The blog of the Urban Institute
April 15, 2020

Families Need More Help to Keep the Lights On and the Water Running during the Pandemic

April 15, 2020

From the onset of the novel coronavirus pandemic, we were told to vigorously and more frequently wash our hands. But what happens when you don’t have water in your home? What do you do if you’ve been told to work from home but don’t have electricity? Or what if you’ve lost your job and are forced to decide between paying for utilities, rent, or food?

Congress provided $900 million in additional funding for the Low Income Home Energy Assistance Program (LIHEAP) as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Based on LIHEAP’s previous benefit rates, we estimate these new funds will help approximately 1.71 million new households—or almost 28 percent more families than the 6 million families the program served annually in recent years—pay their energy bills.

But with no supplemental federal assistance for water and sewage bills, and with no additional funding to cover the increasing number of people who will need help paying energy bills during the COVID-19 crisis—LIHEAP financial relief isn’t enough to cover all families’ utility expenses. This could result in many families left with unpaid bills and tough decisions heading into summer.

Utility bills aren’t a trivial cost for low-income households

Housing (including rent and mortgage payments), transportation, and food costs consume the biggest shares of the average household’s monthly budget, per the most recent Consumer Expenditure Survey data. But utility costs make up 6.6 percent of household expenses, almost on par with average health care costs.

Utility rates are the same for all consumers, so lower-income households’ utility costs account for a larger share of their incomes than for higher-income households. Although electric and water bills combined account for an average 3.1 percent of the average US household’s net income, they account for an average 20.6 percent of net income among households in the lowest income decile. This cost disparity between households with different income levels holds true even though lower-income households use less energy (PDF) per household and per household member.

Chart: utility costs as share of average income

There are also modest racial disparities in utility cost burdens, with African American households allotting 2.9 percent of their net income to electricity bills, Hispanic households allotting 2.4 percent, white and other households allotting 2.2 percent, and Asian American households allotting 1.3 percent.

CARES Act LIHEAP funding helps, but gaps remain

LIHEAP was created in 1981 to serve as the nation’s short-term safety net for energy costs for low-income households (those below 150 percent of the federal poverty level or 60 percent of the state median income) during emergencies and peak energy seasons, especially winter. LIHEAP is a block grant program funded through the US Department of Health and Human Services’ Administration for Children and Families. Annual formula allocations go to states, which then distribute funds through a network of local public, quasi-public, and civil-sector entities.

Four issues arise from the CARES Act’s supplemental funding for LIHEAP:

This funding increase highlights how severely LIHEAP has been underfunded for years

The CARES Act funding increase demonstrates the fundamental value of the program as part of the US safety net. Almost one-third of households experienced some challenge paying their energy bills in 2015. But before the CARES Act, the fiscal year 2020 appropriation for LIHEAP was set at $3.74 billion—a significant budget but one that addresses only a fraction of the need.

An estimated 7 million households were eligible and applied for but didn’t receive LIHEAP before the first coronavirus cases were confirmed. Many of the 17 million people who filed for unemployment insurance in the last four weeks now likely meet LIHEAP income limits too, adding to the potential 34.9 million households who could already be eligible based on their income. All households would still have to prove their income status, though.

Despite the need, LIHEAP has been regularly and increasingly underfunded. The Trump administration has consistently proposed zeroing out the program— as recently as in the fiscal year 2021 budget released two months ago—and originally proposed taking $37 million from LIHEAP for COVID-19 response, saying that state energy rules and safeguards have reduced the need for the program.

The funding isn’t enough for all current and new families in need

The CARES Act simply adds a necessary financial infusion to provide emergency utility assistance to more households. Assuming energy costs don’t fluctuate during the pandemic, the $900 million could cover 1.7 million households, based on a $525 average cost per beneficiary (PDF).

States can use the CARES Act LIHEAP funds to extend existing benefits. This means the pool of funds could be shared by a massive group of households, including existing beneficiaries, families who were already hard pressed to pay their bills before the pandemic but couldn’t access LIHEAP, and families newly suffering from the pandemic’s economic consequences. The temporary aid certainly helps, but it will help only a fraction of the current—and likely growing—need.

The act doesn’t address how this funding influx will work logistically

Devising a physical application process that works for households in need will rest entirely with local service agencies, many of which are going through their own operation challenges in responding to the pandemic. The federal government doesn’t prescribe how the grantees should manage their intake offices, how they offer alternative outreach and service delivery, or how they enact other potential changes. LIHEAP local providers are dealing with this in a variety of ways, with many stopping in-person applications altogether.

The additional funding sheds light on inconsistencies across states’ rules

Several states did have prohibitions on energy shutoffs, but they were almost exclusively for special groups such as the elderly, those with illnesses, or households with young children, and only at certain times of the year (mainly winter). Amid the pandemic, 22 states and the District of Columbia have expanded these rules to cover all households temporarily. Utility companies in other places are voluntarily suspending shutoffs for all residential policies, waiving late and reconnection fees, and suspending rate increases. But the duration of these rules varies widely and continues to change as the pandemic continues.

The rush for energy protections by state and local governments demonstrates that previously existing state rules were insufficient to cover the range of energy needs and energy poverty that has expanded during the current crisis.

Expanding funding to meet the range of need

In addition to electricity shutoff prohibitions, many state and local governments have only recently begun to institute similar shutoff moratoria for water. There is no national water assistance program equivalent to LIHEAP, even though an estimated 1 out of every 20 US households has been disconnected from public water utilities.

There are also fewer safety nets for low-income families’ use of other increasingly essential services, such as phone service and broadband internet. A longer-term look at these needs can help devise an efficient yet comprehensive set of policy tools for providing services to these households or supplementing household incomes to pay them.

For now, additional aid for LIHEAP, other utility assistance and blanket moratoria, and subsidies for public and private utilities beyond what’s included in the CARES Act are needed to address people’s utility cost burden during and after the pandemic. We need to ensure no one’s water or energy is cut off during this health crisis.

Storm clouds pass over one of many rural homes on the Navajo reservation which do not have electricity or running water during the coronavirus pandemic on March 27, 2020 in Cameron, Arizona. Now, more than 75 Navajos have tested positive. (Photo by Gina Ferazzi/Los Angeles Times via Getty Images)

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