Water takeover a bad idea

Water takeover a bad idea

October 14th, 2012 in Opinion Free Press

In his waning months as mayor of Chattanooga, Ron Littlefield has one final goal in sight: A government takeover of Tennessee American Water.

The private business has been serving Chattanoogans in some form or fashion since 1850. Today, Tennessee American Water serves nearly 80,000 customers and maintains a customer satisfaction rating of 94 percent. What's more, Tennessee American provides some of the cleanest, safest water in the United States - scoring 260 times the industry average for compliance with drinking water standards.

So why would the mayor want to seize a successful, efficient and effective free market water provider and, in a socialist-style takeover, have Chattanooga's lumbering, bungling, wasteful city government hijack the management of the water system? After nearly eight years at the helm, Littlefield has little to show for it. He has no real legacy and he's scrambling in search for one.

A takeover of Chattanooga's remaining private water supplier would, Littlefield figures, would be a reason for Chattanoogans to remember him.

Well, that may be true. But for all the wrong reasons.

A city takeover of the water system would mean higher costs for customers, lower tax revenues for the city, less support of community organizations and charities, and worse customer service.

Earlier this month, Tennessee American reached a settlement with state regulators to increase water rates by 12 percent - or about $2.35 per month for an average residential customer. This rate hike prompted criticism by Tennessee American customers, and rightly so. But compared to recent rate hikes by the city-owned sewer service, Tennessee American price increases looks paltry.

Since 2001, Chattanooga's sewer service raised rates 15 times at an average cost increase of 7.2 percent a year. Over the same period, Tennessee American implemented only five rate increases, with an annual price hike of 4.7 percent annually.

To put it in plain numbers, over the past decade, the average monthly city sewer bill increased from $12.82 to $22.99, while the average monthly Tennessee American water bill increased from $12.60 to $19.15. Chattanoogans are now paying $10.14 more per month than they did in 2001 for the city's sewer service, but only $6.55 more per month for Tennessee American water. Clearly, Tennessee American has done a much better job at controlling its cost to consumers than the City of Chattanooga

In July, the U.S. Environmental Protection Agency and the U.S. Justice Department slapped the city's sewer system with a consent decree that requires taxpayers to spend $250 million to fix the faulty sewer system.

Given the failures of the city-owned sewer system, no one realistically thinks the city can do a better job at managing water service than Tennessee American. But Littlefield and other advocates of a government takeover the water system don't care. They see the water company as a way to drum up money to help underwrite the sewer system's quarter-billion dollar repair bill. After taking over the water company, the city would hike water rates and attempt to pour any water system revenues into offsetting the steep cost of the sewer system debacle.

Ultimately, rather that reinvesting revenues from the water system into implementing new technologies and improving infrastructure, as Tennessee American does now, the city would ignore the water system, which would result in more significant repair costs in the future. In the end, a city-owned water company would provide worse reliability, quality and service than Tennessee American, at a higher cost.

• • •

There's another reason why the city leaders should resist the urge to take over Tennessee American: It'll hurt the city's bottom line. From 2001 to 2011, Tennessee American paid $46 million in taxes, including $27.9 million in property taxes to the city. Tennessee American is one of the top five taxpayers in Chattanooga and Hamilton County.

Municipally-owned water companies pay just a small fraction of the taxes a private water company like Tennessee American pays. In fact, if Tennessee American wasn't weighed down with such a heavy tax burden, it's likely that the recent rate increase would be necessary.

If the city owned the water company, the more than $3 million per year the city receives in taxes from Tennessee American would vanish. Instead of the water company being a money maker for the city, it would likely become another expense for taxpayers.

A city takeover of water services would also harm the community. Since 2001, Tennessee American has given organizations like the United Way of Greater Chattanooga, Junior Achievement and the Tennessee Aquarium more than $600,000. If the city owned the water company, all that money would be lost.

Mayor Littlefield is right to be worried about his legacy. After nearly eight years in office, he doesn't have much of one. But the worst thing he could do before he leaves office is push the city into spending hundreds of millions of dollars to seize control of Tennessee American and get in the water business. It would be one thing if Tennessee American were failing Chattanoogans, but it's not. The company provides clean, safe water at a cost of less than a half-cent per gallon to highly satisfied customers.

The same wouldn't be true if the City of Chattanooga ran the water company.