Washington can’t come to the rescue

North Carolina needs $120 billion worth of new investment in water, stormwater, and sewer systems, according to a recent report from the US Water Alliance. I suspect that number is on the high side — the alliance represents localities, public authorities, and companies and labor unions with a financial interest in infrastructure spending — but I don’t doubt the existence of unmet needs across our state.

What I reject entirely is the alliance’s suggestion that Washington ought to supply the majority of new funding for water and sewer projects. That’s not going to happen. And given a yawning gap in the federal budget for as far as the eye can see, it would be improper for Congress to say yes to trillions of dollars in federal aid.

“Once upon a time, the federal government invested a majority stake in what we spend as a nation on water infrastructure,” Emily Simonson, a senior director at the US Water Alliance, told Governing magazine. “Now it’s less than 10%, a massive gap for future generations to cover.”

Here’s how the alliance report lays out the numbers. The United States as a whole will need to spend roughly $3.4 trillion over 20 years to repair and modernize its water, wastewater, and stormwater systems. “State” and “local” sources are projected to cover $1.3 trillion. The rest ought to be “federal” sources.

I put quotes around those terms as a reminder that, while they aren’t meaningless, they aren’t truly describing different sources. All such water and sewer spending is ultimately financed by ratepayers and taxpayers.

If water users in, say, Knightdale, Kannapolis, or Kinston shoulder the entire cost of a project — principal and interest on the capital side, plus operating costs — then it doesn’t make any financial difference to them whether they pay their local jurisdictions directly or pay state or federal taxes that are, in turn, appropriated to their localities. On the other hand, if a project costs more than local ratepayers and taxpayers supply, other ratepayers or taxpayers must make up the difference, either through cross-subsidies within a regional system or taxes levied by the state or federal government.

Federal borrowing is typically cheaper than state, local, or private borrowing, to be sure, but at this point Washington is already issuing debt to fund federal operating expenses, not just capital investment (be it buildings, highways, aircraft carriers, or local water pipes).

Now, if Congress first cut back expenditures or raised taxes sufficient to balance the federal operating budget — and then either paid down existing federal debts or at least declined to borrow any more so the debt load shrank as a share of gross domestic product — it might make financial sense for Washington to issue new bonds to fund water and sewer projects.

It still wouldn’t make sense as a matter of governance, however. All fees and taxes ultimately come from the same pockets. But at least if state and local policymakers are the ones levying them, they are closer to the action and have stronger incentives to spend the dollars carefully.

One strategy available to price-conscious communities is to purchase services from private firms. “Governments are usually ill-equipped to manage all the changes and risks that come up while operating and maintaining water-related systems by themselves,” former Reason Foundation policy analyst Austill Stuart observed.

“The private sector has offered innovative solutions to better manage the risks of operating public water systems and will continue to provide them,” he continued. “Profit motives in the municipal water sector are not a moral wrong that needs to be corrected. Rather, the private sector can often provide a lifeline for governments trying to walk the tightrope of balancing affordability and reliability.”

If North Carolina needs to spend $120 billion on water and sewer over the next 20 years, that’s a matter for local boards and the General Assembly to address. Congress should focus its attention elsewhere — assuming it ever regains the attention span of, say, a gnat.

John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy and American history.