Navigating the Coming Water Crisis

Water and Wastewater Crisis

Many environmental problems are exaggerated.  Water scarcity is not.  If anything, water supply problems are ignored.  Inefficient water allocations and deteriorating urban infrastructure cannot compete with charismatic megafauna in direct-mail appeals.  Yet water scarcity is a serious environmental concern.  Water is essential to life, we are repeatedly told, and it is woefully mismanaged throughout much of the world.  Though naturally abundant and readily reusable, fresh water is often in short supply where needed most. Access to water may be heralded as a public right, but it can be costly to provide and protect.  Water is also a source of conflict, both in the U.S. and abroad. The U.S. Supreme Court hears cases concerning the allocation of water rights among states with some regularity.

Here in the United States, water supplies are routinely squandered while water infrastructure deteriorates.  Governments have ensured politically potent constituencies get their water, but have been less diligent about making them pay for it.  Now the bills are coming due, particularly in urbanized areas.  How the nation manages its water supplies and associated infrastructure in the coming decades will impact billions of people.  Indeed, water supplies could easily become the most important environmental issue of the 21st century, even if it does not (yet) merit Hollywood appeals.

“Americans generally take water for granted,” Lewis Solomon notes in America’s Water and Wastewater Crisis: The Role of Private Enterprise.  Not for long.  Americans will learn to think about water in economic terms, or pay an awful price.  Crisis does not warn of climate catastrophe, predict mass extinction, or warn of a public health disaster.  It does, however, detail “the looming water and wastewater crisis in the United States” and considers the role that private firms and market prices might play in the solution.  This may not be a sexy topic, but it’s one of serious consequence.

There’s water, water everywhere, so there should always be enough to drink, as well as to to supply a range of agricultural, industrial, and commercial needs, right?  Not exactly.  Water is a renewable resource, but the hydrologic cycle does not ensure a constant or reliable supply.  Many uses, including agriculture depend upon having a given volume of water in a particular place at particular time, but nature does not always cooperate.  Reservoirs, canals, and other infrastructure projects can help ensure reliability, but such investments come at significant economic and environmental cost.  Global climate change also presents the prospect of ever-more-variable water supplies in the decades to come, increasing the likelihood of regional freshwater shortages.  Areas where freshwater is already in short supply, such as the American southwest, are particularly vulnerable, as are those regions where there has been significant groundwater depletion.  “Even under normal conditions the United States faces a growing crisis with respect to its water supply,” Solomon notes. Yet there is no guarantee “normal” conditions will continue.

When the nation was smaller – and water projects were often funded with federal largesse – wasteful water practices were affordable.  Infrastructure seemed cheap so long as Uncle Sam was footing the bill – or at least floating the initial funds.  Today, however, the nation’s appetite for water has outstripped supply, and the funds to upgrade – or even maintain – water-related infrastructure are not forthcoming.  As Solomon explains:

America faces increasing challenges to both its water supply as well as meeting the funding required for maintaining and improving its water and waste water infrastructure. Parts of the United States are waking up to the realities of finite water supplies and the ensuing scarcities, which will be inadequate to meet economic and population growth needs at current usage rates.  In the future, in many U.S. regions, water will become a more expensive resource, impacting economic growth and the quality of life.

 America’s waste and wastewater infrastructure is deteriorating rapidly.  Were this not enough, a new generation of environmental regulatory requirements will force many metropolitan areas to remake their water and wastewater systems at tremendous cost.

Though many want to characterize water as a “public good” – perhaps even a public right – water “can be rationed and denied to specific users.”  The historical refusal to allow the profit motive to infect the water sector has not enhanced water management.  To the contrary, it’s created a mess.  As Solomon notes, “water remains cheap relative to its value.” It is rare for water consumers to pay anything approaching the actual costs of service provision.  This encourages inefficient use and distorts the price signals necessary for more efficient levels of investment in the necessary infrastructure and potential innovations that could drive down the cost of service.

Critics of profit-based management complain that for-profit companies will be too short-sighted and focused on quarterly profit statements.  Yet the public sector is often worse, upgrading infrastructure systems only when absolutely necessary and more inclined to fund temporary fixes than forward-looking solutions.  Solomon notes a “pressing need . . . to manage facilities more efficiently and to invest more capital in water supply and wastewater infrastructure.”  But unless water is treated as an asset, this is a tough need to meet.

Solomon eschews platitudes and scare stories.  Instead he provides a practical examination of how some of the nation’s water and wastewater needs can be met. Specifically, he investigates the potential for the private sector to play a role in helping fund and develop responses to current water problems.  He surveys and considers the role of technological innovation and private management in the provision of water services, whether through outright privatization or the creation of public-private partnerships.  The private sector, Solomon notes, “offers both a proven management technique and a financial tool.”  Like it or not, he predicts the private sector will play a significant role in addressing this looming infrastructure crisis, even if for no other reason than the fiscal constraints faced by governments at all levels. “The urgent infrastructure capital needs, limited public funds, and the difficulties involved in raising taxes or fees will likely make various forms of privatization a greater reality in America’s water and wastewater industry.”

