedule spreads the costs of planned  infrastructure projects over time and helps make wastewater rate  increases required to pay for the infrastructure projects more affordable  for a utility and its customers. EPA’s financial capability assessment  guidance, issued in 1997, uses a two-phase approach to assess a city or  utility’s financial capability based on: (1) the combined impact of  wastewater and combined sewer overflow control costs on individual  households (residential indicator) and (2) the socioeconomic and financial  conditions of a city or utility (financial capability indicator). Each city or  utility is ranked as low, medium, or high for the residential indictor and  weak, midrange, or strong for the financial capability indicator. The  combined indicators show the overall financial burden—low, medium, or  high—resulting from the estimated costs for the planned infrastructure  projects. Cities or utilities with a high financial burden—those with a high  residential indicator and low-to-midrange financial capability indicators— are generally expected to implement combined sewer overflow control  projects within 15 years to 20 years of the consent decree. EPA and  states can also apply this two-phase approach to determine appropriate  implementation schedules for cities or wastewater utilities to address  other Clean Water Act requirements, including control of sanitary sewer  overflows.
According to EPA officials, implementation schedules can be negotiated  past 20 years if infrastructure projects are large and complex, or if the  necessary user rate increases put too great a burden on customers with  incomes below median household income. EPA issued a memorandum in  2012 that provided guidance on developing and implementing effective  integrated planning for cities and utilities building wastewater and  stormwater management programs. According to the 2012 memorandum,  under integrated planning, cities and utilities prioritize the wastewater and  stormwater infrastructure projects that should be completed first.  According to EPA documents, cities and utilities may use integrated  planning to prioritize required wastewater and stormwater projects over a  potentially longer time frame, helping to keep customer rates more  affordable. Building on its 2012 memorandum, EPA issued a  memorandum in 2014 to provide greater clarity on the flexibilities built into  the existing financial capability guidance. The 2014 memorandum  identifies key elements EPA uses in working with cities and utilities to  evaluate how their financial capability should influence implementation  schedules in both permits and enforcement actions. It also includes  examples of additional information that may be submitted to provide a  more accurate and complete picture of a city’s or utility’s financial  capability.
Overall, 9 of the 14 utilities providing wastewater services to the 10 cities  we reviewed are under consent decrees entered into with EPA or  administrative orders from a state agency to address combined sewer  overflows or sanitary sewer overflows, according to EPA, state, and utility  officials. Specifically, according to these officials, 7 utilities are under  consent decrees or administrative orders to address combined sewer  overflows; some of these decrees or orders are also required to address  sanitary sewer overflows. The remaining 2 utilities are under consent  decrees to address sanitary sewer overflows, according to these officials.  According to utility representatives we interviewed and documents we  reviewed, these 9 utilities or the cities they serve expect to spend an  estimated $10.5 billion to comply with consent decrees and administrative  orders to enforce Clean Water Act requirements. According to EPA  officials, 4 utilities we reviewed had consent decrees with EPA that fell  within the high financial burden category and had implementation  schedules extending more than 15 years: Pittsburgh’s implementation  schedule was for 19 years; Youngstown’s schedule was for 31 years, St.  Louis’s schedule was for 23 years, and New Orleans’ schedule was for 27  years. One of the 10 cities we reviewed, New Orleans, had a consent  decree with integrated planning, and officials from 2 additional cities said  that they were discussing the use of integrated planning with EPA.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Environmental Protection Agency,  the Economic Development Administration, and the Department of  Housing and Urban Development for review and comment. None of the  agencies provided written comments or stated whether they agreed with  the findings in the report, but all three agencies provided technical  comments that we incorporated, as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Administrator of the Environmental  Protection Agency, the Administrator of the Economic Development  Administration, the Secretary of Housing and Urban Development, and  other interested parties. In addition, the report will be available at no  charge on the GAO website at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or gomezj@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff members who made key  contributions to this report are listed in appendix IX.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) what is known about the economic  characteristics of midsize and large cities with declining populations and  their drinking water and wastewater infrastructure needs; (2) strategies  that selected midsize and large cities with declining populations and their  associated utilities used to address their infrastructure needs and the  affordability of their drinking water and wastewater rates; and (3) what  existing federal programs and policies, if any, could assist midsize and  large cities with declining populations, and their associated utilities, in  addressing their water infrastructure needs.
