Detroit May Privatize Its Water System

April 2, 2014

The city of Detroit may privatize its water system, says the Wall Street Journal.

With the bankrupt city's finances in turmoil, Detroit's Emergency Manager Kevyn Orr is seeking proposals from private companies to run its water and sewer system. Orr has said that an outright sale of the water department is unlikely and that he would prefer to lease the system to a private authority.

  • Detroit's water system serves 40 percent of the state of Michigan.
  • Leasing the system to a private company would bring in $47 million annually to the city for the next four decades.

The water and sewer lease could be a good test case for privatization, as advocates across the country have been contending that cities could see greater efficiency by putting these systems into the hands of the private sector.

  • Eighty-five percent of all water agencies in the country are public, not private.
  • In 1999, the city of Atlanta privatized its system but reverted back to public ownership after receiving complaints from customers due to cost cutting.
  • Currently, the Detroit Water and Sewerage Department has $1 billion in yearly revenue, pumping 600 million gallons of water a day to Detroit and communities across seven counties.
  • But the system also has $6 billion in debt, as well as an estimated $675 million in pension obligations for current and future retirees over the next decade.
  • The proposal would require that private operators cap rate increases at 4 percent maximum for the first 10 years of operation.

Privatizing the water system would not be Detroit's first foray into outsourcing its services. The city's convention center is run by a private management company and a quasi-public authority, and authority over Detroit's public lighting is about to be transferred from the city to another authority. Just last month, the city privatized its trash service in order to improve service.

Source: Matthew Dolan, "Detroit Seeks Proposals to Privatize Its Water System," Wall Street Journal, March 25, 2014.

 

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