Beyond Privatization: Restructuring Water Systems to Improve Performance

1. Beyond Privatization: Restructuring Water Systems to Improve Performance Gary Wolff , P.E., Ph.D. Principal Economist & Engineer Pacific Institute Oakland, California www.pacinst.org

2. The Problem • Cities Face Many Challenges, Including: • Chronic Under-Investment • Tighter Regulations • Security Concerns • Limited Financial Resources

3. Is Privatization A Silver Bullet? • It Has Been Proposed as THE Solution to All Woes, Internationally and in the United States • The Issue Has Been Hotly Contested • But We Say: Public Vs. Private Is NOT the “Bright Line” Between Success and Failure • It Is An Important “Value Issue” That Has, Unfortunately, Become A Distraction From More Important Determinants of Success

4. A Side Comment About “Value Issues” In Water Governance • The Public Vs. Private Debate Contains Important Issues • Such As How to Ensure Economic and Social Values are Realized • See Our Previous Report, Available Free On-Line, For Discussion

5. What Are The Determinants of Success? • They Are, Based on Research in the Upper Midwest (Iowa, Minnesota, Wisconsin, Illinois, Michigan, Indiana, Ohio, and the Province of Ontario): • Effective Staffing • Adequate Funding, Including Innovative Approaches • Detailed Asset Management • Performance Measurements and Rewards • Transparent Decision Processes and Governance

6. Example: Adequate Funding Through Economies of Scale • The Lansing Board of Water and Light and Smaller Municipalities Have Cut Costs Through Service Contracts That Leverage Administrative Costs Over a Larger Base, Allow Assets to Be Run at Capacity, Etc. • Similarly, the “Hub and Spoke” Area of Minnesota (St. Michael, Albertville, and Hanover) Achieves Similar Cost Control Through Contracts With a Private Company

7. Example: Performance Measurements and Rewards • The Louisville Water Company, A Municipal Corporation, Has Achieved Many Goals Via Employee Incentive Awards (Bonuses) • MMSD Contract Has Performance Bonuses • Hamilton, Ontario Switched From Private to Public Operation Without Much Turmoil Because They Had Developed Specifications Suitable For a Commercial Relationship • Ideally, All Systems Would Do This

8. Example: Effective Labor Transitions • Maintaining Fairness & Stability For Workers During Restructuring Is Important, For Numerous Reasons • These Transitions Have Been Made Effectively at: MMSD; Indianapolis Wastewater Operation; Butler County, Ohio; Akron, Ohio; and Hamilton, Ontario • In Contrast, The Indianapolis Water Contract Has Had a Troubled Transition. Federal Mediation Has Been Required, 17 Formal Complaints Were Filed With the NLRB; Fired Employees Have Sued; and So Forth… • But These Examples Do Not Show a “Public-to-Private” Problem. Indianapolis Water Was Private-to-Private, and the Other Examples Are Varied.

9. Beyond Privatization: Restructuring Water Systems to Improve Performance • Our Report Will Be Released In November 2005 • You Can Obtain a Copy at www.pacinst.org • OR, Be Notified of Its (Free) Availability on the Web By Writing Us At: Beyondprivatization@pacinst.org Gary Wolff , P.E., Ph.D. Principal Economist & Engineer Pacific Institute Oakland, California