Nothing is less glamorous than wastewater treatment, though it's an essential responsibility of municipal government. But when Indianapolis, where I've been mayor since 1992, decided to privatize its wastewater treatment plants, the savings were glitzy indeed.
Indianapolis operates two plants that filter impurities from the city's sewage and release clean water into the White River. When we first considered putting the plants up for competitive bids in 1992, industry experts said that there were few better-run plants in the country—a claim buttressed by the bundles of national awards that our employees had won in competitions with other city governments.
Our first step was to see how much better our plants could do. We hired a Big Six accounting firm to assess potential savings from private management. At best, the firm concluded, we could reduce operating costs by a slim 5 percent through efficiency measures. Still, we wanted to subject every possible government service to the rigors of private sector competition, and our wastewater plants would be no exception. Setting the report aside, we decided to test the market.
The winning proposal—one of many from across the globe—came from a consortium formed expressly to compete for the management of the plants. The consortium promised to reduce our operating costs by an eye-catching 44 percent, or $65 million, over the five-year contract. Moreover, the consortium's partners—they include a French firm—possess enormous financial assets that allow them to guarantee these savings. Thus, the city slashes its costs whether management produces the proposed efficiencies at the plants or not. To date, cost reductions are substantially ahead of schedule, a result of the consortium's market-tested management, superior technology, more experienced engineers—who grasp problems more quickly than did their city counterparts—and superb preventive maintenance.
Of course, savings are not the only story. On average, the water that leaves the plants is far cleaner than required by the EPA's stringent standards, and workers have benefited, with consortium employees' annual raises and bonuses averaging 4.1 percent, compared with the 2.1 percent guaranteed to city union employees. Union grievances plummeted from the previous average of 38 per year under city management to zero in 1995. The more efficient plants are also safer: the accident rate fell 80 percent after privatization.
As New Yorkers consider whether private wastewater treatment is a good idea for their city, our experience offers a lesson: had we simply accepted that we ran our plants better than most government facilities, had we allowed "good enough for government work" to be our standard, we would have lost millions of dollars in savings and substantial technical improvements. By reaching out to a worldwide market of providers, we gained access to the best managers and most advanced technology on earth, yielding cleaner water at almost half the previous price.
