Socialism Won't Fix California's Struggling Public Utilities

Golden State activists want the government to take over the water companies.

Faced with rising water rates, some politicians and community activists in Southern California are revisiting a fundamental question that most of us thought had been answered by the collapse of the Soviet Union: Is government the most efficient way to provide services?

We know of the poor quality of products and services provided by government monopolies. Yet officials in Stanton and Claremont think otherwise. They have discussed spending tens of millions of tax dollars to "buy" their water systems from a private water company that doesn't want to sell them. To make matters worse, their efforts would require the use—some would say the abuse—of the power of eminent domain to acquire the properties by force. Taxpayers will be on the hook for all of this.

Their main beef is the water rates charged by the regulated Golden State Water Company are higher than those in surrounding communities, which is a legitimate complaint borne of a lack of competition in the regulated utility market. But their solution—epitomized by a commenter on the Claremonters Against Outrageous Water Rates Facebook page who boasted about the virtues of "socialist" utilities—is the wrong one. Private utilities are not competitive in the way that true private companies are, but the answer is to boost competition, not reduce it further.

In January, the city of Claremont voted to spend $300,000 to explore the possibility of starting a city run water company. Stanton recently tabled the proposal, but officials were talking about the same idea even though the purchase price is expected to be in the $100 million range. Any such idea means enormous debt spending and a strain on local finances to fix a non-existent problem.

Water rates are rising everywhere, driven by government-imposed conservation edicts. The government-owned Metropolitan Water District of Southern California is looking to raise rates for the 10th time in a decade, and if approved the hike would mean a 100-percent increase in rates since 2006, critics of the proposal note. It's unlikely that handing water systems over to the government will keep a lid on rate increases, despite the nonsense peddled by the water socialists.

Throughout California, public services are under strain. We see cities facing potential bankruptcy and dramatically cutting back services even as they refuse to roll back generous pay and pension packages for their employees. Stanton, which toyed with the idea that it could run a utility more efficiently than the private company that has been doing it for more than 80 years, recently declared a fiscal emergency and wants a special election so that voters can approve an increase in the utility users tax. Does that sound like a city that can run a water system efficiently?

In Fullerton, the city is embroiled in controversy over an almost-certainly illegal 10 percent tax that officials have been placing on water bills. This is how governments operate. Turning a private water system over to the government in a perverse reverse-privatization situation will only lead to more ways for cash-starved governments to impose dubious taxes, debts, and fees.

All of California's toughest municipal-finance issues have the same root cause—the government provision of services. Cities are cutting back police and fire services and letting roads and bridges crumble not because the public is under-taxed, but because governments misspend the money they have.

Golden State Water Company has relatively high rates, but that's in part because a private company cannot force taxpayers to assume costs it does not want to account for.  For instance, Golden State recently switched from a defined-benefit pension plan similar to those in the public sector to a defined-contribution plan common in the private sector because it cannot force taxpayers to pick up the costs of its future unfunded pension liabilities. As a Golden State official told the Orange County Register, "Golden State rates reflect the full cost to provide the service, maintain the infrastructure and make needed investments to improve the system."

That's the model the state needs to move toward. Claremont, Ojai and others who think water socialism is a good idea essentially want to lower water rates by subsidizing water users. They want to hide many of the costs of water provision by spreading them out among taxpayers.

Governments are notoriously bad at maintaining infrastructure. Advocates for government-run utility services claim that the political process—i.e., electing officials, who oversee the people who run the services—is the best way to assure accountability. The opposite is true. In a political system, the most powerful special interest groups are the ones whose voices are heeded. Unions, for instance, have enormous political power and they help elect those politicians who assure that their pay and benefit packages are not touched even as unseen water pipes—which lack powerful lobby groups—are allowed to decay.

In 2001, Huntington Beach city officials pleaded guilty to felony charges because they did not maintain the city's sewer pipes and they allowed millions of gallons of raw sewage to leak into the ground. There's a reason the Eastern bloc nations were among the most polluted nations in the world—the government does as it pleases. This sewer prosecution against public officials was extremely rare. It's far easier to hold private officials accountable.

Admittedly, the current regulated utility model is a bad one. Utilities set rates based on their cost to provide services after a bureaucratic process controlled by the Public Utilities Commission. It's not a competitive system, but a privatized system is better than a public one because the companies cannot offload costs onto taxpayers. This system also assures that long-term infrastructure investments are made and usually offers better customer service. This system has many flaws. But a further douse of water socialism won't fix them.

Steven Greenhut is vice president of journalism for the Franklin Center for Government and Public Integrity.