Capital Investment and Privatization

Abstract

Water and wastewater infrastructure (W&WI) in the United States is in need of immediate capital investments. Support from the federal government has declined significantly in the past two decades, forcing state and local governments to contribute a larger share. With increased decentralization of infrastructure decision making, public opinion is playing an ever greater role. Questions on capital investment, privatization, and concern for W&WI were part of a national omnibus survey of 1,000 respondents in the United States conducted in 2012. Demographic variables explained a small part of the variation in responses but were inconsistently significant across the issues, except for party affiliation, which was a significant explanatory variable for all the three issues. Stated preferences through public opinion surveys, coupled with revealed preferences, can provide policymakers a broad understanding of public support for various W&WI policy alternatives. An informed electorate and a responsive government can together address complex challenges facing the water and wastewater sector in the country.

Keywords

water and wastewater infrastructure capital investment privatization financing public opinion

Introduction

Infrastructure in the United States is aging. When the I-35 Mississippi River Bridge in Minneapolis, Minnesota, collapsed on August 1, 2007, killing 13 people, it renewed the national conversation on the state of infrastructure in the country (Pagano & Perry, 2008; Saulny & Steinhauer, 2007). There had been earlier instances when policy discussions about the state of our roads, dams, bridges, water systems, and electricity network were undertaken at the national level. The Y2K bug, 9/11 attacks, 2003 blackout, and Hurricane Katrina had raised warning signs prior to this event (Amin, 2003; Ezell, Farr, & Wiese, 2000; Gilbert et al., 2003; Leavitt & Kiefer, 2006). Subsequently, the American Society of Civil Engineers (ASCE) released its report on the state of U.S. infrastructure in 2009, giving out grades for aviation, bridges, dams, drinking water, energy, hazardous waste, inland waterways, levees, public parks, rail, roads, schools, solid waste, transit, and wastewater (ASCE, 2009). Drinking water, inland waterways, levees, roads, and wastewater infrastructure were the worst performers, receiving a D-grade.¹ According to the USEPA’s drinking water and clean water needs surveys, US$335 and US$298 billion will be needed in capital improvements over the next 20 years to ensure safe drinking water and clean rivers in the nation (USEPA, 2008, 2009). We focus here on the state of water and wastewater infrastructure (W&WI) in the United States and public opinion on a few key issues associated with this topic.

W&WI Infrastructure

Although the groundwork for drinking W&WI investment and construction in the United States was laid in the early 1900s, W&WI greatly expanded during the 1970s with the creation of the Environmental Protection Agency and the passage of the Clean Water Act in 1972. The federal government provided capital improvement grants (later converted to a loan program) to state and local governments for construction and improvement of W&WI. When the program began in 1972, the cost sharing between federal, state, and local governments was 6:1:1. The Drinking Water State Revolving Fund (SRF) and Clean Water SRF were created by the U.S. Congress in 1987 and have been the primary form of federal contribution toward financing W&WI since then. Starting with US$2,361 million in 1987, the USEPA funding for Drinking Water and Clean Water SRF has stayed around US$2,500 million² until 2012 in nominal terms, which means the real value of this funding has continued to decline over the years; all the while needs have increased year-on-year (Copeland, 2012). Over the same time period, some states have seen a nearly 70% reduction in the Clean Water SRF. For example, New York received US$227 million in 1991 for the Clean Water SRF program, which had reduced to US$75.1 million in 2008 (New York State Department of Environmental Conservation [NYSDEC], 2008). During the period 2003-2007, state and local investment in water and wastewater utilities increased by 3% annually while federal expenditure declined by 13% (Congressional Budget Office, 2010).

According to local government officials, ratepayers pay about 90% of the capital costs for W&WI—through direct local financing and repayment of SRF loans (Copeland & Tiemann, 2010). However, small- and medium-sized utilities rely much more on federal funding, so reduction in the funding amounts affects those systems the most.³ The increased decentralization of W&WI funding decisions has meant more local interest in projects supported by these funds and the need to incorporate local public opinion in the decision making. At present, water and wastewater utilities largely rely on state revolving funds and municipal general obligation (GO) or revenue bonds to finance capital investments (Black & Veatch, 2012). Even though revenue bonds are more expensive debt instruments than GO bonds, they have fewer restrictions and are, therefore, preferred by utilities (Howell-Moroney & Hall, 2011). Because revenue bonds are backed by user fees, as opposed to GO bonds that are backed by taxes, the cost of debt is ultimately reflected in the rates. Utilities are considering public-private partnerships and alternative rate structures for raising capital in the upcoming years, according to a survey of water utilities (Black & Veatch, 2012). The survey identified aging W&WI as the most important issue facing the industry, followed by managing capital costs and funding or availability of capital.

Much of the drinking water treatment and distribution system in the United States is publicly owned and operated. This fact has a lot to do with the nature of the water supply market in the 19th century, when most residents were served by private water companies. These companies, however, had poor maintenance records and were unable to equitably provide water to all customers. As a result, municipalities started taking control of these services by the end of the 19th century (Glennon, 2005).⁴ As of 2006, 91% of the total drinking water produced in the United States was owned by public providers (USEPA, 2006). Wastewater as a necessary infrastructure was widely introduced much later in the early 20th century and is thus largely owned and operated by public utilities. The only major exceptions are onsite treatment systems owned by individual homeowners that serve roughly 25% of the U.S. households (USEPA, 2013).

However, several factors have driven the growing privatization of the water and wastewater sector since the past two decades. One of the most prominent is the inability of municipalities to finance the capital investments needed to maintain and upgrade existing W&WI. Less than 4% of the 52,000 water systems in the United States are large enough to issue their own bonds to raise capital (Johnson Foundation, 2012). Neoliberal policies, distilled into a set of policy prescriptions as the Washington Consensus (Williamson, 1990) and applied to “water and sustainable development” in the Dublin Principles (1992), formalized the notion of water as an economic good and portrayed privatization as the best way to provide effective and cost-efficient services. Similarly, in the United States, the Reagan administration’s New Federalist policies during the 1980s to decentralize and/or reduce nondefense spending by the federal government signaled the ascendance of an ideology favoring a smaller government role in providing basic services (Gerlak, 2006; Huque & Watton, 2010; Lester, 1986). These several parallel agendas accelerated the privatization of water and wastewater services.

