How a Tiny Town Sent an International Water Giant Packing

Continued from previous page

A Private Matter

In recent decades, the government’s role in water service has changed. Three years before Reagan took office, 78 percent of money for new water projects came from the federal government. Nearly 30 years later, the proportion has fallen to 3 percent. Then the Clinton administration made several tax-law changes that made it easier for cities to privatize local water and sewer systems and for foreign companies to enter the market, explained Emily Wurth, water program manager for Food & Water Watch.

Food & Water Watch has studied the effects of water-system privatization and has helped Felton and other communities turn—or return—to public control. In a 2009 report that examined nearly 5,000 water utilities and 1,900 sewer utilities, the organization found that the private entities—which have a fiduciary obligation to shareholders—charge up to 80 percent more for water and 100 percent more for sewer services. Privately owned utilities cost more to operate, too: They typically have to pay income and property taxes, while public utilities are exempt. In all, according to Food & Water Watch, operation and maintenance costs of privatized water systems can spike 20 to 30 percent, when dividends, taxes, and profits are factored in. It follows that corporations make more money if more water is used; conservation and repairs, then, can fall off the priority list. When Stockton, Calif., privatized its wastewater system, higher-than-promised rate hikes, poor maintenance, and sewage overflows followed. When 8 million gallons discharged into the San Joaquin River, the spill went unnoticed for 10 hours and unreported to the public for three days.

According to a 2002 Century Foundation survey of 245 municipalities, 73 percent of them ended private water contracts because of poor service. In Lee County, Fla., officials realized that after five years of control by Severn Trent Services, a British multinational corporation, the county needed $8 million to repair improperly maintained systems, which could have jeopardized environmental and public health. The county lost money on the deal and didn’t renew the five-year contract once it ended. Other cities that privatized sewer systems—including Woonsocket, R.I., and Wilmington, Del.—have discovered chronic pollution problems.

Meanwhile, some cities turn to water-system leases. But under a lease, the city retains control of the infrastructure, so the corporation has even less incentive to perform proper maintenance. If spills or overflows result in environmental damage, it is often the municipality that has to pick up the tab on any fines.

In 2008, the city of Milwaukee was looking for solutions to an impending $100 million shortfall when the city’s comptroller recommended a lease of the Milwaukee Water Works. He hoped a private company would pay the city $500 million for the right to lease the utility for 99 years. “The driving reason wasn’t that our water system was falling apart or in need of maintenance,” said Deputy Comptroller Mike Daun. “We wanted a public-private partnership that would result in a very large transfer of funds to the city up front, which we’d use to create an endowment and address the deficit.”

But not everyone shared that vision. Research by Food & Water Watch revealed that for every dollar the city received from the lease, residents would end up paying $1.60 to $5.40.The organization aided a grassroots effort in Milwaukee that helped defeat the privatization plan, at least for now.

Cities such as Chicago continue to contemplate privatization, while many others are reverting to public control or fighting privatization at the outset.

Wenonah Hauter, executive director of Food & Water Watch, says that her organization advises communities to focus on who is able to stop the privatization threat, usually the city council or water board. That means ­doorbelling, working with the media, releasing reports that challenge the company’s claims, and working closely with labor groups and community groups. If cities need to make improvements to ailing systems, municipal bonds are usually a cheaper option than private financing, and they can seek public-public partnerships (PUPs), an alternative to public-private partnerships. PUPs, according to the Transnational Institute, are “a collaboration between two or more public authorities or organizations based on solidarity to improve the capacity and effectiveness of one partner in providing public water or sanitation services.” Essentially those communities with well-run systems offer their expertise to managers of utilities in need of some help.