Water privatization in the United States

In some places in the United States private ownership and provision of water was the norm historically. In the latter half of the 19th century, private water systems began to be a part of municipal services. As of 2011, over three quarters of US local governments surveyed by the ICMA ( International City/County Management Association ) provide water distribution entirely with public employees. Over two thirds of municipalities provide water treatment publicly, and over half provide sewage collection and treatment publicly. These rates have remained relatively stable over time.

The increased interest in privatizing public water services is an outgrowth of political forces and public policies favoring privatization of public services generally, and water resources specifically. A growing number of contracts to privatize public water services is an indicator that privatization has become increasingly attractive to many public water institutions. State legal authority for public entities to privatize water systems has aided the privatization trend. States have enacted statutes authorizing municipalities and other public entities to enter into contracts with private entities to supply water to the public.

Water corporations have identified United States public systems as potentially profitable. These are United Water, a subsidiary of the French company Suez Environment, American Water, and Siemens from Germany which acquired US Filter Corps from French Veolia Environment and runs it under the Siemens name.

Criticism

In the latter half of the 19th century, private water systems in the U.S. began to be municipalized because private operators were not equitably providing access and service to all citizens or making necessary infrastructure investments. Local government leaders have looked to privatization of more traditional public services, like water, in an effort to save the users money as well as downsize services and overall management burden of the local government. However, critics have pointed to rate hikes, poor responsiveness, impacts on water resources, and false claims of cost savings as reasons why local governments should avoid removing the management of a water service from public hands. In an analysis of an ICMA ( International City/County Management Association ) service delivery survey, Mildred Warner, author of Water Privatization Does Not Yield Cost Savings, Warner asserts that the empirical lessons from thousands of local government managers tell a clear and compelling story. Water service is a poor candidate for privatization.

Economic analyses of only the operating efficiencies of privately operated systems versus publicly operated systems show mixed results, with four studies finding that private utilities are more efficient, five studies finding that public utilities are more efficient, and three studies finding no differences in efficiencies between private and public water utilities. In addition, private water companies have little incentive to invest in public water systems' improvements or maintenance activities that will produce benefits beyond the end of the privatization contract's term.

There are other critics of privitazation that is outside the classic argument of “public” versus “private”. The most of fundamental example being that privatization simply does not lead to cost savings. Again, Mildred Warner argues, that the United States is the ideal location to study the question of cost savings and water privatization. Because the United States, “arguably has the most favorable conditions for privatization of any nation.” We have robust, competitive markets at the local level. We have city managers who believe in market delivery. We have user fees that make water contracts attractive and potentially profitable to private purveyors. And we have a fiscal crisis that causes city managers to look at the potential of private investment to upgrade water systems.

Another infrequent argument against privatization in the U.S. is for security reasons. “The critical dependence of the U.S. public on public water supply systems, surface waters, groundwater, and water infrastructure heighten the vulnerability of these systems not only to conflict and scarcity but also to terrorism and intentional harm. Therefore, we require savvy, farreaching, effective government oversight of our water supplies and facilities for their security. Decentralized private control of waters and water systems complicates the government's attempts to fulfill this responsibility."

In this Water Resources Planning and Management Journal, the authors argue, "These experiences and documents show that the Gordian Knot of ideological debate about privatization can be cut rather than undone. We do not need to decide if private or public "players" are superior, in the abstract. We need to implement and enforce the "rules of the game" under which private or public utilities or operators are efficient and responsive to social needs and desires."

Support

Privatization of water supplies may be an opportunity to promote the decentralization of government. A private sector supply of water can be more efficient and cost effective. According to the World Bank, it is estimated that in the United States each dollar of public funds raised for utilities has an opportunity cost of $1.30 of private consumption, and the average opportunity cost for each dollar of tax revenue raised is $1.17 for 38 African countries. More than 2,000 facilities from New York to California are operated in public-private partnership contract arrangements.

A study on solutions to appropriating renewable fresh water suggested that water is often wasted because it is under-priced and therefore under-appreciated. Direct and indirect subsidies (especially for agricultural use) are still common in both developed and developing countries. Removing such subsidies and letting water prices rise can provide incentives for conservation and for the investments needed to spread more efficient technologies. Lending support to the findings of the University of Michigan study, a survey conducted in 2004 by Global Water Intelligence found that the under-pricing of water is widespread. The study analyzed the prices charged by water utilities in 132 major cities worldwide and found that 39 percent of water utilities had average tariffs that are set too low to cover basic operation and maintenance costs. Some 30 percent had tariffs that are set below the level required to make any contribution toward the recovery of capital costs.

Libertarians have often argued a position similar to this, "Privately owned utilities also make significant economic contributions to the communities they serve by paying local, state, and federal taxes. So in addition to providing top quality water service, a privately owned utility also helps fund schools, police and fire departments, etc. Today, private firms operate more than 2,400 publicly owned water and wastewater facilities for nearly 2,000 municipalities." The industry has been growing an average of about 19 percent per year over the last seven years, which is great considering the recession. In addition, a whopping 97 percent of municipalities that had existing water-management contracts come up for renewal in 2002 and 2003 elected to remain in a public-private partnership. Since 1998, an average of 92.5 percent have been renewed. These statistics are clear signs that municipalities are very satisfied with the results of the partnerships they have set up.