To examine what is known about the economic characteristics of midsize  and large cities with declining populations, we reviewed relevant studies  and interviewed experts about cities that have experienced population  declines and water and wastewater infrastructure needs. We identified  the studies and experts through a literature review and referrals from  Environmental Protection Agency (EPA) officials, representatives of water  and wastewater industry associations, and academic and nonprofit  experts. We contacted nine experts—individuals in academia and the  nonprofit sector with expertise in water and wastewater utility  management, finance, engineering, and urban planning.
For this report, we used U.S. Census Bureau and National League of  Cities definitions for midsize cities—those with populations from 50,000 to  99,999—and large cities—those with populations of 100,000 and greater.  We identified the number and size of midsize and large cities with  sustained population declines by analyzing decennial census population  data for midsize and large cities from 1980 through 2010, which we found  to be the most extended period for reliable decennial census data related  to our review of the consistency of data coding over time. To describe the  economic and demographic characteristics of cities with declining  populations, we analyzed the Census Bureau’s American Community  Survey 5-year estimates for 2010 through 2014, which according to the  bureau contain the most precise and current data available for cities and  communities of all population sizes. We analyzed the survey data for all  cities with population over 50,000 and compared the data for cities with  declining populations to those for cities that did not experience a decline  during this period. To do this, we created categories of decline and  growth, in increments of 9.9 percent or less, 10 to 19.9 percent, or 20  percent and greater, in order to have a minimum number of cities within  each category, using decennial census population data.
To determine whether cities with declining populations experienced  significantly greater levels of economic distress than cities with increasing  populations, we performed statistical comparisons of all key economic  and demographic characteristics from the American Community Survey  data (5-year estimates for 2010 through 2014), following American  Community Survey methodology on statistical tests. Specific economic  and demographic characteristics that we analyzed included the following:  poverty rate percentage, percentage of unemployment, median  household income, per capita income, percentage of vacant housing,  median housing value, median year housing stock was built, percentage  of households receiving Supplemental Nutrition Assistance Program  benefits, percentage of white residents, percentage of African American  residents, percentage of residents of other races, percentage of residents  over 65 years old, percentage of residents with at least a high school  diploma, and percentage of residents with a bachelor’s degree. We  reviewed Census Bureau documentation for data collection and quality,  and determined the decennial data to be sufficiently reliable for our  purposes of categorizing cities based on the extent of population growth  or decline, and the American Community Survey data sufficiently reliable  for analyzing economic and demographic data on midsize and large  cities.
Because the American Community Survey 5-year data followed a  probability procedure based on random selections, the sample selected is  only one of a large number of samples that we might have drawn. Since  each sample could have provided different estimates, we express our  confidence in the precision of our particular sample’s results as a 90  percent confidence interval. This is the interval that would contain the  actual population value for 90 percent of the samples we could have  drawn. All 5-year American Community Survey percentage estimates  presented have margins of error at the 90 percent confidence level of plus  or minus 10 percentage points or less, unless otherwise noted. All non- percentage estimates presented using the 5-year American Community  Survey had data within 20 percent of the estimate itself, unless otherwise  noted.
As part of our work for all three objectives, we selected a nonprobability  sample of 10 cities that experienced the greatest percentages of  population decline from 1980 through 2010 for further review. Using our  analysis of decennial census population data from 1980 through 2010, we  selected the 10 cities with the greatest declines in population for that  period, without repeating cities in any state to allow for geographic  distribution. We also selected for size, choosing 5 midsize and 5 large  cities. The 10 cities, their 2010 populations, and their percentage declines  in population are listed in table 6. This sample of cities is not  generalizable to all cities that experienced population declines over this  period; however, it highlights the issues faced by a geographically diverse  range of cities and corresponding utilities that have experienced the  greatest population losses in recent decades.
To analyze information on water and wastewater needs for cities with  declining populations, we compared national drinking water and  wastewater needs data that EPA collected by to information on needs we  collected for the utilities providing services to the 10 cities we selected.  Because cities may be served by multiple utilities, our sample included  the 14 utilities from the 10 selected cities—the 6 that were responsible for  both water and wastewater infrastructure, 4 that were responsible solely  for drinking water infrastructure, and 4 others that were responsible solely  for wastewater infrastructure. We obtained EPA’s data on drinking water  infrastructure needs from its 2011 Drinking Water Infrastructure Needs  Survey and Assessment and wastewater infrastructure needs from its  2012 Clean Watersheds Needs Survey. EPA obtains these data through  surveys of the 50 states, the District of Columbia, and U.S. territories,  which for the drinking water needs assessment involves collecting  information from a sample of drinking water systems in each state. We  assessed the reliability of these data by reviewing the methodologies that  EPA used to conduct these surveys and by interviewing EPA officials to  understand the appropriate use of the data. We determined that both the  drinking water and wastewater needs identified at the national, or  aggregate, level were sufficiently reliable for purpose of reporting national  needs estimates.
