Will New Federal Law Facilitate Privatization of US Water?

By Carey Biron, Mint Press News | 30 May 14

Link to original article.

 major piece of legislation funding the development and improvement of water-related infrastructure passed Congress last week for the first time in nearly a decade, and President Barack Obama is expected to sign the bill soon.

Yet public interest groups warn that a key provision in the law would complicate public investment in drinking water and wastewater systems in big cities and small towns alike. The end result, they say, would be to strengthen privately-managed or -owned water systems while leaving the federal government to take on the risk of these investments—essentially subsidizing water privatization.

“This law will facilitate the privatization of water systems and prioritize funding for privatized systems,” Mary Grant, a researcher for the water program at Food & Water Watch, a watchdog group here, told MintPress News.

“The basic problem is that it will only fund up to 45 percent of project costs, but also stipulates that the rest cannot be made up through the use of tax-exempt bonds,” Grant continued. “Yet such bonds are the primary way in which local governments fund infrastructure projects, so why would they try to make use of this funding?”

The broader law, agreed upon by large majorities in both the House and Senate over the past week following a year of negotiation, is known as the Water Resources Reform and Development Act. The full bill authorizes funding for a spectrum of new water infrastructure projects—particularly around ports and waterways, including flood protection and restoration—worth some $12.3 billion, though this money will still have to go through an appropriations process.

Assuming that President Obama signs it, the Water Resources Reform and Development Act will be the first such water-related funding package to become law since 2007. Even then, the 2007 bill passed over the threat of veto from President George W. Bush, primarily due to budgetary concerns. As with any large funding bill, the act has received criticism from conservatives worried that Congress will not be able to provide adequate oversight for what they expect to be a frenzy of project requests.

The bill also includes provisions aimed at dealing with what experts say is a multi-billion-dollar funding gap for drinking water and wastewater systems across the country. Last year, the U.S. Environmental Protection Agency (EPA) estimated that some $384 billion in improvements would be needed in U.S. drinking water infrastructure over the next two decades. The EPA also found that many of the country’s 73,400 water systems are between 50 to 100 years old.

“[T]he nation’s water systems have entered a rehabilitation and replacement era in which much of the existing infrastructure has reached or is approaching the end of its useful life,” EPA Acting Administrator Bob Perciasepe said at the time. “This is a major issue that must be addressed so that American families continue to have the access they need to clean and healthy water sources.”

While Congress is receiving widespread plaudits for finally acting on this shortfall, critics are worried that the final law will be detrimental to communities across the country.

Dwindling Public Funding

According to data provided by Food & Water Watch, federal spending on improvements to drinking water and wastewater systems since the late 1970s have dwindled by some 80 percent. Since the late 1990s, the group says, federal grants have offered just $15 billion for this purpose.

In 2012, dozens of federal lawmakers wrote to the congressional leadership to highlight this situation, citing rising concerns among mayors, public water systems directors and others. The lawmakers noted that federal funding for water systems made up just three percent of total costs, down from 78 percent 35 years earlier. This shortfall, they warned, leaves “cities and towns across the country bearing the difficult challenge of pulling together funds for public water systems.”

The new Water Resources Reform and Development Act does attempt to ameliorate this problem, making available $175 million in funding over five years. But the part of the law that focuses on this issue, known as the Water Infrastructure Finance and Innovation Act, does so primarily by steering communities toward public-private partnerships.

It is unclear whether this is by design. As Food & Water Watch’s Grant notes, a central issue is the fact that the Water Infrastructure Finance and Innovation Act does not allow communities to raise funding for infrastructure through the issuance of tax-exempt bonds, a process that the watchdog group says has raised more than $1.6 trillion for local and state infrastructure projects over the past decade.

It appears, however, that this option was only removed after negotiations with an eye toward the federal deficit, following a budgetary “scoring” by the Congressional Budget Office. Groups representing the municipal water sector say the Water Infrastructure Finance and Innovation Act won’t work for their members.

