A five-point proposal to transform the U.S. water sector
As daunting as the challenges in the U.S. water sector are, solutions are possible and within our grasp. Thanks to legions of smart, creative scientists and engineers, we know a lot about the threats to environmental quality and health, and we’re pretty good at finding ways to address them. Today the principal barriers to progress in the water sector are not environmental or technological; they are social, economic, and political.
Fixing the water sector—really fixing the water sector—means more than government money for pipes. The crazy quilt of institutions that govern, regulate, and manage water in the United States hinders effective, lasting solutions. Fortunately, institutions are human creations, which means we can do something about them. There’s nothing wrong with water governance in America that can’t be solved.
Over the past few months I’ve written a series advancing five broad institutional reforms to the U.S. water sector that ought to accompany any big federal investment.* This post summarizes them. They’re a package deal: each reform complements the others, and each is unlikely to be successful without the others. It’s an ambitious plan, but it’s rooted in empirical research, and together the five parts are technically and politically feasible. Here they are (click each heading for the full post on each):
There are more than 50,000 community water systems and 15,000 sanitary sewer systems in the United States. Virtually every aspect of America’s water sector is worse because there are so many systems. Let’s reduce the number of water systems to fewer than 5,000 by 2030. Consolidation can happen by merging neighboring systems into a regional utility, creating new authorities or nonprofit organizations, or when an investor-owned firm purchases small systems. To make it happen:
- Federal funding for water, sewer, and stormwater systems must be contingent on small system consolidation.
- Laws governing utility mergers and acquisitions should remove barriers to and create incentives for consolidation. Consolidation laws should ensure that struggling systems are consolidated and guard against “cherry-picking.”
- All systems must be held to the same environmental standards. Exemptions and waivers for small systems should be eliminated and regulators should be empowered to force condemnation and consolidation for perennially failing systems.
- State and federal agencies should provide technical and legal assistance to facilitate the consolidation process.
Reducing the number of water and sewer utilities through consolidation is the single best thing we can do to improve water utilities in the United States.
Let’s follow regulatory regimes used in New Jersey and Wisconsin to change the incentives for utility leaders to invest in their systems adequately and manage them responsibly.
- Regulatory authorities should collect and publicly report performance metrics for each water and sewer system,
- Water, sewer, and stormwater systems must develop comprehensive asset management plans, and demonstrate that capital assets are adequately maintained.
- Public Utilities Commission pricing and service quality regulation should be extended to all utilities, not just investor-owned systems.
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 and economic incentives for sound management of water systems.
America’s water systems need a technological leap forward with comprehensive deployment of information technology. Let’s get our systems out of the 19th and 20th centuries and into the 21st and 22nd. Funding for water, sewer, and stormwater systems should support data collection and analytical capacity for more effective and efficient investment and operations.
The water sector needs a stronger supply of human capital, and we need to streamline the labor market. To that end, let’s:
- Invest in the next generation of water professionals with new and rejuvenated educational and training programs.
- Create national standards for operator licensing and certification.
- Build a body of rigorous, data-driven social science research on effective utility management, leadership, and organizations.
Let’s build environmental justice into water, sewer, and stormwater policy. Specifically:
- Federal and state authorities must establish standard metrics to assess racial, ethnic, and socioeconomic equity in environmental conditions and infrastructure investments.
- Utilities must collect and publicly report data on service shutoffs and restorations, and work toward an end to shutoffs.
- Regulators must demonstrate equity in inspections and enforcement actions.
- Eligibility for federal infrastructure funds must be contingent on utilities demonstrating equity or progress toward equity.
- Channel extra funding and technical assistance to communities that suffer from significant disparities due to historical or structural disadvantages.
The way forward
Just over a year from now Americans will head to the polls for a pivotal federal election. With water on the national political agenda in a way it hasn’t been since the 1970s, we are, perhaps, an election away from a major federal investment in infrastructure, and with it an opportunity to reimagine water governance. Let’s use that opportunity do more than rebuild pipes; let’s rebuild institutions. If we do it right, those institutions will keep the pipes working for generations to come, and our legacy will be a cleaner environment and healthier, more prosperous people.
*The five-part plan debuted in a talk I gave at as part of the University of Rhode Island’s Metcalf Institute public lecture series last summer. You can catch the whole talk here if you’re so inclined.
© 2019 Manny P. Teodoro
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.
© 2019 Manny P. Teodoro
Water Sector Reform #1: Consolidation
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 reforms to transform America’s water sector. This is the first in a series of posts outlining five broad proposed reforms.
The first is consolidation and regionalization of water utilities. This is the single most important, badly-needed reform. Without this reform, any major federal investment will be a temporary fix, and the rest of my proposed reforms probably won’t work without it. To understand why, start with a simple observation:
There are WAY too many water systems
One of the things that really surprises newcomers to the American water sector is just how many water systems there are. The energy sector provides a useful comparison. In the United States today there are about 3,200 electrical utilities and about 7,800 gas utilities. There are about 50,000 community water systems.
These systems are highly skewed in size. It turns out that 40,000 of those 50,000 are very small, serving populations fewer than 3,300. These small systems serve less than 10% of the population, but they are 80% of the total systems. A little more than half of the US population gets its water from the largest thousand utilities.
