The Right Kind of Water Works Management
It Must, of Necessity, Be Permanent in Its Nature—A Continuing Policy, a Well Considered Program of Betterment and an Adequate System of Water Rates Essential
ABROAD and comprehensive management of the water works of a community must take into consideration the future growth of the municipality and the consequent extension of the system of water supply to meet the needs of such an enlargement in population a n d territory. To accomplish this there should be a certain continuity and permanancy in this management, and it should be completely estranged from political influence and frequent political changes. Mr. Burdick has treated the subject from this standpoint in a masterly and practical way in the following paper:
The city water works is one of the most important of local industries, either public or private. Without it the modern city cannot exist. Often it represents an investment fully as large as any other industry in the city. It requires large expenditures for operation, maintenance, and new construction, and it offers the same opportunities for expert management to be found in enterprises of like magnitude in the commercial world.
The water works manager is confronted by nearly all the problems encountered in private enterprise, and in addition he must deal with the public under a relation somewhat different in form from that of the merchant or the manufacturer. It is the object of the present paper to touch upon some of the broader aspects of water works management, which have occurred to the writer through association with a considerable number of water works properties, relating more particularly to the policies which underlie good service.
The average American city doubles in population about once in twenty-three years. It is not financially practicable nor would it be economical to build water works capable of supplying indefinite future needs in the average city. The investment would be too large, and it would throw the burden too heavily upon the present water takers. It is better policy to build for the near future on a well defined plan capable of indefinite expansion if possible. It is important that expenditures for betterments be carried out well in advance of needs; for a deficiency in the water supply is likely to lead to heavy losses from fire, or in an industrial city, a serious water shortage may produce serious losses to manufacturers and wage earners, and if it is persistent may hamper the growth of the city.
“It is believed that the best form of water works administration today for municipal plants is through a board of trustees with moderately long overlapping terms, so created and constituted, as to be removed from politics so far as possible.”
Available Revenues Apportioned to Program
Good management, therefore, requires that the available revenues of the property should be proportioned to a well defined program of construction. It is believed that this is the most important phase in water works management. More plants fail in good service today through inability to finance needed improvements than from any other cause. This condition usually arises from a failure to look sufficiently far into the future, or to provide funds a little in advance of need.
“A continuing policy, a well considered program of betterment, and an adequate system of rates are the fundamentals of success in the water works business. Given these the manager can organize his executive duties, administer his property with economy, and go bed at night with reasonable assurance unbroken rest.”
A Program of Improvement
While it is not practicable to build works for an indefinite future, it is perfectly practicable, however, to forecast with reasonable accuracy service requirements and to lay down on paper the improvements that probably will be needed over a generation or more, with estimates of cost. It is practicable to forecast the most probable growth of the city, the amount of water to be pumped, the area that must be supplied, and the size of the main pipes required for good service in fire protection now, ten years from now, or twenty years from now. It is practicable to investigate the source of water supply and determine how far it can economically be developed, and what future additional sources of water supply are available, and which ones are likely to be developed with greatest economy under future requirements. When the future requirements of service have been determined, it is comparatively a simple matter to determine the number and size of engines and boilers, and the extent and direction of expenditures for housing them. The requirements for water storage can be forecasted with accuracy when the probable conditions of service are fixed, and the most feasible plans for water supply have been determined.
“In the formulation of a system of rates, a reasonable period in the future should be considered, say, ten or fifteen years, for rates are not easily changed.”
Thus to formulate a program it is not necessary that the water works manager should be gifted with second sight. All that is required is that the program laid down shall be the best program possible in the light of past experience in the city in question, viewed in the light of experience in similar cities. When the best program has been determined it should be followed by proper investments a little in advance of need. No water works should work on a margin less than three to five years in advance of its service requirements. If it is working on a well defined program certain expenditures will necessarily be made further in advance, as in the purchase of lands or sometimes in constructing a portion of feeder mains.
It is not to be expected that the future can always be forecasted with accuracy. The program can and should be modified from year to year in the light of further experience. If the service requirements have been overestimated, improvements made will last somewhat longer than anticipated. If the service requirements have been underestimated then the building program will necessarily be speeded up, but under adequate rates it is presumable that funds will be available more quickly if the rates have been adjusted to fit a program of growth.
In the absence of a well defined program, improvements must be hurriedly conceived, financed and carried out. This results in pumping stations abandoned, because they are no longer capable of expansion, feeder mains taken up, because they are too small, water supplies abandoned, because they are too close to town, or no longer capable of expansion. In short, it means wasted money. It is true that good economy sometimes dictates the temporary use of structures later to be abandoned. If this can be shown to be good economy under the local circumstances, no fault can be found with it; but it should be done under a good program carefully considered.
A Growing Investment
The latest available U. S. census statistics, which refer to prewar conditions, indicate that the average investment in municipal water works is $32.60 per capita of the cities supplied. This refers to 105 cities in the United States over 30,000 population, aggregating 19.6 million people. The average operating expense was $1.48 per capita. Allowing six per cent, for interest on the investment, and one per cent, for depreciation, the fixed charges would be $2.28, making the cost of water $3.76 per capita, including operation and fixed charges.