Public Opinion

The role of public opinion in shaping infrastructure decisions has evolved. According to Coutard (1999), infrastructure was typically viewed in the national political discourse in an apolitical context or as a backdrop to urban politics, with the decision making largely in the hands of engineers and technocrats. That began to change with reforms in the utility sector during the early 1990s. McFarlane and Rutherford (2008) have argued that the “development of urban infrastructure is always a highly political process” (p. 366). Theoretical and empirical evidence further suggests that “distributive politics” is an inherent element of the workings of democracies that, not incidentally, leads to underinvestment in public investment goods (Leblanc, Snyder, & Tripathi, 2000).

In a study of public infrastructure spending across the 48 contiguous states in the United States, political factors such as gubernatorial term limits, uncertainty of party control in state legislatures, and increased volatility of the electorate were associated with higher public capital stocks and flow of new public investments (Crain & Oakley, 1995). More recently, “bricks and mortar” issues have replaced taxes and services as the focal point of local elections” (McManus, 2004, p. 1). In her study of the 2001 municipal elections in Florida, McManus (2004) found that the defeat of incumbents was tied to their positions and decisions on infrastructure issues. A postelection analysis of the 2010 House elections concluded that a “yea” vote on the American Recovery and Reinvestment Act of 2009 (popularly called the stimulus bill), which was focused on short-term infrastructure spending and was one among the four highly controversial legislative pieces in the 111th Congress, likely contributed to the Democratic losses⁵ in the midterm poll (McGhee, 2010).

Public opinion on infrastructure and government involvement, like any other topic, is malleable, responsive to events, and subject to issue framing. Essential infrastructure such as roads, water, and electricity has become so central to our lives that it is synonymous with modern living (Kaufman & Snape, 1997). Not much thought is given to its functioning, financing, and operation as long as it doesn’t affect the daily life of the average citizen. “Public works do not become issues until they do not [work]” (Felbinger, 1992, p. 33). Jacoby (2000) presents data from a national election study showing the negative public reaction toward the government when presented in broad terms but a positive reaction when a specific issue frame is presented that connects government policy to its beneficiaries.

In this article, we bring together the topics of W&WI and public opinion, specifically as they relate to three themes—infrastructure financing, privatization, and the level of concern toward the state of W&WI. We present the results of a national public opinion poll and place it in the context of the current state of W&WI in the United States. Even as the issue of infrastructure decay and investments has received substantial attention in the recent past, including several mentions by President Obama in stump speeches (Runningen, 2011) and official addresses (Politico Staff, 2013; USA Today, 2012), credible public polling on this issue has been sparse. A transportation infrastructure survey conducted by Rockefeller Foundation reported widespread support for improving the national infrastructure (Hart Research Associates/Public Opinion Strategies [HRA/POS], 2011). The questionnaire, however, did not mention W&WI in any of the questions. Other polls narrowly focused on water and wastewater industry experts and did not include the broader population (Black & Veatch, 2012; WeiserMazars, 2012). A set of polls conducted by a water industry group included poorly worded questions,⁶ undermining the reliability of the results (ITT Xylem, 2010; Xylem, 2012).

Method

We asked three questions related to W&WI in an omnibus telephone survey⁷ of U.S. households as part of the Cornell National Social Survey (2012) conducted by Cornell University’s Survey Research Institute. We addressed three themes relevant to W&WI through these questions—infrastructure financing, privatization, and the level of concern toward the state of W&WI. The survey was conducted from July 29 to December 2, 2012, using the Random Digit Dial method, and yielded 1000 responses (AAPOR Response Rate 4: 18.0%). The text of the questions is provided in the appendix. Table 1 shows the makeup of the survey sample and a comparison with the national population (U.S. Census Bureau, 2011). Despite the inclusion of cell phones, the sample is more White, slightly older, wealthier, and more highly educated as compared with the overall population.

Table 1.

Demographic Distribution of the Survey Sample and the Population.

Characteristic	Survey sample (%)	Population^a (%)
Race
White	83.0	78.1
Black	11.0	13.1
Other	9.5	8.7
Female	51.2	50.8
Age
18-44	41.0	48.0
45-64	41.6	34.7
65 and above	17.5	17.1
Homeownership rate	71.7	66.1
Annual household income
Below US$50,000	37.4	50.0
Foreign-born	9.6	12.8
Education (persons of age 25+)
High school or higher	96.3	85.4
Bachelor’s degree or higher	47.2	28.2
Party identification^b
Democrat	30.2	32
Independent	40.4	38
Republican	27.4	28

Population demographic distribution obtained from the U.S. Census Bureau (2011).

Party identification for the general population calculated as the average from Gallup surveys conducted between July 29 and December 3, 2012 (Gallup, 2013).

The questions on infrastructure financing and privatization used categorical responses; hence, multinomial logistic regression was used to calculate odds ratios (OR) for the various demographic groups. The question on the level of concern used an ordered response (7-point Likert-type) scale. The concern for W&WI was modeled as a continuous response in a linear regression and dichotomized in a logistic regression. Independent variables included sex, marital status, age, race, party affiliation, ideology, location, income, education, homeownership, residence tenure, and Census region. Of the demographic characteristics, only age and residence tenure were continuous variables, the rest were either categorical or binary. For each of the analyses, three models are shown, with each one successively adding more explanatory variables. Akaike Information Criterion (AIC) was used to determine the best fit for each of the dependent variables analyzed using logistic regression. The final model (3), which had the best fit for the data,⁸ will be used for the purposes of discussion; however, the preliminary models (1) and (2) will be referenced, wherever appropriate.

