WASHINGTON - April 20 - New Orleans Mayor Ray Nagin's announcement today that his city's water privatization effort is officially dead offers lessons to other cities that might be considering privatization. It also illustrates why Congress should refrain from passing legislation that would require cities to consider privatization before receiving federal financial assistance for infrastructure, Public Citizen said today.
New Orleans spent roughly $5 million and more than five years analyzing proposals to operate a combined water-wastewater system. In the end, the mayor gave up the drive, citing a lack of interest from water companies.
"New Orleans' dance with privatization has spanned five years," said Wenonah Hauter, director of Public Citizen's Water for All Campaign. "After years of controversial public battles between residents and city officials, it is past time that Mayor Nagin determined the public's water should be kept in public hands."
A review of how New Orleans spent its time and money when considering privatization shows that:
* Draft proposals from private bidders were so laden with uncertainties, inadequacies, omissions and other problems that New Orleans officials could not credibly compare one bid against the other.
* The specter of privatization caused paralysis in the publicly operated water system, where uncertainty about future management stalled decision-making, stymied implementation of cost-saving innovations identified by public system managers and employees, and reduced the morale of public employees.
* The privatization effort was hindered by complacency and lack of commitment on the part of Veolia Water, the private contractor already operating the wastewater system. In 2002, the Black & Veatch consulting and engineering firm was asked to conduct an independent audit of wastewater system operations. In the course of cataloguing numerous environmental violations, mechanical failures, clogged pipes and other problems, the audit noted the uncertainty and indecision of future system management.
The New Orleans Sewerage and Water Board rejected privatization bids in October 2002 after hearing from a coalition of more than 90 faith, labor, community and environmental groups dedicated to protecting the public interest. The groups included Service Employees International Union, Local 100, and the Association of Community Organizations for Reform Now (ACORN).
But the mayor was determined to start the process anew, promising to fast-track the process and solicit new bids by February 2003. But more than a year later, the water board still hadn't issued a second call for bids.
Meanwhile, the Louisiana Legislature became concerned that some New Orleans officials were planning to circumvent a requirement earlier approved by the City Council mandating that any privatization contract would have to be approved by voters, and reaffirmed the requirement in legislation. One of the 2002 bidders, the Suez subsidiary United Water, pulled out of the renewed privatization process, saying the voter approval process was an impediment. After the long and controversial bidding process, the major water companies shied away from being subjected to a public vote.
"The death of privatization in New Orleans reflects the utter strategic confusion within the water industry," said Hauter. "Corporations such as Suez boasted not long ago of landing showcase contracts in huge metropolitan areas such as New Orleans and Atlanta, but they turned out to be dismal failures."
Despite influencing groups such as the U.S. Conference of Mayors through financial support, and intensely lobbying Congress for regulatory and legal changes that would favor privatization, the companies could not overcome the hard economic and political realities of operating a big city water system.
There is a very real infrastructure funding gap for water and wastewater systems in the United States. By some estimates, it will cost $20 billion annually for the next 20 years to build, repair and maintain systems in this country.
But privatization is not the answer, Hauter said. Instead, cities should pursue money-saving innovations - such as productivity initiatives, partnership programs with other municipal utilities, and combining operations and maintenance - while keeping public resources under public control and ratepayers' dollars in the local community. Congress needs to significantly increase funding to enable communities to provide citizens with clean, safe and affordable water.
"What remained of the New Orleans privatization scheme was the dying gasp of a failed business model. Other communities - and Congress - should take note," said Hauter.