Stockton: Privatize or Pay Higher Water Rates

Outsourcing would save $175 million

Stockton’s water debate boils down to two choices – privatize or significantly raise water rates while paying out huge fines because the city isn’t in compliance with environmental regulations. Outsourcing the city’s water services will save taxpayers approximately $175 million over the life of the contract. An expansive capital-improvement program will be included in the deal, bringing Stockton’s infrastructure up to current environmental standards. The savings and infrastructure improvements will occur without double-digit rate increases; this is guaranteed by the water company, OMI-Thames.

In these tough economic times, with Gov. Gray Davis raising taxes and shifting more responsibilities to cities and counties, Stockton simply can’t make the necessary improvements and keep water rates down. That’s why it is hard to understand the Concerned Citizens’ mudslinging campaign against the proposal. Does the group favor dramatically higher water rates and higher taxes? By fighting the water deal, strictly on philosophical grounds, the group is asking ratepayers to bite the bullet and accept higher prices for the most vital of commodities.

Water privatization is widely accepted across the country. A thorough body of research chronicles the cost savings and environmental benefits outsourcing brings. A 1999 study examined public-private partnerships in water and wastewater systems in 29 cities serving more than 3 million customers and found that it resulted in lower rate increases than were planned prior to privatization. Additionally, prior to privatization, 41 percent of the facilities were not in full compliance with the federal Safe Drinking Water Act. One year later, all were in compliance.

As a result, privatization has bipartisan support as a means of improving the environment and the health of citizens. During President Clinton’s term, the EPA endorsed privatization as a means by which local governments can meet environmental standards. The EPA wrote: “Privatization case studies provide concrete examples to local officials of how successful partnerships and other models can be used to provide needed environmental services more efficiently.” The Concerned Citizens fulfilled an important role by putting the city and mayor through rigorous question-and-answer sessions.The many contract study sessions they prompted has assured us that the city has done its homework and is entering into an agreement that will benefit taxpayers. Unfortunately, despite the best efforts from everyone involved, Concerned Citizens continues to float misinformation and half-truths. It is relying on fear, uncertainty and doubt – not facts. Its members talk about random rate hikes even though the city is ultimately responsible for setting the rates, and the contractor has no role. They talk about selling assets, when actually the city is doing none of that – it is simply entering into an agreement to operate their facilities. The city will retain ownership of all assets.

The disinformation campaign has done nothing but muddy the waters. The big picture has gotten lost – the city cannot stand by and do nothing. The city is facing fines of up to $3,000 a day and must bring its facilities and operations up to new environmental standards.

Stockton is at a crossroads. One path leads to higher rates and further debate about how to cope with bringing facilities into compliance. The other path leads to an agreement requiring guaranteed service, savings of $175 million and upgraded, environmentally friendly facilities. It doesn’t seem like a difficult decision.

Geoffrey Segal is the Director of Privatization and Government Reform at Reason Foundation