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Tuesday, February 2nd, 2010

Chris Barnett: It Falls From the Sky

When the well’s dry, then we know the value of water” – Benjamin Franklin

Whiskey’s for drinkin’; water’s for fightin’” – Western aphorism

It used to be that people and policymakers in the eastern portion of the US (roughly east of the 100th meridian, which is the western boundary of the main body of Oklahoma) didn’t worry about having enough water. After all, that part of the US has abundant rainfall, mighty rivers, relatively frequent floods, and infrequent severe droughts that always end before the lakes go dry. Under such circumstances, even well-educated and thoughtful people ask themselves: How could there ever be a long-term shortage of water? When catastrophic multi-year drought occurs, as in the Southeastern US from 2006-2008, nature seems to right itself. After the extremely wet summer and fall of 2009, Lake Lanier, near Atlanta, has again reached full pool, less than two years after going nearly dry. Consequently, water conservation measures are perceived as unnecessary; swimming pools, green lawns, and oft-washed cars are again the order of the day in Atlanta. And it is likely to be so until the next drought, or until a Federal judge’s ruling takes effect: the water in Lake Lanier will no longer be available to Atlanta, as it is required for maintenance of Chattahoochee River flow downstream where it supports other cities in Georgia and Alabama and ultimately, the Apalachicola estuarine system on the Gulf Coast of Florida.

The Atlanta story above touches but does not begin to address the complexity of water supply issues: interstate surface water rights allocations, environmental stream-flow requirements, ground water usage and recharge in paved-over urban areas, stormwater and combined sewers, wastewater discharge and re-use (including the “emerging contaminants” issue of pharmaceutical concentrations in waste streams), and the water-energy nexus. Nor does the Atlanta story address the western issues of city growth vs. agricultural use of water, or the use of groundwater for irrigation of crops even in the eastern US. But the Atlanta story does illustrate a fundamental psychological and socio-economic truth of water in the eastern US: given that water falls abundantly from the sky and runs freely in streams and rivers, its perceived value is nearly zero in many places…and thus, so is its price. This is the part of the water story I’ll elaborate on in this post.

At some level, every city’s power structure understands that adequate quantities of good-quality water are absolutely essential to the city’s very existence. The US’ three largest cities all have water-supply legends: decades ago, NYC and LA secured (some would say “grabbed”) water from distant watersheds, and Chicago undertook a massive engineering effort to keep its Lake Michigan drinking water pure by making the polluted open sewer called the Chicago River flow “uphill” over the Great Lakes/Mississippi divide and down the other side into a tributary of the Mississippi. So this is not a new urban issue. But it is largely ignored in broad public debate: city-dwellers and suburbanites simply expect the local water purveyor (whether city-owned or private) to find all the potable water they want to use, and to provide it cheaply. After all, it falls from the sky free…all the water purveyors have to do is capture it, right?

Oklahoma City is leading a two-billion dollar storage and pipeline project to divert additional water from the Red River watershed of Southeastern Oklahoma, to assure water supply to its growing metro area in the Canadian River basin of Central Oklahoma. T. Boone Pickens bought up groundwater rights in the Texas Panhandle (above the southern end of the multi-state and very deep Ogallala Aquifer), intending to pump water from great depths and sell it via pipeline to the fast-growing Dallas-Fort Worth metroplex. Las Vegas and Central Arizona undertook a sophisticated trade-and-storage deal for some of their Colorado River water allocations. And little Waukesha, Wisconsin is trying to buck the Great Lakes Compact to pull Lake Michigan water up over the Eastern Continental Divide by way of a connection to the Milwaukee municipal water system. The common thread: all these projects are engineering-based and capital intensive, treating urban water supply as a matter of building the right infrastructure from source to tap. Water can flow uphill, toward money. But should it?

“City water” is seen as other public goods: to any single individual, it appears that the “supply” of water is, or should be, almost unlimited and nearly free. Further, because water is essential to life, there is a bit of a “do-gooder” notion that it should be cheap or free for users. Finally, there is the truth that public goods are seldom priced near actual cost, at least as long as the municipality has a good bond rating and can borrow against tomorrow indefinitely. This leads to the “tragedy of the commons”: because there’s more than enough for one person, the resource is overused by everyone.

