Investment bankers and other major financial players are increasingly swooping in on public water utilities and other municipal services in cash strapped towns to the detriment of local residents, according to a new report released today by advocacy group Food & Water Watch. Vulture capitalists are increasingly facilitating the privatization of public infrastructure, taking control of public utilities while skimping on services and causing steep price hikes -- all the while making massive profits.
According to the report, private equity firms show up to hurting municipalities as hired financial advisers and subsequently push through privatization deals. Massive profits are made in the process, as such advisers stand to make great financial gains through these deals. Following privatization, local residents are continually denied sufficient services and face steep consumer price hikes in the under-regulated process.
“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,” said Food & Water Watch Executive Director Wenonah Hauter. “These deals are ultimately a bum deal for consumers, who will end up paying the price through increased water bills and degraded service.”
The report titled, Private Equity, Public Inequity: The Public Cost of Private Equity Takeovers of U.S. Water Infrastructure reveals that as of January 2012, private equity players had raised $186 billion through 276 infrastructure funds. And private equity firms are armed with more than $100 billion for infrastructure worldwide.
Key findings also include:
- Major financial firms are promoting large, complex and risky privatization deals, which essentially act as high-interest credit cards to finance budget shortfalls and infrastructure projects. Cash-strapped governments lack the bargaining power and know-how to properly negotiate these deals.
- Private equity takeovers tend to be highly leveraged and risky.
- Private equity players are notorious tax avoiders and evaders. In the last five years, for example, the Carlyle Group made more than $4 billion in profit but paid an effective income tax rate of only 2 percent.
- Private equity takeovers restrict transparency and accountability.
"When municipalities privatize their drinking and wastewater systems to fill budget shortfalls, private equity firms have greater bargaining power to negotiate more lucrative deals. Many local governments, especially cash-strapped ones, are ill-equipped to evaluate proposals from multinational finance firms or to negotiate a fair contract, making them vulnerable to expensive, unnecessary deals," Food and Water Watch writes today.
“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,” added Hauter.