How a Tiny Town Sent an International Water Giant Packing
In 2008, weeks after communities all over the United States celebrated the Fourth of July, the tiny town of Felton, Calif., marked its own holiday: Water Independence Day. With barbecue, music, and dancing, residents marked the end of Felton’s six-year battle to gain control of its water system. The fight, like the festivities, was a grassroots effort. For when a large, private corporation bought Felton’s water utility and immediately raised rates, residents organized, leading what was ultimately a successful campaign for public ownership and inspiring other communities nationwide.
Like many other communities with a privately controlled water system, Felton quickly experienced some of the drawbacks: skyrocketing rates, and little public recourse. But officials of some cash-strapped towns seek privatization because they believe a corporation will help lift their burden. Across the country, public water systems require massive repairs to deteriorating infrastructure, at an estimated annual cost of about $17 billion over the next 20 years. Our aging water mains result in some 240,000 breaks a year, and more than a trillion gallons of wastewater spill into our waterways annually. Federal funds typically help communities pay the repair bills, but escalating costs have prompted many cities to look for alternatives.
Some local leaders, eager for financial help, have turned to private companies to buy their utilities or lease them—arrangements known as public-private partnerships. Companies promise system improvements, greater efficiency, and money up front, but increasing evidence suggests that cities are getting the raw end of such deals: Privatization jeopardizes public supply and access to water and drives up costs for citizens.
“Providing clean, accessible, affordable water is not only the most basic of all government services, but throughout history, control of water has defined the power structure of societies,” Alan Snitow and Deborah Kaufman, filmmakers who documented the effort of Stockton, Calif., to fight privatization, wrote in the book Water Consciousness. “If we lose control of our water, what do we as citizens really control through our votes, and what does democracy mean?”
Communities Fight Back
A former logging town in the redwood hills above Santa Cruz, Calif., Felton had a privately run water system, a holdout since privatization fell out of favor in the late 19th century. It hadn’t been much of an issue until 2002, when Citizen Utilities, the small company that ran the water system, was acquired by American Water Works Co. Its subsidiary, California-American Water (Cal-Am), took over Felton’s water utility. American Water was acquired shortly afterward by London-based Thames Water.
In November 2002, Cal-Am proposed a 74 percent rate increase over three years, subject to approval by the California Public Utilities Commission. Felton residents formed Friends of Locally Owned Water (FLOW), and with legal help from Santa Cruz County, fought the rate increase, which the utilities commission knocked down to 44 percent. But the threat of escalating costs loomed, so FLOW began working on a plan to buy the water system and turn it over to the nearby San Lorenzo Valley Water District (SLVWD), a public utility. By 2005, FLOW had enlisted the help of Food & Water Watch and was working on a ballot initiative to raise the estimated $11 million to buy the system from Cal-Am/RWE.
Jim Graham of FLOW said the group sent volunteers door to door three times throughout the community to educate residents about privatization and the public ownership campaign. That meant urging voters to accept a property-tax increase of up to $600 a year for 30 years.
Their efforts were successful, and the ballot initiative won with nearly 75 percent of the vote. SLVWD then proposed to buy the water system for $7.6 million, but Cal-Am/RWE refused to sell. So SLVWD pursued eminent domain to force a buyout. Just before the case was to go to jury trial, the company settled with SLVWD. Today, with Felton’s water back in the hands of a public utility, the average resident’s bill has dropped by at least 50 percent. FLOW has calculated that even with the tax increase, most residents are already saving as much as $400 per year.
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.
But for many, the issue of water privatization isn’t just about money. Felton FLOW member Barbara Sprenger said she was motivated to act primarily “because it was water.” Private ownership, she said, meant extra costs without the necessary monitoring and transparency.
“The people on our water board manage our water as part of a watershed,” she said. “They care, and they are local—we see them at the grocery store. You really have to have local control over something so vital.”