Water and wastewater privatization in the United States and Canada: The new challenges, and how we can meet them

Elizabeth Brubaker

Executive Director, Environment Probe

Prepared for the Annual Conference of the National Association of Water Companies

Colorado Springs, Colorado

October 15, 2003

I want to talk today about some of the new challenges facing the water and wastewater industry. I’ll divide these into two categories. In the first category are what I’ll call legitimate concerns about privatization. In the second category are what I’ll call political barriers to privatization. I think that issues in both categories have the potential to seriously interfere with the privatization process. And I think that you as an industry and I as an advocate have to figure out how to address these issues more effectively.

Let’s start with some legitimate concerns about privatization. Everyone knows that a number of high-profile deals have failed recently. Atlanta fell apart. Cochabamba exploded. There have been more modest setbacks as well. Some reverse privatizations. Performance disappointments. Corruption charges. Controversies of various kinds.

You and I know that the failures have been far less significant than the successes. We know that the great majority of municipalities have been very happy with the service the private sector has provided. We can point to impressive contract renewal rates. But pointing to successes doesn’t make the problems disappear. They remain in the minds of potential privatizers. And they should. It’s perfectly reasonable – in fact, it’s responsible – for municipalities that are thinking of privatizing to seek assurances that their deals won’t also fail.

What I’m saying is that the industry has some explaining to do. It has to get to the bottom of recent failures, both here and abroad. It has to identify the problems. It has to figure out whether the causes were unique to particular deals. It has to figure out how to avoid similar problems in the future. And then it has to broadcast these solutions far and wide.

Obviously, this is already happening internally in some of your companies. But I think there’s reluctance to grapple with these problems publicly. I’ve seen plenty of industry case studies of privatization’s successes, but I’ve never seen a case study of a failed privatization. That leaves municipalities and the public in the position of having to get their information on failures from organizations that are broadly critical of privatization. That’s a problem.

I think it’s important for your industry to talk frankly about the failures and what we can learn from them. You’ve got to help municipalities and the public understand what went wrong, and why, and what can be done to avoid similar problems in the future.

It’s becoming clear to municipalities that it can be hard to get privatization right. It’s not going to happen automatically. Some elements of a successful privatization seem obvious. But other elements haven’t been so obvious. They’ve been emerging with experience. It’s our responsibility to identify some of those lessons.

Let me take a crack at some of the lessons I’ve learned from recent failures. These may be quite different from the lessons you’ve learned. After all, you’re on the inside and I’m on the outside. You may not agree with me – especially when I’m talking about your own deals.

With that in mind, I’ll start with a deal initiated by a company that no longer exists: PUMC, or Philip Utilities Management Corporation. Back in 1995, PUMC took over water and wastewater operations in Hamilton, Ontario. As Canada’s largest privatization, it attracted a lot of attention. For the first couple of years, it was extremely controversial, and not terribly successful. It did a lot to give privatization a bad name in Canada. As a result, it scared many Canadians away from privatization.

In my opinion, Hamilton did almost everything wrong. It structured its deal in such a way as to forego almost all of the common benefits of contracting out.

We all know that competition for a contract can bring tremendous cost savings. But Hamilton didn’t have a competition. It sole-sourced the job. And not surprisingly, the cost savings guaranteed by PUMC were minimal – just three percent.

We all know that some private firms can bring valuable expertise to a system. Some have been around for more than a century. You have tremendous experience that can be harnessed to solve local problems.

But Hamilton chose a firm with virtually no expertise. PUMC was a new company. Indeed, one of Hamilton’s reasons for privatizing was to give the firm experience so that it could build a business. The idea was that this local firm would eventually become a big international player, and the city would reap the benefits of the subsequent economic development.

