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Public entities across the U.S. are partnering with private companies, trading control of roads, utilities in exchange for hefty payments
Published on Saturday, Mar 29, 2008
For a 75-year lease on its 157-mile turnpike, Indiana received $3.85 billion to pay for road improvements across the state.
Could Akron be next for such a mega-deal?
That's what city officials are investigating.
In his annual State of the City address on Feb. 7, Mayor Don Plusquellic proposed selling the city's sewer system to pay for scholarships for Akron's public high school graduates to the University of Akron or to trade schools.
Over the next few weeks, the mayor clarified what he was talking about — not an outright sale, but a long-term lease in which Akron would maintain ownership and a private company would operate the sewer system.
On a Feb. 29 television broadcast of NewsNight Akron, Plusquellic said he misspoke in his initial announcement about a possible sale.
The city's chances of selling the sewer system, which serves Akron and surrounding communities, are slim, Plusquellic said.
But a concessionary lease is being viewed with more optimism.
Service Director Richard Merolla said such a long-term agreement could provide Akron with the upfront money for scholarships and would give the city more control over sewer rates for its 90,000 customers than a sale would. For a company that would partner with Akron on a sewer Please see Sewer, A5
deal, there would be major depreciation tax benefits.
Merolla said such an arrangement would mean that Akron could remain eligible for federal funds for sewer improvements — money that wouldn't be available if the system were sold to a private entity.
No set plan
There are numerous options for how Akron might structure such a deal, he said.
''We're not locking ourselves in,'' the service director said, ''and there's just so much variety. We're very open.''
Merolla said the city is just beginning its investigation of using the sewer system to create the scholarship fund and is looking into hiring financial and legal advisers and an engineering firm to help.
The investigation will probably take 12 to 18 months, he said. The mayor intends to name a committee to look at the city's options on a sewer deal; a separate committee would look into the scholarship program.
Chicago contract
Merolla points to the leases for the Chicago Skyway and the Indiana Toll Road as the type of contract Akron might try to set up with the sewer system.
In late 2004, Chicago completed a lease with Skyway Concession Co. LLC, which is owned by a Spanish-Australian consortium, Cintra Macquarie. The lease was the first deal of its kind involving an American toll road.
The Chicago Skyway — used by about 50,000 vehicles a day — connects the Indiana Toll Road with the Dan Ryan Expressway (Interstate 94) on the city's south side.
Skyway Concession, one of three bidders for the contract, is responsible for all Skyway operating and maintenance costs but gets all tolls and concession revenue from the road.
Under the contract, the toll has increased from $2 to $2.50 per vehicle and will gradually rise to $5 by 2017.
Chicago used the upfront money to pay off its Skyway debt and put the remaining $1.3 billion into city operations.
Chicago officials subsequently leased out four city parking garages and are looking into leasing parking meters and the city's Midway Airport.
Indiana deal
The Indiana Toll Road runs from Chicago in the west to the Ohio Turnpike in the east.
In 2006, ITR Concession Co. LLC, owned by the same Spanish-Australian consortium, took over the toll road, beating out three other bidders.
As with the Skyway deal, IRT is responsible for the toll road's operation and maintenance and gets the tolls and concessions.
Since the IRT takeover, tolls have been frozen until mid-2010 on the road, which gets about 46,000 vehicles a day on its western end and 25,000 on its eastern end. The tolls will increase in 2010 under a complicated formula spelled out in the contract.
Texas and Virginia also have entered into long-term toll-road concession agreements, and Pennsylvania is looking at a similar arrangement for managing its 537-mile turnpike.
Cost to customers
William Barnhardt, editor-publisher of the Public Works Financing newsletter based in New Jersey, said that while the upfront money from a concession agreement may be appealing to Akron, its sewer customers, in effect, would be paying back that money over the years.
Selling bonds to raise money might be a cheaper way for Akron to go, while maintaining control of the sewers, Barnhardt said.
The American Federation of State, County and Municipal Employees, a union whose members could lose jobs under concession agreements, says pretty much the same thing.
''Investors will make their money from future users paying higher tolls and fees over the life of the agreements,'' the union said in January in an assessment of the Chicago and Indiana deals.
If the goal is to get upfront payment in exchange for future revenue, AFSCME said, public owners could do that by selling bonds without giving up operating control of public assets. The bonds would be secured by future tolls or other revenue, it said.
The local chapter of AFSCME, which represents Akron's sewer workers, has said it would fight Plusquellic's proposal, and other Akron residents have raised concerns.
Willie Smith, a 57-year-old retired stage designer and stagehand, organized a community meeting on Tuesday at the East Akron Community House to voice opposition to selling or leasing the sewers.
Smith said he is convinced that Akron sewer customers would end up paying more in the long run if the city sold or leased the system.
Partnerships increasing
Having a private company manage a public water or sewer system is a growing trend.
In 1997, there were perhaps 400 sewer and water plants in the United States that were government-owned and operated by private entities.
By 2006, the number had grown to 1,784 plants in 1,463 systems, Barnhardt said.
Water-sewer partnerships between public and private entities have grown into a $1.7 billion-a-year industry, and 5 percent of Americans now get drinking water or sewer service through such agreements.
But Barnhardt said most of those agreements, including pacts in Indianapolis, Milwaukee and Gary, Ind., were designed to save money or to improve operations, not to generate scholarships, like Akron wants to do.
The main reason for the shift toward partnerships is that cities are facing enormous bills for aging pipes and treatment plants. The hope is that such partnerships would generate savings and provide the capital to help pay for improvements.
Consumer and environmental groups like Food and Water Watch and the Sierra Club, however, have attacked such arrangements.
Jon Keesecker, of Food and Water Watch in Washington, D.C., said public control is better and cheaper for customers than pacts with private companies.
There have been highly publicized cases in Atlanta, New Orleans and Stockton, Calif., in which such arrangements failed and cities have resumed operating their own systems, Keesecker said.
Some claim savings
One of the biggest players in managing water and sewer systems for municipalities is New Jersey-based United Water, which is owned by French utility Suez Environment.
The company has 146 water-sewer contracts in 14 states. It has been running the sewer system in Indianapolis for 14 years and the water system for Jersey City, N.J., for 12 years.
Company spokesman Rich Henning said public-private partnerships do not mean higher prices.
''Generally, it means more efficient operations and lower-cost pricing, even taking into account profit for dividends and reinvestment into the system,'' Henning said. ''It also means that customers are paying 'real cost' pricing, rather than a subsidized price based off the use of government bonds to finance infrastructure improvements.''
Indianapolis claims a sewage savings of $250 million over the last 13 years, and Milwaukee saved $170 million over 10 years, he said.
Regardless of whether Akron's sewers are sold, leased or remain in city control, area residents are likely to pay higher sewer rates to cover improvements to the system.
Akron is facing a $370 million federal mandate to eliminate the its combined sanitary/storm sewers, which overflow after heavy rains and pollute the Cuyahoga and Little Cuyahoga rivers and the Ohio & Erie Canal.
Cleveland merger?
In his NewsNight Akron appearance, Plusquellic suggested another option for the sewer system if a concession lease cannot be worked out.
A less likely scenario, the mayor said, is that Akron's sewer system could be sold to or merged with the Cleveland-based Northeast Ohio Regional Sewer District.
Julius Ciaccia Jr., executive director of the district, said no meetings or discussions have been held with Akron officials but such a sale is possible.
''I'm not going to rule it out,'' he said, '' . . . but there are a lot of big, big, big question marks, some big unknowns and lots of details to be worked out before any decisions could be made.''
Bob Downing can be reached at 330-996-3745 or bdowning@thebeaconjournal.com.
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