“We have huge wastewater infrastructure needs, so we’ve been supportive of having more tools in the toolbox to help communities pay for upgrades and new projects,” Hannah Mellman, legislative manager at the National Association of Clean Water Agencies, a lobby group that represents the municipal wastewater sector, told MintPress.

“Yet the tax-exempt bond exemption will make [the Water Infrastructure Finance and Innovation Act] pretty unworkable for our members. That’s not to say that they wouldn’t use [the Water Infrastructure Finance and Innovation Act], but if they can’t finance their side of projects with tax-exempt bonds we don’t see how it will be usable. So we’re disappointed to see that in the final bill.”

Funding criteria under the bill will also be different than under traditional federal water assistance. For instance, the latter has always been in part based on issues related to public health, but the Water Infrastructure Finance and Innovation Act requires no such consideration. Instead, criteria for funding under the act will include issues that strike some observers as odd — for instance, how much of the money would go to areas with significant energy development, or whether the projects already have private financing partners.

Access and Equity

On the one hand, then, the Water Infrastructure Finance and Innovation Act likely will not offer communities large or small the funding required to address the water infrastructure needs that the federal government admits are necessary and widespread. On the other hand, watchdog groups say the bill’s impact could be more far-ranging still, touching on issues of access and equity.

“We are alarmed by the implications of this bill, which would open the doors to an increase in water public-private partnerships in the U.S. and effectively subsidize water privatization,” Erin Diaz, the director of Public Water Works!, a campaign at Corporate Accountability International, told MintPress in a statement.

“The privatization of water systems around the globe has often resulted in devastating results for the economy and people—rate hikes, layoffs, labor abuses, environmental damage and public safety risks—all while failing to invest in essential infrastructure.”

In 2012, Diaz’s office published an exhaustive report on the international experience of water privatization over the past two decades. With a focus on the World Bank’s role in this issue and a call for the multilateral lender to divest from private water companies worldwide (it has yet to do so), the report undermines the central rationale in favor of privatization: that corporate efficiency leads to lower operating costs.

Such findings have come up repeatedly in the U.S., as well, with surveys finding that investor-owned utilities in dozens of U.S. states charge around one-third more than those owned by the public.

Profit-driven systems also experience problems in deciding where to extend service. Driven by profit rather than public access, companies have at times proved reluctant, for instance, to provide services in low-income areas or very small communities.

Indeed, Grant says this was one of the original reasons that U.S. water infrastructure—much of which was originally privately owned—was taken over by the public sector during the early twentieth century. As this trend has reversed in some places over recent decades, similar concerns have again cropped up.

“Though water privatization remains fairly rare, there has been a lot of work on the part of private utilities trying to expand their operations,” Grant said.

“In West Virginia, for instance, a private water utility has been buying up other utilities, and the result has been smaller households have struggled in attempts to force the company to serve their areas. The company was also trying to cut back on its investments after the state government wouldn’t allow the rate increases it wanted to impose.”

Meanwhile, even as lawmakers are undercutting municipalities’ ability to raise money for water infrastructure from tax-exempt bonds, lobby attempts have made some headway in pushing Congress to remove legal caps on the levels to which bonds to fund private activity would be allowed in the water sector. In mid-May, senators formally proposed removing limits on what are known as private activity bonds for water-related projects, prompting applause from the National Association of Water Companies, a group that lobbies on behalf of water companies.

Lifting these caps would “open the floodgates to financing water privatization projects, effectively subsidized by taxpayers,” Corporate Accountability International’s Diaz told MintPress.

“This interference, present at every level of government, is just one small part of the private water industry’s strategy to expand its market across the U.S.,” said Diaz. “The provisions in [the Water Infrastructure Finance and Innovation Act] that could provide public financing to private water are just one example of the many policy avenues the private water industry pursues to privatize water and weaken its greatest competitor—publicly-controlled and democratically-governed water systems.”

Maine Grandmothers Unite to Halt Plans for New Highway

Link to Original Article.

