Privatization of the Saint Louis Water Utility
The city of Saint Louis, with a population of approximately 350,000 people, provides water to its residents and firms via the common municipal water utility. The surrounding and politically separate Saint Louis County, with a population of slightly less than 1 million, has long used private utilities to provide water to almost all of its residents and businesses. Unless the city can demonstrate that private operation of the water supply would result in both lower overall water quality and higher real costs (after adjusting for the current subsidies that are common with municipal utilities), the city should strongly consider the financial opportunities of selling its water treatment and distribution systems.
If economics fundamentally entails the study of scarcity, it might seem odd to discuss the Saint Louis water supply in economic terms. Observers would likely not expect that a metropolitan area located at the confluence of the two largest rivers in North America would have water scarcity issues — and, indeed, it does not. An overabundance of water, in terms of flooding, is a much more pressing concern for Saint Louis. This abundance of water, however, allows for a direct comparison of water provisioning methods, without the necessity of considering issues of supply equity or rationing that can be found in much of the world, including the western United States.
The city of Saint Louis, with a population of approximately 350,000 people, provides water to its residents and firms via the common municipal water utility. The surrounding and politically separate Saint Louis County, with a population of slightly less than 1 million, has long used private utilities to provide water to almost all of its residents and businesses. While that is the primary difference between water systems in the city and county, there are similarities as well. They both get much of their water from the Missouri River, and they share the same sewer system (and its governing body), which directs the disposal of stormwater and wastewater.
One method of water delivery — via public or private utilities — is not inherently superior to the other. Indeed, all indications point to the water division of the city of Saint Louis as doing an excellent job. In 2007, the United States Conference of Mayors designated the city of Saint Louis as having the finest-tasting tap water in the country. Furthermore, the city’s fire department is the only fire department in the state of Missouri with a class 1 insurance rating. The quality of the city’s water hydrant system plays an important role in that rating. Finally, a 2001 report by the Mackinac Center for Public Policy, which advocated various privatization possibilities for Michigan, compared Detroit’s ratio of water system employees to two other large cities. According to that report, Detroit had 3.47 employees per million gallons of water produced per day (MGD), Philadelphia had 3.41, and Chicago had exactly 2.0. Saint Louis has 2.76 employees per MGD, which compares well to these three cities, especially considering that all three other cities have much larger water systems and — in theory, at least — might benefit from economies of scale more than Saint Louis does.
As a lifelong Saint Louisan who has traveled somewhat extensively around the United States, I can attest to the superior quality of the tap water in both Saint Louis city and county. The water used in the county is essentially the same quality as in the city; the city’s intake and treatment plants sometimes even supply a small portion of it. The potable water in both the city and county are of high quality, and because of the large and readily obtainable supply, its price should favorably compare to that of other cities.
In today’s terms, the Saint Louis water division can be described as a municipal utility that provides high-quality water at an affordable price to the people of Saint Louis. From another perspective, however, it is also a valuable asset that could be auctioned to a private water utility, generating an enormous amount of money for the city and its taxpayers. Simply put, the city’s water division is worth hundreds of millions of dollars. Unless the city can demonstrate that private operation of the water supply would result in both lower overall water quality and higher real costs (after adjusting for the current subsidies that are common with municipal utilities), the city should strongly consider the financial opportunities of selling its water treatment and distribution systems.
