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Massachusetts communities struggle to understand virtues of private participation in wastewater treatment faculties 

The decision that Lee voters face as they consider partially privatizing waste-water operations is a familiar one around the country. Faced with flat revenues and rising costs, towns and cities face expensive, technically daunting upgrades to aging water infrastructure, with little prospect for state or federal help.

In such circumstances, it is inevitable that communities would listen closely to the companies that come along with promises of worry-free, multimillion-dollar savings through contracted operations.

But the process of bringing free market principles to municipal policy is not always smooth or pretty.

It can be traumatic and divisive, as seen last year in North County when bids for private operations failed after Williamstown and North Adams -- which jointly operate the Hoosac Water Quality District -- clashed over the wisdom of the idea.

North Adams Mayor John Barrett III said last week that he still believes contracting would save the communities money and make the plant more accountable. He said he is considering filing a lawsuit as early as next year to appeal the district board's even makeup, with two commissioners from each community.

Williamstown officials still disagree. "Privatization of any municipal service, whether it be water or sewer or snowplowing, is worth investigating if the quality of service can be improved or the cost can be lowered," Town Manager Peter Fohlin said. "But I don't see that as being the case at the present time in Williams-town."

The water and waste-water contracting industry is dominated by a handful of multinational corporations that operate in a fiercely competitive, narrow-margin market that lives and dies by winning and keeping government contracts. These include Veolia Water, which in February changed its name from USFilter Operating Services and which is the sole bidder in Lee.

The companies aggressively lobby government officials and rely on complicated bidding procedures to secure contracts. They also face a variety of criticism from privatization opponents who insist that the contracts remove a public service from public control and who accuse companies of cutting corners to improve the corporate bottom line.

$200 billion price tag

The debate playing out in Berkshire County reflects a larger problem: the need to repair and upgrade the nation's aging water and waste-water systems, and the difficulty that state and federal governments will have paying for it. According to Environmental Protection Agency estimates from the late 1990s, it will cost at least $200 billion over 20 years to bring the nation's waste-water systems up to Clean Water Act standards. The nation's water systems will cost at least another $150.9 billion.

Richard Norment, executive director of the National Council for Public-Private Partnerships, an advocacy group whose members include Veolia Water, said there is a key difference between partnerships and "privatization," which would amount to a community completely relinquishing its assets and operations.

He said these partnerships have long been part of American economic development -- he cited the Erie Canal and the transcontinental railroad as prime examples -- but the idea has gained in popularity in the past 20 years.

"The problem that has occurred is that expanding population, economic development, simultaneously with tighter environmental controls, have all put enormous pressure on communities," Norment said. The group estimates that between 30 percent and 40 percent of water and waste-water systems now include some sort of private management.

To obtain those contracts, the industry aggressively courts government officials at many levels. For example, in 1995, the U.S. Conference of Mayors formed the Urban Water Council, a task force of mayors to address the crisis in water and waste-water infrastructure.

The council includes an advisory group called the Water Develop-ment Advisory Board, which is made up of private operators and engineering firms. Its mission is to provide "expert advice and information on water issues to [council] members in order to help the [conference] develop public policy initiatives designed to assist cities in providing and protecting urban water resources."

Problems in Lynn

The procurement process itself often raises some concerns, as shown when the city of Lynn sought two complex contracts beginning in 1997. One was to build a new combined sewer overflow project, the other for a 20-year operating contract for the city's waste-water treatment plant. As "design-build-operate" contracts, they required special legislative approval to avoid state procurement laws.

The current process in Lee required similar legislative approval, obtained last October, to proceed with a 20-year design-build-operate process.

In June 2001, the state inspector general's office issued a report criticizing the Lynn process. It claimed that the bidding process -- both contracts were won by USFilter -- did not generate meaningful competition, and that for the sewer project, the costs were nearly double what they should have been in a regular, competitive bidding process.

