To close budget gaps (the current shortfall is $116.2 million for the fiscal year 2010-2011), San Jose is considering privatizing its municipal water system, which provides water to about 124,000 people (via Silicon Valley Mercury News). The sale could net the city $50 million.
The current potential buyer is reported to be San Jose Water Company, which provides water to about 1 million people in the Bay Area, including about 80 percent of San Jose residents. The potential sale would likely result in higher water rates for the formerly municipal customers. The company has also expressed interest in leasing and operating the water system.
While I think it is shortsighted to sell city assets to fix budget gaps (what will be sold next year?), San Jose Water Company boasts on its website that it delivered less water in 2007 than it did in 1987, despite serving an additional 80,000 people. And the company credits its water conservation programs (more info here).