Providence Officials Make Case for Privatizing Drinking Water
March 31, 2019
PROVIDENCE — City officials made a persuasive argument for leveraging the Scituate Reservoir and the municipal water system to improve its ailing pension system, but the public was having none it.
During a March 25 public meeting, audience sentiment was overwhelmingly opposed to turning over the state’s primary water source to a for-profit company. Comparisons were made to Flint, Mich., and other high-profile privatizations of public water systems that went wrong, sometimes horribly.
“What makes you think all of these problems that you read about in the news is not going to happen to us?” Laura Moss asked.
Others pointed to the risk of losing undeveloped land around the Scituate Reservoir; a lack of oversight and enforcement of a private entity; and making a shortsighted trade-off that forfeits control of managing future predicaments related to issues such as climate change and lead exposure.
The presentation at Nathan Bishop Middle School was one of three held by Mayor Jorge Elorza to gauge and gain public support for monetizing the water system known as Providence Water.
Although there is legislation in the General Assembly (S0324) to allow the city to enter into a transaction or restructuring of Providence Water, Elorza and members of his administration repeatedly insisted there is no offer to consider. The bill is the latest effort by Elorza and past mayors to tap into a valuable asset.
Flanked by protesters holding banners that read “Water is a Human Right. Not For Sale,” Elorza noted that the city receives less than $1 million annually from Providence Water, a fee that barely covers the expenses the city provides to Provident Water employees.
Elorza is eyeing an estimated $400 million appraisal of the system, which provides drinking water to 60 percent of Rhode Island’s residents. Selling it, Elorza said, isn’t a favored option. Instead, the city is considering leasing the system to a private water management company. Other options include creating a regional public water board, or even a restructuring of Providence Water so that the city can borrow against the water system.
Bills in recent years offering these alternatives have been quashed in the General Assembly, so Elorza is making the case for acting now, instead of in 10 or more years when the pension liability balloons, possibly forcing the city into bankruptcy.
Elorza explained that the city’s short-term finances and credit rating are improving, thus affording an opportunity to confront the long-term fiscal threat.
“I can tell you the longer that we wait, the more serious and more acute that imminent threat is going to become. But also the more difficult it is going to be for us to do something about it,” he said. “So what we are hoping to do is continue to sound the alarm and raise awareness of those challenges so that we can act now.”
Elorza’s chief of staff, Nicole Pollock, noted that the current annual payments to service the pension is $90 million, well above what a municipality should be paying into its pension system. Those payments are taking away from basic services such as school repairs, she said. Failing to reduce the debt now, will result in $1.5 billion pension liability with an annual payment of $150 million.
Pollock said the pension deficit was created in the 1990s and early 2000s when the city ceased paying into the pension system for 17 years. Past mayors David Cicilline and Angel Tavares resumed payments and instituted reforms, but the unfunded liability remains.
In recent years, the city has received proposals on how to monetize Providence Water from a commission and a consulting agency. The latest concept is to lease the city-owned enterprise fund to a private water system manager such as SUEZ North America or Veolia. Both are based in France.
Pollock presented a scenario where the city receives an upfront lump-sum payment of $400 million from the water system manager in return for no annual payments over a 30- to 50-year lease. A second option would have the water company make annual lease payments of $4 million to $8 million to the city. Both would substantially cut the pension liability — by about $45 million — while freeing up money for city services and improving leverage for borrowing.
Both schemes would have assurances to protect employees, such as maintaining the union system. Water rate increases would be capped for five years and water-quality standards would be overseen by Providence Water.
Opponents quickly pointed to risks and inconsistencies. The $400 million lump-sum payment raised several questions. The amount appeared too high for a lease program and more appropriate for a sale of the water system, an option that Elorza downplayed.
Others noted the myriad problems municipalities have encountered with SUEZ and Veolia.
Pollock and Elorza stressed that other cities and towns had problems privatizing their water systems because they were in greater fiscal stress than Providence, forcing them to make concessions in their agreements.
Elorza said taking action before the city’s fiscal health worsens allows for the most favorable deal.
Elorza, Pollock, and other city officials said no “transaction” is forthcoming and no negotiations are imminent. The meeting is part of a campaign to garner public support.
“This won’t happen if we do not get buy-in and we do not have authority to do it,” Elorza said. “No one’s wanted to have the conversation with you because it’s a hard conversation.”