You have probably heard about all of the large water main breaks throughout the St. Louis region over the past month, leading to boil-water orders, traffic mayhem, and extensive repairs.

Wait, they haven’t been throughout the St. Louis region? They’ve all been in the City of St. Louis? Yes, indeed they have been, but what difference is there?

The difference is twofold. First, the city’s water system is simply older, and in fairness an older system is going to have more problems than a newer one. But the other problem is that the city water division is owned by city government, whereas in most of our region—including all of St. Louis County (with the partial exception of Kirkwood)—the water is provided by a private company (in most cases Missouri-American Water). While water line breaks can and do happen to every water utility, the recent, dramatic trend in the City of St. Louis is not being experienced elsewhere.

The fundamental problem with government utilities is that politics inevitably interferes with the management of the utility. It can do so in ways that may seem beneficial, like holding water rates artificially low because politicians don’t like increasing rates on their own voters. Did you know that the city’s water division has never installed meters in many homes to help allocate billing and prices? That technology is almost a century old, yet it has never been adopted citywide.

In a 2002 study on water utility privatization, the National Research Council stated (emphasis added throughout):

Some studies show that the public is willing to pay for reliability and for high water quality. . . . Yet water managers and city councils often lack the political will to practice cost-based ratemaking. They may want to protect residential customers (who are also voters) from higher rates and use water pricing and availability policies to promote economic development even though there is scant evidence to support the usefulness of this strategy.

Compare those findings with these recent quotes by city officials, as reported by the Post-Dispatch:

The city’s water chief told aldermen Monday he needs two 20% rate increases in the next fiscal year—one in July and one in January—to shore up a division struggling to manage rising costs and aging infrastructure.

The increases . . . would be the largest in nearly three decades.

The system is supposed to pay for itself by charging ratepayers enough to cover the cost of operations and upkeep. When it can’t, the mayor and the board are supposed to step in and adjust rates.

But they don’t like to do it. The last time they obliged was in the late 2000s, another time when staff was telling them they had no choice.

While the proposed water rate hike is absolutely necessary, and the related proposal in the current bill to reduce political influence by automating future price hikes would be beneficial, I have zero faith that future politicians wouldn’t respond to pressure to reduce rates by backtracking as soon as possible. The city’s leaders have a history of ignoring recommendations to deal with the water infrastructure until every decade or so it becomes impossible to ignore it further.

Other communities in our region have privatized their water and sewer systems in recent years. Eureka recently completed the sale of both to Missouri-American Water for $28 million. Florissant and Webster Groves both privatized their water systems 20 years ago, also to Missouri-American. Other utilities are also potential bidders. Voters in Olympia Village in Jefferson County approved the sale of its sewer system to Liberty Utilities in 2021.

I hope city residents reconsider the benefits of cheap, public water the next time they have to boil it before drinking or get home late due to a massive traffic jam. Politics has gotten the St. Louis water division into this mess, and politics isn’t going to get it out. It is time to privatize the entire system as part of an open, transparent process that will hopefully lead to the city’s vital water system being operated by a private, regulated utility. Customers of private water utilities don’t have to think very much about their water supply, and that’s the way it should be.

The post St. Louis Should Privatize Its Water System appeared first on Show-Me Institute.

The cities covered in the report are:

• Ballwin
• Blue Springs
• Cape Girardeau
• Chesterfield
• Columbia
• Florissant
• Independence
• Jefferson City
• Joplin
• Kansas City
• Lee’s Summit
• O’Fallon
• Springfield
• St. Charles
• St. Joseph
• City of St. Louis
• St. Peters
• University City
• Wentzville
• Wildwood

Click here to read more, or download the report by clicking on the link below.

The post Tax Burden in Missouri’s 20 Largest Cities appeared first on Show-Me Institute.

I’ve had numerous conversations with parents of young children in St. Louis County who are trying to figure out where and how to buy a house before their child enters kindergarten. And it matters. A 1,900 square foot home with three bedrooms and two bathrooms built in 1990 will cost $240,000 in Florissant, while a similar home would cost $389,900 in Frontenac. Sure, schools aren’t the only difference between the two communities, but they’re certainly factored into that $150,000 premium.

