Privatizing your Drinking Water? Desperation in Bad Economic Times

So now that states and cities are floundering due to the failed trickle down economic theory of the Republican Party, which lowered property values and caused declining sales tax revenues, irresponsible public servants want to pass the dirty job of rate increases for utilities off onto private companies so they can raise one time cash benefits.

Just like states that have leased out toll roads to private interests because they didn’t have the courage to raise fees themselves, private companies managing city water utilities will surely raise rates, causing city officials to shrug with dismay and helplessness.

So why is Milwaukee even considering such a plan? No political courage, that’s why. According to the Milwaukee Journal Sentinel:

Pros:

Milwaukee City Comptroller Martin “Wally” Morics called for the city to consider privatizing its Water Works in a deal that could reap more than $500 million…could generate some $30 million a year to keep city operations running…(even though ) Milwaukee water sales to city and suburban customers now generate $70 million a year. But by law, all of that money must be spent on the Water Works.

The easy solution would be to change the law, so cities could spend any extra cash generated by the water utility. Now let’s look at the many down sides.

Cons:

1. Atlanta tried privatization but ended its 20-year contract with United Water Services in 2003, after just four years, citing service problems. The downside for taxpayers would be in water rate increases. A private operator would be sure to raise rates, subject only to PSC regulation, and the city would have no say.

2. Water rate increases were the key issue in a Mequon referendum last month, when residents voted 6-1 to form a municipal water utility to take over from We Energies. The company has raised rates 35% in the past two years, and the city argued it could do the job at a lower cost. The companies most likely to be interested in this deal are multinational corporations based overseas, and could lead to foreign control of a vital city service.

For example:

Suez group from France, the largest private water company in the world, and Spain's Aguas de Barcelona, in May 1993, established a new private entity, named Aguas Argentinas,
Suez group from France, the largest private water company in the world, and Spain's Aguas de Barcelona, in May 1993, established a new private entity, named Aguas Argentinas. The new company was "the biggest transfer of a water service and watershed into private control in the world" encompassing a region with over 10 million inhabitants. As a result residential water rates increased 88.2% between May 1993 and January 2002 although there was "no relationship between this rate and the consumer price index (inflation rate), which was 7.3% for the same period."

This provided the company with net profits of 20%, which he says is far higher than is "acceptable or normal" for the water industry in other countries: In the United States, for example, water companies earned between 6-12.5% profits in 1991. In the United Kingdom a reasonable rate of profit for the sector is between 6-7%. In France, 6% is considered a very reasonable return on investment. Yet this rate increase did not translate into higher quality or quantity of service. In 1997, the company was found to have failed to honor 45% of its contract commitments for improvement and expansion of services, resulting in massive pollution.

It’s kind of funny isn’t it? Republicans talk about the ability of the private sector to do a better more efficient job, never mentioning that those same private firms might be foreign, with all their profits going overseas.

Next time were in financial difficulties, despite the insane conservative policies of deregulation and privatization, the media will go to Republicans for advice and fiscal straight talk.