Dominating the recent debate on water has been the question of which water project the city should opt for. However, a huge subcomponent of this is the question of the public water system we have now, versus the private operation we would have, per the JPA which appears to be set on using the DBO (Design-Build-Operate) bid method which the city’s advisers and analysts believe is the most cost-effective.
Writes Nancy Price in an op-ed, “As the Davis Water Advisory Committee and later the City Council discuss surface water project options, it is clear that if Davis signs an agreement with West Sacramento, our drinking water still would be delivered by a municipal public works department. However, if water is provided by the Woodland-Davis Clean Water Agency under the Joint Powers Authority, our water would be delivered by a private, for-profit company.”
“Our policy makers seem to think privatization will achieve efficiency and economies,” she writes. “Nothing could be further from the truth.”
She adds, “We take for granted that clean water will flow when we turn on the tap.”
At this point, she argues, there is no question that the responsibility for providing that service lies with the city’s public works department.
As she notes, it says on the website: “The city of Davis Public Works Department maintains much of the public infrastructure. Things like … water and sewage …”
The question moves to what constitutes private and privatization. Ms. Price writes: “Recent statements by various City Council members and other interested parties would have us believe that if a private, for-profit company operates and manages the new water project, as long as there is public oversight this is not ‘privatization.’ “
However, as she argues: “This is exactly what a public-private partnership is: It is government outsourcing a service to a private – in this case, for-profit – corporation. You can bet the company the WDCWA selects will not agree to only a design-build contract, but will insist on an operate contract to lock in reliable income and profits from rate-payers for a fixed number of years.”
She adds, “When and if operation returns to the WDCWA and the cities, can we be assured that rate income actually was spent on sufficient maintenance, so that after the contract expired, the public wouldn’t be liable for unanticipated new costs?”
Public officials would argue that this, the DBO process itself, locks in the costs. But that is less clear if we look at other water systems around the country.
As Nancy Price notes, “These same officials want us to trust that with sufficient public oversight, the private sector can be held accountable.”
“Why should we?” she asks pointing out, “This is not the experience in the United States or elsewhere where privatization of public water services has occurred, and after years, many of the same cities have taken their water utilities back into public control.”
Instead, she argues that the record is clear from a number of “detailed and objective studies,” which reach a different conclusion from the one we are being sold. Instead of privatization leading to a more efficient, better run, and more affordable system, “privatization limits public input, real democratic oversight and accountability; demonstrably raises rates more than the public sector as corporate management meets its fiduciary responsibility to increase shareholder profits; increases the cost of financing; and often leads over time to real maintenance and service problems.”
“Instead of outsourcing and privatization, public-public partnerships are the tested and successful alternative,” she argues. “When municipalities partner together, as proposed for the agreement between Davis and West Sacramento for the water supply project, they are proven to be directly responsive, reliable and accountable to the public and more cost-effective than a for-profit entity.”
Nancy Price concludes, “I urge readers who want facts about water privatization and the public-private partnership compared with the public-public partnership model to read the excellent reports and factsheets at www.foodandwaterwatch.org/water/private-vs-public.”
She adds, “The more Davis and Woodland residents are informed and engaged on the issue of operation, the better discussion we can have about why it matters. It matters because it has to do with the ‘bottom line’ cost of the water supply project, the levels and layers of management involved, and what our water rates will need to be to pay for a public West Sacramento or a new privatized Woodland-Davis Clean Water Agency service.”
This is the portion of the project that I think we need to have a discussion about if we are, indeed as it seems, moving toward a DBO with the Woodland-Davis JPA.
—David M. Greenwald reporting
Thanks Nancy for important food for thought. Matt what is projected timetable for WAC discussion on DNO VS DB? I missed watching the last mtg. Sorry if typos on iPhone and micro type.
Here is an overview of the many different ownership/management structures for water in Europe:
[url]http://iopscience.iop.org/1755-1315/4/1/012037/pdf/1755-1315_4_1_012037.pdf[/url]
There is no one model — certainly not public management — that prevails.
The key to a privately managed water supply, IMO, is a detailed contract and effective oversight by city staff.
So to answer the question:
[i]”When and if operation returns to the WDCWA and the cities, can we be assured that rate income actually was spent on sufficient maintenance, so that after the contract expired, the public wouldn’t be liable for unanticipated new costs?”[/i]
… the answer would be: Yes, if the contract is structured right, performance clauses are included, and oversight is sufficient.
[i]”…and after years, many of the same cities have taken their water utilities back into public control.”[/i]
And many cities, and other countries, have long histories with private management that are apparently satisfactory.
Another question is: what would be the cost to the city of adding municipal employees at current wages and benefits? What is the difference in cost between public and private employment in managing the water supply?
With regard to operation and management contracts (O&M) it seems the most common issues are:
Contract duration. Longer contracts enable private companies to take on debt for upgrades or expansions and get that debt paid off. This is a new plant, presumably requiring little in the way of upgrades for many years. So there would seem to be little incentive for the city to agree to a long-term contract. Shorter duration gives leverage to the city in enforcement.
Liability. Who is responsible for health and environmental risks of providing water? While this might seem like an insurance issue, pollution riders are incredibly expensive (if obtainable at all).
I could see a contract structured at five year intervals, rather than the 20-year contracts that seem to be common in older municipal systems. Risk could be shared if necessary. The contractor could pay for funding for city staff sufficient to provide the technical oversight needed, with those staff on city payroll and under the city manager’s authority. A citizens’ utility board could even be created if there is a sense that public input should be ongoing.
David quotes Nancy and writes:
> “This is not the experience in the United States or
> elsewhere where privatization of public water services
> has occurred, and after years, many of the same cities
> have taken their water utilities back into public control.”