Another problem with the Hamilton contract was that it protected utility workers for only 15months. As you know, many contracts prohibit lay-offs. They limit staff reductions to those that can be obtained through attrition. But not in Hamilton. After 15 months, the contractor was free to lay off as many people as it wanted. And lay off it did – in a ham-handed fashion. At the time of privatization, the system had 122 workers. Five years later, that number was down to 47.

You can imagine what this did to labour relations. Initially, the International Union of Operating Engineers, which represented most of the employees, had endorsed privatization. But its enthusiasm soured, and it became the deal’s most vocal critic. There was even a 111-day strike.

There were performance problems too, but it was impossible to know who was accountable for them. The system desperately needed upgrading. But the city retained responsibility for capital investments. That led to constant finger pointing and buck passing. When PUMC exceeded discharge limits, it just blamed the problems on the infrastructure. To make matters worse, Hamilton had lousy baseline performance data, making it impossible to judge whether PUMC’s performance was better or worse than the city’s.

Critics of privatization point to Hamilton’s experience and say, “You see, privatization didn’t work.” We have to counter, “No, it wasn’t privatization that didn’t work. What didn’t work was privatization without baseline data, without competition, without expertise, without sufficient capital investment, and without labour protections.”

And by the way, we can also point to a number of things that did work. Environmental regulation got tougher after privatization. Hamilton’s sewage treatment plants had been out of compliance for years before privatization. They were not prosecuted once. After privatization, the plants continued to experience problems, but there was a sea change in people’s attitudes towards those problems. The union became extremely critical, and pressured the environment ministry to enforce its laws. Eventually, the ministry laid 22 charges. It’s undeniable that both the union and the ministry are holding the private operator to higher standards than those to which they held its public predecessor. That is an important achievement of privatization.

And the contract itself is working much better these days. PUMC was sold to Azurix in 1999,and two years later, that firm was sold to American Water Works. Each transaction brought with it a better deal for the city.

The Hamilton contract will expire at the end of 2004. Five years ago, people might have talked about the city taking back operations. But you rarely hear that kind of talk these days. Instead you hear promises that the contract will be competitively bid next time.

The importance of an open, competitive process was also driven home in Moncton, New

Brunswick recently. Moncton has a very successful drinking water partnership with USF

Canada. The firm financed, designed, built, and now operates a filtration plant for the city. The city was so pleased with the partnership that it started talking with USF about rehabilitating and operating the distribution and collection network. The city didn’t think it was necessary – or even desirable – to open up the job to competitive bidding. It saw the work as an extension of the existing contract. And it wanted the same firm to run the treatment and the distribution facilities.

But others weren’t convinced. A competitor loudly complained of being excluded from bidding on the project. And interest groups demanded greater transparency and public involvement. The plan met with so much flak that city council decided to seal the draft agreement and commission a study of the needs of the system.

I could talk about other Canadian failures – Vancouver, Halifax … But I think it would be more useful to talk about the highest profile failure in the States. That’s of course Atlanta. I’m sure you’ve all analysed this on your own. But as I said earlier, you tend to be fairly reticent about specific failures. So let me tell you what I’ve taken from the Atlanta situation, and what I think other municipalities can learn from it. And you can tell me if you think I’m on the right track.

One of the most important lessons that we can learn from Atlanta is that good information is critical. Ideally, municipalities will have complete information about the state of their infrastructure, the quality of both influents and effluents, the costs of providing services, work pending, and so on. But in reality, that kind of information is often missing. That was certainly the case in Atlanta.

The Atlanta contract was full of surprises. United Water inherited a backlog of thousands of outstanding requests for service. The cost of repairing water mains, meters, and hydrants was also far higher than expected. In fact, the number of broken meters, and the cost of repairing them, exceeded the city’s estimates by up to ten times. United Water spent something like $10million on unanticipated – and unremunerated – tasks. The absence of information was terribly expensive.

Now, much of this is obviously the city’s fault. But that doesn’t let the company off the hook entirely. Here’s what the Reason Foundation had to say on this subject: “All of the bidders knew about the lack, or quality, of data ahead of time before they bid. Furthermore, UW has a lot of experience running old systems … and it should have built that expertise into its proposal.”

