United Water Services' Milwaukee Project a Brilliant Success

excerpted from Public Works Financing

Since United Water assumed control on Mar. 1, 1998, MMSD has won top honors for plant operations from the Association of Metropolitan Sewerage Agencies and, more recently, the national award for excellence in management and service delivery from the Government Financial Officers Association. The district also has improved its relations with labor, particularly the American Federation of State, County and Municipal Employees (AFSCME).

"Their whole outlook on the privatization has improved as a result of this ruling," says Anne Spray Kinney, MMSD’s executive director.

AFSCME’s local and international representatives fought hard to prevent the MMSD privatization but found they had little influence with the district’s appointed board, says Richard Abelson, executive director of AFSCME District.

Council 48. Once the contract was signed, however, MMSD, the city’s political leaders and United Water have followed through on their wage, pension and training/advancement promises, says Abelson.

After a year of negotiations, United Water signed a unified collective bargaining agreement four months ago with all of MMSD’s unions — AFSCME, the building trades, machinists and operating engineers. The agreement was the first to be negotiated concurrently with all four unions and one of only a few unified labor contracts in the U.S.

If outsourcing is inevitable, "Obviously, this is the model we’d like to see elsewhere," Abelson says, adding: "This has been as positive an experience as a privatization could be."

Milwaukee’s successful opening of the pension portability door won’t affect the posture of the international public employee unions, however. "Let it be perfectly clear: We’re still opposed to privatization," says Dennis Houlihan, who tracks out-sourcing at AFSCME’s headquarters in Washington, D.C.

Also, while the IRS ruling is an important precedent, Douglas Reichlin, Sr. V.P. Operations for United Water Services, says similar gains are likely to occur only in specific cases where cities run their own pension systems and are willing to amend their charters to allow a blending of public and private contributions. The formidable legal, political and cultural barriers to opening up the public-employee pension systems run by states and the federal government are likely to limit the impact of the Milwaukee decision on the pace of privatization nationally, he says.

"It shows that we can deal with the local concerns and circumstances and come up with a solution that works for each city," says Donald Correll, Chairman of United Water Resources, half owner of United Water Services with Suez Lyonnaise des Eaux. Moreover he says, opening the door on pension portability "gives us more flexibility to deal with other cities."

United Water successfully lobbied for the city charter change allowing private contributions to Milwaukee’s retirement system. Later, it hired Nixon, Hargrave to draft the city’s application to

the IRS and then worked with MMSD, the unions and Milwaukee’s political leaders to get a favorable ruling.

For all that, extending an olive branch to MMSD’s former employees has made it more difficult for United Water to meet the conservative attrition schedule it set for Milwaukee, says Reichlin. During the past few months, only 15 transferred MMSD workers accepted United Water’s early retirement package of $20,000 and a year’s health benefits. That’s fewer than expected, says Reichlin.

MMSD had 325 positions budgeted and 300 actual employees when it signed the contract with United Water 16 months ago. Of the 280 who elected to become UWS employees, 40 have since retired, quit or moved to other jobs. Another 12 were awaiting the IRS ruling so they could claim their full retirement package from the city, says Reichlin.

Reichlin adds that United Water is "roughly on schedule" toward reaching its optimum staffing fignre of 191 within three years of the contract signing.