There is a proposal to sell the Sugar Creek water and sewer systems to Missouri-American Water on the April 8th ballot. The company is offering Sugar Creek $5 million for the systems and guaranteeing an $8 million investment into improvements.

Sugar Creek needs to make improvements to its water and sewer systems. Sewer rates just went up this month, and water rates will likely increase, too. The question for voters is whether the city will fund those improvements via debt or whether Missouri-American will pay the city for the asset and fund the improvements itself.

Studies have shown that private utilities generally operate more efficiently than public utilities. Privatization of these two systems could result in a substantial infusion of money for the city, and placing the water and sewer facilities on the tax rolls would expand the tax base. That large payment plus the broader tax base could lead to tax cuts elsewhere in Sugar Creek.

The residents of Sugar Creek currently receive their gas and electricity from private utilities closely regulated by Missouri’s public service commission. Getting their water from Missouri-American Water would be no different, and this sale would greatly benefit the people of Sugar Creek.

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Sugar Creek doesn’t operate its own water utility, which makes this proposal a little different from other privatization proposals. Sugar Creek buys water from the Independence municipal utility (which should also be privatized along with the Independence electric utility, but that’s another story).

Privatization, however, is still a very good idea for the residents of Sugar Creek. The main problem with public utilities is that customers are also voters, and politicians are hesitant to raise rates on their voters. This leads to an underinvestment in the system. As the City of St. Louis said in 2024 when it finally increased water rates:

Major I-64 Water Main Break Highlights Need for Long Overdue, Much-Needed Investment in City’s Water System

This was the city’s own water system it was talking about! Cheap rates have harmful consequences down the line.

Beyond that problem, 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. A recent comparison of public and private electric utilities in Florida concluded that private utilities outperformed public utilities in nine of 14 categories.

Missouri American Water is offering $5 million for the system and has promised to invest $8 million in upgrades over five years. The equipment would also go onto the tax rolls, expanding the property tax base for Sugar Creek. Most importantly, it would put water services in Sugar Creek in the hands of a more efficient private operator, which is closely regulated by the Missouri public service commission. The idea that Missouri American Water could use its monopoly power to keep raising rates is incorrect.

This policy change would be a very good move for the people of Sugar Creek.

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These privatization deals are a wonderful thing that should be encouraged and expanded in Missouri, including for our largest cities and their water divisions. More stringent health, environmental, and other regulations (both necessary and not) are making it harder for local communities to operate their water and sewer systems properly. The Post-Dispatch article mentions right at the start how bad the water in Eureka is currently: “It’s the worst water I’ve ever tasted in my life,’ said Eureka resident Thomas Ferrari.”

The main complaint about privatization is that rates will increase. Yes, they often do, and that is typically a necessary thing. Municipal utilities frequently underprice water, electric, and gas rates because those pricing decisions are made by politicians who want to keep voters happy. That may help with re-election, but it makes necessary system investments more difficult. From the Post-Dispatch story:

Arnold sold its sewer system to Missouri American in 2015 for $21 million. “The system was not in good shape. It was not well maintained,” said City Administrator Bryan Richison. “And city council members were running on not raising rates, so it put us in a bad position.”

The water in the City of St. Louis may taste great (it does), but the city water division there has done a poor job of reinvesting in its system and incorporating new technology into service. As astounding as it may be, the City of St. Louis water division has still never installed water meters in most homes to measure water usage and bill accordingly. You get charged for water based on a variety of physical factors, so if you want to water your lawn for 12 hours a day you pay no more than your neighbors. That’s terrible public policy and results in inefficient, wasteful use of water.

Water and wastewater privatization is very good public policy that we need more of in Missouri. Private utilities adopt technology more quickly, expand the tax base, invest in their systems more reliably, and are regulated by the state’s public service commission on their rates. More municipalities with their own water, electric, and gas utilities should follow Eureka and Arnold’s lead and privatize for everyone’s benefit.

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Missouri American Water, naturally, is supportive of the plan and is confident it can deliver the same services to Peculiar residents they receive now and at a lower rate. A webpage in support of the proposal shows the recent rates in Peculiar compared to other American Water customers across Missouri, including Kansas City neighbors Platte County, Lawson, and St. Joseph. (Incidentally, the Environmental Protection Agency (EPA) claims, “the average American family uses more than 300 gallons of water per day at home” or around  9,000 gallons per month.) 

At a time of increasing water rates in Kansas City, it might be worth considering such a deal here. Kansas Citians already look to private—albeit heavily regulated—companies for their electrical power and natural gas. Why not water too? And if such a sale here would include an upfront payment to the city as well as potentially improved management and lower rates over the long run, city leaders have a responsibility to consider the offer.

