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Why Does Everything Seem To Need A Freaking Subsidy

August 25, 2009, 5:18 pm

Today's issue in Arizona:  Should our public utility be required to provide line extensions to new homes "for free" (meaning paid for by existing rate payers) or should homebuilders, developers, and home buyers have to pay the real marginal cost of their utility infrastructure.

It is another of those subsidy issues where "visible" jobs (ie jobs in new home construction) are held out as justification, while "invisible job losses (ie from higher electricity rates to existing customers) are not even mentioned.

One of the biggest sticking points in the case is whether it is fairer to charge new developments the cost of new lines or simply charge the existing 1.1 million APS customers higher monthly rates to fund free lines.

Proponents of free lines said it would only cost customers 80 cents a month for APS to reinstate free lines, but APS officials said that if growth picks up as the economy recovers, customers could be charged an average of $45 a year to fund free lines.

Why is this even a point of discussion?  A small group of people are attempting to make the majority buy them some goodies. The argument, as always, is that when the price of these goodies is spread across lots of people, its not really very much per person.  It is almost as if the rest of us are being made to feel churlish for not agreeing to fund their next housing development.

I am far, far, far from being an anti-growth guy.  But I agree with the anti-growth guys in one respect - it is perfectly reasonable for new developments to pay for the full incremental infrastructure cost of their development.

Tags: , , , ,
Category: Regulation
  • epobirs

    Sounds like an extremely simple question to me. The builders and buyers of new homes should bear ALL of the costs. Don't like it? find somewhere else to build or buy a new house. Buh-bye.

  • http://thebastidge.blogspot.com thebastidge

    A friend of mine lives on a dead-end street in Gresham Oregon (Portland) that has always been very quiet. About 3 years ago, the "empty" lots at the end of the street were sold to a developer. The developer put in high-density housing (condos) in line with city planning codes (R18).

    This required an upgrade to the water and sewer lines on that street. This cost was charged to every resident of the street, even though it was compeltely unnecessary for the existing residents, and only needed because of the new, high density housing which none of the existing residents were happy to have, on any level. The street is busier, noisier, and my friend was charged over $3000.00 for sewer upgrades, plus the mess and noise of construction.

    Now, nobody reasonable would say that the condo developer shouldn't be allowed to develop the proeprty they purchased, or that the noise and inconvenience to the existing residents would trump the developer's right to do business.

    BUT.

    There is no freaking way people who did not benefit should have to pay for things they didn't want in the first place.

  • Not Sure

    "There is no freaking way people who did not benefit should have to pay for things they didn’t want in the first place."

    My argument exactly for opposing bonds for construction of schools needed due to new development, when the existing schools are adequate for current residents.

    If the only reason you need to build a new school is that somebody built a thousand brand-new houses, shouldn't that somebody also pay to build the school needed to accomodate the kids who will be living in those houses?

    But no- it's for the children, after all. Everybody pays. Then again next year, there's a few more new housing developments, and another bond...

  • Michael

    Schools are probably a different situation. They're usual get so neglected that they are condemned and need to be replaced.

    Where I'm at, Mariemont Ohio, just east of Cincinnati, the people are so opposed to repairing or replacing the schools that the superintendent and board are trying to come up with a plan on where to house the students once the buildings have been condemned.The windows are 70 years old and the steel and cast iron heating and plumbing are rusting away. It's not a money issue. The school district has some of the highest income levels in the city. The people just believe that since duct tape fixes have worked for 70 years, they should work for another 70.

  • Not Sure

    Paying for the rebuilding of an existing school that is falling apart is not the same thing as paying for the building of a brand new one needed because a developer put in a couple of subdivisions in what used to be a cornfield.

  • Fox

    Once you accept taking money from many to benefit a few, there's no end to it. But then again, no businesses are working in a free market no more.

    In your example, a developer might ask any utility company to make lines to his new project. The utility company should be able to offer to either pay to it, or to build it for him for free (considering to recover its costs through raising fees). That should be a free market decision of the utility company. Now, each customer should be able to switch its utility company the same way we switch a cell phone if we don't like the rate (that's where rubber meets the road and what we as customers have totally lost our say in the matter).

    And speaking of schools, private schools for all with no public funding or taxation sounds like a good way to go. But then again, you should accept lots of unliterate youths. So maybe we do want to have at least some elementary education for all (so that everyone can read a contract before signing it; or that military has enough literate people)...

  • Bob Smith

    Now, nobody reasonable would say that the condo developer shouldn’t be allowed to develop the proeprty they purchased, or that the noise and inconvenience to the existing residents would trump the developer’s right to do business.

    Is Gresham within Portland's no-growth boundary? I thought Portland had declared developers evil and had them expelled.

  • Jerry

    My utility must be in the minority, but we require the developer or homeowner to pay for the entire extension to their property, including upgrading the line to serve their needs. We do however allow them to recoup some money if other people building along the new line want to connect.

  • Henry Bowman

    The utility should be able to decide whether to provide power (or other services) based upon whether it makes financial sense. After all, the folks in new homes will be purchasing power. It's a matter of cost versus future revenue, and mostly depends on population density.

    I know a fair number of people who live in fairly remote areas. They don't have grid power: they use solar, wind, gasoline or diesel generators, whatever. They aren't necessarily eco-wackos: they'd rather have grid power. But, it's simply too expensive to run the line to their dwellings.