However, the fact that some utilities serve multiple cities and counties,  and that some cities are served by multiple utilities or multiple treatment  facilities, prevented us from uniquely matching utilities and treatment  facilities to cities. Therefore, we could not estimate the total drinking water  and wastewater needs of utilities in cities with declining populations and  instead identified the water and wastewater needs for each of the 14  utilities for the cities in our sample. To do this, we analyzed relevant utility  documents, such as capital improvement plans and master plans, and  conducted interviews with utility representatives, including executive  directors, finance directors, and operations managers, about their water  and wastewater infrastructure condition, their greatest infrastructure  needs, and their top challenges in addressing their infrastructure needs.  We also reviewed EPA wastewater needs data for utilities serving the 10  selected cities, which we found sufficiently reliable to report at the  individual utility level based on reviews of documentation and interviews  with knowledgeable EPA officials. However, we were unable report EPA  drinking water needs data at the individual utility level for the 10 selected  cities because of the way that EPA and states collect and extrapolate the  data: EPA uses a statistical cost modeling approach to calculate state  and national estimates using local data; as a result, the local data may be  a modeled result and not actual reported data.
To examine the strategies that selected midsize and large cities with  declining populations, and their associated utilities, used to address their  infrastructure needs, we reviewed relevant reports and studies on utility  management and interviewed city and utility representatives for the 10  cities and 14 utilities in our sample. We conducted semistructured  interviews with representatives from 12 of the 14 drinking water and  wastewater utilities willing to speak with us to gather information on  changes in populations served and effects of declining population on  system operations, if any; infrastructure needs and condition; financing  and management strategies; challenges in managing water and  wastewater infrastructure; and their perspectives on the research and  assistance needed for utilities serving cities with declining populations.  We also collected capital improvement plans, master plans, recent rate  studies, and financial statements for fiscal years 2012 through 2014,  which we analyzed to determine infrastructure condition, short-term and  long-term capital needs, rate structure changes and rate increases, and  changes in operating revenues and expenses. To help ensure that we  collected the correct information for each city and utility, we clarified our  understanding of these documents through interviews with utility officials,  follow-up correspondence, and review of draft materials provided by utility  officials.
Nine of the selected 10 cities are under orders from EPA or the state to  correct combined sewer overflows or sanitary sewer overflows (which  result in discharge of raw sewage to streams and surrounding areas), or  both, from their systems. For these cities, we collected any consent  decrees they have with EPA and long-term plans to address their  combined sewer overflow controls. We also collected written responses to  questions from city officials on basic water and wastewater system  information, including estimated population served, number of customer  accounts and types of customers (e.g., residential versus industrial),  average residential water rate, and billing collections information. For the  2 utilities that declined an interview with us, we reviewed publicly  available documents and relevant websites. For all 10 cities, we  interviewed city planning officials about population and demographic  trends, land use planning, infrastructure planning and strategies, access  to funding and resources, and challenges they face in managing their  cities with declining populations and revenues. We conducted site visits to  6 of the 10 selected cities, considering geographic distribution and size of  the cities, and conducted interviews with the remaining city and utility  officials by telephone. Specifically, we visited Gary, Indiana; Youngstown,  Ohio; Detroit, Michigan; New Orleans, Louisiana; Niagara Falls, New  York; and Macon, Georgia. During site visits, we also interviewed city  planning officials; water utility representatives; and relevant stakeholders,  including officials from other city departments, such as representatives of  Gary’s Department of Environmental Affairs and Green Urbanism and  New Orleans’s Resiliency Office. We also met with representatives of  nongovernmental organizations working with cities and utilities on water  and wastewater infrastructure issues, including the Center for Community  Progress, Detroit Future City, and the Greater New Orleans Foundation.
