Need solid examples of disastrous results of privatization of public works...

[tk2kewl]

specifically sewage treatment and water treatment and distribution.

I just found out the county I live in is planning to sell or lease its sewage treatment plants and there is a civic association meeting about the plan being held tonight.

I will be googling but I know many of my friends here will point me in the right direction.

Thanks in advance for your help.

tk2kewl

Edit: here is the article about the county legislator opposing the plan: http://lynbrook.patch.com/articles/denenberg-calls-for-state-investigation-into-sewage-treatment-plant-privatization-proposal

[tk2kewl]

1. I will add the results of my search to this thread as I gather them

[tk2kewl]

2. this looks like a good start

http://www.afsc.net/PDFFiles/Food&WaterWatchonPrivatization.pdf

[SharonAnn]

27. Some links about water privatization failures

http://hesomagazine.com/Top_10_%28PDF%29.pdf
...
Even within the United States, under the light of democracy, reversing the privatization of
water resources is a difficult proposition. The City of Chattanooga, for instance, tried to buy
back its water system from Tennessee-American — another subsidiary of American Water
Works — in response to the company’s exorbitant fire hydrant rates. During the course of the
highly publicized battle, Tennessee-American paid lawyers and public-relations firms more
than $5 million. Unable to keep up with the company’s campaign, the city ended its
buyback efforts in September 2000. In an out-of-court settlement, the company agreed to
reduce its fire hydrant rates from $301 to $50 a month over a two-year period, but it did not
allow Chattanooga to reclaim its water system.24 ...

http://www.ratical.org/co-globalize/waterProftrs.txt
The Water Profiteers - Jihm Jightower

http://old.post-gazette.com/pg/06177/701300-28.stm
US Water Privatizations Fail to Pan Out

[blm]

3. Look to Canada's experiences - beware of Brubaker comments, though, she's a fascist

Canada has been privatizing water for some time now.

http://rabble.ca/blogs/bloggers/making-waves/2012/02/lessons-moncton’s-water-privatization-experience

Here's one to get you started.

[tk2kewl]

4. thanks... i will check it out

http://rabble.ca/blogs/bloggers/making-waves/2012/02/lessons-moncton%E2%80%99s-water-privatization-experience

[meow2u3]

5. Privatization of public works is one Big Lie n/t

[zbdent]

6. well, may not be exactly what you're looking for, but Charter School proponent "White Hat

Management" comes to mind in NE Ohio ...

http://www.plunderbund.com/2012/02/24/white-hat-management-nears-one-billion-dollars-in-charter-school-funding-in-ohio/

[tk2kewl]

7. similar path, thanks

[tularetom]

8. Here's an article about the City of Stockton's abortive attempt to privatize

http://www.pacinst.org/topics/water_and_sustainability/water_privatization/stockton/

And another one about the impending bankruptcy of the City of Stockton

http://www.npr.org/2012/03/11/148384030/an-example-to-avoid-city-of-stockton-on-the-brink

Did the first one lead to the second one? You'll have to decide that but what it does tell me is that Stockton's city dads are not doing a very good job.

Hope this helps. Privatization of municipal services is never a good idea.

[tk2kewl]

10. thanks

i had found this one on Stockton as well http://www.recordnet.com/apps/pbcs.dll/article?AID=/20070723/A_OPINION/707230309

[Blue_Tires]

9. Audit: Dominion Power overcharged customers $524M

Electricity customers paid Dominion Virginia Power $523.7 million more than they should have last year, state auditors have concluded.

The auditors on the State Corporation Commission's staff recommended a cut in the company's base rates, reducing its annual revenues by $365.3 million.

The auditors did not calculate how much that would reduce the average residential customer's bill.

The staff recommendation comes about a month after Dominion acknowledged in an agreement with the Virginia Attorney General's Office that the company had earned $397 million more than necessary in 2008. They presented a plan that would give residential customers an average of nearly $100 in refunds and bill reductions.

The State Corporation Commission began looking at Dominion's rates after the company filed in March for the first increase in its base rates since 1992. Base rates cover a utility's costs to operate its plants and distribute electricity, plus a return on its investment.

http://hamptonroads.com/2009/12/audit-dominion-power-overcharged-customers-524m

[snagglepuss]

11. UK has abundent examples as they privatised water, gas and rail and

are in the process of privatizing the police.

