It’s been a rough couple of years for water in Pittsburgh: flush and boil advisories, billing issues and elevated lead levels, all stemming, in part, from a lack of investment in the organization as a whole over the past couple of decades.
In April, the City of Pittsburgh and Pittsburgh Water and Sewer Authority jointly hired a consultant for six months and an expected $550,000. Infrastructure Management Group, Inc., or IMG, was asked to conduct a comprehensive assessment and advise a mayoral panel on how best to address the authority’s significant challenges.
Pittsburgh loves a superlative (most liveable! safest! most underrated!), but thankfully, PWSA can’t claim to be the nation’s only dysfunctional water authority. Cold comfort, maybe, but it means the experience of other cities can inform what happens next.
In its first public presentation, IMG Inc. laid out three broad options for the authority: overhaul the organization and rebuild it from scratch; lease the assets to another entity, such as another utility or a nonprofit, typically over a 49-99-year period; or sell the whole system to another entity in perpetuity.
Let’s break down the options.
Option one: The extreme makeover
The first option is to restructure PWSA entirely: overhaul its customer service, its billing, how it keeps track of its assets. Essentially, give the organization an extreme makeover.
Brent Ricketts, a senior stylist at MCN Salon in East Liberty, has a lot of experience with makeovers and he has some advice for PWSA.
“Don’t do it haphazardly,” said Ricketts. “You don’t just want to come in and say, ‘Make a new me,’ you know. Obviously you need to have a plan.”
Ricketts spends his days helping people express who they want to be through how they look. He cautions against dragging the past into the future.
“[A makeover] is largely, I think, about truly turning away from the old self you’re trying to leave behind and ... actually focusing on who you want the new you to be,” he said.
IMG Inc. suggested that Pittsburgh look at Tulsa, Okla. as an example of a successful restructuring. Tulsa’s water and sewer services are provided by the Tulsa Metropolitan Utility Authority, TMUA. In 2010, as cities across the country struggled with declining revenue and rising costs, a foundation funded an evaluation to show where the city government could save or even make money.
Among the evaluation's hundreds of recommendations was one to lease Tulsa’s water and sewer assets.
“I wanted to be objective about it,” said Jim Cameron, who’s been a TMUA board member for 20 years. “But during the time I’ve been on the utility authority, quite candidly, I’ve never heard of any real [privatization] success stories.”
TMUA hired IMG, Inc. to conduct a comprehensive assessment over nearly two years. Looking at all the different options, they decided to restructure instead of lease. That choice requires a lot of political will, said Cameron, because the road is long, hard and expensive.
“The first year or two people will question, 'Are we doing the right thing? This is costing a lot of money. Are we seeing the right results?'” he said.
Now, five years after Tulsa made its move, rates are up, but lower than what was projected, even with new investments in technology, employee education and infrastructure.
The tricky thing about a makeover is making it stick, said Steve Steckler, chairman of IMG Inc.
“The big problem with internal improvement is its durability,” he said. “Organizations, whether they’re public or they’re private, if they’re not faced with either competition or constant attention to efficiency tend to retreat back to their norm.”
The makeover option also means PWSA and the city are on the hook for whatever it costs. The authority is nearly $750 million in debt, and needs some $4 billion to bring its infrastructure up to snuff.
Which leads us to the second option.
Option two: The babysitters club
Faced with similar equations—growing costs, dwindling budgets—lots of U.S. cities are turning to the second option available to PWSA: a long-term transfer of operations called a concession lease.
Think of a concession lease as the longest babysitting gig ever: You entrust your water and sewer babies to an entity, whether public or private, that promises to keep things humming along and even invest in your little wonders. And then in 50 years, you get them back.
The funny thing about a concession lease, though, is that the babysitter pays for the privilege. In 2013, the Lehigh County Authority (a public agency) paid the city of Allentown, Pa. $211 million for its water and sewer systems and bought the right to collect revenue for 50 years.
At the time, Allentown really needed the money; the city was swamped with pension debt.
The lease has been good for Allentown, said Councilman Julio Guridy. Though he had reservations: Guridy wasn’t happy monetizing the city’s biggest asset.
“But it’s not about being happy,” he said. “It’s about doing the right thing for the city and that’s what happened.”
