Cover Story: Oceans apart

Mayor Bill Campbell’s solution was simple: Let somebody else clean up the mess.

It was 1997, and Campbell saw his city’s water system sucking tens of millions of dollars out of municipal coffers every year. At the same time, Atlanta’s ancient pipes sprung depressingly regular leaks and begged for massive renovations.

Campbell also knew that Atlanta’s 700-plus employee Water Department was the regular target of press broadsides and chiding from the public.

It was, he said, time to privatize. In speech after speech, Campbell told Atlantans that efficiency and savings would follow.

Today, in the fourth year United Water Services Atlanta has run the city’s water system, some savings may have materialized but efficiency is another story. In many important ways, it’s tough to tell the difference between today and 1997. The main difference between then and now is that the entity losing money every year isn’t the city of Atlanta.

In fairness to Campbell, he wasn’t alone among American mayors looking at price tags and reaching for the magic wand of privatization.

According to a report cited by the Ralph Nader-affiliated Public Citizen, it’s estimated that American cities would have to spend $23 billion annually during the next 20 years to repair their water systems. The federal government isn’t doling out money to municipalities to cover those costs. What’s more, in other cities, especially Indianapolis, the government has saved tens of millions of dollars and residents have enjoyed better service. Those cases were cited as proof that privatization could work.

But so far in Atlanta, the answer that was supposed to solve all the problems has only resulted in more questions. The experiment just hasn’t worked, and there’s just no sight of the promised land of privatization — cheaper, more efficient services. The city’s 650-square-mile crazy quilt of 2,500 miles of pipes, some as archaic as the century-old system itself, still springs leaks with Old Faithful-like regularity.

Customer service, and by extension, United Water itself, has become a well-known public joke. Repair times for broken pipes and busted meters often stretch to as much as two months, while precious water dribbles away. Maintenance inside the plants hovers at a completion rate of around 50 percent. And under the current contract, the city, which isn’t sure how much money privatization has saved, can’t do much about it.

Meanwhile, water system employees, their numbers more than halved since privatization, have filed a complaint with the federal government over their treatment.

But the water company isn’t happy with Atlanta either. In December, United Water claimed it deserved $80 million — a sum almost equal to the recently discovered city budget shortfall — to reimburse it for expenses beyond the scope of the contract with the city. The payment was nixed at the 11th hour by Atlanta Water Commissioner Remedios del Rosario.

But United Water’s new CEO, Michael Chesser, told United employees a few weeks ago that the company has been losing money in Atlanta. The company isn’t giving up its claim for the $80 million.

All of this adds up to potential danger for United’s customers. When the company that controls the city’s water can’t keep up with its workload, is losing money and employing an unhappy group of workers, it increases the likelihood that something will go wrong with that water.

Certainly, there’s a confrontation looming over the performance of United Water, and it should make for compelling political theater during the next few years as council members who have wanted to tangle with United’s contract since the day it was signed finally have a mayor willing to examine whether both sides of the dispute are performing the way they should.

The city’s decisions, just like the choice to privatize, will be landmarks for local governments across the United States.

It’s become a familiar refrain: Water is the new oil.

So it’s no wonder that companies around the world would want to be the new British Petroleum or Shell Oil. The French company Suez, which bought United Water in July 2000, is clearly in the queue for that 21st-century corporate stardom. Suez’s “water solutions group,” ONDEO, already has annual revenues that top $8 billion. United Water, the New Jersey-based member of ONDEO, serves 110 million globally.

When the company first came to the city of Atlanta in 1998, though, it was still just United Water.

To the firm’s executives, the city must have seemed like a good candidate for saving. The department, whose water and sewer fees generated about $130 million last year, was looking at the prospect of increasing rates at least 30 percent to cover operational costs at the same time it faced major capital improvements such as the replacement of 3 million feet of ancient pipe. Making matters worse was its less-than-stellar customer service reputation, and the city’s unwillingness to offend voters by collecting on $30 million of outstanding water bills.

