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Beyond Privatization: Restructuring Water Systems to Improve Performance

This report by Dr. Gary Wolff of the Pacific Institute explores the complexities of restructuring water systems. It addresses challenges such as chronic under-investment, tighter regulations, and limited financial resources. Rather than viewing privatization as the sole solution, the report emphasizes that public versus private management is only part of the equation. The study reveals key determinants of success in water governance, including effective staffing, adequate funding, performance metrics, and transparent decision-making processes. It aims to shift the focus from privatization debates to essential strategies that truly improve water system performance.

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Beyond Privatization: Restructuring Water Systems to Improve Performance

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  1. Beyond Privatization: Restructuring Water Systems to Improve Performance Gary Wolff , P.E., Ph.D. Principal Economist & Engineer Pacific Institute Oakland, California www.pacinst.org

  2. The Problem • Cities Face Many Challenges, Including: • Chronic Under-Investment • Tighter Regulations • Security Concerns • Limited Financial Resources

  3. Is Privatization A Silver Bullet? • It Has Been Proposed as THE Solution to All Woes, Internationally and in the United States • The Issue Has Been Hotly Contested • But We Say: Public Vs. Private Is NOT the “Bright Line” Between Success and Failure • It Is An Important “Value Issue” That Has, Unfortunately, Become A Distraction From More Important Determinants of Success

  4. A Side Comment About “Value Issues” In Water Governance • The Public Vs. Private Debate Contains Important Issues • Such As How to Ensure Economic and Social Values are Realized • See Our Previous Report, Available Free On-Line, For Discussion

  5. What Are The Determinants of Success? • They Are, Based on Research in the Upper Midwest (Iowa, Minnesota, Wisconsin, Illinois, Michigan, Indiana, Ohio, and the Province of Ontario): • Effective Staffing • Adequate Funding, Including Innovative Approaches • Detailed Asset Management • Performance Measurements and Rewards • Transparent Decision Processes and Governance

  6. Example: Adequate Funding Through Economies of Scale • The Lansing Board of Water and Light and Smaller Municipalities Have Cut Costs Through Service Contracts That Leverage Administrative Costs Over a Larger Base, Allow Assets to Be Run at Capacity, Etc. • Similarly, the “Hub and Spoke” Area of Minnesota (St. Michael, Albertville, and Hanover) Achieves Similar Cost Control Through Contracts With a Private Company

  7. Example: Performance Measurements and Rewards • The Louisville Water Company, A Municipal Corporation, Has Achieved Many Goals Via Employee Incentive Awards (Bonuses) • MMSD Contract Has Performance Bonuses • Hamilton, Ontario Switched From Private to Public Operation Without Much Turmoil Because They Had Developed Specifications Suitable For a Commercial Relationship • Ideally, All Systems Would Do This

  8. Example: Effective Labor Transitions • Maintaining Fairness & Stability For Workers During Restructuring Is Important, For Numerous Reasons • These Transitions Have Been Made Effectively at: MMSD; Indianapolis Wastewater Operation; Butler County, Ohio; Akron, Ohio; and Hamilton, Ontario • In Contrast, The Indianapolis Water Contract Has Had a Troubled Transition. Federal Mediation Has Been Required, 17 Formal Complaints Were Filed With the NLRB; Fired Employees Have Sued; and So Forth… • But These Examples Do Not Show a “Public-to-Private” Problem. Indianapolis Water Was Private-to-Private, and the Other Examples Are Varied.

  9. Beyond Privatization: Restructuring Water Systems to Improve Performance • Our Report Will Be Released In November 2005 • You Can Obtain a Copy at www.pacinst.org • OR, Be Notified of Its (Free) Availability on the Web By Writing Us At: Beyondprivatization@pacinst.org Gary Wolff , P.E., Ph.D. Principal Economist & Engineer Pacific Institute Oakland, California

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