Putting Poverty at the Center of the Affordability Discussion
By Ahmed Rachid El-Khattabi
Over the past decade, water and wastewater affordability has emerged as a pressing concern due to rising utility costs and stagnant household incomes. In response, many utilities are trying to incorporate affordability into rate-setting and planning processes. As part of this effort, water system officials want good data on affordability and, more importantly, want to measure it correctly to enable them to carry out their mission.
A common approach to measuring affordability is to calculate the cost of service as a percentage of household income. Though broadly accepted, there is much nuance and debate over what measure of income to use. In this piece, I’ll review two of the most commonly used metrics and then highlight percentage of the Federal Poverty Level (FPL) as a meaningful option to measure affordability.
Metrics Based on Percentiles are Most Common
The most popular metrics measure affordability by estimating the percentage of income bills represent for different percentiles of the population. Of these, percentage of the median household income (MHI) has long been the standard. MHI represents the income of the household at the midpoint of the income distribution (i.e., a “typical” household) and is used in many state frameworks Though useful for capturing a general view of community economics, MHI often fails to reflect the experiences of low-income households, whose incomes may be far below the median. To better capture economic vulnerability, many researchers and practitioners have turned to percentage of income at the lowest quintile (i.e., 20th percentile).
Limitations of Percentile-Based Metrics
Understanding which households are most burdened requires selecting an income threshold that meaningfully captures affordability. Percentile-based measures are convenient because they are easy to compute from standard Census data. But their conceptual foundation is weak: the 20th percentile varies widely across communities, can be far above the poverty line in higher-income areas, and represents an arbitrary position in the distribution rather than a meaningful marker of hardship. Consequently, a metric based on the 20th percentile may describe the burden on some lower-income households, but not necessarily on households in poverty. For instance, about 20% of Census Designated Places in North Carolina report 20th percentile incomes well above $40,000, potentially overstating the burden on vulnerable households.
Federal Poverty Limit: An Overlooked Threshold
An often-overlooked income threshold is the FPL, a nationally defined benchmark that indicates the minimum income necessary for households to meet basic living needs. The FPL is widely recognized in policy and social assistance contexts: Medicaid uses 138% of FPL, SNAP uses 130% of FPL, and WIC limits eligibility to 185% of FPL. Some water utilities use the FPL in defining eligibility for assistance programs (e.g., City of Philadelphia’s Tiered Assistance Program, Salt Lake City’s Project Water ASSIST, Pheonix’s Project Assist)
A core strength of the FPL is that it is conceptually anchored in what a poor household needs to meet basic living requirements. Unlike MHI, which reflects the circumstances of a “typical” household, or the 20th-percentile income, which is often used as a proxy for vulnerability but is not tied to any definition of poverty, the FPL directly captures the income threshold below which households are widely understood to struggle to meet essential needs. In other words, percentage of FPL answers a clear and policy-relevant question: “What share of income would an objectively poor household spend on water in this community?”
Benefits of an FPL-based metric include:
- Rooted in an explicit definition of economic need, rather than the shape of the local income distribution.
- Consistent and comparable across communities, even those with very different income profiles.
- Directly aligned with eligibility criteria for many assistance and safety-net programs (including those for water utilities), making it more interpretable for policymakers and easier to integrate into affordability frameworks.
The FPL is not without limitations. The most frequently cited critique is its lack of adjustment for geographic variation in the cost of living. The federal thresholds are uniform across most of the country, even though housing, transportation, and other essential expenses can differ substantially between rural areas, small towns, and high-cost metropolitan regions. Several strategies can help address this constraint in practice.
Analysts can pair FPL with regional price parities, localized consumer price indices, or other cost-of-living modifiers to approximate local purchasing power. Another approach is to evaluate affordability at multiple FPL thresholds (e.g., 100%, 150%, or 200% of FPL), mirroring eligibility cutoffs used in many safety-net programs to capture households who are above the poverty line but still economically constrained. These adaptations allow FPL-based metrics to retain their conceptual and policy relevance while better reflecting local economic conditions.
The choice between metrics involve tradeoffs. In practice, no single metric fully captures affordability on its own. Using percentage of FPL alongside distribution-based measures can provide a fuller picture of the burdens facing both households in poverty and those who fall just above poverty but still experience economic strain.
Dr. Ahmed Rachid “AR” El-Khattabi is research director at the Environmental Finance Center at the University of North Carolina-Chapel Hill’s School of Government (SOG EFC). He co-directs the SOG EFC, overseeing daily operations, applied research and other programmatic efforts, and leads the development of financial sustainability tools and dashboards, research design and data management tools.
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