(MintPress) — Private equity firms have raised an estimated $186 billion to purchase public water and sewer facilities across the U.S., a trend that environmentalists and community members believe is endangering citizen control of water supplies. A report released earlier this week by Food and Water Watch, a public interest organization, contends that the privatization of water utilities puts cash-strapped towns in a difficult bargaining position.
More concerning for citizens is the report’s expectation that towns privatizing water account for budget shortfalls will experience “decreases in service and steep price hikes— all while private companies make massive profits.”
While the issue is of major concern for environmental groups and concerned citizens, maintaining public control and management of natural resources has become a much larger problem in Latin American countries, where indigenous populations have been displaced and are unable to seek redress for their environmental grievances.
Food And Water Watch report
Since 2000, major investment funds managed by JPMorgan Chase, Australian bank Macquarie and the Carlyle Group have purchased public water and sewer works across the U.S. The trend has accelerated in recent years, with a sharp uptick from 2005 to present.
According to the report, “As of January 2012, private equity players had raised $186 billion through 276 different infrastructure funds and were seeking an additional $93 billion through 144 infrastructure funds.”
Wenonah Hauter, the Food and Water Watch Executive Director, commented on the increased privatization of water supplies, saying:
“Like Wall Street’s manipulation of the housing market in the previous decade, private equity firms and investment bankers are increasingly looking to cash in on one of our most essential resources—water.”
In one of the larger cases, the Nassau County officials proposed leasing the sewer system in what was presented to the public as a “debt reduction and sewer stabilization plan.” United Water was selected to run the sewers and Morgan Stanley was the proposed financial advisor.
The plan was eventually nixed after credit rating agencies deemed it to be risky and incapable of addressing the underlying fiscal problems of the county.
George Marlin, the executive director of the authority, offered his own criticism of the plan, saying, “As for the county’s so-called ‘Debt-Reduction Plan,’ in my 35 years as an investment banker, I have never come across such an ill-conceived plan.”
Marlin continued, calling the privatization a “sheer folly” and an “ill-conceived backdoor borrowing scheme that was akin to using a credit card with a 15 percent annual interest rate to pay of a home mortgage loan that had a 4 percent annual interest rate.”
The Nassau county plan, as well as the failed 2008 Reno, Nev. plan, were cited in the Food and Water Watch report, “Private Equity, Public Inequity: The Public Cost of Private Equity Takeovers of U.S. Water Infrastructure,” as risky investments with little to no accountability.
Hauter added, “These deals are ultimately a bum deal for consumers, who will end up paying the price through increased water bills and degraded service.”
Private equity firms are also named in the report as “notorious tax evaders,” skirting taxation laws through loopholes. One firm cited, the Carlyle Group, reportedly made more than $4 billion in profit but paid an effective income tax rate of only 2 percent.
Despite the ominous nature of the report, there are proposed alternatives for city officials looking to save money without sacrificing service for their constituencies.
The alternative: Cash-strapped communities can enter into “public-public partnerships to reduce costs and enhance the performance of their public water and sewer services.”
This plan would require federal government funding for a national program to support public sector utilities. This includes increases in funding for existing programs Drinking Water and Clean Water State Revolving Funds by reauthorizing the Build America Bonds program.
While environmentalists and community leaders may be searching for increases in federal funding or a federal bailout of local utilities, the plan is unlikely to garner much support in Washington as lawmakers, particularly Republicans, have previously criticized the size of government spending.
GOP presidential candidate Mitt Romney has not addressed this issue directly, but has considered cuts to Medicare, Medicaid and other publicly funded programs. The privatization of public utilities would be consistent with Republican plans to reduce dependency on what many see as an inefficient government driven bureaucracy.
While the plans in Nassau county and Reno have been defeated, some environmental groups believe the resource control in Latin America could be a harbinger of things to come for U.S. communities struggling to maintain public control of resources.
Fight to control water in Latin America
The corporate management of natural resources is much more acute in Latin America, where communities have been battling the privatization of water to the detriment of indigenous populations.
Last month, indigenous tribes in the Brazilian Amazon ended their three-week occupation of a dam on the Xingu River. nine native tribes took part in protests, contending that the $10.6 billion Belo Monte dam project cuts through their land and violates tribal sovereignty.
Amazon Watch, an environmental rights group, believes that talks between the power company Eletrobras and tribal representatives were not successful. “During the talks with each ethnic group, Norte Energia offered each community a package of ‘trinkets’ such as TVs, boats, cameras and computers while refusing to commit to a timetable for meeting the legally required social and environmental conditions,” Amazon Watch posted in a written statement.
Norte Energia is the Eletrobras corporate representative responsible for negotiations with local communities living near the project.
“After they extract all that gold, there will only be rock left, and then where will I plant my crops and where will my children live? Where will my grandchildren live? What water will they drink if there is no water left, if they (the mining companies) are where the natural water springs are? For this, yes, I do protest,” said the unidentified protester.
While not nearly as protracted a battle, many Americans continue to fight against fracking and the development of oil pipelines in their communities. One common demand among protesters, whether they be in the U.S., Ecuador or Brazil, is respect for local communities, something that private corporations appear unable to provide.
“Private equity players aren’t investing in water out of a sense of civic responsibility. Their first and foremost motivation is profits, which has already proven incompatible with delivering an essential resource to consumers,” said Hauter.