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untanglingwebs
El Supremo
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Cities consider selling water, sewer systems for cash
Updated 4/21/2010 8:58 AM |
By Judy Keen, USA TODAY
Tight budgets and falling revenues are prompting cities across the USA to consider selling municipal water and sewer systems to private companies.
American Water, which operates in 35 states, is discussing deals with 75 municipalities and other entities — the most in at least four years, CEO Don Correll says.
Aqua America, which operates in 14 states, sent letters to thousands of cities in the past year and is talking with about 40 of them, CEO Nick DeBenedictis says. He expects to acquire about 20 systems this year.
Selling or leasing water systems isn't always a good deal, says Wenonah Hauter of Food & Water Watch, a non-profit group. Some cities that do so are "mortgaging their future" by ceding control of a vital asset, she says, and rates often climb.
CASE STUDY: In Pekin, Ill., rates running high
Pekin, Ill., City Manager Denny Kief tracked rates for the first 20 years after Illinois American Water bought the water system from a local company and says rates — for 6,000 gallons a month — rose 204%.
Water companies "are having more doors opened to them" as the economy squeezes governments, says Michael Deane of the National Association of Water Companies. Besides providing cash, companies can run systems more efficiently and upgrade aging infrastructure, he says.
Cities react differently to the offers:
•In Temple, Ga., the City Council voted unanimously last week to reject an offer from a private company to lease its water and sewer systems for 30 years for $2 million. "We didn't want to give up control," Mayor Rick Ford says.
•"If you have a chance and the deal is right, sell it," says Mayor John Klem of White Haven, Pa., where the sale of its systems in 2002 paid off water authority debts and allowed it to bank $2.5 million. Rates were frozen for five years, he says, and have risen 5%-10% a year since.
•Marion, S.C., last week finalized the sale of its systems. Voters approved the deal in March. An $11 million debt will be paid off, and the city gets $2.6 million. "It's in the best interests of everybody involved," Mayor Rodney Berry says.
Of the USA's 51,592 community water systems, 24,290 are privately owned, 1,343 have shared ownership, and most others belong to local governments, the Environmental Protection Agency says. |
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Sun Jan 29, 2012 11:42 am |
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untanglingwebs
El Supremo
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An excellent analysis on the privitization of water and sewer systems.
Trends in Water Privatizationpension system, the city considered privatizing its water and sewer authority, among other ideas.25. A sale or lease of a water system, however, transfers em- ...http://documents.foodandwaterwatch.org/PrivatizationTrends.pdf - - Cached - Similar pages |
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Sun Jan 29, 2012 1:41 pm |
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untanglingwebs
El Supremo
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Page four.
"A Food and Water watch review of five large cities showed that budget shortfalls were the primary impetus for privitization plans. From Nassau County, N.Y., to San Jose, Calif., local governments suggested selling or leasing water assts to raise money to help fill multimillion-dollar holes in their budgets.
Several cities floated the idea of auctioning off their water systems not because the systems were burdens or liabilities, but because they were valuable assets that could fetch a high price. Because of fiscal challenges, even well-run systems in excellent condition faced poosible privitization.
Pension funds factor in. Privitization could weaken pension funds.
A few cities considered privitizing their water systems to offset losses to their pension funds caused by the recession. Public pensions, however were not a main reason for local budget deficits on the whole. Contributions to public retirement plans constituted a mere 3.8 percent of state and local budgets in 2008 and were projected to remain a relatively small fraction of local spending through 2014.
Nevertheless, underfunded pensions were a serious concern for a couple of localities, including Pittsburgh. In a study of 13 large cities nationwide, the Philadelphia research Initiative found that pittsburgh's pension was in the worst condition. It could fund only about a third (34 percent) of its commitments. In 2010, fearing a state takeover of the pension system, the city considered privitizing its water and sewer authority among other ideas.
A sale or lease of a water system, however transfers employees to the private sector and reduces the number of employees paying into a public retirement plan. as a result, privitization could undermine public pensions in the long term. This was a concern in Cincinnati where the city considered turning its water utility into an independent regional district." |
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Sun Jan 29, 2012 2:01 pm |
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untanglingwebs
El Supremo
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Page three:
"Trend 2:
Food and water watch's analysis found that as of 2010, cities and towns ha considered selling or leasing water systems that averaged 45 times larger than the typical system sold or leased over the previous two decades. Although both large cities and small towns considered water privitization, the average system facing the auction block in 2010 served nearly 283,000 people
No major city has sold its water systems to a private company in the last two decades. During that time, most sales and concessions involved small water syatems serving an average of only 6,284 people. The largest deal was the concession of Elizabeth, N.J.'s water sustem to American Water in 1998. That system served 110,000 peoplw. That is less than half the average size of the water systems posed for privitization in 2010." |
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Sun Jan 29, 2012 2:13 pm |
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untanglingwebs
El Supremo
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Page 6 THE CONSEQUENCES OF SALES AND CONCESSIONS
"Consumers opposed selling off their water and sewer systems for good reasons. Privitization comes at a cost and often results in rate increases, which could make water service unaffordable for many community members. For many people, the loss of local public control over such a vital resource is an unsettling proposition.
AN IRRESPONSIBLE FISCAL APPROACH
selling a water system to balance the budget fails to address the underlying fiscal problems that created the deficit in the first place, and n many cases, it can further weaken a city's fiscal situation by removing a source of revenue. In the 2010 financial recovery plan for reading, PA., financial consultants explained,"This exchange of annual recurring reenue for one-time operating budget solutions is a financial 'worst practice' which is in part responsible for the City's current financial situation."
Stephen Goldsmith, the former mayor of Indianapolis and current deputy mayor of New York, is a major proponent, and he rejects the idea of leasing public assets to balance budgets. "Monetizing a capital investment as a one-time way to close a budget deficit is a bad idea", he said in July 2010.
To make matters worse, much like when a person sells an item at a pawnshop, a city is unlikely to be able to cash out the full value of its water system. The consultants for reading noted this as well:" The current market for transfer of assets is the weakest in years; this would be a particularly bad time to sell". The purchase price or concession fees likely would be much less than the actual value of the system. |
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Sun Jan 29, 2012 2:47 pm |
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annie226
F L I N T O I D
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Mon Jun 25, 2012 12:22 am |
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untanglingwebs
El Supremo
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Annie 226- The water and sewer issues are totally separate from the retirement. Once again you are comparing apples to oranges. I have no idea why you are raising this issue here instead of starting another thread on retirement.
There are laws that are supposed to restrict the use of water and sewer funds to legitimate uses just as there are laws governing the pension fund.
City employees fear the water system will be sold to US Water, a company that has demonstrably demonstrated huge increases in the cost of water.
Michael (I can't make a decison on the water) Brown appears to be on the way to deepening Flint's financial crisis. The two years of large increases and the indications the increases will be ongoing are driving people out of Flint. Like Detroit, Flint needs to attract residents and not drive them away. I have spoken to residents in areas like Woodcroft, which are more affluent, and they are refusing to water their lawns because of the cost of water.
Is he going to increase dramatically the cost of water to the few remaining manufacuring plants left or will the citizens bear the brunt of the increases? I don't remember the media reporting the commercial rates. For example, the GM plants on Van Slyke are technically in Flint Township, but they are connected to the Flint water supply. Highsmith in his dissertation demonstrated the favorable rates given to commercial users as GM began to expand outside of Flin and yet demanding city utilities. |
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Mon Jun 25, 2012 8:38 am |
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