Even though water falls from the sky freely, it costs money to locate, capture, treat, and distribute to users. The supply is limited, and the costs are quantifiable. Public water suppliers generally don’t build the real cost of the distribution system into prices. For example: let’s assume that Indianapolis Water has about 250,000 water connections. It’s not exact, but close enough for gross calculation. The city paid (borrowed) in excess of $500 million to buy the system in the early years of this decade; the embedded average capital cost per connection in the system was thus pegged at around $2,000. Using the dubious assumption that this amount approximates the replacement capital cost of the system, and assuming an average life of 25 years for the system’s capital plant, the system would have to recover $80 per year in Y2K dollars per connection (rounded, about $7 a month) just to maintain and replace system infrastructure. Interest on outstanding debt (at a low 4%) would be another $7 per month. This $14 would not cover any operating costs, just capital replacement expenditures and interest costs on the system purchase. Yet last month, my residential water bill had a fixed charge of only $9.10, which means that after the $7 for interest, just $2.10 ($25 a year) goes to system replacement…a built-in assumption that the system life is 80 years! Pipes, pumps and treatment plants are pressure vessels and big machines, and they just aren’t going to last 80 years on average. This calculation doesn’t even address the imputed average cost of $2000 to extend a new connection and increase system capacity as the system’s service area grows.

Furthermore, the 1500 gallons of water used last month cost $4.03, or less than 3 cents per ten gallons, which presumably covers the actual cost of treating and pumping the water to my meter. Altogether, with sales tax, it cost a little more than $14 for the water (which, incidentally, cost close to $16 to send down the sewer or out the dryer vent—but that’s another post entirely). It required quite a bit of math to even figure out usage in gallons: Indianapolis Water bills are expressed in units of “100 cubic feet”.

Those are ridiculous numbers. Electricity, natural gas, food, and transportation are all equally necessary for me to live and work in the city, and I probably spend close to $14 per DAY (before ever eating out) on those other basic necessities; their price assures that I don’t waste them. To the do-gooder argument of water as a necessity of life: if I am too poor to afford necessities, there are social-service providers or government welfare to help me; as an affluent and largely urban society, we don’t buy the rationale that food should be nearly free for everyone because it is a necessity of life. Water should be treated likewise. Further, the low price of water and water infrastructure almost assures that it is taken for granted and that significant amounts are wasted. Even the unit of measure sends the message “you aren’t using that much water.” But 100 cubic feet is 750 gallons, enough safe drinking water for four people for a full year or enough to flush a low-flow toilet 400-500 times. One person living alone used twice that amount in a single month!

Against this backdrop, some low-growth (or shrinking) Midwestern communities have lots of spare water-treatment and distribution infrastructure capacity. Several are using water availability as an economic development tool. Dayton, Ohio ran a half-page ad in the Wall Street Journal earlier this year touting its abundant (and well-protected against contamination) groundwater supplies. Milwaukee is gearing up to go after high-volume water users based on its Lake Michigan supply; its breweries and tanneries of the 19th and 20th centuries were based on the economic geography of water, grain, and livestock. Anderson, Indiana “won” a Nestle factory based on available water and labor (GM was once the major employer and now is gone). Grain ethanol production is extremely water-intensive, and it is no coincidence that its boom has occurred where both corn and nearly-free water are available: rural areas of Ohio, Indiana, Illinois, Iowa, Nebraska. But the resource isn’t unlimited; are states, cities, towns, and counties pricing the commodity too low, and essentially suggesting that water-wasters should move to the Midwest?

Lack of available and affordable freshwater is the one thing that has the potential to choke off industrial and population growth in arid-zone boomtowns (Denver, Albuquerque, Phoenix, Las Vegas, the LA megalopolis, and San Diego among them). Even Atlanta and Tampa-St. Pete don’t have enough freshwater; Tampa is using desalination and reclaimed water (highly-treated sewage) to meet some of its needs. Yet there is generally no federal mandate for water resource planning, or for a “grid” of system interconnections by pipeline to support regional or national markets (as exist for electrical energy and transportation).

