Moments in Memory: Water war launched in 1998 with city takover attempt of Tennessee American

Dec. 28--Chattanooga has seen its share of battles over its 180-year history, but one at the end of the last century created a flood of controversy for nearly a year.

The city's then-mayor set his sights on a takeover of privately owned Tennessee-American Water Company.

Like a bolt out of the blue, Chattanoogans found themselves in 1998-1999 embroiled in a war over water when former Mayor Jon Kinsey announced plans on Nov. 24, 1998, for the city takeover of the utility. That plan was countered by Tennessee-American, which pulled out all the stops in a fight against it.

The Chattanooga Times' coverage of Kinsey's announcement that day reflected the shock at the move in the first paragraph -- "Chattanooga Mayor Jon Kinsey announced Tuesday that the city will try to buy out its water utility -- news that hit the company about as gently as a blast from a fire hose."

Kinsey's announcement, with full council support, came during a week of other major changes covered by the Chattanooga Times and Chattanooga Free Press newspapers, which themselves were among November 1998's surprises.

On Monday, Nov. 23, 1998, Chattanooga insurance giant Provident announced it was merging with Unum. That news was reported in Tuesday's morning newspaper, the same day the headline "Times is sold" dominated the front page.

The Provident-Unum merger closed in 1999, while now-Times Free Press Publisher Walter E. Hussman Jr. purchased the Free Press in March 1998 from the family of founder Roy McDonald. The publications combined as the Chattanooga Times and Chattanooga Free Press in January 1999, ending 65 years of competition. The paper's name was later refined into its present form.

While the newspaper and insurance company mergers rocked the community when they were announced, the 11-month-long battle between the city and Tennessee-American would generate scores of stories covering the action, and dozens upon dozens of columns and readers' letters taking positions.

Among people writing letters to the editor, many favored a publicly owned utility that could possibly operate cheaper, avoid taxes as a public entity, and provide the same or better service and boost the economy, while others feared the potential for unchecked rates, poorer service and lower quality, according to Times Free Press archives. Overall, public opinion was said to oppose the takeover, but many people seemed to see points on both sides.

Kinsey in his announcement said the city could either negotiate a sale with the company or it could attempt to take it through the courts, archives show. Once acquired, the city would hire a private company to manage the operation but would have more control over development and discussions happening at the time about selling water to Atlanta.

"It is obvious to me that Tennessee-American is not motivated by a desire to cut costs for our citizens," Kinsey told council members. "Water should belong to all of the people."

Kinsey argued for the takeover, using data provided by Decosimo Management Consulting stemming from a study done in 1972 when another Chattanooga mayor proposed owning Tennessee-American. The 1972 council voted 3-2 against pursing ownership that time. But Kinsey said that data showed rates could be as much as 25% lower had the 1972 purchase been made. Kinsey also noted the city would save $1 million a year in hydrant fees paid to the company if the utility was city-owned, archives show.

But Tennessee-American President Bob Gallo said Kinsey had blindsided the company, and he promised a fight.

"Simply stated, the company is not for sale, and we don't believe that it is the role of government to drive private enterprise out of business," Gallo said of Kinsey's plan, adding that he'd been informed of Kinsey's intentions a month earlier but was told the city wouldn't pursue it. "We will certainly defend ourselves on any eminent domain or any other legal action the mayor decides to take against us."

In 1998, Tennessee-American, whose parent company is New Jersey-based American Water Co., had about 68,000 customers and was the city's main source of drinking water.

So, the battle lines were drawn, and Tennessee-American took its case to the people with a months-long public relations blitz. Kinsey, meanwhile, refused to turn loose of the report that contained the 1972 financial data and continued his campaign for the takeover with the city council setting aside $750,000 for the legal fight in December 1998, archives show. The Hamilton County Commission, on the other hand, sent a letter to the city asking Kinsey and council members to reconsider citing worries about tax losses that could amount to $1 million or more a year.

At the same time, Tennessee-American released a poll the company conducted saying, "More than 75% of the public sees no reason for the city to purchase the company." Kinsey discounted the survey as "push-polling" and maintained that the company was "misleading" the public.

As the water war wore on, Kinsey set a public meeting at the Tivoli Theatre in January 1999 to discuss the idea with the people and the city sent out invitations that March for private companies to bid on operating the water system, although he continued to refuse to release the accounting report that backed his idea, archives show. A media outlet filed suit seeking release of the report in January 1999, as did Tennessee-American, but a Chancery Court decision on the matter was put off for four months.

According to the Times Free Press story that ran the day after the Tivoli meeting, Kinsey was jeered by some of the 600 people who turned out, many loudly voicing their opposition to the takeover while others supported it. Kinsey and other speakers were interrupted at times, and afterward Kinsey said he was happy with the turnout but "disappointed" in the crowd's behavior.

The Chancery Court hearing on the Decosimo report bounced from date to date until a ruling in late April 1999 saying the city couldn't keep the report secret, archives show. The city appealed the ruling, but in the end the report wasn't made public until the battle was over in late 1999.

Tennessee-American in May 1999 put a public-private partnership on the table, but the council rejected it.

As the battle flowed into summer, the city filed suit in June 1999 to take the company by eminent domain. Then in August 1999, full council support waned when then-Councilwoman Marti Rutherford withdrew her support, citing high costs charged by the city for sewer service and drawing criticism from water deal supporters.

Plaintiffs in the suit to get the Decosimo report continued to seek the release of the documents and financing the takeover was discussed through September and October 1999. A proposed compromise from then-councilman John Lively drew little response from his colleagues during a meeting on Oct. 20, 1999, and another surprise bombshell dropped five days later.

As suddenly as the water war was launched it was over, with a settlement for the city to drop the case following a unanimous council vote.

"For me, the question came down to this: Is the long-term benefit of this action worth the short-term pain and acrimony that this community is experiencing on an almost-daily basis?" archives show Kinsey said during an Oct. 25, 1999, news conference. "My personal opinion is that it is not."

Highlights of the settlement between the city and Tennessee-American included a drop of annual fees for 4,000 city fire hydrants by $1 million, an agreement that both sides would pay their own legal costs and an agreement that the city would drop the lawsuit to take the company through eminent domain, archives show.

A follow-up story seeking reaction from Chattanooga residents ranged from surprise and disappointment -- depending on which side they were on -- to relief that it was finally over.

"It got old," one man told the newspaper the next day. "Every time you'd look around, you'd hear about the water company. It wound up being a big waste of taxpayers' money."

Contact Ben Benton at [email protected] or 423-757-6569. Follow him on Twitter @BenBenton or at www.facebook.com/benbenton1.

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