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LA must combat populist impulses on waterworks

Lack of money only plays a small part in woes across many government-run water systems in Louisiana. Inability to keep adequate records and accounting has something to do with it as well. But the main cause of over $5 billion in maintenance needs statewide plaguing local government water utilities is the state’s populist heritage, which any corrective policy must address.

Thrown into sharp relief with the problems encountered by the town of St. Joseph – crumbling infrastructure eroded water quality that necessitated state intervention – the event spurred the Louisiana Legislative Auditor to include a look at systems run by local governments as part of its performance audit of private and nonprofit water works regulated by the Public Service Commission. The results revealed a potentially large-scale crisis ready to erupt statewide.

It turns out that over half of all systems have significantly aged infrastructures, creating larger pent-up demand for refurbishment or replacement. Relatively small systems, defined as serving 3,300 or fewer properties, comprise an even higher proportion of the total, which cannot enjoy economics of scale in operation. With these higher costs, a significant number of government systems operate in the red. Mainly among the smaller, some governments operate their systems poorly, with faulty collection practices and accounting lapses, the latter preventing them from applying for state-backed loans for repairs and upgrades, as legally a government must have a clean audit to do so. They also become prone to wasting water through seepage, theft, and laxity.

Certainly governments’ managerial practices contribute to the problem. In the case of towns like St. Joseph and Melville, shoddy records have prevented tapping into state loans, or in Baldwin past-due accounts stacked up with no attempt to collect or even to terminate service for nonpayment, forgoing revenues that could improve its infrastructure.

However, the Legislative Auditor identified generally low pricing structures as a significant component to lower revenues relative to cost. Government-run systems have the lowest median residential rate in the state, and practices such as flat-rate billing potentially depress the revenue picture further, if not allow too much water usage (anecdotal evidence suggests that water consumption drops precipitously when switching from flat to metered rates).

On a median basis, public systems also charge less than the U.S. average of all systems, and on average below the southern regional rate. In fact, in reviewing the 500 largest public systems in the country, Louisiana’s average is the lowest in the country, amazingly 40 percent below the national average.

The state’s populist past presents a compelling reason to explain the cheap rates of public systems in Louisiana. The pernicious worldview that government could perform many tasks inexpensively for the masses by having others pay for these created cultural expectations that this style of governance extended to water rates. The audit report mentioned that some policy-makers had internalized the notion that constituents could not afford higher rates – despite the fact that per capita incomes in Louisiana rank 35th among the states – and this guided them in their decision-making on the issue, if for no other reason than to dangle holding the line on rates as a reason to deserve reelection.

Yet this penny-wise, pound-foolish approach has discouraged raising and spending of monies necessary to keep systems in optimal working order and has led to another consequence of populism in Louisiana – dependence of local governments upon the state to provide things, as in this instance cheap money for infrastructure. In the worst case, state taxpayers bail out residents saddled with broken systems as in St. Joseph, to the tune of millions of dollars.

Despite the ensuing publicity about St. Joseph’s travails and the audit results, lawmakers who launched the 2017 regular session of the Legislature, judging by the bills they filed, expressed no interest in weeding out inefficiencies identified in the audit. No bill takes up suggestions such as instituting incentives to combine smaller systems or methods to minimize waste or, more bluntly, cajoling pricing structures that can cover capital expenses.

Legislators still have a few days to file bills, and they should use that opportunity to address this issue. Such measures must make local governments that run waterworks more responsible in operations of these utilities, even if that means rate hikes. Failure to follow this course only invites costly emergency after emergency.

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