05/23/2014   Reported By: Susan Sharon
Frustrated by what they say is the failure of legislative and political efforts to stop the proposed east-west highway, a small group of grandmothers is taking matters into its own hands. The grandmothers have started holding monthly vigils in front of Cianbro headquarters. Cianbro is the Pittsfield-based construction firm that wants to build a 220-mile-long closed access toll highway that would stretch from Calais to Coburn Gore. As Susan Sharon reports, the grandmothers hope that their quiet persistence will carry a powerful message.
Related Media
Maine Grandmothers Unite to Halt Plans for New Hig Listen
Duration:
3:33
GM Vigil

A group of grandmothers in the Pittsfield area gather to hold vigil against plans for a new highway across Maine.

Last month there were seven of them. This time there are 13 grandmothers standing in opposition to the east-west highway. They range in age from 54 to 90.

Carol Ippoliti“My name’s Carol Ippoliti and I’m from Charleston. And I’m one of the organizers of this group of women.”

Wearing lime green t-shirts with an anti-east-west highway logo, the women unfold lawn chairs on the corner in front of Cianbro’s headquarters, and quietly unfurl banners and set out signs that make their position clear.

“And we’re concerned about the woods, the wildlife, about our homes, our farms,” Ippoliti (left) says. “We’ve seen some maps and we’ve heard that one of the proposed routes would, like, split our town of Charleston right in two.”

“I don’t like the idea of the noise, traffic, air pollution, and I just like our community as it is,” says Charlene Peavey, who turned 75 last week.

Peavey has 15 grandchildren and seven great-grandchildren. She’s written letters to the editor before. But she says this is the first time she’s ever protested or publicly stood up for something in her life.

This issue, she says, is different. “This one just hits me in the heart.”

Many of the women didn’t know each other before they joined the grandmothers’ group. They come mostly from towns adjacent to Pittsfield. They have different political and spiritual views. But they’ve found common ground around their opposition to the east-west highway.

Darryl Brown is the manager of the project, which he says has been stalled for much of the past year. “That’s for a variety of reasons, not the least of which is that I’ve been heavily involved with the University of Maine with its offshore wind project,” Brown says, “and I’ve really spent much of my time on that up until just recently.”

But Brown says Cianbro remains committed to the east-west highway project and to the idea that it would make the state a player in the global marketplace.

GM Vigil Bonnie BouchardBonnie Bouchard (right), a grandmother from Charleston, says she appreciates what Cianbro does for the local economy. But she disagrees about the perceived benefits of what she calls a “super highway” through the woods and farms of central Maine.

“I know we’re going up against a lot of money here. And I know they bring jobs. I know they do a lot of good with hospitals and with a lot of local things,” Bouchard says. “We’re not saying that. We’re just saying there’s enough pavement in Maine. Let’s keep the soil and the trees and the woods.”

Joan Morrison has six granddaughters and comes from a dairy farm in the area that’s been in her family for 40 years. She doesn’t think an international corridor will fit in with the other small farms, small businesses and small towns that make this part of Maine special, and she hopes their movement will grow.

“We would like to think that this will keep growing as more grandmothers in central Maine realize there is action they can take,” Morrison says.

Susan Sharon: “Any grandfathers allowed?”

Joan Morrison: “Not allowed. No. No. We’ve gotten past caring what people think. I don’t know that the grandfathers are there yet.”

The grandmothers hold their monthly vigils in front of Cianbro headquarters on the fourth Friday of every month. Darryl Brown says the company respects their right to demonstrate peacefully, as well as their opinions.

Photos: Susan Sharon

LTEs help push the gubernatorial race in our favor

B. Clark: The best choice for governor

Lewiston Sun Journal, Letters | Sunday, May 18, 2014

In a world of competing interests, Rep. Mike Michaud’s environmental policies capitalize on the relationship between nature and economic and societal benefits.

His support of renewable energy and efficiency promotes the well-being of more than Maine’s natural beauty; and his opposition to the proposed East-West highway and KXL Pipeline demonstrates his commitment to providing energy and transportation without resorting to environmental degradation.

