The Portal: Stormwater fees illustrate Pareto and Kaldor-Hicks Improvements well

Rainwater pollutes rivers.

Well, OK, in fact rainwater has a way of picking up pollution in urban areas (like oil and trash) and moving it into waterways. Because of the speed at which large amounts of it moves over manmade surfaces (like concrete and asphalt), rain also tends to wash a lot more dirt into rivers than it would under natural conditions, and this is also bad for the water.

This situation hit me today when I watched the episode of The Portal where Eric Weinstein talks to Sam Harris. In it, Weinstein makes a distinction between a Kaldor-Hicks improvement and a Pareto improvement. It’s a compelling distinction and one that’s worth locking into your mind, and it hit me that rainwater as a problem is a good way of talking about it.

A better term for the two kinds of improvements might be “even” and “uneven.” So a Kaldor-Hicks change is one where society is net better off but some people actually get hurt. A Pareto improvement just improves things for everyone.

Kaldor-Hicks improvements are easy. Pareto improvements are really hard.

Solving the rainwater (usually called “stormwater”) problem takes a Kaldor-Hicks shape and it is (to me) fun to work through. Here’s the material that inspired this (but it’s honestly a mere smidgen of the conversation):

Oh, I wish it wouldn’t rain down quite so much

Remember Mississippi flooding in 2011? Tropical Storm Lee got pretty close to home for me then. In fact, 2011 was really just a rough year in rain, but it’s always bad somewhere.

Rainwater is one of those big environmental issues that you have to get pretty deep into environmentalism to wrap your head around, but it’s maybe the most consistently damaging ecological problem we’ve created. Every time a wall of water is rolls down a major river wiping river towns away as it goes, we all naturally think of that as a natural disaster. I mean it’s rain right?

No. These are not natural disasters. They are man made. (TV reporters please take note)

If you learn enough about how stormwater works in a world where humans are building things, you suss out that really we’ve managed to turn rain into a pollutant — which is crazy, but we did it. Those “floods” would not be floods if there weren’t parking lots all over the place.

Dirt absorbs a certain amount of rain. Grass absorbs even more. Bushes absorb more than that. Trees with bushes and grass absorb even more.

Normal concrete doesn’t absorb any. In a normal one inch rain event, 10 square feet of concrete puts 6 gallons into the pipes. A standard parking spot is 180 square feet, so that’s 108 gallons for every parking spot basically every time you need an umbrella.

And that’s all just immediately washed out to the stormwater system (the gutters and stormwater intakes you see on street corners). Most stormwater systems were built to handle the typical rain event for an area (which means there won’t be a flood, but yes a bunch of nastiness will be carried into the nearest river).

And of course there are edge cases and they are very nasty. Every major city on the East Coast is an edge case. It’s a really gross edge case. I’m not going to describe it here because it’s just too gross what happens every time it rains in these cities.

But if you really want to know (GROSS-OUT WARNING), look at this page on “combined sewer.” That’s what places like New York and Philadelphia have. My only objection to this page is it uses words like “may” or “sometimes.” This is not accurate for the biggest, oldest cities. It’s “always.” Those systems are so taxed that it happens sometimes when it’s not even raining (I’m not going to explain how I know this but look I know this). Then there’s places where rain leaks into piples (inflow and infiltration). Whole other thing. Anyway!


Rain is a problem.

All you need is pareto efficiency

Flooding is a classic death by a thousand cuts situation that only a hundred-thousand bandaids can fix. It all comes down to impervious surfaces. The amount of dirt a landowner has poured concrete over determines how much rain they add to the system.

Not many places but some places in the country actually impose a stormwater fee on landowners. For a long time this wasn’t anything but a revenue generator to cover the costs of an expensive obligation. Lately, some places are starting to look into ways to use these fees to encourage better stormwater management on site, which is good (there are tons of reasonable things a landowner could do, they just don’t tend to because they take up space and cost money).

Using stormwater fees as an incentive to mitigate stormwater on properties provides a great example of a Kaldor-Hicks situation.

So about a decade ago now I guess Philadelphia was going through a big rewrite of its stormwater fee scheme and I don’t actually remember what ultimately happened with it, but I had occasion back then to dig into the proposal pretty deeply.

The way it had worked was that Philadelphia charged commercial land owners a stormwater fee based on how much drinking water they used. This was because in about 85% of cases (don’t hold me to that number — it was close to all is the point) these two things lined up pretty well. Bigger parcels tended to use more water. Makes sense. Usually.

Sometimes it didn’t work out.

Hospitals, for example, used a load of water but sat on relatively less land. Same for high rise buildings.

Car dealerships and big box stores had oceans of land but didn’t really use much water.

Under the new scheme, the city was going to use satellite surveys of land to charge the fees and give people the option to mitigate rain on site to lower their fees. Now this was a big development because under the previous scheme you just got a fee and there was nothing you could do about it. So this was progress for every landowner, even setting the environmental benefits aside.

The scheme didn’t collect more fees annually, it just shifted them around in an attempt to encourage people to better manage stormwater. For most property holders, nothing really changed, but there were big winners and losers.

Hospitals got a huge savings. Car dealerships really got hammered. And these were big, big differences, too. Hundreds of thousands of dollars. Now, setting aside the question of whether or not this might have been inherently advantageous regardless (I’ll take fewer car dealerships and cheaper hospitals), it had a way of feeling unfair. Why did the terms of the deal suddenly change?

But we’re not here to adjudicate that. The point of this story is just to bring this concept home because it is a good thing for any member of a democratic country to keep in mind.

Here we had an overall good for everyone: a stormwater fee system that would encourage property owners, over time, to dump less rain into the city stormwater system, thereby causing less flood damage and less pollution.

But the solution really, really benefited certain property owners and hurt others just as much.

In this particular case, I think Federal law actually made it hard for Philadelphia to even these impacts out, but it’s still worth looking at a case like this to cement this fact: when the world improves it seldom feels good for everyone.

And it’s worth having a strategy for those secondary effects.