WATER
Privatization Threatens
St. Louis’ Water
S t. Louis should retain public control of its valuable water resources. The city’s
well-run water division provides quality drinking water to about 370,000
people1 and has never violated a water quality regulation in more than a century
of testing.2 The city should not risk jeopardizing the commendable operation by
transferring control to a private company like Veolia.
Veolia representatives toured St. Louis’ water facilities in
September 2010, four months after the Show-Me Institute,
a libertarian think-tank, recommended selling the water
system to shore up the city’s budget. The mayor’s chief
of staff denied that the city is considering a sale, but he
did not speak to the possibility of privatizing the division
through a lease or management contract.3 As it happens,
Veolia typically does not buy U.S. water systems; instead,
it runs publicly owned ones.4
As with a sale, contracting out the operation of the water
division can end up hurting consumers. It often leads to
high costs and poor service.
Fact Sheet • December 2010
Possible Consequences of Privatizing
St. Louis’ Water Division
Costs could rise. The city should not expect water privati-
zation to save money. In fact, in many cases, private opera-
tion is more expensive.5 Corporate profits, dividends and
income taxes can add 20 to 30 percent to operation and
administration costs,6 and a lack of competition and poor
negotiation skills can leave local governments with expen-
sive contracts.7
In fact, several Missouri cities have recently ended priva-
tization and brought operations in-house to save money.
O’Fallon and Webb City, for example, have determined
that public operation is a better deal for their residents.8
Service could worsen. A private management company
could cut corners by downsizing the workforce, using
shoddy materials or delaying maintenance. In some cases,
private operating firms technically comply with their con-
tract terms while shifting upkeep costs to the public.9
Liberty, Mo., is considering resuming public operation
of its drinking water treatment plant at the end of 2010
because OMI, its private contractor, repeatedly violated
water quality regulations. The state cited the plant, which
OMI had operated since 1995, for exceeding the limit on
trihalomethanes, a probable carcinogen. With public op-
eration and management, the city estimated that it could
improve water quality and cut costs by 16 percent, saving
$250,000 a year.10
The water division could lose 126 jobs. Based on the
experiences of other cities, a new private management
firm would likely seek to downsize St. Louis’ water work-
force, by laying off employees or not replacing them as
they leave. Privatization typically results in the loss of one
in three water system jobs. This can slow response times
to customer service requests, delay repairs and otherwise
worsen service quality.11
Veolia’s Poor Record
Veolia Environnement is the world’s largest private water
company. In recent years, the company has suffered a
number of setbacks, the most telling of which occurred
in its home city of Paris, France. In 2009, Paris reclaimed
public control of its water system, deciding not to keep its
contract with Veolia. The city believed public operation
would be more efficient and would help stabilize rates.12
Veolia hasn’t been any more successful in the United
States. The company typically points to Indianapolis as a
key privatization success story,13 but in October 2010, as
the city prepared to transfer its water and sewer systems to
a nonprofit entity, Indianapolis decided to pay the compa-
ny $29 million to exit the 20-year deal more than a decade
early.14 Problems with the company were pervasive: Non-
union employees alleged that the company made massive
cuts to benefits; consumers filed a class action lawsuit
accusing the company of overcharging customers;15 and
in 2009, state regulators called several aspects of the city’s
contract with Veolia “profoundly disturbing.”16 Veolia’s deal
with Indianapolis was the largest water services contract in
the country.17
In the last three years, Veolia has lost a number of other
deals, including in Burley, Idaho; Petaluma, Calif.; and
Overton, Texas, which all decided to bring their water or
sewer systems under public control.18
The Public Works
St. Louis should protect its valuable water services by re-
taining local, public control. If the city privatizes the water
division, consumers could end up paying higher rates for
worse service. Instead of unaccountable and expensive
private operation, the city should keep its water system in
public hands. With continued public control, St. Louis can
best ensure that every resident has safe, clean and afford-
able water service.
Take Action
Act now to stop the private takeover of one of your most
valuable public resources, your water. Tell your alderman
not to privatize the St. Louis Water Division.
Endnotes
1 U.S. Environmental Protection Agency, Safe Drinking Water Information
System, Water System ID MO6010715.
2 City of St. Louis. Water Quality Report. Consumer Confidence Report.
2009 at 1.
3 Hunn, David. “St. Louis to sell Water Division? Not now, say city staff.”
St. Louis Post-Dispatch. September 30, 2010; “Veolia tours St. Louis
facilities.” American Water Intelligence, vol. 1, iss. 2. November 2010 at
1 and 5; Stokes, David. The Show-Me Institute. “Privatization of the Saint
Louis City Water Utility.” (Case study number 7). May 17, 2010 at 17;
Nicklaus, David. “Water, water everywhere, but not a drop of profit.” St.
Louis Post-Dispatch. May 18, 2010.
4 Veolia Environnement. Autorité des marches financiers. Reference docu-
ment 2009. March 30, 2010 at 38.
