Water Heist

Water Heist: Corporations Are Targeting Cash-Strapped Cities for Control of Their Public Water
From wastewater to drinking water, big business is looking to cash in on public water systems and they've got a new tactic.
January 29, 2010 |

Corporate interests are eyeing our water. From wastewater to drinking water, big business is looking to cash in on public water systems and they've got a new tactic: They're using desperate economic times to convince city officials that they should place a corporation between families and their ability to eat, drink, and clean.

Take Akron, Ohio, for example. In September 2008 I wrote an article for Alternet about a ballot measure in Akron where voters were asked whether to lease the city's wastewater system to a corporation in return for an immediate, one-time payment. The plan was roundly defeated. But more importantly, as the article suggested, the lease signaled a new direction for water privatization in the U.S. This involved a collaboration between water companies and Wall Street to snatch up control of water infrastructure for the better part of a century.

Since that vote, similar lease plans have been floated in Milwaukee and Chicago, presenting a dangerous possibility: In the near future, a major U.S. city could sign over unprecedented control of its water system to a corporation for a generation or longer. The silver lining in this narrative is that the same communities being targeted by water corporations for these deals are now charting out new ways to ensure their water remains in public hands. And for the moment, advocates of public control are winning.

The Lease Model of Water Privatization

Recent decades have been an active period for water corporations. In the 1990s the corporate push to privatize was buffeted by a tax law change under the Clinton administration that encouraged multinationals to enter the U.S. market. However, when privatization of water systems in large cities proved to be a nonstarter-due in no small part of public education and opposition-the largest players like Veolia, Suez, American Water, and Aqua America opted instead for a strategy of gobbling up smaller systems. This has been the basic narrative of municipal water privatization in the U.S., until recently.

As we enter the second decade of the 21st century, water companies are pushing a new model of privatization and targeting some of America's largest cities, starting in the water-rich Midwest. This new business model involves the acquisition of systems for periods much longer than previously considered, and with much greater control of the asset. These companies now want to lease your water, so they can sell it back to you.

The concept is relatively simple. The company pays the municipality an upfront sum of money in return for control of the water system. The company regains its investment through water bills over the life of the lease. The lease model stands in contrast to the more common "operation and maintenance" (O&M) contracts of the past decade in three main respects. For starters, cash flows in the opposite direction: an O&M contract generally involves a city making payments to the water company. The lease also differs significantly in the degree of the control that the public hands over, which may include capital improvements, system reach, and collection of excess revenue. Finally, these proposals span a much greater length of time-often 75 to 99 years-theoretically so the company has adequate time to regain its investment.

The incentive for cities is clear, if shortsighted. In the rustbelt Midwest, where the recession has hit state budgets hard, the one-time cash influx-a lifeline of sorts-is hard to refuse. And while water systems are not the only asset companies are willing to acquire, many cities in the water-rich Midwest see their access to freshwater as one of their most valuable assets. Cities like Milwaukee and Chicago have excess capacity to deliver freshwater, a resource described with growing frequency as "blue gold" and "the new oil."

But the intrinsic costs to the community are numerous and in part account for the fact that no such deal has yet been concluded in a large U.S. city. For starters, rate increases are guaranteed, seeing as this is the company's primary means of recouping its investment. In Chicago, where parking meters were leased in 2008, a schedule of rate increases was written into the lease to ensure a return for the company. And loss of control can extend beyond rate-setting to encompass decisions over bulk water sales and regional development too. After all, no company would spend a pretty penny on an asset that it can not leverage or use to its advantage. These are costs to the community that endure over the life of the lease, whether it be 75 or 99 years.

Despite the drawbacks to these deals, water companies are using tough economic times as leverage.


Mobilization in the Midwest: Communities Fight Back

The upshot of this assault on large public water systems is that the same cash-strapped communities targeted by water corporations for these deals are meanwhile growing smart water activists and developing new tools to prevent the sale of their water. The three primary instances are Akron, Milwaukee, and Chicago.

