Does Commercialization Undermine the Benefits of Decentralization

Does Commercialization Undermine the Beneﬁts of Decentralization for Local Services Provision? Evidence from Mexico’s Urban Water and Sanitation Sector

VERONICA HERRERA * University of Connecticut, USA

Summary. — Decentralization has been promoted as a means to better reflect citizen preferences and improve local services. Many developing countries decentralized and promoted neoliberal policies such as commercialization simultaneously, leaving mayors with the responsibility of improving public services through self-financing reforms. This study evaluates experiences in three Mexican cities to assess whether decentralization and commercialization practices have resulted in improved water and sanitation services. It finds that commercialization has increased social conflict surrounding urban services provision and that local institutional constraints further undermine mayor’s ability to adopt politically contentious policies. The result has been stalled and uneven service improvements. Ó 2013 Elsevier Ltd. All rights reserved.

Key words — Latin America, Mexico, water, decentralization, commercialization, public services

1. INTRODUCTION takes” to improve public services through self-financing reforms that may face considerable political resistance? Effective local government can be a catalyst for develop- This paper argues that when combined with neoliberal com- ment. Democratic transitions and decentralization reforms mercialization practices, “bringing services closer to the peo- have brought the importance of local government perfor- ple” can increase political conflict surrounding public mance to the forefront of development studies (Andersson, services delivery, which can adversely affect public services Gibson, & Lehoucq, 2006; Angell, Lowden, & Thorp, 2001; performance. In addition, the intense political conflict that Crook & Manor, 1998; Grindle, 2007; Larson, 2002; Olowu commercializing public services occasions can undermine the & Wunsch, 2004). Local government’s ability to “deliver” potential benefits of decentralization, such as increased user increasingly determines citizens’ access to quality public ser- buy-in for services, participation, and accountability. This pa- vices, economic development opportunities, and local environ- per makes two arguments based on evidence from Mexico’s mental resources. Positive local government performance has urban water and sanitation (W&S) sector. First, following not only been associated with important development out- decentralization, local governments were made to adopt com- comes, but also with bolstering citizen’s perception of demo- mercialization practices as part of a wider neoliberal reform cratic governance more broadly (Hiskey & Seligson, 2003; package that generated extensive social backlash. Commer- Weitz-Shapiro, 2008). cialization featured dramatic tariff increases and stringent col- Policymakers have argued that when services are “brought lection enforcement that were politically unpopular due to a closer to the people,” citizens may be able to more effectively long history of subsidized or free water service. Although poor hold governments accountable for service improvements. 1 service quality is not without political costs to mayors, the dis- Proponents have reasoned that locally administered services satisfaction consumers have with services is often diffuse and would better fit local needs and citizen preferences, increasing disperse, whereas price increases, particularly given the delin- accountability and government responsiveness, because citi- quent services being provided, are more likely to generate zens—as participatory agents—would have a more direct acute backlash. Second, important institutional constraints interest in, and provide support for, better government. 2 at the municipal level further impeded the adoption of socially While a broad literature has examined factors that shape contentious commercialization policies. These institutional decentralization outcomes, less attention has been paid to constraints include three-year municipal administrations, a how neoliberal policies shape decentralization 3 outcomes in prohibition on immediate re-election, administrative local services provision. Neoliberal, or market-oriented, policies for public services include eliminating subsidies for service provision, implementing commercialization strategies to re- * I would like to thank Colleen Phelan, Gabriela Tafoya, and Stephanie cover costs of services through user fees, and generally apply- Ullrich for research assistance. The research for this project was supported ing business management strategies. Decentralization and by the Fulbright Institute for International Education program, the neoliberal policies for public services have been frequently University of California Institute for Mexico and the United States (UC promoted in tandem, which makes the lack of attention to MEXUS) Dissertation Research Grant, and the Simpson Memorial how these two processes interact surprising. This study at- Fellowship at the Institute for International Studies at the University of tempts to fill this lacuna. How do neoliberal policies affect California, Berkeley. I am very grateful to Kent Eaton, Lindsay Mayka, the potential benefits of decentralization when administered Jennifer Brass, Jefferey Sellers, and three anonymous reviewers for at the local level? What types of institutional constraints do thoughtful suggestions on this draft, and Alison Post and Ruth Berins municipal governments face when contemplating the adoption Collier for extended feedback on the overall project. Final revision acce- of neoliberal policies? Do local governments “have what it pted: October 5, 2013. 16 EVIDENCE FROM MEXICO’S URBAN WATER AND SANITATION SECTOR 17 appointments that follow the electoral calendar, and a lack of of W&S in each state would help to make this conclusion more a civil service program. These constraints have shortened the definitive. policymaking window of municipal government and further The next section situates the argument around debates in the weakened its capacity to govern. Taken together, these politi- literature, and Section 3 reviews the federal promotion of cal and institutional challenges have compromised the ability decentralization and commercialization in Mexico’s W&S of urban governments to improve public services through sector. Section 4 presents available data for a wider range of self-financing reforms after decentralization. cities in Mexico and Section 5 examines three urban cases to evaluate the impact of commercialization policies and local (a) Methods institutional context on W&S performance after decentralization. I utilize “process tracing” to examine how macro level processes interacted with local level context to create disincentives to improving local services. This study examines Mexico, a 2. DECENTRALIZATION, COMMERCIALIZATION, country that has experienced an extensive amount of both AND GOVERNMENT PERFORMANCE decentralization 4 and neoliberal policies, and selects the W&S sector, which 79% of all Mexican mayors list as the most Despite its theorized benefits, much of the literature examin- important municipal responsibility (Moreno-Jaimes, 2007a, p. ing decentralization and local government performance finds 142). Process tracing unpacks the causal mechanism as a se- that decentralization has not turned out to be a panacea in quenced “chain of events” (Beach & Pedersen, 2013; Bennett, practice. Studies have found that decentralization may exacer- 2010, p. 209; Falleti & Lynch, 2009); specifically the study bate regional inequalities (Mizrahi, 2004; Prud’homme, 1995, traces how two-macro-level processes—decentralization and pp. 202–205), be captured by local elites (Blair, 2000, p. 25; neoliberal commercialization—interacted with the political Boone, 2003; J. Fox, 1994; Selee & Tulchin, 2004, pp. 309– and institutional context within Mexican municipalities to dis- 310) or hampered by local-level corruption (Prud’homme, incentivize the adoption of cost recovery, adversely affecting 1995, p. 211; Veron, Williams, Corbridge, & Srivastava, service outcomes. This qualitative method allows me to under- 2006). Coordination problems within government (Fiszbein, score the “decision process” actors used, what stimuli actors 1997, pp. 1039–1040; Francis & James, 2003, p. 333) as well responded to, and the impact of institutions on behavior as aid agencies (Smoke, 2003, p. 13) may also undermine local (George & McKeown, 1985, pp. 21–58). I utilize evidence performance. 7 Others have noted that decentralization strate- gathered during extensive field research that entailed 180 in- gies have in some cases reinforced central control (Dickovick, depth interviews, data collection from internal government 2007; Eaton, 2001; Wunsch, 2001), and in other settings made documents, newspaper articles, and archival material. The municipalities dependent on intermediate tiers of governments causal leverage of this study is gained from “within-case” anal- (Fenwick, 2010, pp. 166–176; Grindle, 2007, pp. 29–33). ysis, which methodologists have recently noted provides great- A number of studies are more optimistic about local govern- er causal inference than controlled case comparisons with a ment performance outcomes after decentralization. Numerous small number of cases (Beach & Pedersen, 2013, pp. 81–82; studies have examined how participatory governance institu- Brady & Collier, 2010, p. 10; George & Bennett, 2005, Chapter tions can bolster government performance, 8 and how strong 8; Goertz & Mahoney, 2012, pp. 87–90). civil society networks increase the effectiveness of local policy- Three municipal cases are presented to demonstrate the dif- making after decentralization (Agrawal & Ostrom, 2001, p. ferent pathways through which political conflict and institu- 508; Andersson et al., 2006, p. 580; Devas & Grant, 2003, p. tional constraints can impede service improvements. 5 I select 315; Faguet, 2009; Fiszbein, 1997, pp. 1034–1035; Kauneckis three of the largest urban centers within the same state govern- & Andersson, 2009; Tendler, 1997). Many studies emphasize ment, Mexico State (Estado de Me´xico): Naucalpan, leadership as a key ingredient for improving local government Nezahualcoýotl (Neza), and Toluca. Mexico State is an eco- performance after decentralization. Decentralization can ush- nomic powerhouse: it has the highest Gross Domestic Product er in educated and capable mayors, whose leadership and (GDP) contribution of any state, at 8.8% of GDP, and it is innovation may transform city hall (Cabrero-Mendoza, also the most densely populated state in Mexico, with 13.8% 2000, pp. 377–378; Fiszbein, 1997, p. 1033; Gilbert, 2006, of the population (CNA, 2011a, p. 16). Mexico State is a crit- pp. 404–405; Grindle, 2007, pp. 85–104). Mayors may play a ical case for examining whether decentralization and commer- crucial role in determining whether decentralization man- cialization policies have helped improve public services in dates—in many cases from above—will be implemented Mexico more broadly. Such a wealthy state would be the least (Andersson et al., 2006, p. 577; Devas & Grant, 2003, p. likely to have public services deficiencies, so if we identify ser- 315). Even instances of increased civic participation have been vice problems within Mexico State’s urban centers, we are linked to mayoral initiative in sponsoring spaces for delibera- likely to see them throughout the country in poorer and less tion and accountability (Andersson & Laerhoven, 2007; Fisz- industrialized regions. Selecting cities within one state govern- bein, 1997, pp. 1034–1035; Van Cott, 2009; Wampler, 2007, p. ment allows me to hold constant a number of important fac- 4). While mayoral will is important for municipal reform, I ar- tors that would vary more widely in cross-national designs gue that decentralization strategies may be part of a larger (Snyder, 2001), and further control for variation in state level package of policies that when taken together, hinder the abil- policy toward urban services. 6 However, these cities, with var- ity of mayors to improve government performance despite ied geographies and water availability, and varied political best intentions or innovative policymaking. Specifically, when competition and socioeconomic class makeup, also reflect decentralization is accompanied by unpopular commercializa- the type of geopolitical variation found throughout Mexico. tion policies, mayors may lack the political incentives to re- Finally, I present data for a larger number of cases, including form services. national averages, and taken together, I argue that the data Commercialization of public services has been a pervasive suggest that the challenges faced by these three cities after policy initiative in many developing countries around the these macro-level reforms plague the majority of Mexican world and has been promoted as part of a wider package of municipalities, although future research into the conditions neoliberal policies for the public sector. These policies are 18 WORLD DEVELOPMENT ideologically consistent with New Public Management Furthermore, mayors often control city council agendas with- (NPM) 9 strategies designed to modernize government out counterweights, replicating systems of centralized control through the application of market principles (Barzelay & at the local level (Cabrero-Mendoza, 2000, p. 380), and mak- Armajani, 1992; Batley & Larbi, 2004, pp. 31–53; Islam, ing reform agendas overly dependent on the mayor’s will. 1993; Osborne & Gaebler, 1992). NPM strategies have in- These types of institutional constraints—all of which are per- cluded managed competition, performance contracts, the cre- vasive in Mexico—weaken local policymaking capacity and ation of autonomous service providers, 10 and promoted full make even the most innovative mayors’ reform agenda subject cost recovery through the rigorous application of user fees. to policy reversal. The possibility of passing socially conten- Based on these market-oriented tenets, the public sector has tious reforms and making them “stick” in the long-term is also adopted private sector accounting and budgeting prac- an overwhelming challenge in this type of weak institutional tices, the use of performance indicators, outsourcing of por- environment. tions of services delivery, the use of external consultants, and the concept of the citizen as customer. In the W&S sector, commercialization has been widely adopted (Bayliss, 2008; 3. BACKGROUND: FEDERAL ADOPTION OF Dagdeviren, 2008; Furlong & Bakker, 2010; Gilbert, 2007; DECENTRALIZATION AND COMMERCIALIZATION Krause, 2009; Morgan, 2011; Nickson & Franceys, 2003; POLICIES IN W&S Smith, 2004). These reforms have also been promoted in other urban services, such as trash collection, electricity, and trans- (a) Conditions prior to reforms: centralization and subsidies portation (Gilbert, 2006, p. 406; McDonald & Smith, 2004, (1946–1976) pp. 1469–1470; Mehta & Pathak, 1998; Miraftab, 2004, pp. 876–877) and health care and education (Colclough, 1997; Gil- Like many countries in the west, the history of Mexico’s son, 1997; Nolan & Turbat, 1995). While a handful of studies water management has vacillated between local (pre 1946), stress that reforming services largely through cost recovery centralized (1946–1976), 13 and local (post 1980s). Although provokes social backlash (McDonald & Ruiters, 2005; Mor- the 1917 constitution designated water services as a municipal gan, 2011; Smith, 2004), less is known about why commercial- responsibility, Mexico’s federalist system was highly con- ization of public services is politically unpopular and how the trolled by the center, and water services were no exception. political challenges of commercialization may undermine The creation of the National Water Ministry (Secretarıáde decentralization objectives. Recursos Hidraúlicos, or SRH) in 1946 centralized many exist- Commercialization of services provision entails breaking ing local water systems and began a period of network expan- with historic clientelist exchanges of subsidized services in ex- sion throughout the country under one-party Partido change for political support. For W&S, commercializing ser- Revolucionario Institucional (PRI) rule. PRI officials recog- vices implies steep tariff increases, stringent collection nized the role of water for irrigation as central to economic practices that suspend service for non-payment, the elimination development, but also viewed developing urban water services of clandestine (or informal) connections, and the introduction as fundamentally important for development objectives (Abo- of metered service or pre-paid meters. These practices can be ites, 1998, p. 162; Whiteford & Melville, 2002, p. 16). By 1973, especially contentious for the urban poor who are dispropor- the SRH operated water systems directly in 554 cities, and tionately disadvantaged by tariff hikes and rely heavily on clan- indirectly financed and administered at least 400 other systems destine connections. Commercialization of services can throughout the country (World Bank, 1976, p. 25). engender extreme dissatisfaction, litigation, and mass mobili- Control of these systems from the center was pervasive: util- zation. Mayors may also find commercialization unappealing: ities were managed from Mexico City in a top-down fashion, they may want to avoid social backlash, continue to benefit making it difficult for local operators to even change a water from clientelistic exchange, or prefer not to expend resources valve without authorization from the center. It was common in collecting fees. These challenges can be exacerbated in new for the federal government to construct a local water project democracies where new parties may be governing at the local without any input from local leaders or citizens, and then level for the first time. If centralized governments thought it transfer systems to locals who felt little ownership of the pro- politically expedient to subsidize services historically, I argue ject and had few system maintenance resources (World Bank, that local governments are even less poised to adopt socially 1992, p. 45). contentious commercialization practices. Centralized control of water systems was further reinforced In addition, local governments often suffer from administra- by subsidized financing schemes. Water fee structures were tive shortcomings that hinder performance, such as inexperi- outdated and there was no “consumer base;” citizens received enced and under-qualified staff (Crook & Manor, 1998, p. water free of charge or for a token fee. One federal document 287; Wunsch, 2001, p. 281). Mexican municipal employees notes that payment was often not collected, metering was min- are often inexperienced due to a lack of a local civil service, imal, and water prices remained low (SARH, 1976, p. 291). and cronyism in personnel appointments (Cabrero Mendoza, Table 1 shows 1960s tariffs ranging from $MXP 0.68–0.74, 2007, p. 166; Camp, 2003, pp. 117–122; Moreno-Jaimes, but official figures indicate that the average cost of providing 2007b). Other shortcomings of municipal government are service ranged from $MXP 1.50–1.75 (SRH, 1973, p. 208). structural, such as prohibitions on immediate re-election, short Prices were not only low for domestic consumers, one study three year administrations, and the lack of legal authority to notes that commercial and industrial users were charged only mandate legislative action, leaving municipal policies “non-rat- 30% of the long-run marginal cost of providing service (World ified” in legislation and prone to policy reversal (Cabrero-Men- Bank, 1990, p. 13). A 1964 international mission notes that doza, 2000, pp. 379–380). “even though operating agencies admit their water rates are Examples of these institutional constraints are found too low, both in respect to costs and to the capacity of the peo- throughout Latin America. 11 For example, re-election is pro- ple to pay, the rates have not been sufficiently increased be- hibited in countries such as Mexico, Guatemala, Honduras, cause of inertia and political considerations” (World Bank, and Paraguay. 12 And in many countries, local government 1964, p. 2). Another observer notes: “fees collected...seldom administrations are relatively short, from 2 to 4 years. cover[ed] the maintenance costs of the water supply EVIDENCE FROM MEXICO’S URBAN WATER AND SANITATION SECTOR 19

