During his Presidential campaign, Donald Trump vowed to use his first 100 days in office to implement plans to overhaul our nation’s aging roads, bridges, ports and yes—water systems.
This sounds great on paper. Infrastructure systems form the backbone of our nation, and when they fall apart society follows. So, while modernizing these systems is laudable, the devil is in the details. In reality, Trump’s plan for repairing our nation’s water systems would be an absolute disaster for just about everyone—except of course, water corporations and Wall Street investors.
In fact, some of the same players that brought down our nation’s housing market are poised to repeat the same mistakes—but this time, with our water.
Donald Trump is a business tycoon, not a policy expert. It’s therefore disturbing (though not terribly shocking) that his policy proposals favor Wall Street and private interests. Trump's infrastructure plan was crafted by his Commerce Secretary nominee Wilbur Ross, a billionaire who built his fortune helping companies lay off employees, and Peter Navarro, a conservative professor of business at the University of California Irvine.
"Trump’s plan for repairing our nation’s water systems would be an absolute disaster for just about everyone—except of course, water corporations and Wall Street investors."According to Ross and Navarro, “America’s infrastructure is a linchpin of private sector growth.” Their white paper on the topic goes on to articulate their plan for our nation’s infrastructure. Essentially, it will encourage the privatization of our water systems, while emboldening Wall Street to continue to gamble with our water.
In traditional privatization schemes, corporations like Veolia and Suez, whose main focus is water and sewer services, take control of local drinking water and wastewater systems. But over the past decade or so investment firms have identified these systems as a source of windfall profits as well.
Wall Street Cashes In
Motivated by the financial downturn, Wall Street behemoths like JPMorgan Chase and the Carlyle Group saw municipalities turning to privatization to plug budget shortfalls, and have gotten into the water game.
But banks don’t care if our water is clean and safe to drink, or if we can afford its provision. Where we see a vital resource flowing from a tap, they see dollar bills. As such, private equity players typically focus on projects that bring in short-term profits, flipping assets like water systems after driving down quality and driving up prices.
For example, in 2011 the Carlyle Group purchased a water company serving Missoula, Mont., and Apple Valley, Calif., and then sold it off to a Canadian firm within five years. The city of Missoula is now in the middle of buying its water system back in order to regain local control, ensure long-term stability, protect its water supply and improve service.
Trump’s infrastructure plan would encourage similar predatory behavior by giving these kinds of companies a tax credit of $0.82 for every dollar of equity invested in an infrastructure project. That is a massive handout to Wall Street and could result in degraded service, increased rates and layoffs at community water plants (frequent occurrences in such situations).
As we’ve reported extensively, allowing corporations to take over local drinking and wastewater systems is a bad deal for the public. Private equity is simply too expensive.
In 2008, Alinda Capital Partners financed the design and construction of a new, $65 million water reclamation plant in Santa Paula, Calif. that the company PERC Water Corp. agreed to build and operate. John Quinn, the city’s former finance director, referred to the project as a “terrible deal,” adding that while the city intended to refinance down the line with municipal bonds, it would be “stuck paying premium prices to fund [the companies’] profits,” according to the trade publication Public Works Financing.
Why Federal Funding is So Important
So, if private equity investment in community water systems and privatization are so terrible, why do municipalities pursue these deals at all? Quite simply, out of desperation. The federal government used to be one of the most reliable stewards of our nation’s drinking and wastewater systems, but now communities are running out of the funds needed to maintain them.
Since its peak in 1977, federal funding for water infrastructure has dropped by 74 percent in real dollars. In 1977, the federal government spent $76.27 per person (in 2014 dollars) on our water services but by 2014 that support had fallen to $13.68 per person. According to the American Water Works Association, our water systems need at least $1.1 trillion over the next 25 years for necessary upgrades.
Meanwhile, many of our nation’s water systems are over a century old, and are falling apart. Aging water systems mean corroding pipes, sometimes made of lead—part of what contributed to the Flint water crisis. As water quality suffers, cities and towns still need to compensate for the federal funding gap, and that often means raising rates.
In a comparison of water rates for 20 of the largest U.S. cities and 10 regional representatives, the organization Circle of Blue found that the average water service rates for residential users increased by 6 percent between 2014 and 2015 alone. Rates have increased by 41 percent since 2010.
But in many communities, particularly Rust Belt cities that have experienced severe economic challenges in recent years, households can’t afford to pay more for water service. This is happening in places like Baltimore and Detroit where rates have gone up to compensate for depleted federal funding and aging systems, and as a result, many households have lost access to service.
But Trump’s advisors think it’s good that privatization would lead to more shutoffs. According to the paper:
One of the authors of this paper studied the New York City Water Authority as Mayor Giuliani’s privatization advisor. This public agency was constantly experiencing far worse collection experience than Consolidated Edison, Brooklyn Union Gas or New York Telephone. The reason was simple: Customers knew that the private utilities would cut off their service if they were too delinquent, but a municipal authority would be far less likely to do so because of the political uproar that would result.
To be fair, they are correct about one thing—water shutoffs, particularly those resulting from increased rates, do cause controversy—as they well should.
Perhaps most frustrating of all, Trump’s brain trust appears to be banking on local water crises to justify its plan. While his advisors callously reference Flint as an example of crumbling infrastructure, it’s vital to note that their plan won’t actually help Flint or cities experiencing similar challenges.
A Flawed Plan
Water corporations typically don’t invest money in places as economically depressed as Flint, because those communities can’t afford the inflated costs of privatized water service. In fact, private water companies often cherry pick service areas to avoid low-income neighborhoods altogether. If they were to service areas like this, water shutoffs would likely ensue when households couldn’t afford the resulting rate increases.
"Trump’s infrastructure plan is a raw deal for communities, workers and everyone who drinks water or uses it for basic sanitation. Much like his infamous Twitter account, it’s full of hot air and little substance."Moreover, claims that the plan is revenue neutral and would therefore pay for itself are false. In reality, it would shift investments to infrastructure and not necessarily increase the amount of money invested in the economy overall, so there’s no increased revenue from income taxes on investor profits.
As befitting his reputation as a businessman who has amassed a fortune through ethically questionable practices, Trump’s infrastructure plan is a raw deal for communities, workers and everyone who drinks water or uses it for basic sanitation. Much like his infamous Twitter account, it’s full of hot air and little substance.
No matter your political affiliation, your cultural identity, your race, your income or your gender—we all need and deserve water to live. It is critical that everyone be able to afford water service, and that the liquid flowing from our taps is safe to drink.
That’s why it’s more important than ever that we keep our water under public control, not corporate control. That means discouraging Wall Street from privatizing water systems, encouraging public financing of water projects through government bonds, and ensuring a steady, sustainable source of funding for community water systems through the State Revolving Funds.
Restoring this federal funding to community water systems will enable municipalities to launch infrastructure upgrade projects, thereby creating hundreds of thousands of jobs and boosting the economic prospects of millions of Americans.