> Despite the challenges posed by shrinking federal investment and rising costs, America’s water systems strive to maintain affordability. As such, many water systems have historically underpriced the services they provide to keep water rates low.
The result is a backlog in investment approaching a trillion dollars.
You realize that it is possible to pay for water infrastructure from taxes, without directly charging for water usage, right? The reason this is a problem (as stated in the article you linked) is because the federal government has slashed funding, not because the government is bad at setting prices; the only reason to interpret it in that way is if you are looking to privatize the water infrastructure.
That's a rather uncharitable interpretation. Your parent may just feel like people should pay for the water they use, and not for the water they don't. Which only works properly if the pricing is set right.
See complaints about how rooftop solar customers don't pay their fair share of fixed grid overhead. Wouldn't be a problem if you billed people an accurately priced fixed charge, plus usage charge.
Pretty sure the issue with utilities is that basically the entire cost is the fixed part. The incremental cost of delivering a few thousand litres of water each day to any one house is effectively zero.
Even worse, the fixed cost varies enormously depending on the particulars of any one residence (older infrastructure costs more to maintain, for example). So it's really hard to come up with a truly fair scheme for distributing these costs— pretty much no matter what you do, some households will be subsidizing other households. If not on their water bill, via their income taxes.
You can very reasonably turn e.g. a damn or a water treatment plant into a usage charge. Say you want to pay it off in thirty years. Divide the cost by thirty & project the annual quantity of water it will provide. Set the rate to match.
The true(st) fixed costs are things like the last mile to your house, that only you benefit from.
That’s really surprising! Population more than doubled in that timeline and usage went up by way less, and per person water use is even more dramatically down in the past few decades
I would guess that technology played a major role in lowering water consumption. Most of household water use comes from washing clothes, dishes, bathing, and of course watering the lawn and garden.
Automatic clothes and dishwashers are far more common now, and today’s models are more efficient than than manually performing the same task by hand. Simple automated drip irrigation systems can be had from any local hardware store, customizable to deliver the exact amount of water needed to plants at the most optimal time to minimize wasted water from evaporation.
And low pressure shower heads are everywhere now; the ridiculous hurricane bathroom shower of the 70s and 80s is only fond childhood memory.
Water and sewage treatment is not what you'd generally call a "fixed cost" since it involves ongoing operational costs (labor, chemicals, etc.). On the other side, usage fees are split into a fixed-cost portion (the connection charge, which runs $30-70k) and a variable-cost portion (per-gallon charges).
You can tweak the balance between fixed and usage charges though.
I've lived places where the fixed amount of my water bill was maybe $10-$15/mo while a unit (~750 gallons) of water was about $5. My current home, at the other extreme, has almost $90/mo in fixed charges while a unit of water runs about $1.
Not nearly the same incentive to conserve water but I am much more confident that my city will still be able to service the infrastructure 20 years from now.
The capital cost of treatment facilities is enormous and fixed. The operating cost of those treatment facilities changes very little per gallon comparatively.
On that very different topic... Complaints almost exclusively from local privatized electricity monopolies. The US residential solar footprint is a drop in the ocean compared to central European nations (thinking Germany in particular). Public utilities see reduced reliance on their service as a success, while for-profit utilities see it as a threat.
Our population density is very much lower so transmission costs per connection are very much higher.
I grew up in an area where the length of transmission line per home would easily have been calculated in miles. I currently live in an area where transmission line per home would be measured in feet or maybe inches.
The population density is pretty much the same if you ignore the plains states and other extreme rural areas, who get their water from wells anyway. A city of a million people is a city of a million people, regardless of whether your country contains the Rocky mountains or not.
What will happen is like what happens in Florida with schools. People retire here from other states then complain/refuse/lobby/vote/etc about taxes going to schools. They say they're retired and they've already paid for schools in their previous state and their kids are grown and they should not have to pay.
The model that has universally been adopted in the US (and in most of the developed world), is based on usage fees. And that requires the government to set prices. (For reasons that have nothing to do with privatization. Almost all water infrastructure in the US is publicly owned and maintained.) And because the government is bad at setting prices, that model has resulted in failure, at least in the US.
