Drinking at the Public Fountain

The New Corporate Threat to Our Water Supplies

In the last few years, the world's largest financial institutions and
pension funds, from Goldman Sachs to Australia's Macquarie Bank, have
figured out that old, trustworthy utilities and infrastructure could
become reliable cash cows -- supporting the financial system's
speculative junk derivatives with the real concrete of highways, water
utilities, airports, harbors, and transit systems.

The spiraling collapse of the financial system may only intensify
the quest for private investments in what is now the public sector.
This flipping of public assets could be the next big phase of
privatization, and it could happen even under an Obama administration,
as local and state governments, starved during Bush's two terms in
office, look to bail out on public assets, employees, and
responsibilities. The Republican record of neglect of basic
infrastructure reads like a police blotter: levees in New Orleans, a
major bridge in Minneapolis, a collapsing power grid, bursting water
mains, and outdated sewage treatment plants.

Billions in private assets are now parked in "infrastructure funds"
waiting for the crisis to mature and the right public assets to buy on
the cheap. The first harbingers of a potential fire sale are already on
the horizon. The City of Chicago has leased its major highway and
Indiana its toll road. Private companies are managing major ports and
bidding for control of local water systems across the country.
Government jobs are also up for sale. For the first time in American
history, the federal government employs more contract workers than
regular employees.

This radical shift to the private sector could become one of history's
largest transfers of ownership, control, and wealth from the public
trust to the private till. But more is at stake. The concept of
democracy itself is being challenged by multinational corporations that
see Americans not as citizens, but as customers, and government not as
something of, by, and for the people, but as a market to be entered for

How the Water Revolt Began

a huge market it is. About 85% of Americans receive their water from
public utility departments, making water infrastructure, worth
trillions of dollars, a prime target for privatization. To drive their
agenda, water industry lobbyists have consistently opposed federal aid
for public water agencies, hoping that federal cutbacks would drive
market expansion. So far, the strategy has worked. In 1978, just before
the Reagan-era starvation diet began, federal funding covered 78% of
the cost for new water infrastructure. By 2007, it covered just 3%.

As a result, local and state governments are desperately trying to
figure out how to make up the difference without politically unpopular
rate increases. A growing number of mayors and governors, Republicans
and Democrats, are turning to the industry's designated solution:

Providing clean, accessible, affordable water is not only the most
basic of all government services, but throughout history, control of
water has defined the power structure of societies. If we lose control
of our water, what do we, as citizens, really control?

The danger is that most citizens don't even know there's a problem.
Water systems are generally underground and out of sight. Most of us
don't think about our water until the tap runs dry or we flush and it
doesn't go away. That indifference could cost us dearly, but
privatization is not yet destiny.

A citizens' water revolt has been slowly spreading across the United
States. The revolt is not made up of "the usual suspects," has no
focused ideology, and isn't the stuff of headlines. It often starts as
a "not-in-my-backyard" movement but quickly expands to encompass issues
of global economic justice.

In Lee, Massachusetts, the revolt began against potential water-plant
layoffs. In Felton, California, it was initially about rate increases
and local control; in Atlanta, broken pipes and sewage lines. In other
communities, it focused on corruption, cover-ups, and complicity
between politicians and giant corporations.

One of the epicenters of this nascent movement has been Stockton,
California, in the heart of the state's agricultural San Joaquin
Valley. A citizens' group there took on not only the mayor and city
council, but also some of the world's largest private water
corporations in a preview of the corporate water wars to come.

When private water companies case a city as a potential
privatization target, they look for a "champion" in city government,
someone who will take the lead in selling off the city's water
services. In Stockton, they found their champion in Mayor Gary Podesto,
a former "big box" grocery store owner. In his view, it was "time that
Stockton city government treat its citizens as customers."

But Mayor Podesto had other reasons to privatize. Stockton was
already under pressure from state and federal environmental agencies to
modernize its sewage plant to reduce San Joaquin River pollution. This
was an expensive project, and the mayor thought that a private company
could do it cheaper, if not better.