On top of the one-time payment, Lehigh County Authority makes an annual royalty payment of $500,000 a year and invests in infrastructure. It’s agreed to keep rate increases moderate: they’re capped at 2-and-a-half percent per year for the first 25 years.
It’s a different story across the state line in Bayonne, New Jersey. In 2012, city leaders signed a 40-year concession leasewith private company, United Water. Bayonne got $150 million, and the lease guaranteed United Water revenue each year, said Councilman Gary Le Pelusa, who opposed the plan.
“I was against the deal from day one,” he said. “I thought we gave away way too much. All their evaluations of pricing, it’s all, everything is geared really as a plus for them and as a minus to the ratepayers.
Rates have gone up more than 28 percent for Bayonne’s 60,000 residents since the company took over, according to an analysis by the New York Times. In part, that’s because United Water had to invest more heavily in infrastructure than expected. The company did not respond to an interview request.
Pittsburgh has dabbled with the concession lease’s cousin: a transfer of operations, which typically covers a 10- to 15-year period. In 2012, PWSA hired private water company Veolia North America-Northeast LLC to provide an interim executive team and streamline day-to-day operations. The original agreement was for 18 months, but extended until December 2015. The city of Pittsburgh alleges that in order to save money and boost profits, Veolia switched the chemicals it used for corrosion control in 2014, which caused lead levels to exceed federal limits. Veolia denies those claims. The parties are currently involved in arbitration.
Option three: sell the thing
If not a makeover, or a concession lease, the third and final option is to sell the whole system. Say you have a Model-T Ford. It’s a marvel of engineering, but it costs you a fortune to maintain; finding a mechanic that old is impossible. At some point you might decide it’s just not worth it anymore.
Selling water and sewer systems eliminates a city’s responsibility to invest in crumbling infrastructure, and nets a one-time multimillion dollar payment. Former Indianapolis mayor Greg Ballard said it offers another opportunity.
“To take the politics out of water,” he said.
Taking politics out of water was the reason Pittsburgh’s system was spun into an independent authority to begin with, said Kevin Acklin, chief of staff for Pittsburgh's mayor, Bill Peduto.
“That thought of having a professional authority run as a business makes a lot of sense,” he said. “The problem is the last 20 years has seen this authority being a place where political hires were made, where disinvestment has happened.”
Indianapolis is free of all that, said Ballard.
“That’s never going to happen again in our city," he said.
Indianapolis sold its water and sewer utilities to a public charitable trust called Citizens Energy Group. By law, it has to return all benefit to the citizens of Marion County, where Indy is located. Ballard said that’s a good deal for the city.
Kerwin Olson disagreed. Olson is executive director of nonprofit advocacy group Citizens Action Coalition. When a utility is responsible for infrastructure investment instead of a city, more of the cost burden falls on the ratepayer instead of the taxpayer, said Olson. When that happens, lower-income people or those on fixed incomes get priced out of the city.
“Within five years, 40 percent of the general public [nationwide] will not be able to afford their water and their wastewater bills,” he said. “Because of the significant amount of infrastructure needs that we have that are all being lumped into utility bills.”
But on the main, Citizens is doing a good job, said Olson, especially when it comes to updating neglected infrastructure.
So now what?
Those are the three options on the table: makeover, lease or sell. But how they’ve played out in Tulsa, Allentown, Bayonne and Indianapolis only gives us clues to what could happen in Pittsburgh. Some systems have more customers, some have fewer; some can legally sell water to make money. And none of them were as distressed as PWSA is.
Reliably getting water to a city is far more complex than most people ever acknowledge, said Neil S. Grigg, a civil engineering professor at Colorado State University who focuses on water resource management.
“Restructuring of an asset like a water utility is going to be very controversial, no matter which direction you take,” he said. “And you can find people who are going to advocate for any of those three.”
PWSA’s interim executive director Bob Weimar isn’t advocating for one solution over another. He said his job is to focus on running the authority, improving it as he goes.
“We have to make do with what we have, and try to show the public that we do have the ability and we’re spending their money wisely,” he said. “If given the opportunity, I think this organization can become at least as good as any in the country.”
On Nov. 8, IMG Inc. will make its final presentation to a mayoral panel, who will decide what to do next.
Nearly everyone interviewed for this story agreed on one thing: there are no quick fixes for PWSA. Its problems were decades in the making, and solving them, according to the mayor’s office, will take a dozen more years.
