Americans have, by and large, rejected the socialist model of economics and for good reason. Socialism has failed to deliver almost everywhere applied. That said, in some specific sectors, Americans have in some cases preferred to allow government to take a lead.
This makes sense in some areas. Law enforcement, for example, in West Virginia used to be a private sector enterprise in some localities. West Virginia history notes the Baldwin and Felts Detective Agency, for example, as the villains of the Mine Wars era. They emerged as such after some towns hired them to perform law enforcement functions from keeping order to investigating serious crimes.
Their role in the events leading up to the Matewan Massacre shows why that did not work out.
A large number of West Virginia residents rely on public water and sewer systems and this is also, in many areas, not working out. Problems have piled up because of the nature of, as Karl Marx would put it, the government “owning the means of production.”
The Polish academic Bartomliej Kaminski identified the key flaw in a Socialist or Communist economic system. He stated that these systems fail because the operators make economic decisions for political reasons. When this happens, failure almost always follows because even in a Socialist or Communist system, resources are still limited and decisions on allocation must be made to ensure the best possible set of outcomes.
Now consider a municipal town council operating water and sewer systems. When customers pay their water and sewer bills, the money should go back into the system for operational and normal maintenance costs. As the system operates now, when major expenses such as damage or failure of major equipment, long stretches of pipe, or the need for an extension, these entities must go to the state or federal government with hands extended, begging for help.
A number of town systems across the state also serve as the primary source for surrounding public service districts in the same county.
Many of these towns, and also PSDs, do operate with fiscal discipline. They raise rates when needed and make good decisions on how to use funding. Most of the time, these are the systems that have few to no problems. Others do not use good fiscal discipline and in many of those cases customers end up suffering as a result.
This article is not meant to bury the systems that have done the right thing, especially with American Rescue Plan Act funding. Many used ARPA funds responsibly, only for one-time expenses instead of expanding staff or recurring expenses. Others raised rates as time passed to keep up with costs, regardless of public outcry.
Such entities deserve praise because the temptation to both spend money irresponsibly and to also not raise rates on cash-strapped friends and neighbors is profound.
Town councils are more subject to pressure than PSD boards because they are elected and not appointed. Being elected officials subjects them to concerns and pressures related to that role. Some may fear losing the next election if they vote responsibly and keep rates rising incrementally. PSD board members are separated from local government and can make decisions without concern over the next election.
And also, some PSDs do a better job than others at maintaining fiscal discipline. Even that gets more difficult as time goes on, costs rise, and the number of rate payers declines without system extension.
People elected to town councils or chosen for PSD boards are just as concerned about their fellow residents as anyone. That is very important to remember.
It is a good thing to be kind, but sometimes hard decisions are required. Over time, the costs of operating and maintaining water and sewer service go up.
If funding does not rise with inflation, maintenance gets deferred. Problems build up. Failures start to happen.
And the people are left with poor service and nowhere to turn.
These bodies have the essential job of voting to raise water and sewer rates when the cost of running and maintaining the service rises. That said, they are usually also kind people who are sensitive to the needs of their friends and neighbors. They don’t want to see people on fixed incomes or the single parent working two jobs to get by to endure more burdens.
In many localities, rates remained unchanged, funds to run the systems diminished relative to costs, and then the “bill” arrived for payment in unclean water, sewer line breaks, or other issues.
Some have proposed that West Virginia – American Water Company take over a number of these municipal and public service district entities. This would put the system under private control, but closely supervised by the West Virginia Public Service Commission. Placing these systems under a company offers the advantage of taking decision-making pressure off of impoverished communities. This option also puts deep pockets of accountability behind effective operation. If the water and sewer systems operating under such a company fail, lawsuits will provide compensation to communities and customers.
It is easier to get tens of millions from a major company than from a Town water operating system when failures occur and people suffer as a result. That said, drawbacks exist as well.
Calhoun County Commission President Eric Lupardus last summer addressed that proposal in an official meeting and rejected it for that locality. His reasoning was logical in that he feared that a rural and remote county and its residents would get left behind if absorbed into a major corporation. Also, West Virginians once had faith that Frontier would provide excellent statewide service in internet, too.
Sparsely populated areas pose an opportunity cost for a for profit corporation in that they can earn more in densely settled areas due to less overall cost per customer. The temptation would be to leave rural customers waiting while cities got attention.
Those are reasonable worries and most residents likely agreed that would not represent a good solution or outcome for the county.
That said, to put local water and sewer systems on more secure ground, decisions to raise rates cannot be left in the hands of elected officials or the same problems will continue to pop up.
Another solution could lie in the West Virginia State Legislature passing a mandatory incremental increase in local public water and sewer rates to match the increase in inflation across the board.
