It doesn't work in private mode for me either.
Just spent the last 12 hours or so building up a tourist/gambling city and was actually out of water in the entire region when I quit. I couldn't get any of the services I set up in the surrounding area to let me buy them. The main city had to provide all of its services itself. I hit a bottleneck at about 300k citizens making about 1.5 mil a day but that started going down the drain soon as I completely ran out of water.
I have tried 3 different games so far today and none of them allowed me to share resources with the neighboring cities.
