New Water Leader Dives In

The Pittsburgh Water and Sewer Authority (PWSA) has just entered into a one-year contract with a private company to provide managerial services for the Authority. The company will be paid a base monthly amount and can earn more money if it finds efficiencies within the system. When the PWSA purchased the water system of the Borough of Millvale in 2009 is was expected to be just the first in a series of purchases as part of what the Mayor of Pittsburgh described as one of the "…unique ways, as government officials, to be efficient".

The management agency now fits into this arrangement: it answers to the seven member board (four appointed by the Mayor); employees participate in the City’s non-uniformed pension plan; the PWSA is seventeen years into a cooperation agreement and system lease in which the one-time City Water Department employees became PWSA employees and PWSA provides 600 million gallons of water to the City without charge and is involved in an arrangement whereby PWSA reimburses the City for keeping the rates of customers in the City’s southern neighborhoods served by other companies the same as if they were PWSA customers.

Looking at the finances of the PWSA (available through 2009) shows that there might be ample opportunity for the management firm to make the bonus money. Here are two. Under "direct operating expenses" the PWSA cost of production in 2009 was $29.1 million: going back to 2001, the cost was $16.6 million. That’s a 74% increase in eight years (about 9% per year). In addition, the payments made to the City of Pittsburgh under the cooperation agreement have grown from $7.1 million to $9.6 million (35%) over that same time frame. Think customers who were just hit with a 5% rate increase would like to see some efficiencies?

Could the Water Authority Evaporate?

Tucked into the discussion on the City of Pittsburgh’s finances was a mention that part of the overall wish list could involve privatization of the Water and Sewer Authority, the public agency that is responsible "for the operation and improvement of the City’s water distribution and wastewater collection systems".

This responsibility was housed within the City water department for many years; the Authority was created in 1984 and in 1995 entered into a Cooperation Agreement and a Capital Lease Agreement that transferred Water Department employees to the Authority and the Authority agreed to lease the water system for a period of thirty years. Under the terms of the agreements the Authority assumed workers’ comp liabilities, provides the City with up to 600 million gallons of water free of charge, subsidizes the water rates of South Hills residents who are served by a private operator, pays the City $101 million annually under the lease, and, in the year 2025 can purchase the system for the nominal fee of $1.

Water and sewage systems are popular options for privatization-after all, providing drinking water is not a core public service and much of it is supplied by private interests currently. According to the Reason Foundation’s most recent privatization report, some 1,300 local, state, and Federal agencies contracted out some part of water service in 2008. Six privately operated plants reverted to municipal control the same year.

Much like the proposed parking lease deal, the attractiveness of selling/leasing the water system hinges upon opportunities for profit and much of that is tied to debt load and the City’s audited financial statements show that the Authority has $881 million in outstanding net debt, about $150 million more than the general obligation debt of the City itself.