“We got negative publicity, some of it undeserved,” contends Water Commissioner del Rosario, who has headed up the department since 1993. “But you never heard of leaks going on for a year,” as has been reported of United Water.

That said, she admits that she’s not sure whether any company could have turned a profit with Atlanta’s problem-plagued water system.

“The privatization project was too big for anyone to handle,” she says.

And the city was dealing with a building boom that saw requests for new water meters double over previous highs to about 2,000 in 1999, near the same time operations were turned over to United.

But 1997 was an election year, and talking about privatization in front of voters was surely preferable to talking about raising water and sewer rates 80 percent, as the city’s finance department had recommended. Thus, Campbell’s push for turning over Atlanta water to a private company began in February of that year.

Twenty-one months later, United scored the water contract. Of course, calling any company put in charge of running Atlanta’s water system a winner is debatable. Privatization became a hot item for conservatives and libertarians during the Reagan years, but water, despite the successes in Indianapolis and a handful of other cities, is a tricky business. Risk is generally shared by both the government and water operator, which is not the classic private model. With less risk for the private company, there is less incentive for innovation. And water has public health and safety issues that can compete with the need for profits.

When United won the contract, it landed a deal that paid more than $21 million in 1999, and $23.4 million last year. Atlanta also reimburses United for about $8 million in annual expenses.

For that money, Atlanta hasn’t gotten the water operator for which it had hoped, and United Water has dealt with a system it suggests requires far more work than the company could have imagined.

United Water is set to receive an unprecedented amount of scrutiny this year. United’s operations already underwent an audit in 2001 by consultants Brown and Caldwell, and this year Atlanta Internal Auditor Leslie Ward plans to “devote substantial resources” to another performance audit and “may issue a series of reports as a result,” according to a memo detailing her proposed investigations.

Del Rosario says she’s not even sure how much United is saving the city. It did save Atlanta’s water department at least $3 million last year, but the city is still trying to compile total savings.

The audit by Brown and Caldwell is mixed, and there were other reports issued prior to the audit in 2001. “Most ... were hidden by Campbell,” and are only now being made public, says Councilwoman Clair Muller, who heads the council’s Utilities Committee.

One indication of United Water’s performance is the unusual step it’s required to take before making a cut on any state road. The company has to secure a bond as insurance that it does the job correctly.

“We have a history with United where the roadway was not repaired properly,” says DOT Assistant District Utilities Engineer Darlene Parker. She adds that it is rare in her district for the DOT to require such a step, and the state didn’t have to require it of the city when it ran the water system.

Del Rosario says United also must follow the same procedure for every meter it installs.

Then there are the numbers. According to statistics provided the Water Department by United, from January to November 2001, the company completed only 59 percent of the total number of preventative maintenance items at the city’s plants and only 44 percent of the orders for corrective maintenance. The numbers for vehicle maintenance were even lower — at 28 percent and 49 percent, respectively.

What’s at stake here is Atlanta’s water, the quality of which United has so far been able to stick to federal standards. Obviously, if maintenance falls behind, there’s a greater possibility that something will go wrong with the system, and that means it’s more likely that something will go wrong with Atlanta’s water.

Preventative maintenance “is key to providing a consistent level of service,” says Wade Brannon, general manager of the Clayton County Water Authority. “The preventative maintenance issue is one we try to keep as our top priority.” United Water General Manager David Montgomery, though, disputes his company’s own figures. “Our preventative maintenance and corrective maintenance is not lagging behind,” Montgomery says. “You’re looking at old numbers. The data entry is not complete.”

Del Rosario is incredulous at Montgomery’s claim. She suggests that because the company does not own the equipment — the title was retained by Atlanta — it doesn’t care as much about it.

But even if you accept the fact that United’s number crunchers have been slow in tabulating repairs, there are still backlogs, which tend to fluctuate with the construction season.

It’s easy to understand why some local contractors make it seem like dissing United Water is a favorite pastime. When it comes to meter installation, in the fourth quarter of 2000, it took the company an average of more than two months to complete an installation. That number had fallen to 28 days during the second quarter of 2001, the audit states, but that’s still more than the 15 days or less stipulated in the contract.

