DEPARTMENT OF PUBLIC WORKS: EXAMINE CONTRACT MANAGEMENT OPPORTUNITIES FOR WATER AND WASTEWATER UTILITIES

7-G
DEPARTMENT OF PUBLIC WORKS: EXAMINE CONTRACT MANAGEMENT OPPORTUNITIES FOR WATER AND WASTEWATER UTILITIES
Problem Identification:
Baltimore’s Water Bureau should be allowed to operate more like a private sector utility. Baltimore City (‘City’) owns the raw water utilized throughout its water system (‘BWS’ or ‘System’). Baltimore City either owns solely or jointly with a participating Maryland County all, except one, of the existing water treatment plants utilized throughout the System. The City solely operates all of the BWS piping and facilities that service over 1.8 million people in the City and surrounding Counties (the ‘service area’).Soon, the Federal Safe Drinking Water Act (‘Water Act’) will require Baltimore’s water system to dramatically expand its capital improvement program to comply with the Water Act. Given a public tendency to minimize or limit rate increases, there is a need to be more efficient with existing staff and resources.

Recommended Action:
Examine further the potential benefits of contracting for the management of the City’s water and wastewater utilities.

Classification:
Cost Savings, Organizational, Revenue Enhancement, Service Improvement

Functional/Operational Area:
Bureau of Water and Wastewater

Estimated Annual Impact:
While the immediate financial impact cannot be estimated, studies of other utilities have estimated cost reductions in the 10 to 40 percent range for contract operations.

Estimated Implementation Costs:
While not determined, the City would probably need to assemble a team of experts to further examine the contract for management of the system and to determine what type of cost savings could be achieved.

Barriers to Implementation:
Should the City decide to contract for the operations and maintenance of its water system the potential for retaining the cost savings generated does not yet exist due to current local law restrictions. Therefore, if the City decides to pursue this recommendation, it should first pursue a change to current local law, which allows accumulation of net profits (see Recommendation 8-B).

Additionally, the water system annually funds other centralized City services. At present, the system annually transfers approximately $11,000,000 to the City’s General Fund as payment for the direct and indirect costs of services provided other City departments. If a private entity were selected to operate the system, the annual $11,000,000 transfer to the City’s General Fund might be lost. In Atlanta, the same situation existed regarding centralized City services and was resolved favorably as a part of the operationsand maintenance privatization process.

In addition, there are ‘soft’ services that the system’s personnel can provide in equipment and personnel to other City agencies in times of emergencies and need on an immediate basis that could be lost if a private entity operated the system.

Projected Implementation:
90 – 180 days

Next Steps:
Await the outcome of efforts to change current local law. Begin discussions with stakeholders on the benefits of allowing for net profits and contracted for management of the system.

Analysis:
There are several cities that have (Atlanta, Indianapolis, Houston, Milwaukee, Jersey City, Buffalo, Wilmington) privatized either all or a portion of their water utilities.

In Atlanta, outsourcing was implemented resulting in a 40 percent reduction in their operations and maintenance costs (compared to their previous years budget) and saved the City $20,000,000 in workers’ compensation and benefits costs without having any involuntary layoffs. An additional result was the start of an annual Payment in Lieu of Taxes (PILOT) program and franchise fee payment transfer from Atlanta’s water enterprise fund to their general fund.

Other cities have benefited from similar comprehensive reviews of the benefits of contracts for the management of their water utilities even when the outsourcing option was not ultimately chosen. In Philadelphia, the study made its water department re-evaluate how it operated its facilities and cost efficiencies and reductions were achieved. At Philadelphia’s Southwest Water Pollution Central Plant, nearly $4.5 million in annual operational costs savings were achieved.