Octoraro Reservoir, the drinking water source for Chester, Pennsylvania, and neighboring towns
Only a few lawmakers were on hand for a February budget hearing in the palatial chamber of the Pennsylvania House of Representatives. Dennis Davin, the state secretary of community and economic development, appeared remotely on a large monitor, for a second round of questions about the bid for the public Chester Water Authority (CWA) by Aqua, a private water company.
The first round of questions with state Rep. John Lawrence, a testy Chester/Lancaster Republican, did not go well and the secretary’s mood had not improved. Asked to share his department’s view on the sale, Davin claimed that he did not know what it was. Lawrence, irritated, reminded the secretary that he had been trying to get some answers for more than a year. Davin agreed to get back to him, later, with an answer. As Lawrence’s time at the podium wound down, Davin continued his evasive tactics. Finally, Lawrence noted he and his constituents opposed the sale, as did every Democratic and Republican legislator in the counties served by the CWA.
Chester, a depressed city 20 miles from Philadelphia, has been in fiscal receivership since 2020, a victim of poverty, mismanagement, and the impact of the pandemic. The Department of Community and Economic Development appoints and supervises the receiver. Many at the department are said to view the one-time cash infusion from sale of the public water utility as a needed fiscal boost for the city.
The battle over the Chester Water Authority is a departure from the more familiar scenario of a private enterprise parachuting into a struggling community to salvage a utility that has fallen into such disrepair that privatization is the least-bad option—the worse off the utility and the more desperate the city, the easier the acquisition for a private company. But CWA is well run and award-winning. Four years ago, the authority’s board of directors rejected a bid by Aqua 9 to 0. The company then did an end run around the water utility and initially offered to buy CWA directly from the hard-pressed city for about $400 million. Whether it can do so, and on what terms, is now tied up in court.
The drinking water authority is now Exhibit A in a web of lawsuits, petition drives, and wars of words to determine who controls this vital natural resource. It’s a cautionary tale, too, about how private companies prime the pump in statehouses to capture public goods like water from residents who are mostly disengaged from state and local politics. But that disengagement comes with a high price for the region’s residents in the debate to preserve access to drinking water at affordable rates.
Privatization of the Chester Water Authority is under consideration only because of special-interest legislation enacted by the state legislature in 2016, known as Act 12. The measure amended the state public-utility statute to allow municipalities to sell public utilities at fair market value—rather than their depreciated value. Act 12 was a gift for firms like Aqua. In 2017, the company made its bid for the Chester Water Authority. So pleased was Essential Utilities, Aqua’s parent company, with this result that officials took the show on the road to encourage “fair market value” legislation in other states, especially ones where they operate, including Ohio, Texas, and Virginia. A second change struck out the prohibition on the sale of public utilities by municipalities in distress.
The change in the law meant that a distressed municipality could sell any public utility regardless of its financial condition. “With the economic pressures that are undoubtedly arising from the COVID-19 crisis, we are anticipating that many more municipalities will be looking for solutions to their financial problems,” Essential Utilities CEO Chris Franklin said last May in a 2020 Q1 earnings call.
“I estimated that the privatization of CWA, the potential privatization of DELCORA, our wastewater company, and the creation of a new stormwater authority [means that] people who used to pay a combined $100 a quarter may be paying $100 a month overnight,” says Stefan Roots, a community blogger running for city council who works for the Delaware County Regional Water Authority (DELCORA), a wastewater system Aqua is fighting to acquire. “That’s a lot to ask for a poor community.”
GOVERNMENT EFFORTS to provide safe and abundant water supply for citizens date to antiquity. In 18th- and 19th-century America, water was seen as a public good. The first public waterworks was established not far from Chester, in Bethlehem, Pennsylvania, in 1755. In the 19th century, as cities grew, New York, Boston, and Baltimore pioneered municipal water systems, though some city systems remained private.
Renewed water privatization began in the 1980s, one part ideology, one part corporate opportunism, and one part a response to fiscal stress. In the aftermath of the 2008 financial collapse, the International Monetary Fund and the European Union conditioned financial aid to Greece and Portugal on drinking water and wastewater privatization.
