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Protect Taxpayers on State and Local Infrastructure Projects

by Pete Sepp / /


Dear Chairman Forrester and Members of the LCI Public Utilities Subcommittee:

On behalf of National Taxpayers Union’s (NTU’s) members in South Carolina and across the nation, I urge you to vote “Yes” on H.3652. This legislation would help to uphold the vital pro-taxpayer principle of open competition in water infrastructure initiatives. The bill would require that procurement processes for state and local public works projects of these types in South Carolina be drafted in a manner which considers all piping materials that meet current and recognized standards.

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 numerous 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 released 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.

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 reforms. The savings are not hypothetical. For example, 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 Indianapolis 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. Michigan’s recent experience is likewise instructive, where lack of competition for pipe materials in Flint was one factor in that city’s policy choices. On the other hand, a neighboring city, Burton, modernized its procurement laws several years ago and is currently replacing its piping at a savings to taxpayers so far of $2.2 million compared to the next-lowest bidder.

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. Finally, as the opening paragraph of this letter mentioned, H.3652’s language has taken great pains to avoid regulatory impulses that restrict localities’ freedom to experiment, that add to compliance expenses, or that might seek to override sound engineering judgment “on the ground”. In short, H. 3652offers balanced, positive leadership, that will protect taxpayers and ratepayers from subpar infrastructure asset management in their communities.

Various industries and utilities are likely to argue over the merits of this bill, 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 Mr. 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, storm water, and wastewater. Our members would applaud passage of H.3652, and hope you will work to protect them by voting “Yes” to refer the bill to the full LCI Committee.

Sincerely,

Pete Sepp
President