Tag: privatization

Why Public-Private Partnerships that Own or Control Our Cities and Towns’ Water and Infrastructure Are Not the Answer

In this space two weeks ago I demonstrated that plans by President Trump and Governor Snyder to rebuild our deteriorating public Infrastructure will force shrinking or financially strapped cities and towns to turn to private water companies and investors.  The Trump plan would cut the historical federal 75 percent share of grants or low interest 2 percent loans to 25 percent, and then fund only 20 percent of the $800 billion that’s needed to fix our country’s water infrastructure.  Snyder’s Michigan plan would provide state funding of approximately $110 million a year, or only 10 percent of the $1 billion a year that’s needed to maintain and restore Michigan’s infrastructure. It looks like “trickle-down” financing for our cities and towns, with residents facing greater financial burdens and higher risks to health or even loss of water from their taps.

In short, local governments and their residents will be left little choice but to turn to Wall Street investors or large private water firms like American Water Works, Aqua America, and American States Water Company. A number of international water corporations want to seize an even larger control of water supplies, infrastructure, and the revenues from ratepayers. These include Suez, RWE or Thames, Vivendi, and Veolia. Large equity firms are also looking for attractive investments that take advantage of attractive municipal water revenue streams. The reality is that the life expectancy of a large portion of our country’s geriatric public water infrastructure is short, and the move to remove legal or perhaps constitutional barriers to the comingling or outright ownership by private corporations and investors poses a major challenge in the years ahead

Most of our Municipal Water Systems Are Public

About eighty-five percent of municipal water systems in this country are publicly owned and controlled and accountable to residents under constitutional and public governance.  Private water corporations own or control the other 15 percent. In the last few years, the experience or prospect of private ownership of public water—Detroit water shutoffs and Flint lead and health crisis– has fomented public opposition if not outrage.  Cites like Indianapolis, Pittsburg, and Missoula are taking back their pumps, pipes and taps because of inefficiencies, lack of governance or accountability, high water rates, or broken promises to repair broken infrastructure. Missoula went so far as to exercise condemnation to reclaim its water and water system from the Carlyle Group.

On the other hand, the private sector has increased investment or ownership in public water utilities five-fold in the past 10 years through claims of efficiency, productivity and service, and stable water rates for residents and customers. Private firms argue that private markets bring about efficiency and lower water use; more recently, the private sector claims that because governments are not willing to raise taxes and monies to finance public infrastructure, private equity firms offer a pathway to amassing the vast sums of money necessary to rebuild and repair our infrastructure.

In order to make this pathway more attractive, some states like Pennsylvania and Illinois have passed laws to remove traditional barriers to private investment.  For example, municipal water system revenues are protected from raids by the local government council to transfer monies into the general fund.  In addition, valuation of municipal water systems is often based on a cost-based accounting discounted for the remaining life of assets. As a result, to make privatization more enticing, Pennsylvania passed a “fair value” law that increases the fair or market value of the water system assets to generate more revenues from a sale for cities faced with financial failure or shortfalls; this included a relaxation on transfer of money from a sale of the system to the general fund.

Privatization or Public-Private Partnerships

The jargon coming from big water companies, private investment firms, the World Water Forum, World Bank, and governments influenced by a “privatize-everything” ideology is called “PPPs” or “P3s”—Public Private Partnerships. What are they?

PPPs or P3s were invented to mute the negative connotation of privatization of water or other public commons and services.  They include any form of private ownership or equity investment, leasing, control, or share in revenues in public infrastructure that achieves an acceptable income stream or rate of return for a private corporations, investors, and shareholders. Private equity ownership or investment is just that—private. And if private, there is less government control and accountability. Residents must take their concerns, problems, and complaints to a private concern.

As noted by the Center for Progress in a 2016 report on P3s, PPPs involve a form of privately held investment (although the private corporation may be on public stock exchanges) and require a rate of return on investment  of 8 to 14 percent, In part because the income is subject to federal income tax. By comparison, municipal or public infrastructure bonds do not affect public ownership and control of water and infrastructure for residents and customers, and the borrowing cost for municipal bonds currently is around 2.5 percent, and is not subject to federal income tax. 

The point is this.  PPPs are simply another idiom for privatization based on monopolistic control and private control of the money generated off the backs of residents and customers of water systems in our cities and towns.  Because of this, it is important to understand a few things about PPPs or privatization of infrastructure.

