Friday, February 5, 2016

Flint, Michigan: An Example of Why Public Ownership of Water Is Dead in the Water

Back in 2014, the city of Flint, Michigan changed the source of its water from the treated Detroit Water and Sewage Department to the Flint River. Complications in switching water sources led to lead contamination and quite possibly the cause of an outbreak of Legionnaire's disease. On January 5, 2016, the Governor of Michigan declared a state of emergency, which eventually resulted in the involvement of FEMA and the Department of Homeland Security.

There is plenty of blame that could go around because the debacle is so convoluted. The City of Detroit was charging Flint with exorbitant water prices, which encouraged Flint to look for alternative sources of water. The City of Flint could be blamed for running their finances into the ground by spending too much its budget on pensions. Even as a cash-strapped city, it would have cost as little as $50,000 to add phosphorus into the water in order to avoid the lead contamination. Also, Flint government officials were informed ten months before everyone else found out, and they had clean water shipped to them during that all that time. In April 2015, even the EPA knew that there was more than a distinct possibility that switching over to the Flint River could cause pipe corrosion, thereby increasing exposure to lead. Yes, the better part of an entire year....the amount of time that government sat on the problem and did nothing while people were being exposed to contaminants! As Keith Creigh, who was the acting Director of the Michigan Department of Environmental Quality, put it, "In retrospect, all levels of government should have done more."

Regardless of where you would like to shift the blame, this was a government failure, plain and simple. This was a utility owned and operated by the government. Local government actors caused the events in motion, and the regulators neglected it until it was too late to stop it. A similar thing happened when the EPA polluted the Animas River this past summer by spilling 3 million tons of mine water waste into the river. Was the EPA held accountable for its actions? Was it even fined? Nope! This is one of the issues of providing government with the power over something as vital as water: when the government screws up, it is nigh impossible to hold the government for its actions.

If this were a private company that distributed thousands of bottles of tainted water, a litigious people would have sued the company into bankruptcy. The fact that the government gets a free pass when it blatantly endangers the environment and health of people within range is unacceptable. Especially with sovereign immunity, there is a lack of tort liability, which creates moral hazard. When you turn water into a "right" and de facto price the good at little to no cost, much like with public water utilities, it leads to overconsumption. I have discussed this with California's water situation and how government policy led to water shortage issues. Not only does turing water into a public good deplete such an important resource, but it also has adverse effects on ecosystems.

At the very least, such a fiasco should make us consider policy alternatives as to dealing with government ownership of water. One option could be to have some tort reform so that the government could actually be held accountable. Another option is to raise the state cap on private activity bonds, which would mitigate a lot of the equity issues. I am a fan of privatizing the water system in some form, either through strict privatization or through some sort of public-private partnership (PPP). Even realizing that privatization of water has its pros and cons, I personally don't have a prima facie issue with privatization, yet I know some do. I love the irony of privatization opponents such as Public Citizen trying to scare people by saying that privatization will undermine water quality, that there would be no accountability, or corruption would be rampant, yet these were the exact things that have plagued the Flint water crisis. Going back to financial issues, let's keep in mind that municipalities consider PPPs precisely because of the private sector's ability to better finance such projects.

I have generally found that when privatization is compared with government ownership, the former wins the day, much like my blog has attested over the years. I don't see why the fact that water is a necessity for survival should impede privatization. For one, food is also a necessary provision to ensure one's survival, yet you don't see people clamoring to turn food into a public good. Another fun fact is that 75 million Americans, or about a quarter of the nation's population, currently receive its water from a private source. Plus, private companies would be beholden to local and federal regulations for water treatment.

Since water privatization tends to result in public-private partnerships, I'm not shocked that there are mixed results. With something as important as water, I was surprised to find a lack of studies on the topic, but again, we deal with mixed results because of both the implementation and the type of public-private combination used for implementation. Some municipalities revert back to public ownership because it didn't work for them. On the other hand, it worked out in such countries as the United Kingdom, Colombia, and Senegal.

While water falls freely from the sky, it still needs to be collected, managed, process, and supplied through an expansive and expensive infrastructure of reservoirs and pipes, all of which cost considerable money. That is why water prices are going to increase relative to the current artificially low prices. Thinking that we can continue to provide water at little to no cost is going to rapidly deplete the most important resource we have. As of 2011, only 980 million people, or about 14 percent of the world population, had water provided privately. About 86 percent of water provided by the public sector, and yet 1.1 billion people still lack consistent access to fresh water. Considering the water shortages around the world, privatization has to be part of the discussion if we want any chance of conserving water in the long-run.

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