Reason Institute


MUNICIPAL WASTEWATER TREATMENT:
PRIVATIZATION AND COMPLIANCE

By Holly June Stiefel

The U.S. Environmental Protection Agency (EPA) estimated in 1992 that $137.1 billion is needed for wastewater treatment over the next 20 years. Partly in response to these funding needs, the EPA established the Public-Private Partnerships Initiative (now Partners Rebuilding America program). This move toward privatization offers the prospect for improved compliance of wastewater treatment standards, more cost-effective wastewater treatment service, and greater accountability in the design, construction, and operation of facilities.

Privatization offers an alternative means of funding and operating wastewater treatment facilities. According to EPA, five benefits result from use of public-private partnerships: 1) access to more sophisticated technology; 2) cost-effective design, construction, and/or operation; 3) flexible financing; 4) clear delegation of responsibility and risk; and 5) guaranteed costs.

Accountability provided in privatization contracts ensures that a private operator will either meet the contract standards established by the local government or face penalties such as fines or contract termination. Clear assignments of responsibility are linked to accountability through the privatization contract.

Although various forms of privatization have been pursued in hundreds of communities throughout the United States, numerous factors restrict the ability of communities to fully capture the advantages provided by private-sector participation in the provision of wastewater treatment.

To support further wastewater treatment privatization and the development of cost-efficient, reliable municipal wastewater treatment plants the federal government should ease federal regulations associated with existing funding, and modify tax laws that discourage use of tax-exempt bonds for privately owned facilities.

At the state level, regulators should allow communities maximum flexibility in designing the best partnership to meet their needs under EPA's Partnerships Rebuilding America privatization program, and eliminate any state restrictions on use of SRF loans to help finance privately owned facilities.

In pursuing privatization, local officials should ensure that privatization contracts establish clear responsibility and accountability by requiring insurance to cover bankruptcy and maintain service; the right of first refusal if the private firm wishes to sell; and by specifying the terms under which the local government can change the O&M provider and the conditions under which O&M fees can be increased.