IF IT'S SPRING, it must be time for Baltimore's perennial fiscal dilemma: stagnant revenues, rising costs and residents unwilling to pay more in taxes and fees for services.
Across the country, cities facing the same predicament are coming up with a new wrinkle on the old solution of privatization: They are turning over management of massive water and wastewater facilities to private companies in mega-deals that are saving consumers and governments millions of dollars.
Consider Cranston, R.I.
In March, the 78,000-population riverfront municipality signed a 25-year lease to let a contractor run its sewage treatment plant. The value of the deal: $400 million, or about three times the city's current total annual operating budget.
"The bottom line is the city will be saving $73 million over the course of the contract," said Peter Alviti Jr., Cranston's director of public works.
In signing the agreement, Cranston became the first city to take advantage of relaxed federal regulations that allow municipalities to sign long-term contracts with private companies to run publicly funded water and wastewater plants -- but it's not likely to be the last.
Widespread interest
Drawn by the prospect of potential savings that would dwarf the rewards of most other privatization efforts combined, more and more cities are showing increased interest in turning their water and/or sewer plants over to companies with annual revenues in the billions of dollars and reach that extends to Europe.
Baltimore Mayor Kurt L. Schmoke says he has met privately with at least three companies over the past four years.
"What they have all been surprised with is how low our water rates are, which in their minds suggest it is an efficiently run system," the mayor said. "So we have not yet received an offer that seems more attractive than our publicly run system."
But he added, "We are open. We invite people to come in."
One of those who have taken the city up on the offer is Houston-based Professional Services Group, which signed the long-term contract with Cranston and manages facilities in dozens of other jurisdictions. The company, one of the handful of major players in the field, has asked the city for detailed files on its operation. "We've been contacting the larger cities to check their pulse," said Douglas Herbst, vice president of corporate development for PSG. "We've seen the interest level at an all-time high."
Two recent events could tweak Baltimore's interest in privatization: a threatened lawsuit by state and federal officials to force the city to make improvements to two public works facilities and the water main break in East Baltimore with its estimated $3 million repair bill.
Promised savings
Privatization offers are often attractive because they come with promises of savings for local governments and huge infusions for cash to upgrade facilities.
Cranston, for example, is getting $48 million upfront from the contractor, the bulk of which will go to erasing water and sewer debts.
Wilmington, Del., is finalizing its own 20-year deal with a private operator who promises to make $15 million in capital improvements in the first three years of the contract.
And Atlanta is about to advertise for consultants to help it evaluate privatization of its system -- spurred by indications it could get more than $300 million to make needed improvements.
Other cities such as Buffalo, N.Y., are ready to join the likes of Houston and Indianapolis in agreeing to deals of more limited duration that federal officials have allowed for years.
Last summer, the U.S. Conference of Mayors set up an affiliate to deal with water and sewer issues, including privatization.
"It's something cities are showing a much greater interest in," said Michael Gagliardo, director of the Urban Water Council. "Cities are looking at ways to reduce taxes, debts, user fees and utilities bills."
In Baltimore, the interest comes against the backdrop of yet another tight budget year, with the mayor and City Council wrestling with what combination of service cuts and/or tax and fee increases to balance a budget in a city beset with declining population and flat local revenues.
Mixed results
Over the years, in a continuing effort to reduce costs, Baltimore has privatized with mixed results a range of institutions and services, from the city-owned golf courses to the City Life Museums. Currently, the city is soliciting bids from private companies to run its emergency ambulance service, which costs taxpayers $8 million a year.
The figure is vastly overshadowed by the budget of the city's Bureau of Water and Waste Water Utilities, which is part of the city's Public Works Department.
Together, the utilities -- which serve 1.5 million customers in the city and nearby counties with two treatment plants, three watershed systems and thousands of miles of pipes -- have a budget of $180 million a year and 2,000 employees, or about 8 percent of the total city work force.
Key difference
