The NewStandard ceased publishing on April 27, 2007.

Corporations Grope for Increasing Portion of Public Water Supply

by Michelle Chen

As municipalities run into difficulty managing their public water systems, large conglomerates and multinational corporations are stepping in to take over; but critics say public water should not be in private hands.

June 29, 2005 – Most Americans do not breathe a sigh of relief every time they pour themselves a glass of clean tap water. Water systems in the United States are considered safe by global standards, and drinking water is a convenience people often take for granted.

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But in some communities, a reliable water supply has started to seem more like a privilege than an entitlement, as cities struggle with declining water infrastructures, water quality problems and tight budgets.

Faced with growing challenges and dwindling options, many local governments have allowed private corporations to manage their water systems, and water service companies, for their part, have leapt at the chance to enter a market that has historically remained in the public domain.

Public interest groups say a consequence of this trend is that water has been reduced from a human right to a commodity, and water quality assurance has shifted from the public works bureau to the customer service department.

The question of what role private industry should play in the provision of water services has culled voices from a range of interests, aligning mayors with multinational corporations and local unions with environmental groups.

The water industry, led by multinational conglomerates that are privatizing water systems all over the world, has promoted private sector involvement as a way to rescue water and sewage systems from rising infrastructure costs, which are expected to drain hundreds of billions in public funds in coming years.

Today, approximately 5 percent of all water utilities nationwide are administered under public-private structures.

But anti-privatization activists say that government-run utilities, while not perfect, are inherently more accountable to the public than private entities are, and governments are therefore better equipped to handle to public needs.

Moreover, they argue, publicly run water utilities are worth saving on principle.

Jack Bellanger of the Minnesota Water Alliance, a community organization that supports public control of local water supplies, argued that corporate service providers put communities at risk because "their allegiance is to the bottom line, and not to the public." In his group’s view, "Operating a water or wastewater treatment plant is the business of the municipalities, the people who work in those communities, and the people that care about what comes out and what goes into those plants."

Fiscal Drought

The model for private water utility management -- known as "privatization" to opponents and as "public-private partnerships" to supporters -- emerged in the 1970s, when dirty leaks and foul odors spurred the city of Burlingame, California to outsource the management of its wastewater utility to a corporation now known as Veolia Water, one of the transnational spin-offs of the Vivendi corporation.

Under the administrations of Presidents George H.W. Bush and Bill Clinton, federal policies began making it easier for localities to finance private participation in public water works through bonds and long-term contracts. Today, according to the pro-privatization industry association Water Partnership Council, approximately 5 percent of all water utilities nationwide are administered under public-private structures.

Environmental groups note that only recently has privatization reached this scale of activity, expanding its geographic reach throughout the world, and leading to unprecedented levels of corporate authority over water distribution and administration.

In recent years, an impending fiscal crisis has provided local governments with an incentive to privatize. According to the Environmental Protection Agency’s needs assessments, maintaining and upgrading drinking water infrastructures will require a nearly $280 billion investment over two decades, and from 2000 to 2019, the estimated capital investment needs of wastewater systems range from approximately $330 billion to $450 billion.

Between 1997 and 2004, Congress appropriated only about $7 billion to the main federal resource for drinking water infrastructure investment, the Drinking Water State Revolving Fund. This year, the House of Representatives has moved to shrink the Clean Water State Revolving Fund, which supports wastewater facility upgrades, to $850 million, down from about $1.1 billion in 2005. Municipalities see the yawning investment gap as a looming financial disaster; private companies see it as a business opportunity.

The National Association of Water Companies (NAWC), an industry group representing privately operated water utilities and service providers, is pushing for federal legislation that would remove caps on public bond financing for public-private water partnerships.

The US Conference of Mayors has partnered with NAWC in advocating for reduced restrictions on public-private ventures.

David Wallace, mayor of the small city of Sugar Land, Texas, has helped lead the lobbying effort. Wallace told The NewStandard that for his city, launching a public-private water utility partnership was a cost-effective way to upgrade the infrastructure to sustain the city’s fast-growing population.

