by Warner Todd Huston | March 11, 2014 6:39 pm
A city government in California is thinking of illicitly using eminent domain to essentially steal a water company from its owners because residents are unhappy with their water bills. If they are unhappy now, it will get far worse once the government owns the water service. Once again California serves as an example of what not to do.
The city fathers of Claremont, California are attempting a move that should frighten every American, a move that would seem to prove that government thinks it has no limits on its power. With the claimed goal of keeping water rates low, the city is considering using eminent domain laws to force a local water company into allowing the city to take over its facilities and declare its resources government property.
Jon Coupal of the Howard Jarvis Taxpayers Association explained the rules of eminent domain in a recent op ed.
First, under the U.S. Constitution, if government takes private property, it must pay just compensation. Moreover, under California law, when government attempts to seize a private utility, there is the additional requirement of a showing of need a seemingly insurmountable hurdle for the city of Claremont to justify replacing the current provider & Government cannot simply say they want to go into the water business to be able to use eminent domain.
Being unhappy about a water bill does not qualify for the city to invoke eminent domain.
The city, of course, has offered Golden State water company 55 million dollars gleaned from taxpayers to buy the facilitates with the threat of confiscation as frightening back up plan but this is far less than the company’s owners say their facilities are actually worth.
The Howard Jarvis Taxpayers Association, though, estimates that the true cost to finance a takeover could be closer to $200 million or more, not a mere $55 million. For the sake of argument, let’s suggest that the actual price is somewhere in the middle, say between $125-$150 million. How many local governments have that kind of money lying around? These days, none. So they’ll likely be asking residents for massive tax increases just to own the system. Then, on top of that, the city will then be responsible for all the maintenance and ongoing water service.
The imputes for this attempt to steal away the private property of a privately held business, supporters say, is because Golden State is gouging residents for water rates something the company naturally denies. Still, water rates are higher in Claremont than many California cities.
The company has a logical reason for its higher rates, of course: Golden State water can’t hide its operating costs like the city-owned water companies in other California cities.
Golden State water says its actual operating costs are reflected in water rates and since the company isn’t government owned it can’t subsidize cost overruns with off-the-books tax dollars like other cities do with their water works.
The Claremont water company has to pay for its own upgrades (instead of using unallocated tax dollars to carry them out), they can’t pad pension payments (like city governments do), they can’t run in the red (like city governments do), and they can’t just run to the county or the state when they need more funds (like city governments do). Golden State has to balance its revenues with expenses to continue operating which is quite the opposite of what some cities, county, and state governments have gotten in the habit of doing.
Now, it is true that other cities in the state own their water services. But this scenario was already played out once in Felton, California, where the cost to buy the water service was 250 percent more than the government agency said it would be. Worse, a 30-year property tax increase of approximately $500 per household was levied on the citizens.
Coupal tells us what happened after that.
Immediately, ratepayers were hit with three years of rate increases, each compounded on the prior rate: 12 percent in 2009, 8 percent in 2010 and 15 percent in 2011. Last year, the provider announced plans for five years of new consecutive increases: 13 percent this year, 13 percent in 2015 and 9 percent each year from 2016-2018. The Felton experience provides a valuable lesson about broken promises in situations such as the one here.
There are major problems with the city s offer of $55 million as compensation for taking over the water service, as well.
For one and this is supremely important the city fathers have offered no plan on just where that $55 million is supposed to come from? They’ve not presented residents with a feasibility study; they admitted they don’t yet have a plan on how they will provide water service and offered no details with regard to how much of a property tax increase they ll be asking for.
Where does Claremont get its justification of a $55 million offer? They won’t say, other than to assert they have conducted an appraisal.
Worse, there is not currently any government water department so the purchase price, which is likely to be well north of $100 million, would be just a small start up fee as city would then have to provide the service.
Incredibly, after spending two years and hundreds of thousands of dollars to craft a secret takeover plan, city officials acknowledge that they’re just getting around to looking at how they might provide water service. In February, Claremont and the neighboring city of LaVerne agreed to do a joint operational study to see if LaVerne could provide water service as a contractor to Claremont. It was a no-bid deal that includes language noting that the public will only get a summary and not all the details of the study. If this sounds backwards to you, you re right. It s the classic effort where Claremont has a predetermined outcome they want to achieve and now they’re trying to shoehorn the details to justify it. And the taxpayers get to pay hundreds of millions to see if it will actually work. Good luck.
Where is all this money going to come from? The city has made no plans to find out nor has it released any information suggesting what these ongoing, yearly costs would be above its $55 million offer to bribe the company to giving up its facilities.
Also, on top of all of this, there are no studies out there to prove that city-owned water facilities are any cheaper to run (and has anyone ever heard of a government office being cheaper to run?) than privately owned companies. So, there aren’t any assurances that if Claremont takes over Golden State water that residents will experience any cheaper rates.
Finally, if the city invokes eminent domain and simply seizes this water company even after offering no concrete plans by which to continue servicing residents, what does that say about the security of privately owned companies? Can just any company expect that a city will deem its product so vital that the company owners are to have its rights forcibly taken from them by government fiat?
Is that the America in which we want to live?
If you are interested in a group formed to stop the take over of Golden State Water, see Stop The Claremont Water Grab.
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