Who Pays for Water Security?

I’ve been attending quite a few meetings and workshops on water system security lately and one of the issues that comes up is how to pay the extra costs associated with providing security for water supply systems. Some say that the federal government should pay the bill, but I’m not sure if the individuals who propose this understand where the federal government gets its money.

The costs are not trivial and include vulnerability assessments, emergency management planning, physical security measures, security personnel, monitoring and surveillance, and redundant facilities. While most utilities have always had some of these measures in place, the needs and costs have significantly increased in recent years because of the increased concern over potential terrorism directed at water supplies.

Basically, the issue boils down to one of whether we should pay for water system security with rate (water bill) money or tax money. There are good arguments on both sides.

With water security measures funded through water bills, the money is spent essentially in the same community where it is raised. If Town A wants to do a better job on security than Town B, then rate payers in Town A will pay higher water bills.

If security measures are funded by rate increases, the money is more likely to be spent intelligently. With rate money, $0.95 of each dollar will actually be spent on security, whereas with tax money it’s unlikely that the federal bureaucracy will provide $0.70 for security from each of our dollars it takes. Water utilities manage their revenue (and my money) better than the federal government.

A large number of U.S. citizens have private wells. With taxpayer funding, those individuals will be paying taxes for urban water systems even though they won’t directly benefit.

Other U.S. water consumers are served by investor-owned utilities, and many of the owners of those systems are foreigners. If those utilities receive security funding, then taxpayers are subsidizing foreign interests with tax money. If they don’t, then the rate-payers of those companies are paying taxes but receiving no benefits. Having rate-payers pay for their own security measures avoids these issues.

Water utility managers hate to raise rates. Rate increases are a painful experience. Many utility managers would rather see taxes raised by $2.00 before they would raise rates by $1.00. Utility managers can issue press releases on how they prevented (or minimized) a rate increase by receiving a federal security subsidy. (It’s amazing how many customers will scream about a modest rate increase while the federal government siphons huge amounts of money from their pockets.) Grants paid for with tax money, however, look good from a public relations standpoint.

The impacts of a security failure on a larger system will be significantly greater than one on a smaller system. However, because of economy of scale, providing security for larger systems will cost each individual served less. This implies that there should be higher standards for larger systems but gives the impression that customers of small systems are not important.

Federal income taxes are supposed to be progressive (i.e., tax the rich). Those with the greatest wealth should pay the most for security while the poor should not need to pay anything. Tax money spent on security accomplishes a distribution of benefits among different taxpayer classes.

While there are good arguments for paying for security from rates rather than taxes, there are some customers who simply cannot afford to pay for water. Each year, numerous customers lose water service because of their inability to pay their water bills. Raising rates to pay for security will drive more customers into this group. There should be provisions such that the poorest customers do not lose service because of security-driven rate increases.

While neither case for security funding is totally compelling, in this writer’s opinion, it makes more sense to pay for water system security through water bills rather than tax increases, with provisions that the poorest of the poor will not lose water service as a result. Implementation of water security measures should in general be a local responsibility.