State policy makers should encourage full, or "marginal," cost pricing for
public services, particularly infrastructure services. Markets can coordinate resources
efficiently only if the full costs are accurately incorporated into price information.
Privatization — turning over government services to private providers — would ensure
infrastructure costs were fully priced since private companies cannot systematically
subsidize their patrons, as government can.
Privatization of water and sewer services is already well established policy nationally
as well as internationally. Nationally, 509 publicly owned wastewater treatment facilities
are operated by private companies and market analysts expect this market to grow 15 to 20%
each year. Privately owned and operated water companies serve roughly 15% of the U. S.
market, and 433 facilities are publicly owned and privately operated. Privatizing roads
could be accomplished by devolving responsibility for building and maintaining roads to
neighborhood associations, developers, and special taxing districts.
These strategies will minimize the potential for "cross-subsidization" of
services and land development — where the revenue from a profitable service or
development must be used to offset the costs of another money - losing service or
development. They will also ensure that fees are borne by those who directly benefit from
the use of particular services.