Meanwhile, the time it takes to fix a water main break reached a high of 79 days in December 1999, but decreased to 26 days by March 2000, the latest date available. Meter leak repairs reached an average high of 44 days in the first quarter of 2001, though, the most recent numbers have improved.

These numbers are important because they show just how much water the city stands to lose every day. As of July 16, 2001, there was a backlog of 222 water main break repair orders awaiting service.

Del Rosario says things haven’t improved since the audit was completed and that the most recent numbers show the backlog increasing.

Montgomery again contends that what Brown & Caldwell uncovered was a data problem, and the audit does state that that is a possibility. It also points out that for the period examined, most of United’s numbers have improved.

The company says it’s doing far more than was envisioned in the contract with Atlanta. United suggests that the city misrepresented the amount of work it would face. That’s why the company deserves the $80 million reimbursement it sought and was denied by del Rosario before Campbell left office, Montgomery says.

“Some of the numbers are 100 percent to 300 percent above what was outlined in the contract,” Montgomery says. “Not for one or two but for quite a few of the items.”

Del Rosario isn’t buying, and that’s a clue how contentious any contract discussions may become.

“That’s not true,” she says of Montgomery’s numbers. “And they haven’t proven that it’s true either.”

Montgomery will not discuss specific items on which United has done more work than it expected.

“I would like to keep it at that level within the contract and not play it out in the media,” he says. Montgomery adds that the company has three years’ worth of information that it didn’t have when it bid for the contract, and it will bring its experience to the contract table.

Colorado College economics professor William J. Weida says the firm’s dilemma is not unique.

“Companies get in with the best of motives, but are ignorant about what is going on,” Weida says. “Most private businesses would have to suck it up.” Here, unlike privatization in its truest sense, the companies go back to the government.

Sources familiar with the company say the firm’s problems are not all of its own making. They put some of the blame on the Campbell administration. In some cases, United Water received heavy political pressure from Atlanta’s government to use preferred sub-contractors, whether it was cost effective or not. Other times, the Campbell administration used political tactics to pressure United into paying subcontractors before work was completed or when it wasn’t completed properly.

One former department head, who asked that he not be named, says it’s likely United fought with Atlanta over contractors. It happened to him, too. “If you didn’t use R&D Testing and Drilling for certain things, if you tried to use other people, purchasing would hold it up,” he says, using Campbell ally Ricky Rowe’s company as an example.

Even companies and consulting firms that did business with the city were told to use the administration’s preferred companies. If you wanted to get any work done, you employed someone from the mayor’s list of chosen minorities, the department head says.

Campbell did not return phone calls seeking comment, but del Rosario says she does not know of specific instances where United was forced to deal with certain preferred contractors, and Montgomery categorically denies it: “I can say emphatically that there has not been” any political pressure.

But United Water did apparently understand Atlanta politics. Montgomery had a standing invitation to attend the mayor’s cabinet meetings — an unorthodox practice and an unusual level of access for companies doing business with the city. In fact, United’s general manager went to Franklin’s first two cabinet meetings before the new mayor sharply limited attendance, says Gary Cox, one of the heads of Franklin’s transition team.

The company also donated $10,900 to the mayor’s brother, Ralph Campbell, who in 2000 ran for North Carolina state auditor. United didn’t even have business in the state.

Montgomery’s explanation: “I can speak for myself. I spent a career in government and I believe in good government. How does that relate to the contract?”

Two of the firm’s employees, who spoke with Creative Loafing on the condition of anonymity, say that some of the contractors employed by United have actually stolen from the company, taken equipment right off their trucks, a charge about which Montgomery says he’s unaware.

“We track everything by computer and folks are accountable for what goes out the door,” Montgomery says.

However, the city’s own “Privatization Project Synopsis” shows a picture of a contractor manually lifting the gate to the Hemphill Treatment Plant, which would indicate a definite security lapse. Next to the picture, this sentence: “Security continues to be a problem at many of the facilities.”

