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Subsidized or subsidizing? Municipal drinking water service funds in California

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  • Pierce, Gregory
  • McBride, Justin
  • Adams, Jacqueline

Abstract

In the longstanding debate over efficiency and effectiveness in drinking water provision between public versus privately governed systems, one of the main contention points is the reasons for different bill levels imposed by city-run as compared to privately owned water systems. In this study, we examine one potential explanation for disparities in bills: whether cities use their general funds to subsidize their drinking water fund operations or vice versa. Either practice goes against “user pays” principles, as pointed out by critics of municipal operation. However, the claims have not been tested empirically at scale. We extract and analyze city water enterprise fund financial data from the California State Controller Cities Raw Data of Financial Transaction Reports to empirically assess the extent to which and reasons why interfund transfers occur in California's 267 municipally owned water utilities. We find very little evidence that substantial interfund transfers, in either direction, occur between water enterprise funds and general funds within California cities, indicating that enterprise fund control measures are generally successful. These findings suggest that with proper regulation, the municipal fund subsidy debate is essentially a distraction from the real reasons why municipal and other water provider rates differ substantially.

Suggested Citation

  • Pierce, Gregory & McBride, Justin & Adams, Jacqueline, 2022. "Subsidized or subsidizing? Municipal drinking water service funds in California," Utilities Policy, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:juipol:v:79:y:2022:i:c:s0957178722000984
    DOI: 10.1016/j.jup.2022.101434
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    References listed on IDEAS

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    1. Pierce, Gregory & Chow, Nicholas & DeShazo, J.R., 2020. "The case for state-level drinking water affordability programs: Conceptual and empirical evidence from California," Utilities Policy, Elsevier, vol. 63(C).
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    3. Onda, Kyle S. & Tewari, Meenu, 2021. "Water systems in California: Ownership, geography, and affordability," Utilities Policy, Elsevier, vol. 72(C).
    4. Theodoros Arapis, 2013. "Enterprise fund transfers and their impact on governmental spending and revenue patterns of georgia municipalities," Journal of Public Budgeting, Accounting & Financial Management, Emerald Group Publishing Limited, vol. 25(3), pages 446-473, March.
    5. Beard, Victoria A. & Mitlin, Diana, 2021. "Water access in global South cities: The challenges of intermittency and affordability," World Development, Elsevier, vol. 147(C).
    6. Janice A. Beecher, 2020. "Policy Note: A Universal Equity–Efficiency Model for Pricing Water," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(03), pages 1-29, July.
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