Reprinted U.S. Water News / Opinion Editorial

Privatization of water utilities becoming

intelligent choice for many cities

By Thomas C. Bell

Cities across the nation with crumbling infrastructures and tight finances are increasingly looking to the private sector to provide needed water and wastewater services. City utilities in increasing numbers are turning to private firms for technical expertise and increased management efficiencies, as well as for cost savings. Privatization of water and wastewater services should be considered by every utility in this country because it is proving to be a cost-effective method of service delivery that also enhances quality and performance.

Privatization of water and wastewater systems merely involves public governments entering into contracts with private companies to operate their city’s water and/or wastewater systems. In some instances, the private companies actually become owners of part of the systems themselves.

More than 40 percent of drinking water systems nationwide are private, regulated utility systems, according to the Environmental Protection Agency (EPA). Of the others that are publicly owned, a 1997 International City/County Managers Association (ICMA) survey found that 5.7 percent of the responding cities privatize water distribution and 3.7 percent contract water treatment. Data on privatization of wastewater facilities is more difficult to gather, but in the ICMA survey, 6.2 percent of responding cities said they have privatized wastewater collection and treatment.

Why are local government officials considering privatization of water and wastewater services? The primary reason is cost savings. Many cities have decaying infrastructures that need replacing. Both water and wastewater systems in this country are aging and the EPA has estimated replacement of drinking water infrastructure alone over the next 20 years will cost $150 billion.

Secondly, the federal government continues to place tighter and more stringent water and wastewater regulations on the backs of city water and wastewater systems. Privatization helps cities comply with those regulations in a more cost-effective and timely manner than can be accomplished by many local governments.

Several recent reports have indicated the amount of privatization is increasing in America and will continue to grow, a recent paper by the Reason Foundation points out. A survey of the water industry by Public Works Financing revealed that the municipal contract operations market increased 16 percent in 2000.

Case studies of water and wastewater privatization show us why privatization is on the increase. In 1999, the city of Indianapolis reviewed the success of the White River Environmental Partnership in operating the city’s sewer collection and wastewater treatment system. The report showed success in several different areas. Employee wages and benefits had risen between 9 and 28 percent, while accident rates dropped 91 percent. Secondly, the city’s record of environmental compliance improved for permits and effluent discharges.

And third, the cost savings to the city over five years was $78 million. A new 10-year contract has been signed between the city and the partnership which is expected to save the city over $250 million over the life of the contract. Indianapolis has been using the savings for capital improvements in the sewer system and treatment facilities, and for rate reductions.

Because it is the costliest portion of a city’s budget, water and wastewater management is emerging as a critical factor in a city’s economic health and competitiveness. While privatization of water and wastewater services is currently limited, the trends strongly suggest that more cities will examine contracting in the future. The benefits through cost savings and increased quality of service are too obvious to ignore.

As city officials learn from the successful experiences of other municipalities, they will see that water and wastewater privatization also produces important benefits beyond cost savings and improved performance. Privatization is an attractive policy choice for city officials seeking economic growth and community development, the Reason Foundation points out. And for the many cities in this country facing staggering costs for water and wastewater infrastructure improvements, cost savings through privatization can be a smart source of revenue to fund those improvement costs.

Thomas C. Bell

President and Publisher of U.S. Water News, Inc.
230 Main Street
Halstead, KS 67056-9984

(316) 835-2222