Small towns easy prey for water companies
Sunday, March 27, 2005

It is a catchphrase increasingly heard in town halls and board rooms - public-private partnerships. But critics of these agreements say some should be called predator-prey relationships.

Promising dramatic savings, a growing number of private companies are taking over essential services from cash-strapped cities and towns, from treating sewage to providing drinking water to running jails. The number of such contracts has exploded in the last decade, doubling by some estimates.

If properly written, the agreements can save municipalities money, say legal experts, but some private companies apparently aim to make sure they aren't properly written so that in the hidden loopholes and small-print details they can profit mightily at a community's expense.

In coming weeks, Holyoke officials will decide whether they will turn over the operation of the city's wastewater treatment plant for the next 20 years to a private company, Aquarion Operating Services Co. of Connecticut. Some city councilors and some residents of Holyoke are skeptical of the proposed deal, saying there are too many uncertainties in the agreement.

However, Aquarion, which provides water or wastewater services to 53 communities in New England, generally gets good marks from officials in those cities and towns it serves.

Nevertheless, fears about entering into a public-private partnership are not unwarranted, said Janet R. Werkman, an attorney in private practice in Cambridge. She was an investigator in the Massachusetts inspector general's office in 2001 when she blew the whistle on a proposed deal in Lynn in which that town was preparing to turn over its wastewater treatment plant to a private contractor.

"It was a disaster," she said.

Her office's investigation found the $47 million contract with U.S. Filter would be $22 million higher than comparable work elsewhere in the state, that it was one-sided in favor of U.S. Filter, and that Lynn's engineering consultants had milked the town for money and failed to give crucial advice.

"I was very disturbed by the Lynn case because there were a lot of people in that town who were struggling financially. It infuriated me," she said.

For her report, she was vilified by many in Lynn, Werkman said. But her warnings ultimately proved true. The report was ignored, a 20-year contract was signed, and Lynn officials have had to fight frequent battles with the contractor since.

"We were promised everything under the sun, but once push came to shove ..." said Daniel F. O'Neill, executive director of the Lynn Water and Sewer Commission, who has inherited the mess from predecessors.

For instance, after promising there would be no layoffs of municipal workers at the treatment plant once the company took control, U.S. Filter systematically forced them out, getting around the contract by making working conditions so difficult that when workers were offered money to quit, relocate or retire, many did, O'Neill said.

"That's how they made their money. We started with 49 employees and today we have 34. The labor portion of the contract was $2.2 million a year. They're saving 30 percent, nearly $700,000, and we don't see a nickel from those labor savings," he said.

O'Neill said many in town believe Lynn's mayor at the time was little more than a lobbyist for U.S. Filter, and since leaving office, the mayor has gone to work for the company.

If Holyoke officials are looking for a model of a public-private partnership that has apparently worked, they have to look no further than Springfield. In 2000, faced with mounting costs to operate its wastewater treatment plant, the city turned its operation over to a private contractor, U.S. Water (now called United Water), under a 20-year contract.

"Overall, we've had a very good experience. The rate-payers have benefited. They would be paying more now if the plant had continued to be operated municipally," said Katherine J. Pedersen, a spokeswoman for the Springfield Water and Sewer Commission.

But if the company has stabilized sewer rates for Springfield residents, it has also reaped substantial revenues in a manner similar to U.S. Filter in Lynn - by eliminating workers, despite promises in the contract that no layoffs would be made.

"The company said everyone had a job for the 20 years of the contract," said Robert F. Dickson of West Springfield, who was the business agent for the union of workers at the Bondi's Island plant when U.S. Water took over.

"When the company came in, there were something like 65 people. In three years they were down to about half of that. They made life miserable for everyone. The workload was increased. They drove people out. All that savings on salaries and benefits went back into the pockets of the company, not to the city. Thirty people. That adds up to something like $1.8 million a year. That's how these companies make money," he said.

"You watch. In a couple of years, if there's 30 people now at the treatment plant in Holyoke, they'll be down to 20. I would tell Holyoke to make sure it's in the contract that they get any money" that is saved from labor reductions, Dickson said.

Richard W. Henning, a spokesman for United Water, acknowledged the work force at the Bondi's Island plant has fallen from 65 at the time of the transition to 39 now, a 40 percent reduction in workers. But he denied that workers were deliberately forced out to increase the companies profits.

"As you move in to run the operations of the plant, you are simply asking for all of your employees to be working as efficiently as possible, doing the best jobs they can. Perhaps for some employees, that may not be possible," he said.

Henning said the company was trying to fulfill the wishes of the city. "They were looking for us to run an efficient plant that delivers top-notch performance and predictable costs to the city for the future."

