A New York Times investigation into rapidly rising water and sewage bills highlit the involvement of Wall Street finance in upgrading century old waterworks.
The paper has a detailed case study of three small towns across America,including Bayonne NJ, a rustbelt area. The story shows that you might consider investing in your own well or rainwater harvesting if you live in a similar city:
n 2012, this blue-collar port city cut a deal with a Wall Street investment firm to manage its municipal waterworks.
Four years later, many of its old brown pipes have been replaced by shiny cobalt-blue ones, reflecting a broader infrastructure overhaul in Bayonne. But the water and sewer bill jumped so much that some are thinking about moving out of town.
“My reaction was, ‘Oh, so I guess I’m screwed now?’” said Ms. Adamczyk, an accountant and mother of two who received a quarterly bill for almost $500 this year. She’s not alone: Another resident’s bill jumped 5 percent, despite the household’s having used 11 percent less water.
Even as Wall Street deals like the one with Bayonne help financially desperate municipalities to make much-needed repairs, they can come with a hefty price tag — not just to pay for new pipes, but also to help the investors earn a nice return, a New York Times analysis has found. Often, these contracts guarantee a specific amount of revenue, The Times found, which can send water bills soaring.
Water rates in Bayonne have risen nearly 28 percent since Kohlberg Kravis Roberts — one of Wall Street’s most storied private equity firms — teamed up with another company to manage the city’s water system, the Times analysis shows. City officials also promised residents a four-year rate freeze that never materialized.
In one measure of residents’ distress, people are falling so far behind on their bills that the city is placing more liens against their homes, which can eventually lead to foreclosures.
In a typical private equity water deal, higher rates help firms earn returns of 8 to 18 percent, more than what a regular for-profit water company may expect. And to accelerate their returns, two of the firms have applied a common strategy from the private equity playbook: quickly flipping their investment to another firm. This includes K.K.R., which is said to be selling its 90 percent stake in the Bayonne venture.
Bayonne’s sales pitch to its citizens illustrates the bold steps town officials can take — including making promises that are at odds with the actual terms of the deal — to attract private equity money.
At a public meeting in city hall, a lawyer for the city promised that, after an initial rate bump, there would be “a rate freeze for four years,” according to a meeting transcript. Bayonne’s mayor, Mark Smith, later reiterated the four-year freeze in a magazine article.
That promise turned out to be fleeting.
The contract allowed additional rate increases after only two years. There was no four-year freeze.
In fact, rates rose even more than the Bayonne contract predicted — in part because K.K.R’s team had to make unexpected infrastructure upgrades, but also because residents were using less water than expected. The contract guarantees revenue to the team — more than half a billion dollars over 40 years — so water rates have jumped, in part, to make up the difference.
The city said it saw the revenue requirement as a way for K.K.R.’s team to earn steady returns, but not a windfall.
But the Times analysis showed that Bayonne’s water rates grew almost 28 percent under the deal, growth that far exceeded that of three other municipalities to which Bayonne has compared itself.
(Daniel Van Abs, an associate professor at Rutgers University who specializes in water management, said that a true apples-to-apples comparison of water rates in different towns was “extremely difficult” because of the different factors that can influence rates, including the size of the utility, the municipality’s population, droughts and infrastructure investment — or lack thereof. The Times analysis for Bayonne did not include sewer rates.)
Former Bayonne officials who had promised the four-year rate freeze said in interviews that they had not meant to mislead residents. They said they had earmarked some of the K.K.R. team’s $150 million up-front payment to offset rate increases in the contract’s early years.
But then voters ousted Mayor Smith. And once he left office, the new administration put that money elsewhere.
“I think we could have accomplished that four-year minimum,” the former mayor said in an interview. The town’s water rates, he said, are now “exorbitant.”
CreditBryan Anselm for The New York Times
Tim Boyle, who took over Bayonne’s utilities authority after Mr. Smith was voted out of office, said that various regulations required the city to use that money for property tax relief rather than to stabilize rates. He also blamed the previous administration for guaranteeing too much revenue to K.K.R.’s team in the early part of the deal, calling those figures “wildly optimistic.”
Bayonne officials also stress the deal’s benefits, including the up-front payment that let Bayonne pay off more than $100 million in old debts. Within three months, Moody’s Investor Service revised the city’s debt outlook from “negative” to “stable” for the first time in five years, and it has since upgraded the city’s credit rating.
K.K.R.’s team contributes about $2.5 million annually to pay for repairs to water infrastructure, plus $500,000 to the city itself. K.K.R. and Suez said they have upgraded their safety equipment and replaced inoperable hydrants around town.
They also installed sophisticated water meters that can detect leaks in people’s homes, and sent nearly 2,000 letters to customers warning when such leaks occurred. As such, use has declined, according to Mr. Henning, who said Suez had received “many notes of thanks” for the warnings.
But more-sensitive meters could lead to higher bills for some residents whose water use wasn’t fully captured in the past. When negotiating the deal, K.K.R. called this process “meter uplift,” according to emails obtained through records requests.
“We gave away too much,” said Gary La Pelusa Sr., a city councilman and former commissioner of Bayonne’s utilities authority, which approved the deal over his objections.
Bayonne originally promised residents that the city’s utilities authority would oversee K.K.R. and Suez. But the City Council recently decided to shutter the agency and handle the oversight itself.
Stephen Gallo, who headed that authority when the deal was struck, still believes that it benefits Bayonne. “But you’ve got to watch them, you’ve got to keep an eye on things,” he said. “I don’t know who’s doing that now.”
In interviews with The Times, more than a dozen Bayonne residents, including Ms. Adamczyk, expressed dismay over the rate increases. One reason is that people who fall behind on payments face long-term risks: Unpaid water and sewer bills can be sold to investors who try to collect on that debt, a common practice across the country. Failure to pay can ultimately lead to foreclosure.
In 2012, the year Bayonne struck its deal, water bill delinquencies led to 200 government liens against local properties, tax records show. That figure more than tripled the next year, the first full year under K.K.R.’s team. In 2015, the most recent year with data available, the number remained elevated, at 465.
For more stories from off-grid.net search here
Our Our fastest solar ovenBake, roast or steam a meal for two people in minutes, reaching up to 550°F (290°C). GoSun Sport sets the bar for portable solar stoves.
Buy our book - OFF THE GRID - a tour of American off-grid places and people written by Nick Rosen, editor of the off-grid.net web site
Leave a Reply