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GUEST COMMENTARY: Columbia should consider privatization of utilities

Friday, December 10, 2010 | 2:38 p.m. CST; updated 5:11 p.m. CST, Saturday, December 11, 2010

Columbia, like many cities across the country, faces budget shortfalls for the current year and the expected future. City officials and residents have debated various methods that might help to deal with this reality, such as which taxes to increase or which services to cut. Those involved in the discussion should consider Columbia provides two major services that the private sector is fully capable of managing: water and electric utilities.

There is no standard method for providing utility services in Missouri cities. Springfield, for instance, has a city department that provides every utility service. Alternately, almost all of the 1 million-plus residents of St. 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.

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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 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, MU economists Richard Wallace and Paul Junk examined the diseconomies of scale faced by many municipal electric utilities. They noted 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 St. 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.


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Comments

John Schultz December 10, 2010 | 10:52 p.m.

Privatization of Columbia's trash and recycling would be a good test case. The start of Columbia's adventure into refuse services was documented by a two-part article by Ray Beck in a recent (year or so ago) Columbia Business Times issue. My recollection is that an ordinance was passed requiring anyone with a kitchen to be served by the cit and private haulers were essentially forced out of the market.

As a county resident, I have my choice of multiple refuse haulers and am not beholden to a company that providers a poor service.

(Report Comment)
Yves Montclear December 11, 2010 | 4:18 a.m.

Trash pickup should be charged as a user fee. Not a property tax charge, for everybody.

If I only put out one bag of trash, and my neighbor puts out ten bags of trash every week, they should be charged ten times more than me for trash pickup.

It is a system that can be abused, and is abused, and that should stop.

No more over using the service. You should be paying more for it, not me.

I don't care if you have a big family. The electric company doesn't care, the gas company doesn't care, city water doesn't care, you will pay the bills for what your household uses...or they will turn it off.

Along those same principles, it is simple. If you generate lots of trash every week, you should pay more to have your trash hauled away.

How hard could it be, to print out maps for the garbage haulers? And have them mark on the map, how many bags of garbage each house puts out, then bill them accordingly?

(Report Comment)
Patrick Sweet December 11, 2010 | 11:45 a.m.

@Yves

That's an interesting idea. I lived in Wilkes-Barre, Pa. this summer and they charged folks based on the number of bags.

Instead of noting how many bags you had and charging you later, though, you were required to purchase specific bags from the grocery store for $1 or $2 each. Trash guys wouldn't pick up anything but the special bags.

What do you guys think of that way of charging for trash?

(Report Comment)
hank ottinger December 11, 2010 | 6:58 p.m.

The local Sierra Club group has long favored a "pay-as-you-throw" option, and over the years has approached the city with regard to change. The city, notably during the tenure of the former city manager, has never been warm to the idea, citing the possibility of illegal dumping and administrative costs among their reasons.

Incidentally, the author of the above opinion piece is in the employ of St. Louis's Rex Sinquefield, one of the main free-market puppeteers in state politics.

(Report Comment)
Allan Sharrock December 12, 2010 | 9:38 a.m.

Charging for the number of bags seems a bit tricky and unfair. A person could have bag full of something really heavy like shingles and would get charged the same amount as a person with boxes that were just too hard to crush. If you did it by the weight of the bag then it would take too long for the workers to weigh them and add more costs to the tax payers.

(Report Comment)
John Schultz December 12, 2010 | 10:51 a.m.

Really Hank, puppeteer? You progressives are so witty! Perhaps if President Obama led like you and other local liberals do with your humor, the midterm elections might have had a different result.

(Report Comment)
hank ottinger December 12, 2010 | 5:38 p.m.

Who the heck said anything about Obama, JS? Sinquefield's hand in Missouri politics is well-known, as is his fiscal orientation. That's the only point I was making.

(Report Comment)
John Schultz December 12, 2010 | 7:37 p.m.

Yes, water privatization by a corporation funded by the World Bank is directly equivalent to Columbia selling its utilities. If you have a more direct point, a better link might suffice.

(Report Comment)

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