NCPA - National Center for Policy Analysis

Cities Hiring Private Companies to Manage Water Supplies

February 10, 2003

Across the country, 94 percent of water systems are publicly controlled and most are owned or run by municipalities. But privatization is on the way.

  • Over the last five years, hundreds of American communities -- including Indianapolis, Milwaukee and Gary, Ind., have hired private companies to manage their waterworks -- serving about one in 20 Americans.
  • The number of publicly owned systems operating under long-term contracts by private companies has increased to about 1,100 from about 400 in 1997.
  • The main reason for privatization is that cities are facing enormous costs to repair aging sewer pipes, treatment plants and other infrastructure.
  • Federal officials say the total cost of repairs could outstrip current spending by about $500 billion in the next 20 years.

Utilities hope that partnerships with private companies will generate savings and provide access to capital that would help them cope with such large bills.

Some federal estimates of the need for new spending on municipal water systems have reached as high as $1 trillion over the next 20 years.

Privatization advocates are concerned that the recent collapse of a water system privatization deal in Atlanta will be used by opponents to derail such efforts in other cities. Indeed, the interest group Public Citizen has already begun citing the incident in its opposition arguments.

However, Adrian Moore, a privatization advocate at the Reason Institute, says that the main reason for the Atlanta collapse is that cities and private companies need to be realistic about what a partnership can achieve.

Source: Douglas Jahel, "As Cities Move to Privatize Water, Atlanta Steps Back," New York Times, February 10, 2003.

 

Browse more articles on Tax and Spending Issues