PPPs or Public Water and Infrastructure

The real question remains, should public water and infrastructure be privatized? And if a municipality chooses to privatize to raise the cash needed to fix and repair infrastructure, what are the basic principles that should apply? Whether through private or public investment and control, the upgrading, repair and maintenance of this infrastructure will require close to $1 trillion over the coming decade.

Those supporting PPPs claim privatization benefits cash-short communities by offering the money needed to upgrade and repair, promote efficiency and conservation because of the private profit motive. If the Trump administration and states like Michigan squeeze communities by slicing available funds or loans to cover only 25 or less percent of the investment needed to restore our water systems and operations, there may be no choice at all.

So, what are municipalities and their residents in for? Most reports and commentators give privatization and P3s a bad grade. As pointed out by Padraig Colman in the “State of the Nation” series on privatization, The Financial Times called privatization of water “an organized rip-off,” because British companies had sluffed off sewage, polluted waters, and even charged ratepayers to pay for private debt. While less bombastic, here are some of the pitfalls of PPPs or privatization of public water infrastructure and services:

  • Efficiency from privatization and pricing according to markets or through entrepreneurship is less likely to occur, because the privatization does not create a market, it creates a monopoly.
  • Moreover, experience in general does not support the claim of improved efficiency.
  • Because private investors and companies have a legal duty to return money to shareholders, and because income is taxed, there is a constant pressure to raise prices to cover large capital upgrades and repairs and continued satisfactory dividends and share values. Generally, private systems charge more.
  • Some private acquisition contracts include financing, design, construction, and then maintenance, repairs and maintenance, and can include higher profits built into costs, higher costs of financing, and again higher rates.
  • Cost-cutting measures sometimes result in poor service and short-change the condition of the systems and risk public health.
  • Data and information about the operations are private or harder to obtain, so there is less transparency and accountability.
  • PPPs result in the removal of governance based on fundamental public trust in governments promoting the public interest or the constitutional rights and duties that protect the water, infrastructure, and citizens or residents from inequality, unfairness, and health and environmental risks.

What should residents, officials, public water professionals, and citizens draw from over a hundred years of public water services systems and all of this current debate between public and private ownership and control of our water?  In a word, “Beware!”  Beware of the dangers and pitfalls of privatization and PPPs or 3 Ps. Beware that one size does not fit all, that there are many variables, local conditions, financial and health exigencies, and the long-term public interest that come into play. Beware that if any form of privatization of public water infrastructure, water sources, or services is proposed, to insist on the following declarations or principles, whether the water system and services are public, quasi-public, or private:

  1. Declare all water public; just because our natural public water commons enter an intake pipe does not mean this water loses its public common and sovereign status. Government at all times must manage and provide water as sovereign for the benefit of people.
  2. Impose public oversight with a duty to protect the public service, public interest, public health, and public trust in water and the infrastructure the water passes through;
  3. Establish rights and Impose duties of accountability, notice, participation, equal access to safe, adequate, clean, affordable public water;
  4. Guarantee principles of due process, equal protection of law, and right to basic water service;
  5. Guarantee affordability and equity in access and use of water by all residents and customers;
  6. Implement fair and innovative pricing, subject to public oversight, a public utility or water board, with a statement of rights, duties, enforcement, and government process to assure safe, clean, affordable public water.

Jim Olson, President and Founder

The next article that will appear in this space on public water infrastructure will explain why water is public, why water in a public or private system must remain public, why the infrastructure itself that carries and delivers public water is subject to a public oversight and legal accountability. It will then describe some innovative approaches taken by public and other water services systems to come to address the challenges they and all of us face in the 21st century. Water, water infrastructure, and services are not just physical things or “assets.” They are a sovereign commons inseparable from the people, life, and quality of life they support.


 

Water is Life: Strengthening the Great Lakes Commons

On September 29-30, 2017, concerned residents from across Michigan, USA and Ontario, Canada, along with Indigenous peoples will gather in Flint, Michigan to discuss Great Lakes threats, human rights and water sovereignty.

We invite you to participate in this community-based summit of Michigan, Ontario and Indigenous residents opposing commodification and privatization of water, and strengthening the Great Lakes commons and indigenous sovereignty. Featured keynotes, plenaries and workshops will address how bottled water turns commons into commodities and how Great Lakes peoples can shift water ownership into guardianship and a human right.

Register TODAY and indicate your workshop preferences, spaces limited.

Water cut offs in Detroit a violation of human rights

By Guest Blogger Maude Barlow, National Chairperson for the Council of the Canadians and longtime partner of FLOW.
Read the original post here.

