Introduction
Baltimore is a city of 620,000 with a metro area population closer to 2.7 million.[i]The city’s population continues to shrink, while the surrounding suburbs grow in population and wealth. Today, Baltimore’s story of de-industrialization and population decline is reflected in the state of the city’s water infrastructure, which is stressed by not only deferred maintenance and delayed upgrades, but also the effects of climate change. Solutions to Baltimore’s water challenges are relevant not just to its residents, but also to the national conversation about how once-populous cities continue to serve their residents equitably amid funding cuts and reduced tax revenue.
Like other post-industrial cities, Baltimore’s water system faces a range of management challenges associated with aging infrastructure, deferred maintenance and a changing climate. However, key pieces of infrastructure are still largely functional. The city’s two water filtration plants are adequate and the two wastewater treatment plants were recently upgraded to enable enhanced nutrient removal.[ii] Baltimore’s main source of drinking water is surface water drawn from Gunpowder Falls River, North Branch Patapsco River and the Susquehanna River. Three reservoirs (the Liberty, Loch Raven and Prettyboy) outside the Baltimore city limits collect and store water and have been sufficient to serve the metropolitan area’s 1.8 million consumers, even during recent droughts.[iii]
With support from the EPA and state agencies, the city is renewing attempts to manage challenges around flooding, wastewater quality and sewer overflow events. Major infrastructure decisions, described in more detail below, have been made to mitigate the impacts on water quality and flooding through large-scale gray infrastructure. While these infrastructure decisions indicate that the city is taking the current failures of its water system seriously, the long term implications for municipal debt and water affordability are less clearly optimistic. To address these challenges, we outline below a three-part financial solution that tackles the implementation of the recently passed Water Accountability and Equity Act (WAEA) as well as the potential of water rate restructuring to equitably increase revenue.
Setting the context: Sea level rise, flooding and water quality in Baltimore
Because of its coastal location, climate and high degree of impervious surface, Baltimore residents experience pluvial, riverine and tidal flooding to varying degrees. Tidal flooding is largely confined to the Inner Harbor and nearby neighborhood of Fells Point, although tidal flooding events could occur up to 100 days per year by 2050, according to sea level rise forecasts[iv]. Meanwhile, pluvial and riverine flooding acutely affect residents in proximity to Jones Falls and other urban streams, as well as non-riparian neighborhoods throughout the city. Damage to repeatedly-flooded homes and businesses has forced some businesses to relocate and homeowners to spend months rebuilding. For example, flash floods from a 2018 rainstorm ravaged 200 homes in the Beechfield neighborhood; storms like these are only becoming more common.[v]
The city’s CSO sewer system is not equipped to handle intense rainfall, as evidenced in the Department of Public Works’ reporting of ten overflow events over 10,000 gallons and dozens more under the 10,000 gallon threshold, all within the last four months.[vi]Flooding is exacerbated by the city’s century-old sewage infrastructure, which has led to severe problems with sewage overflow; in 2019 alone there were more than 5,000 sewage backups.[vii]After closing 60 out of 62 of the city’s dumping relief valves, the remaining two valves have proven unable to handle sewage inundations, causing waste to emerge into people’s basements or through toilets.[viii]
Economics + debt
In 2018, Baltimore became the first city in the country to amend its charter to prohibit the privatization and/or lease of its water and sewer utility. This allays residents’ and civic groups’ concerns that sales proposed by Veolia or a 50-year lease by Suez would undermine affordability and accountability.[ix]However, this does limit the Department of Public Works’ (DPW) financing options moving forward. Given high infrastructure cost projections, the city’s $745 million structural budget deficit,[x]and continued population decline, covering the costs of needed upgrades is challenging. EPA has contributed $86.4 million to ongoing CSO upgrades, but DPW is looking to cover other capital and maintenance costs through rate increases. Annual rate increases of 9% for water, wastewater and stormwater were approved for 2020-2022, which if continued past 2022 should cover service of the approximately $818 million of additional long-term debt needed to fund capital investment.[xi]However, despite increased revenues, both debt and overall costs of service delivery are projected to double.
While DPW has been politically able to raise rates – unlike many other water utilities – there are risks to placing such a burden on rate payers. In Baltimore, almost 60% of households earn less than $50,000, making EPA’s affordability threshold of 4.5% unattainable for many, as shown in the graphic below.
