Equity and Public Infrastructure Costs

The year 2020 brought many words and phrases to the forefront of the public’s collective consciousness. The idea of equity is being considered more carefully in many communities across the country. For instance, the City of Brooklyn Park, Minnesota included Equity as one of six goals to accomplish within the next five years in the Brooklyn Park 2025 plan.

There are many ways to consider equity. The idea of equity in the financing of public infrastructure is one of many topics of conversation right now. When municipalities identify necessary infrastructure improvements, such as lead service line replacement or road improvements, the merits of the various funding mechanisms must be considered. Some AE2S Nexus clients have received questions related to public infrastructure and the quality of life in lower income neighborhoods, as well as equity in relation to the creation of special assessment districts.

Ryan Graf, one of the financial professionals at AE2S Nexus, says when it comes to the idea of equity, cities need to ask themselves how they are planning for system renewal. Graf says, “As a community, you target the needs of your system to keep everything in proper working order. Infrastructure must benefit the community as a whole.”

Furthermore, Graf says there is a cost associated with reinvestment within a community. After grant funds are expended, local infrastructure costs are funded via three primary ways:

  1. General city revenue
  2. Utility-specific revenue
  3. Special assessments

“As we look across these funding sources, we note that the further you go from one to three, the closer you get to tying the activity to the revenue associated with it. For instance, applying general city revenues to the installation of a water main in front of John’s house on Elm Avenue is not as direct as using the water rates he pays to fund that portion of water main. Furthermore, using revenue from the water rates John pays isn’t as specific as charging a special assessment for a specific length of water main that runs from a corner of his property to the other corner,” says Graf. He continues, “Does this mean that it’s always appropriate to charge John for the full cost of that specific water main? No, but it means that the processes we use when identifying funding sources should consider the balance between these approaches and the general goals of the community. Eventually someone has to pay for improvements, and the pertinent issue that helps determine who will be responsible for payment generally revolves around the goals of the community and the importance of that project to the system as a whole.”

It is also important to note that equity and equitability do not mean the same thing. In the utility space, how communities charge for infrastructure and services is governed by the principle of equitability – property owners pay for the value of the service they receive. This can sometimes be tweaked or augmented by the overall policies of the community as directed by a city council or commission. Achieving equity requires communities to identify groups of people who are disproportionately disadvantaged and take steps to create policies and procedures that may result in special treatment among groups but, ultimately, creates equity. As cost allocation becomes a more common discussion within city government, we may see more communities take equity considerations into their infrastructure funding and rate setting decisions.  

According to Graf, the main points of these discussions are:

  1. Assessments are equitable, but don’t always consider equity.
  2. Community goals can inform policy choices around how charges should be structured.
  3. Communities need to reinvest in a way that is sustainable for the future.

If you have questions about the concept of equity with regards to infrastructure or utility rates, feel free to contact Ryan Graf to discuss your community’s specific situation.