Milwaukee turns off the taps on water works lease(3)

The City of Milwaukee will hold off on pursuing the long-term lease of its water utility at least until October after city leaders voted today explore other revenue-generating options in the interim.

The eight-member Steering and Rules Committee of the Milwaukee Common Council, the city’s legislative body, voted unanimously to suspend its pursuit of a long-term lease of the Milwaukee Water Works until the city comptroller evaluates the utility’s revenue potential under various scenarios.

Privatised water: on hold

The vote follows a proposal from four aldermen to consider two revenue-raising options to the long-term lease. One option would analyse the revenues that would flow to the city if it raised water rates to the maximum level allowed by regulators. The other would examine the revenues that would flow to the city if it took the place of a private entity in a long-term lease and was allowed to raise water rates significantly over the life of the lease.

Both options seek to maximise the dividends payable from the water works to the city, which faces a 2010 budget shortfall of $90 million or more.

The aldermen behind the proposal – Michael Murphy (10th district), Nik Kovac (3rd district), Robert Bauman (4th district) and Willie Hines (15th district) – said the two analyses will help the Common Council “better frame the issues of privatising the Milwaukee Water Works” – a controversial move that has stirred anger among many Milwaukee constituents.

In nearby Chicago, the long-term lease of the city’s 36,000 parking meters resulted in public anger and vandalism after the deal prompted higher parking rates and lower quality of service. In a recent analysis of the troubled transaction, Chicago inspector general David Hoffman faulted the city for not determining what the meters were worth to the city under public provision – an analysis akin to the second option proposed by the Milwaukee aldermen.

Milwaukee comptroller Wally Morics now plans to go ahead with the two studies proposed by the aldermen and have them done by October, deputy comptroller Michael Daun told InfrastructureInvestor.

Upon completion of the study, the Common Council will determine whether to still pursue the long-term lease. In the meanwhile, the comptroller’s office will suspend the process of selecting a sell-side advisor, Daun said.

In April, 17 teams submitted responses to the city’s request for a sell-side advisor for the Milwaukee Water Works – a transaction that has the potential to become the first long-term lease of a public water utility in the US by a major city.