TFTT Report
“Think twice” and you’ll realize that private water benefits more than 73M Americans
Since yesterday’s letter to the editor response in the Miami Herald was limited by word count, we wanted to take the time to respond in more detail to recent claims made by In the Public Interest.
Here are four specific false or misleading claims made by In the Public Interest in a recent op-ed:
- Claim: Miami wants to privatize its water supply: “Before Miami-Dade privatizes a portion of its drinking water supply …” and “The county can [innovate] without privatizing their water supply … ”
This is a clear misrepresentation – Miami-Dade is quite simply NOT considering the privatization of its water supply. Under the proposed projects, the public utility would retain ownership of the water system, while a private water company would be responsible for the development and operation of specific treatment facilities. As with all water-related public-private partnerships, the water supply remains a public good.
Critics like to confuse the idea of privatizing a water system with privatizing a water supply. Obviously, this is a very fundamental and important concept – yet critics routinely get it wrong. Just like public utilities, the private water industry is in the water system business, ensuring that the pipes, treatment facilities, pumps, mains, and other infrastructure provide safe, clean drinking water to customers. Despite critics’ efforts to confuse the issue, privatization of a water system or treatment facilities simply does not privatize the water supply. Water is and remains a public good under every model of water treatment and delivery.
- Claim: Public capital is readily available for water infrastructure: “[The county] could use public, tax-exempt financing, which provides the most flexibility for agencies and is the lowest cost of capital.”
To be clear, there is a limit to public capital – it is not a bottomless source of funds for municipalities. Local governments all across the country face major and urgent infrastructure needs, and public capital alone can’t cover the associated costs, especially for municipalities with other competing budget priorities or strained fiscal environments.
“The backlog of maintenance and expansion needs of the United States’ water treatment and distribution systems are tremendous. The resources necessary to maintain, repair, and upgrade drinking water and wastewater treatment facilities are not always readily available from the public purse, and public officials are often reluctant to accept the political consequences of raising taxes or fees to help cover these costs.” (Jeffrey W. Jacobs, National Research Council; Charles W. Howe, University of Colorado; “Key Issues and Experience in U.S. Water Services Privatization,” 2005)
Within the U.S., there is widespread, bipartisan recognition that private finance is crucial to meeting infrastructure challenges. The U.S. Conference of Mayors[i], the National League of Cities[ii], the Brookings Institute[iii], and even the President of the United States[iv] agree that private water companies provide proven and important options for municipalities facing urgent water infrastructure and operation needs.
- Claim: An Ontario, Canada study shows that P3s shouldn’t be pursued: The op-ed cites a report from the Auditor General of Ontario, Canada, to claim that value-for-money assessments are flawed and, therefore, public-private partnerships shouldn’t be pursued.
However, that isn’t actually what the report says. The recommendation of the Auditor General is to improve the process for deciding when to use the public-private partnership approach in Ontario, not to abandon the model altogether. In fact, the report explicitly supports the use of P3s, noting that “Infrastructure Ontario (the public-private partnership coordinator’s office) has a strong record of delivering projects on time and on budget” and that “there is a role for both private sector and public sector project delivery.”[v]
The Fraser Institute, ranked as the top think tank in Canada by the University of Pennsylvania[vi], points out that the Auditor General also understands how project risks (e.g., cost overruns, delays) are transferred to the private sector in P3 arrangements, a huge advantage for the model:
“As the Auditor General points out, risk-sharing is critical to the government’s rationale for going the P3 route. Risk-sharing occurs when the private partner takes on some project risks that would otherwise be borne by taxpayers. Delays and cost overruns are common risks in constructing public infrastructure. In a conventional government-led project, taxpayers pay these extra costs; in a P3, the private partner is on the hook. Being responsible for poor performance encourages the private partner to avoid delays and cost overruns.” (Fraser Institute, “Read past the headlines on Ontario Auditor General’s P3 Report” December 23, 2014)
In the Public Interest clearly misrepresents the key point of the study, while also failing to recognize the broader points about risk transfer made by the Auditor General.
- Claim: There is no good reason to work with the private sector: “There is no reason to hand over control of drinking water facilities to private operators.”
Actually, there are very important reasons. According to an analysis of EPA data from 2010-2013, publicly operated water systems are 24% more likely to incur health violations of the Safe Drinking Water Act than privately operated water systems.[vii]
The authors of this study – professors David Konisky of Georgetown University and Manuel Teodoro of Texas A&M University – argue that, by nature, public operation can compromise a water system’s ability to make crucial infrastructure investments. Because rate increases are politically problematic for local officials, it is difficult for public utilities to generate the revenue necessary for upgrades and routine maintenance. As a result, the authors argue, public utilities are more likely to miss or delay crucial investments, thereby generating more violations of federal safe drinking water standards.
Public-private partnerships allow municipalities to leverage best practices and strengths of both government and private enterprise. Public-private partnerships aren’t a new idea – in fact, they’ve been around for more than 200 years. More than 2,000 water and wastewater facilities across the country are operated under public-private partnership arrangements.