When the choice is between privatizing and raising rates for consumers, he said, local officials may be relieved to find that "you’ve got a private sector that is ready, willing and able to step up and to fund those [types] of capital investments."

Critics of public-private partnerships do not oppose all types of private sector involvement. Both critics and supporters of privately run water systems acknowledge that corporations with technical expertise are routinely contracted by governments to design, build and perform smaller-scale services for public water facilities.

The real debate thus pivots on the issue of water management. Environmental groups note that only recently has privatization reached this scale of activity, expanding its geographic reach throughout the world, and leading to unprecedented levels of corporate authority over water distribution and administration.

Peter Gleick, president of the Pacific Institute, an environmental research group that monitors privatization of water and other public resources, pointed out that because the local water service provider is "a natural monopoly," exerting total control over the community’s infrastructure, a private management contract could entail unforeseen risks.

"Whether it’s publicly run or privately run … there has to be government regulatory oversight," said Gleick. Under the Bush administration, he added, cutbacks to the regulatory system have made it even more difficult for municipalities to scrutinize corporate service providers.

Sara Grusky, international coordinator for government watchdog group Public Citizen’s Water for All campaign, remarked, "We don’t think that corporate conglomerates should be controlling something as basic and essential to human life, and to our planet’s existence, as water."

But Louis Jenny, deputy executive director of NAWC, argued that in fact, "The water stays in public hands," because corporations are merely the managers, not the owners of the water supply. In addition, he said, community control is ensured through the hiring of local employees and compliance with local environmental and rate regulations.

Yet a recent wave of global mergers in the utility sector has added another dimension to the issue of water control: three leading domestic water companies -- US Filter, American Water Works and United Water -- have been swallowed by the Europe-based multinationals Vivendi, RWE and Suez.

"If those private water companies are owned by multinational water companies," said Gleick, "the profits go overseas. The profits don’t stay in the community."

Public Citizen contends that global firms tend to be both physically and conceptually removed from the citizens they serve. For conglomerates headquartered abroad, said Grusky, "it’s much easier to impose very onerous rate structures, because it’s anonymous. You don’t know these people who live in this community. … You don’t feel accountable to them in any way. They’re not your neighbors."

Internationally, activists have denounced water privatization by multinational corporations, promulgated through global financial institutions as a predatory trade policy that effectively deprives people in poorer nations of the right to water.

Deborah Kaufman, an environmental advocate and producer of the documentary "Thirst," about anti-privatization movements in communities around the world, said that the domestic privatization debate is for many Americans a first taste of being on the receiving end of free trade. "It’s like globalization came home," she commented, "and now it’s happening to us."

Activists Say Profits and Water Don’t Mix

An ill-fated public-private water venture in Atlanta, Georgia, has served as a case study in how a partnership between government and industry can turn sour. Problems included rate increases, allegations of fund mismanagement, cost overruns ranging into the tens of millions, and failure to comply with maintenance and repair goals. These led the city in 2003 to terminate its partnership with United Water, a subsidiary of the France-based Suez Corporation, only four years into its twenty-year contract.

Nevertheless, Jenny of NAWC commented, "From the perspective of the citizens of Atlanta, they got a pretty good deal," including some much-needed maintenance repairs and an estimated annual cost reduction of about $10 million.

Public Citizen, on the other hand, pointed out in a recent report that residents were hit with an average rate hike of over 20 percent for sewer and drinking water services from 1999 to 2002. The group also warned that this "anti-consumer strategy," of overcharging and underperforming is taking hold in other cities as well.

While Atlanta’s water plan dissolved, a controversial public-private partnership in Stockton, California rose to the fore of the national privatization debate. OMI-Thames, tied to the British company Thames Water, struck a deal with the municipal government in 2003 to upgrade and operate the city’s water infrastructure. Community groups, including local unions and environmental organizations, have tried to thwart the project through protests, public votes and litigation.

