Everything has a cost, especially when corporations and private equity firms team up to take over public services like water with the prime intent of maximizing profit, much to the detriment of the users of said services, an increasingly common practice described in great detail in an excellent NY Times piece titled In American Towns, Private Profits From Public Works.
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 the typical private equity water deal, higher rates help the firms earn returns of anywhere from 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 shopping its 90 percent stake in the Bayonne venture, a partnership with the water company Suez.
To add fuel to the fire, two books, Matt Taibbi's Griftopia and Nicholas Soutter's The Water Thief, are must reads to see what happens when corporations own everything, something that could very well happen under the aegis of The Donald.
"The only real check against corruption is vigilance. That was the death of republics: they thought the system was enough to protect them, that they didn't need to be involved. Citizens let go of the rope, nobody voted, nobody got educated on the complexities of governing. And the corporations moved in." - Nicholas Soutter