[kestrel91316]

12. It's not possible to offer the very same service for the same

price if you add in the need for ever-increasing quarterly profits.

Privatization is always more expensive. Sometimes it just takes a while for that to become apparent.

[tk2kewl]

13. no doubt

.

[badtoworse]

22. In such situations, the privatized asset generally earns a regulated or agreed to return on equity

While the return on the asset represents a cost to the ratepayers, the city or county privatizing the asset now has money that can be used to retire debt or fund expenditures that would have otherwise involved borrowing or increased taxes. It's also possible that the private company can operate the facility at lower cost than a municipality.

On the basis of total cost borne by the taxpaers/ratepayers, I would say the transaction is likely to be neutral and might actually save money.

[saras]

32. Privatizers have an overwhelming incentive to raise prices and cut service...

...the point at which they are the most profitable is when there is a clearly failing system that you will fall into if you don't join them, and the best way to do that is with an underclass. If the poor are dying of unsafe water, damn right the middle class will pay more for THEIR water.

And because of the need for ever-INCREASING profit MARGINS, there is no natural end to the process except collapse of the larger system.

[badtoworse]

34. You need to do a little research on what a "regulated rate of return" means

Decades ago, when the country was being electrified, it was recognized that it would be very impractical to have many companies stringing electrical wire down the streets to provide service to homes. One company was selected to have the franchise and was given a monopoly to serve a certain area. At the same time, it was also recognized thatwithout competition, such a company could charge whatever it wanted for electricity and gouge the customers. To prevent that, the company (the electric utility) was given a regulated rate of return.

With a regulated rate of return, the utility is entitled to recover its reasonably incurred costs and earn a certain percentage (usually between 9% and 12% over the last few decades) on its equity in the assets. The equity is its investment plus any capital additions less accumulated depreciation - think of it as its "stake" in the business. The electric rates paid by consumers consider what is needed to reimburse the utility's costs and give it that regulated return. The process is overseen by the state Public Utility Commission ("PSC&quot and the rates must be approved before they can be charged to consumers. Periodically, the utility will petition the PSC for an adjustment in rates (almost always an invcrease) in what is called a rate case. The PSC looks at the utility's costs and the current investment environment (this is to determine what a reasonable return would be on a relatively low risk investment. It considers what similar, low rsik investments are earning and the inflationary environment.) The PSC will usually give something in the way of an increase, but it is usually (in my experience) less than what the utility asks for and sometimes a lot less. The PSC will generally not allow a utility to earn a return on investments that were not prudently incurred. It's unusual, but it can and has happened.

A similar process applies to other monopoly situations, such as water and sewer service (where supplied by private companies), historically phone service and cable tv (but not now because there is competition now from the phone companies and satellite tv). The bottom line is that if an asset that is privatized creates a monopoly situation, it should not be allowed to charge whatever it pleases. Its rates should be regulated to what is needed to provide a reasonable return for the acquiring company. It would be sheer stupidity not to provide for this in a privatization situation.

[saras]

47. "Regulated rate of return" means that someone, probably government, has the POWER to regulate...

...and if they don't, or if that power is taken over by the organization being regulated, then they will set a rate of return that is competitive with other investments, which is being wildly inflated whenever speculation is successful.

[badtoworse]

48. I've worked in the electric power business for 30 years and I know what I'm talking about.

You really should do the research.

[ieoeja]

51. But this is not how modern privatization is occurring.

When they privatized the toll roads, the rates immediately doubled. Then went up the next year. And the year after that.

When they privatized parking on city streets, the rates tripled. And have been increasing every year since. When the city has to repair a street, the parking company rushes in ahead of time to jack up the parking rates in that area far beyond the rate anyone would be willing to pay because the city is required to pay for full parking when a street is being replaced that prevents parking there.

EVERYONE knows the electric companies are regulated to prevent overcharging. But I have never heard of a single instance in which something privatized during the last 30 years did *not* end up costing many, many times what it did beforehand.

Theory: competition forces them to keep prices down.

