Can private-sector funds resolve U.S. water woes?

Privatizing various aspects of public water utilities is one solution being bandied about more often as a way of dealing with the twin problems of deteriorating water infrastructures and growing shortfalls in government funding in the United States. The idea is that with its underlying business principles, the private sector can make utilities more efficient and even provide additional services.

Small to medium-sized utilities, where resources and expertise are often lacking, are prime targets for privatization, finds a report released in September by the U.S. National Research Council (NRC). The NRC issued neither a ringing endorsement nor a sound rejection of privatization, however, noting that well-run and poorly run utilities exist in both the public and private sectors.

Currently, ownership of U.S. wastewater utilities remains mostly in public hands, according to Steve Allbee, project director of a U.S. EPA analysis looking at water infrastructure funding shortfalls. The picture is different on the drinking water side, with about 43% of utilities privately owned, “but the vast majority of large water systems are still publicly owned,” Allbee says. EPA estimates a deficit of $534 billion between projected investment needs over the next 20 years and current spending levels on water infrastructure in its Clean Water and Drinking Water Infrastructure Gap Analysis released in late September. The agency has called for a national forum to convene early next year to address this shortfall.

A similar mix of public and private utilities is also found in other countries, with the exception of the United Kingdom, where private companies own and operate all of the water utilities, says John Briscoe, senior water adviser for the World Bank. Privatization can mean anything from the outright sale of utility assets to a private company to outsourcing of various services, such as plant operation and maintenance, according to the NRC.

“There is certainly a need for [alternative] approaches to tackling the infrastructure problem,” but EPA doesn’t have a position on privatization, Allbee says. The World Bank, on the other hand, encourages privatization with public oversight. “In many of the countries where we work, public utilities are tremendously inefficient, employing 5–10 times more people than they should, and privatization gets rid of that,” Briscoe says.

But opposition to the practice is growing in the United States and elsewhere, primarily because “private enterprise can’t adequately protect public interests,” says Peter Gleick, president of the Pacific Institute for Studies in Development, Environment, and Security, an independent nonprofit think tank. He points out that the need for private companies to turn a profit can lead them to ignore some communities, which can worsen inequities in the distribution of water, especially in the poorest areas.

Environmentalists, as well as the NRC, also argue that a business approach can discourage water distribution and treatment efficiencies, hinder community conservation efforts, and reduce water quality protections. For instance, the more water companies can send through the pipes to consumers, the more revenue they take in. In a similar fashion, preserving land areas from new development does not boost revenue growth, says Paul Schwartz with Clean Water Action, an environmental group.

Indeed, several U.S. public utilities have worked hard to clean up their act to lessen their vulnerability to private takeovers. One example is in southern California, where public utilities “are run very well,” Briscoe says. This wasn’t always the case, he notes, adding that the utilities “told us they changed because they knew the private sector would be brought in if they didn’t.” In fact, because of such concerns, the NRC concluded that “continued public ownership and operation is the most likely future for the majority of most utilities” in the United States.

And to make sure it stays that way, Schwartz and the Association of Metropolitan Water Agencies and Association of Metropolitan Sewerage Agencies (AMSA) recommend increased investments at all levels, starting with the federal government.

Federal monies have declined since the heady days of the Clean Water Act’s inception 30 years ago, from funding 90% of water infrastructure construction projects to “well less than 10% now,” says Adam Krantz, AMSA’s manager of communications and public affairs. Pointing to recent rate hikes of as much as 25–30% in cities across the country, he notes that municipal governments have long had to pick up the difference. “But it’s simply not enough when you’re looking at new EPA regulations coupled with security funding needs that are being added to these massive infrastructure costs we’re looking at,” Krantz adds. What AMSA is pushing for is a dedicated trust fund, similar to the federal highway trust fund, to which municipalities could turn for long-term infrastructure projects as treatment plants and pipe distribution and collection systems age and need to be replaced. —KRIS CHRISTEN