Out of Control

Reason’s Skaidra Smith-Heisters reviews Blue Covenant: The Global Water Crisis and the Coming Battle for the Right to Water, by Maude Barlow, and concludes: “In Blue Covenant, Barlow fails to explore the key dimensions of water scarcity at the heart of her first two premises for alarm: dwindling fresh water supplies and inequitable access to water.”

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?

Chicago Alderman George Cardenas wants to place a new tax of up to 25 cents on the cost of every bottle to help close a $217 million budget gap.

"People enjoy jogging or driving with a bottle of water. There's a cost associated with this behavior. You have to pay for it" said Cardenas. You may be surprised to learn that there's a social cost associated with drinking bottled water -- afterall, it was your choice to buy and consume it. Cardenas argues that city's $40 million shortfall in water and sewer funds is because more taxpayers, I mean residents, are choosing to buy bottled water and not using city's water for a fee. Of course the government's own operations aren't the problem -- I'm sure they run a tight ship.

Perhaps most frustrating is that Mayor Daley has been an avid supporter of privatization -- leasing the Chicago Skyway, some parking lots and pursuing a lease of Midway airport -- all of which have brought billions into city coffers. Unfortunately he's been fast and loose with the proceeds which have largely been diverted into new programs rather than shoring up infrastructure and shoring up city finances. Its inexcusable to have a "deficit" after raising more than $2 billion in privatization/leases in recent years.

Cardenas is also pushing the tax to help the environment by dissuading people from buying the plastic bottles that end up in landfills. Check the links - enough said.

If you're a frequent reader of Out of Control you know this is a pet issue of mine -- some of my colleagues and myself have written about this before -- check the links out if you want some more of the back story.

CNBC reported this morning on the Sierra Club’s new area of attack on human welfare: water, specifically bottled water. Apparently, the Sierra Club believes that companies searching for clean water sources for human beings are committing an egregious sin against Mother Nature. Their website includes this foreboding warning: “Nestle has at least 75 spring sites around the country and is actively looking for more.” Horrifying, indeed.

In a recently published brochure, the Sierra Club has this to say about its position:

The bottled water industry promotes bottled water as a healthy, trendy drink, without mentioning that it can cost 1,000 times as much as tap water. The Sierra Club believes that all people should have access to affordable, clean drinking water.

While I do not personally value water at a dollar a bottle, and I certainly question how much purer bottled water is compared to tap, others do value it that much, and I’m sure they realize they’re paying a little more than they would for tap. The Sierra Club should not pretend as though it actually cares about maximizing access to clean water supplies when the majority of its material and obvious concern is with the production of plastic and growth of industry. What it means that “all people should have access to affordable, clean drinking water” is that people should stay away from the environment, even when trying to access the basic sustenance of life.

Perhaps what is even more incomprehensible is their plan of action for resolving these problems. One solution to bottled water they list is for people to “[u]se containers that you can refill with tap water when you are away from home”. It seems to me that plastic bottles don’t disintegrate when you add water to them. In fact, they serve as very nice containers for future water use that I know many of my friends actually use them for.

So what is the Sierra Club really saying? “By drinking clean water you kill the environment. Stop drinking water.”

For more information on the issue, check out this previous Reason blog.

My colleague recently wrote about a ban the City of San Francisco enacted on bottled water at city events. San Francisco Mayor Gavin Newsom projected the move as a budget saver -- saving the city some $500,000 a year. If the story ended there, I'd be more than happy (and don't get me wrong, the city ought to be finding more $500k saving opportunities). Unfortunately, the story doesn't end there.

The bottled water industry is being demonized on ideological grounds against profit and private property. The convenient example of bottled water is also being used as a springboard to attack water privatization and public-private partnerships. Indeed, Food and Water Watch, an offshoot of Ralph Nader's Public Citizen has issued a new report about how bad bottled water is for us -- its not healthy, its expensive and its bad for the environment. However, nearly half of their press release is focused on municipal water and sewer operations:

Our nation’s public water and sewer infrastructure is old and in the coming years will need billions of dollars of investment to maintain and further improve treatment, storage, and distribution. Each year we fall more than $20 billion short of what is needed to maintain our public water and sewage systems.

“It’s time for Congress to establish a clean water trust fund that would give communities the financial help they need to invest in healthy and safe drinking water for every American and for future generations.”

They're right i.e., our nations water and wastewater infrastructure does need significant investment. FWW's solution is a massive federal bailout (i.e., increased federal taxes and spending) -- while dismissing any role for the private sector to play (not even counting how this lets local governments off the hook for their years of mismanagement, poor administration and giveaways to unions running the water and sewer systems).

FWW ignores that it was President Clinton’s Environmental Protection Agency endorsed privatization as a means by which local governments can meet environmental standards. Indeed the EPA wrote, “[Privatization case studies] provide concrete examples to local officials of how successful partnerships and other models can be used by communities to provide needed environmental services more efficiently.”