Results and Discussion

Funding Source for Capital Investment

Respondents were given four choices of possible sources for funding large capital investments in W&WI in the future and asked to specify their preferred source. Three of the sources were government entities—federal, state, and local government—while the fourth option was “private corporation.” A plurality of respondent-preferred funding for W&WI projects come from local governments over state and federal governments (Table 2). Private corporations were the least preferred for making capital improvements in W&WI. Even though trust in government has been declining for the past three decades (Tolbert & Mossberger, 2006), local governments have enjoyed higher levels of trust as compared with other levels of government (Kelly & Swindell, 2002). Preference for local autonomy is deeply embedded in the American culture (Basolo, 2003), as it provides more effective influence on policies that affect the local residents (Hamilton, 2000). Ironically, in the case of water and sewer, this preference for decentralized decision making may have been promoted by the federal government, which decided to provide infrastructure grants (and later loans) to local governments. The federal funding enabled small suburban communities to provide essential services that may have been financially prohibitive otherwise (Wacquant, 1995).

Table 2.

Respondent Preferences for the Source of Funding for Water and Wastewater Infrastructure (W&WI) Projects.

Source of funding	Respondents (%)
Federal government	18.3
State government	28.2
Local government	40.0
Private corporation	13.6

Note. Number of respondents N = 926. Respondents (%) total exceeds 100.0 because of rounding.

Results of the multinomial logistic regression (federal government was the reference) confirm the expected strong preference for local government by Republicans (OR = 2.31, p = .002), while Democrats (OR = 0.59, p = .017), Democrats + leaners⁹ (OR = 0.39, p < .000), and those with only up to a high school education (OR = 0.54, p = .030) are less likely to prefer local government as a funding source for W&WI improvements (Table 3). Private corporations are favored over the federal government by Republicans (OR = 2.86, p = .001) including Republicans + leaners (OR = 2.65, p = .015), married (OR = 2.44, p = .021), younger respondents (OR = 1.02, p = .048), and those with longer residence tenure (OR = 1.03, p = .072). Higher income earners (OR = 2.01, p = .030), Republicans (OR = 1.95, p = .022) and Republicans + leaners (OR = 1.95, p = .048), and respondents with longer residence tenure (OR = 1.03, p = .031) prefer the state government over federal government. Sex, homeownership, and Census region were not significant explanatory variables.

Table 3.

Preference of Institution for Making Capital Investments in W&WI.

	Prelim (1)			Prelim (2)			Final (3)
Demographic characteristic	State	Local	Private	State	Local	Private	State	Local	Private
Sex
Male	—	—	—	—	—	—	—	—	—
Female	1.14 (.235)	.96 (.190)	1.04 (.263)	1.15 (.238)	.98 (.192)	1.05 (.266)	1.25 (.269)	1.07 (.220)	1.03 (.272)
Marital Status
Married	—	—	—	—	—	—	—	—	—
Single	0.80 (.207)	0.63* (.158)	0.46** (.154)	0.84 (.219)	0.65* (.164)	0.48 (.159)	1.01 (.299)	0.84 (.237)	0.41** (.158)
Age	1.01 (.007)	1.02** (.007)	0.99 (.009)	1.01 (.007)	1.01** (.007)	0.99 (.009)	1.00 (.008)	1.01 (.008)	0.98** (.011)
Race
White							1.09 (.301)	1.44 (.391)	0.64 (.215)
Other	—	—	—	—	—	—	—	—	—
Party
Indep	—	—	—	—	—	—	—	—	—
Dem	.87 (.199)	.59** (.131)	.73 (.219)
Rep	1.95** (.572)	2.31*** (.633)	2.86*** (.948)
Strictly indep	—	—	—	—	—	—	—	—	—
Dem + lean				0.90 (.250)	0.48*** (.122)	0.72 (.251)	0.71 (.209)	0.39*** (.105)	0.64 (.235)
Rep + lean				2.24** (.709)	1.69* (.491)	2.45 (.912)	1.95** (.655)	1.38 (.426)	2.65** (1.056)
Location
Rural	—	—	—	—	—	—	—	—	—
Urban	1.60 (.476)	1.73* (.491)	1.41 (.505)	1.63* (.486)	1.77** (.505)	1.41 (.507)	1.44 (.445)	1.61 (.478)	1.25 (.465)
Suburban	1.00 (.241)	1.09 (.248)	0.88 (.257)	1.01 (.244)	1.12 (.257)	0.88 (.260)	0.91 (.235)	0.99 (.243)	0.75 (.235)
Income
<US$30,000	—	—	—	—	—	—	—	—	—
US$30,000-US$50,000							1.74 (.608)	1.22 (.399)	1.08 (.436)
>US$50,000							2.01** (.648)	1.54 (.462)	0.84 (.315)
Education
Upto HS							0.53** (.158)	0.54** (.152)	0.68 (.243)
Some college							0.91 (.234)	0.81 (.202)	0.80 (.259)
Bachelors and above	—	—	—	—	—	—	—	—	—
Homeownership							0.91 (.256)	1.13 (.306)	1.06 (.377)
Residence tenure							1.03** (.012)	1.02 (.012)	1.03* (.015)
Census region
Northeast							0.93 (.277)	0.83 (.243)	0.69 (.255)
Midwest	—	—	—	—	—	—	—	—	—
South							1.06 (.298)	1.37 (.368)	0.73 (.248)
West							1.37 (.483)	1.72 (.582)	1.09 (.461)
Constant	.92 (.424)	1.01 (.440)	1.07 (.604)	0.84 (.412)	1.22 (.564)	1.11 (.661)	0.55 (.383)	0.73 (.484)	3.47 (2.927)
Pseudo R²	.028			.031			.053
Chi-square (Prob)	62.02 (.000)			68.38 (.000)			114.15 (.000)
n	855			855			831
Log likelihood	−1,081.49			−1,078.31			−1,020.26
AIC	2,210.97			2,204.61			2,148.52

Note. Base option: Federal government. Multinomial logistic regression: parameter estimates are Odds Ratios (standard errors in parenthesis). AIC = Akaike Information Criterion.

p <.1, **p <.05, ***p <.01

The only demographic group that has strong preferences regarding the W&WI funding agency is the Republicans. Their preference for private corporations in the survey exceeds that for local and state governments, all of which are significantly preferred over federal actions. A desire to shrink the size of the federal government and a preference for private businesses in delivering public services are key components of the modern Republican Party economic platform. Democrats, on the other hand, are less specific in their choice of W&WI funding agency, expressing only a negative preference toward local governments.

