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

Journal Article (Journal Article)

Local 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.

Full Text

Duke Authors

Cited Authors

  • Smull, E; Patterson, L; Doyle, M

Published Date

  • February 1, 2022

Published In

Volume / Issue

  • 148 / 2

Electronic International Standard Serial Number (EISSN)

  • 1943-5452

International Standard Serial Number (ISSN)

  • 0733-9496

Digital Object Identifier (DOI)

  • 10.1061/(ASCE)WR.1943-5452.0001506

Citation Source

  • Scopus