By David Zetland, who worked on water policy for 10+ years and is an assistant professor of economics at Leiden University College in the Netherlands. Originally published at Aquanomics
Let me solve this “puzzle.”
First, there’s no point in making water cheap to help poor people. Cheap water will not make them rich. If you want to help poor people, then give them money.
Second, water utilities are neither charities nor social innovators. Their job is to deliver safe and adequate quantities of water at prices that cover their costs of operations, maintenance and expansion. Utilities that are underfunded (like those in India that lose money on every cubic meter delivered) cannot provide good service.* Utilities that are asked to take care of poor people (like those in England where the government is too stingy to help poor people [pdf]) lose track of their primary mission (good service) as they struggle to identify who is “poor”.**
Third, any politician who claims that water needs to be cheap to help poor people is a lying, lazy incompetent. It’s the politician’s job to tax the rich to help the poor, but US politicians work for the rich. Sad.
Bottom line: Water utilities need money to operate and deliver safe, adequate water to customers who should pay for it. If those customers are too poor, then the government should give them money, not undermine utility finances with counterproductive “affordable water” mandates.
*FYI, I pay about €50 ($60) per month for water, sewer and water security (protecting Amsterdam, and thus my house, from flooding). I provide this figure NOT to show how it’s less than my TV bill (I don’t have a TV) or mobile phone bill (that’s €25/month), but to show how world-class service can be quite cheap. Why is that? Dutch professionals are pro-active and their utilities compete to provide the best value for money, so they avoid many mistakes common in under-funded locations.
** According to Donoso (2017), the government of Chile pays for some share of the cost of water in poorer households, i.e.:
Affordability criteria are met by the provision of subsidies directly to the most vulnerable house- holds. Households are classified based on an annual survey (Encuesta Casen) which estimates household per capita income. In order to qualify for the subsidy, households must not have payment arrears with the service provider. The central government transfers the block subsidy to the municipalities; the latter uses this to pay a share of each of the eligible household’s water bill. The subsidy considers a payment share from 15 to 85% of the water bill, with the poorest families getting the highest share, and covers water consumption up to 15 m3. The WSS providers bill the benefiting households for the consumption cost not covered by the subsidy, but indicate the full consumption cost, and then charge the municipality for the subsidies granted. The advantage of this subsidy scheme is that it does not distort price signals.