A yearlong investigation by Heavy found that privatized water management has been a disaster for American towns, with residents paying 59 percent higher fees for water, on average; suffering high-profile health problems; and bracing for an infrastructure time-bomb. Residents of contracted towns, from Indiana to Florida, are commonly paying almost $200 more each year, while some Eastern cities have found life-threatening lead in tap water as part of the wreckage left from their contracts. And it’s set to get worse, with both the Trump administration and numerous local authorities pushing to privatize, despite the devastating number of failures.
Crystal Fortwangler was teaching a course on environmental justice that touched on the Flint water crisis when she got a note in the mail about her own water system in Pittsburgh.
Below the boilerplate text on water quality there was a short notice from Pittsburgh’s privately run water authority indicating that the city’s water had tested higher than normal for lead — and offering residents an option to have their own water tested. Fortwangler, then working as an assistant professor at Chatham University, thought a test might make for an interesting exercise for environmental justice students. She filled a sample jar at her sink and left it on her porch for pick up by the Pittsburgh Water and Sewer Authority (PWSA) on May 31, 2016. She wasn’t particularly worried, she says now, but as a precaution, she and her then 8-year-old daughter began using bottled water. Surely Pittsburgh could not be another Flint.
But, almost four months later, her test finally came back—revealing her tap water was as toxic as the worst 10 percent of homes in Flint during the height of the crisis there. “I was floored,” says Fortwangler. “No way was I even thinking it would be in the zone.”
While no level of lead in drinking water is safe, the Environmental Protection Agency has set an “action level” of 15 parts per billion (15 ppb), above which it can cause serious health risks. Fortwangler’s result was 24.76 ppb. Others in her neighborhood would later record test scores up to four times as high.
Immediately, she started thinking of all of the months that her daughter had been drinking that tainted water, trying to rationalize to herself that at least her daughter was older than 6 years old, when the worst developmental risks can occur. She began calling newspapers and urging tests by others on her street, which is full of modest rowhouses and arts-and-craft bungalows in the Squirrel Hill South section of Pittsburgh. Her next-door neighbor got her result back at 27 ppb. “I know there are two houses in our ward that are over 100 ppb,” says Fortwangler. “I know there are people with 50, 60 ppb in my ward. What if it’s the lady right there whose two kids are under 4?”
Since then, Fortwangler’s life has been upended, with the water she had taken for granted now a source of threat. “I don’t cook pasta or rice, I don’t cook macaroni and cheese, washing vegetables is a total hassle,” she ticks off. Every week, she goes through two or three large jugs of water. “It’s changed our whole lives.”
Like many cities in America, Pittsburgh’s water infrastructure is ailing, with century-old pipes that have been pushed to the breaking point by decades of deferred maintenance. But many in this Rust Belt city point to a specific culprit for the lead crisis that now roils the city: the private water company that was called in back in 2011. That company, Veolia Water, was supposed to be the city’s savior — an international firm with the expertise to repair the city’s ailing infrastructure and help it dig out of the mountains of debt it found itself in.
Instead, water rates soared by 20 percent and a faulty metering system created absurdly erroneous bills up to 1,000 times the actual cost. But the worst mistake came in April 2014, when the authority switched the chemicals it used to control corrosion inside the lead pipes that bring the water from the water main into people’s homes. After the switch, lead levels in the water rose from an average of 14.8 ppb for 10 percent of homes — just under the EPA threshold—to 22 ppb.
Caught in a vise between crumbling infrastructure and dwindling public funding, more than 600 American cities have opted to switch to private management, and there is now a push from investors and, increasingly, the federal government, for additional private contracts. Yet, an investigation by Heavy offers a clear verdict: Private water is raw deal, and frequently a disaster for cities, raising costs without improving service, and sometimes cutting corners on repair or maintenance, to leave systems worse than they found them.
Roughly one in ten Americans are serviced by privately-run water utilities. According to a study last year of the country’s largest 500 water systems by the watchdog group Food & Water Watch, water rates for privatized systems are, on average, an astonishing 59 percent higher than public systems, causing customers to paypay about $185 per year more, on average, than the others, who still use public sources. Of those 500 towns and districts, 9 of the top 12 most expensive were run by private water companies.
Even so, the Trump administration’s infrastructure plan has proposed tax breaks up to a massive 82 percent to private equity companies to fund more private takeovers of water systems. But both experts and the record issue the same warning: Without proper safeguards, such a course could be disastrous, ruining the very infrastructure it hopes to fix.
