S&WB receives spending estimate

Cost is key to effort to privatize board

Wednesday June 18, 2003

By Martha Carr
Staff writer

The Sewerage & Water Board spends $75 million a year to run its water and sewer systems as well as more than a dozen other departments the board is considering privatizing, according to a baseline cost analysis the board could approve today.

The analysis, prepared by Deloitte & Touche and top water board staffers, was commissioned to give members a clear idea of what the agency spends on the items and services it is considering turning over to a private management company.

Initiated by Mayor Ray Nagin, the cost analysis will be critical in determining how much bidders for the 20-year, roughly $1.5 billion contract can save taxpayers.

"It's an excellent first step because you can't make a good roux without the proper ingredients," said Nagin spokesman Patrick Evans. "This provides the proper ingredients to start cooking that roux."

The water board is in the midst of its second privatization drive in about four years. The last effort, begun under former Mayor Marc Morial, fizzled in October when the board voted 6-5 to deny the bids of United Water, USFilter and an employee management group. Had the contract been approved, it would have been one of the largest privatization contracts in the United States.

During the early part of that bid process, the board was criticized for working from two conflicting spending estimates: $52.4 million, the figure reached by its staff, and $74.9 million, the figure reached by the board's privatization consultant team, led by the law firm Sullivan and Worcester in Washington.

Bids received ranged from $42.8 million to $50.2 million a year.

When Nagin took office, he pushed to get a reliable number. The accounting firms of Deloitte & Touche and Postlethwaite & Netterville then came up with a more definitive baseline of between $49 million and $51 million.

According to the new, expanded version of the proposed contract, that number now appears to be $75,211,948, the amount financial advisers say it will cost taxpayers this year to run both the water and sewer departments, as well as perform a slew of other support functions such as payroll and
personnel. Many of those departments were not included in the board's original privatization proposal.

Also up for board approval today is a long list of changes suggested by individual members to be included in a draft request for proposals prepared this spring by the consulting team. If the board is successful in hashing them out, the document will be released for public comment and posted on the water board's Web site. Five public hearings will follow the
document's release.

So far, the board has said it will give the public 30 days for comment. But Nagin spokesman Chris Bonura said Tuesday that the mayor will recommend extending the comment period to 60 days. The board meets today at 10 a.m. in Room 240 of the Sewerage & Water Board Administration Building, 625 St. Joseph St.

Among the proposed changes are:

-- Splitting personnel and legal functions between the water board and the private operator. In the case of personnel, the water board would hire all employees who will be responsible for monitoring contract compliance, as well as top administrators in most departments. The private operator would hire its own employees who would work in the water and sewer departments, as well as civil service workers who would be employed by the board in drainage and other areas. The board would retain the right to hire or fire any employee of the water board.

As for legal, the board would maintain a separate legal office for the departments that would remain under board control, such as drainage and power.

-- Removing a provision requiring the water board to reimburse a private company for costs incurred in preparing a bid if residents vote down the contract in a referendum.

-- Increasing penalties from $10,000 to $500,000 if a private operator fails to achieve the board's disadvantaged business enterprise participation goals. The proposed contract currently calls for 34 percent participation on construction contracts, 13 percent on supplies and non-professional service contracts, and 35 percent on professional service contracts. A second
offense would incur a $1 million fine.

-- Allowing the board to hold the operator in default of the contract if it violates disadvantaged business enterprise requirements. The board's consultants are recommending against that, saying it could scare off potential bidders. Instead, they say the board should consider default only if
there are multiple violations.

-- Requiring that all services currently contracted out to 100 percent minority-owned businesses continue to be contracted out to 100 percent minority-owned businesses. The consultants are recommending that the board's security contract, which is held by one such business, be excluded
because of the evolving demands of security for the system.

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Martha Carr may be reached at mcarr@timespicayune.com or
(504) 826-3306.