Investing in America’s Public Water Systems: Making Public-Private Partnerships Work

By Aubrey Sherretta

Water is taken for granted. As noted by Dr. Jim Hagan at the “Investing in America’s Public Water Systems: Making Public-Private Partnerships Work” conference co-sponsored by United Water and Wharton’s Initiative for Global Environmental Leadership (IGEL) on May 6, 2014, people see water as a common good and a human right. Therefore, they are less willing to pay the true price of maintaining this essential resource.

Water systems in the United States are severely degraded, costing local governments millions in leaks and repairs, and replacing these long-outdated water systems would cost trillions of dollars, according to panelist Rich Anderson of the U.S. Conference of Mayors Urban Water Council. Facing diminished federal involvement and tight budgets, local governments must seek more creative ways to fulfill their communities’ operational and infrastructural water needs. Panelists at Tuesday’s event agreed that partnerships between municipalities and private enterprise, or public-private partnerships, may help manage the cost, increase the value, and improve the quality of water services—a win-win solution for all stakeholders.

According to panelists, each community is different and there is no cookie-cutter business model for the structure of public-private partnerships. How to implement and structure a public-private partnership depends on the nature of the community, their government, their water infrastructure, and on the investing party. But there are also many ways to coordinate all of the pieces. For example, panelist Patrick Cairo, Senior Vice President of United Water explained how the company collaborated with Bayonne, New Jersey to set up a forty-year leasing agreement in which the city government maintains ownership of the system and control over the rates; United Water operates and maintains the system; and KKR – a private equity firm – provides funding.

Financial institutions are willing and able to finance infrastructure projects when a professional water service provider and operator, like United Water, is at the helm to ensure that the system is well run. This concession structure, known as United Water’s SOLUTION, was designed to allay public fears around selling a community asset, and it can be structured in a way that puts a ceiling on rate increases.

What all successful public-private partnerships do have in common is the long-term committed support of businesses, local government, and environmental or other stakeholder organizations for sustainable water systems, panelists agreed. When the public sector respects the private sector’s need to earn a return on its investment; and the private sector recognizes the public sector’s need to be responsive and accountable to its constituents; a successful partnership will ensue. As such, these collaborations require both partners to operate with a high degree of transparency and communication with the community.

There is a pressing need to bring the issue of water sustainability and infrastructure to the public sphere, given what almost all knowledgeable observers agree is the extremely run-down state of most of the nation’s 50,000 plus water utilities.

More generally, public-private partnerships also could present increased opportunities for sustainable water solutions through cooperation across municipalities as well as within them. They could also allow communities, governments, and enterprises alike to “do good” while financially doing well, which was a bottom-line message from many of the conference speakers.

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