Water Sector Reform #4: Human Capital
With a major federal investment in water infrastructure possibly on the horizon, the United States has a once-in-a-generation opportunity to leverage that money into a structural transformation of America’s water sector. This is the fourth in a series of five posts outlining broad proposals to reform the management, governance, and regulation of U.S. drinking water, sewer, and stormwater systems. The first proposed reform was consolidation of water utilities; the second was an overhaul of financial regulation; the third was investment in information technology.
My fourth proposal is to invest in water sector human capital through workforce development and streamlining labor markets.
Working for Water
The U.S. water sector’s workforce challenge has been evident for a long time; as early as 2005 observers identified a slow-rolling retirement tsunami washing over utility organizations and recognized that the supply of workers was insufficient to meet the nation’s needs. In many ways, the water sector’s workforce issues mirror those of the wider public sector workforce. But addressing water workforce challenges isn’t just about quantity, it’s about quality.
Once upon a time, water system operations was a semi-skilled job. If you had a strong back, could turn a wrench, and operate a backhoe, you could probably do it. Until recently, a water operator could get by with limited reading comprehension and little to no aptitude for math or science.
That’s no longer true. Today water and sewer system operations are highly skilled jobs. Regulations and technology are ever-advancing. Modern water systems require operators who can interpret complex regulations. Operators must have a solid working understanding of physics, chemistry, and biology, and a good command of math. And they have to be able to communicate with management and engage directly with the public.
Water systems are getting smarter; water operators have to be smarter, too.
But highly-skilled operators are in short supply and human capital isn’t evenly distributed. Training up a utility operator takes a lot of time, and in rural or remote parts of the US it can be especially hard to find an adequate supply of educated workers who can be trained to operate water systems.
Human capital & utility performance
Labor availability has measurable effects on effects on water quality. A few years ago David Switzer and I analyzed the relationship between SDWA compliance and the availability of skilled workers in a labor market. We found a strong relationship between labor force education and utility performance.
We also found that larger organizations are more effective in leveraging human capital than small ones. The reason is pretty clear: if you’re a smart, ambitious person interested in a water career, a small utility is at best a stepping stone, at worst a dead-end job. There may be only a handful of employees and the only opportunity for advancement is to wait for another operator to leave—or to leave yourself. So small systems struggle to attract and retain good employees. I heard directly from one utility manager that systems sometimes deliberately choose not to invest in training because they fear that a well-trained employee will leave. It’s a kind of strategic mediocrity.
Making matters worse, each state has different training and licensing regimes for water operators. There are separate licensing systems for water and sewer. There are separate licensing programs for treatment, distribution, and collection systems. Sometimes states set up reciprocal licensing agreements, but it’s a confusing and frustrating patchwork. All those rules are sand in the gears of the labor market and discourage smart, ambitious people from entering or building careers in the water sector.
Human capital investment
We need to grow the supply of human capital, and we need to streamline the labor market. So proposal number four is to invest in workforce development, and create national certification standards for operators.
This isn’t a particularly new idea—it’s a revival of an old one. Discussions of the 1972 Clean Water Act tend to focus on the pollution controls in Titles III and IV (for obvious reasons). But importantly, the Clean Water Act included a huge federal investment in research and training. In the 1960s environmental engineering was in its infancy as a field, and when Congress passed the Clean Water Act it wasn’t exactly sure how to make the nation’s waters fishable-and-swimmable.* So Uncle Sam built human capital for the water sector as it was building physical infrastructure. It’s telling that Title I of the Clean Water Act was an investment in people, and Title II was an investment in pipes.
Folks in the water sector sometimes refer to the generation of water professionals who emerged in the 1970s and 80s as the “Class of 72,” recognizing that in many ways the field of environmental engineering came of age due to that federal investment. We need a similar investment today to build the next generation of water professionals. We need careful, data-driven research on effective utility management, leadership, and organizations. We need rigorous degree and certificate programs to funnel talent into the water sector. America’s land grant universities (like Texas A&M!) are great institutional venues for these efforts, but there are other good models out there, too.
Freeing the market
Labor markets—like most other markets—work best when buyers and sellers can exchange freely. Along with investments in research and training, we need to harmonize, liberalize, and streamline licensing regimes for water and sewer operations. Instead of a crazy patchwork of training programs and licensing requirements, let’s establish national standards and a national accreditation system for both individuals and training institutions. Organizations like ANSI and AWWA have processes in place to craft water technology standards; the same model could be applied to licensing and certification. With national training and licensing standards in effect, a smart, ambitious person could enter the water sector with the prospect of building a career that could take her anywhere.
*Political scientists call that “speculative augmentation,” which is a polite way of saying “Congress has no idea what to do, so it’s going to kick the problem to experts and hope they can figure it out.” In the case of environmental regulation, it’s worked out reasonably well.