All of this hinges on a serious and substantive audit of the Water Department, as Kansas City Mayor Quinton Lucas has called for previously. That is a necessary first step so that taxpayers and any interested buyers know exactly what is at stake. Even without a looming financial crisis, Kansas Citians should be looking to shed costly burdens that can be better and more cheaply provided by others.

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Back in the summer of 2013, the Water Department sought to “produce an educational video focused on the journey Kansas City’s water takes from river, to tap. [sic]” The resulting 1:44 video, embedded above, cost $24,541.28.

By way of comparison, the 25-minute Kansas City Public Television documentary, “Water Rates and Rivers,” which explored the steep increase in water rates and its serious impact on the poorest among us, cost about $40,000. Not only was the KCPT video nearly 15 times longer, but it required much more time and effort to produce.

About the time the contract to produce the Water Department video was signed, Mayor James declined a request by the Missouri Auditor to look into the department due to complaints his office received. Given ever-increasing water rates and this questionable expense, perhaps that decision should be revisited. In the meantime, I invite you to tap your toes to this bit of government-funded education.

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Innovation comes from the private sector. You need not be a radical capitalist to agree with that simple statement. It is a plain truth. For example, a private inventor, not a government water company, invented the water meter. (Note: The water meter was invented 160 years ago, but the City of Saint Louis still has not adopted it.i) City residents will benefit from the proposed consulting deal with a private company to improve the city’s water division.

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In putting together a team of officials working to improve water services, Saint Louis Mayor Francis Slay deserves credit, not criticism. When an agency such as the water division, which has been doing something for a long time, seeks ways to improve, they need to look outside the organization for new ideas. Anything else is an exercise in futility.

The team the mayor established collected many water consulting bids and chose the French company, Veolia, to advise the city. The contract calls for a $250,000 consulting fee. Depending on which suggestions the city chooses, Veolia would then be paid more to help enact the improvements.

This is not privatization. Trust me, I wrote the study on privatizing the city water division and I wish this was privatization. It is not. This is a simple consulting deal. The city would still own, operate, and maintain every part of the water division. All this proposal calls for is tapping into the private sector expertise to improve water service. That will benefit everyone, and should be embraced, not attacked.

Opponents of this proposal are applying the shotgun approach in their fight: objecting to everything possible. This includes irrelevant issues like Veolia’s work in the West Bank and Israel and cherry-picking a few Veolia city contracts that failed and ignoring the many that have succeeded. Veolia has been effectively providing comprehensive water services in Oklahoma City and Edwardsville, Ill. — to give just two Midwest examples — for many years. Those cities have routinely renewed their Veolia contracts.

This contract has nothing to do with privatization, but the absolute objection to private water from some is still strange. Private water companies have been serving the one million people in Saint Louis County for a century. Do you recall all the scandals and controversies about private water in the county? Neither do I.

But it is scandalous that the city water division has never put in water meters. I am not blaming current leadership — this should have been mandated 50 years ago. The lack of water meters encourages waste, inefficiency, and is unfair to consumers. When the city raises water rates, residents have no effective way to react. Businesses, which have water meters in the city, can respond to price hikes by reducing usage to save money. as AB InBev recently did. City residents deserve the same ability to benefit from conservation.

City residents who use less water have long subsidized heavy water consumers. If you choose to sprinkle your lawn like you’re a zealot at Masada, wallowing in abundant water to purposely taunt the suffering Romans legions in the scorched desert below, that’s fine. But you should pay for it, not your neighbors.

The consulting deal with Veolia will result in many different ideas for better water delivery. People, businesses, and governments all benefit when they seek advice from knowledgeable parties outside their normal circles. The objections to the contract are an example of scattered ideology trying to stop practical steps for general improvement. The Veolia contract will improve water service in the city, and that will benefit us all.

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In putting together a team of officials to launch an effort to improve water services, Saint Louis Mayor Francis Slay deserves credit, not condemnation. When an agency such as the water division, which has been doing something for a long time, wants to look at ways to improve, it is obvious they should look outside the organization for new ideas. Anything short of that is an exercise in futility.

The team the mayor established collected water consulting bids from major water industry applicants. They chose the French consortium Veolia — one of the world’s largest private utility companies — to advise the city. The contract calls for a $250,000 consulting deal. Depending on which recommendations the city chooses, Veolia would then be paid more to help implement the improvements.

This is not privatization. Trust me, I wrote the study on privatizing the city water division and I wish this was privatization. It is not. This is a simple consulting deal. The city would still own, operate, and maintain every part of the water division. All this proposal calls for is tapping into the expertise of the private sector to improve water provision in the city. That will benefit everyone in the city and should be embraced, not attacked.

