Rising Market Risk Exposure of Municipal Water Service Providers in Distressed Cities

AbstractLocal governments in the US routinely provide water services drinking water delivery and wastewater treatment. After the Great Depression, the federal government shared the financial responsibility for water services. However, over the last 3 decades, federal support has declined, exposing l...

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Bibliographic Details
Published in:Journal of water resources planning and management 2022-02, Vol.148 (2)
Main Authors: Smull, Erika, Patterson, Lauren, Doyle, Martin
Format: Article
Language:English
Subjects:
Case Studies
Case Study
Drinking water
Federal government
Interest rates
Local government
Municipal water
Policies
Risk analysis
Taxation
Wastewater treatment
Water delivery
Water management
Water rates
Water resources management
Water utilities
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Summary:AbstractLocal governments in the US routinely provide water services drinking water delivery and wastewater treatment. After the Great Depression, the federal government shared the financial responsibility for water services. However, over the last 3 decades, federal support has declined, exposing local governments to greater financial risk. We analyzed the US municipal bond market and the bond offerings of 25 Pennsylvania water utilities over a 30-year period to understand how financial conditions and risk have evolved for local government water utilities. The financial health of water utilities in the US is affected by monetary policy, federal tax policy, the broader financial (bond) market, regional corporate/industrial activity, and increased pressure to maintain credit quality. Utilities in our case study are persisting with a delicate balance of low interest rates for municipal bond issuances, moderate credit downgrades, and raising water rates to maintain credit quality. If one or more of these forces slips to a greater extent (e.g., higher interest rates, larger credit downgrades, or rising affordability crises), utilities could be left with few options to sustain the fiscal solvency needed to ensure safe and reliable water services. Water managers and engineers can use these findings to understand better how federal funding and policy, central bank decisions, and market sentiment affect municipal utilities and the population that they serve.
ISSN:0733-9496
1943-5452
DOI:10.1061/(ASCE)WR.1943-5452.0001506