Mortgaging Milwaukee’s Future
Why Leasing the Water System Is a Bad Deal for Consumers
The City of Milwaukee faces a serious fiscal predicament. Its budget deficit could top $100 million by 2010, and laws restrict its ability to raise taxes to help offset the shortfall. In 2008, with this conundrum in mind, a public official proposed leasing the Milwaukee Water Works to generate a new revenue source. The city needs an alternative to service cuts and fee hikes, but water privatization is an inadequate and possibly expensive option.
In a lease, city officials expected that a private entity would pay the city half a billion dollars for the right to run the entire water utility for nearly a century. A water privatization of this size and scope is unprecedented in the United States, perhaps because it is risky and potentially costly.
Although Milwaukee’s main objective would be to obtain a large concession fee through the lease, the idea that this fee is low-cost or free money is based on a misconception. Any upfront payment that the city would receive is an expensive loan, which the community must repay through their water bills.
These findings suggest that a water utility lease is not in the economic interest of the Milwaukee community. The city needs a reliable and responsible revenue source to sustain services, and water privatization is not a sound fiscal solution. It is an uncertain and cumbersome plan that could exacerbate, not ameliorate, the community’s financial difficulties. Read more.
In this report, Food & Water Watch used industry trends and the utility’s financial statements to analyze the costs associated with a long-term lease of the Milwaukee Water Works. The research found that despite revenue from investing a large concession fee, a lease could cost the Milwaukee community a net of at least $17 million a year. For every dollar that the city receives from an endowment, water users, as a whole, could have to pay $1.60 to $5.20.
Moreover, a lease effectively is an abdication of the city’s responsibility to provide its residents with safe and affordable water service. If the city pursues this option, there is ample evidence that the community could suffer from high rates and poor service. In addition, a long-term lease would leave generations of Milwaukee resi- dents with little recourse in the event of unresponsive water service. Water users cannot vote private managers or state-appointed regulators out of office.
Water privatization involves too many risks and hidden expenses, and would fail to resolve the city’s fiscal problems. Milwaukee needs a better solution — one that does not jeopardize its valuable water service. Read the full report.
