The Municipal Water Works System—
The Vital Problem Centers on Return and Financing—Difficulty of the Private Company to Expand and to Finance Betterments Cited
IT is a well-known fact that it is possible with even the simplest subject to bring forward arguments on either side that are both logical and convincing. How much more is this true of the complex one of private or public ownership of the water works utility. The advocates of one or the other system each claim certain advantages that are peculiar to their method of furnishing the water supply of a city. The two papers—Mr. Stand field’s, below, written on the side of municipal ownership, and Mr. Kelly’s, on the opposite page, in favor of the private water company—will, therefore, be found of particular interest and instructiveness.
In the present day development of our cities, the community spirit is becoming more and more pronounced. From the largest city to the smallest town, we find some character of a Community Hall or a Community Building. The closer co-operation in our cities is manifesting itself more and more in various angles.
One of the earliest developments in this community spirit was found, naturally in the control of our public utilities. The water plant, the most essential utility and greatest asset in the city development, as well as an actual necessity is one of prime interest. With the other utilities, we may find that they are of interest to some classes, but in every city we find that the water plant is of vital importance to each and everyone. It reaches the life of every class in the community. If we are working then, to reach the entire community, we will naturally turn to that which is essential to all. The municipality which wishes to consistently develop, must control those things which reach each and every part of it.
Problems Under Two Forms of Operation
In considering the advantages of a municipally owned water plant, as compared to a corporation owned water plant, let us stop to consider the various problems as they are met under the different forms of operation.
Under the corporation controlled water plant, extensions are very difficult and slowly obtained. Return must be at hand immediately before the manager of the company is justified in extending a line. With municipal ownership, the city is in a position to extend its lines in order to care for and develop the poorer districts in which the return is remote or questionable. What community is it that does not have sections that are poorly developed? The revenue to be derived from these would not justify the expenditure of the necessary capital to make the needed extensions. No city can afford to isolate itself from the working element or these poorer sections. The community must always face the fire menace therein contained from the lack of proper protection. Likewise, the health menace is ever present from the lack of proper sanitation. and lastly, the community development, or lack of development is reflected by such districts. Give these districts proper fire protection and water for the necessary comforts of life and you will note the development of new and modernized homes in them. The improvement of these districts cannot be computed on the basis of the return in the revenue derived. This must be figured as such betterment is reflected to the entire community good and consequently the cost of the extensions made to obtain this development can only be borne by the community at large. Municipal ownership makes this possible.
Improvement Result of Proper Water Service
For instance, you will observe in your Negro sections and the poorer factory districts, where they are not given proper water for these essentials, the class of homes and the sanitation of these districts. Now, give them proper water service and watch the development of their homes. Keep tab on the sanitation of these districts and note the improvement. I believe that you will see the same which I have seen.
The development and enlargement through new residential districts is always a direct manifestation of the pulse of the prosperity of a town. Restrain, hinder, or retard this development and you retard the proper growth and development of your community. Encourage this development of your new districts and you make possible the building of better homes, new homes, help out the housing problem, and thus encourage a better element to make up the population of your city. The proper growth and development of these districts reflects the prosperity of your city and is the key to attraction of new business interests.
Difficulty for Private Utility to Extend
With a company-owned utility, it is difficult and almost impossible to obtain extensions as such on account of the financing. The return to the community at large and the benefits derived, which are of value to all, justify the backing of such districts and are possible, under the municipal ownership of the water system.
Many other arguments along this line could be advanced, but let this suffice for it is evident to all that the corporation-owned plant must first justify any expenditure for these extensions on the basis of return. The return can come to them only in revenues and this adds to the difficulty of financing by a company. These problems can be, and are easily met under publicly-owned utility, for the reason that the financing is much more easily done and more cheaply done and the return is reflected in more ways and easier justified.
Rebuilding Old Distribution Systems
The original distribution systems of most of our cities have been systems that were laid out in the early history of our communities. With our present developments and our congested districts we are confronted with the rebuilding of these mains in order to give the public the service they have a right to expect.
Under company-owned plants, you are confronted with an almost impossible solution. You have the financing of a comparatively large investment with no increase in revenue. The district is served completely, but owing to the intensified development, we are confronted with the rebuilding or retrunking of the system in order to care properly for the demands in case of emergency.
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Municipally Owned Water Works
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Under a municipally-owned plant, we do not have the division of interests, that must find a common meeting point—the investors entitled to a reasonable return and the public entitled to protection for community good. The municipally-oWned water plant gives one and the same interest in the investment and in the protection.
Financing of Betterments Hardest Problem
The most difficult problem that I have found in my experience with the corporation-owned water plants, is the financing of betterments on an existing plant. Our demands of today cannot be met as they could a few years back. We are demanding quality of water, as well as quantity. The financing question may be found in numerous cities under company ownership, where they have a twenty to thirty-year franchise, which was granted at a time when conditions did not meet the needs of today. This finance difficulty is never met in municipally-owned plants.
Good Operation Requires Larger Overhead
The operation under a company-owned plant requires a much larger overhead expense than a municipally-owned water plant. The operating force up to and including the superintendent and manager is identical with both company and municipal ownerships. In addition to them, the company-owned plant must carry a general manager, attorney, and a share of the general corporation expense. There are taxes, bond discounts and financing expenses encountered under corporation-owned plants which the municipal plant does not have.
Problems Center on Returns and Financing
Thus, we go through the various problems encountered in the management of a water plant and they all center around the vital question of return and financing. This is the vital item of the entire question of company or municipal ownership.
Topeka, in 1920. voted and sold $525,000.00 bond issue for the betterment of our plant. This issue carried 5 per cent, and was sold with a premium of $6,766.13, when the bond market was at its peak. I could cite you numerous other towns in Kansas, Missouri and other states which have sold their water improvement bonds under similar conditions. It is not unusual, but it is the rule today, for a municipality to sell its water improvement bonds with an interest at the rate of 4 per cent, at a premium.
Officers of the corporation operated plants have stated repeatedly that under the best marketing conditions they are compelled to float their issue at a large discount. They rarely, if ever, can sell a corporation-owned water utility bond in excess of 80 cents on the dollar and they will only bear from 6 to 7 per cent, interest.
“Fiddler Must Be Paid” In Either Instance
When we have summarized all that can be said pro and con, for and against company or municipal ownership, we must admit that the “fiddler must be paid.” 1 he public or the consumer must pay the operation and return on the investment. With corporation operation, he must receive operation costs, interest and return. With the municipally-owned utility, the operation must be paid, the interest met and the replacements paid for.
The bills must be paid and’the plant operated and renewals met, naturally, the fellow who pays the bills will take the most economic route—-Municipal Operation.
(Exerpts from paper read before the annual convention of the Southwest Water Works Association at Wichita Falls, Tex.)
Forest Park, 111., Without Water—When an artesian well in Forest Park, III., a suburb of Chicago, went dry, the residents were without water for eleven hours. The question of digging another well or building a water main to Chicago is being considered.
Various Water Supply Projects for Okmulgee—The city of Okmulgee, Okla., has engaged the engineering firm of Burns & McDonnell, Kansas City, Mo., to make surveys, plans and estimates and report on various water supply projects for Okmulgee. Surveys and investigations will be made for a storage reservoir and dam on Deep Fork Creek, creating a lake approximately seven miles long, covering 25,000 acres; other projects that will be investigated and reported upon will be a supply from the Grand River, fortyfive miles away and also from the Illinois River. The present supply is being contaminated by oil and salt. It is stated that about three months will be required for making the surveys, reports and estimates, and that the project will involve an expenditure of approximately $2,000,000.