What Are We Doing?

Hidden costs, revisited (May 13, 2017)

My position is and always has been that there are additional water delivery costs for municipal water systems, compared to the bill you get from Liberty, which shows all costs.

When discussing this issue with others, though, I have run into some interesting responses. One gentleman started off essentially denying the existence of hidden costs, saying that just comparing bills was enough. After I pointed out the error of his thinking, he then acknowledged there were hidden costs in the form of connection fees, but those did not matter because of some sophistry about home valuations. When I tried to point out that paying thousands more for something that could be free means you are indeed paying more, he then acknowledged that the connection fees mattered, but only to the original purchaser. When I destroyed this specious argument, he then acknowledged that the connection fee represented an asset that is attached to the property. In short, he acknowledged that virtually all of my main points were correct, yet maintained that somehow I am wrong, and that I must stop insisting that the factual points I have brought up matter because he has a different opinion.

So let’s go at this a different way.

Let’s compare the total costs of water delivery between a municipal water system with non-refunded connection fees and Liberty Utilities, which has a refundable connection fee. I’m going to use round numbers for the sake of making the math easy.

Municipal system

$10,000 up-front connection fee
$25 per month water bill

Basic costs for water delivery (see below for additional costs):

1st year: $10,300
2nd year: $10,600
3rd year: $10,900 etc.

Liberty Utilities

$75 refundable up-front connection fee deposit
$50 per month water bill

Total costs for water delivery:

1st year: $600
2nd year: $1,200
3rd year: $1,800 etc.

At the time of sale, in each example above, the seller must get the cost of the home plus the cost of the water connection. In the case of the Liberty Utilities home, there is no up-front cost of the water connection, so the sales price equals the value of the home — including the free water connection.

In the case of the municipal example, the cost of the home must include at least some amortized portion of the up-front water connection charges, lest the seller lose money. The sales price equals the value of the home plus some complex calculation of the amortized up-front connection fee.

Even at that, the seller of the home on the municipal water system has either to eat the increased mortgage costs, interest paid on the up-front connection fee that appeared on his mortgage, property taxes on the home (which is increased by the amount of the up-front connection fee, increased insurance payments due to the artificial value of the home created by the up-front water connection fee, etc. None of these costs is shown in the "Municipal system" costs above.

Also, look at what happens if either house is left vacant for some period of time. With Liberty Utilities, I’m guessing you can cancel your water service and pay nothing while the house is awaiting its next occupant. With a house on a municipal water system, someone somewhere has to continue paying the up-front connection costs on the mortgage (etc.), even if the water is turned off.

This is why I say there are hidden costs to water delivery with a municipal water system. With Liberty Utilities, what you see is what you get: True transparency.

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