The same regard for the environment and, concurrently, Maine’s people, is not present in Gov. LePage, who vetoed a common-sense bill to provide rebates for families installing solar panels and electric heat pumps. LePage’s veto aligned with his strict prohibition on increasing costs, despite the estimated average additional cost being about five cents per month.

Rep. Mike Michaud is the best choice for governor when considering Maine’s environment and, since the environment is intricately tied to the well-being of Maine’s citizens, the best choice for governor in 2014.

Britta Clark, Lewiston

Abigail Field: Privatization Is Driven By Private Greed and Public Cowardice (and Public Greed, Too)

Link to Original Article

Posted on May 12, 2014 by Lambert Strether

Lambert here: Apparently, IBGYBG (“I’ll Be Gone, You’ll Be Gone”) applies in government as well as Finance. How cozy.

By Abigail Caplovitz Field, an attorney and a freelance writer. She writes news for Benzinga.com and others, and posts a new blog every Sunday morning at Reality Check.

“Privatization” and “public-private-partnerships” for infrastructure and other public assets are scams driven by private greed and public cowardice. Americans have been burned by these scams. Last month the Atlantic ran a nice piece on the growing privatization backlash.

Unfortunately, as governments at the city, state and federal level continue to lack the political will to raise taxes or cut spending, as our infrastructure continues to deteriorate, and as political leaders such as President Obama and Congress peddle the idea, the pressure to privatize public goods will continue to rise. Indeed, it’s no longer companies like Deloitte offering to do deals; we’ve reached the point where the Motley Fool is pitching retail investors.

The New Jersey Toll Road Privatization Push

It’s a topic I’ve given a lot of thought to, because in my role as Legislative Advocate for NJPIRG, I played a meaningful role in defeating then-New Jersey Governor, nee Goldman Sachs Jon Corzine’s push to privatize New Jersey’s ‘three big roads’–the Turnpike, the Garden State Parkway, and the Atlantic City Expressway.

The policy arguments we made then (2007)–and which USPIRG and others continue to make today–remain true, and provide a good, accessible framework for judging any privatization deal that may affect you.

As you read the NJ story and our cheat sheet for judging proposed deals, consider what’s at stake– the level of traffic congestion and air pollution, the safety and quality of roads, and even the availability of high-quality affordable mass transit alternatives.

When Governor Corzine came into office, there was a political consensus among a sufficiently large and diverse coalition of interests that the best way to fund New Jersey’s transportation needs was to raise its very low gas tax. But rather than gather and lead this political will to pass the tax hike–something that would have taken courage, but not heroism–Governor Corzine pushed the privatization idea. I don’t know if ducked the tax hike because he was a coward, or greedy, or driven by his deep saturation in Wall Street’s greed ethos.

Regardless, Corzine (and his Democratic legislative allies, most notably State Senator Raymond Lesniak) suggested that New Jersey should fix its chronic budget crisis by leasing the New Jersey Turnpike, Garden State Parkway and Atlantic City Expressway to a private operator for 75 years. The private operator would be guaranteed annual toll hikes, given management of the ‘three big roads‘ and would pay the state some $20 billion.

Six Principles For Judging PPP Deals

I published an Op-Ed in the Trenton Times on May 18, 2007 that explained how to judge a deal that we (I worked closely with USPIRG’s Phineas Baxandall) later fully developed in this white paper:

1. Public Control: public policy, not protecting private profit, had to control key management decisions that would not only affect the leased roads, but also the communities all along the roads. Because of the roads at stake in New Jersey, the issue was really statewide transportation policy.

What were we talking about? As the white paper explains:

“…toll levels, maintenance and safety standards, and congestion on the Turnpike and Parkway have a substantial impact on the number of cars using alternative routes, including local roads and mass transit. …

In the wake of the last Turnpike toll hike, for instance, many communities felt the impact of trucks diverted onto local roads…. Public control of key toll roads is necessary to ensure a coherent statewide transportation planning and policy making.

