The Dangers of Wall Street Water
by Brittany Alston, Senior Research Analyst
Health agencies and officials have made it clear that running water is essential to preventing the spread of the Coronavirus. But before mid March, millions of Americans with unpaid water bills and no running water were left wondering how to protect themselves against the virus. Though it took a global pandemic, we are left to wrestle with the newly visible crisis burdening families throughout the country — water affordability.
The crisis of water affordability is a confluence of disinvestment and predatory deals by Wall Street water barons who shift the public good into the hands of shareholders. But in the end, ratepayers always foot the bill.
The federal government has employed austerity measures and eroded the spending needed to rebuild and maintain our water infrastructure. The Environmental Protection Agency estimates that addressing the nation’s water infrastructure needs will take about $655 billion over the next 20 years. But in recent years, federal funding for water has remained relatively flat with an average investment of $16 million since the Great Recession. This places pressure on state governments to fill the gap, often with large debt loads that entice predatory Wall Street actors, like investor owned utility companies and private equity firms.
As state governments look at an economic downturn in its face and Americans struggle to stay afloat, Wall Street sees opportunity. These financial firms are known to court cities and states, trying to convince them to privatize their water systems in return for temporary financial relief. Private equity firms thrive under market dislocation by preying on failing companies and debt stricken governments and government agencies. Because assets managed by the private equity industry have more than doubled since the 2008 crisis, the industry has the money to take advantage of another crisis.
Ratepayers are hit hard when Wall Street owns their water. Why? Public utilities use rates to pay for operating and capital expenses, like upgrades to infrastructure and service delivery. Private utilities also carry these expenses, with the added expense of paying out shareholders. Privatized water systems typically charge 59 percent more for water service than local government utilities. And if that water system is owned by a private equity firm, ratepayers should expect even higher bills. Residents in Bayonne, New Jersey reported $500 water bills from private equity firm KKR and the privately owned water company, Suez. Higher rates allow private equity firms to see returns of anywhere from 8 to 18 percent, that is even more than the average for-profit water company would see. Above all, privatized water systems must deliver “superior shareholder return” and companies promise shareholders their returns even during crises, and even during a pandemic.
Cash-strapped families cannot afford increasingly high water bills — whether before, during or after a pandemic. An unaffordable water bill is best defined as an unpaid water bill. In one year alone, research showed 15 million people experienced water unaffordability, resulting in water shutoffs. The highest shutoff rates were disproportionately in cities with high poverty rates, high unemployment rates and people of color. As the coronavirus continues to move through the U.S., economists predict 14 million people will be jobless by summer 2020, with low-paying jobs in the retail, service and hospitality sectors being hit the hardest — industries that disproportionately employ black and brown workers. It becomes nearly impossible for people with existing debt and no income to catch up on past due bills.
It seems reprehensible for us to consider water a commodity come late spring or summer — or whenever the pandemic is officially over. What seems reasonable is a bold push for public water for all. This is an opportunity to remove nonessential actors from goods and services that should be universal and free and to protect our public water systems.
Here’s how we can do that:
- All residents should have running water, regardless of ability to pay. Service disruption because of inability to pay is a form of punishment against poor and black and brown residents.
- Debt relief for ratepayers should be prioritized above interest payments and dividends for investors
- Local governments must reject unsolicited offers for water privatization and protect water as a public good.
- The federal government must fully invest in water infrastructure to lessen the debt burden placed on public water systems.