They also ignore that more than 40 percent of drinking water systems in the United States are private, regulated utilities—there are more than 25,000. To be fair many of these are small ancillary systems that the government has no interest in owning or running. Further, there are more than 2,500 partnerships where a private company is providing operational functions for local government. Nationally, the rate of private participation has been impressive in the last 15 years, growing by more than 85 percent. Research suggests that these systems are in far better condition than their public sector counterparts.

Anti private sector supporters have largely ignored experience, data, and the importance of competition. The private sector has demonstrated time and again that they have a role to play in the delivery of water and sewer services here at home and abroad. Their experience, innovation, and capital are vital pieces to ensuring access to clean safe drinking water worldwide.

Private activity bonds (which FWW fought - calling for public spending over "private profits") and long-term concessions similar to toll roads are both effective and promising tools to bring billions of capital into our water and wastewater infrastructure. They're a vital, important tool in the policy makers tool box and they shouldn't be dismissed out of ideology.

For more, check out Reason's water privatization work here.

Now, let's deconstruct their specific issues with bottled water.

Yes, bottled water is expensive -- more than tap. But those bottles are so damn convenient. And did I mention there are different flavors now! And not to mention the ones with bubbles. That's where choice comes in -- no one is forced to buy bottled water and we shouldn't stop others from making their own choice either.

As far as health and safety -- the bottled water industry, is regulated and tested for safety. Think back to the last time someone got sick from drinking bottled water....I'll give you a few minutes...oh wait, you don't hear those stories all that often (if ever - I Googled it and couldn't find any). But you do hear about people getting sick from tap water. This isn't to say that all municipal water is bad, in fact, most of it is quite good. Unfortunately, not all of us can live near Yosemite snow melt and we ought to have choices and not be publicly ridiculed for making them. Also, let's not forget how instrumental the bottled water industry was in getting fresh water into New Orleans after Katrina while muni water systems were down.

Environmental concerns i.e., the energy it takes to make the bottles and landfill space they utilize is the strongest leg FWW can stand on. However, there are a lot of consumer products that require a lot of energy to make and utilize but we don't stop making them. When it comes to plastic bottles, most cities have aggressive recycling programs that should offset some of the environmental harm.

I live in Arlington, VA and until the city can figure out how to deliver mandarin orange sparking water to my tap, its bottled water for me (thankfully I have that choice)! I also don't know about the condition of my local water system but if they do need billions in upgrades I hope they seek private partners rather than jacking up my taxes and fees.

the prospect of the city selling off the third-largest water system in the country

F. Thomas Lewand was brought in to work with a group of businessmen, academics and former politicians who have come together to try to solve the long battle between the city and the suburbs. He recently submitted more than $155,000 in legal bills to the court overseer of the Detroit Water and Sewerage Department, noting that he was researching a sale of the system's assets.

No formal recommendations are expected until spring. But any talk of selling off the system, privatizing it or putting it under the control of a regional authority is certain to generate heated debate.

More here.

As we mark the first anniversary of Hurricane Katrina's devastating landfall today, it is fitting that we look at the progress that has been made in rebuilding the region--and the lack of progress. As Harry Mount explains in a recent article for the UK's Daily Telegraph, there have been stark differences in the rebuilding effort between the public and private sectors:

[W]hile private business has flourished, public works have failed miserably. Schools are only just opening. University departments have been closed for good. Courtrooms don't have enough judges to deal with the renaissance of America's murder capital.

Mount continues:

This mismatch between private and public has nothing to do with shortage of public money; after Katrina, President Bush promised £58 billion ($110 billion) in federal aid for the victims. New Orleans and its crooked ways are partly to blame. Only this weekend, a pair of Bobcat excavators worth £50,000 ($95,000) were stolen from the Lower Ninth Ward, one of the hardest-hit areas of the city, where they were being used to build a memorial to the victims of Katrina.

But the chief culprit is a federal government clogged with bureaucracy and indecision, incapable of spending money even when it's got tons of the stuff.

The American government can just about arrange an orgy in a brothel -- fraudulent applications for Katrina aid were spent on champagne and prostitutes -- but it is hopeless when it comes to large-scale federal construction projects.

This paralyzing bureaucracy is not limited to Katrina recovery efforts, either. As Mount notes, the same maladies have impaired rebuilding efforts at the World Trade Center site as well.

In the five years since September 11, one building, 7 World Trade Centre, the third and least-known skyscraper to collapse that day, is the only one to have been rebuilt.

At 7 WTC, the site's leaseholder, Larry Silverstein, worked unencumbered by the attentions of government. As a result, the £350 million ($665 million), 52-storey tower went up this May without a hitch.

