A new affordability indicator for rural Alaskan water utilities

Abstract

The Alaska Department of Environmental Conservation (DEC) administers funding for the construction of new water utilities in rural parts of the state. Funding allocation is partially based on whether the recipient community can cover the annual operation, maintenance, repair, equipment and capital replacement costs of the utility. Currently, the DEC deems a project affordable if the annual costs account for 5% or less of the community's median household income (MHI). In rural Alaska MHI is an inaccurate affordability indicator. This is partially because MHI fails to reflect the cost burden experienced by below median income households, it is a static snapshot of income, it does not account for living costs, nor does it account for the demographic composition of a community or the distribution of income. An alternative indicator was developed. The new indicator is composed of a Residential Indicator (RI) and a Financial Capability Index (FCI). RI is obtained by dividing the community's annual user fee by each income quintile value. FCI is composed of socioeconomic indicators chosen for their ability to detail the situation in rural Alaska. The FCI value is obtained by calculating the average of score assigned to the indicators based on pre-established thresholds. The new indicator was found to be more accurate than the MHI indicator. The new indicator was retroactively applied to Akiachak and found to more accurately assess affordability. The new indicator was also used to assess the current situation in communities with water utilities. The MHI indicator was found to have underestimated the price burden of user fees in numerous communities, and to have overestimated the burden in one community.