Utility costs could put pressure on cities’ finances, S&P experts warn

Utility rates across the country have climbed 38% since 2020, driven by data center demand, climate change, and other factors, according to analysts from S&P Global. That increase has been steep enough that one analyst called it something never seen before.

The bigger concern raised on a recent S&P webinar is what happens next. When utility bills get too high relative to what people in an area earn, some homebuyers and businesses may avoid moving to those cities altogether. Over time, that could shrink a city's tax base, leaving local governments with less money to maintain and upgrade utility infrastructure like water and electric systems. Analysts described this as a "simmering risk" rather than an immediate crisis, and said it hasn't yet triggered major downgrades to city bond ratings. Still, affordability of rates is now a factor S&P weighs when rating electric and water utilities.

Not everything in the outlook was negative. Analysts pointed to a strong year for affordable multifamily housing construction and growth in the market for sustainable bonds, which can help fund things like affordable housing, equitable transit, and community health centers in underserved areas.

For homeowners, this is less about any single upgrade you can make and more a sign of where rate pressure may be heading in higher-cost cities. If you live somewhere with high electric or water rates relative to local incomes, it is worth keeping an eye on how your city and utility respond, since that dynamic could eventually affect local infrastructure spending and rates.