If Water Price Reflected Its True Cost, Utahns Would Conserve More

By Devin Stein and Randy T. Simmons, September 17, 2016

Salt Lake Tribune


There’s an old saying about water, often attributed to Mark Twain: “Whiskey’s for drinking. Water’s for fighting.”

While reports of whether Twain actually said those words have been greatly exaggerated, the notion of water being a precious and valuable resource is not lost — especially in parts of the drought-stricken West.

For the first time in five years, heavy rainfall this spring made most drought observers optimistic that Utah would have enough water to last all year. In fact, back in June, the U.S. Drought Monitor ended all drought designations in the state. But a hot and especially dry summer has brought parts of the state back to the brink of drought. Utah’s constant fear of not having enough water would be unnecessary, however, if we reformed state water institutions to manage our water better and more efficiently.

A basic principle of economics is the law of supply and demand. If a resource such as water is in high demand relative to the amount available, people will pay more for it. Likewise, if the supply of water is low, higher prices should reflect that, encouraging people to use less water to run their sprinklers and wash their cars.

One major problem, however, is the price of water in Utah has been kept artificially low because water is subsidized through property taxes in many parts of the state.

Municipal water prices in Utah are among the lowest in the nation, despite the fact that Utah is the second driest state. Both the state of Utah and the federal government invest heavily in large water delivery infrastructure, from the Central Utah Project to the proposed Lake Powell pipeline, to ensure the state has enough water to meet its needs. But most cities and water conservancy districts charge water users just enough to meet the repayment obligations for these costly water projects. Cities and water conservancy districts do not pay much, if anything, for water, and thus only need to charge for the costs of financing the infrastructure needed to deliver the water to users.

Property taxes make finance repayment plans more consistent and reliable, but also lower the price we pay for each gallon of water. Artificially low prices hide the actual cost of the water, making it appear less expensive than it actually is. If water prices rose to reflect water’s actual value, Utahns would conserve more water.

To prevent water from becoming too expensive for low-income families, tiered price structures can raise water rates for excess use while keeping rates inexpensive for basic human uses. Many Utah cities already have tiered price structures, but a recent audit suggests that most do not charge enough for higher uses to adequately encourage conservation. For example, North Ogden charges $1.62 per thousand gallons of water, but $2.16 per thousand gallons if a water user exceeds 20 thousand gallons. A $0.54 per thousand gallon increase is hardly enough incentive for someone to dramatically change their water consumption habits.

Utah needs to reform water law to encourage conservation. Irrigation water, for example, makes up the vast majority of water used in the state, but agricultural water users have no incentive to conserve because of “use it or lose it” provisions in the Utah Code that threaten to take their water rights if they do not use every last drop. Many farmers still use inefficient irrigation techniques because more efficient irrigation systems that use less water may force farmers to give up their unused water rights without being compensated.

Water is traded less often in Utah than in most other western states. Water transfers and leases in Utah are subject to lengthy application processes by the Division of Water Rights. If water transfers and leases were not subject to so much regulation, farmers could lease water rights to other water users, including municipalities, during dry years. Because the price paid for municipal water is much more than that paid by irrigators, sometimes farmers could make more money from leasing their water to a city in need than they could from watering their crops.

If domestic water users are willing to pay the full costs of watering their lawns, they should be allowed to. Instead, water remains artificially cheap, despite the fact we live in a desert. If we reformed the system of water trading in Utah, there might just be enough water to go around.

Devin Stein is a graduate student research associate at Strata, a nonprofit policy research center in Logan. Randy T. Simmons, Ph.D., is professor of Political Economy and director of the Institute of Political Economy at the Jon M. Huntsman School of Business at Utah State University. Simmons is also the president of Strata.

At Strata, we understand the power of ideas and encourage individual development through writing and creative expression. The ideas, stories, and opinions expressed in this op-ed are the author’s and do not necessarily represent the views of Strata.