The city of Springfield is currently struggling to deal with a significantly underfunded public pension plan. Officials recently attempted to raise city taxes in order to increase funding levels, but voters defeated that plan. As the citizens of Springfield debate how to fix a problem that isn’t going away, they should consider that their government owns and manages an incredibly valuable asset that the private sector is fully capable of handling: City Utilities (CU).
Springfield is the largest city in Missouri, and one of the larger cities in the country, in which every utility is provided, owned, and operated by the government. CU supplies gas, electricity, water, mass transit, and even some telecommunications services to the people and businesses of Springfield. It's worth comparing this to how Missouri’s other major cities handle their utilities. In both Saint Louis and Kansas City, private, investor-owned, regulated utilities provide natural gas and electricity. In Saint Louis County, in addition to gas and electricity, the water is also provided by a private utility.
If Springfield were to break up CU and auction its parts to private utilities, it could potentially fund the $200 million pension shortfall and still have a substantial amount of money left over to cut taxes and pay off other public debts, or whatever else the city chooses. It is difficult to estimate the windfall Springfield might receive, because public utility valuations are very complicated, but Webster Groves, which has one tenth the population of Springfield, received $9.5 million in 2002 just for its water system. Using a rough per-capita calculation and adjusting for inflation, a similar sale might bring more than $75 million for Springfield’s water division alone. The city’s gas and electricity divisions would prove similarly valuable.
Last year, after I suggested a similar course of action, a CU representative wrote me a nice letter arguing that the utility was doing a fine job for the people of Springfield. I don’t disagree with that, but he provided as his primary evidence an annual survey of utility companies that generally ranks Springfield among the lowest average winter utility bills in the nation. According to the 2009 survey, winter CU bills averaged $294 — the fourth-lowest ranking. However, Saint Louis, which is primarily served by private utilities, usually falls close behind Springfield in this survey. In 2009, combined winter utility bills in Saint Louis averaged $327, good for an eighth-place ranking. Clearly, private utilities are also providing outstanding service for the people of Saint Louis and Kansas City (the latter of which was not included in the survey). The citizens and leaders of Springfield might well choose to keep CU public because it might save them a few dollars per month, although the logistics of the utility systems in each city aren’t directly comparable. But the tax dollars to fund the pension shortfall have to come from somewhere.
Breaking up CU would be difficult and complicated, no doubt — particularly the disposition of existing bonds — but other utility privatization efforts have overcome similar hurdles. Studies have shown that private utilities are more efficient than public, especially after adjusting for government utilities’ tax advantages, such as issuing tax-exempt bonds and property tax exemptions. Breaking up and auctioning off CU in order to fund the city’s pension shortfall is a short-term solution, but in the long run, the citizens of Springfield would find themselves just as well served by private, regulated utilities. There is simply no reason for every utility service in Springfield to be provided by the government.
David Stokes is a policy analyst with the Show-Me Institute, a Missouri-based think tank.