Sewer’s folly: Fifteen thousand dollars a year!

Granville has its own water purification plant and, of course, sewer system.  Village residents pay a fee for both based on water usage. Recently, 27 residents petitioned the Village to put in new meters that separately measure how much they put down the sewer system.  The idea is that then they would not have to pay for water usage that doesn’t actually increase demands on the sewer system- that is, primarily water used to water lawns and gardens or wash cars. The petition was the primary subject at the May 4 Village Council meeting.

According to the Village staff, allowing these 27 households to have separate meters for their sewer usage would cost the Village $15,000 a year in lost revenue.  This point came up several times.  Not being at the meeting, I keep envisioning council members speaking like Mrs. Bennett in the popular movie version of Jane Austen’s Pride and Prejudice, which she discusses the income of Mr. Bingley: “Fifteen thousand dollars a year!” (See here at the 40 second mark.) It seems to me high that these households are using $555 per year just in sewer charges, but I’ll trust the staff on that.  And of course, if the village allows these 27 to use separate meters to reduce their sewer charges, soon others will do the same and the revenue loss will increase.

The meter men insist that it is unfair to force them to pay for services that they don’t use. Councilwoman Michelle Lerner replies that people often pay for public services they don’t use, such as roads.

It strikes me that there is some sloppy reasoning going on here. Normally, the government should be relied upon to provide goods only in a handful of circumstances.  The classic circumstance is that of what we call “public goods.” These are goods that are non-exclusive and non-rivalrous.  That is, no one can be readily excluded from the benefit or good, and one’s use does not affect another’s use. National defense and law enforcement are the classic examples.  A second circumstance comes about when it is believed that positive externalities will cause an underinvestment in a good or service if left to the market.  The classic example here is education – the idea is that a well-educated populace benefits society generally, and that if left solely to the market not enough will be invested in education.  Whether this is really true is now hotly debated among economists.  Generally, there is more skepiticism among economists today about the theory of externalities than we would have seen 50 or 60 years ago.  The third circumstance for government delivery of goods and services has been called “natural monoply.” Again, economists today believe that there are far fewer natural monopolies that once thought.  Nevertheless, most people still tend to think of things such as the provision of sewer and water as natural monopolies. 

Note that even though things such as roads and water and sewer are commonly provided by government, there is often an effort to fund them through user fees, or at least some proxy for user fees.  For example, gasoline taxes are often dedicated to funding highway and road construction and maintenance. The idea is that the heavier users of roads will pay more. This doesn’t work out perfectly, but at least in general terms heavier users of roads pay more.

Similarly, by charging for water usage, the Village is charging an actual user fee in what is thought to be a natural monopoly for providing a private good. Basing sewer fees off water usage is an effort to find a rough proxy that will similarly lead heavier users of the services to be charged more.

In Granville, as in most municipalities, water and sewer services are billed individually and not paid from general tax revenues.  That is, they are not general taxes but user fees. That being the case, anything that more specifically matches the fees to actual use makes sense. Thus Councilwoman Lerner is mistaken: Sewer fees are not like roads. It is possible to charge separately, and indeed that is the fundamental principle that underlies the Village’s system of billing people for their individual water and sewer charges. Essentially, if the argument against individual sewer meters is that the city wants the revenue, then the petitioners have a point – they are essentially be charged extra tax to support city services, on no coherent basis – not use, not an even income, nothing but the ability to stick it to them. 

On the other hand, if the Village really needs the $15,000 for operations, it needs the $15,000.  So if you cut fees by $15,000, you’ll have to make that amount up. Presumably, this will have to come from higher rates for water usage.  Or the city can choose to subsidize water and sewer with higher taxes elsewhere.  But there’s not really much case for broadly subsidizing water and sewer use (note this isn’t even a targeted subsidy to assist low income people who otherwise can’t afford water and sewer).  Indeed, that strikes me as wrong-headed public policy, precisely because it will discourage saving water and increase demand on the water supply and sewer system. Conversely, if the water and sewer plants produce surpluses that subsidize other Village operations, I am not sure that this makes sense. The idea of a user charge to begin with is to charge people for what they use – not to cross subsidize unrelated government functions.

Thus, ideally, the Village would put individual sewer meters on all homes and charge separately for water and sewer, on a use basis. Rates would have to be adjusted to cover the cost of each service.

Thus, on principles of economics and justice, I am supportive of Council members Mershon and McGowan, who supported the petitioners.  However, as a practical matter, I am not sure that the best way to implement such a policy is by ad hoc petition and allowing individual meters without a broad review of rate schedules. That review shouldn’t be that hard.

Ideally, then, the Council would instruct the water and sewer departments to develop a new rate schedule that will cover costs, and at that point generally install – or at least publicize and encourage the option to install – separate meters.

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