Reality: there is no competition when a single company gets a 99 year lease. There is no competition after a company gets a government contract with guaranteed taxpayer money rolling in.

I was at the Veterans Administration data processing facility when they tried privatizing it. The VA people working on this reviewed the earlier federal privatization disasters under Reagan and found where the former workers went wrong: they documented what they did, but not the quality. So a company could bid on something that needs to be done correctly 1000 times a minute, but only budget for it to be done 100 times a minute. Real easy to underbid the existing gov't cost then. After the contract is signed, when the gov't demands that this be done 1000 times a minute, the company notes that it is not in the contract, and ... we are now in the realm of cost overruns.

And, that, my friend has cost the American taxpayers triillions over the last 30 years.

[badtoworse]

53. How about citing some specifics

I'm only awaye of one privately owned toll road in the US (at least I think it's private) and that is in the Houston area. As I've posted before, if the privatization creates a monopoly, than safeguards need to be put in place to prevent overcharging. (BTW, I believe that should apply to government owned monopolies as well but for slightly different reasons.) Failure to do that is grossly negligent on the part of the government entity in question.

Another point I've made before is that you have to look at the big picture. If the privatization offsets the need to borrow substantial amounts money to fund other things, you need to net out the cost of servicing that debt from any increased cost of service. If the privatization prevents a bankruptcy or lessens its impact, that also needs to be considered in deciding whether the privatization is good or not.

What baffles me is the attitude on DU that if a private entity is making money serving the public that is inherently bad. I'm fine paying a private company a reasonable cost to get quality service. There is no guarantee that a government owned operation is well run. A bloated, inefficient government operation is just as bad as a private company gouging consumers - both are rip-offs.

[saras]

55. Enron is the mew model. Your work, like mine in making products last longer, is obsolete.

It was a great model in its time, and as a Puget Power customer I benefited from it for many decades.

But those aren't the rules that the new companies are following.

[tk2kewl]

14. This is the list of links I am going with for now, thanks to all who contributed

http://lynbrook.patch.com/articles/denenberg-calls-for-state-investigation-into-sewage-treatment-plant-privatization-proposal

http://longbeach.patch.com/articles/coalition-formed-to-combat-sewage-treatment-plant-privatization-plan

http://documents.foodandwaterwatch.org/doc/cases.pdf

http://www.afsc.net/PDFFiles/Food&WaterWatchonPrivatization.pdf
http://rabble.ca/blogs/bloggers/making-waves/2012/02/lessons-moncton%E2%80%99s-water-privatization-experience

http://www.mass.gov/ig/publ/lynnwwrp.pdf

http://www.seabythecity.com/?p=12048

http://en.wikipedia.org/wiki/Water_privatization

http://www.pacinst.org/topics/water_and_sustainability/water_privatization/stockton/

http://www.npr.org/2012/03/11/148384030/an-example-to-avoid-city-of-stockton-on-the-brink

http://www.recordnet.com/apps/pbcs.dll/article?AID=/20070723/A_OPINION/707230309

http://hamptonroads.com/2009/12/audit-dominion-power-overcharged-customers-524m

[w8liftinglady]

15. this might help

http://www.inthepublicinterest.org/blog/privatization-public-services-state-state

[shcrane71]

16. Didn't Jefferson County Alabama go bankrupt, in part, from privatizing their sewer system?

I thought I read something, maybe it was in the Nation, about it years ago. Here's what I found:

http://www.huffingtonpost.com/2011/11/09/alabama-bankruptcy-county-municipal_n_1084940.html

[badtoworse]

21. After reading the article, I get the impression that Jefferson County was at fault

And that the sewer system wasn't privatized, but a receiver was appointed to run it by the bankruptcy judge. That is not the same as privatizing.

[shcrane71]

24. Yeah, you're right. Looks like they took out a bond to pay for a sewer upgrade.

http://www.commondreams.org/headline/2011/11/10-1

http://www.bloomberg.com/news/2012-03-08/jefferson-county-receiver-gets-approval-to-question-workers-in-sewer-fight.html

[mathematic]

17. A better framework is needed

What constitutes a "disaster"?

Are the same standards of disastrous events applied to private and public controlled works?

