Does Political Decoupling Through Fair Market Privatization Improve Managerial and Political Outcomes? Insights From Water Utility Sales

ABSTRACT

Many U.S. municipalities face environmental service delivery challenges, including aging infrastructure and rising debt. In response, several states have adopted Fair Market Value (FMV) legislation, which aims to incentivize private firms to acquire and invest in municipal utilities—particularly in the water sector. However, the impacts of FMV privatization remain understudied. Guided by political decoupling theory, this study hypothesizes that FMV privatization improves drinking water utility management and local incumbent electoral outcomes. Using a difference‐in‐differences design, we analyze fifteen Illinois municipalities that sold their utilities after the state adopted FMV legislation relative to thirty‐four controls. Results suggest that FMV privatization improves personnel and technical management outcomes by reducing violations under the Safe Drinking Water Act but has no significant impact on incumbent vote share. These findings indicate that while FMV privatization may enhance utility management through political decoupling, its presumed political benefits warrant further investigation.