"Other communities considering long-term DBO contracting for their waste-water facilities should be aware that the high cost to private firms of developing proposals for these risky and complex contracts may deter competition and result in higher costs than competitively bid construction contracts and straightforward operation and maintenance contracts," then-Inspector General Robert Cerasoli wrote in the report.

But even relatively straightforward processes reveal problems. The procurement process in North County exposed a number of fault lines, with North Adams and Williamstown officials divided over the value of proceeding with negotiations.

Budget battles

Barrett said he first began to consider privatization in 1999 while talking with then Williamstown Town Manager Stephen Patch. Barrett said it was a way to keep the costs at the plant down and to cure the chronic mismanagement that had plagued the plant.

For years, the district's budgets had been an annual battle royal, setting the communities against one another and, occasionally, together against the district. And a series of environmental violations eventually led to the imposition of a federal EPA consent decree last fall.

Barrett explained that he was inspired by the good experience he had had with the partnership to run the city's water filtration plant. For the past 11 years, the plant has been run by United Water, a subsidiary of the French multinational Suez. The mayor said that United Water had no problems and had kept costs down.

In March 2003, HWQD issued a request for proposals with an ambitious time line of getting bids and signing over plant operations by July 1. The RFP came out during another one of the district's acrimonious budget battles.

The district received only two bids: One from USFilter, now Veolia, and one from Aquarion, a subsidiary of the British multinational Kelda Group.

But the cost figures were disappointing. Aquarion said it could run the plant in its first year for $988,704, and USFilter promised $1,035,501. Plant managers predicted they could continue to run the plant on their own for $945,561.

And of note in hindsight, USFilter's proposal reveals that New York/New England area manager Michael Sause would "provide oversight and support for the dedicated [operation and maintenance] team that will be responsible for the day-to-day operation and management of the district's waste-water facilities."

Sause was indicted last August and is awaiting trial in Brockton Superior Court for allegedly conspiring with a Rockland sewer commissioner to embezzle more than $366,000 from the town between 1999 and 2002. A forensic audit also determined that the two rigged the Rockland RFP, and the town terminated the contract in March.

In November, HWQD commissioners split along town lines over whether to proceed with negotiations. The motion failed on a tie vote.

Concerns raised

In the course of the evaluations, Williamstown officials raised many concerns. Town Department of Public Works Director Tim Kaiser, who served on the proposal evaluation committee, explained his concerns for town officials.

Kaiser said that the cost benefits were nonexistent, and that any future cost benefits would be profits for the company, rather than savings for ratepayers. He noted that, because the district would still be responsible for the capital budget, "an unscrupulous contractor might be tempted to under maintain a capital asset to save money, only to have it fail and be replaced with a new, more efficient and less maintenance-intensive unit at district expense, resulting in further savings for the contractor."

Kaiser also said that the liability for permit violations would apply only "under circumstances within their control, but not if the failure to comply was beyond their control [high flows, abnormal loadings, etc.]."

There was also the matter of how the contractor could force renegotiations during any changes in flow levels or permit limits. "Once a long-term contract has been executed and district employees become contractor employees, the district will be in an extremely weak bargaining position," he wrote.

Finally, he noted that plant chief operator Ridelto "Rusty" Nodal had implemented a list of improvements that had cut costs and eliminated permit violations. "When asked specifically what steps a contract operator would take to achieve these goals, neither proposer offered a solution that the existing staff hadn't already implemented."

'Tighter control'

In an interview last week, Barrett said that the contracts would have protected the district from liability and would have resulted in better management.

"You don't compromise anything," he said. "You have tighter control because they have accountability. If they don't meet it, they're out."

He said that the city's experience with United Water has shown that the city's bargaining position is no weaker. He said that he broke off negotiations with the company during discussions about a successor contract, and that the company eventually came back to the table.

Barrett insists that HWQD continues to be mismanaged. "I find it very hard when they want us to approve a budget with merit pay increases and high benefits packages, when I'm laying people off," he said.