In July of this year, the Gloucester Township Council voted to privatize its wastewater collection system to New Jersey American Water, the state arm of the nation’s largest private water utility. The corporation is seeking to buy the system for a jaw-dropping $143 million. Voters will decide the fate of their wastewater system and whether to approve or reject the privatization on the November ballot.
The scheme raised eyebrows of township residents: it includes a rate hike higher than the limit noted in the request for proposals, which should have immediately disqualified it. Plus, it proposes spending $90 million on infrastructure upgrades when the township only identified $21 million needed. To make matters worse, the Mayor of Gloucester Township works for the company as the director of Government Affairs.
The proposal for Gloucester is especially outrageous, but it’s not the only one. Private companies have angled to buy water and sewer systems across New Jersey, including in Hopewell, South Orange, and Manalapan.
Elected officials and the public should not be fooled. Water privatization is a terrible way to address infrastructure and financial challenges, and it leads to a host of 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 of the 10% profit that corporations earn on their investments. This is an automatic markup on the cost of every project and acquisition. On top of that, companies can pass on the cost of their income taxes and property taxes to customers by raising rates. In August, the state’s Board of Public Utilities allowed New Jersey American Water to hike customer rates by nearly $80 million, including an after-tax return on equity1A return on equity is the profit that a company makes on its ownership stake in its utility assets, such as infrastructure. 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%.
Private companies can also take advantage of the lack of competition to secure more favorable terms. (Manalapan’s request for proposals only resulted in one bidder: Veolia, the same company implicated in the lead-in-water crises in Flint, Michigan and Pittsburgh, Pennsylvania.)
While some companies have pledged rate freezes to assuage residents’ concerns, they can’t keep that promise — the final decision rests with the Board of Public Utilities. But even if the Board allows the freeze, the bill will eventually come due.
For example, with New Jersey American Water’s latest rate hike, typical households in Haddonfield will see their sewer bills jump by more than 50%. When the company bought the system nearly a decade ago, it had promised just a three-year water rate freeze.
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 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 policies and government, including on economic development and sustainability projects. There is no incentive for private companies to cooperate with neighbors or municipalities to protect drinking water resources and watersheds or to ensure equitable and sustainable water and sewer services.
When private companies take over operations and management, that can lead to downright bad service. They may try to cut costs by using shoddy building materials, neglecting maintenance and repairs, downsizing staff, and more. (Privatization typically reduces water jobs by a third.)
With fewer employees to respond to customers’ needs and make repairs, communities will see worse service. In fact, bad service is the biggest reason governments change their minds and go back to public service.
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.
Join us in making calls to educate New Jerseyans about the dangers of water privatization!
3. Privatization Takes Away Local Control and Democracy
Publicly owned water and sewer systems provide residents with democratic control of their most essential resource. Handing it over to a private company limits public accountability.
With public ownership, residents can visit their elected officials and let them know if and how the water system isn’t serving them. 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.
New Jersey Has Other Options to Manage Their Water
Right now, many water systems across the state and the country face rising costs and dire needs for infrastructure upgrades. New urgent and necessary public health laws, like requirements to replace lead service lines and remove PFAS “forever chemicals,” are top of mind. But privatization is not a solution. It will lead to even bigger burdens on the community.
The truth is, we have other options. Local officials could explore partnerships with other municipalities, which could spread out costs and improve service.
Additionally, publicly owned water systems can apply for federal and state grants and loans, and these cost savings are directly reflected in a local community’s rates — in other words, the community will see these savings in lower bills.
Meanwhile, private companies seek to charge the same water rates statewide, and they spread the savings from subsidies statewide, too. A community will not see lower water bills from a government subsidy for a project in their community. In some cases, a corporation could even argue for higher returns on equity because it lowered debt costs, eroding the benefit of state or federal support entirely.
This summer, when Hopewell Borough proposed a water sale, Food & Water Watch worked with residents to gather petition signatures to put the decision to a township-wide vote. The Borough recently announced that they wouldn’t have time to get the proposal on the ballot this November, delaying the referendum vote for at least another year.
This is giving the Borough the time and opportunity to pursue other funding options — including a federal grant that would provide more than $2 million to address PFAS 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.
Privatization Is a Bad Deal for New Jersey Families
We all need and deserve access to good water and sewer systems. They provide a public good that must be managed by those accountable to the public.
While it’s understandable that public officials are looking for more options in the face of financial challenges, privatization isn’t an answer. It will lead to higher rates at a time when at least one in ten households across the country struggle to pay their water bills. Privatization will also erode local democracy when it comes to ensuring our water systems serve us and put people over profit.
When you look at the facts, it’s clear — water privatization has no place in New Jersey, or anywhere.
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