Today, there are ready examples of the possible disaster to come. According to a report in the New York Times, water rates in Bayonne, New Jersey, for instance have risen 28 percent since private equity firm Kohlberg Kravis Roberts partnered with United Water, a division of multinational company SUEZ in a concession contract in 2012, despite city officials’ promises of a 4-year rate freeze. Privatization-friendly state laws have already been introduced in states including Wisconsin, Missouri, and Massachusetts. But leading economists say these measures push investment toward more profitable projects, while leaving systems most in need of repair in the lurch.
Historically, many of our cities’ water systems began through private enterprises. As cities grew in the early 1800s, groups of citizens in Boston, New York and Baltimore formed corporations to construct water and sewer systems to meet the needs of burgeoning populations. By 1900, almost half of the 3,000 water systems were under private control. With a need to make a profit to satisfy shareholders, those companies often invested their resources unevenly, forgoing big capital projects and neglecting poorer or outlying areas, leading to fires, cholera epidemics, and other public health disasters. As a result, there was a wave of municipalization during the Progressive Era after the turn of the 20th century, bringing water systems under direct control of cities or quasi-independent water authorities.
Much of the creation of our nation’s water infrastructure in the 20th century was done thanks to federal largesse, with the federal government either building them outright or shouldering more than half the cost. Since the 1970s, however, that flow of money dwindled to a trickle, with the federal government providing only 4 percent of spending for water utilities in 2014. That’s led to a shortfall, with cities often hard-pressed to keep up with maintenance on the pipes and pumps during recessions. The American Society of Civil Engineers now estimates a gap in maintaining water and wastewater systems of about $10 billion a year. Much of the infrastructure put in after World War II is breaking down, with 240,000 water main breaks a year. According to the American Water Works Association, an estimated $1 trillion is required over the next 25 years to upgrade and expand existing systems.
“If we don’t do anything about it, we will see Flint after Flint after Flint,” says Lauren DeRusha Florez, campaign director for Corporate Accountability, a nonprofit that supports public funding and opposes privatization.
Enter private water companies, which have increasingly reemerged to invest in American cities since the dwindling of federal money in the 1970s. “We saw a really big uptick at the end of the 1990s and 2000s,” says Mary Grant, Public Water for All Campaign Director for Food & Water Watch. That’s when, across the world – spurred on by loans from the World Bank and International Monetary Fund — governments turned to private entities to run sectors that had previously been public — including energy, transportation, and water.
The two companies that emerged as the biggest providers were from France, which had always had a stronger private water sector: Veolia Environnement, and SUEZ Environnement. Despite some protests in countries like Bolivia, the number of people around the world who got their water from private sources grew by early 2000s to nearly 300 million.
In the United States, subsidiaries of Veolia and SUEZ joined homegrown water companies like American Water and Aqua to make the pitch to cities across the country to take over operation of their systems. In some cases, cities outright privatized their systems by selling them. In others, they signed “public-private partnerships (PPPs)” with companies to run the system while the city still owned it, or leased them for a specified period of time. such as 20 or 30 years. Over the 1990s, private contracts eventually grew to service 15 percent of water users in the country. According to one report, 70 cities signed long-term contracts to manage their water between 1997 and 2000 alone. By 2007, some 600 cities, had signed contracts in 43 states, including Indianapolis and Milwaukee.
For cash-strapped mayors, PPPs were a win-win. Oftentimes, they even came with money in hand to bail out accumulated debt or just contribute to the general fund for mayors to use however they wanted. The companies touted their professional know-how, and their ability to wring efficiencies out of the system based on experience running water around the world. “Public systems have no real incentive to change or innovate or look for better ways of doing things,” says Christopher Gasson, publisher of Global Water Intelligence, an international trade publication that tracks the private water industry. By adopting better management and technology, he says, private companies can run systems more cost-effectively, giving better bang for the buck both in management and infrastructure improvements.
In December 2016, several hundred city officials, water engineers, private investors, and corporate executives filed into the Hilton hotel in downtown Miami for the American Water Summit, an annual confab sponsored by Global Water Intelligence. There, amid dinner and breakout sessions, the various water companies made their pitch to how they could help turn around cities’ ailing infrastructure.
On a panel called “Cities and Services: New Ways of Working Together,” representatives from several smaller cities spoke about the benefits they’ve reaped from partnering with private firms. “The innovation you are seeking is what the private industry can bring to the table,” said Michael Doweary, business administrator for York, Pennsylvania, a manufacturing city of some 43,000 people south of the capital of Harrisburg. “The brainpower, the economies of scale, the engineers — city government just doesn’t have that kind of stuff.” A representative from Camden, one of the most economically depressed cities in New Jersey, similarly sings the praises of private-public partnerships. “The public sector has the depth of experience about their particular utility, but the private sector has a breadth of experience that we lack,” said Andy Kricun, executive director of the Camden County Municipal Utilities Authority. “Why choose between breadth and depth when you can have a partnership that gives you both?”
