FAQs
What are some examples of privatization agreements with municipalities?
The most commonly known option is the purchase of an entire water system. Other options include:
- Single-purpose investment, where a city contracts with a private company which builds, owns and services the plant;
- Public-private partnership, such as municipal financing of a private water system’s improvement project; or
- Contracts for operation, maintenance, billing and other services.
How does a private water system finance its operation?
An investor-owned water utility uses a combination of private capital and borrowed funds to build and expand its system. Access to private capital eliminates the need to issue municipal bonds and reliance on limited public capital to maintain a reliable and safe water supply. All costs are covered by rates or fees for service.
Why would a municipality be interested in selling to a private water company?
The advantages most commonly cited are that privatization:
- Provides cash to the community;
- Creates a new tax source;
- Takes advantage of economics of scale; and
- Provides access to capital.
Municipalities also are interested in privatization as a means of alleviating the administrative burdens associated with operating a utility. This allows them to have more time and resources to govern.
In addition, privatizing a municipal water system shifts the risk of supplying drinking water from the municipality to the private water company.
What benefits do communities realize from privatization?
Customers of investor-owned water systems receive dependable service and a safe, clean supply of quality water, and, in a number of cases, a reduction in their monthly water bills. Private water companies diligently work with state and federal officials to ensure that all standards are maintained, and that drinking water is clean and safe.
In addition, privatization provides cash to the community. It can turn a municipality’s hidden equity into cash. This is capital that can be put to use for other beneficial community needs or that can be invested for a long-term revenue source.
Also, privatization may create a new source of tax revenue to support municipal services. It offers a way for municipalities to utilize private sector resources and incentives to maintain, upgrade or expand existing systems.
Can private water systems provide lower operational costs?
Because many private water systems are regionalized, they have the ability to provide economies of scale and a high level of efficiency. The purchase of a municipally-owned water system by an investor-owned water utility will likely result in lower costs for materials, employee benefits, insurance and administration. Nationwide affiliations and mass purchasing power may result in significant savings on the cost of items such as fire hydrants, valves, pipes and meters.
What are the operational benefits of privatization?
Private and investor-owned water systems provide municipalities, suburban areas and other entities with the professionalism, staff training, and advanced technology required to operate water systems under today’s stringent water quality standards. Private companies are well positioned to address proposed water quality regulations. They often have better access to capital needed to construct newer, improved facilities, leaving the municipality’s limited capital available for other purposes.
How do private water companies benefit local economies?
Private water companies contribute to a community’s economic base by providing quality water and dependable service which entices new businesses to the area. The companies also help the local economy by paying state gross receipts, property and other business taxes. These taxes assist in the support of community services and facilities.
What is the outlook for privatization?
Privatization is becoming an increasing attractive and viable option for the public sector as it struggles with ways to deal with a growing number of financial and regulatory challenges.
Can private water companies help rural communities obtain access to water?
Private water companies are expanding to provide water to many rural areas throughout the country. This benefits thousands of customers who previously did not have water service, or who were receiving an unacceptable quality of water. It also provides fire protection capabilities for many customers who previously had no connection to an adequate water supply. |
