What's Behind the Push Toward Privatizing Water Systems?
About a dozen states have passed legislation to promote sales of water and wastewater utilities. Although private money can fund upgrades, environmentalists say drinking water shouldn't be a for-profit enterprise.
Residents of Jackson, Miss., are no strangers to water problems. The city drew national attention back in the summer of 2022, when 150,000 residents went days or even weeks without access to safe drinking water. Earlier this year, Jackson residents received the latest in a long series of boil water notices in response to tests that found E. coli.
GOP Gov. Tate Reeves has proposed privatization as a potential solution to the city’s water woes. But the performance of vendors has not been perfect. In 2017, Jackson signed a 10-year agreement with a subsidiary of the French company Veolia Environnement to manage its wastewater treatment plants. Between March 2020 and February 2022, however, nearly 5 billion gallons of untreated or partially treated wastewater was dumped into the Pearl River. Siemens Corp. paid $90 million to settle complaints from the city about its failure to improve to water metering system.
When it comes to privatization, there’s always a debate between proponents who contend private companies will provide better services at less cost, and those who worry that contracting out essential services makes them less accountable and vulnerable to mismanagement and excessive profit-taking. Such concerns are especially sensitive when it comes to a necessity like water.
Nearly 73 million Americans rely on private companies for drinking and wastewater needs, according to the National Association of Water Companies, which represents a substantial increase over the past five years. Last year, the President’s National Infrastructure Advisory Council recommended removing “barriers to privatization, concessions and other nontraditional models of funding community water systems.”
Environmental groups aren’t happy about the idea of pushing privatization, maintaining that this weakens public control, oversight and accountability. “Elite capture of our water commons is the final frontier in the commodification of all living things and should be resisted as though our lives depend upon the water we drink,” said Nickie Sekera, a co-founder of Community Water Justice, a network of communities opposed to privatization.
Privatization Pros and Cons
Supporters of privatization say it provides a great way to maintain and update pipes, filters and technology in order to make water safer. “The advantage is that you get the political meddling out of it and the source of finance becomes more stable,” says Chris Edwards, a fiscal expert at the Cato Institute, a libertarian-leaning think tank. “When something is run by the government, there's always fighting over appropriations and micromanagement.”
Communities with smaller or older public water systems are increasingly turning to private-sector partners to make up for service gaps and their own limited budgets. One recent example is Salem, N.J., where residents voted last November to sell their water and sewer systems to New Jersey American Water. The city is deep in debt and can’t afford the cost of cleanup of PFAS chemicals.
Sales of water systems appeal to smaller towns or cities as a way to offload the cost of water infrastructure projects. About a dozen states — most recently Florida — have encouraged sales by passing so-called fair market value legislation, which makes utilities more attractive to buyers. Traditionally, the value of water and wastewater systems has been determined by calculating their original cost, minus depreciation. Fair market value legislation allows water and wastewater utilities to use alternative valuations, such as purchase price or an average of appraisals.
Critics complain that this leads to artificial inflation of systems’ value in a way that ultimately hurts customers. Private water companies “have been very successful at pushing that legislation through legislatures,” says Mary Grant, who works on water issues for Food and Water Watch, an environmental advocacy group. "I think that we’re going to see more privatization in states that have fair market value legislation on the books. That’s their goal.”
Protests and Pushback
Companies such as Essential Utilities, which owns more than 1,500 public water systems nationwide, have lobbied for fair market value legislation. “There’s both a political and a marketing machine driving outsourcing privatization,” says Donald Cohen, co-author of The Privatization of Everything.
Throughout American history, ownership of water systems has swung back and forth between the public and private sectors. Despite the recent growth in privatization, there have been examples of municipalities taking back control and ownership.
Residents served by the Chester Water Authority in southeastern Pennsylvania have been fighting a takeover of the system by an Essential Utilities subsidiary. Last spring, Jackson water maintenance workers staged a protest against the city’s contract with a private company. Even in Salem, which voted heavily in favor of privatization, Food and Water Watch worked with community activists to get the question on the ballot and give residents a say in the matter.
A Pennsylvania court ruled last year that the Public Utility Commission should not have allowed the sale of a municipal sewer system, because the deal could have led rates to double. The finding ran against a prior trend in favor of consolidation of utilities.
Nationwide, publicly owned water systems remain the primary source of water for Americans. That likely won’t change.
“The key concern with the privatization of water is that loss of local control over the projects,” says Grant, of Food and Water Watch. “Companies may be offering large sums of money to entice local officials to sell assets, but that's not free money. That’s just a debt that your constituents are going to have to pay through their water bills.”