An instant poll run by the moderator at the forum showed the challenge private companies are up against. In answer to the question “what are the main obstacles to the outsourcing of services,” the top vote getter in the room was a “lack of trust in private providers” with 38.4 percent. In an attempt to generate that trust, a presentative from SUEZ pitches the company’s Water Asset Management, in which instead of buying a water system outright, it leases the system and takes the concern of infrastructure maintenance off a city’s hands. “Once that’s done, we take the full risk of the maintenance of the assets with a price that’s fixed on an annual basis,” said Dominique Demessence, then CEO of SUEZ Water Advanced Solutions, “so they can forecast the cost of the asset and have peace of mind.”
If rates go up, say advocates for private water, that’s only because cities have been underfunding their infrastructure for years, and the higher rates only reflect the actual cost of needed improvements. “Water rates aren’t where they need to be because [cities] haven’t been investing in their systems,” says Tracy Mehan, government affairs director for American Water Works Association, which represents both public and private systems. “There is no such thing as a free lunch.”
An analysis last year by the Environmental Finance Center at the University of North Carolina, however, found that while higher rates can result in better service, cities often went into projects with an unrealistic and overly rosy view of cost savings.
“Utilities looking for elusive silver bullets and magical unicorns, such as dramatically improved service at much lower rates,” the authors of the report concluded, “likely will not find what they are looking for.”
Daniel Van Abs, Rutgers associate professor of practice for water, society & environment, says it’s almost impossible to tell whether higher costs are a result of better service or higher profit margins due to overbuilding infrastructure that isn’t needed. “It’s a black box. We don’t know if a system is investing too much or not enough, or if it’s overstaffed or understaffed.” And since cities can borrow much more cheaply on the municipal bond markets than private equity companies can with investors, there is no reason they can’t be just as cost-effective, if not more.
“Any medium- to large-size publicly owned utility should be able to operate themselves just as well as an investor-owned utility,” says Van Abs. “If not, it’s a failure of political will or focus.” At the same time, cities are at a disadvantage in negotiating the fine print of contracts for public-private contracts. “If you don’t have an equal level of expertise, odds are pretty good you are going to miss something that will end up being pretty important down the line,” Van Abs says.
By the terms of a 30-year-lease signed between Hoboken, New Jersey, and United Water (later SUEZ) in 1994, for example, the company paid $5 million upfront, with another $8 million over the next seven years. However, it is obliged to spend only $350,000 a year on infrastructure improvements, even as it is expected to earn $100 million in revenue over the life of the lease. Not surprisingly, the amount is hardly enough to keep up with daily maintenance, with almost nothing left for capital improvements. Now, water main breaks are a regular occurrence throughout the city—with dozens every year.
In February 2017, a water main break in the city caused a sinkhole to swallow an SUV that had been parked on the street, sucking it down into dirty brown water. Former Mayor Dawn Zimmer called the deal “unbelievably short-sighted,” and struggled to renegotiate the contract to raise the amount for repairs.. Public records show similar contracts for other New Jersey municipalities, including Jersey City, Rahway, Camden, Allamuchy, and Orange.
New Jersey is ground zero in water privatization, with 40 percent of its residents served by private systems — and paying an astonishing 79 percent higher rates, on average, than those still using public sources, according to Food & Water Watch. The state is also US headquarters to both SUEZ and American Water, which have had a bitter rivalry over cities like Camden. The poorest city in the state, Camden has suffered from ailing infrastructure for decades. In 2002, a report showed lead in the water of 32 schools at average rates of 87 ppb.
SUEZ paid $20 million upfront for the concession, which was supposed to last 20 years, even though the water system was then turning a profit. “We basically said, why would you sell or lease a city asset when it is profitable? And what it needs is improvement,” says Roy Jones, an activist who has lived in Camden since 1967. “And you want to destroy and rebuild it versus repairing and modernizing it.” The city council nevertheless voted to go along with the contract. A decade later, in 2009, a scathing audit by the state comptroller revealed years of mismanagement by the water company, with 45 percent of the water production lost through a combination of leaky pipes, overflows in storage containers; overbilled customers; and metering inaccuracies. The city sought to recover $29 million in damages, ending the contract four years early in 2014. Instead of re-municipalizing the system, however, the city turned around and signed a new management contract the following year with SUEZ’s rival American Water, which it lured with tax breaks to build a new headquarters on Camden’s waterfront. (Both SUEZ and American Water failed to respond to multiple requests for an interview.)
