Page 84 - Urban water supply handbook

IMPROVING URBAN WATER INFRASTRUCTURE THROUGH PUBLIC-PRIVATE PARTNERSHIPS

IMPROVING URBAN WATER INFRASTRUCTURE 3.3

responsibility for day-to-day management, environmental compliance, and over-
all performance. O&M contracts eventually spread to medium-sized cities as the
water and wastewater industries became larger and more competitive.
Since the 1980s, many large cities entered into O&M agreements for water and
wastewater services. Oklahoma City was one of the first, contracting for waste-
water treatment in 1984. Other large cities followed, including Houston for water
treatment in 1990, New Orleans for wastewater treatment in 1992, and
Indianapolis for wastewater treatment in 1994.
An initial burst in private sector activity was slowed in the mid-1980s by the
passage of the Tax Reform Act of 1986. Tax benefits that had fueled the growth in
private ownership and operation of water and wastewater facilities, such as rapid
(5-year) depreciation and an investment tax credit equaling 10 percent of the cap-
ital investment, were all but eliminated by the law.
While the momentum slowed for private ownership of water and wastewater
facilities, the market for contract operations continued to increase. Many of the
initial contracts were renewed as the industry renewal rate topped 90 percent. By
the mid-1990s, the water and wastewater O&M market had grown into a billion
dollar business and more than 1500 water and wastewater facilities were operated
by private firms.
The growth in contract public-private partnerships was spurred by two execu-
tive orders signed in the 1990s. President George Bush issued an executive order
in 1992 that removed a major obstacle to public-private partnerships by enabling
ownership of publicly owned facilities to be cost-effectively transferred to private
1
firms. Public agencies can sell or lease federally funded wastewater facilities and
recoup the local share of the cost before payback of funds to the federal govern-
ment. The payback is limited to the depreciated amount of the federal share—no
payback is required if the sale price is less than the local share and the amount of
accumulated depreciation.
More recently, President Bill Clinton signed an executive order in 1997 that
provided a further boost to public-private partnerships for water and wastewater
2
services. Under the order, federal agencies must seek private sector participation
in ownership, financing, construction, and operation of infrastructure projects
such as wastewater facilities. Federal agencies were also directed to work with
state and local governments to reduce any legal and regulatory barriers to private
sector participation in infrastructure development.
Another boost for water and wastewater privatization occurred in 1997 when
the U.S. Conference of Mayors endorsed public-private partnerships as an effec-
tive way for cities to “realize significant operational cost savings, and to attract
3
private capital investment for needed infrastructure development.” The endorse-
ment came 2 years after the conference formed the Urban Water Council to serve
as a forum for local governments to share information on technology, innovative
management methods, and infrastructure development.

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