It would be nice to get the names of some of the “many” cities so we can get more information. I don’t have any prefrence as to a public or private water system, I just want to make sure that the city gets a good deal.
> “I urge readers who want facts about water privatization
> and the public-private partnership compared with the
> public-public partnership model to read the excellent
> reports and factsheets at
> http://www.foodandwaterwatch.org/water/private-vs-public.”
Nice looking web site, but I did not find any actual examples of cities that switched back from private to public water.
Looking through the web site more it looks like Food and Water Watch is a huge orginization with offices around the world and an $8 million dollar annual budjet. I didn’t find a lot of details on where the $8 million comes from every year.
SODA said . . .
[i]”Thanks Nancy for important food for thought. Matt what is projected timetable for WAC discussion on DNO VS DB? I missed watching the last mtg. Sorry if typos on iPhone and micro type.”[/i]
Sorry to be so slow SODA. There was a very thorough presentation at the last WAC meeting by Jerry Gilbert on DBO, with particular attention paid by Mr. Gilbert to the problems that private operators have had. His take on the problems is that the only situations he knew about where problems have arisen has been in situations where the private company came in after the public entity couldn’t effectively run the plant. His comments were kind of a preview of Bill Clinton’s comment about the Republicans leaving Obama with a mess and now complaining that he hasn’t cleaned up their mess fast enough. Gilbert said that the DBO model perfected in Seattle and San Diego, won’t have that problem because they won’t be inheriting problems from a prior operator.
The problem I had with what Gilbert was saying was that he is clearly bought into the Seattle/San Diego DBO model and as such may (I emphasize may) be a bit overly optimistic. On the other hand, he may be spot on target.
I strongly urge you to watch the video of Mr. Gilbert’s presentation. At the very least you will come away with a wealth of information. No question from the WAC members stumped him and his answers were thorough.
This Thursday George Tchobanoglous and Ed Schroeder are scheduled for 30 minutes talking about DBO and then Herb Niederberger will follow them for an additional hour of DBO discussion.
Hope that helps.
for a comparison of private vs public, we need look no further than SMUD & PG&E.
“……snd as such may (I emphasize may) be a bit overly optimistic.”
This is a ever-present issue by those who feign total objectivity but are proponents of the JPA-Woodland plan. Maximizing the potential pitfalls of the plan they do not support while minimizing the pitfalls of their preferred option has been the rule of the day. Note:… no mention of the extraction of local wealth to pay cooperate investors. This significant issue appears to be of little consequence here to those who railed against Target coming to Davis.
[i]no mention of the extraction of local wealth to pay cooperate investors. This significant issue appears to be of little consequence here to those who railed against Target coming to Davis.[/i]
Target, of course, was going to compete with local businesses. A privately-managed water system competes with local businesses — how?
Don, davisite may have a different answer at this time, but in the past he has argued that any incremental increase in the price of water is going to decrease his available funds for discretionary spending at Davis businesses. It would seem to be a logical step that he would argue that the extracted profit margin would increase the cost to the City and therefore decrease discretionary spending for all water customers.
One possible problem with that argument is that it doesn’t take into consideration the efficiencies that a private operator may (I emphasize may) be able to achieve and thereby reduce costs by some percentage of the extracted profits. Some areas where those efficiencies could happen are in hiring costs, employee retention costs, training costs, benefits and pension costs, healthcare costs, bulk purchase of chemicals and other supplies. I am sure that other categories have been mentioned, but those are the ones that have been mentioned in prior posts about this subject.
The bottom-line of both the decision and the impact on disposable income available for discretionary spending is [i]”Do the expected achieved savings exceed the expected extracted profits?” [/i]
Thanks Matt for info!
Was in SF for Alcatraz swim; husband finished, whew!
I believe there are true advantages in DBO, particularly in the first 3-5 years of commissioning and “shake-down” cruise of the facilities. The DBO team will have to live and correct their design &/or construction errors/omissions. Great incentive to do it right first time. Thereafter, it does make sense to go to municipal/public ownership to avoid the longer term maintenance operation issues.
IMO we should pursue the DBO, with a contract to operate for three years (or so), options for extension (if all goes well), and the option to take over the ops and maintenance by the agency(ies).
hpierce said “I believe there are true advantages in DBO, particularly in the first 3-5 years of commissioning and “shake-down” cruise of the facilities. The DBO team will have to live and correct their design &/or construction errors/omissions. Great incentive to do it right first time. Thereafter, it does make sense to go to municipal/public ownership to avoid the longer term maintenance operation issues.”
I agree with this statement with the exception of it taking 3 to 5 years to work out the bugs. 2-3 years seems more reasonable. My guess is the DBO contractors will have a laundry list of reasons this option is not appropriate. The contractor will more than likely insist on a 10 to 15 year deal. In addition to an increased time frame I can assure you that there will be penalties if their contract to operate the plant is not renewed. They are in business to make money. That’s not a bad thing, just a reality. No different than the PG&E (private) compared to SMUD (public).
“…any incremental increase in the price of water is going to decrease his available funds for discretionary spending”
No Matt,, that was not what I was addressing. Rather, it is the money that leaves our locale to investors,corporate bonuses and the like.. Most likely the greater portion of the possible public salaries,pensions,etc. is money that circulates in our community. I remember the figure to be at least $4 dollars of value circulating in the economic life of a community for each $ dollar spent by the primary recipient..
Regarding the multiplier effect of employee pay, you are assuming that municipal employees are more likely to live in Davis than are employees of a firm that runs the water project privately. Our previous city manager didn’t even live in Davis. I don’t know how many of our safety officers live here.