To some extent, I agree. Private providers have to be aware of the dangers of inadequate information and do their own due diligence to fill in the gaps. But asking several competing firms to study a system extensively can’t be efficient. You’re going to end up with a handful of studies, instead of one, and this is going to push up the costs of the bids. It’s also going to make the bidding process too expensive for small firms. So it’s going to reduce competition.

The better choice is for a city to conduct a thorough study of its system and its needs before privatizing. To the extent that information remains elusive, contingencies can be spelled out in the contract. The parties can identify all of the parameters in advance, attach costs wherever possible, and agree on an arbitrator when all else fails.

That’s one lesson, then, that both municipalities and water companies can take from Atlanta: the importance of a “no surprises” approach to privatization. For municipalities, that means getting better information and keeping better records. For water companies, it means doing more and better due diligence. And for both parties, it means making sure that, as far as possible, all contingencies are spelled out in the contract.

Now it’s possible, of course, that United Water did have some inkling of how bad things might be. I’m just speculating here, but indulge me for a moment. It’s possible that the firm decided to take some risks to win the contract. That would have been perfectly legitimate. It was seen as a very important contract, and pursuing it at a loss might well have made sense. But to the extent that that did happen, subsequent experience points to the hazards of pursuing that approach. A water company can’t safely assume that a municipality will be willing to re-negotiate its contract.

Nor should a municipality renegotiate, in most circumstances. It’s important to maintain the integrity of the competitive bidding process. A contract has to include mechanisms for holding accountable a firm that promises deep savings. Municipalities have to be able to ensure that firms live up to their long-term service obligations. Otherwise, firms will promise the moon in the bidding process. Assuming that the municipality has fully disclosed accurate information, and that the contract provides for contingencies, it’s the firm that must bear the risks of a low bid.

Another lesson to be taken from Atlanta’s experience is one that we also learned in Hamilton: Dividing responsibility for operations and capital improvements can lead to unresolvable disputes. Atlanta blamed water quality problems on United Water. Meanwhile the firm pointed to factors beyond its control, such as aging infrastructure, power failures, and the city’s failure to make necessary capital investments. (It’s certainly true that the city wasn’t pumping savings from privatization back into the system. Instead, it was diverting almost $10 million a year to its general fund.)

In any case, these disputes could have been avoided if the Atlanta deal had taken the form of along-term concession – one that assigned to the contractor responsibility for all aspects of the system, including capital investment. Or full privatization – the sale of the system – would have achieved the same thing. When just one party is responsible for operating, maintaining, and improving the system, it can’t pass the buck or point the finger when something goes wrong. It can only look to itself to correct the problems.

Atlanta’s experience also underlines the importance of strong political support for privatization. It really helps to have a champion in city hall. And changes in political leadership can spell trouble. Bill Campbell – the mayor that ushered in privatization – was a real promoter of the deal. That’s interesting, because he was a populist democrat. But he was concerned about water prices going up. And he knew that privatization was one way to keep them down. He promoted the deal with energy and determination. His successor, Shirley Franklin, didn’t have the same enthusiasm for United Water. The fact that she had worked with one of its competitors during the bidding process may or may not have made a difference – I don’t know. But I do know that without goodwill in the mayor’s office, it was a lot harder to work out solutions to the problems that arose.

Atlanta wasn’t unusual in this regard. I suspect that the change in political leadership in Indianapolis contributed to that city’s decision to purchase its water company. (It’s hard to imagine Stephen Goldsmith making that decision.) And it was likely a factor in Halifax’s decision to ditch its plans for three privately built and operated sewage treatment plants.

