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National Research Council Report Summary:

Privatization of Water Services in the United States: An Assessment of Issues and Experience (7-23-03)

In 2002 the National Research Council's Committee on Privatization of Water Services in the United States issued its Assessment of Issues and Experience on the topic of privatization. The report quotes the National Association of Water Companies (NAWC) as saying that private water companies have provided 15% of water handled and have served approximately 15% of United States customers since World War II. The committee finds that the private sector has reacted to state economic regulations by focusing on private contract arrangements with the publicly owned facilities, rather than investing in the wastewater and water supply utilities directly. The report looks at the economic, fiscal, and regulatory implications of water service privatization, and predicts that "many public water utilities are likely to respond to the pressures of possible privatization by improving their performance, rather than privatizing parts or all of their operations and ownership." This prediction is supported by several key findings contained in the report.

The committee credits the existence of privatization alternatives with the many improvements in the water services industry's performance standards. The 1974 Safe Drinking Water Act has also improved the operations of many utilities. Many small and medium-sized plants have had to seek assistance from private companies in order to meet the new standards. These small to medium-sized utilities often have the most difficulty in meeting the new standards, and are the best candidates for receiving help from outside public or private organizations. The report also suggests that the regionalization of small utilities could also greatly improve performance.

Although customers appear willing to pay higher prices for higher quality water services, the report finds that "public officials are often unwilling to charge appropriate prices because of a history of underpricing and a fear of criticism." Underpricing and wastewater systems' low budget-priority status have made it difficult for the industry as a whole to perform much-needed maintenance and replacements, a situation which has been aggravated by the strain put on systems by increasing urban populations.

The report also mentions environmental and labor issues as being subjects of concern for both the industry and consumers. The committee suggests that the impacts of water system privatization on watershed environments be examined when investigating its feasibility, as the "preservation of watershed lands that do not generate revenue may be a loss to shareholders but are often a boon to local residents and customers." Communities are also often concerned with the possibility of privatization changing "traditional patterns of employment."

According to the report, the liberalization of federal tax laws has encouraged the participation of private organizations in the operation of wastewater utilities. There has been no such increase in the private ownership of such utilities, and existing privately owned systems have not been greatly affected by the new tax laws.

Sources: NRC's report Privatization of Water Services in the United States: An Assessment of Issues and Experience

Contributed by Emily R. Scott, AGI/AIPG 2003 Summer Intern

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Last updated on 7-23-03

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