No guarantees and plenty of risks associated with Elorza’s water monetization planProvidence Mayor Jorge Elorza is still trying to “monetize” the Providence Water Supply, including Scituate Reservoir. At issue is Senate bill S2838 and House bill H8123 which would “authorize any municipal water supply system and any regional water quality management district commission to enter into an agreement called a ‘transaction’ enabling certain water supply systems to merge and be deemed
Published on June 10, 2018
By Steve Ahlquist
Providence Mayor Jorge Elorza is still trying to “monetize” the Providence Water Supply, including Scituate Reservoir. At issue is Senate bill S2838 and House bill H8123 which would “authorize any municipal water supply system and any regional water quality management district commission to enter into an agreement called a ‘transaction’ enabling certain water supply systems to merge and be deemed a public utility.”
Elorza testified before the House Finance Committee on June 7. Below is all the testimony.
Representative Scott Slater (Democrat, District 10, Providence) introduced the bill but did not elaborate on it too much.
“The money that this transaction, or a transaction pursuant to this, would yield, would allow the city to permanently, once and for all, shore up our pension system, which is currently less than 30 percent funded,” said Providence Mayor Jorge Elorza, who began by giving much the same pitch he delivered to the Senate Judiciary Committee on May 29.
Elorza acknowledged that questions as to who exactly owns the Providence Water Supply, may be in question. Elorza and the City of Providence say that the city owns the water, the Rhode Island Public Utilities Commission (RIPUC) has long maintained that the system belongs to the ratepayers of as many as 16 different municipalities. Elorza maintains that however the ownership of the Providence Water system plays out, it is clear that Providence owns “something,” that is, some substantial piece of the Providence Water Supply. What Providence wants to do with that piece is to enter into some kind of “lease agreement or operating agreement for that ownership interest that we have.”
Currently Providence makes no money from its maintenance and sale of water, said Elorza. If something disastrous happens to the water system some day, and the bonds are not being paid back, Elorza noted that, “It’s Providence that backstops all of Providence Water’s debt. We are on the hook, and it’s our credit worthiness that is at risk in case of a default. We get the downside, but not the upside.”
“This is not a bailout,” said Elorza. “Rather, Providence is seeking authorization to utilize an asset that we created, that we have managed and that we have operated since its inception to address one of the most pressing financial challenges that we face as a city and that I would say by extension we face as a state.”
Providence intends to be one of the first municipalities to enter into a lease agreement or an operations agreement if the legislation under consideration were to pass. The Mayor is open to working with the General Assembly and outside stakeholders to refine the legislation to ensure that it serves “all of our needs.”
Responding to a question from Representative Antonio Giarrusso (Republican, District 30, East Greenwich), Elorza mentioned Steven Goldsmith, a former mayor of Indianapolis. Goldsmith, says Elorza, “entered into a similar transaction when he was mayor of Indianapolis, and now he’s a consultant who works with cities across the country that are looking to do this. We’re fortunate that he’s up in Cambridge and he’s been a close consultant on this.”
Goldsmith, continued Elorza, “tells us that as a rule of thumb, you can find anywhere from 15 to 20 percent efficiencies just by reorganizing these water supply systems into a larger entity. So, for example, let’s say that there’s another public utility – there’s been talk about Narragansett Bay Commission – or it could be some other entity. If they’re digging into the ground, you know, in there to fix one set of piping or tubing, why not just make the repairs for the clean water as well? They spend millions of dollars on engineering, on architectural renderings on the actual excavation and all of the ‘dirty work’ – through economies of scale, and you can find these efficiencies, that bring in more value to the system and that’s [where] the value to Providence would come from.”
Elorza estimates the value of the Providence Water Supply to be somewhere between $300 and $700 million dollars. The value of the system will be dependent in part on the wording of the legislation before the General Assembly. “The fewer restrictions that there are, the more valuable the system is,” said Elorza. “The more restrictions there are, the less valuable it is.”
“Let’s say that we sold it – I’m sorry, not sold,” said Elorza, “Let’s say that there’s a transaction for let’s say $400 million. That would have the impact to our system to the tune of about maybe $30 to $35 million to the City of Providence’s yearly operating budget.”
Representative Robert Quattrocchi (Republican, District 41, Scituate) asked Elorza about some unsettled law regarding the Scituate Reservoir. Some maintain that if the Providence Water Supply is ever sold, the land used to create it goes back to the heirs of the people whose land was seized to create the reservoir.