In 2002, Podesto sought bids from private water companies to take
over the city's water department. The winner of the bidding war was a
consortium of two multinational giants: OMI, the water division of
Colorado-based CH2M-Hill, one of the largest engineering firms in the
United States, and London's water company, Thames Water, which was
itself a subsidiary of German energy powerhouse RWE. For OMI and
RWE/Thames, Stockton was an opportunity to show California, and the
country, what a private utility could do. It would be the largest water
privatization deal in the western United States--a 20-year, $600
million contract.

But Mayor Podesto and the water giants were in for a surprise.

Water's Dirty History

Although hidden from sight (and scent), even pipes have a history.
In the nineteenth century, water ownership and management in the United
States was largely in private hands.

But as populations grew, private water companies did not have the
resources or expertise to meet the need. Citizens demanded, and
eventually won, modern public water systems, financed through bonds,
operated by reliable engineers and experts, and accountable to local
governments. The nation built a dazzling system of community waterworks
that provided clean, reasonably priced water and sewer systems that
still rank among the best in the world.

But in recent years, federal disinvestment in water services has
sparked a new era of privatization with contemporary players repeating
promises made by nineteenth century entrepreneurs. The world's largest
private water companies have quickly entered the American market: Suez
and Veolia from France and Germany's RWE/Thames. Few Americans have
heard of them, but the Big Three have dominated the global water
business and are among the world's largest corporations. Together they
control subsidiaries in more than 100 countries.

Relying on free market ideology rather than research, neither
government officials nor the media have generally bothered to check the
shaky record of these multinationals in cities around the world. Suez
and Veolia have had a reputation for influence peddling in France that
has reached right into the presidential palace. Suez's first foray in
the United States was in Atlanta, which threw the company out after
four years of brown water, low water pressure, and general

The companies directly involved in the Stockton deal have also had
their share of controversy. OMI was charged with falsifying water
quality reports in several small American cities. RWE/Thames had been
named "worst polluter" in Britain several years running.

How to Privatize an American City

If Stockton Mayor Podesto had doubts about OMI and RWE/Thames, he
didn't let on, saying only that Suez's failures in Atlanta would come
back to haunt them in the American market. In his view, privatization
promised efficiencies of scale, as well as competitive cost cutting,
lower water rates, and a business culture that would favor real-estate

The argument for marketplace competition should lose all traction with
a monopoly service like water, but water companies still contend that
the profit motive gives them an incentive to cut costs. However, such
efficiencies usually turn out to come from somewhere else -- usually
from service cutbacks, staff layoffs, and failures to invest in
preventive maintenance.

As for rates, studies from across the country reveal that private
water systems charge more -- often much more -- than public systems
right next door. But private water operations make their biggest
profits by expanding their service areas as cities grow. The industry's
business culture makes it a natural ally of developers and an opponent
of citizens' groups trying to limit growth, preserve agricultural land,
or establish greenbelts.

All these political and business considerations make it easy to forget
that even when water is public, it is not really our water at all. It
is the planet's circulation and life force. Climate change expresses
itself through water or the lack of it. Droughts are a spreading
problem across the United States, making conservation of water a high
priority. However, private water companies want customers to use more water, not less, in order to maximize profit for their shareholders.

It's not always easy to define the spark that ignites local rebellion.
In Stockton, it was a growing distrust of local government. The
Concerned Citizens Coalition of Stockton ("the coalition") had formed
in 2001 to monitor and challenge what its members called they mayor's
"political-control machine." For the next six years, fighting water
privatization would become its defining cause.

The coalition was unified by the conviction that Mayor Podesto was out
to railroad the water privatization plan through the city council
without a thorough public hearing and a citywide vote. Coalition
members tenaciously confronted the mayor and his allies every step of
the way. When it appeared that he still wouldn't listen, they gathered
18,000 signatures to put an initiative on the ballot to require a
citywide vote before privatization could take place.

