Atlanta: Pulling the Plug on Water Deal a Mistake

City's mistake will haunt taxpayers

On Atlanta residents probably will be paying more for their water soon. And long after Mayor Shirley Franklin leaves office, they will continue to pay for her questionable decision to terminate the city’s relationship with United Water.

After nixing its deal with United, the city is scrambling to put together a transition plan. Sewer rates have tripled over the past 10 years, but water rates for Atlanta residents have increased only about 10 percent.

Atlanta is also facing a $3 billion sewer improvement plan. To deal with the increased costs, Jack Ravan, the commissioner of watershed management, has suggested the city may have to raise rates. And those increases may be bigger than we think.

The privatization deal was the largest in the country. United Water pledged to improve the city’s water services and save Atlanta $20 million a year.

United Water didn’t live up to those promises, but the city’s claim that privatization wasn’t saving any money is laughable. An audit released last week showed United was saving the city $10 million a year. Unfortunately for United Water, that’s half the savings it promised. But in these tough financial times, when states are releasing prisoners early and raising taxes, saving $10 million a year on anything is a good start.

That savings ended up in the general fund because the City Council passed legislation in 1998 charging the water system a $9.8 million yearly franchise fee.

The sewer system, which was supposed to have been benefited from the savings, never received any.

Is United Water to blame for the city’s poor fiscal management? No. And now with the water operations back in its grasp, Atlanta won’t have those millions to move around or “subsidize” programs, which probably translates into even more new fees or taxes to pay for whatever programs the city was shifting that money to.

As for performance, United’s service was far from perfect (nor at the level required in the contract). However, when compared with the city’s past performance, United did a serviceable job. It was completing more repairs than the municipal operation ever accomplished.

For example, the contract calls for more than 4,500 fire hydrant repairs annually; United completed about 4,000 a year, which is better than the about 3,000 that municipal operations completed before privatization.

There were definitely problems with the water contract, and there were disputes that needed to be hammered out. Franklin, however, didn’t need to throw the water provider out with the bathwater.

The city’s waste-water system is still under consent decree and requires millions of dollars of improvements. The many years of poor management and lack of capital funding will soon create additional problems that may be too steep to overcome.

These projects were supposed to receive some funding from the privatization savings – unfortunately, city officials couldn’t keep their hands off the money. Ultimately, taxpayers will have to foot the bill to complete these projects with new fees or taxes.

Worse, Atlanta’s residents will be relegated to the same expensive, poor-quality service they had with municipal operations. While United was far from perfect, the numbers show it outperformed the city.

The day will come, sooner rather than later, when residents will long for the days of United Water.

Geoffrey Segal is director of privatization and government reform at Reason Foundation