Conference encourages local government officials to explore privatizing water and wastewater treatment

CNY Business Journal (1996+), Jun 10, 1996 by Wilson, Frederick

On April 25, the New York State Environmental Facilities Corporation (EFC) and the Maxwell School's EPA Environmental Finance Center at Syracuse University hosted the statewide "Opportunities for Privatization of NYS Water and Wastewater Facilities" conference al the Drumlins Conference Center in Syracuse. Governor George Pataki presented his keynote address to 240 participants including local government officials and experts in privatization, environmental finance, water technology, and federal affairs.

New York Secretary of State Alexander F. Treadwell, at a reception held the previous evening in The Commons of Eggers Hall at Syracuse University, explained that privatizing is important in maintaining water-treatment plants because it is getting increasingly expensive for municipalities to maintain and upgrade infrastructure to comply with environmental standards. He added that government at all levels must provide better and more efficient services to communities at affordable prices.

Public services such as recycling and trash removal are examples of privatized services, and wastewater is lagging behind, according to Victoria Kennedy of the Maxwell School's Environmental Finance Center. "We want to promote more investment in water treatment," she explained. "The private sector wants to be involved, and they must prove they can do it faster and cheaper." The Environmental Finance Center is one of six entities offering training, research, evaluative services, and technical assistance to local officials, private-service providers, and nonprofit groups. The Center is partially funded by the Environmental Protection Agency (EPA).

Experts and experienced public officials are encouraging local officials to explore privatizing by first getting the facts from professional advisors. Officials should look at the available models and decide if privatizing is in the interest of their community.

Historically, the federal government has established grant programs to help communities build and maintain wastewater-treatment facilities to eliminate discharge of untreated or inadequately treated wastewater to the country's lakes, rivers, and waterways, according to Mark Paul, vice president and general counsel of Wheelabrator Water Technologies Inc. in Hampton, N.H. Many sewage-treatment plants built more than 20 years ago need upgrading or replacing to meet present clean-water standards. In 1981, about 90 percent of plants built with federal funds failed to meet clean-water standards. The EPA states that $94.5 billion in capital improvements will be needed to bring all sewage municipal plants into compliance, and grant money is not forthcoming, Paul added.

In New York State, the EFC administers the federally supported program, State Revolving Fund (SRF) for Water Pollution Control, the largest such program for environmental infrastructure in the nation. The SRF is expected to provide more than $4 billion in subsidized loans to municipalities by 2000.

The SRF funds are available only to publicly owned organizations, stated Michael Zagata, commissioner of the NYS Department of Environmental Conservation (DEC) and EFC chairman. For businesses involved in environmental projects, EFC provides loans at tax-exempt rates. The loan money is raised by issuing special-obligation revenue bonds" which are exempt from federal, state, and local income taxes and therefore available at interest rates below commercial-loan rates.

Problem: Federal regulations

Federal grant regulations have prevented privatization projects for municipal wastewater-treatment facilities from moving forward. In his keynote address, the governor stated that states and localities must repay federal grants to public facilities if ownership is transferred out of local government and that publicly owned plants are treated differently from privately owned plants, with no regard to the category of waste. As chairman of the Task Force on Privatization for the Republican Governors Association and lead governor for privatization of the National Governors Association, Pataki has been a strong force in the movement to show local officials the benefits of the privatization option.

"If there is no government function, privatize it," Pataki declared. "Government may not have the technical expertise to run sewage treatment," he continued, and that this function, in contrast to running a police force, was a likely candidate for privatization. The governor emphasized his support of letting local governments decide if privatization would be advantageous to their communities, and commended conference leaders in their work for giving "visibility to the privatization movement." Pataki was optimistic that we will see progress in 1996 for removal of federal barriers.

The federal government had earlier responded to this issue, however, with President Bush's 1992 signing of Executive Order 12803, "Infrastructure Privatization," followed by President Clinton's Executive Order 12875, "Enhancing the Intergovernmental Partnership," and Executive Order 12893, "Principles of Federal Infrastructure Investments." The three Orders, now incorporated into the federal approval process, allow local governments, in privatizing their facilities, to "free the cash rep resented by their prior investments in municipal wastewater-treatment facilities," according to the Interim Report of Martin S. Baker, chairman of the Task Force on Water Privatization of the Environmental Section of the New York State Bar Association. Order 12803 includes restrictions, however, on how the proceeds of the sale may be used, one of which is that the municipality must pay back the nondepreciated portion of their original construction grant.