Current projects + policies to address water quality and flooding
Through a long running consent decree with the EPA around their violation of the Clean Water Act, Baltimore has taken measures to address the city’s water issues through a suite of gray infrastructure projects. The city committed to strategically replacing pipes throughout the system, mainly using cured-in-place pipe techniques.[xiii]In addition, Baltimore updated their city code to streamline and incentivize voluntary GSI projects on private property, which are currently subject to arduous permitting and liability requirements. This is important not only to reduce sewer overflows, but to mitigate the chronic flooding that plagues riparian neighborhoods and low-lying areas throughout the city.
The biggest infrastructure project in progress is the $430 million Back River Treatment Plant Headworks Project, which will add 36 million gallons of storage to prevent sewage overflows and backups.
The Headworks Project shown in the diagram above includes eight pumps — essentially acting as a giant sump pump — that pump sewage from backed-up mains into new storage tanks, rather than releasing it into the waterways or risking more basement backups. The city estimates that the project will eliminate more than 80% of the sewage overflow.[xiv]Though the city has secured funding for the Headworks Project, a lack of comprehensive planning and stricter federal regulations unaccompanied by commensurate federal investment has led to lags in infrastructure maintenance and high projected infrastructure costs. From 2010 to 2018, the cost of water services in Baltimore increased by 127%.[xv] In January 2019, the city approved a 30% rate increase over 3 years.[xvi]As the city turns to steep rate increases to make repairs and improvements, more residents are unable to pay, creating a downward spiral of unaffordability.
Pushed by activists fighting for water affordability and transparency as a racial justice issue, Baltimore passed the Water Accountability and Equity Act (WAEA) this January. The momentum for the WAEA built off the water justice leadership and movement to prohibit the privatization and/or lease of Baltimore’s water and sewer utility mentioned earlier. The WAEA makes Baltimore the second city in the country, after Philadelphia, to establish an income based water affordability program. The Act includes two main provisions: the first establishes the Water for All Discount Program, a percentage-of-income water affordability program that caps water bills for the lowest income households at 1%. Now, even with continuing rate increases, the program caps low income households’ water bills. The second part of the legislation establishes the Office of Water-Customer Advocacy to promote fairness, accountability, and streamline the structure for contesting bills, cut-offs, liens, and other agency actions. This new office is crucial because water consumers have been subject to a long-dysfunctional billing system with erroneous billing charges sometimes up to thousands of dollars. Just two years ago, hundreds of residents received bills over $50,000.[xvii]
Affordability and pricing solutions for Baltimore
Part 1: Implementing the Water Accountability and Equity Act (WAEA)
The WAEA’s planned date for implementation has been delayed due to the COVID-19 situation and recently, the acting director of DPW, Matthew Garbark spoke about system limitations, budgetary constraints, and using innovation to meet the law’s requirements.[xviii]WAEA is a crucial piece of legislation and now there are even more questions about meeting the law’s requirements given the rippling effects of COVID-19 on the city, particularly the most vulnerable households. Prior to the crisis, more than a third of the city struggled with unaffordable water bills, which will only worsen with rising unemployment and unforeseen costs from the pandemic. Currently, the city has delayed water billing, and halted late fees and water shut-offs until May 8, but DPW should take more actions to ensure household stability in the months following the pandemic and end of the State of Emergency.[xix]By examining the shortcomings and challenges of Philadelphia’s income-based assistance program, we propose several recommendations to ensure that the WAEA is implemented effectively at this crucial time.
Because Baltimore has no dedicated funding for the WAEA, the affordability program will be paid for through existing revenues or financed with additional debt. DPW estimated that the Water-for-All program would be upwards of $30 million, assuming an enrollment rate of 50%. Because the city and DPW maintain significant debt already, our recommendation is to take action similar to Philadelphia and cover the additional costs with a small surcharge to all bills. On an annual or more frequent basis, the Board of Estimates (BOE) which is already in charge of establishing, assessing, and changing rates for wastewater and water services, can adjust the surcharge based on the cost of subsidizing low-income consumers.
