Assessing Water Affordability

Pacific Institute | August 14th, 2013

A new pilot study in California shows many households, even within affluent communities, routinely spend over the affordability threshold of 2 percent of their household

A new pilot study in California shows many households, even within affluent communities, routinely spend over the affordability threshold of 2 percent of their household income on their water bill. The number of water systems with “unaffordable” rates varies by region and measure used – which has important implications for policy makers. Assessing Water Affordability: A Pilot Study in Two Regions of California, from the Pacific Institute in partnership with Community Water Center and Fresno State University, looks at both an urban and rural case: the Sacramento metropolitan area and the Tulare Lake Basin. In Sacramento, using the most common form of determining affordability – the annual water bill as a percent of median household income at the water system scale – few water systems appeared to suffer from unaffordable rates. In contrast, in the Tulare Lake Basin, 18 percent of systems had unaffordable rates. Using a more fine-grained measure based on household income levels reveals even higher levels of unaffordability in both regions. In the Sacramento metropolitan region, measuring on a water-system-wide scale vs. a household scale means the difference between recognizing zero water systems with unaffordable rates vs. 100,000 households with unaffordable water rates. In the rural Tulare Lake Basin, measuring on these different scales means finding only nine out of 51 water systems with unaffordable rates vs. nearly 4000 households with unaffordable water rates – some 40% of the households in the study group. “Water rate affordability is a central element to water access, and cost makes water excludable and inaccessible to those who cannot afford it,” said Dr. Juliet Christian-Smith of the Pacific Institute. “Water affordability is also a major concern to public welfare, safety, and security. When households are unable to make their water payments, consequences can include public health crises, social unrest, and lost revenue for water providers that can threaten their fiscal stability.” The study’s results show that a significant number of areas within water systems have unaffordable rates, even if the system as a whole does not, and so it may be more important to consider household income rather than median income when assessing and addressing water affordability.

Beyond Water Pricing: An Overview of Water Financing Options in California

Pacific Institute | November 21st, 2013

California’s social and economic well-being is directly tied to financing for reliable, sustainable water. A new study from the Pacific Institute explores stable and su

California’s social and economic well-being is directly tied to financing for reliable, sustainable water. A new study from the Pacific Institute explores stable and sustainable sources of funding for water projects as a key to long-term solutions, and finds California’s increased dependence on general obligation (GO) bonds in funding water systems is unreliable and costly to both the state and taxpayers. Current water rates often do not fully cover the cost of providing water services and rarely reflect the full costs of the water itself, such as the ecosystem impacts related to extracting water. California ranks at the top of the EPA’s survey of infrastructure needs in terms of the investments required to maintain aging water systems over the next two decades. Climate change, continued population growth, and restoring critical ecosystems will add further to these costs. “Various financing options are used to invest in existing water systems and services, develop new ones, and mitigate environmental impacts, but there are serious economic and financial challenges,” said Dr. Newsha Ajami, lead author of the report. “The water sector needs a more comprehensive and stable financing portfolio.” According to the California Department of Water Resources, nominal annual debt service for outstanding general obligation water bonds in California has increased four-fold since 2000. This shift to greater use of bond funding can be linked to the decreased ability to raise government revenues through taxes and fees as a result of voter-approved initiatives like Proposition 13 and 218. General obligation bonds, however, are not a steady and reliable source of funding for long-term planning and decision-making because they require voter approval if they survive the legislative process, which is sensitive to economic ups and downs.

California Water Rates and the “New Normal”

Pacific Institute | June 9th, 2013

Water service providers are facing new challenges in forecasting and preparing for future water demand, staying fiscally solvent while providing fair prices, incorporatin

Water service providers are facing new challenges in forecasting and preparing for future water demand, staying fiscally solvent while providing fair prices, incorporating conservation and efficiency, and communicating clearly to customers about rates and service. Beginning in 2012, the Pacific Institute conducted an extensive survey and series of workshops on water rates and finances to better understand how water is priced by more than a thousand different water providers in California, both public and private – and to help agencies identify effective rate-making strategies. The resulting Need To Know: Water Rates series (see below), released in partnership with the Alliance for Water Efficiency and the Community Water Center, highlights strategies that help water service providers cope with the “new normal” or an era of decreased water demand due to a variety of factors from weather to the economy to increased conservation and efficiency. In the spring of 2013, the first white paper on the Institute’s Water Rates Survey and research was also released. This new research analyzes different rate structures that can be used to accommodate this “new normal” so that a utility is able to meet costs and ensure resiliency in an uncertain future. The most common water rate structures – flat fees, uniform rates, block rates, and water budget rates – require varying levels of financial, institutional, and human capacity to implement, and so choosing between them means evaluating whether the potential benefits are greater than the cost to provide the necessary capacity. The white paper An Overview of the “New Normal” and Water Rate Basics examines the rate structures and the characteristics of the new normal, which includes more uncertain water supply; new legislation, codes, and standards; and overall increasing costs to provide a safe drinking water supply.