Of course, there’s nothing you can do to prevent political change. What you can do is take advantage of the opportunities provided by a mayor who has the courage and the conviction to privatize. You can use that opportunity to get a good, solid, unambiguous contract. You can then perform so well that a new mayor wouldn’t dream of withdrawing his or her support. Politicians are going to make political hay when they can. Don’t give them the opportunity.

Before leaving Atlanta, I do want to add one other comment. I’ve been referring to the experience as a failure. And obviously, the deal did turn sour. But it’s also important to remember what United Water did accomplish.

It’s useful, when assessing a privatization, to ask: Compared to what? Compared to its promise, the Atlanta deal doesn’t look so good. But compared to its predecessor, it looks a lot better. Before privatization, Atlanta was not doing an acceptable job. One local newspaper called the public system “a dangerous embarrassment.” Another said that it been “in a shambles.” State inspectors had been after the city for a number of problems. The operation was badly run. A former chair of the Utilities Commission described the water department as “a poster child for government inefficiency.”

Privatization may not have delivered the promised savings of $20 million a year. But Atlanta did save almost $10 million a year. That’s its own estimate. United Water has said that the savings were even higher – more than $17 million a year. Whoever is right, it does make you  wonder: With failures like that, who needs successes?

I don’t have much time to spend on other troubled or failed deals. I’ll mention in passing that I think that the collapse of the Halifax sewage agreement emphasizes the importance of assigning a risk to the party that has most control over it, and the greatest ability to reduce it – or the need, alternatively, to establish parameters ahead of time, and spell out contingencies. It also points to the dangers of finessing difficult issues without really resolving them. It just isn’t a good idea to pursue an imperfect contract – to rely on ambiguities, future grants, or change orders to make it work.

Some of the recent failures in the developing world probably don’t have a lot to teach us here in North America. The problems have been so different. Financial crises, currency devaluations –these aren’t likely to undermine US or Canadian privatizations any time soon. On the other hand, experience in the developing world does offer some pertinent lessons in the hazards of political interference in water systems. It doesn’t matter whether we’re talking about building unnecessary mega-projects or keeping water prices artificially low – political intervention in water and wastewater systems spells trouble.

Those are my comments on what I see as a legitimate challenge now facing privatizers. There have been some high-profile failures. And we, quite rightly, can be expected to explain them.

Unfortunately, that’s not the only challenge facing privatizers. The other challenges are less legitimate and more political. But that doesn’t make them any less serious. Groups opposed to privatization are becoming very adept at raising the political costs of privatizing. Some of these groups can be formidable opponents. I’m thinking of the public-sector unions and some of the public interest groups, such as Public Citizen. These folks are well-organized, and they’re good at getting their message out. Never mind that they often don’t have their facts right. As one discouraged water company executive said to me recently, this has become an environment where “logic and facts don’t matter.”

Instead of facts, the debate these days is turning on feelings. Especially one’s feelings about water and profit. Water, it is said, is a precious resource – the source of life itself. Water must not be entrusted to for-profit corporations. Tainting water with the profit motive would be unethical.

I’m not really surprised to come across this kind of thinking in Canada. After all, many

Canadians have a real socialist bent. Canadians tend to mistrust the profit motive right across the board – not just in water. Do you know what Canada’s version of  “life, liberty, and the pursuit of happiness” is? It’s “peace, order, and good government.” So I’m not surprised when Maude Barlow, of the Council of Canadians, disparages the profit motive. But I am surprised when people in the US take up the banner. And they do seem to have done so with enthusiasm.

Here’s what someone from Public Citizen told The New York Times this winter. Water, he said,” is a basic necessity … We do not feel that it should be managed for quarter-to-quarter returns for a corporation that is trying to satisfy a profit demand.” Public Citizen also signed onto a statement circulated before the World Water Forum held in Kyoto in March. It put forth the principle that water is “an inalienable human right and a public trust.” Since “no person or entity has the right to profit from” water, it went on, the management of water services must remain in public hands.