In the absence of robust federal support for W&WI over the past decades, state governments have stepped up their support through grants/loans, bonds, taxes and other means, though they have been unable to close the funding gap. Since 2001, 25 statewide ballot initiatives have been introduced across 11 states to finance W&WI with an overwhelming degree of success (Table 4). Maine has used ballot initiatives to raise capital for W&WI financing the most times in this period, though some larger states have raised a much greater amount through single initiatives. Of the 25 initiatives, 12 were placed on the ballot by Democratic governors, 10 by Republican governors, and the rest by Independent governors, demonstrating cross-party support for W&WI financing at the state level. The list of ballot initiatives was compiled from the Initiative & Referendum Institute’s Ballotwatch (IRI, 2013) and the National Conference of State Legislatures’ ballot measures database (NCSL, 2013) and does not include local initiatives or those statewide measures where funding W&WI was not an explicit objective. Of the proposed measures to finance W&WI infrastructure, some of the most prominent options include large federal investments through the creation of a national infrastructure bank and a water infrastructure finance and innovation authority,¹⁰ increased public–private partnerships, and lifting the state volume caps on private activity bonds in water and wastewater projects to spur private investment (Shandling, 2012). The results from the survey and ballot initiatives imply that there is scope for an active role by governments at all levels in financing W&WI.

Table 4.

Statewide Ballot Measures on W&WI Financing Put to Vote (2001-2012).

State	Year	Ballot measure	Purpose of the ballot measure^a	Amount (in US$ million)	Approved (Y/N)	Vote (%) in favor
Arkansas	2008	Q 1: Arkansas Water, Waste Disposal, and Pollution Abatement Facilities Financing Act of 2007	Finance the development of water, waste disposal, water pollution control, abatement and prevention, drainage, irrigation, flood control, and wetlands and aquatic resources projects	300	Y	65
California	2002	Prop 40: Bond Measure: California Clean Water, Clean Air, Safe Neighborhood Parks, and Coastal Protection Act of 2002	Protect rivers, lakes, and streams to improve water quality and ensure clean drinking water; to protect beaches and coastal areas threatened by pollution	2,600	Y	57
	2003	Prop 53: Infrastructure: Finance, Legislative Constitutional Amendment	Establish the Twenty-First Century Infrastructure Investment Fund to finance infrastructure projects related to transportation, education, natural resource preservation, parks, and water	—	N	36
	2006	Prop 84: Water Quality, Safety and Supply, Flood Control, Natural Resource Protection, Park Improvements, Bonds, Initiative Statute	Fund projects relating to safe drinking water, water quality and supply, flood control, waterway and natural resource protection, water pollution and contamination control, state and local park improvements, public access to natural resources, and water conservation efforts.	5,388	Y	54
	2010^b	Prop 18: Safe, Clean, and Reliable Drinking Water Supply Act	Funding for drought relief, improvements to wastewater treatment and safe drinking water SRF, water storage, groundwater protection, recycling and advanced treatment technologies	11,000	Withdrawn
Colorado	2003	Ref A: Revenue Bonds for Water Projects	Finance public and private water projects	2,000	N	40
Maine	2001	Q 5: Do you favor a US$17 million bond issue for public health, water, and environmental improvements?	Construct and upgrade drinking water and wastewater treatment plants, receive federal matching funds, replace failing septic systems	17	Y	65
	2002	Q 2: Bond Issue: Environmental Bonds	Construct and upgrade drinking water and wastewater treatment plants, receive federal matching funds, replace failing septic systems, and maintain dams	24.1	Y	57
	2003	Q 4: Environmental Bonds	Construct and upgrade drinking water and wastewater treatment plants, leverage matching federal funds, and replace failing septic systems	6.95	Y	59
	2005	Q 3: Bond Issue: Agriculture and the Environment	Funding for water resources and irrigation systems development, leverage matching federal funds for wastewater SRF, and improvements to public water systems	8.9	Y	58
	2007	Q 2: Bond Issue: Water	Support drinking water programs and construction of wastewater treatment facilities	18.3	Y	64
	2008	Bond Issue: Bonds for Water Projects	Support drinking water programs and construction of wastewater treatment facilities	3.4	Y	50.3
	2010	Q 5: Bond Issue: Water	Support drinking water programs, construction of wastewater treatment facilities, and leverage matching federal funds	10.25	Y	56
	2012	Q 5: Bond Issue: Drinking Water Systems and Wastewater Treatment Facilities	Fund drinking water and wastewater SRF, leverage matching federal funds	7.9	Y	63
Michigan	2002	Proposal 02-2: Bonds for Sewage Treatment Works, Storm Water, and Water Pollution Projects	Finance wastewater treatment, storm water, and other pollution prevention projects	1,000	Y	60
New Jersey	2003	Public Q 3: Dam, Lake, Stream, Flood Control, Water Resources, and Wastewater Treatment Bond Issue	Restore and repair dams, dredging and restoration of lakes and streams, finance flood control, water resources and wastewater treatment projects	200	Y	59
New Mexico	2002	Bond Q E: Water Project Bonds	Capital expenditure for purchasing water rights and initiating water resources projects	13.1	Y	55
New Mexico	2006	Const Amd 3: Water Trust Fund	Create a water trust fund to support critically needed projects that preserve and protect the state’s water supply	—	Y	66
Oklahoma	2012	State Q 764: Water Infrastructure Credit Enhancement Reserve Fund	Create a reserve fund for water resource and wastewater treatment projects	300	Y	57
Pennsylvania	2008	Bond Q: Water and Sewer Improvements Bond Referendum	Provide grants and loans to municipalities and public utilities for construction, improvement, and expansion of drinking water, storm water, and wastewater treatment projects	400	Y	62
Rhode Island	2004	Q 7: Emergency Water Interconnect Bonds	Provide matching grants to local water suppliers for emergency preparedness, preserve the state’s water rights to two Mass. reservoirs	10	Y	68
Rhode Island	2012	Q 5: Clean Water Finance Agency Bonds	Fund drinking water and wastewater SRF, leverage matching federal funds	20	Y	74
Texas	2001	Amd 19: Providing for the issuance of additional general obligation bonds by the Texas Water Development Board	Fund water infrastructure	2,000	Y	64
	2007	Prop 16: Sewer and Water Supply Bonds	Fund water and wastewater projects in economically distressed areas	250	Y	61
	2011	Prop 2 (SJR 4): Providing for the Issuance of Additional General Obligation Bonds by the Texas Water Development Board	Loans for water supply, water quality enhancement, wastewater treatment, flood control, and municipal solid waste	6,000	Y	52