Dreher v. City of Los Angeles Department of Water and Power

California Courts, Judicial Branch of California | December 8th, 2025

Economic Efficiency of Water Use and Allocation in California: A Scoping-Level Analysis

Delta Vision Blue Ribbon Task Force (Delta Vision) | July 1st, 2008

This report identifies key issues related to the economic efficiency of water development, allocation and use in California and discusses general policy changes that migh

This report identifies key issues related to the economic efficiency of water development, allocation and use in California and discusses general policy changes that might improve economic efficiency. Policy options focus on water pricing, water transfers, water use efficiency (i.e, conservation) and State development and enforcement policies. Analysis is provided at a scoping level of detail. Some important empirical issues that weigh on the relative merits of potential policy changes are not addressed. Efficiency of water use has never been more important in California. There is a need to save water and money. California has recently made progress in improved economic efficiency of water use, but major issues remain. Also, recent changes in the amount and location of supplies suggest a review of allocation efficiency. There are two important efficiency topics that this paper does not address in detail. First, economic efficiency of water use for ecosystem purposes is a viable concept, but it is difficult to apply given the state of Delta ecosystem science and the current range of possible futures. We can not quantify the relationship between water and ecosystem functions and values. Therefore, our ability to prescribe efficiency changes related to Delta water for ecosystem purposes is limited. Second, this paper also does not address the economic efficiency of major new storage or Delta conveyance facilities. The efficiency of specific water supply projects including regional or local conjunctive use and groundwater storage projects are also not considered. These are being addressed in different forums. This report focuses on other types of uses, allocations and development of water. A variety of potential actions and policies that might improve efficiency in the allocation, use and development of water resources are discussed. Some of the efficiency issues are • Are water allocations under California’s water rights systems efficient? • If there are inefficiencies, could an effective water transfer market increase efficiency? • Are there barriers or constraints to water transfer markets that should be removed? • How could water pricing be changed to increase efficiency? • How could California encourage efficiency in the use and development of water through incentives such as grants and loans, and through enforcement? In all cases, our findings represent potential improvements from the perspective of economic efficiency alone. There are usually other, non-economic considerations which would play into the larger question of the laws and policies that might be changed.

Economic Incentives— Loans, Grants, and Water Pricing (Resource Management Strategy)

California Department of Water Resources (DWR) | July 29th, 2016

Economic incentives include financial assistance, water pricing, and water market policies intended to influence water management. Economic incentives can influence the a

Economic incentives include financial assistance, water pricing, and water market policies intended to influence water management. Economic incentives can influence the amount and time of water use, wastewater volume, and source of water supply. Examples of economic incentives include low interest loans, grants, and water rates and rate structures. Free services, rebates, and the use of tax revenues to partially fund water services also have a direct effect on the prices paid by water users. Government financial assistance can provide incentives for integrated resource plans by regional and local agencies. Also, government financial assistance can help water suppliers make incentives available to their water users for a specific purpose. Assistance programs can also help align the economic and financial drivers affecting local, regional, and statewide water management decisions to minimize unintended consequences and maximize the benefits of working cooperatively with consistent goals and objectives. As opposed to incentives, penalties are a type of economic disincentive that can be used to discourage undesirable water use behavior. Incentives can be created or enhanced by facilitating water market transfers, by creating market opportunities where they did not exist, by expanding opportunities where they currently exist, or by reducing market transaction costs. In each case, new or enhanced market opportunities can influence water management decisions.

