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Letter


An Open Letter to the Ohio House of Representatives: Protect Taxpayers on Local Infrastructure Projects, Pass House Bill 417!

April 1, 2014

Dear Representative:

On behalf of National Taxpayers Union’s (NTU’s) 362,000 members, nearly 13,500 of whom reside in Ohio, I urge you and your colleagues to vote "YES" on House Bill 417. This legislation, sponsored by Representative Andy Thompson and cosponsored by nine other Members of the House, would help to uphold the vital pro-taxpayer principle of open competition in water and wastewater infrastructure initiatives. The bill would ensure that “all proven and acceptable piping materials” that meet the standards of the American Society for Testing and Materials or the American Water Works Association be included in localities’ bidding processes for such projects. HB 417 would also stipulate that when selecting such materials for these undertakings, their quality, sustainability, durability, and corrosion resistance shall be taken into account.

As you may know, NTU’s members believe that the nation’s considerable challenges for replacing, renovating, and financing infrastructure of all kinds must be met in a fiscally responsible manner. One way to achieve this end is through greater private-sector involvement. According to calculations from Harris Kenny of the Reason Foundation, the combined 2012 renewal rate of private contracts for water and wastewater services by local governments (whether re-approving the incumbent or awarding to a new bidder) was nearly 90 percent.

Yet, it is clear that many infrastructure projects will continue to involve significant, direct investments from taxpayers. Given the fact that the estimated average replacement value of the entire water network in the U.S. could amount to trillions of dollars, the need for other approaches to delivering good value for citizens remains paramount. For example, in April of 2013 NTU commissioned a report entitled Reforming Our Nation’s Approach to the Infrastructure Crisis: How Competition, Oversight, and Innovation Can Lower Water and Sewer Rates in the U.S. Gregory Baird, President of the Water Finance Research Foundation (WFRF), examined for NTU the challenges of decaying water and wastewater systems in the U.S., and determined that impediments to change are more fiscal and political in nature than they are technical.

It is well known that corrosion is the main factor in deteriorating metallic pipes such as cast and ductile iron, boosting long-term replacement costs to a trillion dollars or more. Drawing upon established industry standards and research from prestigious institutions, WFRF developed a methodology incorporating pipe diameters, water main breakage/decay tests, pressure specifications, and other variables to estimate potential savings by allowing materials such as PVC pipes to be considered in the water delivery process. Among the study’s findings:

  • A nationwide switch from cast iron and ductile iron pipes to PVC, given open procurement and cost justification analysis, could benefit water ratepayers and taxpayers in the average total amount of $371 billion, or 17.4 percent of the total replacement value of U.S. underground water pipe infrastructure. About one-fourth of these savings would occur over an initial, approximate 25-year time span.
  • However, population growth will drive the need for new underground infrastructure, not just replacement. If these pipes were also subjected to rigorous open procurement and cost justification analysis across the country, an average total of $139.6 billion in savings could be realized through the year 2050.

Thus, individual states and cities, many of which do not allow open procurement policies, could reap large benefits from such reform. One prominent example exists in one of Ohio’s neighbors – Indianapolis was a leader among major U.S. cities in adopting proactive water and wastewater infrastructure management techniques that stressed reviewing all the alternatives for replacement. According to a 2012 assessment from Mayor Gregory Ballard, the use of “non-corrosive material is critical to keeping long-term maintenance costs down and minimizing capital replacement budgets.” He reported, for instance, that PVC pipes experienced 2.5 times fewer breaks than traditional pipes. HB 417 could help to deliver such techniques to more areas of Ohio.

In the course of your deliberations, you may hear concerns about local sovereignty and control over infrastructure decision-making. This is indeed an important factor; innovation and accountability can often best be achieved at the level of government closest to the people themselves. Yet, it is equally apparent that these two qualities can be stifled, even among localities, without a framework that can guide them and encourage them. Furthermore, as long as state taxpayer funds (through grants, loans, and other programs) are to be made available to municipalities, it is perfectly reasonable for (indeed, incumbent upon) Members of the House to establish the oversight structures and guidelines within which local innovation can incubate. While care must be taken to avoid regulatory impulses that restrict localities’ freedom to experiment or that add to compliance expenses, this body can and should offer positive leadership that will protect taxpayers and ratepayers from subpar infrastructure asset management in their communities. Finally, given that state-level spending in Ohio has risen an astounding 41.7 percent between 2001-2011 (after inflation and population), plus the state suffers under the most complex municipal income tax system in the country, the urgency of providing more cost-effective government at any level in Ohio has never been greater. HB 417 is one excellent way of doing so.

To be clear, various industries and utilities are likely to argue over the merits of HB 417, but as the NTU-WFRF study notes, such objections miss the point: reforms such as open procurement practices and life-cycle cost analysis methods allow that very kind of debate to occur in a rational way, without bias toward one method or material. Our interest is not in steering procurement toward particular outcomes, but in ensuring that the process itself allows for efficient decisions that are appropriate for each community’s taxpayers. As Baird wrote, “The issue at hand is not really the selection of one pipe over another, but the ability for a utility to take advantage of all materials, processes, technologies, and products that create the most cost-effective solution while meeting sustainable performance levels.” In any case, other stakeholders, including the Mayors Water Council of the U.S. Conference of Mayors, have spoken out for competitive procurement of underground infrastructure, improving the prospects for overhauling current, flawed practices.

NTU is committed to helping citizens and elected officials reach a mutually productive consensus on the need for better stewardship, oversight, and allocation of the public’s resources toward all manner of infrastructure, including the areas of water and wastewater. Our members would applaud your forceful, speedy action on HB 417, and will actively engage in ushering its enactment into law.

Sincerely,

Pete
Pete Sepp
Executive Vice President