Impact of private sector participation

In 2004 The University of Michigan's Center for Local, State, and Urban Policy published a policy report regarding privatization, the pros and cons, and its impact on local and state government in the United States. As summary of their conclusions follows:

• Private providers may or may not be more efficient than public providers. Whether privatization leads to greater cost savings depends largely on whether there is competition in service provision.
• The quality of privatized services may or may not be higher than publicly provided services. Governments can play an important quality assurance role by monitoring and evaluating the delivery of privatized services.
• In developing and transitional economies, privatization may reduce access to goods and services, particularly for low-income groups. Comparable studies need to be conducted to assess the distributional consequences of privatization programs in the United States.
• Privatization might lead to more rational labor market policies. However, the employment effects of privatization are more nuanced than commonly assumed by either proponents or opponents of privatization. Privatization tends to lead to substitution of high-skill for low-skill workers and reduction in total employment levels, but no change in net wages.
• Political considerations strongly influence both if and how policymakers contract-out services to private providers.

"While many states and localities are turning to privatization as a way to provide services to their citizens, surprisingly little is known about these choices. Much of the debate over privatization pays little attention to the rationales and consequences of private versus public service provision."

File:Work crew digs water line.JPG

Work crew digs water line

Cases of water privatization

Atlanta

In January 1999, the city of Atlanta, Georgia, entered into a 20-year contract with United Water Resources Inc. to run its drinking water system. On January 24, 2003, because hundreds of residents had complained of brown water and poor service since the city agreed to the privatization contract, Atlanta terminated its contract with United Water. At the time, this was the nation’s largest public-private partnership contract. But Mayor Shirley Franklin, who took office after the deal was signed, canceled the contract. The water problems of Atlanta and Georgia have extended far beyond how to run municipal systems to problems of water scarcity and Conflict with neighboring towns and states.(see Tri-state water dispute)

Atlanta Georgia has found itself in a water crisis due to legal and political institutions' accommodation of consumer demand for both water and energy produced by water: a growing population particularly in the sprawling Atlanta metropolitan area, recreational users of water, agricultural irrigators, power generators, and industries like pulp and paper mills, textiles, chemical manufacturing facilities, and the mining industry.

Detroit

File:Large Detroit Landsat.jpg

Detroit Landsat Image

The experiences in Detroit provide some perspective on what happens with corrupt government related to public or private participation. Public officials were indicted for illegally steering public contracts to specific private companies. These companies also were accused of questionable billing practices. According to the Detroit Free Press, The sprawling water system (Detroit's), with more than 4 million customers and annual revenues of more than $800 million, stretches from Lake Huron in north eastern Michigan to the town of Ypsilanti Michigan, a Detroit suburb to the south west of Detroit. This sprawling water system has provided a "flash point between the city and the suburbs because Detroit owns the system although about three-quarters of the customers now live in the suburbs." Also according to the Detroit Free Press, suburban leaders have long criticized the Detroit Water and Sewerage Department for its annual rate increases and what many considered questionable contracting practices. Due to the horse trading, shoddy contracting practices, and other forms of corruption this Detroit case may be a good example of government failure in the water system arena.

As of 24 June 2014, the Detroit Water and Sewerage Department is

"an estimated $5 billion in debt and has been the subject of privatization talks ... [it] says half of its 323,000 accounts are delinquent and has begun turning off the taps of those who do not pay bills that total above $150 or that are 60 days late. Since March, up to 3,000 account holders have had their water cut off every week."

Activists have criticized these actions, saying "Detroit is trying to push through a private takeover of its water system at the expense of basic rights." The Blue Planet Project has filed a "submission to the United Nations Special Rapporteur on the human right to safe drinking water and sanitation regarding cutting off water to Detroit residents.

Emmaus, Pennsylvania

On July 5, 2005, the Emmaus Borough Council voted in a 3-2 vote to authorize its Water Committee to work with the borough's consultant to draft an agreement of sale for its water system. Citizens had been especially concerned that if the borough chose to follow the consultant's advice to "monetize the system," that the system would be sold to a multinational corporation, as was an increasing trend throughout the region. Many Emmaus residents organized themselves under the group EFLOW ("Emmaus for Locally Owned Water"), and through a combination of letter-writing, petitioning and public comment at council meetings, in early September 2005 the council voted to take water privatization off the table of options. This controversy garnered regional and national attention, with anti-privatization non-profits such as Public Citizen noting the debate and outcome.

Indianapolis

On August 26, 2011, the City of Indianapolis transferred its water and waste water systems to a non-profit charitable trust known as Citizens Energy Group, for more than $1.9 billion. Under the terms of the transfer, the City transferred all of the debt of those two systems to Citizens and received more than $500 million, which the City has used to fund upgrades to transportation infrastructure, improvements to city parks, and removal of abandoned homes.

External links

• New Law ‘Facilitates Privatization’ of US Water Systems (2014-05-29), MintPress News