Case Studies of Selected Cities
THE UNITED STATES CONFERENCE OF
Water-Related Infrastructure Investment Needs
Recent estimates by the U.S. Environmental Protection Agency (EPA) of capital investment trends and current investment needs were presented at the UWC's Urban Water Summit held in San Juan, Puerto Rico in 1999. Wastewater infrastructure needs were estimated to range between $300 to $400 billion to replace existing plants and build new plants and expanded system capacities. The Congressional Budget Office indicated that overall infrastructure spending is about $200 billion per year, and only a small fraction of that is dedicated to water-related investment. The Federal share providing for water-related spending via the State Revolving Funds is between $2-$3 billion per year. EPA stated a rough projection that if the nation's cities are to meet the requirements of the Clean Water Act, they would need to increase capital spending by 5 percent each year for the next two decades. Even EPA suggests that such an increase is wildly optimistic.
Other cost issues add to the problem of lagging capital investment in water-related infrastructure. EPA reported at the San Juan Urban Water Summit that the single biggest increase in total water-related spending was in the area of operation and maintenance (O&M) of existing plant. A 5-6 percent growth per year in O&M costs has compounded over time resulting in a dramatic shift above capital spending. Additionally, the "affordability" of water is changing. EPA has benchmarked the cost of water user charges at around 2 percent of household income for the lowest income groups. The Agency found in one state with adequate documentation that the water and sewer user charges for the lowest income group is around 4 percent of household income. This same low-income group has experienced a decline in real household income, and spending for water and sewer now increasingly compete for consumer spending.
Public/Private Partnerships: An Innovative Approach
Cities faced with enormous capital spending requirements for water services and dramatically increasing costs associated with providing those services have begun to develop alternative arrangements to satisfy these needs. Rather than taking for granted that all costs should be passed on to ratepayers and taxpayers, local government has begun to harness the efficiencies available through private sector involvement. A growing number of cities have considered ways to increase competition by allowing the private sector to enter into the service-provider role, which was once dominated by the public sector. By partnering with the private sector, it is possible for a city to realize significant operational cost savings through productivity improvements, and to attract private capital investment for needed infrastructure development and upgrades. Cities also have found that they can enter into long-term partnerships with private sector providers and still maintain ultimate ownership of infrastructure assets and secure a desirable level of water quality and quantity.
Some observations are noteworthy when comparing this compendium of case studies on Public/Private Partnerships to the 1997 compendium. First, the interest in entering Partnerships has grown. The number of Partnerships entered into over the last two years demonstrates this. It suggests that the changes in the I.R.S. tax code governing the term of O&M contracts has been recognized by the public sector, and the relative advantages of Partnerships are starting to be more fully understood. Second, the types of Partnerships being considered are much broader than the typical 5-year O&M arrangements that were common in the 70's and 80's. Now, there are a greater number of Partnerships that include both water and wastewater services, design-build-operate arrangements, and new technology applications such as desalinization operations. Third, the nature of the Partnership arrangements appears to be more sophisticated in terms of risk shifting from the public sector to the private operator, greater levels of O&M cost savings, and attractive concession fees. While each Partnership is different, there appears to be developing some "normative" features that facilitate the negotiation process.
The 21 case studies presented here represent a significant amount of water-related resources. The Partnership arrangements involving wastewater treatment facilities are equivalent to 546-mgd, with a range up to 392-mgd. The Partnership arrangements involving water treatment facilities are equivalent to 298.5-mgd, with a range from 3-mgd to 192-mgd. Combined water and wastewater treatment Partnerships presented in the case studies generated roughly $107 million in concession fees paid by the private sector to the public sector.
The UWC mission is to assist Mayors and their cities in achieving efficiencies in providing water and wastewater services. Public/Private Partnerships represent a "cutting edge" approach to achieve the sought after efficiencies. The UWC has, since 1995, worked with Congress, the White House, the Department of the Treasury, and the EPA to remove impediments to Partnerships, while at the same time protecting the interests of Mayors and cities as they enter into these new arrangements. This compendium of case studies serves to inform local government about how such Partnerships are structured, and how cities can take advantage of private sector efficiencies without relinquishing ultimate control of the infrastructure asset and the services it provides.
The Urban Water Council
The Urban Water Council (UWC) commenced operations within The U.S. Conference of Mayors on August 1, 1995. The UWC was formed to respond to Mayoral concerns regarding municipal water and wastewater services. It serves as a forum for local governments to share information on water technology, management methods, operational experience and financing of infrastructure development. The UWC serves as a "task force" of the Conference of Mayors, and membership is open to any USCM member Mayor. The Co-Chairs of the UWC are Mayor Patrick McManus of Lynn, Massachusetts and Mayor James H. Sills, Jr. of Wilmington, Delaware. A list of Mayors currently serving on the Urban Water Council is listed in Appendix A.
The UWC has appointed a Water Development Advisory Board (WDAB) comprised of private companies providing a variety of water and wastewater-related services to cities. The WDAB provides expert advice and information on water issues to UWC members in order to help the USCM develop public policy initiatives designed to assist cities in providing and protecting urban water resources. A list of members of the WDAB is provided in Appendix B.
Additional information on UWC activities and meetings can be obtained from Dr. Richard Anderson, Senior Advisor, Geri Powell, Managing Director, or Paulo Heyman, Program Assistant at The U.S. Conference of Mayors, 1620 I Street, NW, Washington, D.C., 20006; or by calling 202-293-7330; fax 202-429-0422.
J. Thomas Cochran, Executive Director
1620 Eye Street, NW, Washington, DC 20006
Telephone (202) 293-7330, FAX (202) 293-2352