Joseph Miller

There’s “gold in them thar hills,” to quote a popular expression, which dates back to Mark Twain and the California Gold Rush in 1849, “millions of dollars of it.”

Believe it or not, the same may be said of the sewers serving the 20,000-plus residents of Arnold, Missouri, located on the southern edge of the Saint Louis Metropolitan Area at the confluence of the Meramec and Mississippi rivers.

Missouri American Water has offered to purchase the Arnold sewer system for a total of $13.2 million. This is a win-win proposition for the city and its residents.

The deal not only would provide Arnold with the funds to pay off $8 million in sewer bonds, but it also would supply $5 million in additional revenue. At the same time, the arrangement with Missouri American Water would guarantee timely improvements to the sewer system and lower utility costs for residents.

Arnold currently operates its sewer system as a public utility and charges residents $24.33 per month for up to 5,000 gallons of wastewater. However, like many municipalities around the country, Arnold is not charging residents what it needs to keep the system up to date, especially with increasingly stringent EPA and Clean Water Act requirements coming into force. According to one report, by 2016 the city would need to charge $34.50 per month to provide the same services.

Facing very similar pressures, cities across the country have turned to partial or full privatization of their water and wastewater systems. Deals with private companies typically result in an upfront payment to the city, a commitment by the company to make investments in the water or sewer system, agreement on pricing, and often a stipulation that the private company must retain the existing utility staff. The vast majority of these privatizations have been successful, with more than 90 percent of cities renewing privatization contracts and 94 percent recommending privatization as a method of water and sewer system management.

To cite one example, the city of Florissant in Saint Louis County sold its municipal water utility to Missouri American Water for $14.5 million in 2002. The city spent part of the proceeds on immediate needs and put the rest in a reserve fund. More than a decade later, the privatization is still a success. The lesson from Florissant and other cities is clear: When governments set the standards and carefully manage the privatization process, private operators deliver better, cost-effective service.

If Arnold accepts the deal with Missouri American, it will reap other benefits as well. Public services, like the school district, will benefit from this proposal via the expansion of the property tax base when the assets of the sewer system go on the tax rolls after Missouri American takes control. Residents will benefit from low utility fees, as Missouri American Water has stated that they will not increase rates until 2016. Even after that date, they project they will only charge residents $30 a month, which is less than what the city is likely to charge absent privatization.

While privatization of the sewer system makes sense, Arnold must be cautious on how it crafts and implements a final deal. The city must hold Missouri American Water accountable for the quality of service and the implementation of agreed-upon improvements. Furthermore, Arnold would be wise to follow the example of Florissant by carefully spending its windfall profits.

As long as local officials perform their due diligence, Arnold has much to gain and little to lose from privatizing its sewer system. Come November, residents should not let this opportunity slip down the drain.

 

About the Author

Joseph Miller
Policy Analyst
Joseph Miller was a policy analyst at the Show-Me Institute. He focused on infrastructure, transportation, and municipal issues. He grew up in Itasca, Ill., and earned an undergraduate degree from Georgetown University’s School of Foreign Service and a master’s degree from the University of California-San Diego’s School of International Relations and Pacific Studies.