No room for ideology in delivery of water and sewer services

April 20, 2010

By Will Randall
Policy Analyst
and
David Seymour
Senior Policy Analyst
Frontier Centre for Public Policy

REGINA, SK, and CALGARY, AB, Apr. 20, 2010/ — Imagine arriving home from a winter vacation to find a basement flooded with raw sewage, caused by the long neglect by successive civic politicians who refused to properly fund public infrastructure. That’s an unpleasant thought, but a possible scenario when such infrastructure ages without new investment into water and sewer systems.

That is the reason why the success or failure of Winnipeg’s water and wastewater utility restructuring-will it deliver proper results- should be measured by such practical results rather than someone’s ideological bent.

On that score, the city of Winnipeg’s planned proposal to create a municipal corporation owned by the city to deliver water and waste services looks to be a model worthy of support. The model would include a private partner-but let’s be clear on this point-to deliver waste services, not water, to Winnipeggers.

Reducing political interference

There is a strong practical case in favour of the model. First, it’s better than the old model because a stand-alone city corporation will bring more specialized knowledge to the table and reduce political interference. Secondly, putting an organization that specializes in waste management in charge of investment decisions (the city’s new partner) rather than ones specializing in electioneering (the city council and public sector unions), will be based more on engineering reality and less on political optics.

Some opposition to the new model stems from an anxiety that a new, non-elected body may end up with powers that citizens cannot control. This anxiety is based on the fear that this new body will then make private profits from the public purse and presumably gouge consumers. However, this narrative is over-the-top.

In the model proposed by the city, prices will be set by an external body, the Manitoba Public Utilities Board. This is no different than how automobile insurance and Manitoba Hydro rates are set. It is a well-accepted Manitoba solution to the problem of setting equitable rates for natural or government-enforced monopolies.

If anything, a clear separation of responsibilities will make pricing more responsive to actual, long-term infrastructure needs and not short-term political interference. Because maintenance costs are politically under-the-radar whereas property taxes are immediately visible, degradation of infrastructure – which is literally underground – can be ignored for decades. It is in a large part because of this dynamic that the Federation of Canadian Municipalities now reports that Canada’s “infrastructure deficit” is $123 billion.

Winnipeg’s new model would mean that a private partner will be charged with delivering the service over 10 to 30 years (depending on the eventual agreement). That in turn means their incentive is to look at long-term costs to a much greater extent than occurred under the old management model

It will also mean that the management of such services will have better economies of scale. Anyone who has ever tried to build their own car will know that specialized workers who have performed their particular job many times are much better at it than first-time dabblers. Similarly, having a specialist organization with expertise in managing waste is going to produce better results (all being equal) than a municipality that attempts to focus on many and varied activities.

Evidence from other jurisdictions such as France, Australia, and Kingston, Ontario show that better incentives, neutral price setting, and specialized knowledge will benefit the waste and water system and everyone who depends on it.

Kingston uses a model similar (for water) to that which is proposed in Winnipeg (for waste). Kingston once managed its water utilities as a city department but, in 1998, formed a wholly-owned municipal corporation, Utilities Kingston, to act as the water utility. Ever since, Utilities Kingston has provided that city with cost-effective utilities services, an upgrade in infrastructure, and has demonstrated compliance with relevant water standards. It has also met growth requirement on capital provision. The utility is free to contract with private organizations to deliver services, as necessary, much like Manitoba Public Insurance or Manitoba Hydro contracts with automobile companies to lease automobiles for their use.

Public/Private partnership

Similarly, in France and again to use an example from water services, municipally-owned corporations – involving the private sector in delivery – have delivered water to cities since the 19th. Its satisfaction with water management is high, with 90 per cent of cities that enter a public-private partnership continuing the partnership at contract renewal time.

This is line with international experience. According to the Public-Private Infrastructure Advisory Facility, at least 80 per cent of governments around the world that enter a public private partnership style model like Winnipeg is considering choose to renew their arrangement when the contract expires. It’s overdue for Winnipeg to join that 80 per cent.

Will Randall is a policy analyst with the Frontier Centre for Public Policy and author of Toward Greater Transparency in Water and Sewer Services in Winnipeg, www.fcpp.org. David Seymour is a Senior Policy Analyst with the Centre.

Channels: The Calgary Beacon, April 22, the Prince Rupert Daily News, April 24, 2010

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