Trenton, NJ Rejects Water Privatization Deal With American Water

Water privatization is when private corporations buy or operate public water utilities. For towns and cities struggling financially, this often seems like a solution to municipal budget problems and aging water systems. Unfortunately, this tactic often backfires, leaving communities with higher rates, worse service, job losses and more.

Background

In 2007 Douglas Palmer, then mayor of Trenton, proposed selling a majority of the city’s water assets to New Jersey American Water as a one-shot ploy to generate funds to balance the city budget. From the deal (which was revised in 2009), the city expected to receive $80 million, about half of which would have gone towards paying off water-related debt. Trenton planned to use the remaining proceeds to cover immediate budget deficits, likely depleting the windfall within a couple years.

Unfortunately, this was a shortsighted approach. Selling the system would not have addressed the underlying structural reasons for the city’s budget deficit, and it could have worsened the city’s long-term fiscal health because the city would have lost annual revenue from the water fund. From 2007 to 2010, the city spent $15 million of its water funds on general city services.

In addition, the financial viability of Trenton’s water system would have depended on continued bulk water sales to New Jersey American Water, which as part of the deal, agreed to use city water to meet the needs of the outlying communities for 20 years. If American Water were to stop buying water from the city after that period, Trenton households would likely have faced rate increases to help offset the lost revenue.

The Opposition

A battle over water privatization engrossed New Jersey’s capital city and four suburban towns. The mayors of the four affected townships – Hopewell, Ewing, Lawrence and Hamilton – all publicly opposed the sale, which likely would have sent their water rates through the roof. Hoping to stop the deal, the officials worked with Friends of Local control of Our Water supply (FLOW), a grassroots organization inspired by the success of a similarly named group in Felton, Calif. FLOW worried about how the sale would affect household water bills. Under a potential American Water reign, rates could jump 35.6 percent initially and 114 percent over time as the corporation sought periodic increases.

“The townships will have to think smart and forget about the (municipal) boundaries (to fight the proposed sale),” said Morton Rosenthal, the lead organizer with FLOW. “We’ll have to think a little bit broader. These people are not going to walk away from a fight.”

FLOW’s goals were very clear: “Derail the sale and spike the hike,” in Rosenthal’s words.

The Right to Vote

Recognizing the faulty logic of the sale, FLOW contested the deal and petitioned to bring the issue to the public for a vote.

Trenton officials, led by then-Mayor Douglas Palmer and backed by New Jersey American Water, waged an unsuccessful legal battle to stop the public vote. The case went all the way to the state supreme court. Food & Water Watch filed a “friends of the court” brief showing how the denial of the public’s right to vote undermined the Public Trust Doctrine and conflicted with existing state law.

In April 2010, after a yearlong fight, the New Jersey State Supreme Court ruled 5-1 in favor of the FLOW petitioners supporting their right to seek a citywide referendum on the sale.

The Public Speaks

After the court decision, FLOW organized another petition drive and collected nearly 1,500 signatures, securing a public vote on the privatization deal. A referendum on the water system sale went on the June 2010 ballot.

Almost immediately, New Jersey American Water ramped up an aggressive campaign under the name “The Committee for Trenton Yes” to sway residents to support the sale. In six weeks of campaigning, the company spent a little more than $1 million — 32 times the amount spent by “Stop the Sale,” the local anti-sale group aided by Food & Water Watch.

Despite the company’s well-oiled campaign, the public prevailed. In June 2010, voters rejected the sale 79 percent to 21 percent.