Source: Initiative and Referendum Institute (IRI, 2013) and National Conference of State Legislatures (NCSL, 2013).

Text of the ballot measure has been edited in many instances for brevity.

California’s 2010 ballot measure was withdrawn by the state legislature before Election Day and placed back on the ballot for the 2012 elections. The legislature again withdrew the measure citing lack of support, and it is now expected to go on the ballot during the 2014 elections (Ballotpedia, 2013).

Who Should Manage the Water and Wastewater Operations?

Respondents were asked to indicate who is best suited to manage W&WI: (i) private corporations, (ii) public water and sewer boards, or (iii) both are equally suited. A plurality of the respondents (44%) felt that public and private entities were equally suited to manage W&WI such as treatment plants. The remaining respondents preferred public water and sewer boards (38%) over private corporations (18%). Given the predominance of the respondents selecting “equally suited,” further research is needed to distinguish how they sort into the categories of truly indifferent (impartial or do not care), ambivalent (there is some good and bad to both), and inexperienced/unaware to have formulated an opinion about these options. Market research shows that consumers who are unsure and do not have strong preferences pick the “middle” option (Kamenica, 2008). It is useful to note here, from the demographic breakdown of the responses, that “less-educated” respondents preferred the equally suited option. Except in few jurisdictions, Americans do not have an extensive experience with privatization of water and wastewater services, even though 12 publicly traded private water companies currently operate in 42 U.S. states (Cotta, 2012). A useful area of further research beyond the scope of this project would be to study whether increased familiarity with water privatization leads to a favorable preference toward such arrangements. Barring a few major debacles such as the one in Jefferson County, Alabama,¹¹ where a risky portfolio of revenue bonds intended to finance the repair and expansion of the county wastewater system led to a debt crisis (Howell-Moroney & Hall, 2011), public utilities have done a respectable job of providing water and wastewater services to their constituents (Means, Ospina, & Patrick, 2005).

Results of the multinomial logistic regression, in which the reference was option (iii)—private and public providers are equally suited for managing W&WI—are presented in Table 5. The results split the respondents along clear ideological lines—private providers were less likely to be preferred by Democrats (OR = 0.37, p = .002), but strongly preferred by Republicans (OR = 1.85, p = .010) over independents. Conversely, compared with independents, Republicans were less likely to support public water and sewer boards (OR = 0.67, p = .055). Respondents from the Northeast (OR = 0.59, p = .041) were less likely to prefer public management of W&WI compared with their counterparts in the West, as were high-income earners (OR = 0.62, p = .045). The only groups to prefer the reference option over the solely private and public options were women (OR = 0.50, p = .001 and OR = 0.76, p = .077, respectively) and less-educated respondents (OR = 0.45, p = .010 and OR = 0.51, p = .002, respectively). Conversely, older respondents were marginally more likely to prefer the solely public (OR = 1.02, p = .011) and private (OR = 1.01, p = .094) options over the reference option in the reduced model (1). Marital status, race, location, homeownership, and tenure were not significant explanatory variables. Party affiliation and ideology [as seen in model (2)] seem to be strong drivers of preference toward public or private management of W&WI. This result is similar to the preferences expressed for W&WI funding agency. In addition, a regional effect was noticed in the responses. Respondents from the West were likely to prefer public management, as compared with those from other regions.¹² One of the explanations could be the historically larger government involvement in water issues in the West through the Bureau of Reclamation. The other possibility is the lack of experience with private water corporations in the West. Of the eight states that are not served by any publicly traded private water corporations (Cotta, 2012), five are in the West.

Table 5.

Preference for Private and Public Water and Wastewater Service Providers.