As part of our review of utilities and the strategies they used, we reviewed  financial statements for fiscal years 2012, 2013, and 2014 for all 14  utilities. Specifically, we reviewed total operating revenues and total  operating expenses, excluding depreciation over these 3 years. We then  used these data to calculate several basic indicators of utility financial  health. We calculated indicators that reflect each utility’s ability to pay its  long-term debt, sufficiency to cover operating costs and asset  depreciation, the remaining years of the utility’s asset life, and its long- term debt per customer. We selected these indicators based on our  review of indicators used by rating agencies, including Moody’s and Fitch,  two agencies that rate utilities and the utility sector, and interviews with  utility finance experts that EPA identified. We then compared these  indicators to scoring systems and median indicators for water and  wastewater utilities, used and gathered by Moody’s and Fitch where  available, to help describe the extent of existing long-term debt, strength  of a utility’s financial condition, and potential future capital needs. In  addition, to gauge the financial burden of water and wastewater utility bills  for median-income households and low-income households in each of our  10 selected cities, we compared the average annual utility bill as a share  of income to levels EPA and the U.S. Conference of Mayors have  estimated are affordable. We calculated rates as a share of income in  the 10 selected cities using the average residential rate information  reported by the cities’ utilities and the median household income and  income for the 20th percentile for that city reported in the American  Community Survey data (5-year estimates for 2010 through 2014).
To examine the federal programs and policies that could be used by  midsize and large cities with declining populations, and their associated  utilities, to help address their water infrastructure needs, we reviewed  relevant laws, regulations, and policies of the federal agencies that fund  water and wastewater infrastructure needs. To identify the federal  programs, we used our past reports that identified federal funding for  water and wastewater infrastructure. Specifically, we reviewed funding  information and eligibility requirements for the following six federal  programs: EPA’s Drinking Water State Revolving Fund (SRF) program,  EPA’s Clean Water SRF program, the Department of Housing and Urban  Development’s (HUD) Community Development Block Grant program, the  Economic Development Administration’s Public Works program, and the  Federal Emergency Management Agency’s (FEMA) Public Assistance  and Hazard Mitigation Grant Programs. Because we found that none of  the programs was specifically designed to assist cities with declining  populations, we reviewed program eligibility requirements to determine if  funding assistance was awarded based on the cost of infrastructure  projects and a project user’s ability to pay for the projects. Under the  Drinking Water and Clean Water SRF programs, states establish  affordability criteria for eligibility to receive additional subsidization, and so  we also reviewed states’ intended use plans, the plans they develop  annually to identify candidates for SRF loans. We also interviewed  agency officials from EPA, HUD, and the Economic Development  Administration about the programs, and gathered information from FEMA  from another GAO team.
For each federal funding program we reviewed, we collected funding data  for water and wastewater infrastructure projects from federal fiscal years  2010 through 2015, to the extent the data were available. Specifically, we  reviewed congressional appropriations and congressional budget  justifications for each federal agency to determine the total available  funding for each program. To determine expenditures for water and  wastewater infrastructure projects, we reviewed EPA’s National  Information Management System reports; HUD’s Community  Development Block Grant expenditure reports; the Economic  Development Administration’s annual reports to Congress; and data  provided by FEMA from its Integrated Financial Management Information  System. To assess the reliability of the data, we reviewed documentation  and gathered information from knowledgeable agency officials about the  reliability of the data and found them to be sufficiently reliable to  characterize overall national expenditures. In addition to national data, we  gathered information from our 10 selected cities and from 12 of the 14  drinking water and wastewater utilities on federal, state, and other funding  they received to help address their water and wastewater infrastructure  needs from state fiscal years 2010 through 2015.
In reviewing policies of the six federal agencies that could help cities and  utilities address their water and wastewater needs, we identified EPA’s  Combined Sewer Overflow Control policy as one policy that could help  wastewater utilities in cities with declining populations address their  needs. Specifically, the policy allows a city or utility to phase in combined  sewer overflow controls over time, which helps to keep customers’ rates  affordable. We reviewed EPA’s policy, first issued in 1994 and updated in  2012 and 2014, to determine how the policy could help cities with  declining populations and their wastewater utilities keep wastewater rates  affordable. Nine of the 10 cities we reviewed had wastewater utilities  under consent decrees or administrative orders to comply with specified  Clean Water Act requirements. These include 7 utilities under consent  decrees or administrative orders requiring them to address combined  sewer overflows; some of these utilities are also required to address  sanitary sewer overflows, and 2 utilities are under consent decrees  requiring them to address sanitary sewer overflows, according to EPA,  city, and utility officials. We collected information from these cities and  their utilities on the use of extended implementation schedules and  reviewed the consent decrees filed in federal court or administrative  orders, and the long-term control plans that the cities developed to correct  problems, to the extent the documents were available. We obtained  information from city and utility officials on the estimated costs to comply  with the consent decrees and administrative orders. We also obtained  and reviewed EPA’s list of cities that had consent decrees with extended  implementation schedules.