Thus water is a local (in some cases, mini-regional) commodity and prices vary wildly across the country. This creates the very supply arbitrage that Milwaukee and Dayton hope to exploit. (Imagine a non-connected electrical, phone, gas/oil pipeline, or fiber grid!) There is no real control in most places on rural wells…which is why grain ethanol plants are generally in the middle of nowhere. Until the price of water starts rising, and in rural settings, until metering and volume charges are instituted, there will be no market incentive for really large users to become more efficient in their water consumption. Thomas Frank provided a sample of how much large industrial users spend in various US cities, and a sympathetic take on unintended consequences of low water prices and water-as-economic-development tool.

Given the current economics of water, Midwestern cities will indeed have a distinct water-availability advantage over their warmer and drier counterparts to the west but this may or may not persist for some cities. For Midwestern cities generally, presence within the Great Lakes watershed could bode well in a water-short US with expanding population. Metros on small rivers (such as Columbus, Dayton, Indianapolis, Madison, and Des Moines) will need to incorporate water resource planning as well as conservation measures and higher water costs into their growth plans just as their western cousins do today, as their water supplies are less obviously adequate than some of their Midwestern neighbors’. River cities that rely on the great rivers for their water (Pittsburgh, Cincinnati, Louisville, MSP, St. Louis) will increasingly have to deal with the issue of “microcontaminants”, primarily pharmaceutical products in upriver waste streams that are neither treated by sewage plants nor by conventional drinking-water treatment methods, on top of the “normal” load of industrial and agricultural contaminants the rivers carry.

Could the 19th-century location advantage of Cleveland, Detroit, Chicago, and Milwaukee on the Great Lakes also become a 21st-century advantage? It may very well be so when the real value of cities’ fresh water supply is more widely recognized and when true cost is reflected in “city water” pricing.

To inject this issue into a current thread of urban policy debate: how could Detroit play its Great Lakes water-supply and location advantages in the 21st century? Could Detroit partially rebuild its business base around ocean-going shipping and water-intensive industries? Should shrinking cities with ample water supplies and excess treatment capacity (like Detroit) become suppliers to the bottled-water industry, to ease the strain on scarce resources elsewhere? Thermo-electric power generation requires lots of fresh water and throws off a lot of heated “cooling water” that can be piped from the exit side of steam turbines. Could Detroit specialize in electric generation for the east-central US grid and develop a co-product of year-round urban hothouse agriculture? Food for thought.

Chris Barnett has been a “practicing microeconomist” and manager through careers in industrial procurement, neighborhood business ownership, and community development in Indianapolis. He has also been a leader in groundwater protection locally since the 1990s, and received The Groundwater Foundation’s Phil Peters Award for service on its Groundwater Guardian Council 1999-2006. Most recently, he worked with a Central Indiana ad-hoc committee to plan, organize, sponsor, and moderate a three-session symposium on groundwater issues in urban redevelopment for urban planners, engineers, and development professionals. In his spare time, he is helping to organize Indianapolis’ first member-owned cooperative grocery. He can be reached at cbarnett.indy@gmail.com.

19 Comments
Topics: Public Policy, Sustainability

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19 Responses to “Chris Barnett: It Falls From the Sky”

  1. CGHill says:

    Just for comparison purposes: Oklahoma City charges a base of $7.37 plus $2.26 per thousand gallons. (Sewer service is charged separately: $1.62 plus $3.24 per thousand gallons.) For 1001-2000 gallons per month, therefore, the bill would be $20.49, plus a $4 fee to cover an EPA groundwater mandate.

    Most people, I’ve discovered, think it’s arid here in OKC. In fact, we average about 35 inches of precipitation per year.

    And not everyone around here is pleased with the idea of selling water to Texas, even though we’re assured that our own local supply is adequate through 2050 or so.

  2. CGHill, if your climate isn’t arid, why do you need to pump water in from so far away? I’m legitimately curious. Most Midwestern interior cities just dammed up tributary creeks of minor rivers to create reservoirs in case the flow gets too low, or rely on groundwater.

  3. Ironwood says:

    Great, thoughtful post, Chirs. Hope it will inspire some good comments and perhaps more discussion here on the role of fresh water in the next 20-50 years of urban growth in the US. When we consider the Big Trends that influence growth of population and industry, fresh water — its price, and even it availability at any price –is going to be in the top 3, no matter how you look at it. As climate change catches up with us, this will even be truer.

