Privatization By Any Other Name...Is Still Privatization

“For maintaining infrastructure such as water and sewers, there is only ONE source of money and that is US - you and me. And unfortunately our governments have been funding our cities’ infrastructure with total neglect so the bill is now a big one.” Donald Cohen, In The Public Interest.

One of the major dangers of neglecting of our infrastructure is that private corporations, who sit on large piles of cash, are only too willing to intervene in a crisis with promises to fix things. They are able to take a longer view to earn huge profits over time from our public resources after they solve the immediate crisis.

Over two days in July, I accompanied Donald Cohen, the Executive Director of In The Public Interest, as he met with Pittsburgh electeds, Pittsburgh Water and Sewer Authority (PWSA) staff and community leaders to offer his expertise on privatization. In The Public Interest is a comprehensive research and policy center on privatization and responsible contracting based in Oakland California.

In June of this year, Peoples Gas, a Pittsburgh based gas utility, began a well funded public relations campaign to form a “partnership” with PWSA to “rescue” the struggling water authority. This came as somewhat of a surprise to PWSA who had not been approached about any such partnership.

Donald’s message to the people we visited was very consistent: The City and PWSA need to develop a very clear picture of what the infrastructure needs are to make sure we have a world class water system They then need to assess what resources and ability to raise capital PWSA has currently. Armed with that information it is much easier to decide whether it is desirable or even necessary to work with private corporations to help achieve the authority’s goals.

He stressed that the Peoples Gas campaign feels like an unsolicited attempt at a hostile takeover. Despite how good their proposals sound - shiny new water treatment plant, no rate hikes for three years, replacement of all lead lines etc. - in the end Peoples Gas investors will have to make money on the deal. One point he stressed was that there is no free money. If Peoples Gas invests in PWSA, that money is debt for PWSA and we the customers will have to pay it back - plus a profit for Peoples Gas.

PWSA is right now still able to borrow money at a 4% interest rate so the bond market is still perfectly willing to loan to PWSA. Money for private entities usually comes with a much higher interest rate - 8% probably at minimum and maybe as high as 12-14%. The difference is an extra charge that we the customers would have to pay for the Peoples Gas partnership.

Another thing that often occurs in privatization efforts is loss of control and a shifting of priorities in favor of the private company. One example Donald described as a “cautionary tale” was Chicago’s privatization of its parking meters. Buried deep in the agreement there are clauses that guarantee a set income level for the private corporation that runs the meters. So that means if the City wants to close down some streets for a weekend block party they have to “buy back” the income those meters would have generated. Even worse if they want to take out meters to add a bike lane they have to buy back that income for the LIFE of the agreement. So the interests of the corporation have become more important than the desires and needs of citizens.

The Sierra Club will continue to educate PWSA rate payers and speak out about the hard questions we must ask before jumping headlong into any deal with Peoples Gas.


Tom Hoffman works with Sierra Club volunteers to fight for clean, affordable, and publicly-controlled water in Pittsburgh. If you would like to learn more or get involved, please contact Tom here

Thumbnail photo courtesy of Flicker user Mary Crandall

This blog was included as part of the 2019 Winter Sylvanian newsletter. Please click here to check out more articles from this edition!