We conducted this performance audit from July 2015 to September 2016  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Economic and Demographic Characteristics of 10 Selected Cities
paragraphs: This appendix provides economic and demographic characteristics for the  10 cities in our review using the U.S. Census Bureau’s American  Community Survey 5-year estimates, 2010 through 2014, the most  recently available data as of July 2016. Table 7 provides the economic  characteristics of the 10 cities that we selected for review.
Table 8 provides demographic characteristics for the 10 cities that we  selected for review.
section_title: Appendix III: Drinking Water Needs of Utilities Serving 10 Selected Cities
paragraphs: This appendix presents data on general system characteristics and  infrastructure needs of drinking water utilities serving 10 selected cities  with declining populations (see table 9). Data were compiled from written  responses and oral responses from drinking water utility representatives,  annual reports, planning documents, and capital improvement plans,  when available.
section_title: Appendix IV: Wastewater Needs of Utilities Serving 10 Selected Cities
paragraphs: This appendix presents data on general system characteristics and  infrastructure needs of wastewater utilities serving 10 selected cities with  declining populations (see table 10). Data were compiled from written  responses and oral responses from wastewater utility officials; annual  reports; planning documents; capital improvement plans; and the  Environmental Protection Agency’s Wastewater Needs Survey, when  available.
section_title: Appendix V: Operating Revenues, Operating Expenses, and Rate Increases
paragraphs: This appendix presents data on operating revenues and expenses for the  14 drinking water and wastewater utilities serving the 10 cities with  declining populations that we selected for review (see table 11). Data are  compiled from financial statements from fiscal years 2012 through 2014.  In addition, information on frequency of rate increases and rate increases  from 2012 through 2014 is provided.
section_title: Appendix VI: Financial Indicators of Utilities Serving Selected Cities
paragraphs: No single indicator or set of indicators is definitive in describing a utility’s  financial condition. Financial indicators that reflect the financial strength of  a utility’s operations, along with other primary factors—such as the size  and health of the system, its service area, the state laws, municipal  ordinances, and charters governing its management—and the strength of  its rate management and its regulatory compliance drive a utility’s  financial condition. The three major rating agencies—Moody’s, Standard  and Poor, and Fitch—use many and varying quantitative and qualitative  financial indicators to evaluate a utility’s financial condition and  associated bond rating. This appendix contains selected financial  indicators for utilities serving 10 selected cities with declining populations.  The indicators, shown in table 12, were calculated using data from the  utilities’ fiscal year 2014 financial statements. These indicators were  selected to reflect current and future financial condition, considering  current and future debt to address infrastructure needs. A description of  each indicator and method of calculation is described below.
Debt service coverage ratio is a measure of a utility’s ability to pay its  long-term debts. This financial indicator is a key measure in evaluating a  utility’s revenue system and is used by all three rating agencies.  According to the agencies, a debt service coverage ratio greater than 1.0  indicates that the utility has additional revenue available to cover  additional debt payments, if needed. The magnitude by which net  revenues are sufficient to cover additional debt, or debt service, indicates  the utility’s margin for tolerating business risks or declines in demand,  while still assuring repayment of debt. For example, a higher debt service  coverage level indicates greater flexibility to withstand customer  resistance to higher rates. A debt coverage ratio less than 1.0 indicates  that the utility has insufficient revenues to make annual principal and  interest payments on long-term debt.
Formula: Annual net operating revenues (calculated by subtracting total  operating expenses, excluding depreciation from total operating  revenues) divided by the annual principal and interest payments (on all  long-term debt).
Better operating ratio is a measure of a utility’s ability to raise revenues to  pay for its operating costs, including depreciation of existing  infrastructure. Including depreciation means that a utility’s ability to  replace its infrastructure, or capital assets, as they depreciate is also part  of the calculation. A better operating ratio greater than 1.0 indicates that  the utility has revenues sufficient to cover operation and maintenance  expenses, as well as the cost of replacing current capital assets.
Formula: Total operating revenues divided by the total operating  expenses (including depreciation).
Remaining years of useful asset life is a measure of the quality of existing  capital assets and overall asset condition.
