Tampa Bay experienced the 11th driest winter since 1915 and it is once again in a drought. Tampa Bay residents continue to demand more water than the Southwest Florida Water Management District, or Swiftmud, and Tampa Bay Water can supply. To reduce water demand, lawn watering is limited to once a week and the operation of outdoor fountains to four hours a day.
What is wrong with limiting frivolous uses of water during a drought? During the area’s last drought, the Tampa Bay Times ran a story about a Swiftmud official receiving a question from someone with a backyard pond stocked with koi, the colorful Japanese carp. The pond’s fountain is keeping the fish alive, the owner said. Will Swiftmud save water by killing koi? The Swiftmud official said that, so far, no answer had surfaced.
Water restrictions force bureaucrats to spend time fielding questions about lawns, birdbaths, and the life and death of koi. Many more person-hours and budget dollars are used to educate consumers, enforce new rules and punish cheaters. All the effort spent engaging in such matters comes at a high cost for the Tampa Bay area.
It doesn’t have to be this hard. The price mechanism does a fine job of allocating scarce resources. The markets for economics professors and tomatoes operate efficiently by allocating resources to the individuals willing to pay the highest price. Allowing the market to allocate the supply of water in Tampa Bay would work, too — if we let it.
A 2005 Swiftmud study found that water use will decrease as the price of water increases. Thus, we do not need to resort to inefficient bureaucratic mechanisms to allocate water. A better pricing system will give consumers the freedom to decide on the life or death of their koi or on the greenness of their lawns. Along the way, Tampa Bay Water can increase its coffers by charging heavy users higher prices.
The city of Tampa uses a tiered system in which the per-gallon rate increases with higher water usage. Currently, it costs $10.45 a month for the first 3,740 gallons of water. This lowest-rate tier is a proxy for the necessary indoor water use of a typical household — cooking, bathing, laundry and flushing toilets. Outdoor water use, however, varies greatly across households and includes irrigating lawns, filling swimming pools, and supporting koi ponds. We offer a relatively simple proposal: In times of drought, Tampa Bay Water should sharply raise the price of water for volumes above the lowest tier.
While our proposal increases the price of using a gallon of water, customers would have the opportunity to conserve to avoid higher bills. If a customer used less than 3,740 gallons per month, his bill would not increase. Customers have the freedom to decide how to conserve water. A customer might decide to install a water-saving shower head rather than be forced to switch off the life support for koi. From a communitywide perspective, a gallon of water saved is a gallon of water saved.
Consumers are sensitive to water rates, so water use will diminish if upper-tier rates are increased. However, the Swiftmud study found that very wealthy users are less sensitive to price changes. They can afford to maintain their lush landscapes and run their fountains. A higher water bill would be a minor part of their monthly expenses. Thus, we should not expect significant usage reductions from this group. Even if these folks choose not to conserve water, they will provide extra revenue to Tampa Bay Water, which it might use to fund the repair of the cracked reservoir.
How would the poorest households be affected? The Swiftmud study reports that lower-income households have a limited ability to reduce water consumption when faced with higher prices because they are mostly indoor water users satisfying basic needs. By not changing the price of water in the lowest tier, the area’s poorest households would not be impacted by increased upper-tier water prices.
Rather than prohibit specific uses of water for all households, we suggest that in times of drought, water authorities temporarily institute a significant increase in upper-tier water rates. This proposal avoids an undue burden on the poor while encouraging water conservation among outdoor water users. Expensive water encourages consumers to choose how to conserve. And it is more efficient than having bureaucrats perform the impossible task of deciding what types of water use should be restricted and whether the koi shall live or die.
Robert L. Beekman is an assistant professor of economics and coordinator of the international business program at the University of Tampa. Before working at UT, Beekman was an economist for the U.S. Environmental Protection Agency. Brian T. Kench is an associate professor of economics, editor of “The Tampa Bay Economy,” and chairman of the Department of Economics at the University of Tampa.