In the recently released Strategic Directions: U.S. Water Industry report, Black & Veatch reported three myths that surround public-private partnerships (PPPs):
Myth 1: Rates Go Up Because of Private Sector Involvement
Customer rates are impacted by the decision to move forward with large-scale capital programs. The source of funding does not change the reality of the need for additional revenues to finance infrastructure improvements. Increasing rates is the cost of maintaining, expanding and repairing critical infrastructure that provides reliable, safe and secure water services.
Public-private partnerships can benefit customers and municipalities as a result of efficiencies gained in operations and the capital improvement process. The city of Bayonne, New Jersey, provides an example of benefits achieved under a PPP in the form of a concession agreement. Less than one year into the 40-year agreement, Moody’s Investors Service upgraded the city’s credit outlook. The value for money analysis conducted projects a 6 percent savings, approximately $35 million, for ratepayers and the city over the life of the contract. In addition, customers gain greater reliability and stability with regard to rates over the length of the contract.
Myth 2: The City/Public Lose Control of Water Systems through Private Involvement
A city only loses control of its assets and water system if it sells them outright through privatization. Other forms of PPPs maintain public ownership of existing assets. In the Bayonne example provided, the city still owns its infrastructure and provides oversight of the agreement.
In some cases, new assets such as a new water treatment facility can be designed, built, financed, operated and owned by the private entity that sells the services provided by the plant back to the public authority. Such an arrangement can be beneficial as it enables cities to acquire expanded capacity, or meet regulatory requirements, without taking on additional debt burdens. In addition, the private entity takes on all risks associated with building and operating the facility.
Myth 3: Cities Can Use State and Federal Funds to Finance Capital Programs
State and federal funds may be available for some infrastructure projects, but research shows there is not enough to cover all needs. The American Society of Civil Engineers (ASCE) gave the collective drinking water infrastructure in the United States a D+ grade (equivalent to poor) and wastewater infrastructure a D in its latest Report Card for America’s Infrastructure (www.infrastructurereportcard.org).
The ASCE estimates that nearly $300 billion in investment is needed for wastewater and stormwater systems alone through 2033. Repairing or replacing aging drinking water mains and other buried infrastructure could approach $1 trillion in needed investment. The need varies widely by state. Government officials, utility leaders and customers should review the ASCE information to learn more about the full capital investment needs within their state and compare it to the level of revolving funds, grants or other programs available.
Subject Matter Expert
Bruce Allender: AllenderBM@bv.com