Formula: Total asset useful life (calculated by asset value divided by  depreciation) minus the age of the asset in years (calculated by total  accumulative depreciation divided by annual depreciation).
Long-term debt per customer account is a measure of average debt  burden per ratepayer. Utilities are taking on more debt than they have in  previous years, according to a Water Research Foundation study. Fitch’s  2016 Water and Sewer Medians report also indicates an increasing trend  in median long-term debt per customer for rated utilities over the last 10  years from 2007 through 2016 by 84 percent.
Formula: Long-term debt divided by the total number of utility customers  (for a combined utility, the aggregate number of water and sewer  accounts are used).
Recent bond rating is an assessment by a rating agency of a utility’s  ability to repay new debt, using all the quantitative and qualitative  information that the agency has gathered on the utility’s financial and  operating circumstances. A rating is derived from quantitative factors,  such as values of financial indicators of past financial condition, and from  forecasts of future financial performance. It also depends on qualitative  factors, such as utility management’s success in rate setting, complying  with environmental regulations, budgeting for annual expenditures, and  planning for future capital spending. In addition, a utility’s rating is  affected by the rate covenants and debt service reserve requirements it  has agreed to in order to issue bonds.
section_title: Appendix VII: Rates and Billing Collection Information
paragraphs: This appendix presents data on water and wastewater rates and billings  collection information for 14 utilities we reviewed serving 10 selected  cities with declining populations (see table 13). Data were compiled from  data and information collected from utility officials and American  Community Survey data.
section_title: Appendix VIII: Cost Control Strategies Used by Water Utilities Serving 10 Selected Cities
paragraphs: This appendix describes the use of five cost control strategies by 14  water and wastewater utilities providing service to the 10 cities with  declining populations that we reviewed. The five strategies are  rightsizing to meet current demands (i.e., reducing treatment capacity or  decommissioning water lines and sewer lines in vacant areas), major  reorganization, expanding the utility’s customer base, public-private  partnerships, and asset management. (See table 4 for corresponding  summary table.)
subsections: section_title: Rightsizing Infrastructure to Meet Current Demands
paragraphs: Three of the 14 utilities we reviewed have undertaken rightsizing.  Representatives we interviewed from 2 of those utilities—Detroit Water  and Sewerage Department and Gary Sanitary District—said that they  were considering large-scale rightsizing of their water infrastructure to  more appropriately meet current demands. According to Environmental  Protection Agency (EPA) reports, rightsizing can potentially improve the  overall efficiency of the system and reduce long-term maintenance costs.  Detroit officials said that they were planning to downsize their water  treatment capacity from 1,720 to 1,040 million gallons per day to address  reduced water demand experienced in recent years. According to its 2015  updated water master plan, downsizing water treatment capacity will  result in a life cycle cost savings of about $450 million to align with  projected water demand, which declined by 32 percent from 2000 through  2014, in part because of population decline in the region. Detroit is also  investigating selective retirement of water pipelines in vacant areas of the  city as part of a long-term strategy to reduce system renewal and  rehabilitation costs.
Similarly, according to city officials and a utility representative, the city of  Gary, in collaboration with the Gary Sanitary District, was in the process  of developing a new land use plan and city rezoning that will identify  areas appropriate for decommissioning services, including wastewater  services, to some neighborhoods with high vacancies. As of November  2015, of approximately 13,000 blighted properties in Gary, about 8,000  were vacant and occupied large portions of neighborhoods on the  periphery of the city, according to city planning officials we interviewed.  According to a utility representative we interviewed, some areas in the  city were in obvious need of rightsizing, and the utility had already shut off  water and wastewater service to some streets and city blocks.
Many of the utility representatives we interviewed told us that rightsizing  was not practical or feasible, which is consistent with the findings from  several studies and EPA reports on rightsizing that we identified. For  example, the representatives told us that they did not have entirely vacant  blocks that would make decommissioning service lines possible—usually  a few occupied houses remained. In addition, water and sewer lines must  often be kept to maintain service to remaining houses that are further  away. Utility and city planning officials we interviewed also noted the  political challenges associated with any displacements necessary to  decommission water or wastewater services to a neighborhood, or to  reduce water infrastructure capacity in a way that might limit growth in the  future.