I don’t think I even need to convince anyone of this point—parents who can will pay more money for the same house to get their kids into a school they want. Parents who don’t have the money to do that are stuck. The idea of celebrities buying a spot at USC shocks us in a way that a family scraping together the money to move to a smaller house because it’s in Webster Groves doesn’t.

The quality of a child’s education shouldn’t be connected to the real estate industry. Every parent, regardless of their background or their neighborhood, should have access to an array of choices when it comes to their child’s education.

The post Pay to Play in Education appeared first on Show-Me Institute.

Unfortunately, expanding MetroLink in this way will easily exceed a billion dollars, and when one considers that a billion-dollar North-South MetroLink line will likely precede these county-specific projects (and need to precede routes to Florissant and Butler Hill), we are talking multibillion-dollar funding requirements.

But too often, costs like these do not daunt regional planners. The results most often conclude that any rail expansion plan would have positive benefits; just some routes are more positive than others and should be built first. We should not be surprised if that is the case with this study as well. However, as so much money is being spent, I propose the following questions the study could address:

1. How might the bus system in Saint Louis City and County be improved for $1 billion to $2 billion? How much money are we proposing to spend per new transit user?
2. Given the higher-than-expected costs and lower-than-expected usage of the Shrewsbury MetroLink line, does it make sense to extend the MetroLink into areas of the county that predict for even less demand for public transportation?
3. Do planners expect transit-spurred economic development, given the distinct lack of economic development surrounding most existing MetroLink stations in Saint Louis?

And last . . .

4. How exactly will $1 million be spent on this study? Itemization is encouraged.

The post Saint Louis to Spend $1 Million on MetroLink Expansion Study appeared first on Show-Me Institute.

However, what if you’re among the more than 10,000 residents who feel that Columbia needs a bit more in the way of police and fire protection? I’d say don’t despair. There are other means by which the city can increase revenues without resorting to a property tax increase.

For instance, the city could look at the fire expense reimbursement that it receives for services that it performs for the three colleges located in town. According to the Columbia budget, these reimbursements are declining and have been for the past couple of years. Columbia can renegotiate with these colleges in order to get higher reimbursements.

Columbia also could look into privatizing its water and electric utilities. The sale of these types of utilities can bring in an immediate infusion of cash to cities’ bank accounts. For example, the city of Florissant, Missouri, privatized its water utility in 2002 and received $14.5 million from the sale. More recently, the residents of Arnold approved the sale of their sewer system, which brought the city $13.2 million. Not only can the sale of the utilities themselves bring in more money to the city, but privatization can also expand the city’s property tax base, which would generate more revenue in the future.

The instances of crime and fire have declined in Columbia, yet for those who believe that public safety is underfunded, there are other ways to raise revenue besides a tax increase. Maybe it’s time they explore them.

The post Proposed Property Tax Increase Fails in Columbia appeared first on Show-Me Institute.

Increasing budget constraints and needed upgrades have pushed many cities to privatize public systems in recent decades. A Saint Louis-area example is the privatization of water services in Florissant in 2002. The city divested its water services to Missouri American Water for a total of $14.5 million. The results, as a Show-Me Institute case study on privatization in Missouri noted, were positive:

Florissant took its $14.5 million and immediately budgeted $2,758,000 for street repairs, police projects, and public works projects. It deposited $10 million into a newly created special reserve fund, which served the city for several years after the sale of the water division. The remainder was placed into the city’s existing reserve fund. According to a 2007 city memorandum, “The timing of the sale of the water distribution system was extremely fortuitous and gave the city the cushion necessary to work through the dramatic drop in revenue without correspondingly dramatic service cuts.”

Florissant officials have been satisfied with the service, and Missouri American Water continues to provide water services to large parts of Saint Louis County.

While a wastewater privatization deal has not occurred in the Saint Louis area, many cities nationally have privatized this type of utility. A nearby example is in Mount Vernon, Ill., which contracted with a private company to design, build, and operate a wastewater treatment plant for 20 years in 1986. At that time, Mount Vernon did not have the resources to upgrade its aging treatment plan, thereby running afoul of environmental protection laws and preventing new industry from locating in the city. Environmental Management Corporation (EMC) entered into a deal with the city to build a new treatment plant in return for operating the system for 20 years, retaining and even retraining the existing employees. The city has since extended the agreement to 2023.

