17 Mar 2009

Vegas Hits the Wall

...not because of water shortages but because of the real estate crash that has resulted in a 37 percent drop in home prices in the past year.

Why does this matter for water? Because the water district gets a LOT of money from the $6,310 fee it charges to connect new homes to the system. Once they are connected they pay VERY VERY little (an average of $21/month) for water, which may be why Pat Mulroy wants to spend another $3.5 billion to build an aqueduct to import more water (and "save" Vegas) from the dust.

Here (via ML) is a good excerpt:
“People view water as a human right and expect it to be virtually free,” says Michael LoCascio at Boston-based Lux Research Inc., which analyzes water issues. “Governments respond to that, and you end up with inefficiency.”

Without price-setting markets, water that cost 33 cents a cubic meter for the first 15 cubic meters delivered to homes in Memphis, Tennessee, in June 2007 was $3.01 in Atlanta and 57 cents in Las Vegas.

That’s cheap compared with Copenhagen, where the same amount that month was $7.71 per cubic meter, Gleick says.

Robert Glennon, a University of Arizona law professor, says governments must provide enough water for human survival. Beyond that, only freely functioning markets can allot it to people who need it most, he says.

Fast-growing cities should buy from farmers who use water on marginal land, says Glennon, author of “Unquenchable” (Island Press, 2009).


The Southern Nevada Water Authority is about halfway through a 30-year, $8.3 billion construction campaign. Last year, 57 percent of the money for it came from a $6,310 fee to hook up new homes. The Las Vegas real estate slump is so severe that total hookup collections dropped to $61.5 million last year from $188.4 million in 2006. Mulroy says the authority actually lost money on hookups in January because of refunds to developers who abandoned construction projects.

As a result, reserves in the construction fund dropped 6 percent in the first six weeks of 2009, to $480 million. Without those reserves, Mulroy says, she couldn’t assure investors the authority would be able to repay the $500 million in bonds she plans to start selling by early fall to complete the Lake Mead project. The authority had $3.9 billion in liabilities on June 30.

The authority also gets money from water deliveries, property taxes and fees from federal land sales. If she has to protect the reserves, Mulroy says, she’ll raise water rates, which total about $21 a month for a single-family home.

She’s asked fellow Nevadan Harry Reid, the U.S. Senate majority leader, for a federal guarantee on the bonds. Reid is exploring how to help big municipal water systems, including Mulroy’s, get easier access to credit,
Why, in the names of all the gods, does Mulroy "need" a federal guarantee when it charges SO LITTLE to water customers.

I think that Mulroy has to get her own house in order before she goes asking for water or credit guarantees elsewhere. Damn, it looks like a little too much time inside the Mirage has distorted her notions of "normal."

Bottom Line: Las Vegas (and other water-deficit cities) need to raise their prices and improve their operating efficiency before they can ask for help from those of us with sensible financial and aguanomical policies.