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Privatization Not a Cure-All for Ailing Water and Sewer Systems, Study Finds

Oct. 30, 2001

Privatization Not a Cure-All for Ailing Water and Sewer Systems, Study Finds

Eliminating Public Control Can Lead to Higher Costs, Inadequate Maintenance, Stunted Economic Growth and Lost Accountability

WASHINGTON, D.C. Communities that privatize their water and sewer systems run the risk of suffering higher costs, subpar maintenance, lost accountability and local control, stunted economic growth, wasteful duplication of services and other problems, a report by Public Citizen reveals.

The report, Water Privatization ? A Broken Promise, shines the light on the dark side of water privatization, which is seldom disclosed by corporations vying to take over public water and sewer systems, or by outside consultants advising local governments to surrender control of these utilities to private, for-profit companies under the guise of improving efficiency.

Currently, a number of cities are considering privatization, including New Orleans, Pittsburgh and Stockton, Calif. If New Orleans were to privatize, it would be the largest public works privatization in U.S. history. The contract could last 20 years and cost the city an estimated $1 billion. Many of the pitfalls of privatization have either been dismissed or ignored by New Orleans officials.

But experience shows that serious problems can arise. Lee County, Fla., for example, has reclaimed control of its water system after experiencing a host of problems with its contractor. And Atlanta is conducting an in-depth performance evaluation in the wake of numerous problems attributed to that city?s private water contractor.

“The solution to poorly run water systems and aging infrastructure lies in more government accountability, not less which is exactly what privatization brings,” said Wenonah Hauter, director of Public Citizen?s Critical Mass Energy and Environment Program. “Citizens must hold their elected officials to higher standards. Privatization is a cop-out, pure and simple.”

For the report, Public Citizen analyzed records and talked to officials in 20 municipalities that privatized their water systems. Their experiences show that privatization can be a risky proposition. Consider:

  In Lee County, Fla., county officials in October 2000 chose to return its water and sewer systems to public control after an audit revealed serious problems with the private contractor. Equipment was not in maintained in acceptable working condition. Hazardous waste was poorly handled and reported. Preventive maintenance was performed late and some work was not done at all. After public control was restored, the county?s utility director estimated the company?s failure to properly maintain infrastructure would cost citizens more than $8 million.

  In Pekin, Ill., private operations brought a 204 percent water rate increase over 18 years ? significantly higher than increases in Illinois cities with public water systems. Infrastructure repairs were not performed on a timely basis. During the 1998-1999 school year, service to two schools was cut off for a week, with teachers being notified by a note taped to the door just before students arrived. In response, city officials began to advocate reclaiming public control. The company a subsidiary of American Water Works, the country?s largest private water corporation responded with an estimated $1 million public relations campaign, which succeeded in halting the initiative, at least temporarily.

  In San Francisco, many citizens have criticized the city?s consulting contract with a Bechtel-led alliance, which was hired to do engineering work and hold down costs as the city began upgrading its water and sewer systems. Even before work began, the city?s budget analyst found no evidence that money would actually be saved. A year into the contract, city engineers believed the alliance was doing little more than charging “outrageous” fees. A July 2001 city audit uncovered unauthorized expenses in the alliance?s reimbursement requests.

  In Atlanta, which contracted out the operation and maintenance of its water system in 1998, the city soon began receiving complaints of slow service, broken fire hydrants and brown drinking water flecked with debris. A comprehensive audit of the company?s performance is under way.

Water privatization, particularly of operations and maintenance, is a relatively new phenomenon in the United States. Because no major, long-term contract has run its course, it is difficult to gauge whether cities could easily return their systems to public control after the contracts expire, especially considering the cities lose both the expertise and the personnel necessary to run these systems efficiently. However, if cities also sell the infrastructure associated with the system, rather than just contracting out its operations, it likely would be exceptionally difficult for them to reclaim control.

“By signing away city water and sewer systems, officials jeopardize long-term rate stability, proper equipment maintenance and economic development,” Hauter said. “With the benefits of privatization remaining questionable, residents simply cannot afford such a risk.”