    This isn’t just about manufacturing; it’s about agriculture, too. Megatrends like fresh water and climate change are going to dwarf just about anything more mortals can do about urban development/decline. All of this points favorably in the direction of the Midwest — particularly Great Lakes and upper Midwest — and bodes ill for the Sunbelt, particularly the Southwest.

    50 years isn’t such a long time — We’re talking about the length of time between 1960s and now — a time when the Great Lakes power-house cities, like Detroit and Cleveland and the industrial cities in OH were in their glory and LA and the other Sunbelt cities weren’t even close to Chicago in economy or size. That’s well within a person’s adult lifetime. I’m living proof.

    Decline is gradual, as is growth, but I expect we’ll see trends beginning to reverse themselves in the next 15 years. As that happens, the Midwest Urban Policy Establishment is going to have to retool from figuring out how to stimulate growth in the RustBelt to figuring out how to manage it. Is this growth going to be more wasteful sprawl or can we do better? Can we knit together a new urban/suburban/hinterland that is less dependent on fossil fuels and altogether more livable? Now would be the time to do the planning and to put new growth controls into place, before most people take it seriously enough to mount the predictable opposition. Because 15 years is a blink — the space between 1995 and now.

    We can use that time to tinker with Economic Development efforts and street furniture in moribund CBDs or thinking harder about the inevitable, and being proactive about trends that, to me, anyway, seem inevitable.

    Maybe I sound like Burt Lancaster in the “Rainmaker,” but, baby, it’s gonna rain, whether you believe me or not.

    Would love to see more here about how these consequences will play themselves out, with and/or without gov’t help or hindrance … Fresh water, oil (and alternative energy sources and conservation), climate, demographics of an aging population, overall decline in US world dominance and, no doubt, a couple other biggies. Yeah, we’d all love the crystal ball that tells how all of these factors will shape our world, but to me, at least, net/net they favor the Great Lakes/Upper Midwest region and hurt the south and the non-freshwater coasts.

    Thanks again for a great post.

    Iron

  4. Chris Barnett says:

    Thanks, Ironwood. I need to do much more reading on the topic, but the “water-energy” nexus is an important one. Just as thermo-electric power generation relies on freshwater, so does drinking-water and irrigation-water movement rely on electric power. Making water flow uphill to money requires pumps.

    Lower Michigan is apparently a high-potential shale-gas region, based on the new horizontal drilling/fracturing methods…and those methods require water. So the notion of a water-energy-offseason food nexus is entirely plausible: drill for gas in Michigan, put natural-gas fired power plants along the Michigan shorelines and then surround them with greenhouses.

    Result: relatively clean, stable source of electric power plus lots of “locally grown” food that doesn’t have to be grown (irrigated) in the water-short deserts of Southern California and Arizona and shipped long distances to where most people live in North America, east of the Rockies. (The irony is that this could result in more pressure to reallocate Southwestern “ag water” to domestic/household use and allow more people to live in the desert.)

  5. Chris Barnett says:

    Aaron, I alluded to it in my post in the comment about cities on small rivers. Indianapolis gets 44 inches of rain a year, but due to topography we’re out of water storage sites on the three rivers that run through town; each is already dammed. To grow its water supply, Indianapolis must now rely on pumping groundwater instead of treating river water.

    If there is one overwhelming similarity between OKC and Indy, it’s flatness. Cities on plains, even when rivers run through them, have problems storing water in surface impoundments. Southeastern Oklahoma has “terrain”, places where damming valleys could provide water storage capacity.

    Find, capture, treat, and distribute are the essential elements of public water supply. If you can’t capture it, you can’t treat it or distribute it.

  6. Jim Russell says:

    The water issue in the Interior West isn’t well understood. The primary consumer is agriculture. That draw is compounded by the legal geography (senior versus junior water rights). In general, agricultural interests trump population interests because the beet farmers were here first.

    The allocation of natural resources almost always comes down to politics. If demand for Great Lakes water were to skyrocket, we’d see the same problem we see in drought states. I suspect it would be worse in the Rust Belt given the parochial traditions.

