An op-ed in the Orange County Register offers five reasons why transportation infrastructure should be paid for out of user fees, not taxes. A similar case can be made for other kinds of infrastructure as well.
Unfortunately, it has become easier to ask the federal government to pay for everything out of funny money (deficit spending) than to charge people user fees. Case in point: Oregon water infrastructure, which a recent study found has billions of dollars of maintenance backlog.
Years ago, some fiscal conservatives put a measure on Oregon’s statewide ballot to require local governments to get voter approval for any increases in taxes or user fees. I told them that they should limit this to tax increases only, but they said they didn’t trust the government to not hide tax increases in user fee increases. Most water departments in Oregon are government owned, and since that ballot measure many cities have been unable to finance major rehabilitation programs because voters haven’t approved them.
The solution to this, says the League of Oregon Cities, is for the federal government to give the cities a bunch of money. But this will create the same problem we see with federal transportation funding: gold-plated projects aimed more at getting a maximum of federal dollars than at efficiently improving infrastructure.
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The alternative solution is to privatize water bureaus. Some people worry about the safety of privatized water, but water creates a health hazard, private water companies face a penalty that public agencies don’t have to pay: they lose their contracts. Thus, they may have an even stronger incentive than public agencies to keep water pure.
In Oregon, private water companies could raise rates to pay for infrastructure without the political barrier of a public vote. But they probably wouldn’t have to: private water companies are a lot more efficient than public water bureaus. When Indianapolis privatized its water bureau in 2011, the private company was able to take over all operations without raising fees and paid the city half a million dollars for the privilege of doing so.
Out of 54,000 water systems in the United States, about 4,000 are private. While not all have been successful — privatization didn’t work out in Atlanta — privatized water appears to be working in Baton Rouge, Bridgeport, Chattanooga, Hackensack, Indianapolis, Lexington, San Jose, and many other cities. It should be the preferred alternative over demanding more federal deficit spending.
Tampa recently bit the bullet and raised their water fees. Something like $23 / mo to $41 / mo. They have a huge backlog. IIRC this raise in pricing is going to result in something like 25% of their water pipes having 100 years of lifespan left on them. Pretty decent.
our little town recently privatized garbage collection. I hope that other systems are next
While I do not disagree with privatization of some services this always has to be with incentives to improve the public good, and I am concerned that the Antiplanner may be cherry picking the best examples of water privatization rather than the typical case.
Some time ago I recall reading a book (I couldn’t find the reference offhand) that had a chapter explaining how investors started to buy a public water companies as they could make over a 10% return on the investment. They realized that if a consumer was only paying $30 a month for something, they were unlikely to spend any significant amount of time complaining about a $3 increase to $33 a month. However, this results in a 10% increase in income for shareholders. Additionally, long term maintenance was stopped, also increasing shareholder return. Rates were than raised 10-15% a year. Finally, when there was a major breakdown due to the lack of long-term maintenance, either the shareholders had long since sold and moved on, or would make the case for even higher rates.
I searched the internet to try to confirm this. I found two articles referencing studies claiming private water companies charge higher rates than public ones:
https://www.citizensutilityboard.org/blog/2019/11/19/illinois-ratepayers-held-hostage-by-private-water-companies/
https://www.salon.com/2016/02/17/making_big_bucks_off_water_private_for_profit_water_companies_charge_58_more_than_the_government_report_finds/#:~:text=The%20most%20affordable%20water%20systems,more%20than%20publicly%20owned%20ones.
While these sources may be biased, (the second one claimed water privatization increased urban sprawl) I would require a careful comparison of all water systems, public and private, before assuming that privatization is always in the public good.
Does Privatization work.
Sorta.
But with Any service the penchant for political corruption of paid labor persists.
Look no further than Chicago’s infamous “Trucks Hire” scandal. Where mayor Daly gave fat contracts to trucking firms privately, FOR DOING NOTHING
Paul,
You raise some good points. In short though, the problems that people bring up with privatization are rampant in public entities. Look at the shitshow of Flint. Privatization has nothing to do with it,
Right now this country has a lot of a lot of Tampa’s. For a few decades the city has been undercharging for water and under investing. This is a public entity doing this, not private. Recently they’ve come to realize there’s not getting around it, time to double the water bills and make some big capital investments ( new pipe ).
prk166
I agree with you. Raising rates is fine as long as it has the right incentives to provide better service, not just increase staffing or reward incompetence. This goes for any entity, public or private. I attended a lecture on Puerto Rico’s rain forest years ago stated the forests were just used for water supply. The water system was so leaky they lost something like 30% of the water. So rates were raised but there was no reduction in leakage rates. So fee increases for any monopoly must be conditioned on measurable system improvements.
I agrree raising rates Sucks, but it sends the right incentive. That which is; Americans haven’t rationed since the 70s.
The problem with our nations infrastructure isn’t just that we’ve ignored what’s behind us, it’s that we’ve ignored how much it costs in the long run and assume a government bigger than another will handle it. County bails out local, State bails out count county, Federal bails out state……. Building infrastructure that few people use while ignoring infrastructure that really matters is a recipe for disaster.
The US’ biggest infrastructure crisis is not it’s Highways, it’s it’s water systems. We do have a water infrastructure crisis and TENS OF billions will have to be spent updating our water treatment plants. Plus our habits, namely dumping plastics at sea, flushing drugs and and pharmaceuticals down the toilet. Our pipeline infrastructure in every major city is over a century old. Our cities have overlooked infrastructure (though politicians constantly whine about environmental issues) repair for decades. You can see it in the current crop of politicians that exist vs the ones long gone. Tip O’Neill isn’t the Speaker anymore…but you could imagine someone like Thomas mowing a lawn or putting up a ladder and fixing some siding. Nancy Pelosi?, Mad Maxine, Diane Feinstein? You kidding they’d break a finger nail.
Our infrastructure is monolithic, built to a specific size, specific scale, specific timeframe; It’s Also built to a specific economic and political/governance model.
Look at transportation; Where as the automobile and the street grid are a cellular organism. Look up Dr. John von Neuman and his study of cellular automata; in comparative biology. A multicellular organism does not thrive on a fixed number of cells, instead it responds to stimuli by producing more cells to accommodate a need. The city is the organism, the cells are cars, personal demand is the stimuli. When the system encounters an effluent, it produces more cells (cars) to accomodate the stimuli (people needing to move) or produces special cells (mutli person vehicles like buses or vanpools) to accommodate specific circumstance. In nature all stimuli are confronted with the production of cells. If there’s more sunlight, more photosynthetic cells are produced, if there’s a surge in water, more water storage cells are produced. “Look to mother nature for the best of everything”
Nature has had billions of years to figure out how to manufacture, design, construct, demolish, recycle, handle waste, transport and provide energy.
Since it costs tens of millions to repair water infrastructure, hundreds of millions to Upgrade and BILLIONS to build new ones that option is out of the question cause the money doesn’t exist. The era of super sized and Big Government infrastructure is coming to a close it incurs too much debt, invites too much political corruption; the Money is gone down a financial Black Hole and IT AINT COMING BACK. We’re gonna have to Make New Arrangements.
https://www.youtube.com/watch?v=hb5YZXYojSU