Stockton water deal stirs privatization ire

By Brian Skoloff


STOCKTON - Mayor Gary Podesto's reputation is on the line. If the $600 million deal he made to privatize the city's water and sewer services fails, fingers will point at him.

But he fancies himself a businessman, a mover-and-shaker in this burgeoning Central Valley city of about 250,000. And he says the public wouldn't understand the 800-plus page contract, which he says will save the city $97 million over 20 years.

"Nobody is calling the public dummies, but do they want to give up the time in their lives to understand the contract, or did they elect me to make those decisions?" Podesto asks.

Podesto and his City Council accepted the deal just two weeks before residents were to vote on an initiative giving citizens final approval of the contract. Furious that city leaders had acted without them, residents passed the ballot initiative by nearly 60 percent.

Now grass-roots groups say they've gathered more than 12,000 signatures in a petition drive seeking to undo the deal, and both sides say the entire matter will likely end up in court.

"The public is very capable of understanding," says Sylvia Kothe, chairwoman of the Concerned Citizens Coalition of Stockton. "The thing that upsets them is being left out of the process."

The deal with OMI-Thames Water, a joint venture of American and British firms, is the largest such project in the western United States, according to industry analysts.

The deal has sparked a wave of protest in this bedroom community for Bay Area commuters, one of many cash-strapped cities turning to private companies to offset the enormous costs of repairing aging sewer pipes and upgrading treatment plants.

Some 15 percent of U.S. water systems have turned to private management for similar reasons. German-based RWE, which owns Thames Water, and the French corporations Vivendi and Suez now control water systems used by more than 40 million people in 1,000 communities across North America.

The trend doesn't involve just water -- other cities are looking to private companies to manage everything from collecting yard waste to parks and recreation.

Opponents say the public is wary of corporations controlling city services.

"There are way too many horror stories," says Ann Johnston, a former Stockton City Council member who joined the signature drive and plans to run for mayor. "People simply don't trust private enterprise to do the job they say they'll do because of all the corporate scandals. Look at Enron."

Stockton officials say their city simply can't afford the $100 million cost of upgrading its waste water treatment plant to comply with new environmental regulations.

"I think the city should manage public safety, police and fire and maybe libraries but beyond that, I think if the private sector can provide it better and cheaper, we have an obligation to our citizens," Podesto says.

Privatizing city services can be a good deal in certain cases, says Max Sawicky of the Washington, D.C.-based Economic Policy Institute.

The city of Augusta, Ga., for example, says it has saved $3 million a year since it handed over the management of its waste water treatment plant to OMI in 2000.

But Sawicky says the public loses trust when big deals fail, such as in Atlanta, Ga., where a 20-year deal between United Water and the city collapsed in January amid complaints about poor service, water-main breaks and brown water coming out of the taps.

"There have been some huge debacles in contracting," Sawicky says. "Even before Enron, there had been all kinds of screw-ups."

Sawicky says local governments have a hard time convincing residents that turning over essential services to corporations is a good idea, even if it is.

"The companies involved typically are very reluctant to have the insides (of contracts) exposed to the public, which obviously makes people suspicious," he adds. "It just smells bad."

Peter Cook, executive director of the National Association of Water Companies, says the Atlanta deal is not the industry norm.

"Around the world, only about 2 percent of private infrastructure deals have been canceled," Cook says. "The amount of money that has to be invested in replacing infrastructure is much higher than it's ever been."

Much of the opposition has been led by Public Citizen, a corporate watchdog group formed by Ralph Nader. "The track record of privatization has been a number of broken promises where corporations have cut corners to increase their profits," says the group's spokeswoman, Juliette Beck.

Adding to concerns in Stockton is a recent federal raid of an OMI-run facility in the Southern California city of Santa Paula. Authorities allege OMI violated the terms of its discharging permit and filed false water-quality reports. OMI officials say they are cooperating with investigators.

OMI's partner in Stockton, England-based Thames, has been fined repeatedly in that country for environmental violations -- problems that Thames says are in the past.

Public Citizen researcher Hugh Jackson is skeptical about the entire industry. "They were saying Atlanta was the model for the country and look what happened," Jackson says. "Now they'll look to Stockton to be that model."

Stockton has had a rebirth recently, adding to the strain on its aging infrastructure. The population grew by 20 percent since 1990 as housing prices drew Bay Area residents to less expensive homes in the agricultural Central Valley.

Business owners hope to capitalize on the influx by revitalizing Stockton's downtown, an inland port on the Sacramento River that once served as a depot for gold prospectors and still has some historic character.

"I was born and raised in this community. My reputation is more at stake here then I ever wanted it to be, but I think it's a good deal," Podesto says. "Our obligation is to save the city money."

Pat Fluetsch, a 22-year-resident of Stockton, is one of the thousands who signed the petitions. She's got a backyard pool, and worries that her water bills may go up. Podesto says the contract allows the city to keep rates under control -- but she's not so sure.

"I feel like the corporations will worry more about their bottom lines and may not be as concerned with local interests," Fluetsch says. Kothe, leading the charge to get the contract agreement tossed out, says city leaders have ignored the will of the people. "Water is such a vital aspect of life, it should be in the people's hands, not in the hands of a private company."