That solution would address the problem of delayed rate hikes, but there is another issue here as well. A balkanized system of dozens of local government entities operating more or less independently puts them at a significant disadvantage in economies of scale. Larger organizations can absorb and spread rising costs more broadly across the system. Rates would not have to rise as quickly in such a situation for water and sewer. Also, larger entities have better capacity to obtain grant funding because of the “more bang for the buck” idea.
While that would seem to make the argument for consolidation under West Virginia – American Water, another option is possible under the free market system of economics. Remember, free market does not always mean just for profit. It includes non profit cooperatives as well when that makes the most economic sense to both producers and customers.
Another option could lie in looking at the model of companies such as Hardy Telecommunications, Shentel, or Spruce Knob-Seneca Rocks Telecommunications.
These companies date back to the 1930s at the very beginning of the extension of rural telephone service. Rural communities in the Shenandoah Valley of Virginia (remote in the 1920s and 30s), Hardy County, and Pendleton County formed non profit cooperatives that function as private companies.
The fact that they have to overcome the challenges of extending service in rural and mountainous areas prevents them from being able to operate on a for profit model. Several years ago, the West Virginia State Legislature expanded the number of counties allowed to operate this model from eight to 55.
Another similar model is seen in poultry production cooperatives that came into existence to provide alternatives to growers that help them compete for better compensation for their hard work. They came in response to a buyer enjoying near-monopoly conditions who could set prices lower because it had no competition.
West Virginia could look at the formation of county or even regional water and sewer cooperatives that separate decision-making from elected officials and merge town and PSD entities into a single cooperative. They could follow the telecommunications cooperatives as a model for corporate structure and business strategy.
Like PSDs, they have boards of directors and executive directors who make major decisions, again under the supervision of the PSC. The value here lies in moving the decision-making process away from those who are negatively incentivized by kindness or political fears into not raising water and sewer rates when needed. Additionally, private companies have the ability to go after operating capital with much more flexibility than simply putting in a request to a government board and waiting.
This should be pursued first, as they say “west of the mountain” because resources there are much more limited. East of the Allegheny Front, West Virginia counties have enjoyed special access to federal funding through the Chesapeake Bay Foundation. Most have used funding from here, USDA, and other sources to build out the most modernized sewer systems, many with double membrane filtration that leaves water running into streams from wastewater plants cleaner than at intake.
Moorefield, for example, has a system capable of serving the population of Charleston that uses this modern technology. That is due to the tremendous water and sewer needs of one of the largest chicken processing complexes anywhere.
The problem of deteriorating systems is real and will keep getting worse. A great deal of infrastructure came into being during the works programs of the Great Depression. Older towns and cities decades ago absorbed ramshackle, crazy-quilt private systems into what they built and in some cases no one knows the exact form of the current network. Companies such as Thrasher and entities like West Virginia Rural Water have been very helpful in mapping out these underground mazes.
That said, money alone will not solve the problem. Getting the government out of water and sewer will provide a more stable and secure system over the long-term.
This also serves as an example of why government is incapable of providing good service consistently, because it is quite bad at allocating resources in the most logical and efficient ways. Logic and efficiency will not provide everyone with the perfect outcome every time, but it will provide the best results in the largest number of cases.
Operating systems in rural and sparsely populated areas bring very slender margins. Pipes and other equipment cost the same regardless of whether customers are 100 feet or 10 miles apart. Public school systems and broadband expansion meet the same barriers in such places. There is a base cost to the system that has to be met. A for profit corporation will not be able to fulfill its function of earning revenues on that basis and the model of direct ownership by the government incurs the problems inherent to Socialism. That leaves the best remaining model as the cooperative. The PSDs are close to that model now, but their small size in many areas means that economies of scale work against them.
Stepping back to look at the broader issue, Socialism does not work because it expects a mule to be a horse. It expects a slow moving, sometimes dimwitted, often stubborn animal to be fast moving and dynamic. It assumes the mule is superior because it is a mule, not because the mule has even one time proven itself in a horse’s role.
Mules are mules and have a specific purpose that they perform well so long as they stay in their roles. Expecting a mule to be a horse is failure waiting to happen. Similarly, one cannot ever rely on government to perform optimally when providing goods and services because, alas, government is the mule of the metaphor.
All that said, over the next several years as the tidal wave of government revenues from the construction of data centers in West Virginia starts to wash ashore in every county in the Mountain State, the temptation will be to fund the systems in place rather than pursue pathways of reform. Local governments will enjoy more revenue, or even direct help when hosting the facilities, from companies building them.
For every 1 GW of data center capacity built in West Virginia, House Bill 2014 directs approximately $33,000 into the coffers of every county commission. For rural counties in need, that is real money that will accumulate quickly as the state hosts more such facilities. Even counties that passed resolutions against data centers who have populations largely against them will receive the largesse because those are nonbinding statements, not ordinances with force of law.
It should be considered to use those incoming funds to create better systems with stronger foundations because there is no need in a community more foundational than water and sewer.
