Oct 20, 2009
With Chicago facing a half-billion-dollar shortfall – and Mayor Daley ruling out increases in taxes, fees, and fines – could the city which has pioneered the leasing of major public assets be looking into a long-term lease of its water system?
“The City of Chicago Department of Water Management is said to be considering a lease of its water and wastewater system,” reported the Public Works Financing newsletter in April.
A water department spokesman didn’t confirm or deny the report, but was dismissive. “I hear these rumors periodically, but so far there hasn’t been anything to it,” said Tom LaPorte.
Such a move wouldn’t come without opposition – first of all from the union representing rank-and-file workers in the water department.
“In general privatization is a bad idea,” said Anders Lindall of AFSCME Council 31. “It places a middleman between taxpayers and the government that serves them, a private-sector middleman whose concern isn’t good quality public services but profit.”
Using upfront payments from the sale or lease of assets to pay for operational costs “is the road to fiscal ruin,” he said. “It’s like burning your furniture to heat your house.”
Akron, Milwaukee say ‘no’
Other cities in the region, contending with their own fiscal crises, have recently struggled with the issue. In Akron last November, voters defeated a ballot initiative to approve the long-term lease of the city’s water system by a two-to-one margin. By a similar margin they passed another initiative requiring voter approval for any future sale, lease or transfer of a public asset.
In a city hard-hit by the foreclosure crisis, “people are already so stretched, and the prospect of having to pay higher rates for water and sewer services hit home pretty strongly,” said Greg Coleridge of Northeast Ohio AFSC. He worked with labor and community groups to organize the Citizens to Save Our Sewers and Water, which educated residents about the costs of water privatization and passed petitions to get the issue on the ballot.
Coleridge said early education was crucial — including community screenings of a number of documentaries on water privatization — “so when the big p.r. machine comes along, people already have a deeper understanding, and they won’t be so easily fooled.”
In Milwaukee, the Common Council voted in June to put on hold the hiring of consultants to solicit bids for a 99-year lease of the city’s water system, after a coalition of labor, community, and environmental groups came together to oppose the proposal.
Keep Public Our Water “came together really fast,” said organizer Corinne Rosen. People were concerned about water rates going up and water quality going down, as well as fiscal responsibility and the secrecy of the decision-making process, she said. And while the idea is down it may not be out; KPOW is keeping an eye on things — and pushing for a council resolution against privatizing the city’s water works.
Private operation of municipal water systems often means frequent rate hikes, with private utilities charging as much as 80 more than municipalities for water, as well as lower quality service, with deferred maintenance and backlogged service requests, according to a recent report from Food and Water Watch. The group opposes corporate control of food and water resources, and assists local organizing efforts around the world (including those in Akron and Milwaukee) to keep water in public hands.
The report deals with two types of privatization, explains FWW organizer Jon Keesecker, management and operation contracts, where cities hire private companies, and leases or sales, where companies pay municipalities so they can collect user fees themselves.
People’s first concern about such deals is often rate hikes, he said, along with water and service quality. Beyond that, though, “with something as essential as water, people really want the accountability of public control,” he said.
Indianapolis considers sale, Fort Wayne buys back
In Indianapolis, a private company has operated the water system since 2002; the deal included a five-year rate freeze. Five years later, rates went up 29 percent, and this April they went up an additional 12 percent (after the water company requested a 17 percent hike). In September another rate hike request was submitted – this time for 35 percent. Also in September, Mayor Greg Ballard proposed selling off the water and sewer utilities to outside operators; part of his argument is that it could bring rates down.
Meanwhile, state and federal authorities are investigating environmental violations by the Indianapolis water company, and residents sued last year charging the company systematically overbilled 250,000 customers. (A judge ruled they lacked standing; the city is the company’s only customer.)
This month the Illinois Commerce Commission is holding hearings on a request for rate hikes ranging from 28 to 50 percent by Illinois American Water Company, which serves 317,000 customers from Chicago’s southwest and western suburbs to southern Illinois. It’s the latest of a steady string of rate hikes. (American Water bought up local private water utilities in the area starting in the 1980s.)
In Homer Glen and Orland Hills, where water rates are dramatically higher than in neighboring towns that draw the same Lake Michigan water through municipally-owned systems, officials are considering using eminent domain to take back their water systems, according to the Southtown Star. Other municipalities, including Peoria and Pekin, have mounted similar efforts over the years, but American Water has beaten them back.
Sometimes cities win. After a six-year legal battle, Fort Wayne, Indiana, last year won control of water services that had belonged to a Aqua America. According to FWW, a typical household’s bill dropped by over a third, while water quality and service improved significantly. “It’s been quite successful,” said Keesecker.