Shoshana Draine
Shoshana Draine (lower left), a Save CWA volunteer, goes door-to-door in Chester with her children and a friend to spread the word about keeping the water supply public.
Chile under the Pinochet dictatorship privatized the country’s water systems. Last October, Chileans voted to replace the 1980 document, and the right to water is a key issue that a constitutional convention is set to re-examine this spring. Venezuela’s now contaminated drinking water shows how disinvestment and political chaos can destroy vital infrastructure.
In the United States, most of the country’s water systems are public but need significant upgrades. Where government investment lags, water systems are primed for privatization. The federal government provided 63 percent of funding for capital improvements to water systems in 1977; in 2017, that figure was just 9 percent. The 2021 Infrastructure Report Card from the American Society of Civil Engineers gave American drinking water infrastructure a C˗. Wastewater and stormwater systems are in worse shape.
In healthier communities, a private company can assume maintenance costs or arrange contracts for specific services in a public-private partnership. But when an entire water system is sold by a distressed city, ratepayers are in for a shock. Private water systems must make profits, as well as earn back what they paid to acquire the water system, and shareholders always come before ratepayers. Quality can suffer. The Pittsburgh Water and Sewer system contracted with a private water company that fired employees charged with budget, engineering, and water safety elements and then used a cheaper chemical to counteract corrosion. Lead levels in the water increased.
Pennsylvania is a petri dish for public-utility privatization. It has many municipally owned utilities, a huge swath of distressed communities, and lawmakers at all levels who can’t get adequate funding for maintenance and upgrades. Just 1 percent of the state’s general fund expenditures could be met by existing rainy day funds, one of the smallest in the country. Pennsylvania local and state officials tolerate an alarming amount of fiscal negligence and mismanagement.
While citizens may not grasp all the details of legislative corruption, they are suspicious of government. “Pennsylvania is a very hard place to have a penny increase in taxes,” says Beverly Cigler, a professor emerita of public policy and administration at Penn State Harrisburg.
AQUA IS A SUBSIDIARY of Essential Utilities, a $10 billion drinking water, wastewater, and natural gas infrastructure company, headquartered in Bryn Mawr, a suburb west of Philadelphia. It has 1.4 million customers in 32 counties in Pennsylvania and operates in ten states.
More political operators than captains of industry, Essential officials have a deep understanding of the state’s key players. They can scout out the best political deals, and craft legislative strategies that can speed up their acquisitions or provide new opportunities.
Nicholas DeBenedictis, Essential Utilities’ chairman emeritus of the board of directors, is a former state secretary of environmental resources (now environmental protection) in the 1980s and served on Democratic Gov. Tom Wolf’s 2014 transition team. The firm (then Aqua America) contributed $10,000 to his 2015 inaugural festivities. DeBenedictis’s protégé Chris Franklin, the current CEO, succeeded him when he retired in 2015.
That same year, Rep. Mike Turzai, a Trump Republican, became Speaker of the House of Representatives. A fracking champion from the Western Pennsylvania town of McCandless, he once pushed through a law forcing communities to allow fracking that some localities have ignored. Act 12, promoting privatization of water systems, soon followed.
Last June, after Essential Utilities bought People’s Gas of Pittsburgh, Turzai resigned from the legislature. The next day, Turzai, a Franklin confidant, announced his new job, general counsel of Essential Utilities.
SAVE CWA
Lawn signs to save the Chester Water Authority were as ubiquitous during the 2020 presidential campaign as Trump and Biden signs.
SITUATED BETWEEN Philadelphia and Wilmington on the banks of the Delaware River, Chester sounds familiar notes of urban decline. During the First Great Migration after World War I, African Americans moved to Chester to escape Jim Crow and find jobs in the bustling riverside shipyards. Employment surged again during World War II in industries like steel and iron manufacturing, and the Korean War provided another boomlet. Beginning in the 1950s, the Rust Belt patina spread as jobs disappeared and the people who could left for Philadelphia or Pittsburgh.