    Milwaukee is fine as long as other Great Lakes communities don’t make the same effective pitch. What happens when transport doesn’t have enough depth to make port?

    I don’t see a comparative advantage. I see a nightmare among states and communities that traditionally don’t work well together.

  7. Chris Barnett says:

    Jim, I understand the ag vs. urban issue as being the crux of water rights battles in the West. I’d recommend reading Robert Glennon’s books “Water Follies” and “Unquenchable” (among many others) for more on that topic. In “Unquenchable” Glennon advocates for making a market for water-rights transfers and also for more-sustainable agricultural methods that recognize the value of the resource while maintaining the agricultural lifestyle of long-tenured farm families.

    I am somewhat indebted to Glennon for my central point that the resource is undervalued. When the true value of the resource is more apparent and when transparent and efficient markets exist, then I think resource allocation can proceed more rationally and less politically. We’ve got some problems with the “transparent and efficient markets” although there are some promising beginnings in the Colorado basin. To the extent that the resource is viewed through a super-regional market lens, it will tend to equalize prices and promote conservation and sustainable use policy.

    I think the Great Lakes states and provinces are collectively smart enough to avoid doing what the Colorado River states did: overallocating the resource based on bad data. I do not see the various states suing each other in Federal court to establish, protect, or review water allocations. After all, they did come together to ratify the Great Lakes Compact to prevent inter-basin transfers out of the watershed because they share something no one else has: North America’s premier freshwater source.

  8. Jim Russell says:

    Chris,

    The Great Lakes Compact does appear to be progressive, but I understand it as a form of mega-regional parochialism. The aim is to keep Great Lakes water for Great Lakes states. The Asian carp debate is indicative of the kind of interstate fighting I expect to increase as the resource becomes more dear.

    The compact defines the commons, but doesn’t preclude tragedy.

  9. Chris Barnett says:

    I do understand it the same way, and that is why I believe it confers a regional advantage…if wisely managed. (I hope saying that doesn’t make me an elitist technocrat.)

    Overwhelming market advantages can certainly be squandered by mismanaging things. Just ask GM.

    I have not read enough to understand if the Nobel prize- winning work of Elinor Ostrom of IU applies to this kind of water resource management or not. My brief review suggested that her research into avoiding the tragedy of the commons with water is focused on a much smaller geography and population base and in a different economic setting. So I didn’t pursue it further. I certainly would welcome enlightenment by someone who knows more about her work. Her framework could possibly hold for even a mega-region: [from Wikipedia]

    Ostrom identifies eight “design principles” of stable local common pool resource management:

    1. Clearly defined boundaries (effective exclusion of external unentitled parties);

    2. Rules regarding the appropriation and provision of common resources are adapted to local conditions;

    3. Collective-choice arrangements allow most resource appropriators to participate in the decision-making process;

    4. Effective monitoring by monitors who are part of or accountable to the appropriators;

    5. There is a scale of graduated sanctions for resource appropriators who violate community rules;

    6. Mechanisms of conflict resolution are cheap and of easy access;

    7. The self-determination of the community is recognized by higher-level authorities;

    8. In the case of larger common-pool resources: organization in the form of multiple layers of nested enterprises, with small local CPRs at the base level.

    In a gross sense, most of these design principles seem so be in place at the macro level. Of course, the devil’s in the details…what will people do when they think no one’s looking?

  10. Jim Russell says:

    I can’t think of a reason why the design principles couldn’t be scaled up to serve mega-regional needs. Also, I agree the ample fresh water reserves could confer a regional advantage. Such cooperation would go a long way to solving the water problem in the semi-arid areas of the United States (e.g. Ogallala Aquifer).

    The issue is still politics, something that has placed the Rust Belt at a comparative disadvantage (see Aaron’s latest post about greenfields). The political geography that worked so well during the industrial era is choking economic development today.

    To cite an example in a different part of the country:

    http://marynewsom.blogspot.com/2010/02/revamp-of-transportation-planning-or.html

    “Is there any other large metro region with more different “metropolitan planning organizations” – aka, the state-established way to plan transportation? Charlotte region transportation is split among 4 or 5 MPOs and two Rural Planning Organizations. Just one small example of the ridiculousity: The Lake Norman area is considered a Rural Planning Organization and not part of the Charlotte metro transportaton planning.”

