Association for Public Policy Analysis & Management

Special purpose water and sewer districts are often viewed as a way to leverage economies of scale by spanning multiple local general purpose jurisdictions, manage large scale infrastructure investments, and focus on specific service delivery challenges. On the other hand, the special districts add further complexity into an institutional environment already complicated by the transboundary nature of water resources, multilevel interactions between Federal, state, and local authorities, and overlap with other policy issues such as land use and development. This paper examines how the proliferation of water services districts--and resultant fragmentation of governance authority--can create fiscal conditions that hinder regulatory effectiveness, as providers who need to comply with Federal regulations such as the Safe Drinking Water Act (SDWA) and Clean Water Act (CWA) do not have the capacity to do while, while those with sufficient financial capacity have no need for further investment. Given such fragmentation, it is unclear if existing regulations can induce compliance, since providers who are out of compliance might lack the capacity to act regardless of penalties.  

Research Design

This project pairs longitudinal data on SDWA and CWA compliance between 2000 to 2015 by all water and sewer service providers in the state of Texas with financial records (e.g., debt financing) for each provider and indicators of district capacity such as tax base condition in order to understand how institutional fragmentation creates situations where special districts in violation lack the capacity to invest in compliance while special districts in compliance have the capacity.

We use a Bayesian multilevel longitudinal regression model to examine how SDWA and CWA compliance history, coupled with key district capacity variables (e.g., property tax valuations and local growth and development indicators), relates to investment in water and sewer infrastructure. Net of key capacity indicators, we test whether enforcement actions have any influence on infrastructure investment by special districts. The multilevel specification models time-specific district observations as nested within a given district; relative to a fixed-effects method, this method has the advantage of enabling active modeling of covariates at both levels of the model (time-varying characteristics such as compliance history and property values at the first level and time-invariant characteristics such as district size at the second level). The Bayesian formulation accounts for potential measurement errors and sparseness associated with empirical administrative data by examining the probability of parameter estimates given observed data.

Implications for Research and Practice

Regulatory policy tools use fines and penalties to influence behavior. However, if local service providers lack the ability to take actions to avoid incurring penalties, than enforcement will not make any difference for policy outcomes. As local public service delivery becomes increasingly fragmented, it is critical to consider whether longstanding regulatory strategies for delivering environmental goods and services are robust to such fragmentation. This analysis provides an empirical assessment of whether local service providers are able to respond appropriately to regulatory measures, and will directly inform policymakers about how local institutional conditions might require alternative policy approaches going forward.