Table 1. Water tariffs in 1960s Mexico Table 2. Private participation in Mexico’s water and sanitation sector Population Price per m3 ($MXP) PP type Project count >2,500 $0.68 Concession 5 2,500–5,000 $0.73 Greenfield projectsa 24 5,000–20,000 $0.67 Management & lease 1 20,000–50,000 $0.71 Total 30 50,000–100,000 $0.68 Source: PPIAF. Downloaded April 2012. >100,000 $0.74 a Includes build, lease & transfer (BLOT); build, operate & transfer (BOT) Source: SRH (1973). and build, own & operate (BOO). system...people are simply not accustomed to paying for water” (Rodrı´guez, 1997, p. 120). loan conditions mandated operating rules that strengthened Economic crisis and demographic growth revealed the cen- commercialization practices for urban utilities. APAZU re- tralized era of water provision to be financially untenable by quired “performance based financing,” whereby urban utilities the 1970s. Many connections suffered from poor service qual- were to raise “matching funds” through cost recovery in order ity, leading the population to suffer a relatively high incidence to qualify for APAZU funds for infrastructure development. of water-borne disease and a child mortality rate of over 70 IFI loan conditions mandated that the CNA eventually elim- times that of the United States (World Bank, 1975, p. 10). inate grant based subsidies to the sector, and sector financing 70% of urban populations had access to piped water, and sew- derived from IFI loans follow APAZU operating rules (World erage coverage was much lower at 40%. The unreliability of lo- Bank, 1990, p. 11). cal systems led many businesses to operate their own In order to access APAZU funds, urban utilities would have boreholes; indeed, the share of industrial and commercial con- to be decentralized to the municipal level and operate with le- sumption totaled only 10% of total consumption in 1990 gal, fiscal, and administrative autonomy from city hall (World (World Bank, 1990, p. 5). Bank, 1990, pp. 15–17). A legally autonomous water utility has independent legal character in court (can sue or be sued). (b) Decentralization and commercialization policies Fiscal independence implied the ability to generate internal (1980s–2012) revenue from user charges, set budgets and determine expenditures, and receive federal revenues directly. Administrative Decentralization and commercialization practices were two autonomy signified independence in hiring decisions and oper- distinct policies promoted in the urban W&S sector under a ational policy. Proponents hoped that by creating autono- larger rubric of public sector reform in Mexico. 14 Decentral- mous utilities, mayors would be blocked from intervening in ization of water services began with the dismantling of the daily operations and fiscal accounts. The policy objectives SRH in 1976. In 1980, a presidential decree transferred for APAZU were reflected in the National W&S Program 1,549 federally administered systems to state and municipal for 1989–1994, which emphasized treating water as an eco- governments (DOF, 1980; SAHOP, 1981), and in 1983, a con- nomic good, cost recovery, service suspension for non-pay- stitutional amendment to Article 115 mandated decentraliza- ment, and “performance-based” financing schemes (CNA, tion of water services to municipalities. By the time the 1993, pp. 47–48, 59–68). APAZU operating rules prompted National Water Commission (CNA) was created in 1989, it most major metropolitan cities to create legally autonomous 17 was designed to be an institutional rector for (among other utilities and as of 2009, a total of 2,571 legally autonomous things) promoting decentralization and commercialization, utilities have been created, 637 of which serve populations 18 but unlike its predecessor, was not to deliver services directly. over 20,000 (IMTA, 2011). In the event of municipalities being unable to provide services, Have decentralized W&S utilities been able to improve ser- state governments became the “provider of last resort.” vice provision through commercialization reforms? The fol- Concurrently, international financial institution (IFI) policy lowing section provides a general overview of utilities influenced both decentralization and commercialization prac- performance in Mexico that suggests that utilities are, on aver- tices in the urban W&S subsector, as part of a broader neolib- age, generally underperforming after the implementation of eral multi-sector water reform (including urban, rural, these twin reforms. irrigation, and watershed management) (Wilder & Romero Lankao, 2006). IFI loans in the urban W&S subsector that began in 1975 15 and expanded in the 1990s promoted a new 4. MEASURING AND COMPARING W&S market oriented federal policy in urban W&S. A National PERFORMANCE IN MEXICO Water Law in 1992 reflected the changing global water policy environment of treating water as an economic good, permit- Against what metrics should Mexico’s W&S sector be as- ting private sector participation (PSP), and allowing for trad- sessed and how should performance or underperformance be able water rights. Despite considerable promotion of measured? International benchmarking indicators for the privatization in the 1990s, privatization contracts for W&S W&S sector measure performance by “core” indicators such have been limited. Table 2 describes a total of 30 contracts, as coverage, physical efficiency of the network (volume con- which account for less than 2% of all water services in the sumed/volume produced and volume billed/volume pro- country (INEGI, 2009, p. 9). 16 duced), and fiscal indicators such as commercial efficiency The more pervasive policy has been promoting commercial- (revenue collected/revenue billed) and % metering (see IB- ization practices within the public sector for decentralized, NET, n.d.). Additional measures, such as service intermittency municipal utilities; a policy agenda aided by IFI loans. In and water quality/potability, help provide a fuller picture of the early 1990s, the federal government created a program service quality. called APAZU (Programa Nacional de Agua Potable y Using these types of measures, I evaluate the level of Alcantarillado en Zonas Urbanas) (see Appendix A), where “success” of the current state of Mexico’s W&S sector by 20 WORLD DEVELOPMENT assessing whether there have been improvements over time consumer of bottled water, increasing from 157 liters per with respect to the stated goals of federal level policymakers capita in 2003 to 480 liters per capita in 2010 (IADB, 2010, implementing decentralization and commercialization. 19 p. 15). While water-related health indicators have improved These goals were to increase coverage, the physical efficiency over time in Mexico, 24 they remain worse than other upper- of systems, water quality and reliability, increase internal rev- middle income countries in Latin America; the mortality rate enue generation, and decrease reliance on federal subsidies associated with intestinal infectious disease in Mexico in 2005 through cost recovery, and decrease environmental pollution was twice as high as in Argentina, four times as high as in (CNA, 1994, pp. 9–10; World Bank, 1990, pp. 10–16). It is dif- Costa Rica, and 15 times as high as in Chile (World Bank, ficult to measure performance in Mexico’s W&S because of 2005, p. 28, footnote 56). The pervasive “opting out” of tap poor record keeping and the pervasive manipulation of perfor- water ingestion in Mexico suggests that widespread mistrust mance figures by utilities attempting to access federal funds of municipal water may be due to poor water quality that based on high performance. 20 The figures published by the has either decreased, or failed to noticeably improve over CNA are self-reported, and there is no independent verifica- time. 25 tion to confirm their accuracy (Interviews #13, 19, 28). Never- Fourth, although there are no reliable figures on water util- theless, CNA figures, while imperfect, provide the only ity revenue generation in Mexico, available data on the extent available national averages of sector performance, and wher- to which utilities have become fiscally self-sufficient are dis- ever possible, I have included other data collected during field couraging. While CNA data show a national average of research that lends further evidence for the conclusions being 73.8% of commercial efficiency in 2012 (CNA, 2012, p. 60), drawn. up from 46.2% in 2000 (CNA, 2000, p. 23), an analysis con- Initial observations of increased performance seems promis- ducted by IMTA of CNA figures (using a different sample ing: in 2010, Mexico had a national average of 91.2% water population) shows that commercial efficiency as a national coverage and 89.9% sanitation coverage, increases from average has increased by only 1% in the last decade (IMTA, 81.9% to 65% respectively, since 1991 (CNA, 1992, p. 10, 2011). 26 In addition, the amount of metering as a national 2011b, p. 22). This varies by state, as evident in Appendix B. average has not increased substantially, with CNA figures reg- However, coverage data can be misleading and obfuscates istering a considerable decrease from 67.4% in 2003 to 47.4% serious deficiencies in service provision as measured in other in 2011, and IMTA figures (using a different sample popula- types of performance figures. tion) registering a 3% increase during the same period (IMTA, First, the amount of non-revenue water (volume billed/vol- 2011). These figures present limited increases or even decreases ume produced) in urban centers is approximately 47% (CNA, in commercial efficiency and metering by the part of utilities 2010, p. 12) and in some cities considerably higher (CNA, and suggest limited to no improvements, on average, in fiscal 2012, p. Annex 1a; Universal., 2009b). Therefore, half of the self-sufficiency. Given that the total investment made in the water being extracted is being diverted (an estimated 84% of sector since 2002 has doubled from 2002 to 2011, from .17% lost water is due to leaky infrastructure and 16% to clandestine to .32% of GDP (IMTA, 2011), these data suggest that, on connections) (CNA, 2010, p. 12). Problematically, the 2012 average, sector financing has not become less reliant on federal non-revenue water figures have increased from reported num- transfers. bers in 2000, which were 41% nationwide and 35% for urban Environmental degradation has also increased in terms of centers (CNA, 2000, p. 26). A study by the Mexican Institute over extraction of underground aquifers and discharge of un- of Water Technology (IMTA) finds that physical efficiency as treated wastewater. The number of over extracted aquifers (as measured in terms of volume consumed/water produced has defined by extracting at a greater rate than annual replenish- increased by less than 2% since 2002 (IMTA, 2011). 21 There- ment by the hydraulic cycle) has grown considerably in recent fore, the physical condition of the network infrastructure, on decades, from 32 in 1975 to 100 in 2009 (CNA, 2011a, p. 34). average, has worsened over time, or failed to noticeably Over extraction results in the entry of dangerous mineral com- improve. 22 pounds in drinking water, and will have important negative Second, intermittent service seems to affect a large portion consequences for future water security. Although wastewater of the population and does not appear to be decreasing. In treatment capacity has increased, from 394 treatment plants 2000, one study estimated that 45% of households experienced in 1992 to 2,289 in 2011 (CNA, 2012, p. 49), field research re- daily intermittency and 55% of households periodic intermit- vealed that a surprising number of these plants are not actually tency in 2000 based on census data (World Bank, 2005, p. in operation, or are operating below their installed capacity due 27). Another survey in 2011 used a sample of utilities to esti- to disrepair, lack of technical expertise, or insufficient funds to mate that intermittent service affected 24.2% of consumers in operate. While the CNA has commissioned experts to tackle 2002 and increased to 28.5% in 2011 (IMTA, 2011). Of the environmental degradation of watersheds, virtually no pro- 11 utilities surveyed during field research, only one of them graming exists for local utilities that promote lessening environ- provided non-intermittent service, in the others many consum- mental degradation (Barkin, 2011, pp. 387–389). ers receive water 2–3 times a week, a pervasive problem in Nevertheless, it is clear that some utilities in Mexico have non-wealthy neighborhoods. While water intermittency is dif- performance figures that are quite high. For example Table 3 ficult to measure and data are sparse, taken together, these presents a sample of performance indicators for 12 utilities data points suggest that water intermittency is a substantial published by the CNA 27 where cities like Mexicali, Monter- service deficiency in Mexico, and seems to either be increasing rey, and Tijuana register relatively high levels of physical or staying constant over time. and commercial efficiency. Indeed, there are a handful of Third, water potability remains a serious problem through- “high” performers (e.g., CNA, 2011b, p. 93) throughout the out the country. Water is contaminated throughout various country that have nearly full metering, over 90% commercial points in the network: through pipes, in household cisterns, efficiency, over 70% physical efficiency, and that have man- and due to ruptures in under-attended sewage lines. Danger- aged to decrease the amount of non-revenue water and service ous compounds such as arsenic are routinely treated with little intermittency in the last decade. more than chlorine. 23 Water potability has become such a However, I argue that barring a handful of these notable concern that in 2010, Mexico became the world’s largest exceptions, the majority of urban utilities in Mexico have EVIDENCE FROM MEXICO’S URBAN WATER AND SANITATION SECTOR 21

