Autonomy Is Key to Revitalizing Water Utilities

Abstract

Allentown, Pa.; Bayonne, N.J.; Flint, Mich.; Newark, N.J.; and Jackson, Miss., are a few of the communities that have had serious water issues involving an underfunded utility in need of critical intervention. That intervention came, and it arrived in a variety of forms. In Allentown a public–public arrangement with the independent authority, Lehigh County Authority, turned things around. In Bayonne a public–private partnership sparked a recovery. Flint, Newark, and Jackson required massive infusions of public dollars and outside management to address the emergencies in the short term. In these and other communities, revenues have been diverted to other municipal needs, or rates have been held artificially low for years because of political resistance or interference. The common denominator for failing or distressed utilities is being embedded in municipal government and managed by elected political officials—mayors, city councils, and boards—who view water rate increases as taxes and thus a political “root canal.” Because charging more for service is not generally popular, political leaders have every incentive to defer or oppose rate increases until they leave office. Embedded utilities are not permitted to operate as independent enterprises, so they are not always able to make financial decisions that are based on public health and business or infrastructure needs. This has meant that many American communities have not adequately invested in infrastructure. AWWA's 2012 report, Buried No Longer, estimated the investment gap or needs at a trillion dollars. The US Environmental Protection Agency estimates that cost to be just under half a trillion dollars. This is a case of government failure—local government, primarily. Recently, I spoke to a utility manager in the capital of a midwestern state who told me they have not had a rate increase in 11 years. At 2%, 3%, or 4% annual inflation rates, the financial hole gets deep very fast. When I asked why, he responded, “The mayor does not support rate increases.” Politically depressed water rates and revenue stifle capital planning and development. Meanwhile, water infrastructure continues to slowly degrade. Seth Siegel, in his critique of the drinking water sector, Troubled Water: What's Wrong With What We Drink, argued to “keep mayors away from water.” Siegel explained that “to improve decision-making, the counterproductive connection between water utilities and municipal government needs to be decoupled.” Political mismanagement and neglect may be the unified field theory of public utility failure, and it deserves serious research. Indeed, a 2019 study in AWWA Water Science by Jennifer Biddle and Karen Baehler found that “autonomy matters” (https://doi.org/10.1002/aws2.1140). This quantitative study focused on 22 US managers from water utilities across the country. The researchers found that there was an overarching sentiment that utility performance improved with insulation from political interference, and utilities with organizational autonomy possess greater decision-making power and flexibility in spending. Removed from direct municipal control and political influence, independent water utilities may focus intently on water service delivery. According to one mid-Atlantic participant in the study, “The city was always very, very reluctant to spend money on infrastructure replacement, renewal upgrades, you name it. They didn't want to want to raise the rate.” There are alternative models of governance. Louisville Water is a separate corporation owned by the city, which preserves independence and pays dividends to the municipality. In addition to Lehigh County Authority mentioned earlier, Denver Water is a fine utility and part of an independent authority from the city. Washington, D.C., (DC Water) has improved immensely since becoming a separate authority. Massachusetts General Law (Part I, Title VII, 40N, Section 1) provides for the adoption by towns of an independent political subdivision to operate water and sewer systems modeled after Boston's Enabling Act of 1977. Another model to consider is the investor-owned utility regulated by a public utility commission. Seth Siegel points out, “De-linking water utilities from mayoral politics, though, need not lead to unaccountability.” Local officials can appoint board members or commissioners of these independent authorities, ideally for fixed terms, ensuring autonomy to provide effective management of the assets entrusted to them. Not all embedded utilities fail, but most failed utilities are embedded in municipal government. Autonomous utility governance is the key to a revitalization of the water sector. Author's note: The views expressed herein are entirely the author's and not those of AWWA. G. Tracy Mehan III is executive director of government affairs in AWWA's Washington, D.C., office; [email protected].