This November, South Orange voters will head to the polls to decide whether to sell their water utility to NJ American Water for $19.7 million. The deal, approved by the Village Council in July, would sell this precious public service to a for-profit company and set the stage for higher water rates for years to come.

Across New Jersey, towns are considering deals to sell their water and sewer systems to the highest bidder. These deals are posed as fixes to systems’ and municipalities’ financial challenges. But elected officials and the public should not be fooled. Water privatization is not a solution, and it introduces a host of new problems. Here are three key ones:

1. Privatization Leads to Higher Costs and Higher Bills

Water privatization is expensive, and water companies are allowed to pass those costs right onto their customers through higher bills. On average, private water companies charge 59% more than public systems, and private ownership is the single biggest factor associated with higher water bills.  

Private water is more expensive primarily because corporations can earn 10% profit on their investments. This is an automatic markup on the cost of every project and acquisition, and on top of it all, the companies can pass on the cost of their income and property taxes to customers by raising rates. For example, in August, New Jersey’s Board of Public Utilities allowed NJ American Water to hike customer rates by nearly $80 million, including an after-tax return on equity¹ A return on equity is the profit that a company makes on its ownership stake in its utility assets. Under state regulation, private utilities charge customers higher bills to make that profit, recover their debts, and cover their taxes and operating costs. of 9.6%.

While NJ American’s proposal to South Orange includes two years of rate freezes, the company can’t actually keep that promise — the final decision rests with the Board of Public Utilities. And even if the Board allows the freeze, the bill will eventually come due. NJAW’s proposal explicitly includes a 9% hike from the third to fifth year after the sale, and rates could continue to rise after that.

2. Private Companies Put Profit Over People

Clean water and sanitation are human rights, and everyone should be able to afford access to these essential resources. But private companies like NJ American Water don’t have access or human rights top of mind. Their number one priority is profit. Besides rising bills, this can have a variety of negative consequences for a community.

It can result in clashes with local policy and government, including on projects for economic development and sustainability. There is no incentive for private companies to cooperate with neighbors or local governments to protect drinking water resources and watersheds or ensure equity and sustainability of water and sewer services.

Private companies may also cherry-pick which areas they provide service in or where they invest in projects to avoid serving low-income communities where they won’t make as much money. When profit is the priority, low-income residents can come last, as they are more likely to struggle to pay their water bills. 

3. Privatization Takes Away Local Control and Democracy

Publicly owned utilities provide residents with democratic control over their water and sanitation. Handing them over to a private company limits public accountability and prevents residents from demanding changes to systems that don’t serve them.

With public ownership, residents can visit their elected officials and share problems they’re seeing. If the officials don’t respond, the community can vote them out of office. However, privatization entirely eliminates these options. Residents don’t have a vote in the corporate boardroom. 

Moreover, privatization usually leads to a loss of transparency, as companies restrict public access to information. This transparency is key for communities to understand potential problems in their water systems and push for change.

Ultimately, the people who run public water systems are public servants; they serve the people. But water corporations are first and foremost accountable to their stockholders. 

South Orange Has Better Options Than Privatization

South Orange, like many New Jersey towns, needs to replace toxic lead service lines to protect the health of its residents. Requirements from New Jersey law and new federal regulations have set a deadline for these essential upgrades, and municipalities and residents are understandably concerned about the costs. But while privatization has been portrayed as a way to alleviate these costs, it will only pass them — and more — onto ratepayers. 

The 10% profit that NJ American can make from the lead line replacement will raise the price tag of this project, and the company can raise rates to help cover it. Even if the company saves money on upgrades through loans and grants, it won’t pass on these savings to ratepayers, as the company charges the same rates statewide. Moreover, South Orange ratepayers will bear the cost of other system improvements across all of NJ American’s acquisitions.

Instead of selling its system, South Orange could pursue federal and state grants and low or zero-interest loans to fund the replacement of lead pipes. In fact, some of these are only available to publicly owned water systems. The system can then pass the savings from these grants and loans to the community by lowering rates.

Privatization Is a Bad Deal for South Orange

This summer, when Hopewell Borough, New Jersey proposed a water sale, Food & Water Watch worked with local residents to put the decision to a borough-wide vote. The Borough recently announced that it wouldn’t have time to get the proposal on the ballot this November, delaying the referendum vote for at least another year. 

This gives Hopewell the time and opportunity to pursue other funding options, including a federal grant that would provide more than $2 million to address toxic PFAS contamination and other issues in the town’s wells. But if the Borough were to privatize in the future, it may have to return the money. 

The case of Hopewell shows that privatization is far from the only option. It’s also, by far, the worst one. Privatization deals make water more unaffordable, take away local democracy, and put profit before people. This is not how we should manage the services that provide us essential clean water and sanitation.

Given all this, it’s abundantly clear — NJ American Water’s proposal would be a terrible deal for South Orange residents. This November, we can stop this corporate takeover by voting against selling South Orange’s water system.