Table 3. Comparing water and sanitation utilities performance in 12 cities Cities Physical Commercial Global Metering No. employees/1000 Water efficiencya (%) efficiencyb (%) efficiencyc (%) residential (%) connections availabilityd Acapulco 34 82 28 41 9.6 419 Aguascalientes 64 92 59 2.5 304 Chetumal 37 68 25 8.8 390 Guadalajara 63 89 56 89 2.9 207 Hermosillo 63 68 43 3.7 333 Merida 35 86 30 3.5 306 Mexicali 87 75 66 3.9 284 Monterrey 70 95 67 100 4.1 250 Tijuana 81 96 78 3.2 166 Tlaxcala 56 93 52 1 5.3 366 Torreon 53 86 45 3.5 319 Xalapa 40 92 37 100 12.2 358 Source: CNA (2011b). a Water billed/water produced. b Revenue collected/revenue billed. c Physical efficiency Â commercial efficiency. d m3/person/day.

Table 4. Water and sanitation utilities performance in three cities under study Cities Water Sanitation Physical Commercial Non-intermittent Metering (%) No. employees/1000 coverage (%) coverage (%) efficiency (%) efficiency (%) service (%) connections Naucalpan 97 95a 60 80 60 52 10.7 Toluca 88 92 55 64 60 7.6 5.5 Neza 87 98a 66.5 53 ND .18 4.12 Source: Author’s calculations based on CISA, 2007; AYS, 2008a, 2008b, 2008c; OAPAS, 2008a, 2008d; Interviews #62 and 76. a Due to a lack of available data for this indicator, official coverage figures are used from INEGI (2010). not experienced considerable increases in service performance likelihood that commercialization policies will be adopted and or commercial efficiency in the last decade, and many of them sustained over time. Naucalpan—due to a higher income con- are fiscally insolvent. sumer base and innovative mayoral leadership—was some- Table 4 documents performance indicators for the three what more successful than the other two cities in generating cases under study in this paper. These figures are based on some internal revenue and making some service improve- internal documents gathered during field research and in some ments, but the extent to which these reforms will endure over cases contradict published “official figures” by the federal gov- time is uncertain. Toluca lacked strong leadership, but also ernment. faced a greater amount of urban poor users, less industrial cli- For example, although the national census claims that Ne- ents, and a greater amount of “non-billable” consumers such za’s water coverage is 97% (INEGI., 2010), internal docu- as public institutions. Neza failed to initiate any cost recovery ments indicate that coverage is closer to 87%, and that only reforms, encumbered by an urban poor consumer base, a approximately 50% of the city has registered connections highly deficient network infrastructure, and extensive adminis- (CISA, 2007, p. 24). Municipalities throughout Mexico State trative mismanagement. have been unable to make important service improvements due to insufficient cost recovery. A 2007 audit of Mexico (a) Implementing substantial commercialization in Naucalpan 3 state’s 36 utilities show that half of all utilities and =4 of metropolitan utilities are fiscally insolvent and that most do not re- Naucalpan is peri-urban to Mexico City; an industrialized cover enough revenue to invest in minimal service corridor where rapid industrialization in the 1950s gave rise improvements (Poder Legislativo del Estado de Me´xico, to an influx of migration from surrounding states. As the need 2008). While reliable data are difficult to attain and interpret, for labor grew, irregular working class settlements developed data triangulated through multiple sources suggest that the in the highlands of the city. Once settled, members of these utilities analyzed in this study are representative of the types shantytowns petitioned municipal governments for public ser- of service deficiencies found throughout the country. vices, but extending services to highly elevated geographies The following section analyzes performance upgrades across was technically difficult and costly. Therefore, the water ser- Naucalpan, Toluca, and Neza and demonstrates the political vices these working class settlements received prior to 1997 and institutional challenges of implementing commercializa- was irregular and of poor quality (Interview #75). There was tion after decentralization. an understanding between PRI authorities and poor neighborhoods that water prices would remain low, and collection of user fees would be flexible. Also subsidized, “residential” 5. EVALUATING REFORM EXPERIENCES IN neighborhoods were middle class zones that had been incorpo- THREE CITIES rated during the original urban planning process; middle class groups had better, and less irregular, water service before cost The three cases demonstrate the different pathways through recovery initiatives began. After services were decentralized which political conflict and institutional constraints reduce the in 1992, PRI mayors were disinclined to implement cost 22 WORLD DEVELOPMENT recovery, particularly given the reliance of PRI authorities on 1998f, 1998h). After extensive negotiations with neighbor- political support from consumers receiving subsidized water, hood association leaders, functionaries lowered the initial and by 1997, the water utility was bankrupt (Gaceta Munici- price increases by 20%, but insisted on continuing to imple- pal, 1997). ment cost recovery measures (Reforma, 1998g, 1998d, 1998e). After Mayor Durań left office, subsequent mayors adopted (i) Political challenges of cost recovery similar “pressure valves” to mitigate social backlash. For The historic election of a center-right PAN mayor, Jose´ example, mayors reinstated a 10% discount if paying in the Durań Reveles, in 1997 spurred the introduction of cost recov- beginning of the year, and created a highly subsidized con- ery reforms. The PAN considered Naucalpan to be a key vic- sumer block for consumers with intermittent service (popular tory because its socioeconomic makeup—with relatively high tandeado). Periodic protest over price increases continued, levels of literacy and white-collar employment—had some of with mediation through neighborhood association leaders. the highest socioeconomic indicators in the state and mirrored The only public forums undertaken by the water utility during the conservative party’s constituent base (Conde Bonfil, 1996, this period occurred in 2001 and 2002 (Gaceta, 2001, 2002; p. 336; Hernańdez Corrochano, 2003, pp. 445–446). The rela- Reforma, 2001a), but were open only to neighborhood associ- tively wealthier makeup of the city could be an important ation leaders (Gaceta, 2002, p. 19). City hall viewed direct civic source of support for cost recovery. Another source of support participation through “town hall meeting” style forums as too was the city’s industrial and business community who had pre- socially disruptive given the contentiousness of tariff increases viously been underserved by the water utility, being asked to (Interview #151). Although some resistance from the urban help finance flood controls and improve deficient drainage sys- poor continued (Reforma, 2000, 2004), organized protest tems in their industrial parks (Reforma, 1996a, 1996b). Indus- waned over time and was less intense in future administra- try accounts for 57% of the municipal economy, the majority tions. of which depend on reliable water service for their manufac- PAN leaders implemented a series of concessions that were turing. 28 By 2008, 1,313 industries were registered clients of ad hoc and improvisational in both content and timing. For the water utility (OAPAS, 2008a). Water reliant industries example, functionaries provided some discounts in the begin- constituted a critical mass of clients that had previously been ning of the year for all consumers, instituted debt forgiveness subsidized, but underserved by deficient water service under programs, and chose to not install meters in irregular settle- the PRI. The PAN could consolidate substantial middle class ments (Milenio, 2009a; Reforma, 1999; Interview #151). De- and industrial support by improving services for a constituent spite the PAN’s original intention to undertake a complete base of higher income groups that would be less likely to no- cost recovery process, reforms were only possible through ad tice price increases, especially if service improvements were hoc negotiations and flashy inducements (such as raffling cars quickly forthcoming and targeted to these higher income res- and household appliances to induce on time payment) rather idential areas and industrial parks. than programmatic changes that could both sustain income In 1998, Mayor Durań led the water utility in subsidies elim- generation for the water utility and protect the most vulnera- ination for all consumer groups, tracking and eliminating ble consumer. While revenues have dramatically increased clandestine connections, and threatening service suspensions since the mid 1990s, the city continues to struggle with solicit- for non-payment. The PAN-led city council voted to eliminate ing payment and recovering debts from consumers (Reforma, “Acuerdo 10,” an agreement for highly subsidized water prices 2008; Universal, 2008, 2009a). that PRI leaders had previously signed with 82 working class neighborhoods, and when repealed would represent an over- (ii) Overcoming administrative challenges and constructing night price increase of as much as 266% for the irregular, poor policy continuity quality water service they were receiving (Reforma, 1998a, Hiring and retaining qualified policymakers and implement- 1998b). ers over time is very challenging in Mexican municipal govern- Urban protest was immediate and widespread. Neighbor- ment. Durań was able to circumvent some of the systemic hood association leaders from working class neighbor- institutional constraints at the local level through informal net- hoods—led by opposition PRI and PRD leaders works of personnel retention. Although Durań could not run representing 82 neighborhoods and 75,000 families—orga- for immediate re-election as mayor of Naucalpan, he was able nized three marches in March 1998 that shut down major to ensure personnel continuity. And as a PAN party leader, he thoroughfares and threatened to March to the state’s capital supported PAN mayoral candidates who would be sympa- city. After several appeals to the PAN administration went thetic to his reform agenda. The mayor from 2000 to 2003, unheard, protest groups began to make widely publicized Eduardo Alfredo Contreras, was Durań’s secretariat in the “symbolic payments” to city hall for their water bill. This 1997–2000 administration, and the 2003–2006 Mayor, Angel- symbolic gesture suggested consumers were willing to pay ica Moya Marin, had been part of Durań’s inner circle. In fact, for water received (Reforma, 1998i). One protestor explained: many of the local city hall appointments during this time were “[We] are inclined to pay, but the amount being charged is PAN loyalists “recycled” from prior administrations (Ref- disproportionate; we are suggesting an increase of 30%... orma, 2003). For example, the water utility’s general director we receive water every third day, for barely three or four from 2006 to 2009, Manuel Go´mez Morıń was a party loyalist hours, and sometimes it does not come until 11 pm” (Ref- (the grandson of the PAN’s founder by the same name) and orma, 1998b). Opposition parties used water price increases had worked in Durań’s first administration (Interview #36). as a referendum on the first ever PAN administration in Finally, Durań became mayor again in 2006, continuing a re- the city, calling for Durań’s resignation and associating these form agenda he had begun in 1997. The institutional con- measures with anti-poor policies (Gaceta, 2001, p. 33; Ref- straints endemic to municipal government were partially orma, 1998c). Protestors claimed “viewing citizen’s payment overcome by Durań’s ability to remain influential in the poli- as revenues for a business is totally absurd” (Reforma, cymaking process over time, a strategy that relies exclusively 1998g). These initial protests culminated in an opposition on informal and ad hoc arrangements, and may be difficult led month long occupation of the municipal palace, leading to replicate or sustain when the original spear header is no to multiple arrests and disbandment by police (Reforma, longer present. EVIDENCE FROM MEXICO’S URBAN WATER AND SANITATION SECTOR 23