As part of considering rightsizing their infrastructures, 5 wastewater  utilities we reviewed—Detroit Water and Sewerage Department and Gary  Sanitary District and 3 other wastewater utilities we reviewed—indicated  that they have incorporated in their plans, or were considering using,  green infrastructure to help reduce sewer overflows. Green infrastructure  uses a range of controls, such as vegetated areas, stormwater collection,  or permeable pavement, to enhance infiltration, evapotranspiration, or  reuse of stormwater on the site where it is generated. The use of green  infrastructure can help reduce the amount of stormwater that enters the  sewer system, preventing sewer overflow events, and is a potentially less  costly approach to helping control combined sewer overflows, according  to Natural Resources Defense Council reports. Some utility  representatives and city planning officials we interviewed said that green  infrastructure is an opportunity for improving blighted and vacant areas  within their cities.
The 10 cities with declining populations we reviewed had housing  vacancy rates averaging 21 percent, based on our analysis of American  Community Survey data, 5-year estimates 2010 through 2014. According  to a study we reviewed, placement of green infrastructure on vacant  properties can provide environmental, social, and economic benefits and  help address problems created by vacant housing, which when left  undemolished contributes to blight, crime, and the further abandonment  of neighboring properties and adds debris to the sewer system and  contributes to the combined sewer overflow problem. All 5 utilities that  had incorporated green infrastructure in their plans to help control sewer  overflows, or were considering using green infrastructure, were  collaborating with city planners and others on implementation, and three  of the 5 utilities collectively committed more than $150 million for green  infrastructure, including funding for demolitions in areas targeted for  green infrastructure, according to planning documents we reviewed.  Challenges to implementing green infrastructure approaches, according  to some representatives from utilities and city planning officials, include  establishing responsibilities for and funding of maintenance of green  infrastructure; proving the effectiveness of green infrastructure  approaches; and breaking silos of organizations (e.g., utilities, city  departments, and community organizations) that may benefit from  supporting green infrastructure. Funding for demolition is also needed to  facilitate the repurposing of these properties for green infrastructure and  to address the backlog of properties on current city demolition lists,  according to a few of the city officials we interviewed.
section_title: Major Reorganization
paragraphs: Representatives we interviewed from some of the 14 utilities in our review  described undertaking a major reorganization to reduce costs and  improve management efficiencies, including the creation of new  organizations to manage water and wastewater infrastructure and major  staff reduction, and optimization efforts, such as revised organizational  structure and job descriptions, within the existing organization.  Specifically, 5 utilities we reviewed, undertook major reorganizations.  Three of the reorganized utilities created entirely new organizations,  independent from their city governments, to manage drinking water and  wastewater infrastructure in cases where the cities faced financial  challenges.
For example, in September 2014 the city of Detroit and surrounding  counties entered into an agreement to establish the Great Lakes Water  Authority to operate the water supply and sewage disposal system, which  were owned by the city of Detroit and operated by the Detroit Water and  Sewerage Department. Under the agreement, the Detroit Water and  Sewerage Department will operate and maintain the water and sewer  lines that provide service to customers within the city boundaries. In  addition, the Great Lakes Water Authority will pay the city of Detroit $50  million annually to lease the regional facilities it operates; the Detroit  Water and Sewerage Department will use the funds for capital  improvements to city-managed infrastructure, among other things. The  Great Lakes Water Authority will also dedicate 0.5 percent of revenues  annually to fund a regional water assistance program for low-income  residents throughout the authority’s service area. Two of the 14 utilities,  including one that reorganized, downsized staffing by about 30 percent  and 40 percent, respectively, after reorganizing to reduce operational  costs and create efficiencies. A fifth utility created a new organizational  structure, among other things, to facilitate alignment of work processes  between the utility and the city to more efficiently and cost effectively  replace water, sewer, and drainage infrastructure alongside the rebuilding  of roads.
section_title: Expanding the Utility’s Customer Base
paragraphs: By expanding their customer bases, utilities can take advantage of  excess treatment capacity to generate additional revenue. They can also  take advantage of economies of scale to spread their costs across a  greater number of customers, resulting in lower costs per customer and a  stronger financial condition for the utility. Representatives we interviewed  from half of the utilities (7 of 14) we reviewed already served a regional  area, with a correspondingly larger customer base, well beyond the  boundaries of the cities that they serve—some provide service county- wide, some provide service across multiple counties, and a few provide  service statewide. According to representatives we spoke with, some (5  of 14) of the utilities we reviewed were looking to expand their customer  bases by widening their service areas (e.g., regionalizing), to attract  commercial or industrial businesses to locate within their existing service  areas, or both. Specifically, 2 utilities were actively seeking opportunities  to expand their service areas. These 2 utilities had taken steps such as  setting aside funding to support water and sewer packages and benefits  for businesses or encouraging business placement within their service  areas. One utility was using both approaches to expand its customer  base.
