Local opinion: Potential Arizona water swindle

Historic decisions are being made regarding Arizona’s water future, and the citizens are in great danger of being the suckers in a giant swindle.

A “post-War, sunbelt boom state,” Arizona’s population has multiplied 15 times over since WWII, and the state currently ranks No. 2 in the U.S. in the volume of commercial real estate development.

Basic Fact No. 1 — Arizona does not need to import water to serve its current residents. Importing water is only necessary to continue rapidly increasing Arizona’s population. Basic Fact No. 2 — If Arizona spends billions of dollars to import water, the real estate developers who will profit most from additional population growth will not be the ones who pay for it. You and I, dear citizens, will foot the bill.

This issue is complicated, and space in this column is limited, so I will focus on the most important points. The Arizona Legislature has appropriated $1 billion of our tax money to pursue “water augmentation” strategies. During the final few days of Doug Ducey’s term as governor, he attempted to rush through a $5.5 billion, no-bid contract with an Israeli company to desalinate water from the Gulf of California and pump it to Phoenix. Arizona’s Water Infrastructure Finance Authority (WIFA) has solicited and is evaluating proposals for importing water. The Arizona Senate Committee on Natural Resources, Energy and Water voted on March 21 to allow WIFA contract negotiations to be conducted in secret and be exempted from Arizona’s Public Records Law.

All of the proposals being discussed envision the state signing a contract with a private company to engineer, finance, construct and operate a desalination or other water importation project. The private company would be paid over time through increased water fees charged to us citizens. This approach is known as a Public Private Partnership (PPP). PPPs are great for the elected politicians because they can say, “We gave you this great new project and we didn’t raise your taxes.” PPPs are great for the private companies, because they can make much higher profits than they can with traditional government projects. PPPs are terrible for the citizens, who end up paying much more than they would for a traditional government project, but the citizens don’t get a say in whether this method is used.

Why do PPPs cost the public more? First, private financing costs a lot more than public financing. A bank loan to a private company will always have a significantly higher interest rate than the tax-free municipal bonds used by governments to finance their projects. If you’re financing billions of dollars over 20 or 30 years, the increased cost is huge. Second, PPPs are no-bid contracts. There is no competitive bidding. Typically, the private company negotiates a price with a mid-level bureaucrat who has little to no experience with this type of project and no authority to cancel the deal. Commonly, the private companies make campaign contributions and wine and dine the politicians, to engender favorable treatment in the negotiations. A third reason PPPs cost the public more is that much of the control over the scope of the project is given over to the private company, which has an incentive to increase the cost, versus maintaining control of the project in the hands of someone whose job is to minimize the cost to the public.

How much can these factors increase the cost to the public? There is no limit — it depends on how bad a deal the politically pressured, mid-level bureaucrat signs off on. If the competitive bid cost of the project were $5.5 billion, using a PPP to build and finance it over 30 years could easily increase the total cost to the public to over $33 billion.

Do you want to pay that much to increase Arizona’s population?