Water Socialists Are All Wet

March 26, 2012

Faced with rising water rates, some politicians and community activists in Southern California are revisiting a fundamental question that most of us thought had been answered by the collapse of the Soviet Union: Is government the most efficient provider of services?

We know of the poor quality of products and services provided by government monopolies. Yet officials in Stanton and Claremont think otherwise. They have discussed spending tens of millions of tax dollars to “buy” their water systems from a private water company that doesn’t want to sell them. To make matters worse, the cities’ efforts will require the use — some would say the abuse — of the power of eminent domain to acquire the properties by force. Taxpayers would be on the hook for all of this.

The cities’ main beef is that water rates charged by the regulated Golden State Water Co. are higher than those in surrounding communities, which is a legitimate complaint born of a lack of competition in the regulated utility market. But their solution — epitomized by a commenter on the Claremonters Against Outrageous Water Rates Facebook page who boasted about the virtues of “socialist” utilities — is the wrong one. Private utilities are not competitive in the way that true private companies are, but the answer is to boost competition, not further reduce it.

The city of Claremont voted in January to spend $300,000 to explore starting a city-run water company. Stanton officials recently tabled their proposal but were talking about the same idea even though the expected purchase price would be in the $100 million range. Any such idea means enormous debt spending by a city of about 38,000 people and a strain on local finances to fix a nonexistent problem.

Rising Rates

Water rates are rising everywhere, driven by government-imposed conservation edicts. The government-owned Metropolitan Water District of Southern California — which provides water to much of Orange County — is looking to raise rates for the 10th time in a decade, and, if approved, the hike would mean a 100 percent increase in rates since 2006, critics of the rate hike point out.

It’s unlikely that handing water systems over to the government will keep a lid on rate increases, despite the nonsense peddled by water socialists.

Throughout California, public services are under strain. We see cities facing potential bankruptcy and dramatically cutting back services even as they refuse to roll back generous pay and pension packages for their employees. Stanton, which believes it can run a utility more efficiently than the private company that has been doing it for more than 80 years, recently declared a fiscal emergency and wants a special election on raising the utility users tax. Does that sound like a city that can run a water system efficiently?

In Fullerton, the city is embroiled in controversy over an almost-certainly illegal 10 percent tax that officials have been placing on water bills. This is how governments operate. Turning a private water system over to the government in a perverse reverse-privatization situation will only lead to more ways for cash-starved governments to impose dubious taxes, debts and fees.

All of California’s toughest municipal-finance issues have the same root cause — the government delivery of services. Cities are cutting back police and fire services and letting roads and bridges crumble not because the public is undertaxed, but because governments misspend the money they have.

Golden State Water Co. has relatively high rates, but that’s in part because a private company cannot force taxpayers to assume costs it does not want to account for. For instance, Golden State recently switched from a defined-benefit pension plan, similar to retirement plans in the public sector, to a defined-contribution plan, common in the private sector, because it cannot force taxpayers to pick up the costs of its future unfunded pension promises. As a Golden State official told the Orange County Register, “Golden State rates reflect the full cost to provide the service, maintain the infrastructure and make needed investments to improve the system.”

Private Model

That’s the model the state needs to move toward. Claremont and other localities that think water socialism is a good idea essentially want to lower water rates by subsidizing water users. They want to hide many of the costs of delivering water by spreading them out among taxpayers.

Governments are notoriously bad at maintaining infrastructure.

Advocates for government-run utilities claim that the political process — i.e., electing officials, who oversee the people who run the services — is the best way to assure accountability. The opposite is true. In a political system, the most powerful special interest groups are the ones whose voices are heeded. Unions, for instance, have enormous political power, and they help elect the politicians who assure that union pay and benefit packages are not touched even as water pipes — which lack powerful lobby groups — are allowed to decay out of public view.

In 2001, Huntington Beach officials pleaded guilty to felony charges because they did not maintain the city’s sewer pipes, and they allowed millions of gallons of raw sewage to leak into the ground.

There’s a reason why, during the Soviet era, the Eastern Bloc nations were among the most polluted nations in the world — the government does as it pleases. This sewer prosecution against public officials was extremely rare. It’s far easier to hold private officials accountable.

Admittedly, the current model of regulated utilities is a bad one.

Utilities set rates based on their cost to provide services after a bureaucratic process controlled by the Public Utilities Commission.

It’s not a competitive system, but a privatized system is better than a public one because the companies cannot offload costs onto taxpayers. This system also assures that long-term infrastructure investments are made and usually offers better customer service.

This system has many flaws. But immersion in water socialism won’t fix them.

– Steven Greenhut