Many Questions Remain for Atlanta After United Water

By Geoffrey F. Segal

On Friday, January 24, the city of Atlanta terminated its rocky relationship with United Water, ending the venture into private water operation. Over the past several months the mayor and her staff have let it be known that they were unhappy with United’s performance operating the city’s waterworks—resulting in a three-month cure period that abruptly ended Friday afternoon. During this period, both sides painted themselves into a corner, leaving little or no room to maneuver. Perhaps the termination was nothing more than the culmination of months of political pressure and stances from which the city could not back away. Unfortunately, the people of Atlanta will still be paying for this costly decision for years to come.

The privatization, reached in 1999, was the largest of its kind in the United States. United Water promised to improve services while saving significant amounts of money—upwards of $400 million over the 20-year contract period.

While not perfect, United Water’s performance wasn’t all bad. In fact one thing got lost in the debate: the notion of relative performance. Under public operation, Atlanta ’s water system always had its critics and complaints about performance, slow repairs and erroneous water bills. While United’s service was far from perfect (and not at the level required in the contract), they were quickly rehabilitating various components of Atlanta ’s infrastructure and completing more repairs than were ever completed under the city’s operation. For example, the contract calls for upwards of 4,500 fire hydrant repairs annually; United completed about 4,000 a year, which is better than the approximate 3,000 municipal operations completed before privatization.

The second charge, that privatization wasn’t saving the city any money, is more questionable. An audit report released last Wednesday said the city was only saving $10 million. But in fact there actually weren’t any savings at all because the money was “subsidizing other government functions.” Is United Water to blame for the city’s poor fiscal management? Before privatization the city was spending approximately $40 million on municipal water operations. United Water was receiving a service fee of approximately $21.5 million. Where did the other $8.5 million go? Did it get sucked up into “other government functions” as well?

While there were problems with the contract and disputes that needed to be hammered out, the city did not need to throw the baby out with the bath water. Bringing operations back in house will likely see a return to days of escalating costs and poor service—the same reasons the city sought out privatization to begin with. The contract with United Water was a step in the right direction; much needed work was being completed and money was being saved.

It’s a shame Atlanta decided to cut ties with United Water, ultimately tying the hands of the city well into the future. The city’s wastewater system is still under consent decree and requires millions of dollars of improvements. The many years of poor management and lack of capital funding for the water system will soon create additional problems that may be too steep to overcome. Savings from privatization were originally targeted to help fund these projects, but now increases in fees or taxes will likely be needed.

Furthermore, Atlanta residents will be relegated to the same expensive, poor-quality service they had become accustomed to with municipal operation. While United was far from perfect, the numbers show they outperformed the city.

The day will come, probably sooner rather than later, when citizens and staff will remember the good deal they had with United and long for that day back. Furthermore, not too far from now when water and/or wastewater privatization will be looked at again in Atlanta, you have to wonder if the companies will be so willing to work with the city, whether they’ll risk the investment.

When the dust settles, the only thing the city will have done with the handling of the water issue is to predetermine the fate of Atlanta for years to come. Citizens will be stuck footing an excessively high bill for under-performing water and wastewater systems through new taxes and fees.

[Read the full report: “The Atlanta Water Privatization: What Can We Learn?”]

Geoffrey F. Segal is the director of privatization policy at the Reason Foundation and an adjunct scholar with the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (January 30, 2003). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.