Privatization of Public Water Services: The States' Role in Ensuring Public Accountability

Abstract

The privatization of public water services in the United States has grown dramatically in recent years in response to political and ideological interest in privatizing public services, arguments about economic efficiencies, and the realities of overwhelming public costs related to water quality standards, infrastructure upgrade needs, and operational complexities. Many states have expressly enacted statutes authorizing municipalities to transfer services, operation and management, and even ownership of public water systems to private firms.

This article systematically evaluates the status of water privatization in the U.S., the legal authority for privatization and its limits, and the most common and significant issues in water privatization. These issues include: 1) the unique characteristics of water services; 2) operational efficiency and capital cost savings; 3) rates; 4) service quality and reliability, and water quality; 5) take-or-pay contracts; 6) long-term capital investment, maintenance, and public agency capacity; 7) environmental protection and impact; 8) global commerce in water; 9) security of water supplies and terrorism; 10) equity; 11) public employees; 12) public opinion; and 13) the limited authority of regional public water institutions.

The article makes a case for a state legislation to protect the public and ensure accountability to the public when public water systems are considering privatization. It identifies specific model elements of a comprehensive state statute governing water privatization, including considerations when evaluating privatization proposals and conditions that should be imposed on private water firms. The article takes the position that the term "privatization" can mean any number of different arrangements, which are neither inherently good nor bad. The desirability of privatization arrangements depends on the context, the need, the nature of the arrangement, and legal controls imposed to ensure accountability to the public.

Keywords: privatization, public water services, water supply, public utilities, regulation, rates, capital costs, Safe Drinking Water Act, environmental protection, public water institutions, public employees, security, terrorism, take-or-pay contracts, capital investment