(iii) Operationalizing service improvements ing programs (Interview #63). Functionaries admit that de- Naucalpan was able to generate revenue to reinvest back spite the formal adoption of these practices, political into improving service. Naucalpan’s sizeable number of indus- considerations remain relevant. For example, during elections, tries and middle class communities allowed for increased rev- the government must consider how much the party’s constitu- enue generation from high volume consumers, much of which ents can afford to pay (Interview #35), and in electoral cam- was reinvested back into these communities. 29 These mea- paigns mayors promise water infrastructure construction for sures allowed for highly visible service improvements that their constituencies that utilities are then pressured to deliver when well advertised, were important electoral tools for the (Interviews #35, 41, 45). PAN and Mayor Durań’s continued political success. 30 Mayors have been unwilling to support stringent collection In 1997, Naucalpan pledged $MXP 75 million in hydraulic practices. By 2008, only 7.5% of users in Toluca had meters in- construction (Reforma, 1997b). Many aspects of service provi- stalled, as compared with Naucalpan’s rate of 52% (AYS, sion were modernized, including the introduction of auto- 2008b; OAPAS, 2008a). Mayors have hesitated to pursue mated water extraction readings (macromedicioń) and large-scale meter installation due to fear of social backlash. updating network infrastructure maps. The water utility initi- Functionaries also worried that the cost of meter installations ated wide-scale pipe replacements and leak detection units in would be unrecoverable in poor neighborhoods (Interviews order to reduce the amount of lost water (Interview #62). #42, 43). While some service suspensions for non-payment One respondent explains that “we began to function like a pri- were begun in 2008, for years suspension policies were lax, de- vate company, and we began to reinvest all of the revenues... spite water laws that permitted cut-off for non-payment. In- [in the] water utility” (Interview #75). stead, functionaries have relied on “ad hoc” measures to The PAN’s marketing campaign became quite sophisticated generate revenues, such as debt forgiveness programs that gen- by the 2006–2009 administration. The water utility developed erate some revenue but are far from cost recovery (Reforma, a mascot, a branded logo, and pricing comparatives pitting 2001b). The water utility has the legal authority to seize con- water prices against the more expensive cost of common every- sumer’s property if they do not pay, but lawyers contracted day items, including other utilities (OAPAS, 2008c). They to exercise legal action against non-paying customers have carefully advertised and labeled construction projects as being only begun some action since 2008 (Milenio, 2008a; Interview funded by user fees, and emphasized the connection between #154), and it is unclear whether legal sanctions would be pur- increased fees and improved services (OAPAS, 2008d). sued by future mayors. Similar to many cities attempting cost Because policy consolidation from 1997 to 2000 was recovery in Mexico, Toluca has a high amount of payment achieved through informal mechanisms, ongoing reform is evasion (50% of its consumer base owes payment from prior far from set in stone in Naucalpan. In 2009, the PRI won in years), and many people are paying tariffs that do not corre- Naucalpan, and the water utility replaced all PAN loyalists spond to the amount being consumed (Milenio, 2008b, 2009e). with PRI members, many of whom had no prior experience Mayors intervene regularly in water services delivery in Tol- with commercialization practices or simple accounting (Inter- uca. Politicians campaign on the issue of guaranteeing water view #151). The 2009–2012 PRI mayor, Azucena Olivares Vil- for the future; for example Mayor Sańchez (2006–2009) fa- lagomez, upon entering office claimed that there was public mously campaigned—and later failed to deliver on—guaran- dissatisfaction with prices many perceived to be too high teeing water for the next twenty years (Milenio, 2009d). All (Milenio, 2009b). It remains unclear whether alteration of three mayors, particularly Mayor Sańchez, participated in power between competing political parties will be conducive multiple photo opportunities advertising high profile works to continuing to implement commercialization in Naucalpan. (Sol de Toluca, 2007, 2008b, 2008c, 2008d). Mayor Sańchez’s team worked closely with the water utility’s public relations (b) Incomplete commercialization and ad hoc service department to ensure that the mayor received press coverage improvements: Toluca for hydraulic projects (Interview #49). Some functionaries note that recent campaign promise of “water for the next Toluca is the capital city of Mexico State, and is home to a twenty years” without willingness to shoulder political burden disparate mix of users that draw from the city’s increasingly of increasing prices is similar to the PRI’s historic promise of limited water resources. For example, industrial consumers free water. Functionaries also complain of having to provide with their own boreholes extract 30% of local supply (Milenio, water for local committees outside of the water utility’s juris- 2007). As of 2008, 30% of the water utility’s water sources diction because they represent votes for the mayor (Interview were used by peri-urban and rural residents that managed #53). their own water supply due to preexisting legal arrangements with the state government (AYS, 2008a, p. 1). In addition, (ii) Administrative challenges and lack of policy continuity the capital city provides services to as many as 1,100 public The PAN’s historic win in Toluca in 2000 brought in a series institutions such as schools, hospitals, and government offices, of mayors who paid lip service to hydraulic issues but did not which are also exempt from water payment (Milenio, 2008c). take on sweeping reforms. The first PAN mayor, Juan Carlos Because of the high amount of “non-billable” users of the ci- Nun˜e´z Armas (2000–2003) had prior hydraulic experience as ty’s water resources, as well as the low amount of industrial former president of the state Aquifer and National Resources consumers reliant on the utility, cost recovery has been more Commission and participated in the drafting of Mexico’s State of an uphill battle for Toluca’s PAN mayors, despite their Water Law. During his term, Toluca became involved in the shared “technocratic” and business oriented ideology. The state’s water tariffs working group, and city hall supported limited amount of service improvements Toluca’s water utility the water utility through fiscal transfers for infrastructure con- undertook were due largely to technocratic changes that side- struction at a consistently much greater level than the subse- stepped the adoption of politically controversial policies. quent two mayors. 31 However, Mayor Nun˜e´z Armas focused more on building new hydraulic works than imple- (i) Political challenges of cost recovery menting maintenance or cost recovery. The following two Toluca’s water utility has updated tariffs with support from PAN mayors, Armando Enrı´quez Flores (2000–2006) and the state government and implemented performance-monitor- Juan Rodolfo Sańchez Go´mez (2006–2009), also failed to 24 WORLD DEVELOPMENT implement cost recovery. Instead they focused on more gen- recovery, under first the PRI party and later the left of center eral large public works projects in other sectors, the latter PRD. mayor famously beginning a series of expensive and high profile modifications to the downtown historic area that were left (i) Political challenges of cost recovery uncompleted (Sol de Toluca, 2008a). Despite some price increases led by a statewide initiative in Despite the same party maintaining power for three admin- 2002, commercialization practices remain practically non-exis- istrations, administrators changed continually due to patron- tent. Local leaders do not consider cut off of service for non- age appointments. Both city council members and mayors payment a politically viable option. Functionaries admit that distributed positions to their inner circle or based on campaign consumers are so resistant to pay for the poor quality service promises. As one functionary noted, “here in local government they receive that the billing office has stopped issuing water we say that we are born again every day. When I come to bills and simply rely on consumers initiating payment if they work, I have to check to see if there is someone else in my are so inclined (Interview #70). Neza’s collection policies are chair, if not...then I know I still have a job” (Interview purposefully casual: the water utility does not have to spend #35). Functionaries admitted that projects stalled with new time or manpower issuing bills, tracking revenues, or demand- administrative changes because employees were worried about ing payment. In order to generate some operating revenue, the losing their jobs (Interview #35). By the time the PAN left Tol- municipality issues bi-monthly “debt forgiveness” programs uca in 2009, their administrations were accused of mishandling that culminate in a large subsidy (often over 50%) around public funds and increasing public debt to finance unnecessary the Christmas holidays. Additionally, all seniors receive 50% public works projects that were never completed (Sol de discounts, and consumers who pay in the first two months Toluca, 2009). of the year receive further discounts. Because of the many subsidies administered directly by the municipality, the water util- (iii) Ad-hoc service improvements ity admits that few consumers would choose to pay their bill Toluca’s partial amount of service improvements focused on during non-discounted months. Small and medium sized busi- accessing some revenues from the federal government for nesses and higher income users also do not receive water bills infrastructure development but largely sidestepped the adop- (Interview #70). tion of politically controversial commercialization policies. The Neza case study underscores patterns of inefficiency, The general manager, Mauricio Ramı´rez Rosaldo (2000– corruption, and unresponsive local government found in many 2006) was controlled by mayors who allowed for some opera- urban W&S systems. A number of influential actors within the tional autonomy as long as the mayor’s political commitments service provision process have benefited from maintaining dis- were respected (Interview #35). He tracked performance indi- cretionary practices. First, the mayor and water utility director cators that made the water utility eligible for federal financing receive side-payments from the repair of refurbished parts for infrastructure updates. During the 2000–2008 period, the (e.g., electricity generators) (Interview #73). Therefore, the water utility’s general construction budget increased by mayor and his colleagues