O'Malley panel to look at cost cut by privatizing city water operations

Offers so far save little compared with lost funds

November 20, 1999|By Ivan Penn and Gerard Shields | Ivan Penn and Gerard Shields,SUN STAFF

A committee organized by Mayor-elect Martin O'Malley to study Baltimore's Public Works Department is considering the feasibility of privatizing the city's $200 million water and sewage operation as a way to cut costs.

George G. Balog, outgoing public works director, advised committee members last week that the new mayor should study the issue.

In addition, an official from Legg Mason, which has brokered management contracts between water companies and cities in the past, has asked the chairman of O'Malley's public works committee, Clarence T. Bishop, for a meeting.

"They want to come and tell the committee what they've done and for us to have them in mind if we decide to do anything," Bishop said.

Privatizing the water operation is one of several ideas the committee is considering in its effort to make the Public Works Department more efficient, Bishop said.

Baltimore's water operation serves 1.8 million people in the city and Baltimore County, as well as parts of Anne Arundel, Harford and Howard counties. The operation has about 2,000 employees, including 1,063 in waste water and 917 in the water department.

Mayor Kurt L. Schmoke said there has long been interest in privatizing Baltimore's water operation, but no companies have offered proposals that showed any substantial cost savings or other benefit to the city.

Most companies said they could save the city about $1 million a year, which seemed low to city officials in exchange for control of an operation that normally brings in $10 million to $20 million a year.

Talk of privatizing Baltimore's water operation comes as the state considers changes in the management of the Washington Suburban Sanitation Commission, the nation's seventh-largest water and sewer company. Proposals for the operation's future include hiring a private company to manage it or an outright sale, which could result in a $3 billion windfall for the state.

WSSC serves Montgomery and Prince George's counties.

Balog said Baltimore's operation -- which is comparable in size to WSSC's -- also could be worth billions. But he said it isn't practical to sell the water system because it is a major asset and few water companies want to spend billions to buy the operation.

Jim Creedon, a regional vice president for United Water Services of Harrington Park, N.J., said water operations rarely sell. Usually, Creedon said, cities grant management contracts to water companies to run the operation.

Two major cities have leased portions of their water system to private companies. In 1994, Indianapolis leased its wastewater collection system to the White River Environmental Partnership. Since then, the city said it has saved $78 million.

"They've done a phenomenal job and kept the high quality," said Nick Weber, spokesman for Indianapolis Mayor Stephen Goldsmith.

Atlanta allowed United Water to manage its water distribution system and 1 million customers this year. The city boasts a $15 million savings from the move that took place Jan. 1.

Both cities, however, say the key to making the agreements work for them is maintaining control through clauses in the lease contracts. In Atlanta, the city controls the water rates. In Indianapolis, the company must maintain or exceed environmental standards in place when the operation was transferred.

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