Many utilities—including some that were already taking steps to expand  their customer bases—noted various limitations to doing so. For instance,  a few utilities noted competition from other cities trying to attract industry  and commercial businesses. In addition, surrounding communities may  already have their own water and wastewater infrastructure and utilities,  so expanding service areas means convincing existing utilities and their  customers of the benefits of receiving services from another utility. For  example, one utility representative told us that the utility’s board was  discussing the possibility of providing service to a neighboring area, but  the cost of connection is $12 million, more than the neighboring city would  like to pay. A representative from another utility said that it had attempted  to consolidate with neighboring communities but that there was a lack of  interest on the part of other communities.
section_title: Public-Private Partnerships
paragraphs: Of the 14 utilities we reviewed, few used public-private partnerships as a  strategy to help address infrastructure needs. Such partnerships typically  involve a government agency contracting with a private partner to  construct, operate, maintain, or manage a facility or system, in part or in  whole, that provides a public service. Public-private partnerships can take  different forms short of a private company purchasing the utility and its  facilities, including long-term contractual agreements between a public  and a private entity to provide day-to-day operational or management  services of facilities or contracting for management consulting services.
Of the 14 utilities we reviewed, 4 had some experience with public-private  partnerships. One utility had—over the last 25 years—an ongoing  contract with a private company to manage the day-to-day operations of  its wastewater facility. In the past, another utility had a similar contract  with a private company to manage daily operations of its wastewater  facility. The third utility hired a private company to work with the utility’s  management for several years to identify cost reduction opportunities.  Finally, according to the 2015 annual report of its parent company, 1 of  the 2 privately owned utilities we reviewed had a series of agreements  with public entities for the construction and financing of utility  infrastructure, which was leased to its public partners.
Of the remaining 10 utilities that did not have experience with public- private partnerships, a few shared varying perspectives on public-private  partnerships. Representatives from 1 said that the utility was open to  using the strategy. However, representatives from 2 others said that their  utilities preferred to be self-reliant because of public perception that  private contractors would not take as great care of the facility as the  public utility. In addition, representatives from 1 of these privately owned  utilities highlighted the benefit to the community of enhanced economies  of scale and additional resources provided by a large private utility, such  as its parent company, including investor support and shared laboratories  for water quality testing.
section_title: Asset Management
paragraphs: Of the 12 utilities whose representatives we interviewed, representatives  from 4 utilities told us that they had asset management systems in place.
Asset management is a framework for providing the best level of service  at the lowest appropriate cost and involves identifying and prioritizing  assets for routine repair or replacement (versus emergency repair). It is a  widely recognized tool used across a variety of sectors to manage  physical assets, such as highways, machinery, and buildings; in the case  of water and wastewater infrastructure, key assets are pipelines, tanks,  pumps, and other facilities.
Representatives from 1 of the 12 utilities we interviewed, Macon Water  Authority, said that it had fully integrated the use of asset management in  physical and financial management of the utility. Macon representatives  said that they integrated information from their asset management  program into a 10-year long-range planning model used to estimate  needed income and revenue requirements to manage day-to-day  operations, fund replacement of infrastructure, fund normal repairs, and  fund maintenance and upgrades. The utility has done this, according to  the representatives, while keeping rates low, and representatives  acknowledged that receiving a $93.5 million grant from the Federal  Emergency Management Agency to replace the utility’s drinking water  treatment plant also helped to keep rates low.
Representatives we interviewed from 7 of the remaining utilities said that  they had partially implemented or were in the initial stages of developing  asset management inventories and plans. A few utility representatives we  spoke with acknowledged the value of the strategy in identifying priorities  for spending. One utility did not have an asset management plan and was  not developing one because, according to its officials, it tracks locations  of breaks and other maintenance needs and focuses resources on  repairing those.
section_title: Appendix IX: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Susan Iott (Assistant Director),  Mark Braza, John Delicath, Kaitlan Doying, Holly Halifax, John Mingus,  Robert Sharpe, Jeanette Soares, Anne Stevens, Sara Sullivan, Kiki  Theodoropoulos, and Swati Sheladia Thomas made key contributions to  this report.