are not interested in purchasing nec- 400% (AYS, 2008c). However, it remains unclear whether essary new generators, vehicles, and other hardware because adopting the tracking of performance indicators has actually they profit from the side-business of repairing continually defi- helped service improvements or just been a vehicle to access cient hardware. Second, because Neza’s water utility has little federal infrastructure funds. control over their water supply and because workers are Toluca’s network infrastructure is antiquated, has outdated underpaid, operations workers may sell water access, or re- network maps, and high amounts of lost water through pipes. pairs to the system without any fear of recrimination (Univer- The network infrastructure is as old as sixty years in some sal, 2005). Third, bill collectors may also pocket some revenues areas, and approximately 75% of it is in dire conditions, losing when they collect consumer payment because the process is up to 45% of conducted water daily (Milenio, 2009c). While not automated or regulated. Fourth, because the mayor directly controls the water utility unchecked, water revenues Toluca’s water utility has found it difficult to increase their ser- 32 vice coverage and service continuity, support from federal pro- may be diverted to other purposes. Finally, service suspen- grams has led to some improvements (Interview #43). As of sions are discretionarily administered: one water utility direc- 2013, Toluca’s water utility was not treating its wastewater tor who initially insisted that service suspension is not viable (GMT, 2012). because water was a human right later revealed that he orders suspension as retributions against those with whom he has personal or political disputes (Interview #71). (c) No commercialization and deteriorating services: Nezahualcoýotl (ii) Administrative challenges and benefits of “discretion” The city government’s ability to improve services is also Ciudad Nezahualcoýtl, also known as Neza, has over highly affected by staffing and human resources problems. 1.1 million inhabitants and ranks as Mexico’s fourth largest Undereducated and poorly trained civil servants are common city. Neza began as a poor “bedroom community” when rural both because of the lack of a municipal-level civil service as migrants flocking to work in Mexico City found more afford- well as the mayor’s use of positions in exchange for political able housing in its nearby outskirts. Most residents of the city support. In addition, despite four consecutive left-of-center did not have land titles upon settling in the 1960s, but instead PRD administrations (1997–2009), local government in Neza lived in informal squatter settlements with no public services has been tumultuous during this time, with four elected (Selee, 2011, pp. 132–144). By 2000, almost all properties in mayors and three interim mayors (GMN, 2009). As Board Neza had electricity, water, and sewerage, but despite an offi- presidents, mayors single-handedly appoint the utility’s cial 97% water coverage rate (INEGI, 2010), Neza’s water ser- general manager; these positions have routinely been used as vices are highly deficient. Neza’s water utility was patronage appointments for party loyalists. Of the last four administered as a public works department before becoming appointed general managers’, half have been replaced mid- a legally autonomous decentralized water utility in 1993. Since season. While two have been engineers, Juan Herrera Moro decentralization, Neza has found it difficult to introduce cost (1997–2000), and Juan Martin Bolanõs Vela (2003–3006), EVIDENCE FROM MEXICO’S URBAN WATER AND SANITATION SECTOR 25 others have had a primary or secondary education and no maintaining the status quo to be less destabilizing than adopt- prior professional experience in the sector. ing politically contentious cost recovery policies. In all three cases, mayors found it politically challenging to (iii) Services deterioration and public apathy adopt cost recovery policies after decentralization. A range of Because of Neza’s inability to generate internal revenues, constituents, especially the urban poor, represented a potential infrastructure development have stalled, operations and main- source of public backlash that could be socially disruptive, and tenance have been neglected, and the city’s residents experi- cities without a strong middle class and industrial base of cli- ence ever worsening service quality (CISA, 2007, pp. 24–28). ents were less likely to find cost recovery a viable financing Two commonly cited service problems are low availability of strategy for sector reform. While cost recovery represented a potable water and the ongoing flooding that occurs through politically contentious policy for all mayors, Naucalpan’s the rainy season given the lack of suitable rainwater drainage Mayor Durań was more inclined to adopt commercialization systems. The network infrastructure has received few upgrades policies because of the city’s relatively wealthier user groups, since it was constructed in the early 1970s (Jornada, 1997). and he was able to appease urban poor protestors by imple- Over half of the water that enters the network is lost through menting ad hoc concessions that allowed him to pass his re- leaks and clandestine connections. Furthermore, the anti- form agenda. While innovative mayoral leadership—that quated piped network leaks toxic materials from the pipes that requires savvy use of informal and ad hoc strategies to extend routinely enter the water supply; it is common to see “yellow the short time horizon—may occasionally be able to circum- sludge” when opening the tap. Between the large amount of vent poor institutional design, these instances are rare. Better leaks and low water pressure throughout the grid, many con- aligning decentralization design to the local conditions and sumers receive virtually no water despite being “officially” cov- political incentives for reform will increase the likelihood that ered by the utility (Interviews #72, 68). Because functionaries more local politicians invest in public services reform. do not have an updated map of the network infrastructure, they are unable to even create a service-rationing schedule (tandeo) that would provide service in hourly increments to 6. CONCLUSION different neighborhoods. The water utility has had to resort to manual water provision: trucks with tanked water (piperos) Decentralization has reinvigorated scholarly debate about respond to some of the thousands of daily complaints of water what constitutes “good” local government and how to achieve shortage (Interview #69). it. The need for effective local government is especially press- Such poor service delivery generates a great deal of public ing in sectors where infrastructure is in disrepair and in need dissatisfaction, yet citizens have become accustomed to sub- of expensive and technically complex updates. The effective- standard service and unresponsive government. For example, ness of local government has important implications beyond periodically, portions of the city’s water supply are shut down the local level. The ability of local politicians to successfully due to ruptures within the network or even failure to pay the improve services provision, enforce environmental regulations, electricity bill (Jornada, 2007, 2008, 2010; Reforma, 1997a, and provide social benefits to citizens determines whether 1998j; Universal, 2006a). During the rainy season, the many important development objectives are furthered. high flood zones are inundated with flooding, or worse—sew- While local politicians play an increasingly key role in devel- age that threatens to flood the city. Because Neza’s sewage dis- opment outcomes, the factors that lead to effective local gov- posal system runs on electricity but has no back-up generators, ernment continue to be contested. Prior accounts have power shortages and torrential rains makes sewage flooding a focused on the importance of participation, citizen account- periodic threat (Reforma, 2005; Universal, 2002a, 2002b, ability, and innovative mayoral leadership for local govern- 2003, 2006b). These service failures are socially disruptive ment effectiveness. I argue that while mayoral innovation and can induce intense dissatisfaction; consumers make and participation are important factors, they may be con- 2000–3000 complaints daily, some even threatening violent ac- strained by the poor fit between the decentralization design tion (Interview #69). Yet these types of isolated complaints, and the local context in which decentralization strategies are however explosive, have not culminated in organized collective carried out. In Mexico, decentralization was part of a broader action. Rather, many customers have stopped attempting to neoliberal reform package that failed to consider the unique reach the water utility because they do not feel that their com- constraints of local government. Commercialization policies plaints result in improved service (Interview #69). Years of created political disincentives for reform adoption, especially poor service quality have resulted in low citizen expectations in poor communities and in communities where services regarding service quality. needed major capital investment before price increases could be applied. Contentious commercialization policies were made (d) Cases overview more difficult to implement because of institutional constraints in local government that shortened the policymaking window, Enforcing cost recovery has been politically unattractive for a particularly pressing problem in areas such as W&S that left of center PRD mayors presiding over large numbers of ur- necessitate long-term planning. ban poor residents in Neza and elsewhere. Instead, PRD may- I argue that neoliberal policies such as commercialization ors have replicated the “vicious cycle” of poor quality services have undermined potential gains of decentralization and failed for little fees that PRI officials used during the centralization to improve services systematically in Mexico. Alongside na- era. While services were also politicized under centralization, tional averages that do not suggest considerable service federal funds were periodically injected into systems in an ad improvements in the last decade, field research reveals a litany hoc manner to keep them afloat, a practice local governments of service problems and under-financed utilities. An unfortu- can no longer rely on. Centralization in Mexico coincided with nate paradox arises: while Mexico has reached the 2015 UN a period of semi-authoritarian one-party rule, where local Millennium Development Goals to halve the population with- leaders were interested in social harmony but did not have out access to piped water (CNA, 2012, p. 32), it has also be- to win elections. In the context of electoral competition, cities come the world’s largest consumer of bottled water (IADB, with a large number of urban poor residents have found 2010). 26 WORLD DEVELOPMENT