5 Ouyahia, Meriem Ait. Policy Research Initiative, Government of Canada.
“Public-private partnerships for funding municipal drinking water
infrastructure: What are the challenges?” May 2006 at 2 and 12; Bel,
Germà and Mildred Warner. “Does privatization of solid waste and water
services reduce costs? A review of empirical studies.” Resources, Conser-
vation and Recycling vol. 52, iss. 12. October 2008 at 1337, 1341 and
1342; Pérard, Edouard. “Water supply: Public or private? An approach
based on cost of funds, transaction costs, efficiency and political costs.”
Policy and Society, iss. 27. 2009 at 193 and 197 to 199.
6 Association of Metropolitan Sewerage Agencies and Association of Met-
ropolitan Water Agencies. “Evaluating Privatization II: An AMSA/AMWA
Checklist.” 2002 at 23.
7 Bel, Germà and Mildred Warner. “Challenging issues in local privatiza-
tion.” Environment Planning C: Government and Policy, vol 26, iss. 1.
2008 at 105; Ouyahia, Meriem Ait. Policy Research Initiative, Govern-
ment of Canada. “Public-private partnerships for funding municipal
drinking water infrastructure: What are the challenges?” May 2006 at 30.
8 Borgedalen, Angie Anaya. “City mulls taking over water, sewer treat-
ment.” Liberty Tribune. June 10, 2010; Borgedalen, Angie Anaya.
“$175,000 grant to study water system.” Liberty Tribune. August 19,
2010; City of O’Fallon, Missouri. “2010 Annual Budget.” January 2010
at 260 and 265; Younker, Emily. “Webb City eyes savings in sewage plant
operation.” The Joplin Globe. January 12, 2010; Younker, Emily. “Webb
City to assume sewage plant operation.” The Joplin Globe. November 25,
2009.
9 Association of Metropolitan Sewerage Agencies and Association of Met-
ropolitan Water Agencies. “Evaluating Privatization II: An AMSA/AMWA
Checklist.” 2002 at 27.
10 Smith, Donald et al. Mayor’s Utility Task Force. “Final Report.” May 2010
at 4 and Appendix IV; Borgedalen, Angie Anaya. “City to take over water
plant.” Liberty Tribune. August 5, 2010; Missouri Department of Natural
Resources, Drinking Water Branch. Drinking Water Watch query. Water
System No. MO1010466, accessed November 10, 2010.
11 City of St. Louis. “Fiscal Year 2010 Annual Operating Budget.” June
19, 2009 at 107; Food & Water Watch. “Water Privatization Threatens
Workers, Consumers and Local Economies.” May 2009 at 2; Task Force
on Privatization of the Washington Suburban Sanitary Commission. “Task
Force Final Report and Recommendations.” November 1999 at table 3-7;
Smith, Harold J. Raftelis Financial Consulting. “Privatization of Small
Water Systems.” For the National Rural Water Association. December 23,
2003 at 5 and 17.
12 Veolia Environnement. U.S. Securities and Exchange Commission. Form
20-F. April 19, 2010 at 18 and 20; “When Paris sneezes, private water
catches a cold.” Global Water Intelligence, vol. 9, iss. 7. July 2008; Eau
de Paris, France. [Press release]. “Depuis le 1er mai 2009, la nouvelle
régie municipale de l’eau est en marche.” May 5, 2009.
13 For example: “Veolia plots a new US strategy.” Global Water Intelligence,
vol. 5, iss. 7. July 2004 at 13.
14 O’Malley, Chris. “Veolia losing water contract, will get $29M termination
fee.” Indianapolis Business Journal. October 28, 2010.
15 Olson, Scott. “Employee benefit assessments paint different pictures.”
Indianapolis Business Journal. August 4, 2003; Jason Bond, et al. v. Veolia
Water North America Operating Service, LLC, et al. Marion County
Superior Court. (49D07-0804-CC-018081). January 23, 2009 at 5 to 7;
The City of Indianapolis and the Department of Waterworks of the City of
Indianapolis. “Sellers Disclosure Schedules.” August 11, 2010 at 45.
16 State of Indiana, Indiana Regulatory Commission. “Interim emergency
and prehearing conference order.” In the Matter of the Petition of the
Department of Water Works of the Consolidated City of Indianapolis...
(Cause No. 43645). June 30, 2009 at 15 to 16.
17 Ortiz, Joe. Veolia Water. “The Tampa Bay water surface water DBO.”
Presented at the U.S. Conference of Mayors, 2008 Mayors Water Summit.
November 19, 2008 at 2.
18 Welch, Laurie. “Burley pays only part of termination fee for Veolia waste-
water management.” Magic Valley Times-News. December 18, 2009;
Isaac, Jimmy. “Regulators fine Overton for violations.” The News-Journal.
January 31, 2010; “Petaluma upgrade reverts to city ops.” Public Works
Financing, vol. 225. March 2008 at 16 and 17.
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