There are a range of responses to this kind of fuzzy thinking. One is to distinguish water, in all its mystery, from the systems designed to treat and deliver it. A Vivendi executive quite famously did this when faced with the argument that “water is a gift from God.” “Yes,” he agreed, “but He forgot to lay the pipes.”

Another possible response is to point out that the private sector produces and distributes many other essential products. I think that food is the best comparison. It’s essential to life. Quality control is important. Contamination can lead to sickness, or even death. And yet, Public Citizen doesn’t object to food being grown or sold for profit. It doesn’t argue for the nationalization of all farms. Why should water be any different?

Another possible response to concerns about profit is to talk about the benefits of the profit motive. Obviously, if a private firm wants to stay in business, and make a profit, it’s going to have to provide good service. It’s going to have to build a reputation for good performance. It has strong financial incentives to do so. Mistakes can result in fines or the loss of business. As the president of Azurix once said to me, “If you are negligent, you are history.”

Some municipalities try to harness the profit motive by structuring contracts to reward good performance and to penalize bad performance. You probably know that the Milwaukee sewage contract includes bonuses if United Water keeps average concentrations of BOD or suspended solids below a certain limit. And it includes penalties if United Water exceeds specified limits. This gives the firm a real incentive to perform well. In each of the first four years of the contract, it earned $50,000 bonuses. That’s the profit motive at work.

Another approach is to emphasize the contributions that for-profit firms make to society. Profits mean taxes. Publicize the benefits of these taxes. Brag about your profits and your contributions.

Yet another approach to this debate about private profit is to try to disabuse people of their illusions about the public sector. This is hard. An awful lot of people believe that the public sector is governed by fundamentally different motives than the private sector. But they’re mistaken. Ultimately, public and private enterprises alike are directed and staffed by individuals who have their own interest at heart.

Luci Yamamoto made this point in last February’s Public Works Financing. She was writing on the subject of public works projects, and their notorious cost overruns. She said: “The implicit objective is the public interest, yet players are inherently self-serving…. Of course urban infrastructure is valuable to all…. But it should be evident that the main beneficiaries include those who promote such projects in the public interest – and find they just happen to serve their private interest as well.” That’s another response to the critics.

But municipal councillors aren’t really looking for this kind of debate. They certainly don’t want to discuss self-interest in the public sector. And they don’t want to defend the profit motive. Nor should they have to. They should be discussing their infrastructure needs. They should be discussing the private sector’s performance elsewhere. They should be discussing what mechanisms are required to secure good performance in their own community. They should be discussing concrete problems and concrete solutions – and not wasting their time on how people feel about profit. Gary Podesto, the Mayor of Stockton, California, offered that advice before his city voted to contract out water and wastewater operations. He said, “This can’t be a decision of the heart. It must be a decision of the mind.”

That, then, is one political challenge that you increasingly face. You have to be prepared to either defend the role of profit in the water industry, or to re-direct the debate away from feelings about profit and back towards facts about privatization.

You face another political challenge as well. And that concerns the issue of accountability. Did you see the series of reports on privatization that was put out this winter by the Center for Public Integrity? The series was called The Water Barons. In its introduction, the Center warned that the explosive growth of private water utilities raises fears that “accountability will vanish, and the world will lose control of its source of life.” Public Citizen raises the same concerns. On its web site it asks, “Why oppose privatization of water?” The answer, is, among other things, that privatization can result in a loss of accountability.

There are really two facets to this argument. One is that the public sector is accountable. And the other is that the private sector is not. Both are dead wrong. I want to spend some time on this issue, in part because I think increased accountability is a very compelling reason to privatize, and in part because it seems to be the hardest for many people to grasp.

Let’s start with what I call “the myth of public-sector accountability.” There’s a wide-spread assumption that publicly owned and operated utilities are accountable through the regulatory process and through the political process. While this may sound good in theory, it just doesn’t work in practice. Government regulators are notoriously patient with public utilities. As the economist Friedrich Hayek wrote, “a state monopoly is always a state protected monopoly.”