As these cases show, privatization of water and wastewater systems can be an effective way of providing public services in fiscally constrained cities.

The post Wastewater Privatization: Case Studies appeared first on Show-Me Institute.

Believe it or not, the same may be said of the sewers serving the 20,000-plus residents of Arnold, Missouri, located on the southern edge of the Saint Louis Metropolitan Area at the confluence of the Meramec and Mississippi rivers.

Missouri American Water has offered to purchase the Arnold sewer system for a total of $13.2 million. This is a win-win proposition for the city and its residents.

The deal not only would provide Arnold with the funds to pay off $8 million in sewer bonds, but it also would supply $5 million in additional revenue. At the same time, the arrangement with Missouri American Water would guarantee timely improvements to the sewer system and lower utility costs for residents.

Arnold currently operates its sewer system as a public utility and charges residents $24.33 per month for up to 5,000 gallons of wastewater. However, like many municipalities around the country, Arnold is not charging residents what it needs to keep the system up to date, especially with increasingly stringent EPA and Clean Water Act requirements coming into force. According to one report, by 2016 the city would need to charge $34.50 per month to provide the same services.

Facing very similar pressures, cities across the country have turned to partial or full privatization of their water and wastewater systems. Deals with private companies typically result in an upfront payment to the city, a commitment by the company to make investments in the water or sewer system, agreement on pricing, and often a stipulation that the private company must retain the existing utility staff. The vast majority of these privatizations have been successful, with more than 90 percent of cities renewing privatization contracts and 94 percent recommending privatization as a method of water and sewer system management.

To cite one example, the city of Florissant in Saint Louis County sold its municipal water utility to Missouri American Water for $14.5 million in 2002. The city spent part of the proceeds on immediate needs and put the rest in a reserve fund. More than a decade later, the privatization is still a success. The lesson from Florissant and other cities is clear: When governments set the standards and carefully manage the privatization process, private operators deliver better, cost-effective service.

If Arnold accepts the deal with Missouri American, it will reap other benefits as well. Public services, like the school district, will benefit from this proposal via the expansion of the property tax base when the assets of the sewer system go on the tax rolls after Missouri American takes control. Residents will benefit from low utility fees, as Missouri American Water has stated that they will not increase rates until 2016. Even after that date, they project they will only charge residents $30 a month, which is less than what the city is likely to charge absent privatization.

While privatization of the sewer system makes sense, Arnold must be cautious on how it crafts and implements a final deal. The city must hold Missouri American Water accountable for the quality of service and the implementation of agreed-upon improvements. Furthermore, Arnold would be wise to follow the example of Florissant by carefully spending its windfall profits.

As long as local officials perform their due diligence, Arnold has much to gain and little to lose from privatizing its sewer system. Come November, residents should not let this opportunity slip down the drain.

The post Arnold Wastewater Privatization: Don’t Waste the Opportunity appeared first on Show-Me Institute.

Criticism: Privatized water systems mean higher rates for residents. Many cities that have privatized water or sewer systems, including Florissant, Missouri, have seen rates rise, usually faster than inflation.

Proponent response: Wastewater and water system privatizations often occur because cities are faced with expensive, necessary upgrades to sewer infrastructure. Cities that charge a utilities fee that is too low to generate enough funds for large upgrades are forced to decide between a large tax increase or subsidies from the general fund. In the case of Arnold, the city claims it will have to increase rates should privatization not occur. Luckily, Missouri American Water reports that its rate increases will be less than those the city would implement, even with necessary capital improvements.

Criticism: Cities are selling city assets in order to receive short-term cash infusions. This short-term gain will result in high utility fees in the long-term.

Proponent response: Just because cities could spend sales money foolishly, does not mean they will do so. In Florissant, the city spent a portion of the sales proceeds on immediate needs and put $10 million in a rainy day fund. Arnold plans to use proceeds to pay off existing debt, but beyond that residents should ensure that the city does not spend wastefully.

Criticism: Some cities with privatized water systems have seen the drinking water become unsafe. Companies looking to make a profit might cut corners and provide lower service.

