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Protecting Milwaukee’s Water:

A Crisis in the Making 

Background
Milwaukee is a national leader in providing high quality drinking water and monitoring water quality. Since 1998, the Milwaukee Water Works has invested over $210 million in its treatment and distribution systems to ensure this quality is maintained. The Milwaukee Water Works treats Lake Michigan water with a multiple-step process to protect public health and has been recognized as one of only 28 utilities nationwide that conducts extensive testing for emerging contaminants such as pharmaceuticals. The U.S. Environmental Protection Agency has endorsed Milwaukee’s drinking water as among the highest quality in the nation and notified the Water Works that its water treatment and monitoring systems are in full compliance—five years ahead of time—with new federal regulations to control disinfection byproducts. The Milwaukee Water Works is owned by the City of Milwaukee and provides drinking water to residents and businesses in Milwaukee and 15 neighboring communities.   

Problem
There is an effort underway to privatize the Milwaukee Water Works system, an effort which is moving quickly and quietly. The idea was first broached publicly by the City Comptroller in late 2008, after his discussions with several business executives. There was one small article in the Milwaukee Journal Sentinel newspaper in October 2008, but no coverage since.  

Water privatization is being undertaken in response to serious budget shortfalls in Milwaukee. The idea is to arrange a very-long-term lease of all the water operations, with the city retaining ownership; the Comptroller suggested a 99-year lease. A one-time payment for the lease would be set aside in an endowment to generate about $30 million annually to help fund city operations.  

It is assumed that water rates will go up after privatization; the rate is currently less than half the market rate. The reason the city itself won’t just increase rates is that all water revenue is segregated for water purposes only, but the city is desperate for funds for a full range of regular operations. Thirty million dollars annually in lease revenue would substitute for additional property taxes, fees, or state or federal revenue. 

In March 2009, the city Common Council authorized an RFP to find an “Advisor Team” to oversee and guide the bidding and contracting process. Seventeen firms submitted proposals by the April 9 deadline. Identities of the bidders are secret; the Comptroller announced in late April that open-records requests to learn the identities will not be honored. Selection of the Advisor Team is expected to take place as early as June. The Advisor would then move as quickly as possible to prepare an RFP for the actual privatization.  In other cities where this process has occurred, advisors are paid with a combination of fee for service and “success” fees upon completion of a final contract which is an incentive for advisors to push for privatization.  

Analysis
This proposal does not bode well for the Milwaukee area.  There are a number of serious issues at stake—costs, water quality, economic development and accountability. 
There are three major companies in the world with the capacity to bid for the Milwaukee contract: Suez Environment, Veolia Environement and RWE. The first two are French multinational corporations with global operations related to water and waste management. The third is a German firm which in April 2009 announced its intent to sell its water operations, including American Water which operates in the U.S.
 

Suez Environment owns United Water, which obtained a contract to manage the Milwaukee Metropolitan Sewerage District (MMSD) in 1998. MMSD became the largest publicly owned wastewater system under private operating contract in the US. In 2008, at the expiration of the contract, United Water was replaced by Veolia on a 10-year contract. Among other things, United Water was issued 20 notices of contract non-compliance during its tenure running MMSD. Both United Water and Veolia have had serious problems in other cities across the United States. Veolia has managed water systems in New Orleans and Indianapolis as well as smaller communities in Massachusetts and Texas. The drinking water in Indianapolis is rated second worst in the nation and received a failing grade from Men’s Health magazine. Residents took Veolia to court claiming the company overcharged 250,000 customers. 

This privatization proposal emerged in the midst of enthusiastic discussions about the new Great Lakes Water Compact and the extraordinary importance of maintaining lake water as a resource for generations to come. Water technology is believed to be one of the growth industries for Wisconsin. The recently formed Milwaukee 7 Water Council is leading the effort to make Milwaukee the “Silicon Valley of water in the 21st century.” The Water Council reports that there are already more than 120 firms in southeastern Wisconsin engaged in water technology. The University of Wisconsin-Milwaukee is poised to launch a new School of Freshwater Sciences, the first such institution in the Western Hemisphere. In April 2009, Milwaukee was named a Global Compact City by the United Nations, only the 13th such designation worldwide and 2nd in the US. Milwaukee’s application focused exclusively on water quality and water-engineering industries. Handing control over the water system to a multinational corporation whose only obligation is to stockholder profits would remove this valuable resource from public control.  

Accountability and transparency are especially important priorities for governmental operations at all levels. Water is a fundamental necessity for families and businesses. Unlike petroleum or electricity, there are absolutely no alternatives to water as an essential element for life and commerce. Decisions about the operations and management of this basic resource should be made deliberately and with substantial public oversight. The Milwaukee area—the entire state of Wisconsin—has a huge stake in water as a pivot point for economic recovery and growth. We cannot let this slip through our fingers. 

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