The problem is that governments are in a conflict of interest when, on one hand, they regulate systems, and on the other hand, they own, operate, or finance them. As was said in England before privatization, “the gamekeeper and the poacher are one.” The conflict is two-fold. Governments that operate systems understand that if they prosecute poor performance, they are prosecuting themselves. And governments that finance systems understand that if they enforce tough laws and require costly improvements, they may have to foot the bill.

So much for regulatory accountability in the public sector. Political accountability is also a myth. Water and sewage systems rarely get attention in an election. I can’t think of one municipal government in Canada that has been thrown out for providing bad water or inadequate sewage treatment.

What critics don’t realize is that privatization actually increases accountability: A private owner or operator is inherently more accountable than a public owner or operator. It’s more accountable to regulators, to municipal governments, to the market, and to the public.

In separating the operator from the regulator, privatization  frees up governments to regulate. This is a point I cannot stress enough. People often associate privatization with deregulation. But the privatization of water utilities does not in any way imply deregulation. On the contrary, it goes hand-in-hand with a new focus on regulation.

The experience of England and Wales illustrates this perfectly. One regulator identified the separation of the operator and regulator as the “most significant gain” of privatization. Since privatization, the system of regulation in the UK has become one of the toughest in the world. Anew, very strict enforcement policy emphasizes investigations and prosecutions. The results – in terms of both drinking water and sewage treatment – have been very impressive.

I’ve seen some indication that the same thing is true in the US. Certainly private utilities face stricter economic regulation than public utilities. According to the Reason Foundation, they also face stricter enforcement of environmental and health regulations. If this is true, it is something you should be trumpeting.

Privatization improves enforcement. That’s important information for you to be getting out. Privatization increase accountability in other ways, as well. Of course, it increases accountability to municipalities through the contract mechanism. Enforceable contracts with specific performance criteria provide municipalities with powerful tools to compel compliance. Contracts can guarantee water quality, maintenance levels, or capital expenditures. And they can include financial penalties for non-compliance.

In a privatized system, the market itself provides yet another form of accountability. Investors punish poorly performing companies. Clients and potential clients hold irresponsible companies accountable by refusing to work with them. Private suppliers will be put out of business if they supply bad water. That punishment doesn’t threaten municipal service providers. And that makes them less accountable.

There’s also the matter of accountability through legal liability. In Canada, public providers enjoy liability protections that private providers lack. That makes public providers less accountable.

One major difference is that municipal governments are immune from tort liability for the consequences of their policy decisions. Under that umbrella, courts have ruled that governments shouldn’t be liable for the results of decisions based on economic expediency. Budgeting is thought to be a matter for the political process, and not for the courts. This doesn’t have any parallel in the private sector. A private water company can’t defend itself by arguing that it had a policy not to repair pipes or that it had decided not to budget for repairs that year.

Another difference between public and private providers may lie in the remedies available to those who sue them. In Canada, the courts cannot grant injunctions against the crown or its servants. But it can grant injunctions against private firms.

There’s one other important difference in the liability of public and private providers, and that’s a difference in the consequences of liability. The consequences of being found liable for a particular failure are often more serious in the private sector. The individuals who are responsible are more likely to lose their jobs. The companies are more likely to feel real financial heat. Damages levied against them will come out of their profits. If the damages are big enough, they could threaten the companies’ very existence. Because private decision makers will bear the costs of their decisions, liability has a great deterrent value. That deterrent is diminished in the public sector.

Those, then, are my thoughts on the two political challenges facing privatizers – my thoughts on how we can address concerns about profit, and how we can address concerns about accountability. As I said a few minutes ago, these concerns may not be legitimate, but they are, nonetheless, very real. And they have the potential to do serious damage. In fact, if you look at Canada, you will see that political concerns have already had a big, negative impact on the industry. In the last few years, we’ve seen a retreat from privatization right across the country.