Part 2: Relieving ratepayer debt
Water debt is a large issue in Baltimore, with homes foreclosed as a result of unpaid bills of as low as $250. As of last year, there were about 25,000 properties on the tax list sale for outstanding debt (with 70-80% of them with water bills as a piece of their debt).[xx]The Water Taxpayer Protection Act removes water bills from the tax sale equation for residential properties. However, just as in Philadelphia, water customers can still continue to accrue water debt through penalty charges and lien fees. Currently, for participants in the Water-for-All Discount Program created under the WAEA, each on-time complete payment made by a recipient is also credited towards their pre- enrollment water debt in the amount of said payment until all water debt is paid off.
As part of our solution, we recommend enacting a meaningful debt forgiveness (also known as a utility arrearage forgiveness program, which already exists with utilities like gas and electricity) that completely eliminates the accumulated debt over 1-3 years. This can be phased in with the goal first being to clear debts after 3 years, and eventually shrinking the time span to one year. This type of program eliminates the debt for the most low-income and vulnerable households and promotes household and community stability.
Part 3: Moving to increasing block rates to raise revenue
With the expanded scope and implementation plan for the WAEA in place to ensure that the system functions more justly, DPW and the City Council can then focus on how to balance revenues and costs more sustainably. We propose a two part pricing solution: 1) better enforcement of metering and billing for industrial and institutional customers, and 2) a transition from uniform to increasing block rates, with differentiated rates for residential, commercial and industrial users.
Improved enforcement of large consumers should be straightforward thanks to the recently upgraded metering system, and would bring in large amounts of additional revenue, particularly in the short term. Currently, many large-scale water consumers, including hotels, university labs, luxury apartment complexes and even a chemical plant, have received no water bills or not been pursued for non-payment.[xxi]According to a recent investigative piece from the Baltimore Brew, the sum of these unpaid bills seems to be well over $10 million. A soon-to-be-released audit should reveal the total amount of missing revenue, and the accompanying political pressure to bring these institutional and industrial users into billing compliance means there will be more appetite for better enforcement by DPW moving forward.
The second component of the pricing solution – increasing block rates – could shift some of the cost burden off of residential ratepayers, as industrial and thermoelectric energy water consumption makes up around 60% of total water use in the Baltimore metro area.[xxii]This would involve making two changes – first, DPW should create tiers, also known as blocks, with the amount charged per 100 cubic feet (CCF) increasing after the first six CCF, which is the average use for a household of three (Baltimore’s average household size was 2.5 as of the most recent ACS estimates).[xxiii]In determining the exact tier cutoffs and price structure, DPW and the city’s Board of Estimates, which determines water rates, should look to Cleveland and Denver, which have tiered systems that serve a similar number of customers while dealing with entrenched poverty.[xxiv]DPW should compliment these residential tiers with analogous blocks for commercial and industrial users, using a system similar to that already employed in Baltimore County.[xxv]This rate change could go into effect in 2022 after the current set of 9% rate increases expires, giving DPW time to plan and do water conservation outreach with the users who would be most affected.
Conclusion
The future of Baltimore’s water system looks simultaneously optimistic and precarious. New projects and new laws present opportunities to finally bring the physical and policy infrastructure into the 21st century, but how and when this is rolled out remain uncertain. Ultimately, Baltimore faces the same fundamental challenge as other debt-burdened cities with small tax bases: that there simply isn’t enough funding to implement change at the necessary scale. More debt, even if financed responsibly, presents a long-term obstacle to Baltimore’s ability to provide essential services for its residents. While an expanded WAEA and new rate structure would help increase revenue equitably, there is no substitute for increased federal and state funding. New funding for water infrastructure should absolutely be included in conversations about a Green New Deal and a climate change-focused economic stimulus in response to COVID-19.
[i]American Communities Survey, 5 Year Estimates2018a. US Census Bureau.
[ii]Kappalman, Samantha. 2013.Board of Public Works Approves Funding for Clean Water and the Chesapeake BayBaltimore Department of Public Works.
[iii]“Baltimore DPW: The Region’s Water Supplier.” Baltimore Department of Public Works., https://publicworks.baltimorecity.gov/drinkingwater.
[iv]Boesch, D.F., W.C. Boicourt, R.I. Cullather, T. Ezer, G.E. Galloway, Jr., Z.P. Johnson, K.H. Kilbourne, M.L. Kirwan, R.E. Kopp, S. Land, M. Li, W. Nardin, C.K. Sommerfield, W.V. Sweet. 2018. Sea-Level Rise: Projections for Maryland: University of Maryland Center for Environmental Science.
