Of­fload­ing in­fra­struc­ture woes

Amer­i­can towns sell­ing their pub­lic water sys­tems some­times come to re­gret it

The Denver Post - - NEWS - By Eliz­a­beth Dou­glass

LAKE STA­TION, IND.» This hard-luck town just south of Chicago is weigh­ing a de­ci­sion con­fronting many small and mid­size cities with shrink­ing pop­u­la­tions and chronic bud­get deficits: whether to sell the pub­lic water sys­tem to a for-profit cor­po­ra­tion.

Lake Sta­tion needs the cash. Once solidly mid­dle­class, the town of 12,000 has suf­fered from cut­backs at nearby steel mills, statewide caps on prop­erty taxes and debt in­curred to build a new City Hall.

Sell­ing the water sys­tem would erase $11 mil­lion in util­ity debt and leave the city with a $9 mil­lion wind­fall. But the deal does not fund any of the water sys­tem’s $4 mil­lion in over­due re­pairs.

“You’re in bad shape fi­nan­cially to where you’re talk­ing about lay­ing off po­lice, so you’re go­ing to have to do some­thing,” said Lake Sta­tion Mayor Christo­pher Anderson. In Lake Sta­tion, the di­vided City Coun­cil voted in June to sell the mu­nic­i­pal water sys­tem to Amer­i­can Water.

Ne­glected water in­fra­struc­ture is a na­tional plague. By one es­ti­mate, U.S. water sys­tems need to in­vest $1 tril­lion over the next 20 years. Mean­while, fed­eral fund­ing for water in­fra­struc­ture has fallen 74 per­cent in real terms since 1977, and low-in­ter­est gov­ern­ment loans have not filled the gap.

The need to re­ha­bil­i­tate in­fra­struc­ture is ur­gent for many of the nation’s 50,000 com­mu­nity water util­i­ties. Bro­ken or leak­ing pipes can con­tam­i­nate water, flood streets, dis­rupt busi­nesses and re­quire ex­pen­sive emer­gency re­pairs. Out­dated treat­ment plants have trou­ble fil­ter­ing po­ten­tially harm­ful chem­i­cals. Old pipes can leach dan­ger­ous lev­els of lead into drink­ing water.

The prospect of of­fload­ing these headaches to for-profit water com­pa­nies — and fat­ten­ing city bud­gets in the process — is en­tic­ing to elected of­fi­cials who worry that rate hikes could cost them their jobs. Once a sys­tem has been sold, pri­vate op­er­a­tors, not pub­lic of­fi­cials, take the blame for higher rates.

But pri­va­ti­za­tion will not mag­i­cally re­lieve Amer­i­cans of the fi­nan­cial bur­den of up­grad­ing their water in­fra­struc­ture. Water cus­tomers still foot the bill.

Pri­vately owned water sys­tems serve about 12 per­cent of Amer­i­cans. But the fig­ure is much higher — 30 to 70 per­cent — in In­di­ana and 14 other states, in­clud­ing many with in­dus­try-friendly poli­cies. In­di­ana and sev­eral other states al­low pri­vate water op­er­a­tors to spread their costs and price in­creases among cus­tomers from other water sys­tems they own in the state. If reg­u­la­tors ap­prove the deal, that means Amer­i­can Water could bill its cus­tomers through­out In­di­ana for the es­ti­mated ex­penses of buy­ing Lake Sta­tion’s sys­tem. Those in­clude the $20.7 mil­lion pur­chase price, plus the 6.6 per­cent profit that state reg­u­la­tors al­low the com­pany to earn; busi­ness and prop­erty taxes; le­gal fees and other in­ci­den­tal ex­penses, plus 6.6 per­cent profit on those costs; and a 6.6 per­cent profit on the $2.8 mil­lion that Amer­i­can Water plans to spend fix­ing Lake Sta­tion’s ag­ing pipes over five years.

Even as more cities con­sider sell­ing their water in­fra­struc­ture, oth­ers are try­ing to wrest con­trol of their sys­tems back from pri­vate op­er­a­tors, usu­ally be­cause of com­plaints about poor ser­vice or rate hikes.

When res­i­dents of Mooresville, Ind., grew frus­trated with rate hikes, the city tried to buy the sys­tem from Amer­i­can Water for more than $9 mil­lion. A judge ruled in Mooresville’s fa­vor, but the court-ap­proved price — $20.3 mil­lion — was more than the town of 10,000 was will­ing to pay.

In 2015, Fort Wayne, Ind., fin­ished pay­ing $67 mil­lion to take con­trol of water sys­tems in two ar­eas. The em­i­nent do­main ef­fort lasted 13 years and in­cluded two court cases, a trip to the state Supreme Court and pro­tracted bat­tles over price.

Mis­soula, Mont., took own­er­ship of its water sys­tem in June af­ter win­ning a fight that left the city of 70,000 fac­ing an $88.6 mil­lion bill, plus mil­lions of dol­lars more in ex­penses. Over the years, Mis­soula’s water sys­tem had been owned by a re­gional water com­pany; by one of the world’s largest pri­vate-eq­uity funds, the Car­lyle Group; and by a sub­sidiary of Al­go­nquin Power & Util­i­ties, a Cana­dian cor­po­ra­tion.

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