The discussion has not yet been widely publicized, but the City of Milwaukee is exploring the possibility of privatizing its water system. There’s a contingent of city leaders that wonders whether leasing the utility could help Milwaukee address its deep budget problems. Then there are critics, who don’t like the fact that the process of purifying and distributing drinking water is on the table. WUWM’s Marge Pitrof reports.
The idea of possibly hiring a private company to run Milwaukee Water Works came from City Comptroller Wally Morics. There are three general options. One is allowing a private company to run the day-to-day operations, rather than having city workers do the job. A second option is leasing the system, and a third is an outright sale. Morics favors a long-term lease. He says it might be the only way the city can avoid laying off hundreds of workers and address a deficit that could balloon to $90 million.
“As CFO of the city, I think it’s my responsibility to tell the policy makers what options they have to plug that deficit. We have an asset in the Water Works; we could have sold this year’s ago. It didn’t make sense for the city, but now we’ve got some very hard choices in front of us,” Morics says.
Morics estimates that the market value of Milwaukee’s water system is a half-billion dollars. If the city would get that much, he says it could create an endowment generating $30 to $40 million a year to help pay bills. Peter McAvoy is not convinced Milwaukee could get hundreds of millions of dollars for its water infrastructure, unless the city sells the system or agrees to a long lease, say 99 years. He finds both options unacceptable. McAvoy is Vice President of Environmental Health at the 16th Street Community Health Center.
“We would lose control if the city is actually contemplating the selling the apparatus to get the water out of Lake Michigan, to treat it, to distribute it, because if they’re talking about either a wholesale sale or a long term lease, you lose control of that. That would really concern me, I mean we’re talking about water, we’re not talking about a garage or a bridge,” McAvoy says.
McAvoy says he’s also concerned that a foreign company could win the bid. While he says he understands the magnitude of the city’s financial troubles, the only way McAvoy would find privatization palatable, is if the city arranges a short-term lease and retains control of its water infrastructure and all crucial decisions. City Comptroller Wally Morics says he’s not advocating that the city lose control.
“Whatever safeguards that need to be there in terms of quality, performance, maintenance of the plant, those will be built into the lease arrangement to assure that at the end, you turn on your tap, you’re still going to get clean, safe drinking water and you’re not going to be draining Lake Michigan away to nothing,” Morics says.
Morics says Milwaukee Water Works might appear attractive to private bidders because the utility has been well-maintained and nets $20 million a year. The problem with the current arrangement, according to Alderman Bob Bauman, is that the utility must return all profits to the system; the money cannot help the city pay other bills. He says privatizing Water Works could enable the city to benefit from the proceeds because the company would pay a huge sum upfront and then taxes afterwards. Bauman says a private firm could also leverage more money from thirsty suburbs seeking Lake Michigan water via Milwaukee’s system.
“While the city may be reluctant to charge the highest rate the traffic will bear in terms of water rates, I guarantee the private sector would, and the citizens of Milwaukee would benefit from that because rates do not have to be uniform. Water rates are whatever the Public Service Commission would approve. Water rates might very well be higher for suburb communities than the city of Milwaukee, for example. That could be stipulated as part of the lease agreement,” Bauman says.
While Bauman and the city comptroller say the city must make painful changes to survive financially, Peter McAvoy insists there are too many unknowns about privatizing the water system to rush through the process. That’s what he believes is taking place. McAvoy says the public seems unaware of what could become a monumental decision.
“The general public really doesn’t understand where we are in this process and why it’s going forward, under what circumstances, et cetera,” McAvoy says.
As for where Milwaukee is in the exploration process: Comptroller Morics is soliciting bids for a city advisor. If, in a few weeks from now, the Common Council agrees to hire his pick, that company would spend the next half year examining how lucrative a deal could be and how the city might want to craft it. Once city leaders are armed with that information, they would decide whether to proceed with privatizing Milwaukee’s water utility.
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