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.

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.

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

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.

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.

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

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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?