Woodbury, others in N.J. mulling privatizing water system

In February, New Jersey Gov. Chris Christie signed a bill that would fast-track the sale of municipal water systems in dire need of repair to private companies without the need to put it to a public vote.

Last week, the city of Woodbury, N.J. began exploring the option to sell; and while a significant portion of the state already has private water, others are likely to follow.

Not all municipal systems qualify for the quick sale, though the language of the bill is vague — the “emergent conditions” spoken about include phrases like, “a demonstrated lack of historical investment, repair or maintenance,” — which could obviously be open to interpretation.

A 2011 Environmental Protection Agency assessment of public water infrastructure estimated that national water utilities would require $384 billion worth of investment over the next 20 years. The EPA estimate for New Jersey is $7.9 billion, though the industry has said the real figure is closer to $40 billion.

Dr. Richard Michelfelder, a business professor at Rutgers-Camden and former CEO of national public utilities consulting firm Quantum Consulting, says towns strapped for cash can’t raise nearly the capital needed for that amount of improvement.  Private companies are also often able to raise that money more quickly, allowing for a faster updating of aging infrastructure.

“This can offer a strapped city the opportunity to cash out its assets at two to three times its book value, and can use that to pay off its bonds and leave quite a surplus for the city,” said Michelfelder.

There is the legitimate concern about rate hikes though. Whether two private companies bid each other so high on the sale they have to increase rates just to make a profit, or a private company just decides to jack up the price, is there any assurance that water bills will remain reasonable?

Michelfelder says New Jersey’s Board of Public Utilities still has regulating power even over private systems. And as far as rate increases, customers better just get used to it.

“Of course rates are going to increase,” said Michelfelder. “But they’re going to increase one way or another because either the city has to raise the money or the private buyer is going to invest the money just to bring these systems up to where they need to be.”

And as for putting water in private hands instead of an entity with government oversight, he argues people should not worry.

“Look,” said Michelfelder. “Professionals, OK, if they’re seeing an emergency crisis coming down the road then I do think it’s a good idea to be able to circumvent that.”

Jeff Tittel, Director of the New Jersey Division of the Sierra Club, is absolutely opposed.

“Yes, we have a serious problem in this country in investing in water infrastructure,” said Tittel. “But private companies only care about their bottom line. They don’t care about delivering the best service at the lowest price.”

He said the short-sided sales only plug a budget hole instead of solving long-term problems. And he says most often those private companies just turn around and ask for the city to issue it bonds to pay for improvements, so it costs the taxpayer anyway.

“There are a lot of factors at play,” said Michael Cerra, Director of the New Jersey State League of Municipalities. “The cost of infrastructure is a fair point, and sometimes privatizing is a good idea, sometimes not. There are other options like public-private partnerships to consider. But it should at least be publicly vetted.”

Michelfelder said he sees a growing push for privatization across the U.S. In New Jersey, it’s already a trend. And as others consider following Woodbury’s lead, a debate is sure to boil.