Wastewater Infrastructure Updates Lagging?

The market is ready to serve

Government management of Michigan’s chronic sewage system problems can often best be described as slow to improve. Municipalities across the state are engaged in long-term control plans that work to gradually – often over a period of decades – fix infrastructure problems. And while we wait for funding and constructions efforts to be completed, raw sewage and human waste continue to foul Michigan’s waters.

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Public-private partnerships may be able to help the situation. Consider South Bend, Indiana. In 2011, the EPA ordered the city to make a $509.5 million upgrade to its sewer system to stem the flow each year of 600,000 pounds of suspended solids into the St. Joseph River, a tributary of Lake Michigan. By 2016, the city’s spending on sewer systems was projected to reach $861 million. City council estimates concluded that complying with the EPA mandate would cost 20 percent of their households over 10 percent of their income. The federally required project was deemed to be too expensive, and in a September 2016 presentation on the project to city leaders, city staffers argued they would need a plan that was “cheaper, greener, more flexible, adaptive, and socially beneficial.”

Privatizing wastewater services could help meet all of South Bend’s needs by lowering overall costs, achieving regulatory compliance and improving employee and customer satisfaction. The Government Accountability Office found in a 2013 report that contracting out services results in additional capital investments, higher efficiency and faster improvements. In its review of various water services that contract for water and sewage services, the GAO credited improved efficiency to private companies’ higher flexibility and use of economies of scale.

An earlier Water Partnership Council study concurred, noting that private companies tended to have more experience and were less hampered by inefficient bureaucratic requirements. That study also found that, on average, public-private partnerships are 24 percent less expensive than their publicly operated competitors. Additionally, recently signed contracts in Bayonne, New Jersey and Rialto, California brought substantial financial benefits for those cities. A wastewater infrastructure agreement eliminated $130 million in debt for Bayonne and $27.4 million for Rialto. New Orleans is reported to have saved over $35 million for taxpayers since it signed an agreement in 1992. Those savings could all be returned to actual infrastructure spending.

Other benefits to P3s include a new form of competitive pressure on public sector managers. As private operations raise performance standards and decrease prices, public utilities are forced to step up their game – a process known as “benchmarking.” According to the National Research Council, “public water utilities … respond to the pressures of possible privatization by improving their performance.”

Numerous Mackinac Center publications have advocated for these arrangements as far back as 1992. At that time, Michigan was leading the push to privatize wastewater treatment. Cities like Alpena were demonstrating that cost-cutting was possible, even after retaining, retraining and paying higher wages to the original public works staff. In fact, after only three years, private managers were able to move the Alpena wastewater facility from the EPA’s noncompliance list to winning environmental awards. That partnership agreement is still in effect today with Suez Water.

Government has a responsibility to steward the environment and citizens’ tax dollars. Privatization of wastewater treatment has been shown to work in both theory and in practice and has been effective at improving services, improving environmental management and lowering costs in Michigan for over three decades. Local governments — especially those that are still allowing wastewater to flow into Michigan’s lakes and rivers and have not yet considered privatization — owe it to Michigan residents to investigate better options. The market is ready to serve.

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