	Prelim (1)		Prelim (2)		Final (3)
Demographic characteristic	Private	Public	Private	Public	Private	Public
Sex
Male	—	—	—	—	—	—
Female	.52*** (.109)	.76* (.118)	.60** (.122)	.73** (.114)	.50*** (.108)	.76* (.119)
Marital status
Married	—	—	—	—	—	—
Single	1.07 (.310)	1.11 (.233)	1.20 (.330)	1.03 (.217)	1.15 (.361)	1.17 (.267)
Age	1.01* (.008)	1.02** (.006)	1.01 (.008)	1.01** (.006)	1.01 (.008)	1.02 (.006)
Race
White					0.82 (.257)	0.96 (.206)
Other	—	—	—	—	—	—
Party
Indep	—	—	—	—	—	—
Dem	0.39*** (.122)	1.14 (.201)			0.37** (.117)	1.09 (.198)
Rep	1.75** (.403)	0.66** (.134)			1.85* (.441)	0.67* (.139)
Ideology
Moderate	—	—	—	—	—	—
Liberal			0.65 (.195)	1.79*** (.329)
Conservative			1.94*** (.439)	0.67** (.129)
Location
Rural	—	—	—	—	—	—
Urban					1.20 (.355)	0.94 (.203)
Suburban					1.18 (.301)	1.10 (.209)
Income
<US$30,000	—	—	—	—	—	—
US$30,000-US$50,000	1.19 (.454)	1.03 (.263)	1.55 (.584)	0.86 (.219)	0.97 (.375)	0.87 (.229)
>US$50,000	1.34 (.425)	0.80 (.171)	1.66 (.540)	0.67* (.144)	0.95 (.328)	0.62** (.147)
Education
Upto HS					.45** (.140)	.51** (.111)
Some college					.82 (.207)	.95 (.178)
Bachelors and above
Homeownership					1.12 (.331)	1.07 (.229)
Residence tenure	0.99 (.011)	0.99 (.008)	0.99 (.010)	1.01 (.008)	0.99 (.011)	1.00 (.008)
Census region
Northeast					1.07 (.380)	0.59** (.151)
Midwest					0.82 (.297)	0.73 (.178)
South					1.42 (.464)	0.70* (.131)
West	—	—	—	—	—	—
Constant	0.23*** (.125)	0.58 (.222)	0.16*** (.084)	0.62 (.238)	0.35 (.256)	1.06 (.546)
Pseudo R²	0.044		0.053		0.059
Chi-sq (prob)	74.6 (.000)		93.46 (.000)		100.30 (.000)
N	840		860		835
Log likelihood	−820.25		−837.34		−803.11
AIC	1,675.50		1,710.69		1,678.21

Note. Base option: Both are equally acceptable. Multinomial logistic regression: Parameter estimates are Odds Ratios (standard errors in parenthesis). AIC = Akaike Information Criterion.

p <.1, **p <.05, ***p <.01.

The fiscal situation in many municipalities has forced communities across the United States to look at alternative ways of financing W&WI. Although discussed very broadly in this article, privatization is an all-encompassing term that may include outsourcing, concession, public-private partnership (PPP), or divestiture. A meta-analysis of econometric studies examining privatization of water services found no reduction in production costs as an outcome of privatization (Bel, Fageda, & Warner, 2010). In fact, switching from private contracting to public management (insourcing or reverse contracting) seems to be as common as outsourcing, and is driven by lack of cost savings and challenges of monitoring the private operations (Warner & Hefetz, 2012). Private and public management of services can lead to benefits and limitations on different fronts. Unlike public utilities, private corporations are not restricted to any specific jurisdictions, and thus may be able to provide services to multiple municipalities at lower costs using economies of scale. However, the capital-intensive nature of water services leads to a natural monopoly—public or private—which could result in a rent-seeking behavior by the utility (Warner, 2008). Keeping essential services in the public domain allows residents to air grievances and provide more direct feedback to the management.

Because our survey responses are national in scope, we are unable to correlate opinion by respondents’ location with any localized municipal experience, private management, or otherwise. In any event, ideological and political preferences of the residents could very well dictate the reception given to a privatization proposal and later experiences of dealing with the utility. Because local conditions vary across municipalities, our general results do not indicate whether a particular community’s preferences are more likely to be associated with either a solely public or private option, or a combination of the two.

Level of Concern

Respondents were asked to indicate their level of concern toward the W&WI in their community on a 7-point Likert-type scale, where 1 meant not concerned at all and 7 meant very concerned. The result was fairly evenly distributed, with a slight skew toward the “not concerned” end of the scale (Figure 1). In the past few years, reports on the deteriorating state of W&WI across the country have been issued by various agencies ranging from AARP (Walters, 2011), to the Congressional Research Service (Copeland & Tiemann, 2010), to various industry groups and think-tanks (AWWA, 2012; Miller, Costa, & Cooper, 2012). However, public opinion on this topic has been sparsely measured. The little evidence available is conflicting. Gallup reported historic lows in the level of concern about “pollution of drinking water” (Jones, 2012), while a much publicized national survey conducted by a water industry group found high level of concern when respondents were asked a question similar to ours on a 4-point scale¹³—74% of the respondents indicated concern for the state of W&WI (ITT Xylem, 2010), a result not observed in our survey.

Figure 1.

Concern for the state of W&WI.

Linear and binary logistic regressions results are presented in Table 6. A binary logistic regression was deemed appropriate due to the near equal split when responses 1 to 3 were grouped as “low concern” and responses 4 through 7 as “high concern” (see Figure 1). The linear and the equivalent binary logistic models are in agreement, suggesting that the differences in the response across the scale are not particularly significant. Suburban (OR = 1.57, p = .007), single (OR = 1.53, p = .039), and older (OR = 1.01, p = .010) respondents are more concerned about W&WI, whereas Republicans (OR = 0.68, p = .027) and White (OR = 0.54, p = .002) respondents are less concerned. Sex, income, education, homeownership, and tenure were not significant explanatory variables.

Table 6.

Concern for W&WI in the Community.

	Linear			Binary logistic
Demographic characteristic	Prelim (1)	Prelim (2)	Final (3)	Prelim (1)	Prelim (2)	Final (3)
Sex
Male	—	—	—	—	—	—
Female		−.087 (.147)	−.060 (.151)		.87 (.119)	.88 (.125)
Marital status
Married	—	—	—	—	—	—
Single	.519** (.204)	.427** (.209)	.438** (.223)	1.65*** (.308)	1.59** (.310)	1.53** (.314)
Age	.014*** (.005)	.016*** (.005)	.016*** (.006)	1.02*** (.004)	1.02*** (.005)	1.01*** (.006)
Race
White		−.970*** (.219)	−.861*** (.227)		.48*** (.094)	.54*** (.108)
Other	—	—	—	—	—	—
Party
Indep	—	—	—	—	—	—
Dem			−.039 (.186)			1.03 (.173)
Rep			−.434** (.182)			.68*** (.119)
Ideology
Moderate	—	—	—	—	—	—
Liberal		.022 (.183)			.86 (.145)
Conservative		−.262 (.175)			.70** (.116)
Location
Rural	—	—	—	—	—	—
Urban	.231 (.206)	.169 (.207)	.189 (.213)	1.27 (.230)	1.23 (.234)	1.31 (.253)
Suburban	.369** (.171)	.329 (.175)	.331* (.181)	1.53*** (.236)	1.50** (.242)	1.57*** (.263)
Income
<US$30,000	—	—	—	—	—	—
US$30,000-US$50,000			.118 (.265)			1.07 (.252)
>US$50,000			−.169 (.226)			.85 (.175)
Education
Upto HS	.242 (.187)			1.22 (.207)
Some college	.215 (.175)			1.04 (.161)
Bachelors and above	—	—	—	—	—	—
Homeownership	−.039 (.187)	.052 (.192)	.173 (.209)	1.03 (.173)	1.15 (.203)	1.26 (.241)
Residence tenure			−.003 (.008)			1.00 (.007)
Constant	2.419*** (.329)	3.362*** (.411)	3.402*** (.456)	.30*** (.091)	.62 (.221)	.60 (.246)
R²	.019	.048	.053
Pseudo R²				.016	0.035	0.037
F-stat (prob)	2.62 (.011)	4.90 (.000)	4.13 (.000)
Chi-sq (prob)				21.62 (.003)	44.42 (.000)	44.30 (.000)
n	956	911	873	956	911	873
Log likelihood				−651.83	−609.22	−582.92
AIC				1319.67	1238.44	1193.99

