New Orleans quietly decides to re-start water privatization

Thursday February 20, 2003

By Stephanie Grace
Staff writer

Four months after abruptly abandoning its three-year-long privatization drive, the Sewerage & Water Board on Wednesday reversed itself and voted to issue a revised contract proposal, probably within the next 30 days.

Faced with more than a half-billion dollars in sewer-system repairs mandated by a federal consent decree, no more bonding capacity and a City Council that's loath to raise customer rates, the board voted to start the process again in the hopes that contract management might free up more cash. The clock is working against us," said Mayor Ray Nagin, water board president, who introduced the measure. Nagin was on the losing end of October's 6-5 vote to kill privatization and has since replaced two board members who voted the other way.

The vote is not a decision to hire either a private company or the employee group that bid last time around, but rather a move to keep the option on the table, several board members said. The board also voted to look at re-engineering either the entire system or just the drainage system and capital projects. The proposed contract covers only the water and sewer systems.

The previous effort collapsed amid complaints about how the proposed contract was structured. Critics charged that it did not account for electricity and other pass-through costs, and that the penalty of up to $30 million for canceling the contract was exorbitant. Nagin agreed and promised to revise the contract to eliminate the controversial provisions.

This time, just two members voted no. City Councilman Oliver Thomas said he remains uncomfortable with the whole idea. He said he admires the administration for "rolling up their sleeves and trying to get something done," but also thinks "sometimes people need to listen to all voices, not just the voices that agree with them."

Board President Pro Tem Henry Dillon, who also voted against issuing a new bid request, disputed estimates of rate increases that could run 100 percent or more. He said the way he figures it, the worst-case scenario involves an eventual 68 cent per day increase for residents.

Consultants retained

City Attorney Charles Rice has been working with the same consultants that advised the board last time: law firm Sullivan & Worcester, engineering firms Camp Dresser & McKee and Essential Environmental Engineering, and accounting firm Deloitte & Touche. On Wednesday, the board approved an additional $250,000 to pay them, in addition to the $2.9 million they've already received.

"They want much more than that," Nagin said.

Board member Penelope Randolph said she wants to make sure a minority-owned firm is in the mix and asked that the board retain Kim Henry of Essential Environmental, if her "conflict" can be resolved. Nagin agreed, saying he wants to keep the team that's been working on the project all this time because "they have the institutional knowledge."

Henry's brother-in-law, Troy Henry, is president of United Water New Orleans, a firm that, along with USFilter, bid on the S&WB contract last year and may compete again. When the relationship came to light in June, lead consultant Tom Ingoldsby of Sullivan & Worcester said she would pull out of the project.

Re-engineering urged

The board also gave the Managed Competition Employee Committee an additional $50,000 to pay its consulting firm, in addition to the $1.2 million the group has received. The payment is necessary, board members said, to let the employees compete against the large private-sector companies.

Councilman Eddie Sapir, who launched the privatization drive in 1999, said that if one of the private companies wins a contract, the company will reimburse all those costs. He also said any large privatization deal needs public approval.

Not everyone was happy to hear the news. Several members of the Coalition on Sewerage & Water Board, which includes a number of community, labor and environmental groups, reiterated their pitch for re-engineering. Wade Rathke, chief organizer of Service Employees International Union Local 100, which is hoping to represent S&WB workers, said cities such as Houston, Phoenix and Nashville, Tenn., have saved millions after internal reorganizations and kept more of their people working than cities that have privatized.

Chris Lane, another member, rattled off a list of bribery-related scandals involving the parent companies of the two bidders in Europe, and asked why Nagin was discounting re-engineering as a possibility.

"I'm not discounting it. It's on the table as an option," Nagin said.

Lobbying team backed

In other business, the board signed on to Nagin's idea of hiring one Washington lobbying team to represent the water board as well as the city, the aviation board and the Regional Transit Authority -- but only after Nagin agreed to put a board member on the selection committee, which now includes Rice, Executive Assistant for Intergovernmental Relations Garey Forster, Chief Administrative Officer Kimberly Williamson Butler and Economic Development Director Beth James.

Members of Louisiana's congressional delegation have said the city as a whole is likely to do better if it speaks with a united voice, rather than engaging in a "catfight" among different agencies, Forster told the board.

Some members raised concerns that their agency might lose out if the team does not include someone who understands its particular needs in areas such as environmental enforcement and infrastructure. Forster said the city probably will hire a team including several firms, and he noted that current board lobbyists Bob Livingston and Hunter Johnston have submitted bids.

Another point of concern for several members was that the administration issued the bid request in December and received proposals last month without their knowledge.

Dillon said his complaint was "not necessarily what was done, it's how it was done," noting that the request for proposals went out "without any contact whatsoever with this board."

Forster said he had spoken with Executive Director Harold Gorman about it, but Dillon wasn't satisfied.

"The decision is not with the executive director. The decision is with the board," he said.