Assurance That Those Who Benefit Are Those Who Pay

I wasn’t just being snarky in a post on this blog, two and a half years ago, that called for Raleigh, North Carolina and a dozen other cities and towns in Wake County to pay the estimated $1.5 billion needed to clean up their drinking water source, located upstream in Durham, North Carolina, where I live.

Durham already made sacrifices to accommodate the creation of Falls Lake here in the late 1970s and to forgo or restrict development around the lake, making Durham County, the 17th smallest land area in the state, even smaller.

In 1905, six months after Republican President Theodore Roosevelt laid out, in his State of the Union speech, the regulatory role of government to ensure the common good, the New York State legislature passed a measure granting New York City the power to condemn land, build dams and reservoirs and regulate land use 120 miles north and west of the city in the seven counties and 70 towns and villages of the Catskill and Delaware watersheds.

Long before the release of his just published book entitled, Drinking Water – A History, I had heard Jim Salzman, a Boston area native who also lives in Durham, tell the story of how NYC came to pay for these privileges and the negative externalities created rather than just demand them through favored treatment from the state.

Jim teaches at Duke Law School, where my friend Ryke Longest runs the popular Environmental Law and Policy Clinic, but Salzman also teaches at the Nicholas School of the Environment.  In his book, he uses his background in history, engineering, law and policy to weave an excellent, fact-filled narrative in the tradition of such authors as John McPhee and Malcolm Gladwell.

In 1986, Congress passed an amendment to the Safe Drinking Water Act that meant that New York City would need to pre-treat the surface water it was accumulating and drawing from the Catskill and Delaware watersheds.  The EPA estimated the plant would cost $3 billion but NYC estimated it would cost $6 billion.

Instead, in the early 1990s, NYC tried to further tighten restrictions on development and farming in the seven counties including 70 or so towns and villages more than 100 miles upstream.

As you can imagine, “all hell broke loose.”  It might have been legal but it definitely wasn’t fair.  Like Raleigh and the dozen other cities and towns in Wake County, NYC was reaping all of the benefits but insisting that upstream cities and counties, such as Durham, shoulder the costs.

A Republican governor, George Pataki, stepped in and negotiated a memorandum of agreement between all of the parties.  NYC uses water bill assessments and bonds to pay for such things as conservation easements and to partner with improved sewage and storm water infrastructure in the upstream counties and communities.

NYC also uses the funds to incentivize ecosystem services at a cost much lower than a pre-treatment facility would have cost.

Unfortunately the free-market, unless prodded to do so, fails to incorporate the value of what are known as ecosystem services.  I first learned about the New York City watershed example in 2002, two years before Salzman moved to Durham to teach at Duke University, when I read a book called The New Economy of Nature co-written by Dr. Gretchen Daily at Stanford University.

Daily defines ecosystem services, which she had first coined as nature’s services in the late 1990s, as the natural systems that sustain human life.  Until recently, the free-market took for granted critical services such as pollination, water filtration, climate regulation, flood control, soil renewal etc.

Environmental economists have now computed the value of ecosystem services generated by trees and other natural elements.  However, many entities such as outdoor billboard companies seek instead to avoid incorporating these costs into the free market by manipulating government decisions, a tactic often identified as “legalized corruption.”

Another example of the failure to understand the free-market value of ecosystem services can be viewed by turning from the roadside desecration by outdoor billboards to the sandy mounds sprouting up every few feet along the medians dividing roadways such as the Durham Freeway.

The mounds are created by colonies of fire ants.  They could have been easily quarantined years ago and prevented from infesting the United States but companies hauling soil to construction sites lobbied to be exempt from rules about using only soil free of these costly invasive insects.

These companies didn’t want to shoulder the costs of using uninfested soil, persuading lawmakers to instead pass on the $5 billion in annual costs for medical treatment, damage and control as well as another billion dollars in annual crop and livestock loses to millions of unsuspecting property owners and businesses while cutting back on roadside maintenance along corridors the ants use to move. 

All of this is to say that the free-market is a miracle but only when it attributes full cost accounting and assurance that those who benefit are those who pay.