One can imagine a different model, which does not require the government to set prices. But that doesn’t mean the government isn’t bad at setting prices. And it would be a dramatic and fundamental change to the wide variety of government services based on usage fees. There are also intensely good reasons to have usage fees. Otherwise, you encourage waste and sprawl.
Federal funding is a red herring. Water is an archetypal municipal issue, like local roads. The federal government has targeted programs for disadvantaged communities, but in general cities (and certainly states) should be able to handle their own water and sewer systems.
The price doesn’t need to match the cost though. Government can set a price to maximize social benefit, and then cover the difference in cost with taxation.
That begs the question. The government has no idea what price "maximizes the social benefit." The government is incentivized to set prices artificially low, not to maximize the social benefit accounting for externalities and long-term requirements.[1] For example, the government has a strong incentive to make connection charges artificially low, which lowers the price of new houses. But that also encourages sprawl--making it artificially cheap to expand into new land that isn't already part of the water/sewer grid.
[1] You see similar problems in governments determining public pension contributions. That's effectively the government setting a price required to buy into a pension system that guarantees certain benefits. Governments universally set that price too low, resulting in the public pension disaster we have today.
There is a significant difference between water pipes and the pension system, which is that water pipes are easily affordable by the federal government and pensions for everyone are not. Getting the pricing "right" is a stupid game; people need water and are willing to pay the current rates, and the federal government can afford to fund necessary improvements to infrastructure. What exactly is the benefit of getting pricing "right" here? Avoiding water wastage? Environmental benefits? I'd wager that a group of environmental scientists could find a "correct" price that addresses these concerns much more accurately than could market forces.
(Actually, I see no reason why market forces would get the price "right" here, but even if they did it misses the point--there is no reason to allocate water to people based on how much money they can pay for it. If you cared about this sort of thing a rationing system would make much more sense. The idea that the infrastructure has to be funded directly and primarily by water usage is just baffling to me, especially when--as numerous commentators have already pointed out--it doesn't really work that way in a lot of cities).
> There is a significant difference between water pipes and the pension system, which is that water pipes are easily affordable by the federal government and pensions for everyone are not.
The water/sewer infrastructure crisis is on the same order of magnitude as the public pension crisis (into the single-digit trillions of dollars).
> What exactly is the benefit of getting pricing "right" here? Avoiding water wastage? Environmental benefits?
All of the above. For example, when connection charges are too low, people are incentivized to engage in greenfield development rather than infill development. Having the federal government further subsidize things only exacerbates that problem.
> I'd wager that a group of environmental scientists could find a "correct" price that addresses these concerns much more accurately than could market forces.
They have. And elected municipal entities uniformly ignore those results.
It's kind of funny how calling it a trillion dollar problem is real scary, but also identifies it as easily managed, given the will to address it.
(0.5% of the US economy over 10 years is a massive amount of resources but would have ~0 negative impact if diverted from other economic activity to water infrastructure)
This only works if you actually have people paying reasonable amounts of municipal tax, and if the muni itself is allocating the money properly. Plenty of opportunity for failure here, especially when you end up in a trap like in Flint where people weren't paying water bills or property taxes and expected to continue to get service on par with any other first world city.
This is how it works where I live; after subsidies (which are automatically deducted from the bill) I pay about US$20 per year to the water supplies department.
the water system is a natural monopoly. Why would a private company with a total monopoly be any better at pricing it properly? It would be higher, but higher does not mean closer to the real price. You can go too far in the other direction. Without competition you're really going on faith that you can trust a monopoly to give you a fair price.
> And because the government is bad at setting prices, that model has resulted in failure, at least in the US.
Why does everyone seem to take this for granted? I've drank tap water my entire life, living in 5 different states. It tastes good, is cheap, healthy, and environmentally friendly compared to any other option.
Sure, there are examples of failure. Are they significant examples of the model being bad? Any system with thousands of examples is going to have a few failures. It doesn't mean the system is bad.
> Why does everyone seem to take this for granted? I've drank tap water my entire life, living in 5 different states. It tastes good, is cheap, healthy, and environmentally friendly compared to any other option.
