HERE WE GO AGAIN, I thought as I read the March 25 Journal article “Providence to look at sale of water system.”

In my four years as mayor, Cranston led the effort to defeat the attempts of various Providence elected officials to put a tax on the water from the Providence Water Supply Board received by Cranston, Johnston, North Providence, Warwick, Coventry, West Warwick, East Greenwich, East Providence, Lincoln, Smithfield, Barrington, Bristol and Warren. This tax would have raised water rates for everyone and the revenues would have gone to Providence to help politicians there plug the holes from their perennial budget mess.

Now that their financial problem is worse, these same officials think that a tax on water is not enough; they want the whole enchilada. Instead of making the necessary changes to reform Providence’s pension system, to avoid financial disaster, they are trying to seize the Providence water system, which was paid for by the customers of Providence Water and not the City of Providence. This is clearly wrong.

Point 1: The system belongs to us, not Providence.

The water system does not belong to Providence. It belongs to the ratepayers of the water system because they paid for it. Yet only former Providence Mayor John Lombardi seems to have a drop of understanding regarding this. To educate the elected officials in Providence:

Any sale and the rates to be set after such a sale would have to be approved by the state Public Utility Commission and the Division of Public Utilities. They have the jurisdiction on anything that affects rates and/or ratepayers.

Utility experts have testified in front of the commission (Woonsocket Water Docket No. 3800 on May 21, 2007) that it is the ratepayers who should get any sale proceeds from a utility asset. Walter Edge, a consultant for Providence Water, when asked about the possible sale of Woonsocket’s water system, answered, “I believe those proceeds should go to the ratepayers.” When another utility expert, Andrea Crane, was asked the same question on the same day, she answered, “My view would be that was purely a ratepayer asset and therefore the revenues, to the extent there are any, should accrue to the benefit of the ratepayers. . . . So I think ultimately the ratepayers should receive the benefit. This is not a situation where you have an investor who has put up his own funding and taken a risk with those funds and therefore may under certain circumstances be entitled to a share of the excess profits.”

The only reason that some of the money would belong to Providence would be if there were some depreciation left after a new plant was built and the money for that was put up by the city itself. Well, while we understand why Providence officials would like to see a mirage of water in the financial desert they have created, a little digging tells us that they have drilled another dry well.

First, we know from a 1983 decision by the Rhode Island Supreme Court, Roberts v. Providence Water Supply Board, that the City of Providence transferred millions of dollars from the sinking fund of the water board to the city’s general fund (up to $5.7 million) between 1967 and 1982, thereby gaining a return on any money that the city may have put in.

Second, we have a decision from 1988, in Order 12796, issued by the Public Utilities Commission in Docket No. 1900, which noted “the City of Providence last utilized its general obligation bonds to fund Board capital improvements in 1971.” Also, the commission declared, “Thus, it appears from the state of the evidence that the ratepayers, as distinct from the taxpayers of the city of Providence, have made the principal contribution to acquire the Board’s system.”

So there we have it. The City of Providence already ripped off the water system in the ’60s and ’70s, and anything the city put in has been depreciated to zero. Now it is the ratepayers who own the system, and stand to collect if there is ever a sale of system.

Point 2: Selling the system would raise rates.

There will be a major increase in rates for the hundreds of thousands of water customers in the affected cities and towns if private investors take over the water system.

While elected officials of Providence continue to deny basic rules of economics and human incentives (their yearly attempt to enact a “living wage” in Providence comes to mind), we can leave them to their folly until they try to hurt the rest of the citizens of Rhode Island. It is stated in the March 24 article that “if the system is sold to a private interest, it would not necessarily mean a water rate increase for customers.” Now, maybe the people who are endowing the new Providence superintendent of schools, or whoever funded the former Providence director of administration’s salary, will step in, but other than that, any investor would want a “return” on their investment.

So let’s take some simple numbers — so simple even the non-proficient 11th grade math students in Providence’s public schools will understand (and that would be nearly all of them). It costs roughly $60 million a year to run the Providence Water System. So, say someone miraculously does pay $400 million for the privilege and buys the system. Investors would expect a risk-adjusted return somewhere between risk-free U.S. Treasuries and a flyer on a start-up technology company.

So let’s say a 10 percent rate of return. The new owners need to make $40 million in profit to send back to investors, but they still have the $60 million in costs to run the system. So the cost to you, the customer of Providence Water, just went up about 67 percent. Everyone okay with that? I’m not.

Although there could be efficiencies if the water system were taken over by private investors, these efficiencies would, for the most part, be in the $26 million operation and maintenance line. Even a 30-percent reduction here (think people) sends rates up 53 percent! There is just no way to offset a new rate of return costing customers $40 million a year.

So there you have it. It is illegal and idiotic for the elected officials of Providence to try to steal this public asset to cover their self-inflicted financial problem. Regardless of the motives behind this proposal to sell the water system, in the end, while Providence may be submerged in its own bad decisions, we the taxpayers cannot let them drown most of Rhode Island’s citizens with taxes on our water.

Stephen Laffey is the former mayor of Cranston and author of Primary Mistake: How the Washington Republican Establishment Lost Everything in 2006 (Sentinel).