Try the Free Market Before Tourists Are One Day Warned to Not Drink the Water in California

California has regressed from the land of opportunity to the land of crisis. A chronic housing shortage, growing homelessness problems, the highest poverty rate in the nation, and runaway public employee pension liability are ripping at the seams of the state. Add to that list of troubles the taint of contaminated drinking water.

A year ago, it was reported that 360,000 Californians were drinking unsafe water laced with elements such as arsenic, lead, and uranium. That number is said to be roughly 1 million today. The Mercury News editorialized that it is a “disgrace,” a “Third World problem.”

And of course, it is. And of course, it should be solved. And of course, there is a plan on the table that attempts do so in the wrong way. Gov. Gavin Newsom wants to raise $140 million a year in new taxes, primarily from urban water districts, though $30 million would be appropriated from the agriculture industry, to clean up the water.

Pulling Newsom back from an unforced error are members of his own party, who are — appropriately — proposing to divert dollars headed to other destinations to pay for the clean-water initiative. A Senate budget subcommittee has recommended moving $150 million from the general fund to finance a “safe and affordable drinking water fund.”

As several have pointed out, there’s still another option: Put Sacramento’s $21 billion surplus to use. It’s far more reasonable to draw from that than it is to add a new tax.

But that’s only a partial solution. The state will continue to have water issues if government agencies are in the business of distributing water. Shifting to a private statewide water market would relieve the many ills water-related California has had to endure for decades. We’ve made this point before, most recently, as a matter of fact, just last week in a post on the Carlsbad desalination plant expansion. It’s a point that can’t be made too often.

Establishing a true water market is not a short-term project. But neither is it an impossible task. The transition would be smoother than many might expect. Matthew Fienup of California Lutheran University’s Center for Economic Research and Forecasting tells us “not long ago Australia’s water laws looked a lot like California’s.”

Australia gradually introduced the leasing of water allocations during the 1980s. Its biggest departure from a California-style system occurred in 1994, when the country unbundled water rights and land ownership. Australia further liberalized markets by allowing trading across basins and across state lines beginning in 2004.

The results, say Fienup, “are undeniable.”

If water were distributed by markets rather than politicians, dirty and unsafe water would no longer be a problem. For-profit companies would respond by taking the necessary steps to provide a safe, clean product. They know that if they don’t, they’ll be hurt financially, maybe even be forced to close their business.

Water markets also encourage conservation, reinvestment, innovation, and self-rationing rather than government-rationing. They’re resistant to man-made and natural droughts, allocate resources more fairly than politics-influenced agencies, and secure property rights.

The solution is not one Sacramento wants to pursue. But unless it does, California’s water sector will eventually have more in common with the Third World than with advanced Western civilization.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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