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Urban Water Council Meets to Discuss Public/Private Partnerships

By Rich Anderson
February 3, 2003

Trenton Mayor Douglas H. Palmer and Augusta Mayor Bob Young, Co-Chaired the U.S. Conference of Mayors' Urban Water Council meeting held on January 22 in conjunction with the Winter Meeting.

Mayor Palmer started the meeting by describing the current dire fiscal status of federal, state and local government budgets. Palmer stated that the federal budget deficit is in the hundreds of billions, and he quoted a National Governor's Association report that indicated "...states face the most dire fiscal situation since World War II." He also stated that as many as 37 states were forced to reduce their enacted budgets this year because of declining tax revenues due to the national economic slump. Despite these fiscal woes, the mayor pointed out that the US Environmental Protection Agency (EPA) released its water infrastructure "Needs Gap" analysis that estimates there is a $534 billion investment necessary to comply with clean water and drinking water requirements over the next 20-year period from 2000-2019.

Mayor Palmer stated that local government has been primarily responsible for the investment in water infrastructure that has occurred in the nation since the old construction grants program has ended. In this area of investment, he said, many progressive cities have been looking to, and taking advantage of, public/private partnerships to obtain cost savings from operating the plants, and cost avoidance by teaming with the private sector to build and operate new and refurbished plants.

Some of the examples he presented to the mayors in attendance included Cranston, Rhode Island who partnered with Poseidon Resources and US Filter to achieve rate stabilization for users of the municipal wastewater treatment system. The partnership also achieved $74 million in cost savings over 25 years, and the money saved as well as a $48 million concession fee paid to the city was used to eliminate the city budget deficit and repay a sewer loan from the general fund. The partnership arrangement resulted in $40 million of savings in required regulatory compliance upgrades to advanced treatment technology.

Other examples sited were: Jersey City, NJ who partnered with United Water to operate and maintain the city's water system, watershed and collection and distribution system, with an estimated total public benefit of between $58 and $73 million dollars; Elizabeth, NJ who partnered with E-Town Water (an American Water company) to manage and improve the drinking water and wastewater systems, and the city received $50 million in concession fees that the city used to lower debt and aid property tax redistribution.

Augusta Mayor Bob Young reported on federal legislative activities that the Urban Water Council has been actively pursuing since 1999. Mayor Young's remarks built on successes achieved in partnerships in 1997 when the Department of Treasury's Internal Revenue Service adopted changes to rules that limited private sector outsourcing of publicly owned treatment works (POTWs) to 5 year intervals. The IRS changes allowed for long-term partnerships of 20 years or greater. This administrative change opened the water infrastructure investment field to new investment by the private sector.

Mayor Young called on Judy Sheahan, of the Conference of Mayors to report on federal water legislation. Sheahan said that the House and Senate are in the process of refiling legislation identical to legislation introduced in the last session of Congress. That legislation dealt with reauthorization of the Clean Water Act, and proposed to considerably increase funding of the State Revolving Loan Fund. She stated that the US Conference of Mayors will be submitting comments on the bills, adding that Mayor Palmer and Mayor Young testified to Congressional staff and Committees last year and will do so again this year.

Mayor Young reported that initial meetings have been held with the Department of the Treasury's staff involved with bonds. The Urban water Council has supported a federal legislative change in the tax code to remove Private Activity Bonds used for water infrastructure from limitations imposed by state caps. Currently, PABs used for water infrastructure are subject to the cap and are in competition with PAB use for other types of projects. This subject was discussed with senior Treasury officials, and efforts are in planning to raise the same issue with the 108th Congress.

Meeting participants were told that the Urban Water Council will hold three more meetings later this year. The Urban Water Summit will be held in Washington, DC this spring. The Council will meet in conjunction with the Conference of Mayors Annual Meeting this June in Denver. The final meeting will take place in Chicago in September.