Increasingly embattled, Podesto recognized that the coalition's
initiative was a poison pill for privatization. He wasn't about to be
outmaneuvered. In early 2003, less than two weeks before the initiative
was to go to the voters, he put the proposed OMI/Thames contract on the
city council. A vote by the seven-member council could preempt the
18,000 signers. Hundreds of people came out to protest. The details of
the privatization deal itself had become secondary. At the electrifying
two-hour meeting, the debate was over the rights of citizens, the value
of the ballot, the meaning of representative democracy, and the human
right to water.

In the end, Podesto himself cast the deciding vote in a 4 to 3 decision
to approve the contract. Days later, Stocktonians voted overwhelmingly
to approve the coalition's initiative, but their votes had been made
moot by the council's action.

The coalition fought back in court. In its rush to approve the
privatization, the city had failed to do an environmental impact study.
The coalition's lawyers claimed that was illegal and filed suit to stop

Podesto and OMI/Thames moved quickly to implement the contract. On July
31, 2003, water department employees turned in their city badges for
ones with the OMI/Thames logo. Meanwhile, the coalition's legal
challenge went before superior court judge Robert McNatt, whose record
indicated that it would be a hard sell. In October 2003, the judge
shocked observers by throwing out privatization and giving the city 180
days to unravel the deal. McNatt wrote that the city's self-exemption
from environmental law was "an abuse of discretion." But the city
appealed, setting in motion a multi-year legal battle.

The coalition didn't leave the battle solely up to its lawyers as
appeals continued. Each year of private control, the group issued
damning report cards on OMI/Thames' performance. Mayor Podesto had, for
instance, claimed that water rates would rise only 7% over the 20-year
life of the contract, but the coalition analysis showed an 8.5%
increase in just the first three years. In addition, leakage doubled,
maintenance backlogs skyrocketed, and staff turnover was constant.

Some residents of Stockton also noticed a difference when they
sniffed the air. Workers at the plant said that OMI/Thames had cut back
on odor-control chemicals to save approximately $40,000 a month.

As if that weren't enough, on the Friday before a hot summer weekend in
2006, the wastewater-treatment plant spilled eight million gallons of
sewage into the San Joaquin River, contaminating a mile-long stretch
where people normally went swimming. It took 10 hours for managers to
notice the problem and another three days to notify the public about
the health danger.

In late 2006, the courts finally reaffirmed the coalition's position
that the city had violated California environmental law and, in the
spring of 2007, after Mayor Podesto had left office, Stockton's new
city council -- dissatisfied with OMI/Thames' performance -- voted not
to appeal and set March 1, 2008, for Stockton to resume full control of
its water system.

Nevertheless, the city faced all kinds of problems taking its water
system back from the private consortium. The water department remained
understaffed with a huge backlog of maintenance, and it was estimated
that it would now take millions of dollars to fix the system.


The events in Stockton were followed by activists around the country
and reverberated through the private water industry as well. In
September 2005, RWE/Thames cited growing "public resistance to
privatization schemes" in its decision to get out of the water
business. In leaked minutes from an executive board meeting in Essen,
Germany, then CEO Henry Roels complained that the water business
required too much long-term investment in plant and equipment and
offered little hope for once anticipated quick profits. But there was
an ominous note in the RWE minutes. An unidentified board member cited
a Goldman Sachs prediction that the "water business would become the
oil business of the decade from 2020 to 2030."

And so a new stage in the water privatization wars beckons as Goldman
Sachs, Macquarie bank, huge pension funds, and billionaire investors
hop on the infrastructure bandwagon.

Will the Democrats -- if elected -- resist the trend? Past history
suggests that the Party is deeply split on the issue of privatization
and that only public resistance has slowed the fire sale. No matter who
is president, the fate of public services and assets is likely to be
left to local citizens groups that have cut their teeth on water
battles like the one in Stockton.

Those local groups have already coalesced into a national movement for
a democratic and sustainable water future. The unanswered question is
whether these twenty-first century water wars are merely a last stand
against an inevitable corporatized future, or the beginning of a
far-reaching revolt to reclaim citizenship, reassert democratic values,
and redefine how we interact with our environment.

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