    The benefits of cooperation are obvious, but that doesn’t make it any more likely to happen.

  11. CGHill says:

    Sorry I took so long to get back in here.

    The three lakes/reservoirs in town cover about 16 square miles, which seems like plenty, but only one of them is at all close to the river that runs through town; a second is connected via canal, and the third is connected to sources in the southeastern part of the state.

    OKC has had so much capacity for so long that they got into the habit of selling to some of the ‘burbs – at a premium, of course. (This despite the fact that the farthest-flung areas of the city – we cover 621 square miles, including those lakes – are nowhere close to actual city water lines.) East of the city, people tend to rely on groundwater from the Central Oklahoma Aquifer, which right now is more or less adequately charged, but may not remain so as the population increases.

  12. Josh Ellis says:

    Thanks for an interesting chain everyone. I wanted to weigh in on a few things:

    1) The Great Lakes Compact, in my mind, is simultaneously progressive (it requires states and provinces to develop conservation and efficiency programs) and protectionist. At the end of the day, it will keep Great Lakes water in the basin, making it virtually impossible to pipe to more arid parts of the country. Over the next 50 to 100 years, as aquifers and rivers run low elsewehere, businesses and individuals will have greater and greater incentive to locate within the Great Lakes basin, as water will be relatively abundant and cost-friendly.

    The onus, then, is on each state and province (and watershed, county, city, neighborhood, business, and individual) to improve their management of water to ensure that ample supplies are available to accommodate that growth while also protecting ecosystems. If water prices are out of synch with water costs, you get overconsumption and inefficient infrastructure… and a continued reliance on federal and state loans to solve typically local problems. If you aren’t using stormwater for something (e.g. capturing it for irrigation, toilet flushing, or aquifer/watershed recharge) before treating it, then you’re effectivly dedicating money and time to cleaning free rain. If a unit of government is not coordinating with its same-water-source neighbor on sustainable management, then everyone is pretty much wasting time.

    The good news is that we’re starting to see models of coordination on these issues. The Chicago Tribune article in Post #6 is all about the release of northeastern Illinois’ first-ever regional water supply plan. It’s not perfect, but it’s a great start, and it’s already leading to results. Communities on the Fox River are discussing the right means for pursuing sustainable managagement on their river basin, and Illinois Senate Bill 2549 would make it easier for people to use rainwater for non-potable uses like flushing toilets. They may be small steps, but they’re getting people talking seriously about these issues.

    2) Yes, water prices often are “too low” but that’s not to say we aren’t paying for the water somehow. Communities with public water utilities use low water rates to attract businesses, and then figure out ways to balance the books. Too often costs for water management are covered by sales and property taxes, bonding and loans (which are then repaid with local tax revenue), or other financing mechanisms. You also get delayed infrastructure maintenance, which leads to leaks and other waste.

    At least in Illinois, private utilities are required to charge rates that relfect true costs. This often (not always) leads to more efficient systems. No revenue from water rates is is being diverted to fire departments, schools, etc., but is instead reinvested in the system… or given to investors. So long as private utilities, in general, are going to manage water better, should some element of profit be considered a necessary cost of water management? Perhaps. But is there a better way?

    Yes, require or incentivize public utilities to shift to full cost pricing. Then communities would be competing for the most efficienct and sustainable water management system, and subsquently low costs, rather than for who has the most subsidized rates.

    One way to do this might the revolving loan funds that the feds and states provide for water infrastructure. Why not require full cost pricing as part of the eligibility criteria for those loans? In the short term you’d be continuing a pattern of subsidization, but at the same time forcing a long-term shift away from it. These kinds of incentives are pretty common – if a state wants federal transportation dollars, its drinking age muct be 21 – and could work here.

    While specific to the Chicago region, MPC and Openlands’ recent report on our water issues touches on many of these problems, and is proving to be popular as mayors talk with their contituencies about sustainable water management. Call it self-promotion, but everyone here might be interested:

    http://www.metroplanning.org/multimedia/publication/370

    Josh Ellis
    Metropolitan Planning Council
    http://www.metroplanning.org

  13. Chris Barnett says:

    Josh, the report suggests that resource planning and management should be funded. Has MPC considered pros and cons of connection-based or meter-based fee to cover those costs, as opposed to extracting the money from the ever-challenged state pot?

