NCPA - National Center for Policy Analysis


June 15, 2009

About 82 percent of Americans receive drinking water via publicly owned water systems, according to the federal Environmental Protection Agency (EPA).  Many of these municipal and regional systems operate at a loss, meaning users' fees don't cover the cost of treating and delivering the water.  Many water authorities are critically behind on maintenance.  They lack the capital to update their water purification and wastewater treatment plants or to secure additional water supplies to meet expected growth in demand.  Privatization could solve these water supply problems, say H. Sterling Burnett, a senior fellow, and Ross Wingo, a research assistant, both with the National Center for Policy Analysis.

The majority of drinking water supply and treatment facilities and wastewater treatment plants in the United States are owned and operated by the government:

  • According to the EPA, many need to be upgraded or replaced, at an estimated cost of nearly $350 billion over the next two decades.
  • Georgia alone will need $2.35 billion to control wastewater pollution for up to a 20-year-period, the EPA reported in 2008, based on 2004 data.

These projects cannot be funded from monthly municipal water fees, which don't even cover operating expenses, say Burnett and Wingo:

  • In 2002, the Government Accountability Office found that 29 percent of drinking water and 41 percent of wastewater systems did not raise enough revenue to cover the cost of water distribution, much less the maintenance of capital equipment.
  • Furthermore, it found that nearly 30 percent of all water systems had deferred water infrastructure projects due to a lack of funds.
  • A 2002 EPA report projected a $222 billion shortfall in capital spending for needed drinking and wastewater infrastructure renovation between 2000 and 2019.

Local governments often contract with private firms to replace infrastructure and provide financing, say Burnett and Wingo:

  • For example, a 1993 outbreak of cryptosporidium parasites forced a $90 million overhaul of Milwaukee's water purification system.
  • In response, the city's Metropolitan Sewerage District contracted with United Water to renovate the infrastructure and temporarily operate the wastewater treatment system.
  • United Water's upgrades came in below cost and the city's water supply exceeded all federal, state and local quality standards.
  • As a result, United Water was allowed to take over the system entirely and saved the district about $170 million over 10 years.

Source: H. Sterling Burnett and Ross Wingo, "Removing the Political Shortage of Water," Gwinnett Gazette, June 15, 2009.


Browse more articles on Tax and Spending Issues