We Must Ensure Water Infrastructure Funds Support the Public, Not Profiteers

Public drinking water and wastewater infrastructure will be a priority for President Biden and Congress in any national infrastructure deal. However wide the partisan gap on issues like climate policies or taxes, water is generally considered an area of common ground. But spending money to improve water service isn’t as politically simple as it sounds; many private interests see the flow of federal funding as a way to subsidize their own profits.

In the context of water infrastructure, various forms of privatization—whether public private partnerships, full privatization or private equity—are promoted as a solution to a range of problems. And most federal infrastructure proposals typically allow taxpayer dollars to flow to private for-profits corporations through federal subsidies.

This amounts to a misuse of public funds. Private, profit-generating water infrastructure should not be eligible for federal subsidies. That money should be reserved only for public purposes in subsidizing the public’s water infrastructure.

Private water companies like to argue that they provide the same service as public water utilities, which are essentially a form of local government. However, they have distinctly different missions; one is structured to serve the public interest, the other exists to deliver profits to shareholders. Any federal subsidy provided to a corporate water utility subsidizes that company’s profits.

For privatized water service, empirical data suggest that private water companies have higher rates, which is what one would expect. Private water companies are legally allowed to build in a percentage profit margin into their rate structures, which are regulated by the state public utilities commission as opposed to the local officials elected by residents paying those increased rates.

Because their mission is to maximize shareholder profits, private water companies can choose to avoid the most economically distressed, and thus unprofitable, communities. They have even admitted that high-cost impoverished rural areas “make a case for public systems.” Community-owned water utilities exist only to satisfy a public social need, irrespective of profit, and remain directly accountable to the public. These are the systems that we should prioritize as we rebuild the country’s infrastructure for the public’s benefit.

The good news is that we don’t need to create new “partnerships” with corporate interests to get this job done. Existing federal water infrastructure programs such as EPA programming (the State Revolving Funds), the USDA rural water program, and Bureau of Reclamation should all limit eligibility to public water utilities. Any new programs, such as the proposed infrastructure bank, should also preclude taxpayer monies from finding their way to for-profit companies. That includes tax provisions like private active bonds and any new tax preferences to the private investment sector to support a new national infrastructure initiative. Such tax preferences to private companies and investment instruments may not be an actual federal subsidy, but they involve similar rent-seeking dynamics, which costs the federal government in the form of decreased tax revenue.

There is no special characteristic of a private water company that allows it to provide enhanced drinking water safety or price. The public should know that they are the guarantor of the safety of their drinking water through their local government. All local governments should insist on laws that require a public referendum before a community sells off its public infrastructure.

The majority of public water systems were formed and subsidized with public funds, and in most states, a sale of these water systems allows private companies to acquire these publicly-funded systems with no vote by the users of the system to approve the sale. Such a process is historically inconsistent with the formation and regulation of public utilities. The USDA requires a vote of the residents of a proposed water system and a court hearing as a formation requirement. In addition, all major changes to a public water system, i.e., territorial expansion, dissolution, merger with another system, issuance of revenue bonds, etc., require a vote of the system users. Allowing the use of public money to subsidize private systems without a vote has the effect of disenfranchising the system’s users.

Allowing the federal government to subsidize the private sector would also have the effect of redirecting federal subsidies from the projects with the greatest need (economical, public health and environmental) to the projects with less need. There are currently not enough federal subsidies to meet the needs of public water infrastructure; let’s not open up programs to allow for the subsidies to flow to private interests.

Mary Grant is the Public Water for All Campaign Director at Food & Water Watch. Mike Keegan is an analyst with the National Rural Water Association, which has over 30,000 small and rural community members. Elizabeth M. Dietzmann, Esq. is an attorney who consults with small water and wastewater systems on legal and operational issues, including formation, management and funding.