  • DrTorch

    The irony of all this is that this just promotes urban sprawl. That is those same lackwits who want to regulate growth are now trying to stimulate it. All with other people's money.

    That's solid proof that they aren't concerned about people, or our "society". They are concerned about inserting themselves into every aspect of life, and making everyone else pay for it.

  • HS

    My parent's house was the 4th house in the subdivision. My mom went outside one morning and saw a power extension from the house used to build new houses. She unplugged it. They later said they would pay for the electricity but she didn't want the money, she just wanted them to at least ask.

    That is the worst part of this is not even asking.

  • James

    If you want the developer to pay for it (which really means the new homeowners are paying for it), then get rid of the property tax, or at least cut it to the point where it merely pays for maintenance on all the things you've already paid for (schools, roads, water/electricity/sewage).

    It's ridiculous that you, as a homeowner, have to pay for the construction of the house, roads, schools, utilities, not to mention parks and other "public goods" they make developers build, at least here in CA, and then you still get slammed with property tax, which is supposed to pay for all of these things but is of course diverted to other sources.

  • mahtso

    For me a potential problem with the "make the new people pay" argument is that most of us old people did not pay for our infrastructure (i.e., the cost was spread over the then existing customers). Should we all have to make a one-time rebate payment?

  • http://thebastidge.blogspot.com thebastidge

    Well, you don't have to build schools for empty houses, so I don't think the developer should pay for building new schools. The people who use the schools should be paying for that, and if we had private schools instead of taxpayer-funded schools, then that's exactly what we'd get: the right amount of school capacity in the right place at the right time, give or take a little bit of friction in transition. Of course, if we were payign directly for schools in a discrete and accountable manner, we probably would be paying less than we do now in property taxes, not to mention rarely needing school bonds etc.

    it wouod be very difficult and VERY expensive to have complete choice in terms of utility providers. I would be ok with simply removing barriers to providing your own water and electricity. Some places zone personal use out. In most cities, you can't have a septic tank any more, you are required to use city sewer lines (and pay for them). You are required to have city water (and pay for it), no wells. You don't get to evaluate the safety for yourself, it is strictlty condemned. Many places, you cannot put up solar panels or wind, can't use generators because of zoning and permit issues (this is changing because of statist eco-hysteria, not because of liverty concerns.)

    Even were it economical for a small company to take over, say a neighborhood and generate local electricity, they would not be allowed to go into business, as utilities have legal monopolies. Same with cable utilities.

  • Not Sure

    "For me a potential problem with the “make the new people pay” argument is that most of us old people did not pay for our infrastructure (i.e., the cost was spread over the then existing customers)." - mahtso

    You paid for it- just indirectly. It's true that when the schools/roads/etc. were built, the then-current property owners are the ones who paid for them. But when they sold the property to you, the value of those improvements was included in the price you paid. After all, if there were no existing schools/roads/etc., you certainly would have insisted on paying less for the property, right?

  • morganovich

    odd how there never seems to be a "libertarian blogger" subsidy...

  • Rob

    Same as subsidizing Solar and other "green" improvements on private property, why should the other ratepayers have to pay for it?

  • Fred from Canuckistan . . .

    To each, according to his needs (or ability to influence law makers)

    Isn't socialism grand ?

  • smurfy

    "I thought Portland had declared developers evil and had them expelled." - They welcome anyone who wants to build high density, bonus points if it will require a light rail extension.
    The worst part for your friend in Portland is that his home is now zoned for high density and has the sewer and water capacity for it so he is probably going to see his assessed value and property taxes rise as well. As a fan of old houses, I hate it when old neighborhoods get upzoned and the taxes replace homeowners with dental offices.

  • Bob Smith

    They welcome anyone who wants to build high density, bonus points if it will require a light rail extension.

    In other words, developers can build what politicians want, not what their customers want.

  • Michael

    I'm in the Cincinnati area and have Duke as the energy supplier. I, not the company, turned the gas off at the meter since I'm moving gas lines and ductwork. I was surprised to find a $30 charge on my gas bill today as I didn't use any gas. Apparently there is a $30 monthly fee for the privilege of have gas service to the house.

  • mahtso

    "You paid for [the infrastructure]- just indirectly.... After all, if there were no existing schools/roads/etc., you certainly would have insisted on paying less for the property, right?"

    Yes, I would pay less if there was no infrastructure. But, because the original owner did not pay to install that infrastructure, she did not make me pay her back (so I paid less than I would have under a make-the-new-people-pay system.)

    In a sense, I paid less than my house is worth because the cost of the infrastructure was paid for by the masses who came before me. And in exchange I must pay for the masses who come after me.

    Bear in mind, I am talking in generalities. And, in fact, my old home was sold many times before I bought it, so market forces may have negated the issue. The point I was trying to make is that making the new-comers pay is a change in the status quo. And, candidly, now that I have mine, I see the merit in it.

  • Not Sure

    "I paid less than my house is worth..."

    Worth to who? Unless the seller was forced to sell against his will, what you paid was *exactly* what the house was worth to him at that particular point in time.

  • Throughthewire

    Hey, the best answer is to deregulate the electricity production and delivery business then the free market determines the price. This idea is to simple for todays power and money grabbers.