Mildred E. Warner, a professor of planning at Cornell University who follows privatization issues, said cutting workers is among the few options private companies have if they want to run municipal facilities and departments cheaper than the cities and towns.

"If you're going to save money, you're going to save it through some kind of efficiency or you're going to reduce the cost of labor. With water and wastewater facilities, there are questions about how much technical progress is possible (that will raise efficiency). So certainly, there are lots of stories around the country of privatization being done on the backs of labor," Warner said.

Many communities other than Holyoke have struggled with the decision about whether to privatize their wastewater treatment plant. While Springfield chose to, Westfield chose not to.

As is the case in Springfield, Holyoke is under pressure from the U.S. Environmental Protection Agency to reduce the overflow from its aging sewer system into the Connecticut River. If Aquarion gets the contract, the pact will include improvements to the sewage treatment system to reduce overflows. Consultants to the city, who have been paid nearly $1.3 million to date, say the contract will save rate-payers up to $10 million over 20 years.

Craig W. Thomas, associate professor of political science in the Center for Public Policy and Administration at the University of Massachusetts in Amherst, said public-private partnerships can work to the benefit of both parties.

"Definitely these contracts can be a good thing. But there are pitfalls, and one of the biggest is in the contract itself. It has to be very explicit and that's a very tricky thing to do. Not only do you have to have people who understand contracts, but you also have to have people who work for the city who can monitor the contract," he said.

"Studies consistently show that most public agencies doing the contracts don't have the capacity to properly write or monitor them," Thomas said.

Hugh Jackson, a policy analyst for Public Citizen, an advocacy group based in Washington D.C., said that some private companies deliberately seek out cities and towns that lack legal and engineering expertise in order to get contracts that will favor them, particularly in the small details the community negotiators may miss.

"In large cities, they are so closely monitored that I think they are abandoning plans to go after the larger cities. They seem to have made a conscious effort to go after the smaller towns," he said.

Does the Aquarion Water Company, of which Aquarion Operating Services is a subsidiary, fit that image of corporate predator? No, say officials in communities served by Aquarion who were interviewed by The Republican.

Based in Bridgeport, Conn., Aquarion is one of the 10 largest investor-owned water utilities in the United States and the largest privately owned water utility in New England. It serves 211,000 homes and businesses, or approximately 677,000 people, in 53 communities in Connecticut, New York, Massachusetts and New Hampshire.

Like U.S. Filter and U.S. Water, Aquarion is a subsidiary of a foreign water company, in this case The Kelda Group of the United Kingdom, which purchased Aquarion in 2000. And as U.S. Filter did in Lynn and U.S. Water did in Springfield, Aquarion has promised Holyoke officials and the 26 workers at the wastewater treatment plant that there will be no layoffs and no decline in wages or benefits.

Aquarion has more than 80 percent of its customers in Connecticut. Beryl M. Lyons, a spokeswoman for the Connecticut Department of Public Utility Control, which regulates the state's water companies, said the company is respected in that state.

"This is a company that knows what they are doing. Aquarion Water has the expertise to be able to run all facets of a water system. Over the past 20 years, they have acquired many smaller water companies in Connecticut. One of the primary reasons why this department approved those acquisitions is because they have the managerial, technical and financial resources to be able to provide proper water services," she said.

The department issues an annual scorecard of utilities based on consumer complaints. In 2003, Aquarion had a rate of 30.5 complaints per 100,000 customers, compared to a rate of 17.6 for the only other water company in the state, the Connecticut Water Company. However, as a broader comparison, Aquarion's complaint rate was lower than both of the state's electric utilities, all three of its natural gas utilities, nine of ten of its telephone companies and 16 of 23 cable television systems.

Officials in the towns of Sharon, Stratford, Litchfield and Kent in Connecticut and Hull in Massachusetts, where Aquarion provides water or wastewater services, also gave the company good marks.

"They've been very responsive. When I have issues, they've been good about solving the problem," said Delores R. Schiesel, first selectman in Kent.

"They've been a good corporate client," said Thomas A. Burns, a former selectman and sewer commissioner in Hull.

However, in none of those communities did Aquarion come in to run services that had formerly been run by municipal workers. They either started from scratch to build a system or inherited a system formerly run by another private company.

John Portz, professor of political science at Northeastern University, said public-private partnerships have become "part of the mosaic of government services today," but that they will only benefit a community to the extent that the contract protects the community's interests.

"Local governments need to be smart buyers. But obviously, you have to be careful about contracting out an essential service. If it's something like a wastewater treatment plant, it has to work. Otherwise, it would literally be very messy," he said.