… Three examples illustrate these potential dangers:

● Non-Compete Clauses—Deals in California, Colorado, and to a lesser extent, Indiana, limited the state’s ability to improve or expand “competing” roads. In New Jersey…virtually all major roads compete for cars with the Turnpike and the Parkway.

● Private Toll Decisions = Broad Private Control of Traffic Management—If the rules for increasing toll rates under Chicago toll road deal had applied to the Holland Tunnel since its inception, that roadway could presently charge a one-way toll of more than $180. As a practical matter, an operator would be unlikely to charge that price because drivers would instead take alternate routes. The point is that the Chicago toll-increase schedule effectively allows the private operator to charge whatever maximizes its profits. The toll operator can also offer discounts to particular types of motorists or encourage traffic between certain exits, as will maximize profits. Together these powers enable the operator to control toll policy, and thus dictate who drives on the toll roads, and when…

[Note: although Senator Lesniak said he would require annual toll hikes but limited them to the rate of inflation, even that doesn’t solve the issue; New Jersey would have given up its ability to set toll rates, and thus all its consequences, for 75 years. It’s not just about how high tolls go; it’s about controlling the policy–congestion pricing, HOV discounts, Lexus Lanes, etc.]

● Creates “Tax” on Normal Policy Making—The Indiana deal also requires the state to pay investors compensation for reduced toll revenue when the state performs construction such as when it might add an exit, build a mass transit line down the median, or bring the road up to state-of-the-art safety standards. This compensation would add significant costs, and potentially the state could not afford to do the work it would otherwise perform. As added complication, the exact level of these future payments might be subject to dispute and lawsuits.

2. Fair Value: deals pay the state far less money than its assets were worth, as the Atlantic article notes. In New Jersey, the best public advocate on this point was Peter Humphreys, then head of securization practice at the then 13th largest American law firm (McDermott, Will & Emery).

He testified before the Assembly Transportation Committee and explained the state could itself securitize the existing annual toll revenue of $700 million for a 15-year period and get an upfront payment of about $8.4 billion. Senator Lesniak’s approach imagined getting $20 billion from a 75 year deal. Thus serial securitizations–without changing the existing toll rates–for the same 75-year time frame would produce a nominal $42 billion.

Sure, that serial securization doesn’t account for the time value of money; but it also doesn’t consider the future toll hikes guaranteed to the private lessee. If the hikes contemplated in the Lesniak deal were enacted and also securitized, the serial figure would be much higher. $20 billion was way too little.

And it’s not just New Jersey; as the white paper recaps:

A financial analysis of the Indiana and Chicago deals by NW Financial, a New Jersey investment bank that represents the Turnpike Authority (among others), found that the private investors in those deals would likely recoup their investment in less than 20 years. That analysis is confirmed in at least Indiana’s case by the company that won the bid. Macquarie sent investors a presentation asserting an “Anticipated 15 year payback to equity.” Given that Indiana’s deal is 75 years long, and Chicago’s is 99 years, the analysis suggests that governments in these states received far less for their assets than they are worth.

3. Deals capped at 30 years. As I noted in the Trenton Times Op-Ed:

Sen. Raymond Lesniak (D-Union) has introduced a bill authorizing a 75-
year deal here, in the ballpark of Chicago’s 99 years and Indiana’s 75.
Some perspective: Henry Ford introduced the Model T 99 years ago, and the George Washington Bridge opened 76 years ago. The first section of the New Jersey Turnpike didn’t open until a mere 56 years ago.

Population also shifts dramatically on these timelines. In 1930, New
Jersey’s population was 4 million; 70 years later, it more than doubled
to 8.4 million.

From these markers, it’s clear that massive, unforeseeable changes will likely take place for transportation technology, networks and
demographics over the 75-year time frame being considered here. In the face of such uncertainty, New Jersey cannot predict its future
transportation needs, nor the revenue potential of its toll roads, well
enough to negotiate a deal that fairly allocates risks, dictates policy
or sets a fair price.

To minimize this problem, New Jersey must not enter a deal longer than 30 years.

