Cost Accounting in Local Government

We do not have a Water Crisis

Yes, we have a drought and it critical that we do something about it. But, we need to do something smart and the criminalization of water waste by the California State Water Resources Control Board (SWRCB) is just plain dumb.

In our system of capitalism, which no one except SWRCB suggests abandoning, the marketplace determines the price of a product. I might think my product is worth $1,000 and set that as a price. But, if customers are only willing to pay $500, I will be producing a product that sits in my store unsold. Likewise, if I price my product at $10 but people are willing to pay much more than $10, I will have a run on my store and I will be unable to keep my product in stock. The marketplace is very efficient in giving us feedback on the value of products – a properly priced product will be purchased by those willing to pay the price and there is no shortage. What I just said is obvious and some of you will be irritated that I said something so obvious. Well, if you’re irritated, you should be writing the SWRCB because they are apparently oblivious to these facts. If I price my product too cheap and people throw it away because it is so cheap, does that mean I should fine them for wasting my product?

Case in point:

  • My City water bill was $60 last month. At that price I consumed 17,635 gallons of water or 587 gallons per day or over 24 gallons per hour.
  • During the same period, I could have purchased 24 bottles of Fiji Water with 16.9 oz. each on Amazon and with free Amazon Prime shipping, it would have cost $33.93. In other words, for $33.93, I could get a teeny more than 3 and 1/6th gallons.
  • If my City water was priced the same as Fiji Water, I would have had a City water bill of $188,830 or over 3,000 times more than my present water bill. Fiji Water may be good but is it 3,000 times better? City water is so cheap that we don’t even want to drink it! Maybe if it cost more, we would appreciate it more and waste it less.

Raising the price of water does not hurt poor people and people on fixed income. They don’t have the money to waste so they are not wasting water on expansive landscaping, swimming pools and hosing down cars and driveways. There is a lot of water conservation that can be achieved by raising the price of water before anyone is hurt.

“Water conservation would occur naturally if water was properly priced to reflect its growing scarcity.”

In 1991 the League of California Cities’ Committee on 21, issued a report titled “Market-Based Pricing.” Norm King, who I had known from his Claremont days, was a lead author. I suggest you all get that pamphlet and read it as it is just as relevant today as it was in 1991. Pleading with the Public to do the “right” thing and conserve water doesn’t seem compelling to the Public when water is so cheap.  Isn’t using the marketplace so much more efficient than creating Water Police? And, by the way, is the SWRCB going to reimburse cities for enforcing the new water regulations?

To rephrase the title, we do not have a water crisis, we have a water pricing problem.  Let’s stick with capitalism and not embrace authoritarianism.

(It is suggested that the reader also refer to the July, 2009, blog article, “The Downside of Water Conservation” which addresses some of the unintended consequences of lower water consumption.)

 

Comments are currently closed.