Government Takeovers of Water Systems Are Costly, Don't Deliver Results

An effort by the city of Claremont, CA, to take ownership of its water system from a private entity, Golden State Water Co., resulted in a legal finding that the city couldn't provide lower water rates than the company, as well as court-ordered fees payable by the city of over $13 million. The outcome confirmed the findings of a study undertaken by an Analysis Group team headed by Principal David Sosa: Municipal water takeovers, it found, are costly, don't deliver the benefits promised, and result in higher than promised bills and rates.

In an op-ed for the Inland Daily Bulletin, Dr. Sosa described how the team came to its conclusions. They examined four contested water takeovers, and in each case found that the cost of the takeover was higher than initial estimates, without any apparent benefit to customers. They also examined the economics underlying two frequent promises made to voters considering a takeover: the elimination of taxes, and profit. Neither is economically sound, they found. The elimination of taxes, Dr. Sosa explains, is simply an economic transfer from water customers to taxpayers. And the “profit” a water company is allowed to earn, he writes, is a return on the capital investment it must make on its investment in building, maintaining, and running a complex utility - more akin to paying interest on a loan than actual profit.