Water Sector Reform #3: Smart Systems
With a major federal investment in water infrastructure possibly on the horizon, the United States has a once-in-a-generation opportunity to leverage that money into a structural transformation of America’s water sector. This is the third in a series of five posts outlining broad proposals to rebuild the management, governance, and regulation of U.S. drinking water, sewer, and stormwater systems. The first proposed reform was consolidation of water utilities; the second was an overhaul of financial regulation for water systems.
My third proposed reform is a leap forward in water system infrastructure with comprehensive deployment of information technology to help manage systems more efficiently and effectively.
Wood, Brick, Iron
Most of America’s water systems operate 19th- and mid-20th century technology. In many ways that’s fine—if they were well-built and properly maintained, supply and distribution systems built long ago can continue to function well. Treatment techniques developed in the 1970s and 1980s still basically work (emerging contaminants notwithstanding), and environmental engineers continue to make important advances that improve human health and environmental conditions.
A downside of buried infrastructure is that it it’s often hard to know when systems are at risk of failing. For outsiders to the water sector, it can be surprising that many utility managers know very little about the condition of the systems that they run. Too many have no idea about the conditions of their systems: where the leaks are, which parts are most likely to fail, where the contamination dangers are. In a lot of places basic water sampling procedures haven’t changed much since the late 1990s or even the 1970s.
Sometimes a main break is the first time anyone is aware that there is a problem brewing. Every week or two there’s a story in a local newspaper about a utility that’s doing some maintenance and stumbles upon some relic from more than a century ago that shows just how antiquated our systems are. Old pipes lose enormous volumes of drinking water, and can cause sewage overflows during rainy weather.
Bits & bytes
Over the past twenty years we’ve seen an explosion in the information technology available to monitor water quality and infrastructure conditions in real time, and many utilities have been working hard to put new information systems in place.
SCADA* systems now allow water system operators to track and control remote facilities electronically. Remote sensing technology designed to detect water on Mars has been adapted to help satellites detect leaky water systems here on Earth. Autonomous robots from companies like Redzone** and Inuktun** can do the underground work of system inspection and repair without the cost and danger of putting operators down manholes. New sensor technology from companies like Xylem** and RealTech** allows comprehensive flow and water quality monitoring throughout an entire system, delivering real-time information about infrastructure conditions and threats to health or security. Big data analytics can be used to model and predict system disruptions and avert crises. There's a whole conference for just this stuff! I'm not an expert on these things (I'm a social scientist, for goodness sake), but these are heady days for the development of information technology in the water sector.
But uptake of advanced information technology in the water sector has been agonizingly slow. Water utilities are conservative organizations. In general risk aversion is a good thing in the water sector; we wouldn’t want riverboat gamblers operating our critical infrastructure. The reasons for slow diffusion of technology are many. One is that change is costly and risky. Another is that too many of the organizations that operate water systems lack the organizational capacity or literal bandwidth to take advantage of these technologies—systems with two operators and fewer than a thousand customers probably aren’t investing heavily in remote sensing and big data infrastructure.
Build the future, not the past
If the U.S. federal government is going to make a massive investment in the water sector†, then let’s get our systems out of the 19th and 20th centuries and into the 21st and 22nd. An infusion of federal capital should support development and deployment of smart system technology in the water sector.
*Supervisory Control And Data Acquisition
**I'm not specifically endorsing any of these companies; I don't even know anyone who works for them. I just think this kind of stuff is really cool.
†Water infrastructure remains a hot topic with ambitious politicians.
Water Sector Reform #2:
Regulatory Transparency & Fairness
With a major federal investment in water infrastructure possibly on the horizon, the United States has a once-in-a-generation opportunity to leverage that money into transformational, institutional solutions for America’s water sector. This is the second in a series of five posts outlining five broad ideas to reform the management, governance, and regulation of U.S. drinking water, sewer, and stormwater systems. The first proposed reform was consolidation of water utilities.
The second proposed reform is an overhaul of the processes and institutions that regulate water system finance using regulatory models from New Jersey and Wisconsin. The goal of this reform is not to regulate water quality directly, but rather to change the incentives for the organizations that operate water systems.
The need for regulatory reforms follow from the ownership structure of the U.S. water sector.
Another important way in which water is different from energy and other utilities is ownership. The overwhelming majority of Americans get their electricity and/or gas from a private, investor-owned firm, with small minorities receiving service from government utilities. But water is a different story: about 88% of Americans get their drinking water service from a local government, with about 12% served by private firms.
Ownership is crucial because different institutions govern private and public systems, creating different incentives for infrastructure investment.
Public Utilities Commissions
Let’s start with the private sector. The profit motive, constrained by regulation, drives management of investor-owned utilities.
