This city privatized the operation of its water utility. Now it’s taking it back.
Three years ago, North Miami Beach took the controversial step of outsourcing management of Miami-Dade County’s second-largest water utility to a private firm. This week, the city pulled the plug on that decision.
In a 5-2 vote via Zoom on Tuesday, commissioners chose to terminate the city’s $190 million deal with Jacobs Engineering Group less than halfway through the decade-long contract, a decision with ramifications for more than 170,000 people across multiple cities and unincorporated areas of northeast Miami-Dade.
“We should control the water plant,” Commissioner Phyllis Smith said before Tuesday’s vote. “All of us should take an opportunity now to go in a different direction.”
Smith and other commissioners say the 2017 deal hasn’t created the cost savings they expected, while residents’ water bills have increased. After Jacobs switched from quarterly to monthly billing for single-family homes in 2018, residents complained of unusually high bills, prompting a return to the quarterly system.
Usage charges went up 18.5% this year to make up for lost revenue after the billing switch, the city said, and annual increases of 4.5% were planned for the next four years “to secure bond financing and to complete capital improvements projects.”
“We were taken advantage of,” said Commissioner Fortuna Smukler. “I have a trust issue with someone who takes advantage of me and, in this case, takes advantage of my residents.”
The city’s utility includes a wastewater system and the Norwood Water Treatment plant.
Scrapping the Jacobs contract went against the recommendation of city staff, who put forth a hybrid model that would have given North Miami Beach increased control of certain parts of the utility, including customer service, while letting Jacobs continue to handle the operation and maintenance of the system.
City Manager Esmond Scott, along with the city’s attorney and CFO, raised concerns about the cost and logistics of transitioning back entirely to municipal control. An outside consultant, Raftelis, estimated it would cost between $9 million and $18 million to do so, in part because of a six-month transition period when the city would pay both Jacobs employees and new hires in training.
The city will also pay a $600,000 fee to terminate the contract, according to Vice Mayor Barbara Kramer.
“Any costs that are allocated toward transition are costs that we will have to recover with rate increases to cover our bonds,” said CFO Janette Smith.
Staff also warned that, under state law, the city must have certain positions filled within six months — which could pose a challenge, said city attorney Dan Espino of the Weiss Serota law firm, given that Jacobs hasn’t agreed to extend that transition period if staffing needs aren’t met.
The company — known as CH2M Hill when it won the contract in 2017 before being bought by Jacobs a few months later — offered positions to employees of the city’s water department. But bringing them back could be difficult. Some may prefer to keep working for Jacobs, and more than a dozen retired from the city before the transition to CH2M, meaning they can no longer work for the city full time under state law.
“You could be ... simply setting up this process for failure without additional support from Jacobs,” Espino said, adding that it has taken other water utilities “upwards of a year” to fill similar positions.
The commission’s decision had a notable dissenter: Mayor Anthony DeFillipo, an original supporter of the outsourcing effort as a commissioner prior to his election as mayor in 2018. Terminating the Jacobs contract, he said Tuesday, could cause “serious economic damage” to the city, particularly during the transition period.
That’s a concern, he said, considering the strain of the COVID-19 pandemic on the city’s budget and on individual residents.
“Do we really want to take that chance in the times that we’re in right now?” he said.
The other commissioner to vote “no” was Kramer, who said she regrets voting for the contract in 2017 but doesn’t think it should be eliminated entirely.
“If this wasn’t the pandemic time right now, I’m not so sure that I would be as concerned as I am,” Kramer said. “I’m not so sure why this is something that needs to be done immediately.”
But five others didn’t want to wait. The commission voted in March 2019 to take “steps to take the water plant back,” according to Scott, the city manager. Scott said he took that to mean start a transition period, not terminate the whole contract. Others saw it differently.
“How could that be misunderstood?” said Phyllis Smith. “We’ve been talking about this for over 18 months.”
If bringing the utility back into the city’s hands doesn’t work out, Smith said, “we can always go back and put out another bid. But I feel like we’re never gonna get another opportunity.”
North Miami Beach’s water utility serves not only the city’s residents, but also many residents of Sunny Isles Beach, Aventura, Golden Beach and Miami Gardens. It’s a cash cow for the city, which owns the utility and sets the billing rates, in part because it tacks on a 25% surcharge for customers outside the city.
The transition to private management prompted Miami Gardens to sue North Miami Beach in late 2018, arguing it can no longer impose the surcharge because it doesn’t operate the Norwood plant. (The plant is in Miami Gardens despite being owned by North Miami Beach.)
Control of the city’s wastewater system and the Norwood plant has been hotly debated for years, dating back to a 2016 report that found the utility was run with substantial inefficiencies. A local AFSCME union and progressive activists railed against the privatization plan in 2017, raising concerns about profit motives and weaker labor protections for workers.
For those who fought against the plan, Tuesday’s vote was a victory three years overdue. William Byatt, the treasurer of the Miami-Dade Democrats who managed a 2018 mayoral campaign in North Miami Beach, said he’s kept a close eye on the issue ever since.
“It’s been like a three-year fight,” Byatt said. The right time to cancel the contract, he said, “would have been to not have done it in the first place.”
This story was originally published August 7, 2020 at 12:46 PM.
