By Angela Vullo
July 17, 2017–With federal and state budgets spiraling out of control, ever more desperate elected officials are totally befuddled as to how to pay for repairing and rebuilding the infrastructure which is collapsing all around them. The Trump administration has proposed privatization as the answer for fixing our nation’s roads, bridges, airports, water systems, and tunnels. Some Democrats in Congress have also embraced the privatization mantra.
But would this privatization “solution” be worse than the problem? How would it impact the welfare of the citizens? One example which recently hit the news is the privatization of municipal water systems. The report back from cities that swallowed the privatization of water ploy has been that it is an unmitigated disaster.
Lake Station, Indiana, a hard-luck town South of Chicago, is contemplating taking the plunge into privatization of its water system. Once a solid middle class steel mill community, it now suffers population loss and huge budget deficits, in the aftermath of the shutdown of steel production and the financial turmoil engulfing the region.
Wall Street sharks have dangled the quick fix of privatization in front of this and other hard luck cities. It has the tantalizing appeal of Eve’s apple to that sucker Adam: If Lake Station were to privatize their water system, they will erase the $11 million utility debt, and bring in a $9 million windfall to boot. If they don’t take the money, Lake Station will likely have to shut down their police force (!), for starters. Have I got a deal for you!
Lake City is hardly alone. One estimate shows that U.S. water systems need to invest $1 trillion over the next 20 years; yet funding has dropped 74% since 1977. President Trump’s budget calls for reducing federal aid for water projects even further. According to the Congressional Research Service, federal aid for water is already the lowest since 1977.
The need for rebuilding and upgrading our nation’s water infrastructure is urgent. Some of it has not been repaired or replaced in over 100 years. Technology is dramatically outdated, creating dangerous, life-threatening conditions. What happened in Flint, Michigan, contamination from bad pipes, is being replicated daily in cities around the nation.
Just How Much Does a Glass of Water Really Cost?
The answer to this crisis is not to turn to the money lenders, thinking that’s where the solution lies. Believing that the Wall Street predators have the interests of the general welfare at heart is like putting your trust in your neighborhood loan shark to help you out of a jam. Payday lenders, anyone?
It might make the current budget look good in the short term, but the citizens will foot the bill in the long term. Studies now show that in most cases, the tab for water service, like other privatization schemes, rises when for-profit companies are involved. In many cases state regulatory agencies allow private operations to earn a large profit off their investments, which drives up the price and cuts back the service.
American Water Works, the nation’s largest private water utility, and the major Indiana owner of city utilities, collects 6.6 percent on their investments. In 2015, investor-owned companies bought 48 water and sewer utilities, according to Bluefield Research. They bought 53 systems in 2016, and 23 more through March of this year. Dow Jones‘s U.S. Water Index, made up of the three largest publicly traded U.S. water utilities, began rising when Flint’s water problems became national news. It hit a record high a year later, and is rising under Trump.
Lake Station Mayor Christopher Anderson, a fifth generation Lake Station resident, knows people are uneasy about handing control of the town’s most essential resource to a publicly traded corporation.
“We want to make sure we get it right,” he said last fall, when he was mulling the sale, “and I don’t even know if there is a right answer right now.”
He need only look to Bayonne, NJ, the subject of a recent exposé in the New York Times, for an answer. The citizens of Bayonne cut a deal with a Wall Street investment firm in 2012 to manage their municipal waterworks. Now residents are experiencing huge rate hikes, while at the same time using less water! Water rates have risen nearly 28 percent since Kohlberg Kravis Roberts teamed up with another company to manage the city’s water. KKR is a notorious shark, whose sleazy reputation goes all the way back to brokering the infamous RJR-Nabisco deal in the 1980s, a deal which gave rise to the book and movie, “Barbarians at the Gate.”
Bayonne City officials were promised a four year rate-freeze, which never happened. In some cases, residents have fallen behind in paying their bills, and are now in danger of having their homes foreclosed. At least they won’t have to worry about their water bills, or so the thinking goes.
Meanwhile, KKR, a major suitor of the Trump administration’s dangling of more privatization deals, has moved to “flip” its 90% ownership of the Bayonne water system to another firm, typical of the privatization mafias. KKR has already been rumored to have earned 8-18% returns on its investment.