Proponent response: Private water and wastewater management has a proven track record in the United States. The vast majority of municipalities that privatize their water or wastewater system end up renewing the contract. Like municipally owned water utilities, in individual cases private companies fail to meet safety standards, but this is not the norm. Also, the issue of water quality is less important under a wastewater system privatization than a water system privatization, for obvious reasons.

The residents of Arnold should carefully consider these questions surrounding the planned wastewater privatization deal, and whether both the funds the city will receive and benefits of private management outweigh the risks of selling a public asset.

The post Arnold Wastewater Privatization: The Policy Breakdown appeared first on Show-Me Institute.

Metro expects the I-64 BRT to have 5,100 weekday riders to start, 2,100 of which will be new “choice riders.” Another possible BRT route, one that follows Natural Bridge and Florissant, could carry 3,200 riders. Metro used a regional travel demand model to come up with these estimates. And while models can be very useful, the real-world performances of Metro’s Express Buses show no such underlying demand, especially in West Saint Louis County.

Metro operates six Express Bus lines in Missouri, which are designed to handle weekday rush hour traffic to and from downtown. They have routes that follow the region’s major highways between downtown and the county, with fewer stops than normal buses.

As the map above demonstrates, only the proposed Page Avenue BRT does not have an Express Bus currently running a very similar route.

Unfortunately, these express routes are not popular. In fact, they are a regular who’s who list of the emptiest, worst financially performing bus routes that Metro has to offer. The best performing Express Bus by far is the 36X, which carries a mere 563 passengers per day and loses more than two dollars per passenger. Anyone who has read our previous posts on the MetroBus system will not be surprised to hear that the highest ridership is on a route that serves North Saint Louis City and County. The 57X, which runs along most of the proposed I-64 BRT route, has 257 passengers per day and loses more than nine dollars per passenger. By way of comparison, the average MetroBus route carries 897 passengers per day and loses $3.22 per passenger. A full table on Express Bus performance is below:

Express Buses are not BRT. They do not have the higher level of comfort, signal priority systems, dedicated lanes, or sheltered stops that BRT provides. However, they do provide reasonably fast service along major highway corridors between downtown and the county. In that way they likely portend future demand for BRT routes running very similar routes. And the prediction for an I-64 BRT route is not good.

The post Saint Louis Needs Better Bus Rapid Transit Plans appeared first on Show-Me Institute.

Saint Louis County contains 90 municipalities, some with less than 1,000 residents. Many of the smaller municipalities are in North Saint Louis County and rely heavily on traffic tickets and court fees. For example, Beverly Hills (population of 571) issued more than 3,000 tickets and collect more than $200,000 in court fees last year. Charlack, a small city in North Saint Louis County (population 1,362), derives 29 percent of its revenue through traffic fines alone. By contrast, most cities in Missouri receive less than 5 percent of their revenue from fines and fees.

But size is not everything. As the Post article points out, even the larger municipalities in North Saint Louis County are guilty of issuing numerous citations. Florissant (population 52,000) issued almost 30,000 traffic tickets for more than $3 million in fines last year, accounting for 13 percent of its revenue. Saint Ann, notorious for its I-70 speed trap, expects that 36 percent of its revenue ($3.3 million) will come from fines and court fees in 2014.

Furthermore, small Saint Louis County municipalities do not all rely so heavily on fines. For instance, Grantwood Village (population 863) only issues around 120 traffic tickets a year. In 2012, it collected only $34,000 in fines and fees. Black Jack, a small municipality in North Saint Louis County (population 6,920), receives less than 5 percent of its revenue from fines. What do Grantwood Village and Black Jack have in common? They both contract out police from Saint Louis County and do not operate their own police departments.

A combination of necessity and opportunity likely drives cities, large and small, to pursue aggressive citation policies: the necessity arising from a dearth of other funding sources, the opportunity from having a piece of Missouri’s highway system.

Fining residents to generate revenue, instead of promoting public order, is not the way to achieve good governance in Saint Louis County. In future blog posts, we will discuss these problems further and explore ways residents and policymakers can reform local governments.

The post Saint Louis County: Does It Have Too Many Municipalities appeared first on Show-Me Institute.