Private utilities of all kinds—water, energy, telecom, whatever—are operated by corporate managers in the interests of their shareholders. But utilities are natural monopolies, and so we can’t count on free markets to guide investment and pricing. Instead, prices are not set by the companies themselves, but rather by the state Public Utilities Commissions (PUCs). The PUCs require utilities to report publicly their asset management plans and financial records in order to justify their pricing. PUC-regulated systems must also report a variety of performance data, which commissioners scrutinize to ensure that utilities are maintaining adequate service.
PUCs allow private utilities to set prices based on the amount of capital they invest in the system: the more capital invested, the more revenue they earn. That can create an incentive for private utilities to over-invest in infrastructure because those investments allow them to raise rates—a problem known as the Averch-Johnson Effect. Much of what the PUCs do is scrutinize all those investments to ensure that they’re justified and that utilities aren’t gold-plating their systems. In other words, PUCs act to prevent over-investment in utility capital.
But remember, that’s only about 12% of the water sector.
The overwhelming majority of water service is provided by local governments—usually cities, counties, towns, villages, authorities, and special districts. These systems are managed by local bureaucrats, with investment and pricing decisions made by local elected officials. For all the talk about federal funding, U.S. water infrastructure investment is mainly a function of local politics.
Local politics are unkind to water infrastructure because the price of water is much more visible than the quality of water. As in all things, people generally like high quality and low prices. Thing is, most contaminants in water are invisible. Unless my water is so bad that I can smell or taste it, unless there are frequent an ongoing outages and main breaks, I really have no idea how good my water system is. Unlike roads and bridges, water systems are literally buried.
But the price of water is easily observable. Voters may not know what contaminants are in the water, but they know for sure what they pay for it when they get the bill each month.
Now suppose I’m an elected official who wants to please my voters. If I make decisions that maintain or improve water quality, that’s good! Alas, my voters may not recognize the improvement. But quality improvement might cause prices to increase, which is bad because higher prices are immediately visible to voters.
But blame avoidance isn’t good for infrastructure investment. That’s a big part of why all those facilities built back in the 1970s and 80s are crumbling today. Back when the CWA and SDWA sent hundreds of billions of dollars to local governments, the idea was never for the US government to own and operate water systems. The goal was for Uncle Sam to help get those systems up and running in compliance with the new environmental laws. Local governments were then supposed to take over responsibility for those systems. In too many cases political forces have led local officials to run those systems to failure. Local politicians don’t neglect water infrastructure because they’re stupid; they do it because they’re responsive to voters.
Jersey to the Rescue?
In 2017 New Jersey passed the Water Quality Accountability Act (WQAA), which requires all water utilities—both government and investor-owned—to develop asset management plans, report on infrastructure conditions, and reinvest adequately in their systems. Rule-making to implement the new law is still under way, but what the WQAA requires of all water systems is similar to what PUCs already require of investor-owned utilities: transparency about infrastructure conditions, evidence that they are managing assets responsibly, and evidence of system performance.
Making all that system information transparent can make water’s quality as visible at its price. We can make water infrastructure a credit-claiming opportunity for local officials, not just a blame-avoidance game. Mayors seeking reelection should point at their cities’ water system performance with pride, not merely seek to duck responsibility for rate increases.
Meanwhile, in Madison…
A thousand miles away, Wisconsin employs a unique regulatory system that’s a perfect complement to New Jersey’s new law. All fifty states and the District of Columbia have Public Utilities Commissions, but Wisconsin is the only state where all systems—public and private—are subject to PUC financial regulation. That is, Wisconsin local governments must get approval of their rates from the PUC (or the Public Services Commission, as they call it there).
As with other utilities commissions, the traditional role of the Wisconsin PSC with respect to rates is to guard against over-pricing by private monopolies. But in the case of local government utilities, the PSC’s authority could include New Jersey-style asset management requirements and a guard against underpricing due to inadequate reinvestment. At the same time, the PSC provides something of a shield for local leaders. As a 2012 Alliance for Water Efficiency report observed:
“The Wisconsin Public Service Commission regulates both public and private water systems, and assumes the responsibility for approving all changes to water rate-making in the state. Thus, the political ‘heat’ is off at the local level and water systems can more easily approach the PSC for needed changes to their revenue structures.”
In theory, if a utility isn’t adequately investing in maintenance and upgrades, the Wisconsin PSC might actually be able to compel rate increases. (I’m not sure that’s ever actually happened).
Together, the Garden State’s new WQAA and the Badger State’s PSC authority over local governments would be a potent regulatory combination. So my second proposed reform is to require comprehensive asset management and performance reporting for all water utilities (as in New Jersey), and to extend PUC pricing regulation to government utilities (as in Wisconsin). The idea is broadly consistent with Australia’s model for urban water price regulation. As with my other proposed reforms, achieving such a significant overhaul to the nation’s regulatory institutions will require federal leverage.
The great promise of the regulatory regimes pioneered in New Jersey and Wisconsin is that transparency and fairness can make buried infrastructure more visible, and so shift the political incentives for sound management of water systems.