That's like saying "cities and states are able to pay retired teachers now, so what's the problem?" The problem is that the government under-invested in the infrastructure for decades and now those problems are coming to a head: https://www.bbc.com/news/world-us-canada-39410561 ($1 trillion needed to shore up "aging" water infrastructure). It's the same problem that is pervasive in municipal infrastructure. You can get away with under-investing, until you can't. It's the same reason NYC's subway has melted down, DC's subway is on fire, etc. Nationwide, infrastructure--which is mostly a municipal responsibility--is underfunded to the tune of $5 trillion by 2040: https://www.reuters.com/article/us-usa-infrastructure-idUSKC.... That is the direct result of policies that give people what they want--more infrastructure at low prices. It works until it doesn't.
> Sure, there are examples of failure. Are they significant examples of the model being bad? Any system with thousands of examples is going to have a few failures. It doesn't mean the system is bad.
Pretty much every major city is an example, from D.C.'s inability to upgrade civil war era sewers that are polluting the Potomac to Chicago's inability to upgrade lead piping that is poisoning children.
$1 trillion sounds bad. But divided over 10, 20, 30 years, divided by how many municipalities? And for something as basic and valuable as clean water? Are we just talking about a few percent of most city's water systems' budget?
Characterizing this as categorical failure, with the implication that the whole system should be thrown out and drastic measures taken, seems wrong to me.
Total US spending on water and sewer infrastructure is $65 billion per year. And we have 10 years, not 30. These systems are already at the end of their 70-75 year expected service life. So you’re talking about doubling water budgets to meet the backlog.
That’s just water. Other infrastructure has been neglected by state and local governments, leading to a $5 trillion backlog (including water). That’s 10x total US annual spending on infrastructure. Trains have to slow down when it rains in the DC/Baltimore area because the 100+ year old tunnels under Baltimore are leaky. DC’s metro trains were self driving when they were built in the 1970s. They had to shut off that system because the supporting track infrastructure had been allowed to degrade so much. New York’s subway has basically melted down. Ridership in DC and New York, the two biggest transit systems in the country, has been declining despite population growth because the system can’t provide the level of service it did even 20 years ago, due to decades of neglected maintenance.
Meanwhile, lead pipes are poisoning kids in Chicago, and DC’s civil war era sewers dump untreated raw sewage into the Potomac when it rains. These systems needed to be upgraded decades ago.
I’m not advocating getting rid of the entire system. I’m pointing out that it goes far beyond a “few examples of failures” as you claimed in your earlier post. It’s a systematic problem that affects almost every municipality that allows political bodies to set prices for services. They systematically set them too low to allow long term sustainability.
Are you arguing that the water infrastructure should be privately owned? It's both a natural monopoly and one of the most necessary things for life, and is relatively price inelastic (up to the point of bottled water becoming cheaper), which means gouging when someone profit-motivated gets at the helm.
That is a poor justification against proper water pricing. Very few people are in a situation where higher water/sewer rates would impact their survival. On the other hand, if you set water/sewer rates very low for the sake of that small minority, everyone else gets a huge windfall, paying much less for elective water use than they should.
Estimates of long-run demand elasticity are over 0.5: http://www.allianceforwaterefficiency.org/uploadedFiles/Reso... (p. 3). That means say doubling water/sewer rates could reduce demand significantly, while raising revenue to address maintenance back logs. The effect on the poor can be mitigated by, e.g. regulated pricing for the first X gallons per month.
I'm absolutely not arguing against proper water pricing, I agree that the price should be increased to try to decrease waste. I'm arguing against privatization.
Good point about the elasticity, I should have said it's very inelastic up to the point where the necessity is met, and then it becomes much more elastic.
Privitization is in theory an orthogonal issue. In practice, public water entities can't be trusted to price water appropriately because they're too heavily influenced by short-term political demands.
Are they bad at setting prices, or are they acknowledging the fact that people need water to live.
The last thing a city wants is a bunch of people who can't afford water, and decide to drink from the local stream, and the city has to pay to treat cholera or some other outbreak.
There are other ways of paying for infrastructure. Not everything needs to be fully paid with usage fees.
There is also a huge disparity between what agriculture pays and what consumers pay by orders of magnitude here in California. California residential water consumers are pretty much subsidizing a lot of the produce grown, via disproportionate water pricing, for the entire United States.