When I was growing up, I regularly played golf at the Forest Park municipal golf course in Saint Louis. Later, in my high school and college years, I noticed that the quality of the course was improving, a lot. This happened at the same time (late 1980s) that the city of Saint Louis outsourced the management of the golf course to a private company. As that outsourcing, or privatization, of the golf course has continued, the quality of the course has continued to improve. I doubt you would find one golfer familiar with the course before and after who thinks the outsourcing of its management and operations did not significantly enhance it.

That same type of story is repeated throughout Missouri. Good government need not be big government and the public sector does not have to provide public services in every case. There is a role for private delivery, often regulated, of public services in Missouri. In many cases, the private sector can deliver those services more affordably and at a higher quality than the government.

In fact, Southwest Missouri is home to one of America’s most enterprising privatization projects. The Branson Airport is America’s only fully private commercial airport. In a capitalist system, not every business attempt succeeds, and the Branson Airport may yet fail. (I hope not.) But if it fails, private investors will be out their own money, unlike Mid-America Airport in southern Illinois, where local governments have had to continually fund that little-used white elephant.

On the other end of the spectrum is City Utilities (CU), Springfield’s municipal behemoth. Missouri’s other large cities are primarily served by private utilities. Those private utilities pay taxes, face more regulations, earn a return on investment, and still charge comparable rates to CU. Springfield needs to consider following the example of Florissant, Mo., a decade ago, and divest itself of its public utilities.

Research has shown that privatization works best when the driving force is pragmatism, not ideology. Politicians and voters can still debate about what services should be provided as part of the eternal debate over the role of government in our society. But privatization is more about how those services are provided, not whether they should be. Unless you genuinely believe that as many people as possible should be on the public payroll, like the big city political machines of yesteryear, then a government service that you depend upon or care about likely can be addressed with privatization.

There are certain roles that should always belong to the government, such as police powers, and never to the private sector. Furthermore, the role of government regulation in many privatized public services is important, such as regulation of private utilities. Finally, in some instances, such as animal control, private partnerships with non-profit groups may be preferred to for-profit companies. Whatever way you look at it, there are numerous examples, such as Cox Health operating ambulance services in Christian County or the existence of private libraries in Taney County, where privatization can provide better services at lower costs for Missourians. Just play golf at Forest Park to see the evidence.

David Stokes is the director of local government policy at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Privatization Can Benefit Missouri Taxpayers appeared first on Show-Me Institute.

My main charter recommendation for Kansas City government is to remove the peculiar designation that makes each at-large councilmember also represent one of the council districts. There are benefits to at-large elections (lower overall spending), but they are reduced if you make at-large officials also represent a district. Just let the at-large reps serve at-large and the district reps serve the districts.

It will be interesting to see what concrete proposals come out of this. Will the role of the mayor be increased at the expense of the council or the city manager? It is basically impossible to implement a true “strong mayor” system like Chicago (or, for a Missouri example, like Florissant — neither is really a good comparison) and maintain an influential city manager. But there certainly can be smaller steps taken to strike more of a balance. I cannot wait to hear what those steps may be.

The post Kansas City Thinkin’ About A Charter Change appeared first on Show-Me Institute.

The post McGraw Milhaven – David Stokes on KTRS appeared first on Show-Me Institute.

At some level, taxing tourists, via special hotel taxes or other means, is appropriate. There is wide agreement that people are less price-sensitive when traveling and will absorb some additional taxes without changing behavior. So, my complaint is not with Columbia’s current 4 percent hotel tax, which is reasonable by municipal standards. I object to the fact that the first reaction of many cities when they are looking for new revenues is to raise the hotel tax. If the people of Columbia want and need a larger airport, they should pay for it. They should not try to obtain a free lunch by passing off the bill to tourists.

The estimated cost of the terminal expansion is $21 million. Is there another way to pay for that without increasing taxes? Absolutely. A decade ago, the Saint Louis suburb of Florissant privatized its water system. Missouri-American Water paid $14.5 million for it. Columbia, which is much larger than Florissant, operates its own water and electric company. Privatizing either (or both) of those operations could readily pay for a desired airport terminal expansion, if one is truly needed.