International agencies have emphasized the need for auton- whether, and how, to best implement a targeted subsidy in omy in urban water management; decreasing mayoral inter- the sector would be a positive first step: subsidies could be tar- vention was seen as a means to improve local services and geted by means or geography, and/or a connection subsidy. widely promoted. My study shows that decreasing mayoral These mechanisms would help to more accurately identify con- intervention after decentralization may not be feasible, or sumers’ ability to pay, providing “lifelines” for the poorest desirable. In weak and short-term institutional contexts, effec- consumers and “un-subsidizing” the non-poor. 33 Targeted tive policymaking may rely on informal networks and coali- subsidies would also help to offset the regressive nature of tion building, something that mayors are in a better position increasing block tariffs as currently implemented in Mexico, to do than appointed bureaucrats who wield less authority. where the first broad lifeline consumption is often so large that Institutional autonomy may also compromise citizen account- it captures most domestic users, even those with the ability to ability; technocrats are much more easily isolated from citizen pay (World Bank, 2005, p. 30). While there are many examples demands than elected officials. of these types of programs in other middle income countries The Naucalpan case suggests that relatively successful re- (Go´mez-Lobo & Contreras, 2003), there is no such national form under the current “rules” of the game favor rich cities program in Mexico. In addition, initial injections of infrastruc- with strong industrial and middle class bases and politicians ture updates from the federal government—not linked to per- who cater to these constituent groups. This is not surprising, formance—would have a dual benefit: user fees could be more given that fiscal self-sufficiency requires a customer base that quickly translated into visible service improvements because can generate sufficient revenue to finance service improve- the initial (costly) groundwork would already be laid, and ments. Even in these cases, however, the institutional con- also, consumers may be less hostile toward price increases if straints of local government make the likelihood of policy services are concurrently visibly improving. reversal after reformers leave office high. Furthermore, the Finally, if federal and state governments played a greater promise of increased participation after decentralization was role in supporting urban utilities, they could help extend the not realized in the context of self-financing reforms, as mayors time horizon of local policymaking. For example, the CNA in Naucalpan consistently limited the use of public and delib- could promote the creation of more inter-municipal utilities erative forums while implementing commercialization. for cities that alone do not constitute a sufficient, or profitable, The broader neoliberal reform package in W&S amounted economy of scale to fund improvements through cost recov- to a “retreat of the state,” one that not only eliminated subsi- ery. The better performing utilities, for example, cities in the dies for maintenance, but also reduced the oversight role of the states of Nuevo Leon or Quere´taro, are often state-level oper- federal government in service provision. Given the emphasis ators with important economies of scale, technical proficien- on performance based financing, elimination of federal grants cies, a civil service, and a longer state government and fiscal self-sufficiency, the onus for service improvement administration, six rather than three years. In addition, federal has been left to the market: consumer fees are expected to or state level regulatory bodies could be created to oversee ur- do the heavy lifting for improving service in urban centers. ban services. These bodies could help regulate investments, But is this a reasonable expectation, especially given the insti- administer targeted subsidies, collect performance data, pro- tutional constraints of municipal government and internal rev- vide technical assistance, and promote environmental preser- enue generation policies as currently designed? vation. 34 These types of interventions would require greater Urban W&S management would benefit from comprehen- financial investment by the federal government in sectoral sive measures designed to help mitigate social backlash against organization and oversight, but would help to make better cost recovery. For example, a federal initiative to study use of the funds currently being spent in the sector.