Racial tensions long plagued the city. Martin Luther King spent 1948 to 1951 at Chester’s Crozer Theological Seminary (now the Colgate Rochester Crozer Divinity School in New York), navigating white elites and the Black churches where he preached. Major race riots broke out in 1917 and exploded in the “Birmingham of the North” during the 1960s. Black people lay down in the streets to integrate schools and strode into movie theaters to desegregate those public places. After King’s assassination in 1968, Chester spiraled into the decline that it is still trying to escape. One-third of the 34,000 residents in the overwhelmingly African American city live below the poverty line.
Republicans had dominated Chester government since the early 20th century, bringing in economic-development prizes like the Philadelphia Union soccer stadium and Harrah’s Casino. For the last decade, City Hall has been run by Democrats.
Chester has several elements that an up-and-coming city needs: Widener University, Crozer-Chester Medical Center, a waterfront ripe for development, and Philadelphia, the state’s eastern economic engine, less than 20 miles away. What the city lacks is the leadership to pull these elements and residents together and move forward.
The current mayor, Thaddeus Kirkland, a former state representative, took office in 2016 with old-school Democratic Party–boss ways of doling out favors and knuckle raps. Budget deficits exploded. Pension plan payments went unmet. Municipal employee health insurance payments were late. When the pandemic first hit Chester, soccer fans and gamblers stayed home, delaying anticipated revenues.
Aqua’s unwelcome bid in 2017 alarmed the independent CWA board of directors enough to come up with a plan they hoped would placate the city of Chester. They proposed a 10 percent rate increase, which suburban customers who comprise nearly 80 percent of CWA ratepayers supported, to raise the $60 million to help Chester patch up its atrocious finances. But Aqua, which buys water from CWA for some of its customers, sued CWA and the city over the plan in 2019. In the meantime, Chester officials decided that they wanted to try to sell the utility outright for the one-time fiscal windfall. Both the rate hike and the proposed sale are now tied up in court.
State courts will decide whether the city alone can sell the authority and retain the money, or if it must do so in consultation with neighboring counties and redistribute the proceeds. If Chester sells, the city could end up with only enough money to cover its budget for about a year if it has to divide the $400 million with all the CWA communities. A lower court ruled that the city had to obtain the consent of the suburban member communities. The city appealed and the case is now in Commonwealth Court, a step below the state Supreme Court. In all, 16 court cases related to Chester Water Authority are in play, including an expected Supreme Court decision on government transparency.
Despite Secretary Davin’s coy testimony, the Department of Community and Economic Development is enthusiastic about the proposed sale. Aqua would get an attractive, healthy asset for its growing portfolio. State officials in Harrisburg would get a respite from the Chester headache and can steer state dollars to other distressed cities. It’s a winning solution for everyone—except the humans who rely on CWA water.
Instead of stonewalling under oath in the legislature, Davin could have pointed Lawrence to the caveats in the DCED’s own publication, Municipal Authorities in Pennsylvania:
The one-time influx of a large sum of money is just that, a one-time influx of cash. The decision of how to distribute, spend, or invest this windfall may determine the future financial fate of a municipality. However, now a prime cash-generating local asset is gone forever, as is the local control over the resource or project. Any local control over rates to the customer base, rates which now may have to satisfy stockholders and private investors, is also lost. A private entity invariably raises the rates formerly charged by a public entity, often dramatically in a short period of time. (emphasis added)
Essential Utilities CEO Chris Franklin says his company’s offer represents “social justice” for “a very poor black community.” “If the fathers of the city, the mayor, the city council, believe that this is the optimal path to get back in a situation where they’re solvent,” he told The American Prospect, “that is their right.”
A REVIEW of about 150 Better Business Bureau complaints from Aqua customers in several states including Pennsylvania found rampant dissatisfaction with high bills and meter problems in the company’s water systems. Asked about the complaints, Franklin says, “With the massive need for infrastructure rehabilitation in the country, water rates are coming up.”