At the present time our works are operating upon a higher scale of prices, although somewhat lower than those obtaining two years ago. Cast iron pipe which is the largest item in water works construction was worth about $25 per ton prewar at Chicago, $85 at the peak early in 1920, and about $49 at the present time, 100, 355 and 200 per cent, respectively as compared to the prewar basis. Common labor, using 1915 as the 100 per cent, basis increased to about 225 per cent, upon the average, and has now receded to a little under 200 per cent. Other items entering into the cost of water works are, however, now upon a lower price basis, particularly construction costs, which were very high and uncertain two years ago. Recent appraisals of several plants in detail indicate a total price basis approximating 180 per cent, compared to 100 per cent, prewar. Applying this ratio to the census figures indicates that at the present time new water works construction costs not less than $52 per capita.
The review of operating expenses presented by Leonard Metcalf, C. E., in a paper before the A. W. W. A., at Philadelphia in 1922*, indicates that the per capita operating expenses probably approximate 175 per cent, at this time as compared to a 100 per cent, prewar base, and, therefore, probably approximate in the neighborhood of $2.60 per capita per annum. Seven per cent, to cover interest and depreciation on $52 per capita investment is equivalent to $3.64, which added to present operating expenses makes the cost of water about $6.24 per capita, or approximately, 170 per cent, of the prewar figure.
On the present price basis, therefore, the average American city of 100,000 people must spend about $5,200,000 for new construction during the next twentythree years. This is equivalent to about $225,000 per year. This expenditure will, of course, be more or less in individual cities, depending upon how fast they grow, how successfully they have looked ahead in planning the works already built, and the extent to which existing properties are necessarily abandoned. The city with the most successful building program will produce the cheapest water under ordinary circumstances.
“A large part of the ordinary water works investment is necessitated by the requirements of fire protection. There is no reason why the public-at-large should not carry this investment.”
* See FIRE AND WATER ENGINEERING, June 7, 1922, page 1027.
(Continued on page 891)
Right Kind of Water Works Management
(Continued from page 888)
Distribution of Cost
When the probable service requirements of a city have been determined, and a building program has been laid down, it is then practicable to prepare an estimate of operating expenses, allowances for depreciation, and the annual sums that will be required for betterments. When this has been done, it is practicable to determine the probable cost of water from year to year, and it is possible to fix water rates that will operate the property, maintain it and finance the necessary improvements. A successful rate is one that maintains the property and equitably distributes the tax between those receiving service.
In the formulation of a system of rates, a reasonable period in the future should be considered, say, ten or fifteen years for rates are not easily changed.
“The management of a municipal water works directly through the city council or city commissioners has been extensively practiced, and in general, it has proved a failure. A permanent policy is just as necessary in a water works as in any private business. It should have a management as permanent as is possible in public undertakings.”
In the light of the water works program the total sum to be derived can be determined. This sum should first be divided as between the public in general that receives fire protection, and the public and private water takers. A large part of the ordinary water works investment is necessitated by the requirements of fire protection. There is no reason why the public-at-large should not carry this investment. It also affects operating expenses in less degree. That part of the revenue to be derived from the water consumers should be distributed among the different classes of rate payers reasonably in proportion to services rendered, and if possible a rate should be fixed for very large users low enough to secure the business. This is impossible in some cases for water cannot be continuously sold at a net loss, but it is sometimes practicable to supply the large consumers at less than the average cost of the water including all the fixed charges, and by so doing actually reduce the water bill of the small consumer.
Permanent Water Boards
The management of a municipal water works directly through the city council or city commissioners has been extensively practiced, and in general, it has proved a failure. A permanent policy is just as necessary in a water works as in any private business. It should have a management as permanent as is possible in public undertakings. No program can be laid down and successfully followed under periodic changes in management. Most city administrations change several times in a decade. Where council management has worked satisfactorily, you will usually find a water works superintendent big enough and capable enough to hold his job in the face of political upheaval. Usually, however. he must be somewhat of a politician to accomplish this.
It is believed that the best form of water works administration today for municipal plants is through a board of trustees with moderately long overlapping terms, so created and constituted, as to be removed from politics so far as possible.
At Des Moines, Ia., the plant is administered by five trustees appointed by the mayor and council, the terms are overlapping. The board at present consists of the president of an insurance company, the manager of a large department store, a coal operator, a former mayor, and a representative of union labor. The plant is operated in all respects the same as a high-grade private corporation. The expenditure of funds is entirely in the hands of the trustees. Bond issues must be approved by the city council. The works, however, will largely be financed out of revenues.
About twenty years ago the city of Burlington, Ia., inaugurated a water works administration in the acquirement of a private plant, that has operated very satisfactorily. A local corporation was formed which purchased the city water works from its former owners. The necessary capital was obtained by the sale of 4% bonds and 6% stock. The property is administered by five trustees, three appointed by the stockholders and two appointed by the city council. All profits above 6% on stock go to the city and are to be applied in the purchase of stock. Ultimately the city will own a majority of the stock.
At Orlando, Fla., a new departure has been taken in the method of appointing the water works trustees. The mayor named as the water board the presidents of four local banks. It is planned to incorporate this automatic system of appointment in the state law, relating to this city and thus keep the water works out of politics permanently.
A continuing policy, a well considered program of betterment, and an adequate system of rates are the fundamentals of success in the water works business. Given these the manager can organize his executive duties, administer his property with economy, and go to bed at night with reasonable assurance of unbroken rest.
(Excerpts from paper read before the annual convention of the Iowa Section, American Water Works Association.)