[v]Cassie, Ron. “Hell and High Water.” Baltimore Magazine. Baltimore Magazine, May 2019.https://www.baltimoremagazine.com/section/community/climate-change-wreaking-havoc-baltimore-infrastructure-public-health.
[vi]“Sewer Overflow Map.” Interactive Maps: Department of Public Works., https://publicworks.baltimorecity.gov/interactive-maps.
[vii]Clean Water Action. “Sewage Backups in Baltimore.” https://www.cleanwateraction.org/features/sewage-backups-baltimore.
[viii]Bliss, Laura. “How Baltimore’s Clean Harbor Mandate Filled People’s Homes With Sewage.” Citylab, May 31, 2016. https://www.citylab.com/solutions/2016/05/baltimore-basement-sewage-backup/484427.
[ix]“Baltimore is A Water Justice Leader.” Food and Water Watch., https://www.foodandwaterwatch.org/news/baltimore-water-justice-leader.
[x]Raymond, Henry. 2018. Comprehensive Annual Financial Report: Baltimore City Department of Finance., https://finance.baltimorecity.gov/sites/default/files/CAFR%20FY’18%20(4-4-2019)7_0.pdf.
[xi]Davis, Jon and Joe Crea. 2019. Financial Planning Study: Department of Public Works: Department of Public Works., https://www.baltimorecity.gov/sites/default/files/Transmittal_Letter%20v011319.2.pdf.
[xii]Walton, Brett. 2018. Price of Water 2018: Utilities Revise Household Water Rate Formulas: Circle of Blue.https://www.circleofblue.org/2018/water-management/pricing/price-of-water-2018/.
[xiii]Modified Consent Decree: United States of America vs. Mayor and City Council of Baltimore (United States District Court for the District of Maryland 2017).
[xiv]Baltimore City Department of Public Works, “The Headworks Project.”https://publicworks.baltimorecity.gov/sewer-consent-decree/headworks-project.
[xv]Colton, Roger. “Baltimore’s Conundrum: Charging for Water/Wastewater Services That Community Residents Cannot Afford to Pay.” Food and Water Watch. November 2017. https://www.foodandwaterwatch.org/sites/default/files/baltimore_water_study-final_report-2017.pdf.
[xvi]Brown, Brittany. “Baltimore activists urge City Council to pass water affordability legislation.” The Baltimore Sun. July 1, 2019. https://www.baltimoresun.com/maryland/baltimore-city/bs-md-ci-water-activists-urge-city-council-20190701-story.html
[xvii]Cohen, Rachel. “Baltimore Leads a City-Based Movement for Water Justice.” The American Prospect. December 4, 2019. https://prospect.org/economy/baltimore-leads-a-city-based-movement-for-water-justice/
[xviii]Wenger, Yvonne. “Baltimore public works officials ask for more time to roll out city’s sweeping water equity law.” The Baltimore Sun. May 1, 2020. https://www.baltimoresun.com/maryland/baltimore-city/bs-md-ci-water-bill-affordability-delay-20200430-ljta3bbw2nepnegt4x7ykdtf7u-story.html
[xix]Baltimore DPW. “Water and Waste Water Billing Information.” https://publicworks.baltimorecity.gov/waterbilling_Information
[xx]Eckel, Rianna. “Countless Families Will Keep Their Homes in Baltimore Because of This Huge Water Bill Win.” April 3, 2019. https://www.foodandwaterwatch.org/news/countless-families-will-keep-their-homes-baltimore-because-huge-water-bill-win
[xxi]Reutter, Mark. 2020. “Baltimore is Not Collecting Millions of Dollars from Commercial Water Users.” Baltimore Brew. https://www.baltimorebrew.com/2020/02/28/exclusive-baltimore-is-not-collecting-millions-of-dollars-from-commercial-water-users/
[xxii]“Water Consumption in the Baltimore Region.” Baltimore Metropolitan Council, https://www.baltometro.org/blog/water-consumption-baltimore-region.
[xxiii]American Communities Survey, 5 Year Estimates2018. US Census Bureau.
[xxiv]“Cleveland Water Rates & Fees.” Cleveland Water. http://www.clevelandwater.com/customer-service/water-rates/rates-fees.
[xxv]“Metropolitan District Charges.” Baltimore County. https://www.baltimorecountymd.gov/Agencies/publicworks/metro/rates.html.