News Feature | January 3, 2017

New Jersey City Is Case Study In Private Water

Sara Jerome

By Sara Jerome,

A recent New York Times analysis on the pros and cons of privatizing municipal water utilities found that privatization means bills tend to rise, but for cash-strapped communities struggling with failing pipes, private operations can pave the way for infrastructure upgrades.

One example is Bayonne, a small city in central New Jersey that found private investors for its water works five years ago, according to the Times analysis. Kohlberg Kravis Roberts, a private equity firm, now manages local water infrastructure with Suez.

The arrangement in Bayonne is “one of a handful of deals across the country in the last few years in which private equity firms have managed public water systems. While these deals are a small corner of private equity’s sprawling interests, they represent the leading edge of the industry’s profound expansion into public services,” the report said.

“Even as Wall Street deals like the one with Bayonne help financially desperate municipalities to make much-needed repairs, they can come with a hefty price tag — not just to pay for new pipes, but also to help the investors earn a nice return. Often, these contracts guarantee a specific amount of revenue, The Times found, which can send water bills soaring,” the analysis said.

Water rates have risen almost 28 percent since Bayonne privatized its tap water, according to the report.

“In one measure of residents’ distress, people are falling so far behind on their bills that the city is placing more liens against their homes, which can eventually lead to foreclosures,” the report said.

A Suez spokesperson addressed the issue of rising bills: “Bayonne had chronically underinvested in their water and sewer infrastructure, which has certainly contributed to rate increases during the past few years.” He added, per the Times: “We understand that these increases create stresses for ratepayers.”

Supporters of public-private partnerships say there are strong arguments in favor of investing private money in the water supply.

“Proponents of the public-private partnerships, citing recent studies in Canada and Europe, argue that private businesses operate more efficiently than governments do and that this translates into cost savings for citizens,” the report said.

“Supporters also say that the deals require private equity to spend millions of dollars a year to fix things (money that towns may not spend on their own), and that the firms sometimes pay towns millions more up front. Bayonne, for instance, got $150 million up front from K.K.R.’s team, which the city used to pay off a pile of debt,” it continued.

Bayonne is hardly alone in bringing private money into the water system.

“More than 2,000 municipalities have entered public-private partnerships for all or part of their water supply systems, according to the National Association of Water Companies, which represents private water companies like Veolia North America and American Water,” Stateline reported.

Yet an advocacy group that opposes private money in water systems argues that there is a growing momentum for the “remunicipalization” of water.  An article by the Transnational Institute said: “In recent years 235 cities from 35 countries have taken back water management into public hands, establishing a global trend towards remunicipalization.”

For similar stories visit Water Online’s Funding Solutions Center.