Municipal Budgetary Constraints a Leading Factor in Water System Leases and Sales

Ravaged by the recent economic recession, more municipalities are considering selling or leasing their water systems in order to quickly infuse dwindling coffers with much needed cash. Analysis released today by the national consumer advocacy group Food & Water Watch reveals that as of October 2010, at least 39 communities in the U.S. were considering selling or leasing their water systems to private operators--more than five times the number of completed privatization deals in a typical year over the last two decades.

The first comprehensive report to quantify and analyze municipal water system sales and concessions in the U.S., Trends in Water Privatization: The Post-Recession Economy and the Fight for Public Water in the United States also finds that the typical water system poised for privatization in 2010 served 45 times as many people as those leased or sold over the last twenty years. The average system up for privatization in 2010 served nearly 283,000 people, whereas those that had been privatized served an average of 6,285 customers.

"More and more U.S. towns and cities are eyeing their water systems as a potential source of revenue," said Food & Water Watch Executive Director Wenonah Hauter. "This means that more consumers than ever before are facing the prospect of higher rates and degraded service prevalent among private water providers. Unfortunately, such deals rarely ever succeed in balancing budgets and most just mean the loss of public control of an essential resource."

A Food & Water Watch review of five large cities considering leasing or selling their water assets in 2010 reveals that each also suffered from multi-million dollar budget deficits. Milwaukee, Wis., which had considered leasing its water system, projected a budget deficit of $100 million. Similarly, Nassau County, N.Y. is considering leasing its wastewater system while facing a deficit of $343 million.

While a tempting short-term solution to municipal budget problems, selling and leasing water assets to private companies could worsen a municipality's financial situation in the long-term. Food & Water Watch's analysis of concession fees and purchase payments made to municipalities by investor-owned private utilities found that such transactions amount to a loan with an 11 percent interest rate. Private utilities typically raise rates to recoup their capital investment with profit. In a review of the ten largest sales and concessions surveyed, the report also finds that household water rates increased an average of 15 percent a year following a privatization.

Despite the increased interest in water system privatizations, public backlash has kept privatizations at bay. From 2008 to 2010, community opposition halted at least seventeen proposed deals including those in Trenton, N.J.; Milwaukee, Wis.; Akron, Ohio; and Marion, Ind.

Food & Water Watch's review of 18 municipalities that ended contracts with private operators since 2007 found that public operation of water and sewer systems averaged 21 percent cheaper than private operation. Many towns also experienced improved service under public control.

"The data clearly shows that privatizing water systems is not a smart long-term solution to municipal budget problems. Such superficial measures only saddle consumers with debt while degrading the quality of these vital assets," notes Hauter.

According to the report, local governments can control costs for consumers and protect the quality of their water by keeping these systems in public hands. It further recommends that the federal government establish a dedicated source of funding in order to help communities across the U.S. modernize and maintain these essential systems.

Trends in Water Privatization: The Post-Recession Economy and the Fight for Public Water in the United States is available here.