The question as to whether terminal expansion is truly needed is fair. The airport currently has just 21 outgoing flights from two carriers per week. The eventual goal (taken directly from the city’s own study) is to add “one or two” commercial air carriers and “a recurring flight” to Chicago. I am not an aviation expert, but I think taxpayers should demand stronger evidence of a true need before investing $21 million on the hope of a few more regular flights per week. Missouri has already experienced one disastrous airport expansion. Saint Louis is stuck in a vicious cycle where it is forced to keep its landing fees high to pay for the hundreds of millions of dollars in airport bonds it issued to pay for its new — and now totally unnecessary — runways.

Voters in two major Saint Louis suburbs rejected hotel tax increases (on top of the already high regional hotel tax) by wide margins in 2010. Those voters said enough is enough to tax increases and government growth. They noted the harm the tax increases would have done to hotels in those two cities. If given the opportunity, Columbia residents should consider sending the same message.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Columbia Should Refrain From Raising Hotel Taxes appeared first on Show-Me Institute.

Tonight is the scheduled final vote on the use of Tax Increment Financing (TIF) for a proposed development at Manchester and Clarkson Roads in Ellisville. We know why Show-Me Institute thinks this is a bad idea for Ellisville. If this TIF can be defeated, as far as I know, it would mark the first rejection of such a proposal by a point-of-sale city. Combined with Florissant’s rejection of a TIF recently, we would be making real progress toward stopping the constant use of subsidies around Saint Louis.

Stay tuned, and follow me on twitter (@DavidCStokes) for results of tonight’s vote.

The post Big Night For Ellisville appeared first on Show-Me Institute.

A new Walmart is opening in Jefferson County. Yes, it got a TIF. The property taxes will now be frozen for all the other taxing districts. So, someone please explain to me how the school district is going to pay for educating the kids in the 180 new homes that are part of the project, when those homes will not be paying the necessary marginal taxes for the schools. Oh yeah, the school district will seek to raise taxes on everyone else . . .

Meanwhile, in more positive news, Florissant officials are set to vote next week on approving a development for a Walmart that is being built without a TIF. The Florissant City Council rejected a TIF last year, but the project is going forward because this particular plan makes economic sense. I commend Florissant officials for their discipline, and hope this serves as an example to cities throughout Missouri. This is a good opportunity to remind people that I have nothing against Walmart – just the subsidies that usually accompany it.

Finally, here is the Show-Me Institute’s latest study on the basic structure of TIF.

The post Missouri TIF Update appeared first on Show-Me Institute.

It is absolutely NOT a coincidence that this development without TIF is being done in a pool sales tax city. Cities in the sales tax cities gain from development wherever it occurs. Because they share their sales tax collections with the pool – which is then redistributed back based on population – they have no incentive to kick out their own people and give away the store (pun intended) with tax subsidies. A point-of-sale city (which keeps the bulk of its own tax collections) would have given away their first-born mall as soon as the developer mentioned the idea in passing.

The post Hope Yet On TIF appeared first on Show-Me Institute.

“It was clear that not enough assurances could be provided to ensure the protection of the City’s residents or the City employees who were proposed to join American Water,” [Arnold Mayor Ron] Counts said in a news release on Friday afternoon.

Any city should consider the costs of a decision, and I am glad that Arnold took the time to analyze those costs before making a decision. However, I believe there are benefits which may outweigh the costs. Should the city ever again be presented with the opportunity to sell its sewers, I hope city officials will fully consider the advantages of privatization. Here are a few examples from an op-ed that I wrote on the topic, untimely published five days after the decision not to sell (untimely due to bad luck, not a lack of effort):

1. Arnold’s sewers are in dire straits. The city would face less of a financial difficulty if it relied on private capital to fund renovations and repairs.
2. Private ownership leads to more efficient uses of labor and capital. Privatization can produce savings relative to bureaucratic management.
3. The city of Arnold would obtain monetary benefits from the sale. When Florissant sold its water utility in 2002, it was able to establish a $10 million reserve fund. Arnold could use the revenue to establish its own reserve fund, pay down debt, or lower taxes.

For more Show-Me Institute commentary on privatization, click here.

