Milwaukee aldermen late last week put the brakes on a proposal to privatize the city’s water works department and requested that the comptroller’s office that is leading the effort explore other options for tapping the value of the system.
The deferral comes as the comptroller’s office was reviewing proposals from firms interested in working on a buy-side advisory team for the possible privatization of the utility, which was suggested by Comptroller W. Martin Morics as a means to establish a long-term revenue stream to subsidize city operations. The city faces a near-term budget crunch and the long-term strains of growing costs, shrinking state aid, and limited tax-raising abilities due to state caps.
Some aldermen and members of the public and local media had raised concerns over the process of selecting the advisers and the benefits of the transaction. In a letter to Morics, a group of aldermen said the exploration of a privatization deal should be shelved in favor of a thorough review of other options.
“Citizens have expressed genuine and legitimate concerns about the possibility of going private, and we’re listening to those voices by exploring other potential scenarios so we do our due diligence in this critical matter,” said Alderman Michael Murphy, chairman of the council’s finance and personnel committee.
Common Council President Willie Hines Jr. said all options, including an eventual privatization deal, remain on the table. “The status quo won’t serve us well in these economic conditions. I think it’s wise to defer talk of privatization at this point, but we need innovative solutions,” he said.
Morics said he supports the move to review other options before hiring advisers on a privatization deal. Under the proposal he floated, Milwaukee would place the proceeds of any transaction into a special endowment with earnings flowing into city coffers.
While a formal valuation of the utility had not yet been completed, the minimum goal was to establish an endowment of at least a half billion dollars that could generate at least $20 million to $30 million in annual revenue for a 50 to 99 year lease. The system treats Lake Michigan water and distributes it to city residents and 15 surrounding communities.
The system generated revenues of $73.1 million in 2006 with expenses of $58.1 million and has $36 million of debt of which about half sold through the state revolving fund would have to be retired if a deal had come to fruition, while city general obligation debt could be rolled into Milwaukee’s capital fund.
Milwaukee’s GOs are rated in the mid-double A to high-double A category.
