Rates vs. costs (March 6, 2016)

There is a small but vocal minority that attacks Liberty Apple Valley’s water rates, often comparing them to rates in neighboring areas. Apparently, it is difficult for some to grasp the concept that when you are looking at municipal utilities, rates don’t necessarily tell the whole story.

Let’s start with the case of Liberty Apple Valley, a privately-run utility. It has basically two sources of capital: Revenues from water sales, and investments (whether from cash on hand, or from a loan). Investments have to be repaid through revenues from water sales, so all operating costs, maintenance, infrastructure expansion, water purchases, loan service, etc., eventually show up on our water bills. If you think about it, it’s actually pretty straightforward: The costs of running the Liberty Apple Valley — all the costs — are reflected on our water bills.

Now let’s compare a typical municipal water utility. Infrastructure expansions may come all or in part from developers, who install infrastructure and then turn it over to the municipality for free. Of course, the developers want their money back, too, so the expense of installing that infrastructure shows up elsewhere. There are also property and other taxes, which are available to offset the actual cost of delivering water. Or the rates might be shifted to industrial users so that rates for residential users are artificially low. Even there, though, any industrial user who wants to remain in business will raise the price of his goods and services to cover the increased costs of water.

In each case, residential users (AKA voters) see a low water bill and think the municipality is some altruistic entity with a magic wand and the residents’ best interests at heart, when in fact they are paying the same or more for water. Because municipalities can spread costs across several seemingly disparate sources, it can be difficult if not impossible to determine what one is truly paying for water.

Greg Raven is Co-Chair of Apple Valley Citizens for Government Accountability, and is concerned about quality of life issues.