The Voter Initiative in Akron

Akron, Ohio, a city with a well-functioning sewer system, was the first in the recent pack of large cities to consider leasing its water. In 2008 Akron Mayor Donald Plusquellic hired Morgan Stanley to act as a financial advisor to the deal and, despite public opposition, used his control over council to move the city inexorably toward a wastewater lease. Faced with little hope of swaying the council, residents organized the city's first successful voter initiative in ten years. Citizens to Save our Sewers and Water proposed amending the city's Charter to state that any sale or lease of a public asset must be subject to a public referendum. In November 2008, after a nine-month struggle, the electorate voted 2 to 1 to amend the city's charter and sink the mayor's privatization plan.

Akron voters had not only rejected privatization, they had also erected a hurdle for future privatization deals in the form of a referendum requirement. It was a landmark victory that inspired a similar strategy in Cincinnati, Ohio in 2009 when city officials sought to spin-off that city's water system (that issue will go to ballot this year).

Preventing the Financial Advisor in Milwaukee

Within months of the Akron vote the lease proposal reared its head in another Midwest city with a valuable and well-functioning water system. In late 2008 Milwaukee City Council voted to explore leasing its drinking water system. By May it had begun accepting applications from Morgan Stanley, Citibank and other Wall Street suitors to serve as financial advisor for the deal.

That spring Food & Water Watch joined with environmental, nonprofit, union and neighborhood partners in Milwaukee to form the Keep Public Our Water (KPOW) coalition. This energetic and smart group used lessons from Akron to launch an education campaign and pressure elected officials to halt the process. Central to these efforts was a critique of the financial advisor role. These advisors, commonly Wall Street firms, are supposed to aid cities in weighing whether to pursue a contract. However, they are frequently paid a "success fee" for their assistance, amounting to a portion of the completed contract-a clear incentive to ensure that privatization occurs.

The KPOW campaign was a success. One city alderman who had stated confidently in April that a financial advisor "would unquestionably be hired" joined three colleagues in June asking City Comptroller Wally Morics to suspend the plan indefinitely. The winning message was this: Hiring a financial advisor would sweep Milwaukee too quickly down a path that did not have the support of the community.

In November, KPOW went a step further to introduce a city resolution declaring water a public trust and stating that Milwaukee's water should not be privatized.

Is Chicago Next?

If 2008 and 2009 brought battles over water leases, 2010 promises to further up the ante. With water multinationals still without a flagship city to tout the lease model, talk has moved to the Windy City. The issue arose in Chicago during the November budget approval process when it came to light that Mayor Daily would consider leasing the water system. The mayor's remark sparked a flurry of questions and speculative news pieces.

Although there has not yet been a formal proposal, the threat of a water lease is very real in Chicago. Perhaps more than any other U.S. city Chicago has embraced the concept of major asset leases. In 2004 Mayor Daley oversaw a 99-year lease of the Chicago Skyway, followed in 2008 by a 75-year lease of the city's parking meters, and currently he is seeking to lease Chicago's Midway Airport. In this water-rich city where the mayor has firm control of city council, a serious budget shortfall, and penchant for unloading public assets, a water lease is hardly a stretch of the imagination.

However, stung by the surprising and disastrous parking meter lease in 2008, some Chicagoans are wisely not waiting to mobilize against this possibility. In October, Chicago Alderman Scott Waguespack introduced the Asset Lease Taxpayer Protection Ordinance. The measure would raise hurdles and restrict the circumstances under which a city asset could be leased. It is a first step in protecting Chicago's water from private control.

In the end, advocates of public control can hardly relish the thought of a fight with Mayor Daley over privatization. However, they are wise to not wait to take protective steps. And whether it is a charter amendment, a sharp analysis of Wall Street advisors, or more responsible city ordinances, advocates of public control have demonstrated that they have the tools needed to win.


Jon Keesecker is the midwest region director for Food & Water Watch.

http://www.alternet.org/water/145480/?page=entire