Toronto Needs the Water Privatization Option

Elizabeth Brubaker
PW Financing
February 25, 1999

NB: The conversion of this document to a digital format may have introduced errors. To see the document in its original form, click here.

Next Tuesday, Toronto City Council will vote on a recommendation that it rule out the privatization of water supply or sewage treatment in the city. This ill-considered recommendation reflects union poli­tics rather than a reasoned analysis of the merits of private sector involvement. If councillors approve it, they will prevent the city from capturing tremendous economic and environmental benefits.
The recommendation to forgo privatization came out of the February 10th meeting of the city’s Works and Utilities Committee. Privatization was not on the committee’s agenda that day. What was on the agenda was a discussion of projected staffing levels in the city’s water and wastewater services division. The Toronto Civic Employees Union, Local 416, appeared before the committee to express concerns about the city’s Works Best Practices Program, a program to improve management and tech­nology throughout the water and sewage sys­tem. The city expects annual savings of $26 million.
Workers don’t like the program. As Local 416 president Brian Cochrane explained in a letter to Mayor Mel Lastman, his members see it as part of “management’s unre­lenting assault on their future employment oppor­tunities and, by extension, their families’ futures.” Indeed, the city expects to cut water and sewage staff by 540 within five years. Sewage treatment workers will be the hardest hit: Their numbers will decline from 907 to 507.
The potential for such extensive cuts in staff points to enormous waste in the city’s operations. But the union doesn’t want to bear the costs of reducing inefficiencies. In Cochrane’s words: “To use our members as pawns and scapegoats to cover up for previous ineptness and waste is callous at best.”
The union’s sentiments must have touched the councillors on the Works and Utilities Committee. Or perhaps they were affected by the union’s sheer numbers: Over 100 members—many quite vocal-attended the meeting. For whatever reason, council­lors turned a discussion of staffing levels into a rec­ommendation against privatization. The recommen­dation—spontaneous, reactive, and based on no research—had nothing to do with improving the effi­ciency or effectiveness of the city’s water and sewage systems and everything to do with appeasing the union. Is this how we want to form city policy?
In the charged committee atmosphere, evensome councillors who would like to see greater private sector involve­ment in our water and sewage system voted for the recommendation. Normally tough-talking Councillor Tom Jakobek, who advocates contract­ing out the management of the plant, supported the recommendation, later saying that it “was­n’t about privatization at all.” The meeting “took off in the wrong direc­tion,” he explained, and he had to “put water on the fire.” In any case, Jakobek didn’t think that City Council would adopt the recommendation.
Let’s hope that Jakobek’s instincts are correct, and that Council has the sense to consider privati­zation—an approach to water supply and sewage treatment that is becoming increasingly popular around the world.
Private companies have operated France’s munic­ipally owned water and sewage works for decades. In 1989, England and Wales went further, selling their water and sewage systems to ten regional compa­nies. Since then, privatization has gained momen­tum in Europe and North America. Large American cities, including Seattle, Milwaukee, Atlanta and Indianapolis, increasingly contract out utility operations and management to the private sector. In Ontario, the provincial government has referred the Ontario Clean Water Agency, which operates 357 water or sewage facilities, to the Office of Privatization. A similar trend towards privatization is showing up all over the world: Argentina, Brazil, Chile, Mexico, Malaysia. The Philippines, South Africa, and Australia have recently privatized parts of their water and sewage systems. More countries add their names to the list every month.
Water and sewage privatization is taking the world by storm for three simple reasons: The pri­vate sector has the capital, the expertise, and the motivation to operate systems more efficiently than its public-sector counterparts.
Capital investment is probably the biggest force driving the world wide trend to water and sewage privatization. Private companies are investing enor­mous sums in repairing and building infrastructure. In England and Wales, the new private water com­panies have invested $7.5-billion a year in capital improvements. They expect to invest $100-billion before current programs have been completed.
Expertise counts too. As Indianapolis Mayor Stephen Goldsmith noted, the firms that his city hired to operate its sewage treatment plants “brought us some of the best technical experience in the world—the companies comprising the part­nership employ more PhD civil engineers than the city of Indianapolis has employees. They literally wrote the book on water treatment.”
Given the proper regulatory regime, the environ­ment can benefit tremendously. Last April, Georgia’s governor signed a law that speaks volumes about the environmental effectiveness of privatization. It allows the owners of large public waste-water treat­ment facilities eight minor violations or four sig­nificant violations in a year. Those who exceed these limits must contract with a private firm to operate and maintain the sewer system and the treatment plant for the following 10-50 years. That’s a pretty clear indication that, at least in Georgia, people think that private operators are more envi­ronmentally responsible than public operators.
This has certainly been the case in England and Wales, where the new water and sewage compa­nies have upgraded their systems, increased their compliance with discharge permits, improved water quality, and cleaned up beaches.
Privatization cleans up the environment by cleansing regulators of a crippling conflict of inter­est. Whenever public bodies regulate utilities on one hand, and own, operate, or finance them on the other hand, the regulators are reluctant to press for tough standards or to prosecute violators. Different levels of government feel solidarity among themselves. More pragmatically, govern­ments worry that they’ll have to foot the bill for improvements they demand.
These issues were central to the water and sewage privatization in England and Wales. One regulator admitted that the old system had been “designed with a view to avoiding an excessive number of prosecutions of public organisations.” Before privatization, the Secretary of State com­plained that in a publicly owned system, the gov­ernment acts as both “poacher” and “gamekeeper.” Privatization would separate the polluter from the regulator. In so doing, it would free up the regula­tor to regulate. Sure enough, in the U.K., the reg­ulator is now enforcing laws against pollution far more vigorously than before. Prosecutions for envi­ronmental offences—which were rare under the former public regime—are now the norm.
Toronto will ignore others’ experiences at its peril. The city envisions investing hundreds of mil­lions—some estimates exceed $1 billion—in its poorly performing water and sewage systems in the coming years. Ruling out private sector involvement in these projects in order to placate union members, without even considering the eco­nomic and environmental benefits of privatization, would be unconscionable. The upcoming Council vote points to a pressing need for a full study of— followed by an informed debate about—the promis­es of private sector involvement.
The fracas at the recent Works and Utilities Committee meeting also points to the need to bring labor in on any effort to improve the efficiency and effectiveness of our water and sewage systems. Privatization need not alienate workers. Indeed, experience in other countries indicates that work­ers can throw themselves behind proposals that give them a stake in the success of newly priva­tized operations.
Privatization Ruled Out of Order
Toronto City Council took a full day on Mar.3 to resolve very little about the potential for privatization of municipal services, PWF reports. Deputy Mayor Case Ootes ruled the discussion of privatization, stemming from recommendations of the city’s works and utilities committee, out of order after a morning of sometimes heated debate.
Most of the afternoon was taken up with either side of the issue trying to sneak it back into the discussions on the rest of the committee’s recommendations. In the end, council voted to continue the works best practices process which is looking at ways of optimizing operations in the city’s water and wastewater services. It also agreed there would be no layoffs in the works department before Dec. 31, 2000.
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