The post Clutching the Sewers: The Foul Smell of a Missed Opportunity appeared first on Show-Me Institute.

First, the city could raise a large amount of money through the sale of its sewer system — possibly millions of dollars. This could be used to pay down debt, invest in needed public services, or lower taxes. The city of Florissant used the revenue from the 2002 sale of its water utility to finance several public improvements and establish a $10 million reserve fund.

Second, privatization would turn the sewers into a taxable asset. This means additional revenue for the municipality, possibly easing the tax burden on existing residents and businesses.

Third, privatization often results in lower costs, higher efficiency, and better service. For instance, Oklahoma City partnered with Veolia Water for wastewater treatment in 1984, and by 2001 had reduced treatment plant costs from $14 million to $11 million dollars. As long as efficiency gains such as those in Oklahoma City are passed on to consumers, lower costs can lead to customer savings. And although government regulations tend to erode efficiency gains over time, the immediate benefits should not be ignored. 

Make no mistake: Arnold’s wastewater system is aged and in need of extensive overhaul and repair. Privatization will not change that. Over the next few years, a significant portion of the sewer system will reach the end of its usable life. When this happens, significant costs will be incurred to renovate the system. These costs will occur whether or not the sewer system is privatized, but privatization could help keep renovation costs as low as possible. Sewer user-fees have gone up twice in the last three years – and that is with government ownership of the system. 

Private utility ownership is common throughout Missouri. In neighboring Saint Louis County, almost every resident purchases water, gas, and electricity from private companies. Although sewer privatization is less common, it is not unheard of; Missouri American Water, for instance, has several thousand sewer system customers throughout the state. 

The possibility of public repossession of the sewer system is an important option to remember. In the sale contract, Arnold can reserve the right to take the sewers back if certain standards are not met. Such a provision can protect residents from the danger of quality degradation and monopolistic fees. Another protection is the Missouri Public Service Commission, which regulates fees charged by private utility companies.

Arnold’s privatization option appears to be an opportunity for comparatively lower sewer rates and additional city revenue. The city will have more money, sewer costs will be handled more efficiently, and any concern about the quality and price of service can be addressed in the sale contract. Selling the sewers appears to be a situation where both the government and the people it serves can benefit.

Bruce Stahl is a research assistant at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Selling the Sewers: The Sweet Smell of Success appeared first on Show-Me Institute.

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. Alternately, 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 the majority of the utility services in Jefferson City.

Despite the structural differences between public and private provision, there is little variance in utility costs between Columbia and Jefferson City. In Missouri’s cost-of-living rankings for the first quarter of 2010, both cities placed far below the national and statewide averages for utility costs. During the summer months, a residential electric customer in Columbia with an average usage of 822 kilowatt-hours would pay $87.19. In Jefferson City, that same usage would cost $87.52. That’s a small difference in the summer, and the rates actually favor customers of Jefferson City’s private utility during winter months.

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.

Going back further, to a 1970 study of electric utilities that included Columbia, University of Missouri economists Richard Wallace and Paul Junk examined the diseconomies of scale faced by many municipal electric utilities. They noted that small public electric utilities were comparatively inefficient and recommended purchasing power from larger suppliers. These recommendations were implemented to some extent, because Columbia Water and Light purchases most of its power today.

It is a reasonable supposition 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. Florissant, in Saint Louis County, sold its municipal water utility to Missouri-American Water for $14.5 million in 2002. Officials used that money to finance immediately needed public improvements, and placed $10 million into a reserve fund. Columbia is larger than Florissant, and Columbia’s electric and water utilities could likely be auctioned off for more than $14.5 million each. The substantial sale price could be used to continue funding city services that are slated for cuts, be deposited into a reserve fund, or be put to a variety of other uses that would benefit city residents.

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 base. Finally, reducing the number of municipal employees entails scaling back the long-run taxpayer costs associated with government pensions and health care.

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 such as Florissant and others have seen positive results from such privatization efforts, and there is good reason to believe that Columbia taxpayers and residents would also benefit.

David Stokes is a policy analyst for the Show-Me Institute, a Missouri-based think tank.

The post Columbia Could Benefit From Privatizing City’s Water and Electric Utilities appeared first on Show-Me Institute.