Columbia Should Privatize Its Water and Electric Utilities

A version of this commentary appeared in the Columbia Missourian.

Columbia is currently considering raising its municipal water rates. The proposed increase would be set at four percent, with higher increases for some water services during the summer. I have no criticism of the proposed increase if it is truly necessary and the revenue is properly used, but there is an even better option that Columbia citizens and leaders should consider: privatization.

There is no standard method for providing utility services in Missouri cities. Springfield, for instance, has a city-owned public utility that provides every utility service. Alternatively, almost all of the 1 million residents of Saint Louis County are customers of private utilities for water, gas, and electricity. The private sector also provides utility services in Jefferson City.

Despite the structural differences between public and private provision, there is little difference between what customers pay in Columbia and Jefferson City. Both cities are below the national averages for utility costs. According to data from payscale.com, a residential customer of Columbia’s municipal electric utility has an average monthly charge for usage of $169.75, which is four percent below the national average. In Jefferson City, that average monthly electrical bill is $162.50, or five percent below the average. That’s obviously a small difference in favor of customers of Jefferson City’s private utility compared to Columbia’s city-owned utility.

Studies have demonstrated that private utilities are generally more efficient than municipal utilities. In 2000, economist B. Delworth Gardner of Brigham Young University determined that private water utilities in Utah charged lower rates for water than comparable public utilities, even after accounting for the large advantages in taxation and regulation that public companies have. Economists Daniel Hollas and Stanley Stansell found in a 1994 study that private gas utilities were more economically efficient than public gas utilities.

It is reasonable to suppose that private utilities would be more efficient in their costs and operations than Columbia’s current municipal utilities. Privatizing the utilities could benefit the city in a number of ways. Most importantly, the city would experience an immediate cash infusion from the sale. Eureka, in Saint Louis County, sold its municipal water and sewer utility to Missouri-American Water for $28 million in 2020.

Columbia would also see other fiscal benefits from privatizing the city utilities. The assets of the newly private utilities would become taxable, expanding the Columbia and Boone County tax bases. Finally, reducing the number of municipal employees entails scaling back the long-run taxpayer costs associated with government pensions and health care.

Currently, there is a question about how Columbia has been calculating the payments-in-lieu-of-taxes (PILOTs) from the water department (and likely the electric department, too). The Columbia city charter states that the public utilities shall pay to the city the amount that would be due in taxes to the city if the utilities were private. However, the city has long been transferring into the city’s general fund the total taxes that would have been due to all of the local governments, such as the county and school district, which is a much higher amount. While it may seem like a harmless transfer from one city fund to another, it also looks like a questionable use of water department revenues to increase Columbia city revenues while going around the requirements of the Hancock Amendment. Heavy users of water, such as swimming-pool owners, should pay high water bills to account for their greater use of water. They should not have to pay more for water because Columbia wants to transfer more money from the water division to the general fund as a subsidy to other city services. Privatizing the water and electric utilities would stop that appearance of impropriety for good.

Private utilities are just as capable of providing quality services at a low price to the residents of Columbia, and likely more efficient, than city departments. Privatization of the Columbia Water and Light Division would bring a needed cash infusion to the city, add substantial assets to the tax rolls, and reduce long-term public employee costs. Cities around Missouri have seen positive results from such privatization efforts, and there is good reason to believe that Columbia taxpayers and residents would also benefit.