Estimation of residential outdoor water use in Los Angeles, California

Landscape and Urban Planing (Elsevier) | July 1st, 2014

The current study analyzes existing methods for estimating outdoor use and landscape irrigation in highly developed residential areas across Los Angeles. Outdoor use was

The current study analyzes existing methods for estimating outdoor use and landscape irrigation in highly developed residential areas across Los Angeles. Outdoor use was estimated using three methods: two methods described by the Pacific Institute and a third approach that utilizes remotely sensed vegetation and water billing data. Monthly individual water use records were provided by the Los Angeles Department of Water and Power (LADWP) for 2000–2010. This period includes voluntary and mandatory restrictions due to drought conditions across the state. Records were aggregated to the census tract level to protect customer privacy. The two Pacific Institute methods, which are based on water billing data, generally underestimate outdoor use due to assumptions that the lowest water consumption month represents indoor use, which is likely not the case in Los Angeles. The remote-sensing model developed between single-family water use and the Landsat normalized difference vegetation index (NDVI) surplus performed well in greener areas of the city and indicates that landscape irrigation use represents 54% of total single-family water use. The model also predicts an average decrease in landscaping irrigation of 6% and by 35% during voluntary and mandatory restrictions, respectively. Voluntary conservation and mandatory waste restrictions were less effective for higher income groups in the city, while more stringent pricing and non-pricing mandatory restrictions in FY2010 had similar effects across income groups. Study results contribute to a better understanding of the partitioning of Los Angeles residential water use and can be utilized to evaluate pricing structures and target water conservation efforts.

Free Water While It Lasts: An Analysis of Wholesale Water Pricing in the Lower Colorado River Basin States

University of California, Los Angeles (UCLA) | December 11th, 2025

The Colorado River is facing a shortage of between two million and four million acre-feet per year (MAFY), nearly one-third of its current annual flow and the equivalent

The Colorado River is facing a shortage of between two million and four million acre-feet per year (MAFY), nearly one-third of its current annual flow and the equivalent of the amount needed to supply up to 30 million people with water each year (Shutt, 2022). Following a century of declining flow and two decades of the worst drought in more than 1,200 years to grip the U.S. Southwest, the U.S. Bureau of Reclamation is putting pressure on states that draw from the Colorado River to reduce water usage and create a long-term plan for responsible water management. But the price that agricultural and municipal water districts and utilities pay to divert federal water supplies in the western United States disincentivizes sustainable water practices and conservation efforts. In this paper, the UCLA Institute of the Environment and Sustainability (IoES) and the Natural Resources Defense Council (NRDC) explored the current state of water pricing for surface water supplies across Arizona, California, and Nevada, the three states comprising the Lower Colorado River Basin. We demonstrate that the vast majority of water sourced through the federal government from the Colorado River and other federal projects is sold or supplied at prices that do not reflect the scarcity of the resource; we also identify significant disparities between large agricultural districts and municipal utilities in the price paid for water at the wholesale level.

Groundwater and Urban Growth in the San Joaquin Valley

Public Policy Institute of California (PPIC) | September 20th, 2021

The San Joaquin Valley is ground zero for the Sustainable Groundwater Management Act (SGMA). It has the largest groundwater deficit in California and faces some of the

The San Joaquin Valley is ground zero for the Sustainable Groundwater Management Act (SGMA). It has the largest groundwater deficit in California and faces some of the worst impacts from overdraft, including land subsidence and drying wells. SGMA will help the region address these issues—while also building its climate resilience. But this will require hard work, not only by farmers—the largest groundwater users—but also by the valley’s urban water utilities, which serve a growing population while relying mostly on groundwater. As the valley confronts limits on groundwater pumping, urban utilities, local land use authorities, other water users, and state agencies must all engage to ensure a smooth transition for the region’s residents.

Managing Drought: Learning from Australia

Pacific Institute | February 1st, 2016

Overall, Australia survived the Millennium Drought, demonstrating world leading innovation and exceptional examples of water planning and management driven by crisis. Yet

Overall, Australia survived the Millennium Drought, demonstrating world leading innovation and exceptional examples of water planning and management driven by crisis. Yet there are also examples of missed opportunities, as well as initiatives and decisions that did not work well. The research presented here reflects on some of the key lessons from the Australian Millennium Drought experience in order to assess the opportunities for California. This report serves as a powerful resource for Californian water planners and managers as it grapples with drought and seeks to build resilient and sustainable water systems. It provides a one-stop shop overview of the key events and initiatives implemented in Australia’s four largest cities – Sydney, Melbourne, Brisbane (and the surrounding south east Queensland region), and Perth. The work represents one interpretation of the drought and responses, informed by significant engagement with utilities and governments throughout that period, and a close working knowledge of the water systems and the policy environment. Specific attention is given to the role of demand-side measures in reducing the impact of drought. In Australia, urban water efficiency was the quiet achiever – saving more water at lower cost and greater speed than supply options. California can benefit from long-term structural water savings by implementing water efficiency measures at a similar breadth and scale.