Aug 27, 2012 5
A new report on private equity takeovers of public infrastructure focused on privatization of water services highlights Chicago’s infrastructure trust and warns of higher costs, degraded service, and diminished accountability.
“The infrastructure trust makes us more vulnerable to a public-private partnership” either to finance water system repairs and upgrades or for an operation-and-maintenance contract, said Emily Carroll of Food and Water Watch, which released the report. “Taxpayers should be wary of getting a raw deal,” she said.
Mayor Emanuel has said he opposes the sale of Chicago’s water system, but the infrastructure trust is set up specifically to foster public-private partnerships, which Food and Water Watch considers a form of privatization, Carroll said. In so-called P3s, public control over infrastructure is lost and ratepayers are on the hook for private financing costs, she said.
She points to the experience of Atlanta, which canceled a contract with a private corporation for water system operation in 2002 after huge problems with repairs, including emergency responses, and inflated charges for work done. When only half the promised savings were realized and revenues fell short, the city requested the company’s billing records and was refused, according to FWW.
And while Emanuel recently raised water rates to pay for repairs and upgrades, he could later come back and say more money is needed – and the higher rates would make the system more attractive to private investors, Carroll said.
In investment industry surveys, water systems are rated among the most desirable kinds of infrastructure, according to the report. One of the Chicago trust’s participants, Macquairie Infrastructure and Real Assets, spent $578 million to purchase a private water company in 2007 – the largest private equity water service deal listed by FWW.
The report cites a trade publication describing Chicago’s $1 billion infrastructure trust as “an industry-backed deal to establish PPPs as a politically and financially viable business.”
Currently “private equity vehicles are armed with over $100 billion” seeking highly profitable investments in public infrastructure around the world, in an attempt “to exploit the lagging recovery of the public sector,” according to the report.
About Chicago it says: “The city’s primary motivation appeared to be the desire to take debt off city books to give the illusion of reducing its liabilities. ‘We have a tool here that takes some of the pressure off taxpayers,’ Emanuel claimed. ‘Use somebody else’s money for a change, rather than theirs.’
“In the real world, however, banks do not provide free lunches. Chicago will have to repay the private capital investment with interest through user fees.