Many early water and wastewater systems were private. Boston’s Water Works Company, chartered in 1652, supplied water to customers through wooden conduits.  The first pumped waterworks opened a century later in Bethlehem, Pennsylvania.  As urban populations expanded in the 18th and 19th centuries, the demand for water services followed.  Initially, however, local governments lacked the fiscal capacity or wherewithal to provide such services or fund the necessary infrastructure themselves.  There were some exceptions; Philadelphia’s municipal waterworks was completed in 1801.  In most cities, however, if such services were to be provided, the private sector did the work. It was not until 1880 that the number of publicly owned systems rivaled that of private systems, and federal support for water infrastructure did not begin in earnest until the New Deal.

Governments became more involved in the provision of water and sewage services during the 19th century to increase capital investment, ensure water services kept up with population growth, and ensure the availability of water for certain “public uses,” such as fire protection, and enhance public hygiene. “A waterworks capable of putting out large fires,” for example, “required substantial investments over and above those needed to serve ordinary customer needs,” Solomon notes.  As cities grew, so did the demand for citywide sewer systems, but private investment in wastewater and sewage systems lagged

As local governments grew, so did their ability to assume such responsibilities, often by taking over pre-existing private systems.  Once cities recognized they could raise money by issuing bonds and going into debt, their ability to fund infrastructure surpassed that of the private sector.  By the mid-20th century, the vast majority of water and wastewater systems would be publicly owned.  Those water systems that remained private were largely (though not exclusively) owned by developers or homeowner associations, and by the year 2000, there were hardly any private wastewater treatment plants, although approximately one-in-four households rely upon on-site septic systems and the like.

Although public systems are now the norm, this state of affairs may not last.  Solomon confidently predicts that “various forms of privatization” will become “a greater reality in America’s water and wastewater industry,” if for no other reason than the existing fiscal constraints faced by the public sector. Insofar as private firms can help facilitate investment and improve service efficiency, they will be utilized.  The potential disadvantages of greater private provision are largely political and, in Solomon’s view, “can be met through carefully negotiated, drafted, and monitored contracts.”

“Privatization” need not involve complete public divestment from water systems, as occurred in the United Kingdom under Prime Minister Margaret Thatcher. Such a pure approach to privatization may appeal to libertarians, but will not always command public support.  Given the public obligations imposed on water and other utility providers, such full-scale privatization is not always necessary to achieve the efficiency gains of private management.  Solomon discusses a range of public-private arrangements that could be used to enhance service, fund needed infrastructure improvements, and rationalize service provision.  Such reforms do not come free, however.

Infrastructure improvements in particular will require substantial outlays, particularly given the regulatory requirements now imposed on water and wastewater systems by the federal government.  Private managers may be more able to find the financing for such projects without resorting to taxes or public debt, but it is unlikely the necessary outlays can be made without increasing prices.  Indeed, as Solomon warns, “Americans will likely pay higher rates for water and wastewater services, whether these systems are publicly or privately run.”  Should rate increases coincide with a shift to private management or control, privatization could take the blame for public sector mismanagement of the past.  Here as elsewhere, privatization offers “great potential” but “it is not a panacea.”  America did not create its water infrastructure and supply problems overnight, and there is no painless or instant cure.  Still, as Solomon recounts through a survey of empirical studies, privatization of water services has tended to reduce costs and improve service.

Advanced technologies and water management reforms could ease some of the pressure on water systems by increasing the efficiency of water use.  “Effective rate structures play an essential role in signaling to consumers the cost of providing water and promoting more efficient use,” Solomon notes.  Yet it is rare for water systems to charge consumers the true cost of supplying water.  Local governments are more likely to mandate use restrictions under the guise of enhancing efficiency than to utilize price signals to influence consumer behavior.  Summertime droughts trigger limits on watering lawns or washing cars more often than increased water prices.  It’s no wonder so much water is wasted.  Water-use-per-person in the U.S. may have declined in the past few decades, but it’s not because consumers are paying market prices.  By some accounts, the U.S. remains the most “wasteful” water user in the world.  For this to change, water consumers will need to start paying the actual cost of what they use.

The prospect of increased water scarcity is a challenge, but it can also be an opportunity.  The demand for more efficient water use – and reuse – could be met by new technologies that facilitate water recycling in residential communities and reduce the volume of water needed for many applications.  Some individuals may be reluctant to reuse water in the home, but agricultural and industrial users are certainly open to efficiency improvements that can help their bottom line.  Eventually, however, Solomon suggests the cost advantage of wastewater reuse over trying to create new freshwater supplies will overcome the “yuck” factor.  Private sector investment in new technologies to meet such needs will do more to hasten this transition than government mandates.

Much has been written about water, but relatively little with Solomon’s focus.  This is a practical book, not a call to arms.  But in that regard it is a useful contribution to solving an actual problem.  Such treatments may not enrage or inspire, but they can help policymakers chart a productive course.

Jonathan H. Adler is the Johan Verheij Memorial Professor of Law and Director of the Center for Business Law and Regulation at the Case Western Reserve University School of Law. He is also a regular contributor to the popular legal blog, “The Volokh Conspiracy” (http://volokh.com).

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