If you think that pools and golf courses should only be available to the ultra rich then sure. If agriculture is part of those tiers it would result in a massive increase to the cost of food.
I don't think we need to do anything so extreme, just charging by usage will result in regular water users paying less overall, and heavy water users paying more.
It's an issue with how municipalities are allowed to budget on a cash basis, rather than on an accrual basis. This has allowed a vast misallocation of resources - allowing a developer to put up houses for a one-time setup fee will, under a cash basis, create a paper "profit" for the increased tax burden and income that is more than wiped out by the eventual costs of maintenance. But since they used cash accounting, this was allowed, even though the initial set-up fees should have been higher to convince marginally cost-effective public service provisions to use well water and/or septic tanks instead (or just not have a permit issued in the first place).
In California, anti-tax zealots have made it nearly impossible to change water rates, so it is not possible to keep water rates low for most users and put the cost of maintenance and upgrades on the heavy users.
One easy fix would be to shift municipalities to an accounting system that actually reflected the true state of affairs. That way you could see the chronic underinvestment and ongoing cost of infrastructure.
This is just a microcosm of problems governments are going to face with shrinking populations.
Another, related problem, is the issue of maintaining state pensions and other entitlement programs.
Social Security in the USA, for example, has a negative ROI. For it to work the government has to take money from younger working people in order to pay for older retired people. As the population shrinks you have less and less young people being forced to support the larger number of retired people.
All these sorts of programs have the same problems. They were designed in a era were it was assumed that people died off as a higher rate and people were born at a faster rate. As those trends gradually reverse then all welfare/entitlement programs are becomingly increasingly insolvent.
....
This sort of stuff is why the Soviets had to institute travel restrictions and a sort of passport system in the USSR; you can't have effective long term government planing with a rapidly shifting population.
Yeah no. We have plenty of shrinking cities in France. The water system is still in perfect shape.
My old grand mother city is one of them: streets are full of closed shops, but the infrastructures are in perfect shape. Roads are pristine. Water is clear. Electricity is never ever missing.
Scale and time matters. How many of those cities have lost over 60% of their population since their peak?
The general decay in France is going to be at a much slower rate then some place like Detroit. This means that the increasing tax burden, crumbling infrastructure, and financial crisis not only are much less noticeable, but governments have more time to react and mitigate the issue.
The reason why places like Flint are impressive in their decay is because the rate of change in population is so extreme.
> Social Security in the USA, for example, has a negative ROI. For it to work the government has to take money from younger working people in order to pay for older retired people. As the population shrinks you have less and less young people being forced to support the larger number of retired people.
You can solve that entire problem with a few years of inflation. There's nothing, in principle, wrong with a guaranteed return-until-you-die investment, as part of a retirement strategy.
It's a smart part of a diverse retirement portfolio (Especially when compared with a 100% commitment to the guaranteed-contribution, variable-return investments of 401ks). I wish I could invest more than 3% of my income into SS - and I expect to take a haircut on that investment.
SS isn't an investment though, even says so in its name -- Federal Insurance Contributions Act -- and like most insurance, it's expected that you will pay more into it than you receive in benefits.
There are inflation indexed annuities that you can invest in. Most 401ks don't have them directly, but when you retire I advise my friends to move some of your saving into them: enough to cover the basic life expenses (insurance, food, rent). Because they are for life they are typically lower return on investment, but they lower the risk of living wrong so they should ensure you can afford at least the basics of life.
Sure, and I'll probably look into them, if, by retirement, the world doesn't turn into a Mad Max hell-scape. (Which I am not optimistic about.)
The thing is, all the same risks of Social Security (People living longer than expected, investment returns being lower than expected, a prolonged recession emptying out the fund, inflation turning your guaranteed returns into 'only-good-as-toilet-paper-money') apply to them, but even moreso (Because they cannot count on continued buy-in, unlike Social Security).
The situation with water infrastructure isn’t sustainable even ignoring cities with shrinking populations. Many cities, like DC, are growing but have bad problems with their water systems, because of the extreme aversion to raising rates to the necessary level.
> Despite the challenges posed by shrinking federal investment and rising costs, America’s water systems strive to maintain affordability. As such, many water systems have historically underpriced the services they provide to keep water rates low.
The result is a backlog in investment approaching a trillion dollars.