In the years ahead private companies are going to target operating contracts for larger utilities, with longer contract terms, according to an annual report released recently by the Reason Public Policy Institute.
Long-term contracts have become the order of the day, authors of the study said, citing as examples 20 year contracts issued by Gardner, Mass; Honolulu, and the Camden, N.J., water utility. The researchers saw as big news the signing of long term contracts to operate systems in Milwaukee and Atlanta.
"Each in turn was the largest such contract ever let in the United States, and each highlighted the way privatization contracts have adapted to the political realities of local governments," the researchers wrote.
Even during a period when state and local government are seeing budget surpluses, privatization continues to advance at all levels of the government, according to Adrian Moore, director of RPPIs Privatization Center and co-author of the report: "Privatization 1999: the 13th Annual Report on Privatization." Moore said city leaders want to spend more time focused on core areas of government, while relying on private firms for specialized expertise. The report touches on a wide variety of operations where local and state governments are turning to privatization, including transportation, corrections, libraries and welfare programs.
In the water/wastewater arena, researchers concluded that the nations big cities will increasingly turn to the privatization as environmental and fiscal pressures begin to outweigh the traditional political powers of public-employee unions and the belief that privatization is too risky.
In many such contract operations, the private company will be required to hire all existing employees. This trend has been emerging in the last few years. Employees like it and Reason found that most private firms do not oppose the idea. They see it as helping reduce ill will associated with privatization. Private companies often hire more than half of existing employees because of their knowledge of the system, the researchers claim.
Most operations and maintenance contracts of the future will be long-term. According to the study, it takes 10 years or more of significant operating efficiencies to pay for the upgrades most systems need, especially if the private firm is putting up some of the capital.
A private firm typically only will need two-thirds of the workers used by a government to operate a given system, and it takes several years for natural employee turnover to bring staff levels down that far. Indeed, some contracts entail a loss each year for the private operator until staff levels are brought down - hence the need for longer contracts to recoup those losses.
I have been following the Reason studies for the past few years. While they provide useful insight into the private operation of public facilities and services, I always take them with a grain of salt. The group is pro-privatization. However, in this instance, I believe their insights are valid.
Copies of the report may be obtained (at a price) by calling 310-391-2245, or by visiting the RPPI website at www.rppi.org/privatization99.html.
