Hosed? Inequality, Redistribution, and the Political Economy of Water Prices

• In Event: Water Politics and Governance

Abstract

This paper argues that, insofar as water is a basic necessity of human life and water prices are set by governments, the politics of municipal water pricing in the United States may be understood as a form of redistributive politics.

Water utilities provide an essential service, and their prices can have a profound impact on human health and well-being. The COVID-19 pandemic and accompanying economic recession brought the issue of water pricing and affordability into sharp relief, as millions of Americans who struggled to pay their utility bills faced serious health risks from loss of water service for sanitation. More than 85 percent of Americans receive their drinking water utility service from local government, and so water pricing is a function of local politics. As government enterprises, municipal water utilities are supposed to generate revenue necessary to cover costs, not to generate profits. However, local government officials may structure prices in near-infinite ways that make them more progressive or regressive, and past research has demonstrated that local political institutions significantly shape water price progressivity (Mullin 2008; Teodoro 2010; Gurung & Martinez-Espineira 2019; Switzer 2020).

Casting water prices as a form of taxation, we argue that democratic political institutions respond to median voter preferences by setting water prices more or less progressively. To that end, we apply the Meltzer-Richard (1981) model, the canonical theory of redistribution in comparative political economy, to municipal water pricing in the United States. According to the Melzer-Richard model, the median voter’s preference for income redistribution increases as income inequality increases. Applied to water pricing, a simple hypothesis follows: as local income inequality increase, municipal water service prices become more progressive. However, this correlation is not expected to emerge among private, investor-owned utilities because their managers have little incentive to appeal to local median voters.

To evaluate these expectations, we analyze water pricing across hundreds of American local government water utilities. Using water price data, we calculate rate progressivity using Switzer’s (2019) regression-based progressivity score and a new metric: the Amy Poehler Index (the unit cost of profligate water consumption relative to conservative water consumption). We merge price progressivity information with data from a variety of sources to evaluate the correlation between price progressivity and local income inequality, controlling for a host of environmental and demographic variables. Initial analysis yields results consistent with our expectations: water prices are more progressive as income inequality increases for local government utilities. Importantly, we also find no significant relationship between income inequality and price progressivity for private, investor-owned utilities.

Our findings highlight the importance of understanding government enterprising pricing as a form of taxation, and joins a growing body of research demonstrating the applicability of comparative political economy models to local government. Moreover, our results carry important implication for affordability and equity in water service pricing.

Authors

• David Switzer, University of Missouri

• Manny P. Teodoro, University of Wisconsin