In December 2003, a county judge ruled that the contract was void because it was not subjected to a full environmental review in accordance with state law. The government has nonetheless continued to fight the ruling in court, and OMI-Thames is currently proceeding with the construction and operation provisions of the contract.

The focus of the Stockton debate is the political process, rather than the actual practice, of public-private partnerships. According to Sylvia Kothe, one of the leaders of the Concerned Citizens Coalition of Stockton, at issue is not so much the idea of the water utility engaging the private sector but "the whole concept of how the contact was arrived at in the first place." As officials considered the deal, she said, "there was no open dialogue" about the implications of a private company running the local water system.

In weighing water privatization, city officials relied on consultants’ projections that private water management would save the city $39 million -- according to analyses by the private firms HDR, Alternative Resources Incorporated, and the law group Hawkins, Delafield & Wood. Both HDR and Hawkins, Delafield & Wood are listed as members of the lobby group National Council for Public-Private Partnerships.

An alternative economic analysis by the Pacific Institute, a nonprofit think tank focusing on environmental protection and sustainable development, commissioned by activists questioning the proposal, projected a net additional cost of $1.7 million under private service provision.

Local activists campaigned for a referendum on the issue, but by the time residents voted by a 60-to-40 margin in March 2003 to require public vote approval on all large privatization efforts, the city council had already preempted the opposition by signing the $600-million contract two weeks earlier, enabling the company to deliver water to more than 100,000 consumers.

Community advocates believe their original premonitions about privatization are now being realized. They have reported rising water rates as the result of incremental annual adjustments pegged to a consumer price index. Additionally, in the first year under the contract, the amount of "unaccounted-for water," or water lost as it flows from the source to consumers, was about twice the rate previously observed under municipal management.

Water Solutions

For grassroots activists, the intensifying need to ensure that public water flows safely and equitably prompts a tough question: if privatization cannot solve the problems of the country’s aging water systems, what can?

Gleick noted that when a utility is facing budget or service problems, "the choice is to make it run better as a public agency, or to privatize … If we can make our public water agencies more efficient, then I think that’s what we need to do as the first priority."

Public interest groups have called on Congress to boost funding for local water quality initiatives and to implement a sustainable, comprehensive water trust fund to finance local infrastructure upgrades.

Some of these organizations also advocate "public-public partnerships," or government-led overhauls of water systems that allow the public to maintain complete control over the infrastructure. Since the late 1990s, Public Citizen reported, San Diego, California and Pheonix, Arizona have saved millions in public funds and improved the efficiency of their water utilities through internal reforms.

Bellanger of the Minnesota Water Alliance believes that on a local level, developing sustainable water solutions requires communities to recognize clean water as both a right and an individual responsibility. Growing environmental hazards and foundering local infrastructures, he predicted, translate into unavoidable rate increases.

"These are big sacrifices that have to be made," said Bellanger. "The public doesn’t understand the true cost of water and wastewater provision."

Still, public water advocates see different tiers of public responsibility in protecting water resources.

"It’s certainly becoming more and more costly to ensure that our water is clean and safe," said Grusky. "But the question is … who should pay for that problem?"

Some environmentalists look toward policies that "make polluters pay." They suggest levying a pollution tax on industries that harm the environment as a way to hold corporations accountable for their impact on local water systems.

Another policy proposal from the environmental community is a sliding-scale rate system, which shifts the cost burden onto large-scale, water-intensive industrial and agricultural firms, and simultaneously mitigates costs for communities and for low-income households.

Those who support more community-centered water policy initiatives emphasize that such innovations are unlikely to be implemented under a large private management regime. "You’re much more likely to get rate structures and pricing structures that are accountable to communities when you have locally, publicly run water systems," said Grusky.

A community-based administration, she argued, is inherently more responsive to local interests: "If you know the people that run your water company, and they know you, I think there’s kind of a natural mechanism for ensuring some kind of fairness and justice and equity."

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The NewStandard ceased publishing on April 27, 2007.


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Michelle Chen is a staff journalist.

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