    It seems to me that while the states can and should mandate planning and cost-recovery rules, “we the people” who are doing the local/regional bottom-up resource allocation planning should pay for that planning as a fixed fee in our rate. To me, that’s part of “full cost”. Ditto for water-quality protection programs.

    Further, full “average” cost pricing is not the way to get out of the bond-financing and underpricing business for water infrastructure in growing regions. I am more convinced than ever that a substantial connection fee is necessary. It was an aside in my post, but new connections typically free-ride on the prior system investment until enough hook up to require new system capacity…then ALL rateholders have to pay. This is wrong, and it demonstrates the difference between “generally accepted” and “real” full cost accounting. The real full cost of hooking up a new connection is equal to:

    total system replacement cost divided by weighted system connections, where weighting is done by connection size

    This is to recognize that the real “system” cost of a new 8-inch main to a major commercial user is far higher than the cost of a one-inch service to a new home: the 8-inch main can deliver 64 times the water (it has 64 times the cross-sectional area), and should bear a similar proportional piece of the total system investment since the utility must plan for peak load. This formula would result in an approximation of marginal cost for capacity to be paid by each marginal user.

    At this point, Aaron’s urbanist readers are bored to tears, wondering what the bottom line is. Here water issues cross to suburbanization/development issues: the true cost of providing “new” water connections should be embedded in the upfront cost of development. (This is probably true of other capacity-limited infrastructure too, such as roads, sewers, schools, police, and fire stations.)

    “But you’ll kill development”, the developers will cry.

    Maybe. But internalizing the very real (but currently-externalized) costs of greenfield residential development would go a long way to making older cities and suburbs more competitive, which may lead to more efficient allocation of capital across the economy.

    The economist’s dream: efficient markets.

  14. Henry Hudson says:

    Nitpick: There’s no such thing as a “100th parallel.” You’re confusing latitudes (parallels) with longitudes (meridians).

  15. Chris Barnett says:

    You’re right. I meant and should have written “100th meridian”. Thanks for the correction.

  16. Magellan says:

    To be even more clear, it’s 100 degrees west longitude, often called -100 degrees. There’s also a 100 degrees east, which goes through Russia, China, Mongolia, and Thailand.

  17. Josh Ellis says:

    Aaron, in response to your question about funding for planning, research, and resource management… yes, we have thought about it.

    One way would be some sort of on-bill fee to cover the state’s costs asscociated with local provision of water supplies. Full cost pricing, after all, needs to be inclusive of all the costs in the system. If that fee were something like 1 cent per 500 gallons, it would generate roughly $12 million a year in Illinois. That would pay for a lot of research and planning, which is good, but not enough to do much about resource management. The benefit is that it’s an easy fee to understand and collect. The downside is twofold – 1) if the fee is collected on local water bills, then local politicians take the heat for even a small rate increase as this; 2) if your water comes from a well, you aren’t contributing to the state’s costs for research and planning… you’re a free rider.

    Another approach would be to place a state sales tax increment on water-consumptive products like toilets and showerheads. Then you waive the sales tax for purchases of super efficient alternatives, like those marked with a US EPA WaterSense label, and offer a rebate program. Last year only 8% of the toilets sold in the U.S. were that efficient, so you’re not losing too much money. People pay for the conscious choice to be inefficient. We estimate that a 5% tax bump on toilets alone would generate about $8 million for Illinois.

    One last option is a service tax. Services play a huge part in our economy, and yet in Illinois are essentially untaxed. Swimming pool maintenance, laundromats, and car washes (as examples) all benefit from the research, planning, and resource management activities of the state, but do not conrtibute. A 5% service tax on those three services alone would generate roughly $70 million for the state.

    Just a few ideas. I’d certainly be interested in others.

  18. Chris Barnett says:

    Josh, why not meter all wells, and charge well-owners both a fixed fee and a volume fee? The wireless technology exists to read and bill the meters remotely. Eliminate free-riding.

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Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.

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Please email before connecting with me on LinkedIn if we don't already know each other.

 

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