Atlanta dissolves water privatization

by:
Adrian Moore
Vice President of Research
Reason Foundation
www.rppi.org

On Friday, January 24, 2003, the dissolution of one of the largest and most watched privatization's in the United States was announced.  The city of Atlanta and United Water announced that the city would take back operation of its water utility, ending the privatization after four years. 

The overwhelming majority of privatizations succeed, so there are mostly positive lessons learned from them, but there are also lessons to be learned from privatizations that don't work out.  There will be a lot of post-mortem discussion of the Atlanta privatization and amidst the rhetoric the real lessons will sometimes be obscured.  Reason's analysis of what happened and what lessons people should take away from it, "The Atlanta Water Privatization: What Can We Learn?" is available at http://www.rppi.org/atlantawaterprivatization.html

It is clear there is plenty of blame on the shoulders of both parties involved, and that the privatization was high risk from the beginning.  But I am particularly bothered by how little concern there seems to be for the consequences of this decision.   Before the privatization was implemented, everyone demanded to know exactly what the implications were for city residents.

Unfortunately, the decision to end the privatization has raised no such demands.   Before privatization the city had allowed the water system to deteriorate to near collapse, was being fined by the EPA for violating clean water standards, and had nearly 50% more employees working in the water department than needed.  The water department said it needed to double water rates to solve these problems.

Privatization saved the city roughly $10 million per year, brought the system into compliance with EPA standards, and raised rates only 10 percent to accomplish it.

An audit has revealed that the city used the $10 million per year in savings for general fund expenses, rather than for the sewer fund as it had promised.  The city has made no statements about how it will cope without the $10 million per year in savings, but has announced there will be a rate increase and plans to increase the workforce by 15%. 

It is clear that Atlanta's leaders are willing to make city residents pay, and pay a lot, rather than work through their differences with United Water or look for some alternative rather than city operation that already proved a dismal failure. 

As we discussed in our report on the politics of privatization (http://www.rppi.org/htg20.pdf), one truism of privatization is that it is a political decision, and politics, not reality, too often drive the train.