When United Water took over operation of the city’s water system, it inherited 730 workers. According to the former department head, “there was a lot of fat in the water department. It was a place where patronage ran rampant.”

So when the company assumed control, it made sense to pare down a workforce filled with politically connected employees. Its contract, though, stipulated it had to retain all the city workers who wanted to stay.

In 1998, del Rosario says, the company offered its first buyout, and reduced the number of employees to about 530. United eventually hired 478 of that number. Today, the number of former city workers still left at United hovers around 260 of the firm’s 311 employees.

Three United workers interviewed by CL say the company simply doesn’t have enough people to do the work, and that’s why there’s such a backlog.

Montgomery disagrees.

“We believe we have enough people ... to do the job as outlined in the bid, probably more than enough, but what we have is an excess of work beyond what was in the original bid and to take care of that, what we call a spike in the work, we bring in contractors,” Montgomery says. “That’s been our plan since day one, except some of the spikes have not gone away.”

There are questions, though, about whether the over-reliance on contractors has cost United more money than the company would have spent if it had its own workers to do the jobs. Brannon, Clayton County’s water czar, says the average price for replacing a fire hydrant is $2,500. In a list of 12 fire hydrant installations in Atlanta obtained by CL, none are even close to that figure, and most cost more than $5,000.

Brannon is quick to point out that each of Atlanta’s jobs could have been more complicated than an average hydrant installation, but one can’t help but notice that his award-winning authority employs 300 people for a water system that uses just 42 million gallons per day compared to Atlanta’s 311 employees and 246 million gallons.

But being short staffed isn’t the employees’ only complaint. They say United has re-classified hourly employees as management in an effort to skirt federal wage laws and avoid paying the workers still left time-and-a-half for overtime.

Two United Water employees say that at least 50 people are affected by a classification change to what are called operation and maintenance specialists.

“They are not an ethical business,” says one of the employees. “They say I’m a supervisor, and I don’t supervise anybody or even have an office, or a desk or a computer.”

When asked about the allegations, Montgomery says he has not heard of any complaints about classification.

“Are you aware that we have a union here?” asks United spokeswoman Deb Speights.

She’s right. United Water does have a union, AFSCME Local 1644. The problem is, as employees point out, the re-classified workers are now considered managers. As bosses, they can’t belong to the union and the union can’t hear their complaints.

Given the problems with the leaky system and United’s questionable performance, as well as the company’s desire to get more money out of the city, it’s extremely likely that there soon will be major changes to United Water’s contract with Atlanta.

There’s just too much dissatisfaction on both sides, and as the mayoral election proved, Atlanta citizens are telling their politicians that privatization hasn’t been all that was promised. Franklin and her challenger, Robb Pitts, often sparred over the issue. Pitts often said the city should opt out of the contract.

Still, del Rosario says Franklin is willing to make a start with the company as if there has been no history, and the water commissioner is hopeful that the company’s new CEO, Chesser, will be able to address the issues.

“He seems to be really sincere about turning this thing around,” del Rosario says about Chesser.

It behooves United to quickly improve its performance, del Rosario says. Cities across the country are following the contract’s progress.

“We always get consulted about privatization,” she continues. “United Water knows that.”

Montgomery remains confident that Franklin will see that the company has been good for Atlantans.

“Are we maintaining the equipment?” he asks. “Yes we are. Are the equipment and the plants in better condition now than they were when we took over? Yes they are. Is the water quality better now than when we took over? Yes it is.”

The potential problem for United is that the person whose answers matter most — Franklin — has yet to weigh in. Councilwoman Muller, meanwhile, is skeptical the city made the right choice in privatizing such a massive system.

“I have not been convinced that privatization is the silver bullet,” she says. All of the issues point to a difficult year between Atlanta and the company that controls its water supply.

Muller’s municipal counterparts in the western states have a saying: “Whiskey is for drinking. Water is for fighting.”

kevin.griffis@creativeloafing.com??