Public vs private

“Public vs private”, Carmel Pine Cone – Oct. 13, 2023

Cal Am takeover advocate Dave Stoldt, general manager of the Monterey Peninsula Water Management Board, claims that having government run the water system will result in lower prices. He’s wrong.

The value of an asset is based on the stream of cash flows from that asset. These cash flows are the revenue minus the cost. If the water district must pay that value, then it has to charge essentially the same prices that the private owner would have charged.

Proponents of a takeover might argue that the government won’t have to pay the value of the asset: using eminent domain, it can pay less. But if the government uses eminent domain, Cal-Am will certainly fight it.

Who will win? Past history suggests that Cal-Am has a high probability of winning. In June 2017, Cal Am hired water attorney Joe Conner to give a presentation on eminent domain for water systems. It was so eye-opening that I asked for his slides. They show that in many, many cases the amount granted at trial substantially exceeded the amount offered by the local government. In, Ojai, California, for example, the government valued a water company at $23.7 million. The final price? $34.5 million, over 45% more.

You might say, “Ok, the government might have to pay much more than the previously rejected $448.8 million, but the government will run it more efficiently.” Surely, you jest. Dozens of studies have found that private for-profit companies achieve their results with lower costs. A for-profit firm has an incentive to make a profit and that means watching costs. Government has no such incentive. Also, a government-run facility might pay more expensive pensions. Especially in California, where pensions for government employees are through the roof, that’s a serious concern.

There are only two other ways a government-run water company could cut prices. The first is to defer needed maintenance. The second is to have the local government tax people more to subsidize water rates. The problems with both should be obvious.

David R. Henderson, Pacific Grove