As cities began to confront the ugly consequences of privatization, however, some pulled back. Atlanta signed a contract with SUEZ in 1999 to run the system through 2015 — at the time, the largest privatization contract ever. Atlanta was then paying $49 million a year to run its water system; SUEZ said it could do it for $22 million. The company completely underestimated the amount of maintenance the city’s failing infrastructure would need, however. Instead of making a profit, SUEZ claimed to be losing $10 million a year, even as it raised rates and fired a quarter of the staff. Predictably, cutting corners led to a host of customer-service complaints and hundreds of water main breaks. In 2003, after just four years, the city took back the system, which has been run publicly ever since.
Veolia, meanwhile, has changed its strategy, moving away from leasing systems and toward consulting contracts with cities, to analyze the infrastructure and make recommendations to cut costs and improve quality. At the water summit, Veolia executive Patrick Schultz touted the benefits of what the company calls Performance Solutions. “There’s still this perception of this being a little bit of a black and white world, with an ‘us versus them, public versus private’,” he said. “A lot of the interesting opportunities are in the middle ground. They are not about either a private operation or a public operation but in finding ways of combining the strength of both the public and private sectors.” Those more skeptical of private water companies, however, see a more nefarious design to the contracts, which they say are just a first step toward greater privatization.
“It’s a foot-in-the-door strategy,” says DeRusha Florez, the Corporate Accountability campaign director. “Time and time again, their main recommendation is always that the city hire the company to operate and manage the system.”
In Flint, Michigan, the city paid Veolia $40,000 in February 2015 to judge the quality of the water system. The city, which was under a state emergency manager at the time, had recently switched the source of the water from the Detroit municipal system to the Flint River, which corroded the lead pipes, leaching lead into the water system. The same day Veolia signed the contract, on February 4, Flint resident LeeAnne Walters contacted the city over rashes on her son’s body, which she said were caused by the water in her home, which was bad-smelling and discolored. A few days later, the first public reports of unsafe levels of lead in the drinking water at the University of Michigan hit the media. But Veolia failed to draw attention to the system’s lack of corrosion control, giving the system a clean bill of health and saying it was safe, according to EPA standards. In a February 18, 2015, water report, Veolia even dismissed medical concerns by saying, “Some people may be sensitive to any water.” (Veolia declined comment for this story.)
When Waters finally had her water tested, it came in at 104 ppb — a result that drew the attention of the local EPA office — and a follow-up test two months later came in at 397 ppb. Even so, Veolia’s final report continued to give the water a clean bill of health, making no mention of any problems with lead. Instead, it recommended adding polyphosphate to the water to reduce discoloration from corrosion of cast-iron pipes, while also recommending the addition of ferric chloride, an acid chemical that can cause lead corrosion to worsen. In addition, it recommended several million dollars’ worth of upgrades to the system. To carry them out, Veolia’s senior vice president Keavin Nelson suggested Flint put its water system under the management of Veolia employees, with an upfront cost of around $2 million and ongoing costs of $1 million a year. This was similar to arrangements that the company had with Buffalo and Pittsburgh.
Though the EPA continued to sound the alarm throughout the summer, it would take tests by Virginia Tech scientist Marc Edwards in September to finally get the state to accept the heightened levels of lead. The city switched back to Detroit water in October 2016, but the damage to the pipes had already been done, and the lead problem continued to worsen, with governor Rick Snyder declaring a state of emergency in January 2016.
In June 2016, the attorney general of Michigan, Bill Schuette, filed suit against Veolia as well as a Texas-based contractor for “professional negligence, fraud, and public nuisance” for causing the “Flint Water Crisis to occur, continue, and worsen.” After months of legal wrangling, a federal judge this past October ruled that a class-action lawsuit could proceed against Veolia as well as other
contractors for its role in the crisis. For its part, the company says it was never asked to look at lead — only disinfectant chemicals. “In fact, when Veolia raised potential lead and copper issues, city officials and representatives told us to exclude it from our scope of work,” the company said in a statement.
At the same time that the Flint Crisis was unfolding, another crisis was lying in wait in Pittsburgh, 300 miles southeast. There, Veolia had secured a contract it called a PPS — Peer Performance Solution, under which it would take over day-to-day management of the 270 employees of the Pittsburgh Water and Sewer Authority, which provided water to 300,000 people in the city and surrounding area, at the same time studying how to “cut costs and improve service.”
The city’s infrastructure is stuck in its industrial past, with ancient pipes and reservoirs dating back to the late 19th century. An attempt to fix the system by investing in complicated debt swaps between 2007 and 2009 only made the situation worse when the deals went south in the financial crisis. The authority’s debt has since risen to $760 million by late last year.
