Out of Control Policy Blog

In Order to Solve the Problem, We Need More of the Problem

Infrastructure has been a hot topic lately with transportation getting most of the press. However, many of our nation's water systems have been in service longer than originally designed and the cost to upgrade them is truly staggering. Indeed, the Government Accountability Office pegs the cost between $485 billion and $1.2 trillion over the next two decades.

How did it get this bad? The GAO suggests the problems are because of the following:

Many drinking water and wastewater utilities do not cover the full cost of service–including needed capital investments and operation and maintenance costs–through their user charges.

Many drinking water and wastewater utilities defer maintenance and needed capital improvements because of insufficient funding.

For many utilities, a significant disparity exists between the actual rehabilitation and replacement of their pipelines and the rate at which utility managers believe rehabilitation and replacement should occur.

If you read these carefully they suggest a lack of funding -- but that's only one piece of the equation. What about the spending side? There's a general feeling that government is inefficient and doesn't spend the resources they have well (e.g., building convention centers and baseball stadiums instead of investing in vital infrastructure). Frankly the incentives for long-term care or management don't align well -- public officials are in office for only a few years and what's more exciting (or likely to get you reelected); cutting the ribbon a new monument or replacing pipes under ground?

Perhaps, privatization is a solution? Indeed, the GAO also found that "plans developed by
privately owned drinking water utilities tended to be more comprehensive than those developed by publicly owned utilities." Meaning that private utilities or private companies had different incentives and acted accordingly. Yes, profit (that terrible six letter word) was an incentive - but the realization that the best way to achieve "profit" was to take care of your investment and provide a good service. Indeed, GAO further notes that "public drinking water utilities were more likely than their privately owned counterparts to defer maintenance and major capital projects."

Water privatization and public-private partnerships are not new. Some 15% of the U.S. population is served by a private regulated utility, in addition more than 2,000 communities contract for operations and maintenance of publicaly owned facilities. See Reason's extensive work on the issue here.

For many, including this USA Today editorial argues that profit and privatization have no business in "our water." Instead they turn to a higher power...state and federal governments to bail them out. So let me get this straight - it was years of mismanagement that got us into this mess and what we need is more of that? Seems like in order to fix the problem we need more of the problem.

Sadly for the authors they've let ideology blind them - and their obfuscating the facts to push their agenda - an attack on globalization, "corporations" and profit. The same authors in another editorial point to Stockton (check out a Myths v. Facts) to make their case. Here's some of Reason's work on the issue: here and here.

First, nothing is up for sale and nothing has been sold. Long-term leases are not sales. In the case of Stockton which is heavily critqued in the column, it was a management contract - the city continued to own the assets and indeed, pay the company for providing a service.

Second, the authors fail to mention the numerous problems and challenges that Stockton faced before the contract. Indeed, the city's wastewater plant had numerous chemical spills for years - with little incentive to change (and they didn't).

Third, the contract was mutually ended. Not because of poor performance but rather because the constant litigation didn't allow the partnership to function

Fourth, the process was open and transparent. It took more than three years to complete and numerous study commissions and town meetings took place - indeed, more than 92 hours of public testimony was heard.

Someone once told me, and I can't remember who it was, that "god may have given us the water, but he sure didn't give us the pipes." The truth is those pipes cost money and they need to be maintained. Rather than focus on ideology and process I'd like to focus on results and outcomes. I suspect that most taxpayers feel the same way i.e., they don't care so much who provides a service so long as its done well, and cost efficiently. More of the problem will not solve the problem - we need to drastically rethink how our infrastructure is funded, operated and maintained. There is a role for the private sector to play .

P/S - I've always wondered if the same people get this fired up over government operations? I.e., do they demand more transparency, more reports on staffing and efficiency or effectivness? Or is just because a private company is involved that gets them fired up?

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