Social-justice declarations cannot obscure the fact that if the Pennsylvania courts rule in favor of the communities surrounding Chester, the city’s mostly Black residents won’t get much more than a year’s worth of fiscal security. Even if Chester gets the entire pot, funds will evaporate quickly, while Chester residents will funnel many more of their hard-earned dollars to Aqua and its shareholders.
During the fall campaign season, Trump and Biden voters had one common element—“Save CWA” signs. New Garden Township resident Geoff Meyer, a retired corporate attorney in a CWA community whose sewer system has been acquired by Aqua (even before the Aqua sale was finalized, the rates went up 10 percent in 2018), helps circulate CWA petitions urging the governor and state lawmakers to support ratepayer referenda on proposed sales of public utilities to private companies and transparency measures to require utilities to publish annual reports. Most residents know few details about the fight over water. Meyer fills them in, and they sign on.
Construction worker Shoshana Draine, a Chester single mother, volunteers to talk to friends, neighbors, co-workers, and others. Few are aware of the proposed sale or the city’s financial problems. “We are slowly getting to a better place,” she says, “but families have their own things going on.”
Last year, Norristown, a Philadelphia suburb, preserved its public wastewater utility from a sale to Aqua by digging deep into the city’s home rule charter. Norristown Opposes Privatization Efforts (NOPE), the citizens group opposed to the sale, found that if they could get enough signatures on a petition to repeal two city ordinances (one that dissolved the sewer authority and conveyed the assets to direct control of the municipality of Norristown, and a second that set up the purchase agreement between the municipality and Aqua Pennsylvania), they could stop the sale. They succeeded on their third attempt last November, and Aqua abandoned its bid. Each effort heightened public awareness and made residents more alert to when early moves to facilitate a sale (such as the conveyance of assets to the selling entity) have already been made. “These deals are best accomplished with no one knowing that they’re going on,” says NOPE volunteer David McMahon.
In another closely watched case, a state administrative law panel has recommended that the Pennsylvania Utility Commission reject an Aqua bid for DELCORA, which provides wastewater services for Chester and some of the communities that CWA also serves, citing legal problems with the agreement itself, the lack of a rate stabilization plan, and a failure to fully outline the public benefits, throwing a wrench in what would be the state’s largest proposed transfer of a public water system to private control.
Where government investment lags, water systems are primed for privatization.
The rate hikes that accompany these acquisitions promise to be even more devastating as people lose jobs and experience water shutoffs, tax liens, and other financial hardships as they try to recover from the pandemic recession. A community that pursues a one-time multimillion-dollar deal to plug budget holes could face the prospect of water flight of residents to communities with lower rates, and creeping gentrification that a soccer stadium, a casino, and interest in waterfront development represent, replacing longtime residents with people who can afford to pay higher rates.
“The situation in Chester speaks to a larger national issue about why we need to make sure that we’re supporting publicly controlled water systems,” says Mary Grant, the Public Water for All campaign director for Food and Water Watch, “and making sure our water systems have the resources they need to continue to operate and provide a service at rates that people can afford.”
The threat posed by rising water bills prompted Congress to create the new Low Income Household Water Assistance Program (LIHWAP) last year. LIHWAP would provide funds to public drinking and wastewater systems to lower rates and arrearages to assist low-income households. The latest COVID-19 relief package adds another $500 million to the Department of Health and Human Services program. The reintroduced Water Affordability, Transparency, Equity, and Reliability (WATER) Act of 2021 includes nearly $35 billion for a trust fund to address critical drinking water and sewer infrastructure upgrades and directs the EPA to study water equity issues.
The latest stimulus package steers $31 million to Chester, which could take some financial pressure off the city. For the moment, however, all the parties—CWA, the city of Chester, and Aqua—have dug in for a protracted litigious journey. For Chester officials, the hundreds of millions that Aqua has offered sounds like deliverance, but the short-term infusion of funds only glosses over deep systemic problems that will re-emerge with a vengeance when the money is gone. Only then will city leaders and residents realize that they’ve given up local control of a natural resource of incalculable value for a one-time, one-shot deal that won’t solve the city’s problems but will force them to think long and hard about how they plan to keep water flowing from their taps.