When Veolia called in 2011, it seemed a heaven-sent solution: reducing costs, and, at the same time, improving service, even while the city continued to own the pipes. The city was happy give Veolia “performance-based pay,” of 50 cents for every dollar it saved the city, which, critics say, essentially provided an incentive to cut corners on maintenance and repairs. “Being a for-profit company, Veolia was more interested in those incentive-type items than in developing a long-term plan,” says Pittsburgh city controller Michael Lamb, who recently audited the system. Even so, the deal initially appeared to be working, as Veolia made changes to save $2 million annually, and cut down wait times for customer service by half. Much of the savings, however, were made through laying off staff, including water quality engineers. The authority attempted to save more money by switching to a lower-cost billing system and cheaper electronic water meters. The software on the two systems was not compatible, and the subcontractor hired to install the meters flubbed the job. Suddenly, PWSA was overwhelmed by customers complaining about bills three times or even 10 times the normal rate.
By far the most consequential decision PWSA made under Veolia’s tenure, however, was changing the system’s corrosion control method. The amount of lead in Pittsburgh’s water had been slowly inching up for over a decade as old pipes corroded over time, from 6 ppb in 2001 to 14.8 ppb in 2013, just under the EPA action level of 15. The authority kept it in check by applying soda ash, a chemical that coats the inside of the pipes so lead doesn’t leach into the water. In April 2014, however, PWSA decided to change the corrosion control method to caustic soda, a chemical that lacks carbonate, an important component of the coating process. According to Lamb’s audit, the change was made “because of the higher cost of soda ash and an obsolete soda ash filter.” Moreover, PWSA neglected to inform the state environmental department of the change as required by law.
In October 2015, as the Flint crisis was breaking, PWSA switched back to soda ash — but the damage had apparently been done. When the authority tested its water in April 2016, lead levels had spiked to 22 ppb, causing it to send out the letter that Crystal Fortwangler and other ratepayers received. “It’s an outrage,” says Chelsa Wagner, the Allegheny Country Controller, who has emerged as one of the chief critics of the PWSA and the mayor. “But since then the outrage has only grown.” Like many ratepayers, she sent in her own water to be tested in August 2016. After the PWSA lost her kit twice, she says, she finally got results in December, showing 27 ppb. “I have two little kids. The youngest one is five, and she had been drinking that.”
When the state Department of Environmental Protection found out the PWSA had changed its corrosion control without authorization, it formally sanctioned the agency, demanding a retest in June 2016, at which point, leads levels had decreased to 18 ppb – lower, but still above the legal limit. According to PWSA data received through a public records request, the authority has received 3,404 water samples voluntarily submitted by residents for testing between February 11, 2016 and March 13, 2017. Of those, more than half took longer than a month to get the results. Once tested, 361 samples — more than 10 percent — met or exceeded the threshold of 15 ppb. About a third of those results were over 25, and a significant number were over 100.
Because those results were not a scientific survey, however, there is no way of telling how many homes in Pittsburgh are actually affected. “They say there are 20,000 homes with lead service lines based on when homes were built,” says Lamb, “but they have no idea what the real number is.” In fact, the authority can’t even tell for sure where the lead pipes are.
After breaking the contract with Veolia in December 2015, the city of Pittsburgh sued Veolia in arbitration court in October 2016 over the faulty billing and lead contamination, saying it “grossly mismanaged PWSA’s operations, abused its positions of special trust and confidence, and misled and deceived PWSA as part of its efforts to maximize profits to itself to the unfair detriment of PSA and its customers.” The city was seeking to avoid paying $5 million it still owed the company, as well as looking to recover the $12.5 million it already paid as part of the contract. In a statement, Veolia said the company “did not and would not prioritize cost savings ahead of effective corrosion control methods or water quality.” And furthermore, the change was not “initiated by (or at the direction of) Veolia’s team)” — even though Veolia was overseeing management at the time.
In the end, PWSA settled for $5 million this January 25, rather than risk going to a jury trial, dropping the claim for the additional $12.5 million. As part of the agreement, Veolia will pay an additional $500,000 into the Authority’s Customer Assistance Program, which provides financial assistance to residents struggling to pay their water bills. Neither side admitted any wrongdoing.
Wagner blasted the settlement, saying that it “largely lets Veolia off the hook for Pittsburgh’s ongoing lead crisis.” Though she places a lot of the blame on Veoila, she also blames the city for not overseeing the contract more closely. “We’ve seen a total lack of responsibility across the board. They entered into a really bad contract, and once they did, there was nobody monitoring it.” Since then, she says, the city has been slow to educate the public on the extent of the problem and curb the lead in the water. “There are still so many people who don’t know about this,” she says.
Football coach Ayodeji Young made the news in the summer of 2016 when brown-colored water came out at the field where the community Homewood Bulldogs play. “It never went back to clean,” he says. After he made an appeal on the news, citizens from all over the city came to bring them bottled water to get through their season. Even so, he says, many in the neighborhood are still avoiding drinking tap water, which also sometimes comes out brown and smelly, and drinking costly bottled water instead. “Safe water is one of the common things you expect to have as an American,” Young says. “It makes you nervous about everything.”