A couple of hundred yards from 7 WTC, Ground Zero is still a great big empty concrete tub.

Mr Silverstein owns the lease to the Ground Zero pit and the rights to rebuild all the space lost within it. But, while 7 World Trade Centre is outside the pit and entirely under his control, construction inside the pit is run by government, principally George Pataki, the outgoing governor of New York State.

We should take these lessons to heart when we consider options for rebuilding of the Gulf Coast, the World Trade Center site, and future disaster areas. It is not government planning, but market forces, that allow for the quickest, most appropriate, and most economical recovery of disaster areas. People and businesses will seek opportunities to invest their resources and offer their services where they are most needed--if only government will get out of the way and let them do it.

Apparently not privatized water.

Alex Tabarrok explains the United Church of Canada’s boycott; Thanks to Meredith for the heads-up.

Unless you have religious objections, check out our roundup of water privatization trends.

Related: Water of Life

That's what happens every day beneath the streets of Buffalo, according to a first-of-a-kind study that examines leaks in the aging water system.

The city pumps 29.6 billion gallons of water each year. But nearly 12 billion gallons goes down the proverbial drain. Most of the water is lost through leaks and bursts in the city's 900-mile maze of pipes...

Another jolting discovery is that Buffalo only collects revenue for 46 percent of the water it pumps … Another 600 million gallons is stolen by water pirates who tamper with meters and take extreme measures to restore service after water has been turned off for nonpayment.

This same water system has raised rates for metered customers by 64 percent in the past four years and increased flat-rate bills by 55 percent.

More here.

The Los Angeles Department of Water and Power, which operates the city's water and wastewater systems, spent nearly $90,000 to buy bottled water for employees. While this may not seem like a big deal, the department spent over a million dollars last year to assure residents that their tap water is not only safe but that its top quality.

So which is it: is the water good enough for your own employees or not?

Monterey, CA voters overwhelmingly rejected Measure W, on Tuesday, which would have studied a public takeover of California American Water's private water system.

Our "friends" at Public Citizen had been fighting for this for several years. This makes them 0 for 2 in California cities for what I can tell after Stockton privatized despite their efforts in 2001.

Here’s Ron Bailey:

[Swedish analyst Fredrik] Segerfeldt shows that even imperfect privatization efforts have already successfully connected millions of poor people to relatively inexpensive water where government-funded efforts have failed. For example, before privatization in 1989, only 20 percent of urban dwellers the African nation of Guinea had access to safe drinking water; by 2001 70 percent did. The price of piped water increased from 15 cents per cubic meter to almost $1, but as Segerfeldt correctly notes, "before privatization the majority of Guineans had no access to mains water at all. They do now.

Whole thing here.

Here’s Segerfeldt on World Water Day.

And this study examines water privatization in Argentina:

[C]hild mortality fell 8 percent in the areas that privatized their water services and that the effect was largest (26 percent) in the poorest areas.

For more on water privatization, go here.

A new report proposing ways to meet Colorado's long range is the old glass half full. I was impressed to see it deals seriously with the need to expand water storage systems, including resevoirs--usually a bugaboo to environmental activists. But I was disappointed that the report entirely ignores water prices. G

Gee, we want people to conserve water, but lets not consider the role of the price they pay.

Exec Summary here

Full report here

Russell Roberts responds to the claim that imposing a cost on clean water would disproportionately affect the poor:

Unfortunately, left omitted is the fact that not imposing a cost on clean water disproportionately affects the poor. Because water is unpriced, there is insufficient incentive to provide it in the poorest parts of the world. That means there is very little of it for the poor to enjoy and as a result, poor people around the world die from lack of water.

Roberts points to this article, published in the Journal of Political Economy. He notes that the study finds the poor were disproportionately affected by water pricing, but not in the way most market skeptics suspect:

child mortality fell 8 percent in the areas that privatized their water services and that the effect was largest (26 percent) in the poorest areas.

For more on water privatization in the developing world, see this post.

That’s right, it’s today.

Amazingly, 12 million people die each year because they don’t have access to clean and safe water.

Here's Fredrik Segerfeldt:

There may be a solution to what had been an insoluble problem. In recent years, a small number of developing country governments have turned to the private sector for help and have introduced market-oriented reforms in the water sector. Overall, the results have been encouraging.

But, as is often the case:

This is a tragic development, and all the more so since the anti-privatization lobby is wrong on almost every count.

After five years of study New Orleans Mayor Ray Nagin today announced the city's decision to drop water and sewer privatization plans.

This battle was especially contentious, and this move will no doubt be heralded as a victory of anti-privatization groups, including Public Citizen. However, I wonder if it is more appropriate to call them pro-tax and fee hike considering the city will now be faced with over $650 million bill to fix the pipes.

Something tells me that this isn't the last we'll hear from New Orleans.