NOTES

1. Multilateral agencies, influenced by fiscal federalism theory (Oates, services responsibility from a central agency to a regional field office, 1972; Tiebout, 1956), reasoned that administrative decentralization to where services responsibility remains under the auspices of the federal local governments would improve service provision through stakeholder government. participation in decision-making and better matching of service to local needs (Bird, 1994, p. 8; W.F. Fox, 1994, p. 23; Silverman, 1992, pp. 12–13; 4. For further reading on decentralization in Mexico, see Grindle (2007), World Bank., 1994, p. 76). Mizrahi (2004), Rodriguez (1997), and Selee (2011).

2. See Speer (2012), Goldfrank (2011), pp. 11–33) and Blair (2000), pp. 5. I thank an anonymous reviewer for making this observation. 23–24) for further discussion of how decentralization and participation may lead to improved government performance, responsiveness, and 6. For example, cities in Mexico State have all received the responsibility accountability. for W&S provision through decentralization in the early 1990s (GEM, 1997), are governed by similar fiscal and administrative policies admin- 3. I define decentralization as a transfer of authority from the central istered by the Mexico State Water Commission, and these three cities government to a subnational unit of government and therefore do not selected rely on water from the Cutzamala Dam administered by the consider transfers of service responsibility to the private sector a form of Mexico State Water Commission (CNA, 2006, p. 79). decentralization (in contrast to some analysts, for example, see Cheema and Rondinelli (2007, p. 7)). I concur with definitions of decentralization that identify three types of decentralization: political, administrative, and 7. Eaton, Kaiser, and Smoke (2011) argue that different bureaucracies fiscal (Falleti, 2010; Montero & Samuels, 2004). As such, W&S within multiple tiers of government have varying, and at times conflicting, decentralization is an example of administrative decentralization, where preferences that makes coordination in policymaking after decentraliza- the responsibility for services provision is transferred from national tion particularly challenging. governments to subnational governments. I do not consider deconcentra- tion a form of decentralization because this often refers to a transfer of 8. See Speer (2012) for a review of this literature. EVIDENCE FROM MEXICO’S URBAN WATER AND SANITATION SECTOR 27

9. NPM has also been referred to as “post bureaucratic paradigm,” 21. High non-revenue water and low physical efficiency are proxy “managerialism,”“market-based administration,” and “entrepreneurial measures that reflect the condition of the piped network infrastructure and government.” the amount of freshwater that is being wasted and contributing to the over extraction of underground aquifers, but also are correlated with other 10. A related reform has been promoted, called corporatization, for the types of service quality measures, such as low water pressure in homes and public sector. Corporatization can occur by incorporating public entities high service intermittency. under a (Public) Corporations Act, or creating “ring-fenced,” public companies or organizations, which are legally, fiscally, and administra- 22. These figures put Mexico well below the average of best performing tively independent. In Mexico, the latter occurred in the urban W&S utilities in developing countries, which reach levels closer to 23% of non- sector. revenue water (World Bank, 2005, p. 28).

