New Jersey bids to privatize water without public votes

© Julio Cortez / AP

Workers deal with a broken water main in Hoboken, New Jersey, in 2013.

A bill that would allow New Jersey municipalities to sell their public water utilities to private, for-profit corporations without putting the measure to voters is awaiting Gov. Chris Christie's signature.

Until now, any municipality in New Jersey that sought to sell off its water system to a private bidder had to hold a public vote. But a bill passed with bipartisan support by the state's Senate last week would allow municipalities with aging and deteriorating water systems to put their systems up for sale without holding a referendum.

While supporters of the bill say privatizing water systems could save municipalities money, it allows companies to factor the purchase price of the systems into the rates they charge customers, meaning taxpayers could ultimately be on the hook for the sale of their water systems.

Many New Jersey municipalities have turned to privatization as a way to get quick cash infusions for their deteriorating water systems. According to the Environmental Protection Agency, the state would need $41 billion over the next 20 years to repair its water, stormwater and wastewater systems.

"We're an old, industrial state, and water infrastructure was built a long, long time ago," said Lawrence Hajna, a spokesman for the state's Department of Environmental Protection, which has not taken a position on the bill. "We've spent billions on upgrading, but there's still a lot more to do."

If the bill is enacted, New Jersey would join several other states, including Illinois, Pennsylvania and California, where ballot measures are not required to sell water systems to private developers.

"This is sort of a solution looking for a problem, because the option to privatize is already there. You just have to go to the voters," said Mike Cerra, the director of government affairs at the New Jersey State League of Municipalities, an association and lobbying group for the state's 565 local governments. "For much smaller things, you have to go to the voters. When you consider that water is one of the most valuable assets a municipality has, then [the sale of a water system] should go to the citizens too."

The bill comes after years of sales of water systems in New Jersey to private companies.

About 300 of New Jersey's municipalities, accounting for about 45 percent of the state's population, have privately run water systems, according to the New Jersey Utilities Association, a trade group. In November voters in Camden approved the sale of their water system to New Jersey American Water, a subsidiary of American Water, one of the largest private water companies in the U.S. The state far outpaces the U.S. in water privatization; overall, only 13 percent of Americans are served by private systems.

But even as more and more New Jersey cities, towns and boroughs turn to privatization, some have resoundingly rejected it. In 2010, Trenton voters rebuffed the sale of their water system 4 to 1. In November hundreds of voters in Sussex Borough also overwhelmingly rejected privatization. Still, Food and Water Watch, a nonprofit group based in Washington, D.C., has said, "New Jersey is one of the most receptive states to water privatization."

Nationwide, the privatization of water system is significantly more controversial. According to Food and Water Watch, the number of privately owned systems decreased 16 percent from 2007 to 2011, a reflection of some municipalities taking back control of their water systems.

Activists don't disagree that more needs to be spent on the state's water infrastructure, but they say that should be the responsibility of the state, not private companies. Christie cut $85 million from the Department of Environmental Protection's 2014 budget, limiting the amount the agency can spend on water infrastructure improvement projects. And he has offered property tax rebates and tax caps that critics say starve the state's infrastructure budget.

A representative for Christie did not respond to multiple requests for comment.

Some experts, like Rutgers environmental studies professor Daniel Van Abs, believe there's simply not enough political will in most New Jersey municipalities to raise water rates to sufficient levels to fund infrastructure repairs.

That, activists say, has cornered municipalities into needing to turn to private investment. Since companies can charge taxpayers for the purchase of the water systems, there's little chance their services will cost less than public utilities do, according to Stefanie Brand, the director of the New Jersey Division of Rate Counsel, a state agency that advocates for utility customers.

A report from Corporate Accountability International found that privatization of water supplies was often followed by rate increases. In Bayonne, New Jersey, a 2012 contract with United Water led to an 8.5 percent rate increase in the first year, according to the nonprofit. And a 2010 report from Food and Water Watch found that customers in New Jersey municipalities with private water systems paid on average 64 percent more than others in the state.

The bill does offer some protections for public water systems: It would require municipalities to prove that their system is deteriorating before it could be put up for sale. But anti-privatization activists say the criteria for what's considered deteriorating is so broad that virtually every municipality's system would qualify. Among the conditions that could trigger a sale are if the system has a combined sewer overflow, a system that releases stormwater and sewage into rivers and other bodies of water when the system is overloaded (most big cities a use this system) and if the groundwater has a potential for sodium contamination or "any other intrusion that would negatively impact the system."

The bill's stipulates that a public ballot measure could be forced if activists against privatization gather enough signatures to equal 15 percent of a municipality's voting population during the state's last General Assembly elections.

Privatization advocates say there's still enough time - 45 days from the time of the announcement of a sale - for the public to become informed and organize against a sale if they choose to.

"We'd argue that they still have a significant amount of input, and with a wider breadth of information to act on [under this bill]," said Andrew Hendry, the president of the New Jersey Utilities Commission. He pointed out that private water systems in the state account for only 2 percent of state Safe Drinking Water Act violations, which he said proves privatization is a responsible way forward for New Jersey towns.

But for anti-privatization activists, those statistics don't prove that private systems are better as much as they prove that public systems are in desperate need of more public funding.

"We absolutely need to invest in our water system, but this doesn't actually address that issue," said Jim Walsh, the mid-Atlantic director for Food and Water Watch. "It just trades the option of low-interest municipal debt for high-interest equity markets. Wall Street gets rich in the process of our pipes being fixed."