The Philadelphia Water Department (PWD), which is seeking a 17.6% rate increase over two years, has a serious problem collecting payments from its customers, and the pile of unpaid bills is growing larger as the pandemic-related recession endures.

About 154,000 customers, or nearly a third of the Water Department’s 496,000 accounts, have fallen behind on payments, according to zip code data that the Water Department submitted to the city’s Water Rate Board. In the hardest-hit zip code, the 19132 zone in North Philadelphia and Strawberry Mansion, 59% of water customers are behind on payments.

Nearly 70,000 customers have paid so little that they would face a service shutoff had the city this month not extended a moratorium on terminations until next year, to April 2022. “An extended moratorium will continue to have a negative impact on collections,” the Water Department said Tuesday in an emailed response to questions.

The highest concentrations of debt correspond with low-income neighborhoods, which was not a surprise to Robert W. Ballenger, a Community Legal Services lawyer who heads a team that serves as a public advocate on utility issues. He is well-aware of the relationship between poverty and customers’ struggles to pay for essential services and is vowing to fight the increases.

“We’re a bit disappointed that the quality of the data is such that we cannot get more granular information — a zip code-level analysis makes it difficult to target outreach and understand where there may be specific unmet needs,” he said.

Shifting water-use patterns

But the Water Department’s financial woes run deeper than the challenges it faces getting customers to pay, according to filings with the Water Rate Board, the five-member panel that will pass judgment on the rate request by June 16.

Water consumption patterns shifted dramatically last year because of the coronavirus pandemic. Workers and students quarantined at home boosted residential consumption 6%, according to department data, which means residential customers faced higher bills. But as industrial and commercial customers cut back, overall water consumption fell 3% last year, meaning that more of the revenue burden fell on residential customers.

Steep drops in water consumption by nonresidential users in lockdown provide a glimpse of the depth of the pandemic’s impact. City government itself, the Water Department’s biggest customer, consumed 29% less water — with no swimming pools to fill, and fewer open offices to staff.

Institutional customers kept their taps shut. Public and private schools’ consumption fell 19% from April through October, which includes the summer months, when school consumption typically slacks off. Hospitals and universities consumed 61% less in that period.

“The Water Department recognizes that any increase in rates can be a hardship, especially right now,” Glen Abrams, deputy water commissioner for communications and engagement, said at an online public hearing Tuesday for the rate increase.

“But this increase is necessary to address the department’s current financial deficit and to continue maintaining, upgrading, and renewing its system to make sure that clean water is delivered as safely and reliably as possible.”

Under the proposal, a typical residential bill for a customer using 500 cubic feet of water a month (3,740 gallons) would increase $7.74 a month to $74.47, or 11.6%, on Sept. 1. Bills would increase an additional $3.98 to $78.45 on Sept. 1, 2022, or 5.3%. Over two years, average bills would increase by $11.72, from $66.73 to $78.45, or 17.6%.

About 46 people tuned in to the first of two Zoom hearings on Tuesday, though only three members of the public and Lance Haver, the city’s former consumer advocate, weighed in with mostly negative comments. Two more hearings are scheduled for Thursday.

More than 60 customers also submitted email comments to the Water Rate Board, generally expressing hurt and outrage at the size of the proposed increase, and asked how the city could impose such a large boost amid a pandemic.

“City dwellers cannot be held responsible for the massive increase, especially those like myself who have been unemployed for a year since COVID,” wrote Michele Giunta Cimillo, a Center City resident. “The state and city need to come up with a plan that doesn’t put more strain on its residents. If all of this continues, people will be fleeing the city in droves.”

“This proposed hike does not help many Black seniors who are living in poverty and are barely scraping by to make ends meet,” wrote Deborah McMillan, a retired social worker who lives with her husband in East Mount Airy.

“Why now in the middle of this pandemic?” she said in a phone interview. “It just feels like they’re trying to sneak something by.”

The Water Rate Board granted the department a meager 1% increase in 2018 — the agency had asked for 11%. The city planned to seek a rate increase early last year but postponed the request because of the COVID-19 crisis.

The deferred 2020 rate-hike request only magnified the city’s looming woes, which were forecast in a prospectus assembled for potential investors last year in a $296.6 million Water Department bond issue.

The Water Department last year instituted a hiring freeze in its 2,166-member workforce, decreased travel, and postponed some “noncritical” projects to conserve cash and keep costs in line. It reduced its $460 million budget by $25 million at the city’s request.

The department also withdrew $33 million from its Rate Stabilization Fund, a savings account the department maintains to assure creditors that it has sufficient money to keep up with debt payments. The department will need to withdraw $42 million more from its reserves this year, according to a report by Black and Veatch, a consultant.

The Rate Stabilization Fund is in no danger of running out of cash — it had grown to a “robust” $180 million before the COVID-19 crisis, according to FiskRatings, which assigned an A+ rating to the Water Department bonds on the assumption that it would get a rate increase this year.

But the Water Department says it wants to increase rates now to keep the fund’s balance from declining further and eventually to rebuild the reserves, which keep the city’s ratings high and its borrowing costs low.

The department is also facing some very large capital costs in the coming years as it rebuilds aging infrastructure to reduce disruptive water main breaks, and to comply with a 2011 consent order to dramatically reduce its discharges of sewage and rainwater during storms. The department plans to spend $2.3 billion on improvements in the next five years, almost all using borrowed funds.

Abrams said that the Water Department’s cost-cutting last year was a short-term solution, but that the city “cannot afford to further delay investment” in aging pipes and equipment.

The city’s arguments and its still-healthy reserve funds are likely to undergo considerable scrutiny from consumer advocates.

Ballenger, the head of the Community Legal Services team, said that the Water Department’s rate model does not take into account any rescue money that may flow to the city as part of the recently enacted federal stimulus package.

He also dismissed suggestions that the growth in delinquencies last year from $234 million to $260 million was unrelated to the coronavirus because the growth was almost evenly divided between residential and commercial customers.

“I think it is appropriate to attribute most of the increase in consumer debt to COVID-19 and the economic challenges individual households and businesses have faced,” he said. “This is a shared problem between residential and commercial customers.”