Applying Lessons From Katrina to the HEROES Act
The U.S. House of Representatives, led by Speaker Nancy Pelosi, should be applauded for the $3 trillion HEROES Act as it focuses on supporting the myriad needs of frontline workers along with many critical programs for state and local governments.
However, lessons learned from rebuilding a devastated New Orleans, after Hurricane Katrina, make it clear that the parts of the legislation on relief for utility payments – such as water, gas, internet and electric – are misguided.
As it stands, the proposed legislation prohibits utilities from disconnecting or terminating service for nonpayment of bills during this emergency pandemic period. This safe harbor of non-payment extends for an additional 4 months beyond the day the national emergency is lifted – whenever that occurs.
Though well-intentioned as a solution for helping struggling Americans pay their bills, the utility section of the proposed HEROES Act would create serious financial struggles for utilities as they cannot operate without cash flow for several months or even years. If passed as is, the HEROES Act could create substantial bankrupt risk for many utilities, threatening tens of thousands of jobs. This action would have the exact opposite effect of what the legislation is intended to do, which is to help sustain the American workforce through the pandemic.
As a disaster recovery specialist, I learned that critical businesses are the lifeblood of a community. After a disaster, they re-open to provide essential services to residents and government agencies alike. Included in this category are the utilities that directly support our frontline workforce providing the energy and water resources needed to fight the pandemic. Utilities are essential, and like our frontline workers, we need to prioritize their well-being.
For example, electric utilities require consistent levels of investment, especially during times of disaster when they are expected to maintain optimal performance under challenging circumstances – which is very expensive. According to a recent study by Booz & Company, utility capital expenditures are expected to exceed $100B annually, representing a 100% increase since the early 2000s. The pandemic has made this fiscal situation worse since power companies now face decreasing energy demand by larger industrial customers. Add to this, the cost of managing operations given climate change (wildfires, violent hurricanes) and now the possibility of having to absorb non-payment of utility bills for an indefinite period of time – and the situation becomes untenable.
Thankfully, there is a better path forward.
Individual utilities and the federal government already have programs in place to assist lower income residents with bill relief, the largest being the Low-Income Home Energy Assistance Program (LIHEAP). This federal program essentially serves as a block grant to states, whereby eligible lower-income residents can off-set utility costs by applying to a state agency or partner organization for support (similar to unemployment assistance). States, in turn, have some flexibility to structure this program and the corresponding solutions needed to best support local residents.
LIHEAP is a win-win – consumers, buoyed by government subsidy, continue to pay their bills, allowing utilities to meet cash-flow projection needs. Bills get paid. The water runs and the lights stay on.
Continuing to fund existing programs like LIHEAP, that already have a track record of working (not to mention the administrative and institutional know-how to do so), is a much better solution than requiring utilities to simply absorb non-payment of bills for an extended period of time.
In fact, Congress, through the CARES Act, did just this by providing an additional $900M in funding for LIHEAP - a 27% increase over FY 2020. The HEROES Act also increases funding for LIHEAP and loosens eligibility requirements to allow more residents to qualify for utility bill relief. As negotiations continue on the stimulus, Congress should appropriate more funds for LIHEAP if there is the demand. But asking power companies to forgo payment for years makes no sense when LIHEAP can benefit both low income Americans and utilities.
Lastly, the proposed HEROES Act also ignores the fact that investor-owned utilities have already agreed to not shut-off power during this pandemic.
Rather than hobbling the utilities, Congress should instead focus reform efforts on helping individual citizens pay their bills so we can collectively continue to support our utilities and, by extension, our front-line heroes.
Post Katrina, Caitlin Cain served as the Economic Development Director of the Regional Planning Commission of Southeast Louisiana and is the former SBA Advocate and CEO of the World Trade Center of New Orleans.