Maude Barlow Detroit MI Great Lakes

Maude Barlow speaks in Detroit, MI

I recently visited Detroit, Michigan and am shocked and deeply disturbed at what I witnessed. I went as part of a Great Lakes project where a number of communities and organizations around the basin are calling for citizens to come together to protect the Great Lakes as a Lived Commons, a Public Trust and a Protected Bioregion. We are also deeply worried about the threat of extreme energy such as diluted bitumen from the tar sands of Alberta and fracked oil and fracking wastewater from North Dakota being transported by pipeline and rail near the lakes and on barges on the lakes and are calling for a ban of these dangerous toxins around and on the Great Lakes.

But the people of Detroit face another sinister enemy. Every day, thousands of them, in a city that is situated right by a body of water carrying one fifth of the world’s water supply, are having their water ruthlessly cut off by men working for the Detroit Water and Sewerage Department. Most of the residents are African American and two thirds of the cut offs involve children, which means that in some cases, child welfare authorities are moving in to remove children from their homes as it is a requirement that there be working utilities in all homes housing children.

People are given no warning and no time to fill buckets, sinks and tubs. Sick people are left without running water and running toilets. People recovering from surgery cannot wash and change bandages. Children cannot bathe and parents cannot cook. Is this a small number of victims? No. The water department has decreed that it will turn the water off to all 120,000 residences that owe it money by the end of the summer although it has made no such threat to the many corporations and institutions that are in arrears on their bills as well. How did it come to this?

Detroit is a victim of decades of market driven neoliberal policy that put business and profit ahead of public good. Social security programs have been slashed and their delivery privatized. Investment in essential infrastructure has been slashed. Every winter, hundreds of aging pipes spew water from leaks and the water has not been turned off in thousands of abandoned houses and boarded up businesses where frozen pipes also lose huge amounts of water.

With globalization and the hollowing out of the once mighty auto industry, wealth and businesses fled to he suburbs, draining the city of its tax base and the water department of its revenues. (There are one million fewer people living in Detroit than there were in the 1950s.)

The burden of paying for the water and sewer services landed squarely on those who stayed, mostly poor African Americans. Rates rose 119% in a decade in a city with record high unemployment and a 40% poverty rate.

To make matters worse, as a cost cutting measure, the water department stopped sending bills, expecting residents to just figure out their own bills. It then installed “smart metres” that read backwards and many families were hit with bills in the thousands of dollars. Many of these bills were from former tenants, and many included water bills from near by abandoned houses but that didn’t matter to the authorities.

Recently, the city of Detroit was declared bankrupt by the state and a high priced bankruptcy lawyer was named Emergency Manager with a mandate to get the city back on its feet financially. Nothing is off the chopping block, not the city’s famous art collection or its water utilities which are about to be privatized. As the feisty Charity Hicks, a leader of the resistance to the cuts and a founding member of the Detroit People’s Water Board, which includes welfare and human rights groups and environmentalists, points out, authorities see these unpaid bills as a “bad debt” and want to sweeten the pot for a private buyer. Hence the rush to implement a ruthless plan of cut offs for anyone more than two months behind in payments.

It is important to acknowledge the class and race dimension of this assault. There have been no stories on the cut offs in the mainstream US media. One cannot imagine that fact if the people losing their water were middle class white people. But the feeling is that Detroit is a lost cause and the people there deserve what they are getting.

L Brooks Patterson is the elected CEO of the affluent Detroit suburb of Oakland. In a recent interview in the New Yorker, he affirmed that a statement he had made 30 years ago was still valid. “A number of years ago I made a prediction and it’s come to pass. I said, ‘What we’re gonna do is turn Detroit into an Indian reservation where we herd all the Indians into the city, build a wall around it and then throw in blankets and corn.'”

This man wins his elections with huge majorities.

What is happening in Detroit is a social crime and a violation of the human right to water and sanitation as recognized by the United Nations. It is a violation of the “Obligation to Respect,” whereby a right once realized cannot be removed.

The situation in Detroit is a travesty and the governments of Michigan and the United States itself must be held accountable.

President Obama must step in.

As more and more of the public space is privatized and sold off to corporations, is this our collective future? Never before have the differences between the 1% and the poor been greater in America.

The daily cut offs of water in Detroit, water needed for life and dignity, are an affront to the notion that we have advanced very far in our understanding of human rights or in its practice. We all stand guilty if we do not shout out against this terrible injustice on our continent.