Through Innovative Pilot, 5 Cities Use Utility Data to Engage Financially Insecure Residents

It has been estimated that nearly 75 percent of Americans are living paycheck to paycheck, with little to no emergency savings at all. For many low-income families, one unanticipated setback – such as a sudden job loss or expensive home repair – can lead to financial ruin. To make matters worse, when these families start to miss payments on utility bills and other expenses, they end up clobbered with late fees, fines and hits to their credit scores. It becomes a vicious cycle that only further indebts the residents who can afford it least.

The National League of Cities thought there must be a better way to address financial insecurity (NLC). Because so many cities own and operate their own water infrastructure, municipalities are in a unique position to engage residents who are struggling financially. By using payment patterns on utility data, cities can flag missed payments as an indicator that a family might benefit from financial empowerment services.

To test this hypothesis, NLC, through its Institute for Youth, Education and Families (YEF Institute), launched a pilot program, dubbed LIFT-UP (Local Interventions for Financial Empowerment through Utility Payments).The pilot was launched to explore the following questions:

• Can cities utilize new approaches to address family indebtedness by aligning local financial empowerment services with municipal debt collection practices?
• What mix of incentives or sanctions proved most effective in encouraging residents to participate in financial empowerment activities when faced with unpaid debts to cities?
• What products and services would have the greatest potential for helping low-income families pay debts and build assets?
• Could LIFT-UP interventions result in long-term changes to participants’ financial behaviors?
• Can utility payments be used to identify households in financial distress?

The pilot was administered through partnerships between municipal governments and social service agencies and rolled out in five cities: Newark, Louisville, Savannah, Houston and St. Petersburg, FL.

Under the program, missed utility payments were a “red flag” indicating a family might be experiencing financial insecurity. Rather than whacking customers with late fees or other penalties, interventions such as debt counseling and repayment plans were used as remedies.

“What’s innovative about this approach is that the partner entities are cities, not banks or nonprofits,” says Denise Belser, YEF Institute Program Manager. “Cities can leverage more resources but they may also present more obstacles with their own systems and political situations that we may need to be mindful of, but this offers the possibility of new collaborations and innovation. To our knowledge, this kind of program has never been attempted until now.”

Early on, it became clear that the solutions that worked in one city might not work in others. Each had unique systems of government services, processes and infrastructure in place – making a universal program design impossible. Instead, NLC encouraged each community to design a program that aligned with its existing capacities and customer needs. For instance, each city could set its own criteria for what it considered a “struggling” customer. How debt was restructured also varied from city to city, with some implementing repayment periods of 4 months or less, and others choosing longer time horizons of 12 to 18 months.

Although LIFT-UP allows for flexibility at the local level, a consistent framework was needed in order to evaluate the program’s success. Each city model had to include five elements: (1) a streamlined identification and referral system; (2) restructured debt payment options; (3) provision of financial empowerment services; (4) city-defined incentives for participants (e.g. waived fees); and (5) quarterly communication with LIFT-UP participants. From there, each city could adapt its model.

Two years after launching the LIFT-UP pilot, the Center for Financial Security at the University of Wisconsin-Madison has released its evaluation of the effort. As NLC had hypothesized, cities were better able to collect overdue water utility payments without resorting to cost debt collection agencies or forcing the shutoff of customers’ utilities. Meanwhile, residents who participated in the LIFT-UP program were more likely to catch up on their overdue utility payments than those who didn’t, thereby saving money on late fees over the long-run.

Other program milestones include:

• A 69% increase in the likelihood of program participants frequently paying their water utility bills on time in Houston.
• A 34% reduction in outstanding water bill balances among Newark program participants.
• In St. Petersburg, program participants were 53% less likely to experience service shut-offs.
• Additionally, St. Petersburg participants saved an average of $140 in avoidable fees.

“[LIFT-UP] is a good program for everyone who is struggling financially,” says one Savannah, GA participant. “My life is changed already because my house was saved.”

The LIFT-UP pilot is an example of an innovative partnership between cities and social service agencies that has the potential to transform the lives of low-income residents. What’s more, there’s no reason this model can’t be implemented at scale. The benefit of piloting the program in five cities shows that even diverse communities can adapt the model to fit its needs.

Read the full LIFT-UP program evaluation here.