The New York Times analyzed three deals in which private equity firms have recently run a community’s water or sewer services. In all three places–Bayonne, and two cities in California, Rialto and Santa Paula–rates rose more quickly than in comparable towns, which included both public and private run water systems. In Santa Paula, where Alinda Capital Partners controlled the sewer plant, the city more than doubled the rates!! A fourth municipality, Middletown, Pa., raised its rates before striking a deal.
Just like Lake Station, Indiana, the offer from big money to cities like Bayonne, who are drowning in debt, was too good to refuse.
KKR’s team paid $150 million up front, which allowed the city to pay off a pile of its debt. However, since the contract was in favor of the investors, when infrastructure needed repairs, and water usage did not come up to par, water rates jumped.
A city councilman and former commissioner of Bayonne’s utilities authority, Gary La Pelusa, Sr. said, “We gave away too much.” The city approved the deal over his objections.
Oops! We Made a Mistake! Expensive Lawsuits to Regain Control
While some cities are mulling over the issue of whether to sell, others are in the courts trying to get their water systems back from private investors, due to poor service and rate hikes. This means proving that city ownership is in the public’s interest and then paying a price determined by the court. The prices can be exorbitant. Mooresville, Indiana, tried to buy back their system from American Water for $9 million, but a judge ruled that the court approved price was $20.3 million. Mooresville could not afford to buy it back.
Missoula, Montana, a city of 70,000, took back ownership of its water system for $88.6 million, plus more in expenses. Missoula’s system had been owned by a regional water company, Carlyle Group, another gigantic “private-equity fund” (read Gangster operation), and by a subsidiary of Algonquin Power & Utilities, a Canadian corporation.
The city complained that under private ownership, the system leaked so badly that half of the water flowing through the pipes was lost. During Carlyle’s three year tenure, their investors received millions of dollars in dividends, paid for by Missoula ratepayers, while service deteriorated.
Why we need government-run water systems
In fact, water systems, like other major areas of infrastructure, including transportation, power, education, and health care, should not be run by private, for-profit entities. It is the responsibility of the government, federal and state/municipal, to oversee infrastructure development and management. This concept flows directly from the General Welfare Clause of the Constitution.
The provision of especially clean water and other infrastructure developments led to both an increase in life expectancy and a decrease in mortality rates, especially infant mortality. Infant mortality rates declined precipitously from 1890-1950, and life expectancy rose by an equally dramatic percentage. Infant deaths per 1000 were 215 in 1880, not changed for 300 years, but by 1950 that rate was 27. Life expectancy increased by 14 years (54 to 68) between 1920 and 1970. Clean water was at the center of the gigantic rise in U.S. productivity rates over the middle five decades of the 20th Century.
The overall increase in life span and total population directly contributed to the growth in Gross Domestic Product driven by increased productivity. People lived longer and better, and were moving out of menial jobs into productive jobs. Urban areas were networked into a fabric of infrastructure developments, i.e. running water, central heat, indoor plumbing, electricity, gas, transportation, etc. the totality of which increased the productive powers of the workforce and population as a whole.
Franklin Roosevelt’s New Deal witnessed a gigantic leap in productivity. Much of the (WPA) Works Progress Administration involved building our water system and water management systems. As documented by the Roosevelt Institute , their public works included 500 water treatment plants, 19,700 miles of water mains, and 24,000 miles of sewers and storm drains. These were in addition to the premier landscape-changing great projects like the Tennessee Valley Authority, Hoover Dam, and the Bonneville and Grand Coulee dams.
Water management continued to be a priority into the Kennedy administration. JFK regarded water as our most precious asset. In fact just two months before his assassination, Kennedy toured the country, commemorating the great dams, and laying a plan for the next fifty years. His tour included Whiskeytown, California; Flaming Gorge Dam, Utah; and Herber Springs Dam, Arkansas.
The murder of Kennedy was also the death of our infrastructure programs. Major water projects such as the North American Water and Power Alliance (NAWAPA) were shelved indefinitely, and the country has been “under water” ever since.
People will remember the famous 1975 summer thriller “Jaws”, where the mayor refuses to warn the sun worshipers of the shark-infested waters for fear that it would negatively affect tourism. Now is not the time to make a deal with the money-worshiping sharks of Wall Street to sell off our water systems.
Let’s not wait for the next shark attack, before we get Congress to declare “Beach Closed,” put the predators behind bars, and launch the credit system which will allow us to rebuild our vital infrastructure. We don’t need Wall Street to make America Great Again.