11. Weak institutional capacity at the local level is not unique to 23. For example, one ex-mayor and ex-water utility citizen board developing countries. Sellers and Lidstro¨m (2007) conceptualize several of president in a Guanajuato city noted in 2012 that, “Those of us who the institutional constraints discussed in this article (such as term limits work in the water sector hide the issue of water quality. [For example,] you and the presence of civil service) as dimensions of institutional capacity have an underground aquifer that emits an enormous amount of arsenic, and document the pervasiveness of low institutional capacity even in and [we] mix it with water from another aquifer that has less arsenic, so developed countries. that it will ‘just barely’ pass the [water quality standards]” (Interview # 170). 12. For a list of prohibitions on re-election in Latin America, see Zovatto (2011). 24. The CNA reports that from 1990 to 2009, the childhood mortality rate due to diarrheal disease has decreased, from 122.7 (for every 100,000 13. See Aboites (1998) for a description of this period. inhabitants) to 11.8 (for every 100, inhabitants) (CNA, 2011, p. 102). However, while water coverage during this time has increased from 78.4 to 14. While neither reform has been a “one-shot” deal but instead has 90.8%, other nation-wide programs were implemented nearly simulta- taken place over a period of time, decentralization efforts generally neously that likely impacted the instance of waterborne illness, such as a preceded attempts to implement commercialization practices. vaccination program (begun in 1986), and a program of distributing electrolytes solution (suero oral) to combat dehydration and diarrhea (begun in 1984). Even the CNA’s reported data suggest that it is difficult to 15. Three World Bank loans during 1975–1983 were instrumental in tease out the causal impact of increasing water coverage, as opposed to shaping subsector policymaking, known together as FIFAPA (the other programs such as the two just mentioned, on decreasing waterborne Investment Fund for Water Supply and Sewerage Works). FIFAPA illness (CNA, 2011a, p. 102). created autonomous utilities in 33 cities and introduced the concept of financing systems through user charges, an initiative that unearthed the systemic challenges in raising water prices and the complex politics of 25. Therefore, it is quite possible that any gains that have been made in creating autonomous utilities under municipal jurisdictions (Dau Flores, decreasing water-borne illness have been made due to widespread “opting 2008, p. 113; World Bank, 1992, p. 58). out” of the municipal water supply and extensive increases in bottled water use. 16. See CNA (1993) and CNA (2003) for examples of promotion of PSP, made legally permissable after the passing of the National Water Law 26. World Bank analysis of Mexico’s internal revenue generation (Estados Unidos Mexicanos, 1992). For a discussion of privatization of confirms a low amount of revenue generated by water utilities in Mexico, W&S in Mexico, see Wilder and Romero Lankao (2006), Pineda Pablos “the sector generates only a very modest cash surplus, which is well below (2002) and Barocio and Saavedra (2004). Promotion of PSP in urban W&S the performance achieved by the top quartile of utilities in developing has waned since the 1990s, although CNA continues to promote private countries” (World Bank, 2005, p. 30). capital investment in wastewater treatment plants (Interviews #17, 26). 27. The CNA annually publishes figures for a sample of utilities that 17. Although reform architects’ original intention was to decentralize all submitted what appeared to be “credible” performance indicators. urban utilities to the municipal level, several state governments (Nuevo Leoń, However, the data are presented by indicator type (due to the amount Tabasco, Quere´taro, and Chihuahua) chose to not decentralize further, while of missing data) rather than in consolidated tables that allow for easy others chose to sponsor inter-municipal utilities. Over time, APAZU rules comparison across cities. Therefore, I composed a chart of performance changed to accommodate these additional arrangements and state govern- indicators across a range of cities that had the most data available. ments were also able to utilize APAZU funds for their urban utilities. 28. For example, water-intensive industries such as chemicals, paper/ 18. Five are state level operators (Nuevo Leoń, Tabasco, Quere´taro, pulp processing, metallics, clothing manufacturing, electronics, and food Chihuahua, and Distrito Federal), approximately 10 are inter-municipal production all account for 46% of the municipal economy, and generate (San Luis Potosı´, Guadalajara, Colima, Zacatecas, Pachuca, Monclava, approximately $MXP 32.2 million per year (INEGI, 2004). Oaxaca, Apizaco, Veracruz, and Me´rida), and the remaining are municipal operators. (Author correspondence with National Water 29. Service-rationing schedules indicate that middle class neighborhoods Commission, April 2, 2012; INEGI (2009, p. 9)). and industrial parks received non-intermittent service by 2008 (OAPAS, 2008b). 19. I thank an anonymous reviewer for this suggestion. 30. Mayor Durań became PAN candidate for state governor in 1999 20. Multiple author interviews revealed that utilities typically have three after leaving the Naucalpan mayorship, subsecretariat within the state versions of performance indicators: one version for the CNA, one version government from 2000 to 2005, mayor of Naucalpan again in 2006, and for fiscal auditors, and the “real” numbers. In particularly deficient utilities, remained a key candidate for the PAN governorship nomination after functionaries may not have the resources to measure performance at all. leaving mayoral office in 2009. 28 WORLD DEVELOPMENT

31. Ramo 33 is a federal transfer to municipalities that can be used by 33. A means tested targeted subsidy, targeted by income level, or municipalities for a large number of projects, according to priorities within geographically differentiated tariffs that are roughly based on poverty city hall. During the Nun˜e´z 2000–2003 administration, the water utility levels, is argued to be more effective in reaching the poor than increasing received $41,853,524 mxp million from Ramo 33, much higher than the block tariffs (World Bank, 2005, p. 31). $6,960,153 mxp million received during the Enrı´quez 2003–2006 administration, and the $7,826,086 received by 2008 during the Sanchez 2006– 34. The majority of the existing state water commissions do not come 2009 administration (AYS, 2008c). close to fulfilling these roles, and there is virtually no federal coordination or standardization of what the role of these commissions should entail. 32. See Davis (2004) for an analysis of corruption in W&S systems.

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(2006). en Toluca descuentos de hasta el 100 por ciento en multas y recargos a Decentralized corruption or corrupt decentralization? Community clientes morosos. monitoring of poverty-alleviation schemes in Eastern India. World Reforma. (2003, August 27). Reciclan funcionarios: gobierno, nuevos Development, 34(11), 1922–1941. gabinetes, Naucalpan, recurre Moya a nueve elementos de la pasada Wampler, B. (2007). Participatory budgeting in Brazil: Contestation, administracioń para armar su gabinete. cooperation, and accountability. University Park: Penn State Press. EVIDENCE FROM MEXICO’S URBAN WATER AND SANITATION SECTOR 31

Weitz-Shapiro, R. (2008). The local connection local government perfor- APPENDIX B. WATER AND SANITATION COVERAGE mance and satisfaction with democracy in Argentina. Comparative IN MEXICAN STATES Political Studies, 41(3), 285–308. Whiteford, S., & Melville, R. (2002). Water and social change in Mexico: An introduction. In S. Whiteford, & R. Melville (Eds.), Protecting a State Water Sanitation sacred gift: Water and social change in Mexico (pp. 1–28). La Jolla: coverage (%) coverage (%) Center for US-Mexican Studies, University of California. Wilder, M., & Romero Lankao, P. (2006). Paradoxes of decentralization: Aguascalientes 98.80 98.10 Water reform and social implications in Mexico. World Development, Baja California 95.50 93.10 34(11), 1977–1995. Baja California Sur 92.60 93.70 World Bank. (1964). An appraisal of the development program of Mexico: Campeche 90.00 84.90 Volume VII, Annex VI, water supply, sewerage and public health. Chiapas 77.30 81.00 Department of Operations, Western Hemisphere. Washington DC: Chihuahua 94.60 92.10 World Bank. World Bank. (1975). Report and recommendation to the President (No. P- Coahuila de Zaragoza 98.30 95.40 1727-ME.). Washington DC. Colima 98.60 98.70 World Bank. (1976). Water supply and sewage: Sector study, Mexico (No. Distrito Federal 97.70 99.10 Report no. 1278-ME). Washington, DC: World Bank. Durango 93.90 87.60 World Bank. (1990). Staff appraisal report for loan 3271-ME (No. 8973- Guanajuato 94.40 90.30 ME). Washington, DC: World Bank. Guerrero 69.80 74.00 World Bank. (1992). Project completion report for loan 1186-ME, 1913- Hidalgo 90.70 85.00 ME, 2281-ME (Infrastructure Division, Country Department II, Latin America and the Caribbean Regional Office No. Report No. 11448). Jalisco 95.80 97.40 Washington, DC: World Bank. Me´xico 94.00 93.60 World Bank. (1994). World development report – Infrastructure for Michoacań 91.60 88.00 development. Washington, DC: World Bank. Morelos 91.50 95.00 World Bank. (2005). Mexico infrastructure public expenditure review Nayarit 92.40 93.10 (IPER). Washington DC: World Bank. Nuevo Leoń 96.60 96.00 Wunsch, J. S. (2001). Decentralization, local governance and “recentral- Oaxaca 76.10 69.20 ization” in Africa. Public Administration and Development, 21(4), 277–288. Puebla 87.20 86.30 Zovatto, D. (2011). The reelection trend in Latin America. Mundo Quere´taro 94.70 90.40 electoral. Retrieved from: . Quintana Roo 92.40 92.70 San Luis Potosı´ 85.50 79.70 Sinaloa 94.70 91.10 Sonora 96.60 89.20 Tabasco 81.20 95.40 Tamaulipas 95.90 86.90 Tlaxcala 98.20 94.50 Veracruz 80.30 82.60 Yucatań 97.20 78.80 Zacatecas 94.30 89.10 National Average 90.90 89.60 Source: CNA (2011a) (based on INEGI XIII Census, 2010). Note: Percentages and sums do not match to 100 because of rounding.

APPENDIX A. LOAN HISTORY FOR MEXICO’S WATER AND SANITATION SECTOR

Year Loan number Project name Loan amount Federal program ($USD mil) in Mexico 1973 909-ME Mexico City Metropolitan Area Project 90 N/A 1975 1186-ME Medium Cities Water and Sewerage Project 40 FIFAPA 1 1980 1913-ME Second Medium Size Cities Water and Sewerage Project 125 FIFAPA 2 1983 2281-ME Third Medium Size Cities and Sinaloa State Water Project 100.3 FIFAPA 3 1991 3271-ME Water Supply and Sanitation Sector Project 300 APAZU 1992 ME0128* National Investment Program Potable Water 200 APAZU 1994 3751-ME Second Water Supply and Sanitation Sector Project 350 APAZU 2004 N/A Water Supply and Sanitation Technical Assistance Loan 15 N/A 2010 N/A Water Sector Development Policy Loan Project 450 N/A 2010 N/A Water Utilities Eﬃciency Improvement Project 100 N/A 2010 N/A Water Utilities Eﬃciency Improvement Project 100 PROME Sources: Based on author’s calculations from World Bank and Inter-American Development Bank archives. Note: The World Bank is the co-signor of all loans except for one loan from the Inter-American Development Bank (marked as *).

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