Opponents of this proposal are applying the shotgun approach in their fight: objecting to everything possible. This includes the irrelevant (Veolia’s work in the West Bank and Israel), the ideological (general left-wing opposition to private companies), the incomplete (cherry-picking a few Veolia municipal contracts that have not worked out and ignoring the many that have) and the idiotic (Veolia is foreign). Veolia has been successfully providing comprehensive water services in Oklahoma City, Okla., and Edwardsville, Ill. — to give just two Midwest examples — for many years. Those cities have routinely renewed the Veolia contracts.

While nothing about this proposal involves privatizing the water division, the absolute objection to private water from some is still peculiar. Private water companies have been serving the one million people in Saint Louis County, just one step north, west, and south of the city, for a century. Do you recall all the scandals and controversies about private water provision in the county? Neither do I.

But it is scandalous that the city water division has never implemented water meters. I am not blaming current leadership — this should have been completed 50 years ago. The lack of water meters encourages waste, overuse, inefficiency, and is unfair to consumers. When the city raises water rates, as it did in 2010, residents have no ability to react to that price increase (other than non-payment). Businesses, which use water meters within the city, can react to price increases by reducing usage and saving money, as AB InBev has done in recent years. City residents deserve the same ability to benefit from conservation as companies. People who use lesser amounts of water have long subsidized heavy water consumers in the city, and that is wrong. If you want to have the most glamorous lawn in the neighborhood, that is fine. But you should pay for it, not your neighbors.

The consulting deal with Veolia will result in many different ideas to improve water delivery in the city. These will range from the obvious, such as water meters, to the creative. People, businesses, and governments all benefit when they seek advice from knowledgeable parties outside their normal circles. Saint Louis city government and the water division are no different. The objections to the contract are an example of scattered ideology trying to stop practical steps for general improvement. The contract for consulting services from Veolia will improve water quality and services in the city, and that will benefit everyone.

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

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We have written plenty on Kansas City water privatization before. Like Saint Louis sewer customers, Kansas City residents are going to face fairly large water and sewer bill increases whether privatization happens or not. They can pay a private company to fix the problems and manage the system, or they can pay the government more to fix the problems and manage the system — the same government whose management put them in this situation in the first place. (To be fair, not all of the cost issues can be blamed on Kansas City management. Many of the sewer issues are substantially the fault of over-regulation by the EPA.)

Privatizing the entire system would have many benefits for Kansas City. It would get a large amount of money from the sale which it could use in a variety of ways. It would expand the tax base by putting the water company assets on the tax rolls. The city would capitalize on all the engineering expertise right there in Kansas City. It would take the choices on rates out of the hands of politicians, who often under-price municipal utilities for political gains. There are plenty of other benefits as well. I hope Kansas City continues to seriously consider this idea.

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In economic terms, public goods are non-rivalrous and non-excludable. Except in extreme circumstances, the water I consume does not limit your consumption of water. In this case, the water in the Missouri River is non-rivalrous. However, with utility services — as opposed to national defense or local roads — it is easy to prevent someone from using the asset if necessary. They are excludable. It is hard to argue that water access and infrastructure needs to be provided by the government, especially when there are private providers operating in the area that have a proven ability to provide the product. And it is even more difficult to make that argument when a lease, management contract, or utility sale would be valuable to taxpayers. (To those who might scream about everyone having the basic right to water, you are all free to collect rain water to drink, and to take baths in a local stream all you want. This is about the demand for pressurized hot or cold water coming into your home on demand by turning a tap.)

To its credit, Kansas City’s water division at least charges for its water like a private good instead of a public good. The fact that Saint Louis still lacks water meters for most of its consumers is absurd. Even if Kansas City changes the debate some by charging for water more like a private good, the fact is that public utilities far too often lack the political will to charge what they need to charge for the asset.

Also in Kansas City, the private contract to operate the animal shelter has been pulled. This happened awhile back, and I touched upon it here, but this is a great disappointment. This is clearly not a failure of privatization, unless saving money and increasing adoptions is a failure. It might be considered a failure of this particular private operator, but I remain unconvinced. I think that there is a core group of activists/volunteers who will never be happy with any system until they get a no-kill shelter in Kansas City. I say this as a dog-lover who got my dog (who passed away last year at 10) back in 2000 from a local shelter.

I think the city caved to accusations, as this statement indicates:

“We’ve been receiving allegations from some of the volunteers who put in time out at the shelter regarding mistreatment of animals,” said David Park, director of Neighborhood and Community Services for the city. 

Park acknowledged the shelter has been run better now than in the past. 

“They’ve done a wonderful job, as far as increasing the number of adoptions. (Previously) the number of animals that were euthanized was far greater than the number that was adopted, and now the opposite is true,” Park said. 

According to Park, the city has to protect itself, even if the allegations have yet to [be] proved. 