Paris says ‘non’
If Chicago were to consider water privatization, one prime prospective buyer would be Veolia Water, part of the North American subsidiary of the French multinational Veolia Environnement, the largest private water company in the world. Veolia Environnement NA moved its headquarters to the Aon building in August 2008. At the time, chief executive Michele Gourvennec noted that “the city of Chicago’s many environmental initiatives mirror…our interest in providing leading-edge environmental programs for our municipal, industrial, and commercial customers.”
Veolia operates the Indianapolis water system (now called Veolia Water Indianapolis) under a 20-year, $1.5 billion contract. In 2008 Veolia took over a $400 million contract to operate the Metropolitan Milwaukee Sewerage District, and it was listed as one of three multinationals that would have the capacity to bid on a water system takeover there.
Veolia’s “vision” is of “a future where the entire planet’s increasingly scarce supply of water fit for human consumption is controlled as a commodity to be bought, sold, traded, marketed, managed and priced for the highest possible corporate profit,” according to a 2005 corporate profile by Public Citizen. (The group argues that as a “natural monopoly,” water resources are best kept in public hands.)
Public Citizen charges that “corruption appears to be part of their corporate culture,” noting bribery convictions of company executives in New Orleans as well as France and Italy, and the jailing of mayors in Bridgeport, Connecticut, and Angoulene, France, for taking bribes from company representatives. (In New Orleans in 2002, after faith, labor, community and environmental groups organized against privatization, bids were rejected by the water and sewer board — and a referendum was passed requiring voter approval of any privatization contract.)
Reviewing the corporation’s operations in Africa, Asia, Europe, and Latin America, Public Citizen charges that Veolia has “a global track record of corruption, broken promises, environmental degradation, price-gouging, obfuscation, misdirection, and secrecy.” Nonetheless, “the world’s largest water company continues to enjoy substantial support within powerful pockets of financial and political circles.”
Founded in 1853 as Compagnie Generale des Eaux (by decree of Napolean III), Veolia took over the water system of Paris in 1861. Last year Paris decided it will not renew Veolia’s contract for water services in the city, which expires on December 31, Inter Press Service reports.
“We want to offer better service, at a better price,” said Paris Mayor Bertrand Delanoe.
A new model for Chicago
Chicago has led the nation in putting major public assets up for long-term lease. Its 2005 Skyway lease to a European consortium was the first such deal for an existing tollroad in the U.S.; its attempt to privatize Midway Airport (which could be revived if economic conditions improve) would have been the first of its kind too.
A recent Illinois PIRG report looks at all of Chicago’s privatization deals, including downtown parking garages and the city’s parking meters, and finds that all include contract terms limiting concessionaire’s risk. In the parking meter deal, the city is barred from issuing permits for parking facilities that charge less than three times nearby meter rates, which would seem to remove any competitive pressure to keep rates down.
In no case has there been any independent financial analysis of asset value or public interest impacts, Illinois PIRG found; the deals are developed and cut in secret, with no opportunity for public input; huge fees for lawyers and financial consultants cut into the value of deals, and sometimes raise conflict-of-interest concerns; and multigenerational leases limit options for cancelling deals and saddle future generations with rising costs and limited options.
The longer the timeframe, the harder it is to accurately gauge an asset’s value, said Brian Imus of Illinois PIRG, and it’s virtually impossible to predict changes in technology and demographics in the long run.
The report was issued in conjunction with an ordinance sponsored by Alderman Scott Waguespack, who called the parking meter debacle “a wake-up call for the City Council to strengthen the tools they have to make sound fiscal and policy decisions.”
The ordinance would require notification of aldermen whenever a public asset lease was under consideration; a public hearing at least a month before a council vote on putting out a bid; independent third-party review of asset values, public-interest concerns (which are particularly relevant in core operations like parking meters), consideration of other options; and a 30-year limit on leases of assets worth over $1 million.
“There need to be policies in place to protect the interests of the public and taxpayers,” said Imus. “We don’t have that in Chicago.”
He expects a push for hearings on the ordinance next month. A previous council effort to impose a 30-day “waiting period” was whittled down to 15 days under administration pressure. It’s not the time period itself but the independent review it provides for that’s important, says Paul Sajovek, Waguespack’s chief of staff. (In Akron voters won a 90-day review period — and the requirement that voters approve any lease of public assets.)
Imus believes it’s possible that some privatization deals could benefit the public. And while some would agree with Lindall that privatization is a bad idea generally, it’s likely many more would agree with Keesecker that water services should be kept public.