Note. Base option for binary regression: Low concern. Linear {(1), (2), and (3)} and binary logistic {(4), (5), and (6)} regression: Parameter estimates are linear coefficients (robust SE in parenthesis) and Odds Ratios (SE in parenthesis), respectively. AIC = Akaike Information Criterion.

p <.1, **p <.05, ***p <.01.

A cross-comparison of the responses to the three survey items shows that respondents who expressed higher levels of concern about the state of W&WI preferred capital investments from federal government (M = 4.16, SD = 2.26), private corporations (M = 3.82, SD = 2.35), state governments (M = 3.55, SD = 2.22), and local governments (M = 3.24, SD = 2.17), in that order. Similarly, higher concern was associated with a preference for public management (M = 3.71, SD = 2.24) over private management (M = 3.31, SD = 2.13). Except for the treatment plants, much of the W&WI is subsurface and suffers from the “out of sight, out of mind” syndrome. A water main break, boil water advisory, and a sewage spill are some of the few instances when public concern for W&WI is evident. Large urban areas, which were settled before the suburbs, contain older infrastructure in need of repairs and upgrade. The higher concern expressed by suburban respondents was not expected a priori. Urban concern was high but not statistically significant from that expressed by rural respondents. This is a somewhat curious result, because suburban and older respondents are typically thought to be more likely White and Republican. This result is either a manifestation of a demographic shift in the suburban population (McKee & Shaw, 2003) or more specifically tied to suburban water issues. Water and wastewater services in the suburban areas cost more per lot when compared with urban areas due to the need to extend pipes and collection systems (Speir & Stephenson, 2007). Larger plot sizes and irrigation of lawns can also contribute to higher water bills for the suburban residents, which could explain the higher suburban concern. Another possibility is that the suburban sample includes some residents who rely on wells and septic systems for their water and wastewater needs and who are more aware of water management issues.

To compare these scores across metropolitan areas comprising of urban and suburban residents, the individual scores for level of concern were aggregated by metropolitan areas and paired up with other datasets (see Supplementary Table S1 at http://pwm.sagepub.com/supplement). In 2009, the Gallup-Healthways Well-Being Index surveyed individuals in metropolitan areas with a population of 1 million or larger about “ease of access to safe and clean water” (Witters, 2010). The Gallup well-being index can be interpreted as a measure of the public perception of the availability of clean water in the region. In 2012, USA Today compiled the rate of increase in water bills during 2000-2012 in several cities¹⁴ in the United States (McCoy, 2012). We regressed the aggregated concern score for the 35 largest metropolitan areas¹⁵ over the Gallup index and the increase in water rates and found strong association along the expected lines (Table 7). Higher concern scores on our survey were associated with lower scores on the Gallup index and larger increases in water rates, indicating that prices are potent signals that convey information about the state of infrastructure to the residents. Although water rate is used as an independent variable here, endogeneity cannot be ruled out. Water rates could be an indicator of aging infrastructure in the region, necessitating the increase in user charges to finance maintenance and operation of the facilities and pipes.

Table 7.

Concern for W&WI in Metropolitan Areas.

Variable	Prelim (1)	Prelim (2)	Final (3)
Rate increase	.004* (.002)	.004 (.003)	.005** (.002)
Gallup index	−.144** (.065)	−.169** (.068)	−.184** (.070)
Population	3.70e-5 (3.11e-5)
Rate increase* Population		1.19e-7 (1.83e-7)
Constant	16.528 (6.183)	19.018 (6.405)	20.481 (6.671)
R ²	.251	.216	.201
F-stat (prob)	3.23 (.038)	3.42 (.032)	5.47 (.010)
n	31	31	31

Note. Linear regression: Parameter estimates are linear coefficients (robust SE in parenthesis).

p < .01. **p < .05. ***p < .01.

In general, even though several agencies have highlighted the deteriorating state of W&WI, public concern for the issue is low. During the past 30 years, water and wastewater rates in the United States have increased disproportionate to other utility rates and inflation (Beecher, 2011). In spite of that, the price of water, even in the driest areas of the United States, does not factor in shortages, future capital investments, and long-term risks such as climate change (Zetland, 2011), thereby leading to dissonance between the state of the infrastructure and the information conveyed to customers through water prices. Recent increases in water rates, as documented in McCoy (2012), could be a result of successive droughts resulting in peak shortages in urban areas, financing of bonds and other revenue instruments for infrastructure upkeep, and a move toward full-cost pricing. The impact of rising water rates on public concern for W&WI suggests that customers are likely to pay more attention to the state of W&WI in their community in the coming years.