Last winter, PWSA tried to spread the news more widely with a series of community meetings. At one meeting last February in Millvale — a predominantly working-class community just across the Allegheny River from downtown — only about 20 people showed up, sporting work shirts with name tags and baseball caps with American Eagle on it.
“We’ve got to get a handle on corrosion control,” PWSA director Bernie Lindstrom told the group. “A few years ago, we lost control completely.”
Joey Vallarian, an interim special projects communicator, that the PWSA estimated 20 to 30 percent of the 85,000 service lines bringing water from the main line were lead.
One resident asked: “If you don’t have good data, why don’t you send everybody a test kit along with their bill?”. “That’s a good question,” said Vallarian. The authority is currently replacing those lines at a rate of 7 percent a year, he continued, but only up to the curb line. After that, it was the owner’s responsibility — a project that could cost a$3,000 to $4,000. One county health department official suggested that residents should run their water for 1 to 2 minutes before drinking, just in case it was contaminated — and if they should run it “a little bit longer”, if they knew they had lead service lines.
The most recent tests, in January 2018, show an increase in lead levels at 114 high-risk addresses, with 90 percent above 21 ppb, up from 15 ppb last June.
Pittsburgh Mayor Bill Peduto has been adamant that privatizing the system is not the answer. Nevertheless, the city put out requests for bid in February for a “public-private partnership” that would study the best way out of the city’s financial vise. In April, the city chose Maryland-based infrastructure consulting firm IMG Group for a $900,000 contract.
The choice alarmed critics, who have noted IMG was founded by Steve Steckler, who helped create the Commission on Privatization for the Reagan administration in the 1980s.
Steckler didn’t instill confidence when the contract was announced, saying “The mayor has made it clear that he does not intend to sell the utility to a private entity. Other than that, all of the other options are going to be explored here.” (Peduto’s office declined requests for an interview.)
In November, the city approved an increase to water rates of as much as 50 percent over three years in an attempt to repair its infrastructure. Shortly afterward, IMG released its recommendations that the city transfer the water system into a public trust—and explore a partnership with a private equity in order to carry out repairs.
At the same time, however, Peduto’s office also commissioned a Blue Ribbon panel of business leaders, community advocates, and academics, to weigh the consultant’s recommendations on PWSA’s future. In a report this past December, the panel rejected IMG’s suggestion of privatization, instead unequivocally recommending the system stay entirely under public control. Furthermore, it suggested that the city take measures to make its board members more independent. Peduto issued an executive order on January 22 to implement the recommendations, keeping Pittsburgh’s water public.
The tug-of-war over privatization in Pittsburgh demonstrates how few options cities feel they have to solve the crisis of their water infrastructure on their own. And even as citizens have pushed back, water companies have increasingly gone over the heads of cities to appeal to state government to help them take over municipal water supplies.
Nowhere have they been more successful in that than in New Jersey, which has the highest number of customers served by private water companies, and where companies found an ally in former Republican governor Chris Christie, an outspoken advocate of privatization. But resident push-back has been fierce, and until recently, under state law, sale of more than 5 percent of a municipal water system had to be put to vote in a citizen referendum to approve it. The proposed changes have increasingly been defeated, as the negative outcomes elsewhere were filtered to voters.
In 2010, when the capital city of Trenton was pursuing a plan to sell its water system to New Jersey American Water for $80 million, the company mounted a massive campaign, spending $1 million and employing hundreds of people to hand out flyers door to door. When the issue came up for a vote in Trenton, however, it was soundly defeated by nearly 80 percent. A few years later, during the 2014 election, the tiny borough of Sussex similarly defeated an attempt by city officials to sell their water system to Aqua America for $11 million, after a councilwoman raised an alarm.
The following month, the state senate introduced the Water Infrastructure Protection Act (WIPA). According to the bill, if a city was declared to have “emergent conditions” of a breakdown in its water infrastructure, then a municipality could sign a contract with a private company without a referendum. In practice, the definition of what qualified for “emergent” was so broad that more than half of the state’s water systems qualified. In addition, the bill included a provision that the full cost of the money that a company paid up front could be legally recovered in the form of hikes to water rates. “This is such a bad deal for the citizens of New Jersey,” one state senator said during the debate over the bill. “This is crazy… Just giving away our water supply.” Nevertheless, the bill narrowly passed the Senate. Between the time it passed the Assembly and the time it was signed by Christie, New Jersey American Water made a $50,000 donation to the Republican Governors Association, which Christie chaired at the time.