“Until we have the formal results of the investigation back, we don’t want to renew a contract for a year, for another year, and then have something surprising come out of the Missouri Veterinary Medical Board — then we need to cancel right away.”

The private airport in Branson is struggling financially. It does not appear to be struggling in its day-to-day operations, but I’ll try to fly there next week to make a better judgement. They have two commercial airlines offering regular flights to Houston, Atlanta, and Denver, and more charter services. It remains to be seen how the airport’s debt issues will play out over time. I certainly hope that this experiment succeeds, but who knows? If it does fail, it will fail with (mostly) private money. Compare that to Mid-American Airport over in Illinois, and pick which style you want.

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Rather, my purpose is to show how the system works with private companies. Private utilities in Missouri are closely regulated by a variety of actors. Water utilities report to the PSC, the Missouri Department of Natural Resources, and local county health departments. (The bulk of the regulations are at the state level — and this does not include the Environmental Protection Agency (EPA), because I believe state agencies enforce EPA guidelines.)

I am not automatically opposed to every aspect of the regulated utility system we use in Missouri. Technological improvements have demonstrated the absurdity of treating telephones and cable television like utilities and/or monopolies, and the legislative environment has properly adapted. I can at least understand the historic purpose behind telephones being regulated as utilities. Treating cable as a utility, though, was always idiotic, and often just a device for corruption. I believe electricity will eventually (in the long run) be deregulated as a utility, too.

As for water and natural gas, infrastructure issues will make it more difficult to move away from monopoly. They may be the best examples of natural monopoly, because the up-front investment costs alone make competition unprofitable. As David Henderson writes:

Economists tend to oppose regulating entry. The reason is as follows: If the industry really is a natural monopoly, then preventing new competitors from entering is unnecessary because no competitor would want to enter anyway. If, on the other hand, the industry is not a natural monopoly, then preventing competition is undesirable. Either way, preventing entry does not make sense.

My paper on privatizing the St. Louis water division dicusses one way to bring competition to the water industry on p. 17. Absent that price competition, I understand the reasons for some types of price regulations.

Back to the original subject. The PSC moved pretty quickly in addressing this potential issue. In fairness, the private company states that it attempted to move quickly, but could not move quickly enough. (The issue here could well be one of utility size, rather than a question of public vs. private.) I hope people don’t read a story like this and think the problem lies with private utilities. The problem in this case has been addressed. Fines may be imposed after the full details emerge. If there was a company failure, the company will be held accountable — the key word here being “if.” Private water, like other private utilities, works just fine under our system in Missouri.

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The new meters use radio signals to provide real-time readings accessible to customers online, which means residents should be able to spot potential problems or abnormalities in their average monthly water use.

Easier access to better information is always a good combination. But the best part of the article is not about O’Fallon. The best part is that it gives us a very good estimate of what it would cost the city of St. Louis to install water meters in the first place. If you frequent this blog you are probably aware that the city of St. Louis does not use water meters for home water use. In my opinion, that is insane.

If it costs O’Fallon $5.8 million to replace 15,000 meters, we can estimate it would cost the city of St. Louis $34 million to install water meters for its 87,000 residential customers without meters. That is approximately $390 per residential customer, and that number ignores the likelihood that the cost per unit would likely be lower for an order six times larger. Residents would then be able to adjust to higher water rates by using less water, something that businesses in the city are already doing.

Of course, I think the entire water division should be privatized in St. Louis, as well as in Kansas City, Springfield, Kirkwood, and Columbia. But at least those other cities make use of water meters. Privatized or not, the city and its water customers should expend the necessary funds to install and operate water meters.

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The Post-Dispatch is reporting that the city of St. Louis is raising its water rates (link via Combest). Now, I have no criticism of the rate increase — things cost what they cost, and government utilities have historically underpriced their products. If rates are rising, though, it should be a good time to consider the benefits of privatizing the St. Louis water system. C’mon, St. Louis. It’s good for what ails you.

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I have two goals with this case study. First, to get the city to consider the gains it could realize by privatizing the water division, which is the only one of the three traditional utilities served by a public agency in St. Louis city or county. All three — water, gas and electric — are provided by private companies in St. Louis County, while gas and electric are privately provided in the city. (Kirkwood and Eureka are exceptions in the county.)

The other goal, equally important in my mind, is to convince the city of St. Louis to install water meters. It is nothing short of insane that the city still charges via flat-rate billing for residences. The only good thing about not having moved to meters yet — decades after most other large cities did so — is that the city now has the opportunity to skip using regular meters and move directly to electronic meters that don’t involve meter readers. Maybe that was the secret plan all along. …

The work in this study could just as easily be applied to Kansas City, and especially Springfield.

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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.

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