They say north and south New Jersey may as well be different countries. But you’d think word about Wall Street plundering a city’s water system would ring out statewide.
Apparently not. The Cumberland County Utilities Authority in the south is considering leasing out its sewage treatment system to a private equity firm, even though the northern city of Bayonne is being crushed under the weight of a similar deal it signed nearly a decade ago.
Residents of Bridgeton and the other municipalities the authority services surely don’t want the rate increases that are likely coming.
Four years into Bayonne’s deal with Kohlberg Kravis Roberts (KKR)—according to the New York Times, one of Wall Street’s most storied private equity firms—water rates had risen nearly 28 percent. Even during the pandemic, with many people struggling to make ends meet, bills increased by 4.1 percent.
Someone has to pay for investor profits. Private equity deals “can come with a hefty price tag—not just to pay for new pipes, but also to help the investors earn a nice return,” wrote the Times.
The investors eyeing Cumberland County—Bernhard Capital Partners, which is also eyeing power utilities in various states—aren’t from Wall Street. But they might as well be.
Private equity investors are notoriously predatory and secretive. Many “scour the landscape for companies, buy them, and then use extractive techniques such as price gouging or legalized forms of complex fraud to generate cash by moving debt and assets like real estate among shell companies,” writes Matt Stoller of the American Economic Liberties Project.
You might recall the dismantling of Toys “R” Us a few years back. A team of investors—including KKR—bought the company, loaded it up with debt, shut it down, and fired all of its workers without severance, meanwhile extracting nearly $500 million in fees. That was private equity doing what private equity does.
As Sen. Elizabeth Warren says, “Far too often, private equity firms are like vampires—bleeding the company dry and walking away enriched even as the company succumbs.”
The last thing states and localities should be doing is making expensive, risky deals with shadowy private investors who often do more harm than good.
Instead, they should be restoring and reimagining investment in public water. That means advocating for more federal investment, keeping water systems in hands accountable to the public, creating good jobs (especially for marginalized populations), and implementing affordability programs.
Fortunately, after years of dwindling federal dollars for infrastructure nationwide, the American Rescue Plan Act—passed in March—will provide $29 million to Cumberland County and $32 million for its 14 municipalities. One use for that money could be investing in the local sewage treatment system to ensure its reliability and safety for residents for decades to come.
As the mayor of Bridgeton recently wrote, “This infusion of ARPA money can allow us to address fundamental things to help attract and retain business and industry.”
(ICYMI, Philadelphia’s head of water, Randy Hayman, got real about raising revenue for water systems in last week’s interview.)
Up in Bayonne, stress is building among lawmakers tasked with managing a 40-year contract. KKR has already sold off its stake in the deal to another firm. Rates continue to rise, increasing 13 percent in the last two years.
“They sold us down the river,” said a board of education trustee about the private equity investors at a recent public meeting. “And now we’re stuck.”
Photo by NYC Water.