Similar laws have been introduced in other states, including Wisconsin, Missouri, and Massachusetts, but so far none have passed.
In addition to the law allowing easier takeover of “emergent” water systems, Christie’s administration also worked to privatize the water system in one city with impeccable infrastructure — Atlantic City. The city has been under emergency management by the state since it went into debt of over $500 million in 2015. To many, this was the beginning of a naked attempt by Christie and his allies in the state legislature and private sector to take over one of the two assets the city had left, its water works, the Municipal Utilities Authority (MUA).
Unlike many other Northeast cities, Atlantic City has a pristine water — secured back in the Boardwalk Empire days by forward-thinking developers, who tapped deep underground aquifers on the mainland, and piped it in through pipes across tidal marshes to the barrier island. The MUA has kept its pipes in pristine condition over the years, and its water rates low, at about $200 a year. Its potential sale value has been estimated at $100 million. Despite a desire by the city to keep the system in public hands, a law signed last year gives the state sweeping power to take over city functions and sell off any assets in order to finance its debt. In January 2017, the takeover plan was compared to a “fascist dictatorship” by then-Atlantic City mayor Don Guardian, and protests and a major petition campaign have followed. Yet the expiry, in May, of a moratorium on a sale has residents groups and unions deeply concerned that a privatization deal could be pushed through as at any time.
When the state took over Atlantic City last year, the legislature passed a law that would allow the emergency manager to sell off the MUA to a private company, and use the proceeds to pay down the city’s debt. The state legislature approved a $74 million bailout loan for the city last May, giving it five months to come up with a plan to fix city finances, in the meantime putting the MUA into escrow. The city came up with its own plan, which would cleverly allow the MUA to buy the city’s former airport from the city for $110 million, which the city could then use to stabilize its finances. Last November, the state rejected the deal, and moved forward with a full takeover, which would give the state broad authority to hire and fire employees, renegotiate union contracts, reverse city council decisions and sell off city assets after May 26, 2017.
But the political action chair of the local NAACP, Charlie Goodman, helped form a new group, A.C. Citizens Against the State Takeover, that includes a cross-section of city residents. They lined up lawyers from Food & Water Watch and the ACLU who are prepared to challenge any sale of water on the grounds that citizens were consulted, and have been going door-to-door with petitions demanding that the state allow a local referendum on selling the city’s water supply to a private company. “I just love my city, I don’t want to see it bullied,” Goodman says.
In July, residents submitted 2,400 petition signatures in support of an ordinance that would put any attempts to sell the water system to the voters. The city council unanimously approved it. So far, the pressure seems to be working. In his last months in office, Christie, a deeply unpopular governor, softened his stance on privatization, and new governor Phil Murphy has come out against the plan. At least for now, Atlantic City’s water remains in public hands. Finally, late this last December, the state issued a statement saying it would not “sell or lease the Atlantic City Municipal Utilities Authority to a private company” as public-water advocates who had been fighting against that possibility for years celebrated a victory.
Other cities that have had high profile controversies with private water companies include:
- Charleston, West Virginia:
In 2014, a chemical tank broke near Charleston, contaminating the water supply for 300,000 residents. A report later found the company had cut down on its chemical testing, and failed to have an alternative water source available. Even so, American Water requested a 28 percent rate increase the following year (the state eventually allowed 15 percent). After residents pushed for an investigation, American Water eventually settled, agreeing to better chemical monitoring and more water storage.
- Durham County, North Carolina:
United Water had operated Durham County’s wastewater treatment plant for sixteen years when the city terminated the contract in February 2009 due to inadequate preventative maintenance. Rather than pass off ownership to a different private firm, the county board of commissioners voted unanimously to reclaim public management, which lead to reduced costs.
- Evansville, Indiana:
After 17 years of private management by American Water and its subsidiary Environmental Management Corp., the city of Evansville ended private ownership of its sewer and water systems. However, rates have continued to increase, although authorities say this has been necessary to fund the replacement of roughly 30 miles of old, leak-prone cast-iron water
- New Orleans, Louisiana:
In 2000, Aqua Alliance Inc., which at the time was under contract to operate the New Orleans municipal wastewater treatment facility, was sentenced to pay three million dollars in fines and serve five years’ probation after the company admitted to giving more than $70,000 in bribes to former New Orleans Water and Sewer Board member Katherine Maraldo. The city has since reassumed control of the water system through the New Orleans Sewerage and Water Board, but still suffers from high water rates and boil water advisories.
- New York City:
New York signed a $36 billion efficiency contract with Veolia in 2013 to run its 14 wastewater plants, similar to the contract in Pittsburgh that would allow the company half of all the money it saved the city. In response, the city’s largest public employee union charged that the company cut over 100 jobs and scrimped on maintenance of fleet vehicles, putting health and safety at risk. The contract was allowed to expire in 2016.