“We’ve done a lot of research on that,” said Mayor Elorza, “and we’ve engaged a couple of local law firms to help us through that research. The piece of legislation we submitted this year is different from last year. If we were to sell the system – we think we own it, other folks think we don’t own it – the truth is that we’ll be locked in litigation for years upon years and years. And so we don’t think that that’s a smart thing to do, to sell the system.”
Leasing the system or entering into a management agreement “would obviate the question of who has ownership,” said Elorza. “So we wouldn’t be locked into litigation for years upon years and years.”
“What if Scituate were to drag you into litigation over imminent domain?” asked Quattrocchi.
“I feel fairly comfortable that the issue as to whether Providence owns anything, as to whether we have the right to enter into a long term lease agreement or operations and management agreement, that that is on really sound and stable grounds,” answered Elorza. That said, Elorza is willing to work with Scituate on a deal that works for both cities.
“Now Mayor, you have an obligation to get to, am I correct?” asked acting House Finance Chair Kenneth Marshall (Democrat, District 68, Bristol), attempting to wrap up the Mayor’s testimony.
“There’s nothing more important that this,” said Elorza.
Providence resident and UpriseRI contributor Gillian Kiley presented the House Committee with a petition signed by people opposed to the legislation.
“If you look at other cities that have experimented with this, it tends to go very badly,” said Kiley, “Including in the City of Indianapolis. Mayor Elorza mentioned that Steven Goldsmith is helping [to] advise on this. About ten years after Mayor Goldsmith finished his time there, Indianapolis paid $29 million to reclaim control over that water system.
“Atlanta ended a private water deal with United Water because there weren’t public savings or private profit. But there was poor service. There was brown water coming out of the taps. There were water main breaks and ‘boil water only’ alerts,” continued Kiley.
“Other buy backs include Santa Paula, California which spent $70 million to buy back its water. Fort Wayne in Indiana spent $67 million, Missoula, Montana spent $88 plus another $5 million in court costs. And while Missoula was in the midst of its lawsuit the private group that owned the water utility sold it to a Canadian firm for $300 million.
“So when you have legislation like this, that allows the possibility of selling [the water] to a private entity, maintaining the quality of the water, the security of water, and the water service isn’t really the priority. It ceases to be the priority. And in terms of rates and penalties, efforts to cap rates in other cities hasn’t worked,” noted Kiley.
“In Bayonne, New Jersey there’s a meeting much like the one we’re in right now where city officials came out and said, ‘There’s a rate cap for the next four years, the water rates won’t rise,’ but that didn’t come to pass and water rates rose 28 percent. The mayor who championed the privatization of Bayonne’s water was ousted and he now says that water rates there are exorbitant.
“It’s difficult when you enter into a long-term agreement with a private entity because the public officials that would oversee that arrangement tend to be gone before the contract is expired so you get locked in. There are also certain situations where transactions can have certain revenue baselines for private entities, so in places like Apple Valley, California, water rates went up 68 percent and then during the drought in 2015 residents started conserving water, as they were asked to do, but because they used less water, they were penalized with a surcharge of 5 percent by the private water utility,” said Kiley.
“I bring up these examples because if you have a bill that seems to be somewhat loosely written, even with the best intentions, a lot of things can go wrong.”
Paul Roselli of the Burrillville Land Trust:
John Simmons of RIPEC (Rhode Island Public Expenditures Council)
Amy Moses, from Conservation Law Foundation (CLF):
Questions and answers
“This is really fascinating,” said Representative James McLaughlin (Democrat, District 57, Central Falls), who then asked, “Who are the players? Who wants to buy the…”
Representative Kenneth Marshall (Democrat, District 68, Bristol), who was chairing the House Finance Committee during this hearing, cut McLaughlin off. “That’s not, that’s not, um, that’s not germane to the bill.”
“Well, Mr Chairman,” persisted McLaughlin, “With all due respect, we’ve heard that private entities want to come in and buy the water supply board. Who are these people?”
“It would end up having to go through an RFP process,” offered Marshall. “and it would be a…”
“So you can’t identify them,” said McLaughlin.
“It’s unknown at this time,” said Marshall. “It could be anybody.”
Michael Payette, Scituate Town Council Vice President:
Rupert Friday, lobbyist for the Rhode Island Land Trust Council:
Meg Kerr of the Rhode Island Audubon Society:
Kate Sabatini, chief of policy for the City of Providence and Chief advisor to Mayor Elorza:
Scituate Rhode Island Town Treasurer Ted Przybyla:
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