And this retreat has been largely based on fears and feelings, rather than on facts.

But Canada and the US aren’t necessarily the same. I think that Canadian municipalities might be more vulnerable to political arguments against privatization. That’s in part because they aren’t under they same pressures to privatize. The status quo is quite comfortable for them. There’s very little pressure on them to invest in their systems or to improve their performance.

That’s not to say that their systems are in good shape. They’re not. In fact, to you, some of them would look like they came out of the Third World. We still have major cities without sewage treatment plants. Halifax pipes its raw sewage right into its harbour. Victoria merely screens its sewage before sending it out into the ocean.

And we still have major cities without water filtration plants. Vancouver doesn’t filter its water. Instead, it has a standing boil-water advisory for residents with compromised immune systems. Winnipeg doesn’t filter its water. A few years ago, the city put out a brochure entitled “Should Winnipeg Build a Water Treatment Plant?” It explained that five percent of the samples taken from Shoal Lake – the city’s main water source – tested positive for cryptosporidium. It also explained that chlorinating unfiltered water was creating high levels of disinfection byproducts –levels that exceeded federal guidelines. And yet the city was still asking, should we build a filtration plant?

The city had the luxury of asking that question, because no regulator was breathing down itsneck, telling it to shape up or else. In the absence of regulatory pressure, Winnipeg just doesn’t have much of an incentive to improve its system. Which means that it doesn’t have much of an incentive to call on the expertise or the efficiency of a private water company.

Municipalities also don’t have much of an incentive to look for private capital. For years, generous grants have been available from the provincial and federal governments. If municipalities can get free money for capital improvements, why bother with money they have to pay back?

If Canada were to cut off the flow of grants, and if it were to start enforcing its laws protecting public health and the environment, there is no question in my mind that many municipalities would turn to the private sector for help. Some simply wouldn’t have the money or the expertise to meet standards on their own. Some would need private sector efficiencies to help stretch limited funds. And some would just like to pass on responsibility, and accountability, to an outside party.

I don’t know how much these arguments apply to the US. But to the extent that they do, they raise an interesting issue for you. If communities are going to turn to the private sector for capital investment when public money isn’t available, then isn’t it to your advantage to have less instead of more federal or state money flowing to water and wastewater projects? I know that it’s important to you to level the playing field for public and private utilities. But wouldn’t it be better to argue against grants for anyone, rather than to argue for grants for everyone? The former would seem to give you a clear advantage. The latter only removes a disadvantage.

The same goes for laws and regulations. If municipalities turn to private firms for help in meeting new standards, don’t you have an interest in seeing the toughest regulatory regime possible? Why not advocate tighter standards and stricter enforcement? Why not stress that no one should be above the law – not public operators or mayors, and not water companies or their CEOs? Imagine what that would do to your credibility as defenders of the environment. Andimagine what it would do to your client list. I bet lots of municipalities would be eager to handover the responsibility.

In any case, whatever the availability of grants, it seems to me that there’s a certain inevitability about further privatization in the US. You’ve got an aging infrastructure that’s difficult to maintain. You have to meet ever-tighter regulations. You’re facing new security requirements. Both the EPA and the CBO are estimating enormous capital requirements for water and wastewater – between $800 billion and $900 billion. Last fall, speaking of these financial challenges, Christine Whitman said, “The magnitude of the challenge America faces is clearly beyond the ability of any one entity to address.” The same could be said for the operational challenges.

I just don’t see how these problems can be solved without your involvement. I can’t see municipalities foregoing your capital, your expertise, your efficiencies, or the accountability mechanisms that you provide.

On the other hand, I do see the decision being more complicated than it was a decade ago. The factors I’ve been talking about are sure to give some municipalities pause. I think that you can win these debates. But it’s not going to happen by keeping quiet. What we need is a full and frank discussion about people’s concerns. Thank you.

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