It’s difficult to overstate the effects of this extreme fragmentation. Virtually every aspect of America’s water sector is worse because there are so many tiny systems that lack the capacity to operate effectively.
Small systems, big problems
America’s water problems aren’t only in small systems, but there’s no question that small water systems are disproportionately plagued by poor water quality. Here’s the relationship between system size and violations of the Safe Drinking Water Act’s heath standards:
As you can see, violations are strongly related to system size. In small systems it’s not uncommon for utilities to have multiple violations, year in and year out. This graph is from my own analysis w/David Switzer, but study after study after study after study after study finds this same relationship. Here’s the same plot for sewer treatment plants and NPDES permit noncompliance the Clean Water Act:
High prices, too
Adding insult to injury, water is also more expensive in small systems. Small systems pay more for capital, they have fewer customers to share the fixed costs, and they’re more vulnerable to revenue fluctuations, which limits their flexibility in rate design. Here’s the relationship between the price of basic monthly water and sewer service for a family of four (about 6,000 gallons a month) measured in hours of labor at minimum wage.*
Water and sewer services are most expensive in small systems, and get cheaper as systems grow. So with both quality and price, there’s strong evidence that there are huge economies of scale to the water sector. These economies of scale are well-understood.
Regulatory economies of scale
But there’s another, less obvious and more pernicious problem with all these small systems: all that fragmentation creates practical problems for regulators. Every one of those 50,000 systems has to be managed, monitored, and regulated by the EPA, in conjunction with more than a hundred state, territorial, and tribal bureaucracies. 50,000 systems means 50,000 sites to visit, 50,000 files to keep current, and 50,000 records to report. State regulatory offices don’t have legions of workers—let alone the information systems—to handle all that work.
A well-kept secret of the water sector is that small systems are held to much lower standards than larger systems. It’s not just that enforcement is lax with small systems; the agencies that regulate water actually have different enforcement guidelines for small systems, with less stringent standards.
The good intention that paved the way to this particular hell is the recognition that small systems often lack the organizational capacity to comply with the rules. Water regulations are unfunded mandates. So rather than continuously slamming small systems for their violations, regulators move the goalposts, or simply look the other way when violations occur. So the correlation we see between size and SDWA and CWA violations actually grossly understates the real relationship between scale and water quality. Intentionally lax enforcement consigns people served by small systems—often poorer, rural populations—to heightened health risks and poor environmental quality.
Shrink by Growing
These problems are widely recognized. Sure, there are some excellent small systems, and small system operators often achieve remarkable things with limited resources. But the data are clear, and the stakes are high. The common sense solution is to reduce the number of systems through consolidation: shrink the number of systems by growing utility organizations.
Consolidation can happen when multiple systems merge, a bigger utility takes over a smaller one, or when an investor-owned firm buys up small systems. The right consolidation approach will vary from one place to another; we ought to be agnostic with respect to the institutional form. Physically integrated utility systems are best where possible, but small systems can be folded into larger organizations even when they’re physically separate. That is, multiple small systems can be operated by a single organization. Several government and investor-owned utilities already operate under this model.
But it’s hard. Consolidation efforts often face fierce political resistance, either from communities who fear losing control or from staff who fear losing jobs. Sometimes it’s difficult to find larger utilities willing to take on the responsibility for a small, failing systems. Consolidation is controversial in the water sector; in certain circles “consolidation” is a dirty word. I’ve heard privately from multiple regulatory officials that they desperately want consolidation, but are afraid even to utter the word “consolidation” in public. Sometimes it’s just hard to navigate the legal and financial complexities of consolidation. Consolidation has been agonizingly slow in Connecticut; four years after passing a law to promote small system consolidation in California, little has happened.
Tastier carrots, bigger sticks
Shrinking the number of systems is the single best thing we can do to improve water infrastructure in America. So my first proposal is to reduce the number of water systems by an order of magnitude—to something like 5,000-10,000 utilities—by 2030. As is often the case in public life, moral appeal and clear empirical evidence have been insufficient to overcome the political barriers to consolidation. That’s where federal leverage can make a difference.
Federal funding for local water, sewer, and stormwater systems must be contingent on consolidation. Let’s spend money to fix failing systems, but only if the fixes put them on a path to self-sufficiency. Low-interest loan programs probably aren’t sufficient to induce consolidation; hundreds of billions in federal grants would be a whole lot more appealing. For small systems, federal grants must be awarded only with consolidation. For larger systems, federal grants should be awarded only to utilities that agree to takeover nearby or adjacent smaller systems. Consolidation can be technically, legally, and financially complicated, so federal funding should also provide technical assistance to support the process.
A key corollary to that federal largesse is a levelling of the regulatory playing field. There must have one rulebook: all water and sewer systems must be held to the same standards. No more loosening the rules for small systems because they lack the organizational capacity to comply with environmental regulations. If systems lack the capacity to comply with the rules, then regulators should be empowered to force consolidation for systems that fail perennially.
Next time I’ll turn to the second major proposal: a change in regulatory transparency aimed at changing the local politics of water infrastructure.
*You can see a bunch more analysis of affordability here.
© 2019 Manny P. Teodoro