How do privatized-but-extremely-highly-regulated businesses fit in?

Are the objectives of the privatization relevant? (IE, is a privatization to raise money any different than a privatization because government decisionmakers believe that the service would be better handled by a private firm.)

I clicked on your link to see the specific situation you're talking about. One of the reasons given to oppose the privatization is that there is no way to prevent the private workers from striking! Preventing worker strikes is hardly a noble reason to prevent privatization.

[tk2kewl]

26. I agree... that was dumb reason to oppose privatization

my reason is pretty much two fold: Relinquishing public control over public services is dangerous and building in room for profit means that you need to reduce service or raise rates.

[joeybee12]

18. Enron...privitization of California's electricty...

The bidding wars and outages of early 2001.

[badtoworse]

19. California's electricity was never publically owned.

Except for SMUD, California's electricity has been supplied by investor owned utilities. In the late 90's, they were forced to sell their generation to (other) independent companies and a competitive market was set up which still exists today.

[shcrane71]

25. +10, and the privatizers (Enron) laughed that Grandma wouldn't be able to pay her utilities.

Jerks.

[JHB]

20. Pontiac has water contamination issues under United Water

http://www.dailykos.com/story/2012/01/26/1058648/-EXCLUSIVE-The-cost-of-privatization-Pontiac-has-water-contamination-issues-under-United-Water

[badtoworse]

23. Why are you assuming it will be a disaster?

Why don't you get into the details of the proposed transaction and form an opinion based on the merits?

[tk2kewl]

28. I will always come from a point of view that says public works and public institutions...

belong to the citizenry.

That is my first premise here.

I also have read many accounts of failed privatization schemes over the years and know the history, but am trying to collect references in this thread.

I have spent a good portion of my career working in public service and know from experience that the overwhelming majority of civil servants take pride in working to create the communities we all live in.

Government and its operations should always be an extension of its citizenry; it is not a business and shouldn't be run like one. It is more like a family where everyone has a responsibility to one another.

I want my neighbors running the STPs in my community not a company from England or France as chosen by Morgan Stanley.

And I am aware of the available details of the transaction, however the county has not made much of the process open to public review as you would know if you did read through some of the links.

In any event, the point of this thread was not to critique the proposal but to have like-minded individuals from the DU community assist me in gathering information I could use to support my position and that of the Democratic legislator who is trying to prevent the scheme.

[badtoworse]

30. I'm a consumer and a taxpayer. I want to get the services I need at the best price

Obviously, if I thought I'd get ripped off by the privatized company, I wouldn't support the deal. On the other hand, if the analysis demonstrated an overall benefit, I would support it. I have an open mind with respect to privatization.

Certain infrastructure has traditionally been publically owned, but it doesn't have to be that way. Some functions have traditionally been done by public workers, but there is no reason why a private contractor couldn't provide the same service. In some cities, the sanitation workers work for the city, other cities use private contractors. I'm OK with that and there are few services, that I'd be uncomfortable allowing a private contractor to provide.

BTW, I've also worked in public service (City of New York) and don't share your view about public servants. In my experience, they're no better than private sector workers and I wouldn't assume that just because they work for the public, they take such great pride in their work. Some are very good, but I've also worked with some pretty self-serving civil servants that would not have lasted a week in the private sector.

[tk2kewl]

31. I am sorry you see yourself in such isolated terms as consumer and taxpayer...

rather than as a participant and citizen.

The language of consumer/taxpayer/customer as they relate to government is a product of the right wing noise machine over the last 40 years.

We need to re-learn how to belong to our community rather than view ourselves in this manner.

"I like to be able to fire people" is a crappy way to build a community. We are better off when we try to find ways for everyone to contribute - when we provide for each other rather than hiring and firing people to do things for us.

[badtoworse]

36. That is ridiculous and you are coming off as very naive

In my life, I've seen and expereinced numerous examples of government agencies and public servants that don't care about the quality of the service they are supposed to provide. There are some in the public service sector that view their job as part of building a community and maybe you are one of them. Based on my experience, however, it's simply a job to the vast majority. I've lived around NYC and northern NJ my whole life and I'm sorry, but that's been my experience.

