New Orleans water privatization killed
Board casts 6-5 vote to reject 3 groups' bids

10/17/02

By Stephanie Grace
Staff writer/The Times-Picayune

After spending more than three years and $3.8 million to explore privatizing the city's water and sewer systems, the Sewerage & Water Board floored even veteran political observers by abruptly killing the whole idea -- at least for now.

In a 6-5 vote that put Mayor Ray Nagin and City Council President Eddie Sapir on the losing end, the board decided to reject all three bids on what would have been the largest public works contract the city has ever considered, worth about $1 billion over 20 years. Councilmen Oliver Thomas and Marlin Gusman voted with the majority, even though Thomas is considered a Nagin partisan and Gusman a Sapir ally.

That split was just one of the unexpected developments in a day originally set aside for technical public policy debate but which shifted quickly to high drama.

This is how the special board meeting was scheduled to unfold:

First, the board was expected to field comments from members of the public, who had crowded into the Municipal Training Academy meeting room near Delgado Community College. That was supposed to be followed by a discussion and vote on whether to award a management and operations contract. If the board had voted yes, it was scheduled to rank offers by a group of employees and by private firms USFilter and United Water according to a 1,000-point scale, then choose a winner. A contract with one of the private companies would have been subject to a citywide referendum.

Instead, board member Ron Guidry opened the meeting with a motion, seconded by Thomas, to reject all three bids. Nagin, the water board's president, and Sapir said they wanted to hear public comment, but the vote proceeded.

Joining Guidry, Thomas and Gusman in the majority were Henry Dillon, Benjamin Edwards and Stafford Tureaud. Voting with Nagin and Sapir, who launched the privatization drive in 1999 by saying it could help cut costs and minimize rate increases, were Norma Grace, Barbara Lamont and Penelope Randolph. The remaining two board members, Sidney Evans and William Grace, were absent.

Sapir said he wanted another vote with the full board present, and City Attorney Charles Rice said he would explore whether that was possible. Rice said later in the day that only someone who votes with the majority can call for reconsideration. He also said he believes the board could amend and reissue the request for proposals, or RFP, certain sections of which have faced widespread criticism.

Five more minutes and the water board's future might have been far different.

Evans, who arrived 15 minutes after the meeting's scheduled noon start, said he would have voted with the Nagin and Sapir forces. That would have prompted a tie -- in effect a loss for privatization foes because the motion to reject all the bids required a majority for passage.

A clearly irritated Evans, who said he told his colleagues he would be a bit late due to a previous engagement, said he was "very surprised" to arrive at the meeting and find it over.

"I wanted to have the discussion. . . . I'm not sure what rejecting all bids means in terms of accomplishing what needs to be accomplished, which is to improve the operations and create debt capacity to make the necessary capital improvements," many of which are required by a federal consent decree, said Evans, a member of the board's Finance Committee. "Rejecting all bids doesn't address the issue at all."

William Grace, an attorney who was long scheduled to appear in court in Lafayette on Wednesday, could not be reached for comment. Some sources close to the board believe he too would have voted to continue the process, and in fact, he told members of the mayor's staff that he would try to make it back to town by 6 p.m., thinking the debate would rage into the evening.

Nagin, who inherited the process from former Mayor Marc Morial, admitted afterward that he was surprised at the turn the meeting took. Although Nagin criticized the process during his campaign for mayor, he has said lately that he believes undesirable contract terms, including a termination penalty that could reach $30 million, could still be fixed. It was unclear Wednesday whether he will attempt to revive the process.

"I expected more discussion, more opportunity for us to flesh this out. It would seem that after three years of dealing with this issue the board would want to hear from the public," he said. "The vote effectively calls for the city to continue to raise rates 15 percent a year because the board did not have a backup plan."

In fact, a five-step sewer rate increase is on the City Council agenda for today -- sponsored by Thomas. Whether the council will act on the matter or defer it is unclear.

Norma Grace said she was "very disappointed" and that she too thought problems with the RFP could still be fixed.

"I wanted to hear discussion to know what the board was willing to do to incorporate some of the changes that would make this much more appealing to the public," she said. "The ability to discuss it was taken away and I'm very sorry for that."

Those who voted in the majority, however, said they acted in the public's best interest.

Gusman said he had about a dozen lingering concerns over the RFP. They include a requirement that the board pay for capital repairs over $10,000, a threshold Gusman considers too low, and disagreement between the board's consultants and the bidders over how much the board would have to spend on top of the fee paid to the private operator.

Asked what he sees coming next, Gusman said: "I don't know. I'm not the leader."

Guidry, whose nine-year appointment officially ended Wednesday, said he voted his conscience despite heated pressure from insiders he wouldn't name.

"I hang out with a whole lot of guys who are political guys. I've gotten a lot of phone calls," he said.

Guidry said he believes rates would have risen as much with privatization as without.

"I'm not an accountant, but the numbers didn't add up for me," he said. "There were a whole lot of things going on behind the scenes that I was very uncomfortable with. . . . I hope it's dead. I think we've spent far too much time on it."

Guidry will continue to serve at the mayor's pleasure until replaced, as will Tureaud, whose term officially expired two years ago and who said he opposed entering a contract because he thinks it would have opened the board up to pricey litigation. Despite his prominent role in the opposition, Guidry said he hopes Nagin will keep him on the board.

Even if Nagin replaces both, the majority of board members will still be Morial appointees.

A coalition of community groups that had mounted a campaign against all three proposals were overjoyed at the developments. Public Citizen of Washington, D.C., called the vote a "landmark victory over corporate greed." And Louisiana ACORN President Beulah Labostrie said foreign-owned companies cannot solved New Orleans' problems.

"We've run our system here for 100 years," she said. "Now it's time to fix the problems ourselves."

The bidders, however, called the vote a lost opportunity for the city.

"I'm definitely disappointed," said Ron Davis, a USFilter vice president. Davis said he was surprised the board spent so much money yet didn't conduct its own analysis or consider other evaluations, including one commissioned by the watchdog Bureau of Governmental Research. "The savings would have generated a lot of jobs and would have done a lot for the infrastructure."

Troy Henry, president of United Water New Orleans, said he thinks the vote sends a terrible message and will keep businesses from coming to New Orleans.

"The death spiral will continue," Henry said.

Officials with both companies said they hope the board will reconsider.

The Managed Competition Employee Committee, or MCEC, led by a group of high-level S&WB managers, said the vote doesn't change its goal of re-engineering the troubled agency from within.

"Nobody in the city, including the employees, including the board, is in favor of maintaining the status quo," MCEC member Melinda Nelson said. "It's our belief that rejecting all bids does not mean we stay still."

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Stephanie Grace can be reached at sgrace@timespicayune.com or (504) 826-3383.

The Times-Picayune. Used with permission.

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