Activists, Tax Experts Say Water Affordability Program Meant To Help City Residents May Burden Them Instead
Baltimore’s Water4All program was designed to help low income residents pay the city’s infamously unaffordable water bills. But advocates say a payment clause could inadvertently disqualify enrolled renters from other anti-poverty benefits by classifying their bill assistance as taxable income.
That “obviously goes against the design of the program,” said Amy Hennen, the director of advocacy and financial stabilization at the Maryland Volunteer Lawyers Service. “We don't want to make [renters’] lives more expensive or more or more difficult. And the current iteration of the plan would do exactly that.”
The Water Accountability and Equity Act was signed into law by former Mayor Jack Young in January 2020 after a five-year legislative effort heavily touted by progressive activists and politicians; it was originally meant to go into effect in July of that year. Young and current Mayor Brandon Scott twice delayed its implementation, citing the ongoing coronavirus pandemic.
The WAEA created Water4All, which is slated to begin this fall. Supporters of the act, including Mayor Scott, promoted the program as a way to combat rampant water unaffordability throughout the city through tiered water bill discounts to low-income households, starting with those that report income at or below twice the federal poverty level. Water4All will replace the discount program H2O Assists, which offers flat discounts.
The legislation requires city agencies to provide some enrolled renters with the discount by turning them into official vendors of Baltimore and cutting them checks — a process that requires them to report the discount as taxable income, which may disqualify them from programs such as Social Security.
James Bentley II, spokesman for the city Department of Public Works, said his agency did not propose the check issuing process.
Baltimore’s water rates rose by nearly 10% last month, the third and final installment of a three-year, 30% increase the city’s spending board enacted in 2019. The hikes will bring the city’s average annual water bill to $1,114.97, according to a 2017 report from Fisher, Sheehan & Colton funded by Food and Water Watch.
According to the Colton report, the majority of city households at the federal poverty level receive water bills 4% or more of their income; some receive bills that are 10% of their income. The United Nations says water becomes unaffordable when it exceeds 3% of a household’s income.
Water4All is “specifically designed to make water more affordable than that,” Hennen said. “This is going to open up some income so that folks have the ability to get enough food under the tables of their families, that they're able to meet their other housing needs.”
Households at 0 to 50% of the poverty level enrolled in Water4All will have water bills capped at 1% of their income, households at 50 to 100% of the poverty level will have bills capped at 2% of their income and households at 100 to 200% of the poverty level will have bills capped at 3% of their income.
DPW does not have an official estimated average income level of eligible Water4All customers, nor an average discount.
“This program is driven by a formula that is specific to each customer’s average annual income and average annual water/sewer bill – it is conceivable that every discount could be different from other customers’ discounts,” he said. Based on the information provided in 433 program interest forms filed to date, “the average estimated annual income is approximately $24,000.”
For homeowners, the Water4All credit will be applied directly to water bills issued by DPW. But by law, city properties’ water bills may only be registered in the owner’s name — meaning tenants generally pay their property bills to landlords, not the city, and are unable to contest high bills to DPW themselves. The agency will issue tenants in properties with a master meter whose water is billed on an allocated basis, such as an apartment building, a check they may use to reimburse their landlords.
DPW has estimated based on census data that approximately 115,000 households may be eligible for the discount program, with 59,000 of those households estimated to be renters, Bentley said.
In issuing the discount payments, the Department of Finance will categorize the recipients as vendors — a status usually reserved for people or companies Baltimore does direct business with, such as a consultant or a construction firm. The low-income renters will be required to file the money they received for their water bills as taxable income in a 1099, an IRS tax form for miscellaneous income.
“Tenants served by master meters are paying their landlord or management company for their water/sewer service. There is no water bill account to discount for the tenant, therefore, the assistance must be provided directly to the eligible tenant,” Bentley said.
Michele Hallman, a principal at Taxology LLC in Silver Spring, said that this system may very well push some recipients into higher tax brackets or income levels that bar them from other benefits.
“That additional 1099, if it's $1,500, $2,000, ends up pushing them to the next tax bracket, the implications and the impact on their tax liability is going to be significant,” she said.
“When you're hovering around $40,000 for an individual or $53,0000 for a head of household... it's going to push you out of the 12% tax bracket right up into the 22% percent tax bracket,” Hallman continued. “That's phenomenal. That's a big jump.”
And renters will not be able to explain to the IRS that the payments were part of a low-income assistance program, not money received for rendered services, Hallman said, adding that an inability to pay tax on the 1099s would likely lead to financial penalties.
For most people, she said, filing tax returns that include 1099s without the assistance of a tax preparer “is a labyrinth which they are unable to navigate with any dexterity.”
Hallman called the Water4All program’s vendor process mind boggling. “I don't know that anybody who actually does taxes formulated that program,” she said.
Bentley, of DPW, said the agency is working with the Department of Finance and the Mayor’s Office of Children and Family Success to explore other ways to deliver the assistance, such as a pre-loaded card or direct deposit.
Hennen of the MVLS and Zafar Shah, an attorney at the Public Justice Center’s Human Right to Housing Project, say that they and other members of the water coalition have repeatedly flagged their concerns with the 1099 system to DPW to no avail.
“There's a little bit of picking winners and losers here simply because the city hasn't put intentional thought and creativity into implementing this policy the way it was meant to be implemented,” Shah said.
Hennen said the 1099 system is especially onerous because homeowners enrolled in the Water4All program will not be responsible for taxes on their benefits.
“When you increase tenants’ income, you can potentially negatively impact their ability to be eligible for other benefits, including something like Social Security, disability,” she said. “And one of the biggest concerns is the impact on those receiving Section 8 housing assistance.”
Hennen, Shah and other members of the Baltimore Right to Water Coalition have suggested to city agency staffers that the city instead implement a tax credit — a one-for-one dollar tax offset that won’t require the Water-for-All discount money to change hands between renters and landlords.
Hallman of Taxology called that a common sense proposal.
“This would have a far greater impact and actually benefit the customers that DPW is seeking to benefit,” she said.
Shah said the reluctance to change the 1099 payment process is doubly frustrating given the potential financial benefits a “sturdier” program may bring Baltimore. He pointed to a recent analysis of a similar tiered water bill discount program that employed tax credits in Philadelphia, where water bill collectability rates rose from 47% to 88% after its implementation.
City residents can begin applying for Water4All in the fall of this year. Changing the clause that prescribed the 1099 system would require a legislative amendment.
“The theme of the past five years of lobbying for these policies has been that advocacy organizations have to raise the models, have to provide the ideas about how to make it work within government, while we're on the outside looking in,” Shah said. “And I think that's just been a huge disservice to the people of Baltimore.”