- North Miami Beach, Florida:
North Miami Beach began negotiating a potential public water utility takeover for 180,000 residents in early 2017, based on a public claim that privatizing the water system would result in cheaper rates. The negotiations were met with broad resistance from residents, who Argued the deal would lead to higher rates and layoffs, and alleged corruption in the way city officials chose eventual winner CH2M. Despite the opposition, city commissioners approved a 15-year contract with the company last July.
- Rockland County, New York:
Soon after taking over the water system in this community north of New York City in 2006, SUEZ began pushing an expensive desalinization plant along the Hudson River to increase water resources. Residents protested the proposed plant’s cost and environmental impact. The state denied construction of the plant, but allowed the company to pass along $40 million in planning costs. The issue is currently being fought in court.
- Saint Louis, Missouri:
Veolia won a $250,000 consulting contract in 2012 to review St. Louis’ water system and identify areas where it could operate more efficiently. However, following a “Dump Veolia” campaign mounted by a broad group of community activists, Veolia withdrew its bid from consideration.
On the federal level, new policies pursued by the Trump Administration could lead to a renewed push for water privatization. When Trump campaigned on a $1 trillion infrastructure plan, which promised to fix the country’s roads and bridges, as well as its leaking water pipes, it was one of the few areas of bipartisan support in Congress. When the administration released an outline of the plan last January, however, it included little direct investment by government. Instead, it called for massive tax credits of 82 percent for private equity investors to partner with private companies in infrastructure projects. Some leading economists warn this that is a risky strategy, pushing investment towards more profitable projects, while leaving the systems most in need of repair in the lurch. Some questioned why involve private companies at all – paying them 82 cents on the dollar for something that could be funded more cheaply through government borrowing. “In that case,” wrote liberal economist Paul Krugman in the New York Times, “we haven’t promoted investment at all, we’ve just in effect privatized a public asset—and given the buyers 82 percent of the purchase price in the form of a tax credit.”
For projects that are funded, it could lead to dramatic increases in rates due to a need for the high investment returns of 15 percent that Wall Street requires. In the few cases where private equity has partnered with private water companies, that seems to be the case. In Bayonne, New Jersey – where water rates have jumped 28 percent since its private equity partnership – is a case-in-point.
Perversely, part of those increases in rates were due to the fact that citizens used less water after the deal, since the contract with KKR guaranteed a certain amount of revenue that was made up by charging higher rates, according to The New York Times.
Released in May of 2017, Trump’s latest infrastructure plan — a six-page document that the administration says will serve as a roadmap for a package to be introduced by Congress at an as-yet-to-be-determined time — provided further incentives for privatization, including a $200 billion fund that would incentivize sales of assets to private companies by providing a government “bonus” to cities.
As Senate Minority Leader Chuck Schumer pointed out, however, that money was offset by a decrease in community block grants to states that could be used for clean water projects, essentially shifting funds from public to private solutions. “This is a 180-degree turn away from his repeated promise of a trillion-dollar infrastructure plan,” Schumer wrote in a statement. “The fuzzy math and sleight of hand can’t hide the fact that the President’s $200 billion plan is more than wiped out by other cuts to key infrastructure programs.” The White House pushed back, with budget director Mick Mulvaney saying the cuts were intentional, as an effort to target “inefficient programs,” and the administration would propose new “more efficient infrastructure programs later on.”
In Trump’s latest salvo, in his first State of the Union address last month, he suggested a $1.5 trillion investment in infrastructure to build “gleaming new roads, bridges, highways, railways, and waterways across our land.” Details on how to pay for that amount were scarce, however, with the president saying only that “every federal dollar should be leveraged by partnering with state and local governments and – where appropriate – tapping into private sector investment,” and promising more details later this month.
Whatever the Trump infrastructure plan turns out to be, it’s clear that a major component will be providing more money for privatization of water systems and other infrastructure, while cutting the amount of federal spending available. Faced with those options, cities will increasingly see public-private partnerships as the most attractive, if not the only, route available to them.
Without sensible solutions and the renewed push toward privatization at national and local levels, the experts see a future featuring higher rates for consumers, higher health concerns, and deteriorating pipes.
“It’s going to take political will to make water access a priority for the country,” says DeRusha Florez, of Corporate Accountability. “Hopefully it’s not going to take another public health crisis like Flint to do that.”
Michael Blanding is a senior fellow at the Schuster Institute for Investigative Journalism at Brandeis University. Follow him on Twitter @michaelblanding. You can learn more about Michael and his work at MichaelBlanding.com.
Eva Spitzen contributed to this report. Illustrations by Lisa Lee Lucas for Heavy.