Summary and Additional Observations

In a representative democracy, elected leaders are free to make decisions that best serve the interests of their constituents. While public opinion can often be misinformed or disengaged from important issues, it nevertheless forms the basis of democratic processes. Though not an object of study in this paper, the presence of social media and e-governance has provided new sources of access to information for members of the public as well as elected officials and new channels through which the public can routinely voice their opinion to public officials and elected leaders. Public opinion polls, in contrast, provide a more scientifically calibrated point-in-time measure of opinion and attitudes toward issues.

The rise of infrastructure as a critical issue on which elected leaders are judged has transformed the role of public opinion about infrastructure issues. Historically, a backdrop with political salience restricted to its time-honored “distributive” dimensions, infrastructure issues now play an increasingly pivotal role in state and local public sector decision making in the wake of increasing attention to the crisis of aging infrastructure (including, but not limited to W&WI) and ideologically loaded policy debates focused on devolution and privatization. Stated preferences through national surveys of public opinion, coupled with revealed preferences through voting and purchasing decisions, can help assess public attitudes and awareness and help provide policymakers, even at the state and local level, with a broad base of understanding of the range of public support for various kinds of policy alternatives. An informed electorate and a responsive government can together address complex challenges facing the water and wastewater sector.

Our study assessed public opinion on three key issues relevant to W&WI—financing, privatization, and overall levels of concern. These measures are not regularly tested in traditional polls such as the ones conducted by Gallup and Pew. Polls conducted by interest groups have been either too narrow in their sampling frames or unreliable in their instrumentation of measures of opinion. This study provides an independent, scientifically tested, and broad-based opinion poll on critical W&WI issues. Party affiliation was a significant explanatory variable on all three survey questions. Other demographic variables proved occasionally important but less consistently significant as variables across the models explaining opinion about financing, privatization, and concern. Homeownership was not a significant variable in any of the analyses. Women preferred the “middle option” regarding the type of management of W&WI but were otherwise indistinguishable from men on issues of government investments and concern for W&WI.

This study has several limitations, which point to the benefits of additional future research. Our national sample can, at best, provide a macroscopic snapshot of public opinion on the issue of W&WI. Sampling size limitations preclude detailed assessments of opinion in specific regions or subregions. As observed from the data, opinion on W&WI issues breaks down along certain demographic lines, which has implications for decision making at the municipal level. The survey sample was Whiter, older, wealthier, and more highly educated than the overall population, which increases chances that some of the demographic effects could be biased. Furthermore, the omnibus survey was not designed to gather specific data on a comprehensive set of variables about water production and consumption, such as the amount of water consumed, water/sewer rates in the municipality, or whether the respondent relied on private wells and septic systems for their water and wastewater needs.

The low goodness-of-fit of the final models in the three analyses presented in this study suggests that factors other than demographics measured by the survey could explain the respondents’ choices. The lack of similar and comparable studies makes it hard to judge the potential role of omitted variable bias. Of course, the usual caveat about the translatability of public opinion survey results to observed preferences as manifested in voting or purchasing behavior still applies. However, the stability of our findings could be verified and strengthened by more such surveys focused on water and wastewater utilities and their role in an individual’s/community’s well-being and budgetary decisions. Work with richer datasets needs to be done to clarify whether familiarity with privatization results in a favorable perception of private management of W&WI and to better distinguish the extent to which public opinions on infrastructure are more consistently influenced by ideology, economic interests, and idiosyncratic factors. Community-specific case studies, including areas that have experienced changes in the modes of service provision (privatization or insourcing), might help understand this issue.

Conclusion

Although there is little disagreement among policymakers on the need for significant investments to upgrade and maintain the W&WI in the United States, there is no clear consensus on how to go about making those investments. As observed in the 2001 local elections in Florida, and more recently at the national level, public opinion is asserting itself in how elected leaders make public investment decisions. The role of the various levels of government and participation of private players is a hotly debated topic. Consistent with the long-standing preference for local over federal government in general, our survey results show a preference for local government as the source for funding capital investments in W&WI. However, state governments continue to have a significant role to play with the financing of infrastructure bonds and managing the federally appropriated state revolving funds. Although federal support has been reduced over the years, it still provides significant funding to small- and medium-sized water and wastewater systems. Governments at all levels, with occasional contributions from private corporations, have a role to play in financing W&WI upgrades, even as the proportion of their contributions remains a topic of debate. Lack of confidence in private management and investment may, in large part, be attributed to a lack of experience with privatization in the water and wastewater services or a satisfactory experience with public management of local utilities. Future research may tease apart the characteristics of localism and privatization that lead to specific W&WI preferences. Public concern about the state of W&WI is currently low but is influenced by rising water and wastewater rates and a general perception of water availability in the region. This bodes well for investments and upgrades in W&WI, as these will be dependent on public opinion as much as the actions of engineers, planners, and policymakers.

Footnotes

Appendix

Acknowledgements

Jay Barry and Melissa Smith at the Cornell Statistical Consulting Unit provided statistical support. The manuscript benefitted from questions and helpful suggestions provided by Brian Rahm, Peter Woodbury, and three anonymous reviewers.

Authors’ Note

This work was supported in part by the New York State Environmental Protection Fund via the Hudson River Estuary Program of the New York State Department of Environmental Conservation.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Notes

Author Biographies

Sridhar Vedachalam is a postdoctoral associate at the New York State Water Resources Institute at Cornell University. His research is centered on water and wastewater infrastructure issues, including planning, financing, use, and regulation.

David L. Kay is a senior extension associate with the Community and Regional Development Institute (CaRDI) in Cornell University’s Department of Development Sociology. He provides leadership for CaRDI programming in the areas of energy, land use, and community development. His work on land use involves research, outreach, and training efforts that attempt to build community-based decision-making capacity and help weave local policy into a regionally coherent fabric. Recently, he has increasingly focused on the community and economic development implications of energy transitions.

Susan J. Riha is a professor in the Department of Earth and Atmospheric Sciences at Cornell University. In her role as director of the New York State Water Resources Institute, she is focusing on improving water infrastructure planning, adaptation of water resource management to climate change, and the impact of energy systems, including shale gas, on water resources.

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