03/29/2013 09:20 pm ET Updated May 29, 2013

Murky Waters in Allentown

Open government and transparency are essential pillars of a functioning democracy. But when governments privatize public services and infrastructure, we too often lose access to information and the tools to hold officials accountable.

In many cases, residents lose access to public information even before a service is privatized. Some government officials treat privatization as a deal to be done behind closed doors without letting public know how it will impact their communities and without avenues to ask questions and give input.

Allentown, Pa., is a telling example of how privatization can restrict transparency. Mayor Ed Pawlowski is pursuing a 50-year concession of the city's water and sewer system, raising upfront cash that eases short-run budget choices but at the cost of much higher utility rates for five decades.

The public learned about the plan last July when the city issued a formal request for qualifications from interested entities. That is, the public learned about the plan after the city had already committed financial resources to pursuing it. It was later revealed that a small group of public officials and consultants had been investigating the idea since around December 2011, but they kept the plan private, preventing public debate. To date, the city still has not provided a real chance for the public to weigh in.

Pawlowski's administration has refused to disclose important information about the deal. His administration has repeatedly refused to release the full identities of the companies seeking to control the water and sewer system. Each bidding team includes an "operator" to run the systems and a "concessionaire" which will finance the transaction and oversee the operator. Even though the mayor's administration has deemed half a dozen entities "qualified" and has solicited bids from them, the public still does not know who most of these players are. The public has a right to know what companies are bidding to take over the water and sewer system, their backgrounds and their track records.

Making matters worse, the administration has consistently misled the public about the financial implications of the deal. Last August, in a letter to residents, Pawlowski claimed that because water privatization would generate upfront funds without a tax increase, "... the burden of this debt is not paid for by the citizens of Allentown." This is simply untrue. Allentown citizens would have to repay any upfront money that the city receives through their water bills; in fact, they would have to pay more with privatization than otherwise because they also have to pay for the company's return on investment. Food & Water Watch's analysis of the concession contract found that by the end of the deal, the typical household will be paying more than 15 times what it is paying today for water and sewer service.

Pawlowski claims the deal will limit water rate increases, even suggesting that these increases would be lower than under city operation. This doesn't make sense. His figures exclude the new capital cost recovery charge that the contract explicitly authorizes on top of scheduled rate increases. Water utilities are the most capital-intensive utility, and financing improvement projects is a major component of a water utility's budget. By trying to hide these capital costs, the mayor has presented an inaccurate and misleading picture of how the deal will increase customer water bills.

Long-term privatizations are extremely complex transactions with contracts that can be difficult for lay people to understand. Instead of masking the ramifications of the deal, Pawlowski should take extra steps to make sure the public understands the details, the assumptions the city used in its projections and the financial impacts to the city and the ratepayers. 

Studies have found that without transparency and accountability, water privatization is more likely to result in corruption, high long-term costs and large rate increases. Thus, to help protect the public interest, privatization decisions should be made in an open and transparent manner with meaningful public involvement at every step of the process.