Today, Carolina Journal Radio’s Donna Martinez discusses with John Locke Foundation fiscal policy analyst Joe Coletti the best way to deal with a water shortage. (Go here to find a station near you or to learn about the weekly CJ Radio podcast.)

Martinez: Well, Joe, I have to say that everybody I talk to is really doing their part to try to conserve water. So, forced conservation and voluntary conservation — aren’t they good ideas in general?

Coletti: Well, I mean, you do what makes sense to you. So, it’s never a bad idea to voluntarily conserve anything.

Martinez: What about forced [conservation]?

Coletti: Forced conservation — that gets into other things. That gets into forced anything. I don’t agree with that.

Martinez: Government power, right?

Coletti: Yeah. So I have a problem with “forced,” and I am generally okay with “voluntary.” But when it comes to water, the thing that we should take a look at it is how you encourage people, or if you need to encourage people to conserve water. And right now it seems that we do, since we are in the middle of a drought, and water is always a scarce resource. We only have so much water that is fresh and that is drinkable, and that we can use for good purposes. So when it comes to how you conserve that water, what is the best way to do it becomes the next question. And that’s why prices are better. We work better with prices in everything. Whether it is gas lines in the ‘70s, or whether it is healthcare today, or water in this specific case.

Martinez: Tell us why, Joe. Why is pricing more effective?

Coletti: Well, first you take a look at what happens when you have mandatory [conservation], or you have conservation without pricing. You have just a reduction in demand, where you have less demand than you had before — less usage than before. And so the person who is selling the good just loses revenue on the deal. And in the case of a water supplier, that is not a good thing. You want to be able to repair the pipes, and you want to be able to build capacity, so that if you have low supply, you want to be able to increase the size of the dam, to increase the amount that you have in your reservoir, or anything along those lines.

Martinez: So they are not just pocketing the cash as profit. They actually are going and building infrastructure?

Coletti: One would hope.

Martinez: Right.

Coletti: But we are talking about, in most cases, public utilities. And so the question then becomes, what do they do with the money? But ideally, yes, they do something good with the money. And if you have voluntary or forced conservation, you don’t have that money to do those good things with. That’s one reason why prices are good. The other thing is that prices affect how we behave across the board. So, a mandatory limit on how often you can water your lawn — if it is one time or two times a week, or if you have a ban on washing your car outside, or doing other things — it doesn’t affect how long you shower in the morning. It doesn’t affect how often you flush the toilet. It doesn’t affect how you wash your dishes, how you brush your teeth, if you keep the water running while you’re shaving, or anything like that. It has no affect on that, and nobody can see that unless they come into your house — until the water police come knocking on your door.

Martinez: The water police!

Coletti: Yeah: “Let’s see what you are doing here.”

Martinez: Joe, in your recent paper [on water pricing] you talk, essentially, about two ways that pricing can work in terms of water. Let’s talk a little bit about those. First of all, you say it’s possible to always have a tiered pricing system. And second, you say that you can just do it during emergencies like the drought we’re having now. Explain those.

Coletti: Right. Well, tiered water pricing is something that a number of cities in North Carolina already do. Cary, Charlotte, Greensboro already have tiered water pricing. And that is, it is kind of like the income tax. It is a progressively higher rate, so that if you use up to, say, a thousand gallons or 9,000 gallons a month, you pay, say, two dollars [per 1,000 gallons]. If you use from 10,000 gallons to 20,000 gallons, you pay, say, four dollars [per 1,000 gallons] a month.

Martinez: So the more you use, the more you are going to end up paying.

Coletti: Right. So you can have that in place all the time, and these cities do. The next step would be to say, okay, if we are running short on water — because this is a scarce commodity and we only have so much available to us — we start raising the price as we get further into the drought. Orange County does this already. The OWASA system — Orange Water and Sewer Authority — has not just the tiered pricing so that as you use more you pay more, but they also have, that as water gets more scarce, as you get further into a drought or some dry spell, higher prices also kick in. They have a surcharge. And they also have that tiered, so that the people who use the most, pay immediately. And as it gets deeper and deeper into the drought, the higher prices move further down. Now the bad thing is that they combine that with the mandatory conservation efforts, which, again, has those other negative affects.

Martinez: Orange County uses a lot of government power in general, but Joe, do most North Carolina local governments not implement either one of these? Are they just going with the conservation aspect?

Coletti: Yes, most places — Raleigh and Durham are great examples of that, Wilmington as well. … In several months you could be completely out of good drinking water [premium water supply is back up to 180 days and total supply is 243 days] and you will have to start either trucking it in from some place, or connecting to other water services and paying them even more money. Or, just going without.

Martinez: And we can’t do that. We know that.

Coletti: But those two cities have in the past — and still do until they change their policies — relied on just a one-price system, and that hasn’t affected anybody’s behavior.

Martinez: Interesting. You know, Joe, whenever we start talking about using progressive pricing — the more you use the more you pay — whenever we talk about anything like that, inevitably people will say, “Now, hey, wait a second, water in particular, it is a commodity. We can’t choose whether or not we are going to have water or use water.” So what happens to the poor, the low-income folks?

Coletti: Well, in Orange County, those surcharges don’t apply to people in the lowest income level, who use the least amount of water, and you can do things like that. Cary has a system where they have subsidies to people — it’s a voluntary contribution — and they also, I think, divert some of the money that they get from the water charges so that they can help the poor pay for their [water]. If you live in a small apartment, if you live on your own in an apartment, and you have no lawn or you do other things already, you can’t conserve. You can’t cut back on your water any more than you already are; you are using just the essentials. And so, there are things [the town] can do to either keep those people from facing the higher prices — applying those higher prices just to those who use more water — or subsidizing them.

Martinez: So we wouldn’t be cutting water off from people who couldn’t pay for it.

Coletti: No. And that is the other side, the other good part about using prices — that you have that money available to do those things. Not just to fix the pipes like they need to do in Durham — and they don’t have the money to do it, and they have also chosen in the past not to use the money appropriately — but also to subsidize those people who can’t cut back, and who can’t afford higher prices.