The Economic Consequences of Contested Government Takeovers of Investor-Owned Water Utilities (January 31, 2017)
Regardless of the type of owner, water utilities have to pay similar operating expenses, payroll taxes, and infrastructure investment to continue operating […]
[…] [A] change in the ratemaking treatment of capital expenses due to takeover will not result in savings for ratepayers, unless the government owner reduces annual investment in the water system.
[…] The report’s key findings are:
- Government ownership of the Montara and Felton systems has failed to deliver the rate benefits promised to customers.
- Change of ownership, from investor to government entity, places immediate and substantial financial burdens on customers and taxpayers for which there is no compensating benefit.
- Advocates of government takeovers typically identify the elimination ofprofitsand taxes as two sources of financial benefits from a change in ownership. There is no sound basis in accounting or economics to support the expectation of real benefits to ratepayers, in the form of lower bills, from the elimination of these sources.
- Local governments and advocates of government takeovers tend to underestimate acquisition costs by more than 100 percent.
- Contested takeover efforts have proven to be very costly to government entities. The costs incurred to support eminent domain litigation and to finance an acquisition are a significant economic burden on ratepayers and taxpayers, in addition to the cost of the water system, for which there is no compensating benefit.
The results of this report illustrate that contested takeovers are very costly for the acquiring government entity, and that advocates of contested takeovers tend to significantly overstate the economic benefits of government ownership. […]