4. State-of-the-art maintenance and safety standards. As we put it in the white paper:

The New Jersey Turnpike has been innovative throughout its history. Many of its design and safety choices have been replicated throughout the country and world. It is also recognized as having traffic management and danger warning systems that are among the best in the world. Similarly, the Garden State Parkway is consistently one of America’s safest roads.

…Indiana’s deal, for example, would not guarantee this performance. … the state of Indiana can require the operator to meet generally applicable safety standards, but must pay a hefty premium to implement higher quality…. In addition to the cost of construction or performing the maintenance, Indiana would be required to pay compensation to the private operator for any loss of revenues caused by the construction or imposition of new standards.

No deal for the Turnpike and Parkway should be approved that did not guarantee that state-of-the-art innovations would continue to be introduced.

5. Complete Transparency and Accountability. Again from the white paper:

…That requires full disclosure of the deal’s terms, and any related contracts and subcontracts, at least six months before a deal is done, plus public hearings. This commitment to transparency is doubly important given New Jersey’s past struggles with corruption and pay-to-play contracts. The public must have full confidence in the process for considering a potential deal.

Likewise, New Jerseyans need to be able to hold their representatives accountable for their decision to approve (or not approve) a deal. The Legislature must vote on the final terms of any potential deal. True accountability requires that both the Legislative and Executive Branches answer to New Jerseyans

6. No Budget Gimmicks. This one is self-explanatory, but also crucial, as Legislatures typically blow the wad of cash they get from these deals without fixing anything. The Atlantic piece mentions some of that, as does the white paper.

In response to our campaign based on the principles–we demanded the Governor sign a pledge to honor them–he came out with some nice sounding principles that didn’t go nearly far enough, as I discussed in this Op-Ed in the Newark Star Ledger July 10, 2007.

Ultimately the plan cratered. The Assembly Transportation Committee, led by Assemblyman John Wisniewski (also a Democrat) was a major reason why.

While NJPIRGs position always was: privatization is fine if done right–and the principles defined “right”–realize that Wall Street will never do a deal that lives up to the six principles. It’s just not profitable enough for them, and would put too much risk on them.

Extracting “Latent Income” (NOT!)

I began by claiming cowardice and greed are the reason these deals are done. Of course, that’s not the official line. The NJ framing of the advantage of privatization–which was branded as “monetizing” the turnpike, parkway and expressway–was reported in this April 12, 2007 Philadelphia Inquirer article this way:

““Monetizing” assets means squeezing latent income from them by selling or leasing them.”

As I pointed out in this letter to the editor about that article:

The article stated that “‘monetizing’ assets means squeezing latent income from them by selling or leasing them.” The Inquirer’s readers may imagine that this process harnesses additional value or productivity from the roads themselves. That is not the case.

“Monetization” simply means to borrow against a future source of revenue. Instead of receiving toll money at a later date, the government would receive cash up front today. Thus, monetization only “extracts latent income” the way individuals do when they take out a payday loan or a second mortgage.

To be fair, I should have said “in this case Monetization simply means” as monetizing doesn’t have to involve borrowing. But that doesn’t change my point then or now. The myth of privatization is that private companies can magically make things more valuable than government can, without articulating a coherent, stands up to scrutiny reason why it can.

Given that $20 billion was much less than the 75 year toll revenue was worth, where was the latent value extraction in the Lesniak deal?

Cowardice And Greed

Public policy involves tough choices. Privatization deals offer legislatures and governors an easy sounding way out; let stuff happen long after they’re out of office (and hope that’s when the bad consequences hit), and get in return a big wad of cash to blow now. No need to raise taxes or cut services.

Thus often privatization advocates on the government side are simply cowards–they don’t want to raise taxes, and they don’t want to cut spending.

The greed happens on both sides. On the private side, it’s the extraordinary profit potential. On the public side, greed can also shape decisions whether through quid pro quo type corruption or revolving door corruption.

And of course, greed and cowardice are not mutually exclusive motives.