April 20 - New Orleans Mayor Ray Nagin's announcement today that
his city's water privatization effort is officially dead offers
lessons to other cities that might be considering privatization.
It also illustrates why Congress should refrain from passing
legislation that would require cities to consider privatization
before receiving federal financial assistance for infrastructure,
Public Citizen said today.
spent roughly $5 million and more than five years analyzing
proposals to operate a combined water-wastewater system. In the
end, the mayor gave up the drive, citing a lack of interest from
Orleans' dance with privatization has spanned five years,"
said Wenonah Hauter, director of Public Citizen's Water for All
Campaign. "After years of controversial public battles
between residents and city officials, it is past time that Mayor
Nagin determined the public's water should be kept in public
A review of
how New Orleans spent its time and money when considering
privatization shows that:
proposals from private bidders were so laden with uncertainties,
inadequacies, omissions and other problems that New Orleans
officials could not credibly compare one bid against the other.
specter of privatization caused paralysis in the publicly operated
water system, where uncertainty about future management stalled
decision-making, stymied implementation of cost-saving innovations
identified by public system managers and employees, and reduced
the morale of public employees.
privatization effort was hindered by complacency and lack of
commitment on the part of Veolia Water, the private contractor
already operating the wastewater system. In 2002, the Black &
Veatch consulting and engineering firm was asked to conduct an
independent audit of wastewater system operations. In the course
of cataloguing numerous environmental violations, mechanical
failures, clogged pipes and other problems, the audit noted the
uncertainty and indecision of future system management.
Orleans Sewerage and Water Board rejected privatization bids in
October 2002 after hearing from a coalition of more than 90 faith,
labor, community and environmental groups dedicated to protecting
the public interest. The groups included Service Employees
International Union, Local 100, and the Association of Community
Organizations for Reform Now (ACORN).
mayor was determined to start the process anew, promising to
fast-track the process and solicit new bids by February 2003. But
more than a year later, the water board still hadn't issued a
second call for bids.
the Louisiana Legislature became concerned that some New Orleans
officials were planning to circumvent a requirement earlier
approved by the City Council mandating that any privatization
contract would have to be approved by voters, and reaffirmed the
requirement in legislation. One of the 2002 bidders, the Suez
subsidiary United Water, pulled out of the renewed privatization
process, saying the voter approval process was an impediment.
After the long and controversial bidding process, the major water
companies shied away from being subjected to a public vote.
death of privatization in New Orleans reflects the utter strategic
confusion within the water industry," said Hauter.
"Corporations such as Suez boasted not long ago of landing
showcase contracts in huge metropolitan areas such as New Orleans
and Atlanta, but they turned out to be dismal failures."
influencing groups such as the U.S. Conference of Mayors through
financial support, and intensely lobbying Congress for regulatory
and legal changes that would favor privatization, the companies
could not overcome the hard economic and political realities of
operating a big city water system.
There is a
very real infrastructure funding gap for water and wastewater
systems in the United States. By some estimates, it will cost $20
billion annually for the next 20 years to build, repair and
maintain systems in this country.
privatization is not the answer, Hauter said. Instead, cities
should pursue money-saving innovations - such as productivity
initiatives, partnership programs with other municipal utilities,
and combining operations and maintenance - while keeping public
resources under public control and ratepayers' dollars in the
local community. Congress needs to significantly increase funding
to enable communities to provide citizens with clean, safe and
remained of the New Orleans privatization scheme was the dying
gasp of a failed business model. Other communities - and Congress
- should take note," said Hauter.