An Ally of the People: Good Governance and Sustainable Finance for Environmental Services

In honor of the UN’s World Water Day, a group of us from the Environmental Finance Center attended last month a performance of the play, “An Enemy of the People,” at Playmakers Theater here on UNC’s beautiful campus. It was well done and featured timeless, dramatic themes such as the struggle of one man’s battle to awaken the conscience of the community, the role of a whistleblower, the struggle to protect one’s family, and more. But the play also revolves around environmental finance and governance themes, which got me to wondering: How might this story (essentially set in nineteenth century Norway) fare differently in our own time and place? What different options for protection of public health and promotion of sustainable finance would governments, utilities, and the people have today, especially in regard to safe, clean water?

“An Enemy of the People” was originally written in 1882 by the Norwegian playwright, Henrik Ibsen. The American dramatist, Arthur Miller, adapted the play in 1950, and this is the version that Playmakers staged so grippingly. As the playbill describes, it is “the story of a town whose economic viability is threatened by an environmental whistleblower, and the town’s reaction to his news.” The town is supporting the construction of a spa considered key to promoting tourism and securing the economic future of the community. The bath houses at the spa will use water that the protagonist, Dr. Thomas Stockmann, the medical officer at the new Municipal Baths, discovers is contaminated by potentially lethal levels of pollutants in the water, the source of which is downstream from a nearby tannery which is emitting the pollutants. Dr. Stockmann speaks out against opening the spa on schedule, for fear that customers will become sick or die. This brings him into conflict with the Mayor (his elder brother, Peter Stockmann, who also is head of the spa’s Board of Directors), and Dr. Stockmann ultimately is tarred as “an enemy of the people” for standing in the way of “progress.” So how might a similar situation (e.g. for a drinking water utility, rather than a spa) fare differently in early 21^st century North Carolina, or elsewhere in the U.S?

Board Governance

Miller’s adaptation of the play does not have a clear setting of time and place, contributing to its timeless character. But it still retains the sense of taking place in a nineteenth century European locale that seems largely, if not totally, devoid of modern regulations and standards to which we have become accustomed. For example, today we would have every expectation of meetings of any public entity’s Board being subject to open meeting laws, public hearing laws, and Board governance laws (e.g. as described here and here for the state of North Carolina on the UNC School of Government’s “Coates’ Canons” blog), taking place using traditional rules of parliamentary procedure and best practices for conducting meetings, and ethical requirements for Board members. For example, it seems unlikely that the Mayor of a town would also be the head of a for-profit spa in the community, or at least not without the Mayor, and other officers, fully disclosing the extent of their financial investments / material interests in the project. Board members with such vested interests might also be expected to recuse themselves from key votes on such a project.

Regulation and Timing

One of the problems that the town faces is that, according to the Mayor, if the spa project is halted, the negative consequences will be multifold. The Mayor asserts the needed repairs will require the opening of the facility to be delayed by two years. This will then delay job creation, tourism income, and will allow nearby communities to “get a jump on us.” And the repair costs, according to the Mayor, can only be financed one way: a flat tax leveled on all citizens of the town. The Mayor and Board are unwilling to consider any alternatives, and thus demand the protagonist, Dr. Stockmann, must stay silent on the public health threat and allow the spa to open on schedule.

Of course, the decision on where to site the spa must have been made some time ago – probably years ago. In the United States today, numerous laws would come into play from the very start of such a project. For example, when looking at where to site a drinking water utility, or other projects that may have an environmental impact, the National Environmental Policy Act (and its state-level equivalents) would require that at least an Environmental Assessment (EA) be conducted. If a more in-depth issue is uncovered by the EA, a more comprehensive Environmental Impact Statement would then be required. All of these documents would be made available to the public, and would evaluate whether or not the proposed project would be compliant with relevant federal, state, and local environmental laws and regulations, such as the federal Safe Drinking Water Act and Clean Water Act, among others.

Also, when a private developer is in need of environmental services and associated utility infrastructure to support their new development, if they are concerned that the local government entity may not move fast enough for their timetable to, for example, build out some new drinking water infrastructure that connects up to their development, there may be other options. For instance, a developer could reach an agreement with the local government that the developer would build out new infrastructure at their own expense / on their own timetable, and then give the infrastructure to the local government utility. In exchange for this, the developer might receive tax incentives, or the reduction or waiver of tap fees and system development charges, or some combination thereof.

Finance and Equity

In the play, once Dr. Stockmann brings forward the data on the dangerously polluted water source for the spa, the Mayor asserts that the only available option to finance repairs and improvements (so the source water will be properly treated) is a flat tax assessed on all the citizens of the community. This appears to be done in a politically cynical way by the Mayor and Board, as they are trying to gin up as much popular opposition as possible to Dr. Stockmann and his report. Here and now, a variety of alternative environmental finance options exist.

The question of equity in regard to finance seems important here. The Mayor and Board never even broach the idea of the well-heeled investors / developers being “on the hook” for the cost of the improvements – they are determined to shift the cost to all taxpayers in the community. A somewhat similar question for a water or wastewater utility today could be: what are the differences between our customer base in our service area, versus the citizens of our municipality/county, and how should that affect who pays for what?

Some residents of a municipality or county might not be on the local government utility’s sewer system – they might have septic instead. Or a water utility might have “outside customers,” located outside the corporate limits, as well as their “inside customers.” Hence instead of using, say, a property-tax-only approach (likely tied to the general fund), it’s more probable that a best practice would be to use revenue from customer rates and one-time fees to build up a fund balance in the water & sewer enterprise fund (or its associated capital improvement fund) to pay cash for the project. Or to use that revenue to pay debt service on a low-interest loan from the state revolving fund, USDA, etc. This ties the costs of the improvements more directly to the people (customers of the system) who will benefit from the improvements – rather than solely to taxpayers. Of course, this is a fairly complex question, so in the case of North Carolina you might also look at my colleague Jeff Hughes’ fine blog post on taxes and environmental finance, which also references a 2014 survey by the EFC on “Borrowing for the Big Stuff: Overview of Local Government Water and Wastewater Debt in North Carolina.”

Of course, we certainly still have hotly debated environmental issues today – and plenty of unresolved questions. But given all the strides we have made on protecting air, water, land, and public health, and figuring out how to pay for it in a sustainable way, I’d much rather live in the here and now than in the town depicted in Miller’s / Ibsen’s play. Because good governance, well-crafted regulation, and sustainable environmental finance are all, in the end, an ally of the people.