Tuesday, September 29, 2009

$elling the $ity; Mayor Ballard Proposes Selling Off City Utilities

It is something that I as a Republican reflexively want to support. After all, isn't the private sector more efficient than the public sector?

Today's Indianapolis Star announces that the administration of Indianapolis Mayor Greg Ballard is taking bids from private companies to partner with the city in operating the city's water and sewer systems. The Star reports:

About two dozen companies, including Citizens Energy Group, have expressed interest in owning or operating the systems, which city leaders said could generate as much as $400 million to build roads and sidewalks and make other improvements while potentially protecting customers from large rate increases.

Citizens offered $1.6 billion to acquire the water and wastewater utilities, according to a letter the company sent to city officials last week. So far, it is the most detailed proposal made in response to a July request by city officials.

That request asked companies to propose ways they could generate savings by operating the utilities. The city in turn would charge the companies an upfront payment for the right to that business but in most cases would still own the utilities.

Aside from Citizens, proposals from companies such as Veolia, United Water and CH2M Hill were too preliminary to carry a specific financial offer.

Most of the proposals would generate savings in two ways:

Reducing operating costs such as billing, vehicle fleets and facilities by combining the water and wastewater utilities.

Building future improvement projects at a cheaper price.

By 2025, the city expects to spend more than $4 billion to make upgrades to the water and wastewater systems. Those improvements are expected to increase
water rates by 112 percent and wastewater rates by 427 percent during that time

Under those projections, today's average water bill of $28.07 would increase to $59.64, and the average sewer bill would go from $19.89 to $104.83 during the same period.

Robert Vane, Mayor Greg Ballard's deputy chief of staff, said the mayor's goal is to help reduce those future costs by either partnering with private companies or signing off on Citizens Energy's acquisition of the utilities. He said it was too early for Ballard to offer a specific goal for how much future increases could be reduced.


What is not clear from the article is that the administration undoubtedly intends to offer a long-term lease or management contract will undoubtedly span decades. That long-term lease or management contract generates up-front cash that can be used for much needed infrastructure repairs. A long term lease would be necessary for a company to qualify for IRS tax credits which treats long-term lessees as "owners" of property making them eligible for tax breaks.

This is not privatization. Privatization envisions private companies operating in a competitive environment. If they don't do the job well, government can contract with another company to provide the service better. Handing companies long-term contracts to lease or manage assets is to give them a government-sanctioned monopoly over the provision of services. Getting out of such contracts are difficult at best. Additionally, elected officials, who have usually received substantial political contributions from these contractors, aren't inclined to offer strong oversight over the performance of the contract. Remember FSSA and the IBM contract? It was legislators who forced the Daniels' administration to take a closer look at the contract. Initially the Daniels' administration greatly resisted the oversight and was harshly critical of Republican legislators who raised the issue.

The Ballard administration bills the possible lease or management of city utilities as a sort of public-private partnership. The term "public-private partnership" should strike fear in the heart of every Marion County taxpayer. Too many times those partnerships are about putting money in the pockets of politically-connected companies and large law firms who then kick back money to elected officials in the form of political contributions. It is always the taxpayers who end up footing the bill. Lucas Oil Stadium and Conseco Fieldhouse are but two examples of public-private partnerships which have profited the private while costing the public more and more every year.

Can this administration be trusted to do these deals correctly and in the best interest of the taxpayers? Frankly, given the benefit of hindsight, I'm not sure any administration of the past three decades should have been trusted to do what is best for the taxpayers. Unfortunately Mayor Ballard is no different than his predecessor on this score, and may well be worse. Until Indianapolis can get a handle on the privatization and public-private partnerships schemes that look and smell like little more than Illinois-style pay-to-play politics, this idea needs to be shelved.


Had Enough Indy? said...

I eagerly await more details of the deal. Usually these are profitable for 'private' firms because they can raise rates beyond what the government can; because those in office would be booted out of said office by the angry voters.

But, the article seems to imply that the rates would be lower with this partnership and efficiencies found in other areas.

The devil is in the details and I will be anxious to understand how we can sell a business we overpaid for and sell a business we have $4B in sewer upgrades riding on and still make $100 m or more up front.

Paul K. Ogden said...

I'm thinking they wouldn't promote this project saying that rates would be higher for people.

It's like the Wishard project they promote claiming there won't be a tax increase. Then by the time it happens it is too late.

Had Enough Indy? said...

Its the Pollyanna in me. I keep hoping that an honest depiction of a deal, any deal, will finally be brought forth prior to that deal getting signed.

Unigov said...

Citizens Gas says they run like a non-profit.

This is not true. They don't file a 990. They aren't open to any scrutiny at all.

Same as the CIB.

And Wishard.

Ballard has to go.

Blog Admin said...

I'm eagerly awaiting the "privatization" of city parking. I'd be surprised if the Ballard administration and the Council DON'T make a deal that's worse than Chicago's.

guy77money said...

As you state Paul it is to early to know which way the city will go but I will try to address the 1.6 billion dollar offer for both the water and the sewer systems. Number one I assume this will transfer the 875 million dollar debt from the city to the trust. This would be good as it gets the city out of debt. Number two, the water company is no longer under the incompetent water works board that has been poorly run by political appointees that had no clue on how a utility should be run and I assume it takes the city out of the picture on who should be hired for lucrative water and sewer contracts (and possible kick backs)that can be handed out. The plus for the city is that Citizens Gas has been the best run utility in the city with the lowest rates. and the all the profits will go back into the company. I am assuming that this will not change. I know Bert Servas tried his best to sell it off over his long tenure with the city. The humorous thing to this whole mess is the water company should have been put under the trust when it was sold to the city. SerVas and Peterson were more interested in passing out political favors. In the original deal Bert was hoping to donate his land and the water company property to IUPUI have a building built on the property in his name and of course a wonderful tax write off for his company. The losers would be United Water and Veolia. Veolia and United Water's long term contracts are weighted to make more money towards the end of the contracts. Not sure if the employees of the water or sewer companies win or lose. The devil is in the details. Although we should know something by Christmas.

Citizen Kane said...

If you want to know why this is being proposed, just follow the money. Figure out who will profit in this deal and that will tell you all you need to know about this proposal.

What government needs to do is focus on the few things that it should do - creating the environment that permits its citizens to succeed or fail based on their talent and desire. Everything else it does is revolves around picking winners and losers - rewarding friends and punishing enemies.