08 Privatization of Services - Laserfiche WebLink

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Privatization promoters also point out that the private sector "is better able to take on risks of operating in climates of increasingly stringent regulations ....,,~6 However, a review of government service privatization at both the local and state level indicates that most of the cost savings are due to "eliminating salary and benefits, selling governmental assets and using private sector investment to avoid capital costs.''~7 Dr. Robert Hawley's extensive study on the influence that ownership has on the performance of water utility companies in the United States, found that "(1) despite remarkably similar background characteristics, ownership structure appears to have a minimal influence on pricing, infrastructure investment, and additional services; (2) the size of a utility's customer base influenced only one measure of pricing along with staffing; (3) overall the models, except in the case of infrastructure investment, proved to be ineffective." Simply put, Hawley's national study, challenges the assumption that privatization alone will improve efficiency in the drinking water industry.~s An additional concern with privatization is the question of financial transparency. Under operating and management agreements between a city and a private entity, the rates are set by the city. However, those rates are determined in part by the operating fees paid to the private entity. It is not always clear with these arrangements whether there is full financial transparency that allows the city to evaluate whether the fee requested by the company is reasonable. Standard and Poors has also raised concern in regards to credit ratings about foreign companies acquiring U.S. water utilities when the acquisitions are not considered to be "core operations." ~9