I'm isolated because I expect quality service at a reasonable price? Should I lower my standards because the entity providing the service is publically owned? If you think so, then please explain why.

What's with "I like to be able to fire people"? Nobody likes to fire people but sometimes, there is no alternative. How would you deal with unacceptably poor service that does not improve after numerous warnings?

[tk2kewl]

40. I guess we each see the world differently...

...some maybe more optimistically or idealistically (you might say naive) others more self-centered and pessimistically.

You use the terms "numerous" and "some" when referring to the civil servants that you think aren't up to snuff. I have used the term "most" when referring to the ones that I think are in it for more than just themselves. I never said their are "none" or "few" that are sub-par - I simply think most are in it to be constructive within their community.

I have worked 15 years in public service and 9 in the private sector during my career, so my opinions are hardly naive. I can also attest to the fact that the portion of sub-par performers I have encountered in the private sector is no less than it is in public service.

The bottom line on this deal is that they don't want to be seen as raising taxes to close a budget gap and they don't have the courage to make other cuts, so they want to sell these STPs, relinquishing public control, and creating a defacto higher tax in the form of increased rates paid into the private sector. All progressives should be able to agree on this.

[badtoworse]

44. We can agree on one thing

The public sector does not have a monopoly on poor performers. There are plenty in the private sector as well.

I don't see how you can call my view self centered. Providing services is fundamentally a business activity and I'm ambivalent as to whether the public or private sector does it. I think the city or town should use the approach that provides the best value to its residents.

As far as the STP goes, you need to look at the total impact to the town and not consider the sewer rates in a vacuum. If the town keeps the plant, but has to borrow money, it might not be such a good deal if taxes go up to service the debt. Every situation is different and needs to be considered on its merits.

[tk2kewl]

45. The self centered comment relates to the original premise that got us talking...

Last edited Fri Mar 16, 2012, 03:37 PM - Edit history (1)

it wasn't meant as a slur against you.

The point is that the taxpayer/consumer/customer meme is about a "me" view of the world where as citizen/participant/neighbor/community sets the frame as "us."

I think these are incredibly important distinctions when debating these kinds of issues and for too long we have fallen into using the language of the right and therefore start off every debate on the defensive.

[Erose999]

35. If you give up public services to the private sector, you can't control how the ownership changes

hands. whoever buys the rights might sell out to a multinational and there goes your local control. You're also subjecting your utilities to the whims of the free market and to a decision making and problem solving process that has profit as its ultimate goal. What might be a beneficial arrangement now might not be so beneficial 30 years from now.

[badtoworse]

37. See Posts 22 and 34

If the privatization creates a monopoly situation, a regulated rate of return is essential. As a rule, in that situation, the PSC must approve a change in control. Similar language could be written into the Purchase and Sale Agreement at the local level.

[Aerows]

33. Because every time something gets privatized

That just means it ends up being more expensive. The reason being that no longer is it just the service being provided, the service has to be provided AND provide the service provider with profit.

You honestly don't think that in order to produce a larger profit that they won't hold consumers hostage? It has certainly happened in places like Alabama. The residents there can barely afford water, and some of them have had to have it shut off because of the relentless need for profit.

Private health insurance is a perfect example of why our health care costs are so much higher than everywhere else in the world, and the level of care is significantly worse. There are some things that shouldn't be run as for-profit enterprises, and utilities, health care and things that are necessities for society to function are good examples.

[badtoworse]

38. If Alabama's water company is not regulated, I'd be very surprised

If it is regulated, the customers should be complaining to the Public Service Commission that regulates rates.

Health care is not a good example, based on my experience. I've managed my father affairs for the last 5 years including Medicare and it's clear to me that the program is poorly run and wastes money. Politicians have been "fixing" this problem for decades and yet you still hear them campaigning on cutting the fraud and waste from the program

[Aerows]

49. Everytime something gets privatized

We've seen over the last 20 years that it just becomes a venture for profit. Health care isn't a good example because you like privatizing everything and have a huge portion off of the top being taken as profit. Politicians are no better fixing this than privatizing.

I suggest we get the government out of our water, our health care, and our education.

Just like they do in every sensible European country. Oh wait, you have fits over the fact that it wont' work here because ... Uh, why? It works in European Countries.

