A version of this commentary appeared in the Examiner of Jackson County.
Independence is one of the few cities in Jackson County that continues to provide extensive municipal utilities to its residents. It recently announced that is it considering the privatization of its municipal electric utility. If privatization is done in a transparent manner designed to encourage multiple bids for the electric assets and customers, it will greatly benefit the residents of Independence. In fact, the city should go even further and consider privatizing its water utility, too.
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. In Kansas City gas and electric are provided by private companies, while water service is handled by a city department. Almost all of the one million residents of Saint Louis County are customers of private companies for utility services.
Municipal utilities often charge lower rates than private utilities, but that is not the case with Independence. The city admits its municipal electric utility charges more than the private companies serving the area (mainly Evergy), despite the structural cost advantages in taxation, regulation, and financing that government-owned utilities have.
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 despite the large advantages in taxation and regulation that government utilities have. Economists Daniel Hollas and Stanley Stansell found in a 1994 study that private gas utilities were more economically efficient than public gas utilities. A recent comparison of public and private electric utilities in Florida concluded that private utilities outperformed public utilities in nine of 14 categories (with one category being equal).
It is a reasonable supposition that private utilities would be more efficient in their costs and operations than Independence’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 systems to Missouri-American Water for $28 million in 2022. Independence is much larger than Eureka, and its electrical and water utilities could likely be auctioned off for a much higher price. The substantial sale proceeds could be used to continue funding vital city services, be deposited into a reserve fund, or be put to a variety of other uses that would benefit city residents.
Independence would also see other fiscal benefits from privatizing the city utilities. The assets of the newly private utilities would become taxable, expanding the Independence and Jackson County tax bases. Finally, reducing the number of municipal employees would scale back the long-run taxpayer costs associated with government pensions and health care. It is imperative, though, that the entire process be an open one to serve the interests of taxpayers and consumers.
Private utilities are just as capable of providing quality services at a low price to the residents of Independence, and likely would be more efficient than city departments. Privatization of the Independence water and electric utilities would bring a needed cash infusion to the city, add substantial assets to the tax rolls, and reduce long-term public employee costs. Cities throughout Missouri have seen positive results from such privatization efforts, and there is good reason to believe that Independence taxpayers and residents would, too.
Figure 1: Discretionary spending as a percentage of GDP. Source: Congressional Budget Office, Show-Me Institute calculations.
