There will be no justice in Flint water crisis

If a private company distributed thousands of bottles of water with high levels of lead and other contaminants, lawsuits would chase it toward bankruptcy. So why should authorities in Michigan get a pass? Seriously. Imagine a class-action suit on behalf of the people of Flint, Michigan. There are plenty of available defendants. The Detroit Water Board, for cutting off the city’s supply of water in a childish snit. Flint’s own water department, for doing a lousy job of testing its only product. The Michigan Department of Environmental Quality, for ignoring claims that there was something wrong with the water and not overseeing the Flint department. Michigan Governor Rick Snyder for appointing as head of the DEQ a person without significant environmental experience. Oh, and the US Environmental Protection Agency, for doing ... well, nothing. The reason no lawsuit will be filed is sovereign immunity. The state, having created the courts, cannot be sued in them without its consent. Michigan, like other states and the federal government, has granted a very narrow consent through a tort claims act, detailing the very limited circumstances in which public agencies or officials can be sued. But as is common with such statutes, Michigan’s protects agencies “engaged in the exercise or discharge of a governmental function” and any government employee who “is acting or reasonably believes he or she is acting within the scope of his or her authority.” True, exceptions exist, but good luck enforcing them against those who made any of the many bad decisions leading to this crisis. In short, due to sovereign immunity, there’s no way to sue anybody. And that’s bad. I have argued for years that sovereign immunity makes the most sense when government is providing its core services, particularly services that the market could not easily supply. Elsewhere, sovereign immunity can cause problems, due to its hidden costs. First, because government agencies need not buy insurance, they earn a subsidy that may not be warranted. Second, immunity from suit creates precisely the moral hazard problem that private sector tort liability is meant to ameliorate. Of course one might argue that providing clean water is indeed a core function of government. But the truth of that proposition is far from obvious. Private companies provide drinking water in many parts of the country. Historically, some of the earliest municipal contracts in the US involved cities and towns hiring water suppliers. The private company would gain the right to lay underground water mains and avoid competition, and in return would guarantee potable water at an agreed price. The law on regulation of municipal “franchises” largely grew out of the dependence of cities and towns on private companies for water, gas and power. Nowadays, one’s view of the wisdom of such arrangements will depend on one’s view of whether such “natural” monopolies should be provided by a regulated private monopolist. Many still are. To take two examples, cities and towns still purchase electrical power from the grid, and they arrange for cable television services through a company specialising in it. Many advocates contend that in the specific case of water, there are advantages in having the government provide it directly. Some argue, for instance, that it’s cheaper because government lacks the profit motive. Let’s assume that’s true. Still, along with those advantages come the costs I mentioned above: a lack of tort liability and an increase in moral hazard. With these missing, inattention to detail is more likely. Public Citizen has issued a 10-point fact sheet on why privatizing water service is a bad idea. Ironically, the most troubling issues on the group’s list -- low water quality, corruption, unheard local concerns and suffering among the poor -- are all present in Flint. Which is where sovereign immunity comes in. Why continue to allow government agencies that shield? The burden of the doctrine has long fallen heavily on the most helpless. The legal scholar Richard Epstein has argued that sovereign immunity is in part a relic of an era when all rights and privileges were thought to come from the crown. The doctrine is at least somewhat inconsistent, he suggests, with a constitutional system based on natural rights, that is, based on the theory that our rights adhere to us not because government gives them to us but because of our humanity itself. One’s view of this matter should not turn on whether one is for big or small government. The question is how to get the incentives right. Take the EPA’s reckless pollution of the Animas River in Colorado last summer. A private company would face a substantial fine. Not the EPA. In the words of Thomas L. Sansonetti, who formerly ran the Justice Department’s environment and natural resources division, “The government doesn’t fine itself.” Given that the EPA has a smaller incentive than a private company to act with due care, it’s small wonder that activists are questioning the agency’s insistence that the river is clean again. If the EPA is wrong, it pays no penalty. Neither does any agency involved in the Flint water crisis. (Let’s not count being yelled at on Twitter as a penalty.) And without a penalty, the incentives to take care are much reduced. The usual response to arguments of this sort is to point out that claims against government agencies would have to be paid out of tax dollars. Implicit in this contention is the idea that tax dollars are more valuable than dollars that belong to, say, corporate shareholders. In other words, sovereign immunity is necessary because it’s more important for government agencies than for private entities to hold onto their money. This seems to me a monstrously wrong proposition, but let’s suppose that it’s right. If tax dollars are truly entitled to such a high degree of care, let’s give them one. Let’s make all ranking government functionaries fiduciaries for the tax dollars that are in their care -- with all the personal liability that the fiduciary responsibility entails. Don’t like that idea either? Then maybe tort liability for the agencies involved is a kinder, gentler solution.- Bloomberg View