Why won't it work in the US.

[badtoworse]

52. Why don't you try that again

I'm not sure I understand the point you are trying to make. I don't have a strong feeling one way or the other about privatizing. I do believe that private industry usually runs a more efficient operation than governments do, but I'd look at the numbers before taking a position one way or the other..

[Aerows]

50. Is it because of the demographic of the US, that it won't work as well

as it does in Canada, Norway and Sweden?

[Taverner]

29. Prisons for Profits

[Robb]

39. It can go the other way, too. Oddly enough.

I used to live near a community that had all sorts of problems with its seemingly shady private water provider. So they forced it to become a public utility. Suddenly their rates quadrupled.

Turned out the owner of the private utility had essentially been subsidizing water costs through his real estate sales in the area affected. Kind of crooked, but getting water there was expensive; he was essentially passing the costs along to new land buyers, and artificially keeping water rates somewhat reasonable.

Once his books were opened, the state essentially forced him to set rates for sustainability -- e.g. charge what it really costs to provide. And rates went through the roof. And land values plummeted. It's hard to say what would've happened in the long run, whether the practice would've kept rates low for long enough to pay off the expensive water system, or not.

Odd case, and by no means typical. But it's the exception that proves the rule.

[tk2kewl]

41. Different circumstances

It sounds like you are talking about a more rural community where infrastructure was still being built out to new subdivisions or something.

Nassau county was pretty much the country's first suburb and at this point it is fully developed and all of the infrastructure is in place.

[Horse with no Name]

42. The first question that has to be asked is

IF it wasn't profitable...there wouldn't be any private companies willing to do it.
SO...why would a municipality give away a profitable enterprise to a private company?
Does the city NOT need money?

Hmm...fodder.

One doesn't have to look much further than the deregulation and privatization of electricity in Texas to see that it was only profitable for the companies...but the citizens have taken a beating.

"According to the U.S. Department of Energy, Texas ranks 17th among the states for the highest average price of electricity—11.7 cents per kilowatt hour. In 1999, before deregulation, Texas tied with Louisiana for 30th, at 7.1 cents per kilowatt hour."

http://www.aarp.org/politics-society/government-elections/info-07-2010/no-end-in-sight-for-high-electricity-bills.html

[tk2kewl]

43. that is a great talking point... thanks

We too have plenty of examples right here in the same county where they want to do it again.

in my town we have public water as well as public sewage but in some neighboring towns the drinking water supply is provided by private enterprise. I pay about $25-30 per month and the folks with water from the corporate provider (AQUA) pay upwards of $250 per month.

Not to mention that when I had a leak at the street last year, and called for assistance after 6:00 PM on a Friday, I left a message and someone came out to check on the situation within the hour and had it fixsed by noon the Saturday at NO COST to me. The residents with AQUA have their calls handled by the company's call center in Pennsylvania.

[badtoworse]

54. Except for co-ops, power companies in Texas were never publically owned

The reason Texas rates are so high is that they have a crappy market design. Power generators are not paid for capacity (ie their fixed costs) and have to make their profit selling into a competitive market. As a result, it is almost impossible to finance new power plants in Texas. The demand for electricity in Texas is increasing, but no new plants are being built. Increasing demand with no new supply is recipe for higher prices.

BTW, the new EPA regulations are going to make the situation in Texas a lot worse in the next few years as some of the older coal fired units are retired and no new capacity gets built to replace them.

[madokie]

46. Google GM, trolleys, buses

Back in the thirties GM and I believe Dupont conspired to buy the big cities trolleys and then let them go into disrepair and it wasn't long until they were selling the cities buses that needed tires and thats where dupont fits into this as they had just discovered nylon and nylon strings was the best thing they had at that point for use in tires.
Dupont plays heavily in the present day pot laws that basically went into effect during the same time. Nylon had Hemp fibers as a competitor and dupont needed the business that hemp fibers had. Best I remember poppys grand dad was mixed up in all this too.
Anyways do some research on the terms I gave you and see what you can find. surely it hasn't been scrubbed. But then again no telling what google is/was up too that increased their bottom line like its been enhanced so far.