It’s Not a Gap, It’s a Trade-off

Written by Heather Himmelberger
Heather Himmelberger is the Director at the Southwest Environmental Finance Center

I thoroughly enjoy having my conventional thinking turned on its head, which is even more fun when it affects conventional wisdom in general. So here goes…

What gap are we talking about here? We often think of the gap as the difference between the money we have and the money we want or need to complete all the projects on our list (including maintenance, repairs, and replacements.)  For the typical water, wastewater, or stormwater utility in the U.S., the gap is often quite large.  The gap usually includes pipe replacement, treatment plant upgrades, and years of neglected maintenance (often called deferred maintenance, implying we will do it “some day.”) The way the gap is viewed in most places is that it is a financial hole that someone needs to fill by giving the utility the money.  That someone may be the federal government (everyone’s preferred choice), the state government, the local government, a non-profit or private entity.

The new thinking is that this difference in finance (what we need/want minus what we have) is not a gap that someone is going to fill but rather a trade-off the decision-makers have made to fund one activity over another.  This thinking was introduced to me at the recently concluded Infrastructure Public Works Engineering Australasia (IPWEA) conference in Perth, Australia.  This thinking does not treat the gap as a hole that will be filled but rather looks at a community with all of its needs and financial resources and sees the choices to attain and spend all of its collective revenue as a series of trade-offs.

For example, a community may choose not to raise water revenue because property taxes, income taxes, or sales taxes were just increased.  While the water rates do not directly tie to these taxes in most cases, nor is the water or wastewater utility likely to benefit from the increased revenue the taxes may generate, the increased fees may feel like such a burden to businesses or residents (who are also voters) that adding additional fees onto customers may not be acceptable.  Therefore, decision-makers may choose to forgo a rate increase because of the tax increase(s).  The decision-makers, in essence, traded off the higher taxes for no increase in the water rate.

Trade-offs may also be made within a utility.  A utility may choose replacement of assets over maintenance for existing assets or to replace a water main under new road construction as opposed to a water main that had priority for replacement but wasn’t related to road repaving. These choices are made every day in utilities but we may not always see them this way.

If we see our infrastructure spending more as a finite pot of money that must be spent on the most advantageous projects through a series of trade-offs rather than as set of funding holes that must be filled up by outside money, we can start to see infrastructure more as it is than what we want it to be.  This thinking will also drive communities to start thinking holistically about all of their infrastructure (water, wastewater, roads, buildings, bridges, community facilities, parks, etc.) in a comprehensive asset management way.  This process would start by evaluating the community’s desired level of service and their priorities for infrastructure.  How do community residents rank parks compared to libraries or roads compared to water, etc.?  This process is done routinely in New Zealand where local governments must reach out to community residents every three years to assess their priorities and their desired level of service.  In New Zealand, this assessment process greatly assists local governments in making the tough choices and trade-offs. When community members are deeply involved in the process, they share in the consequences of the decisions that are made.  This shared responsibility gives elected leaders the opportunity to make the tough decisions without the constant worry of being thrown out of office.

Viewing the gap as a trade-off changes the conversation greatly and allows for a different narrative – one that is much more constructive and sustainable over the long-term.  This conversation should be based on a well-done, comprehensive asset management program that includes all assets under the government’s leadership. In concluding this post, I offer a challenge to all elected leaders or decision-makers:  if you thought of a trade-off (making choices for collecting and spending revenue) instead of a gap (a money hole to be filled by an outside source), how would your day-to-day decisions change?

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