Keep water rates affordable in Illinois by thinking twice about privatization

Companies are turning hefty profits by buying up public water systems and jacking up bills.

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In Chicago, Mayor Lori Lightfoot and others have come to realize that you can’t wantonly cut off water for people who just can’t pay. In July, Lightfoot launched a program to help people having trouble paying their city water and sewer bills.

Elsewhere in the state, unfortunately, things are going in the opposite direction. Private companies are turning hefty profits by buying up public water and sewer systems and jacking up water bills. People who can’t pay the bills can have their water turned off. Because water systems are a monopoly, the consumers have nowhere else to turn.

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This trend is bad for customers, communities and the state. Too often, local officials and water customers don’t realize the long-term costs until it’s too late.

Sensible legislation, which we support, has been introduced in the House and Senate to require a referendum before a public water system can be sold. The House bill was referred to a subcommittee on Monday. The Senate bill has yet to be heard.

Although similar bills in past sessions have failed, referendums make perfect sense. When something as important as the sale of a public water system is at stake, the process should be open and transparent, with the aggressive engagement of the community. Residents should be able to make well-informed decisions.

Privatization across the state

One reason the Legislature has not acted is that sales of water systems simply are not on the radar screens of the many lawmakers whose constituents are sufficiently served by municipal systems. Yet sales of water systems have occurred from the southern tip of Illinois to the northern border, including in some Chicago suburbs. It’s past time we paid attention.

Private water companies do upgrade aging water systems in communities that feel they can’t afford to do it themselves. That’s their great selling point. But under a 2013 law, the private companies are allowed to jack up rates not only enough to cover their costs but also to build a kitty to buy additional water systems. That leaves some people with bills so inflated they’re afraid to turn on their faucets.

In the end, customers also must pay for a return to investors in the private companies and corporate income taxes. These are costs the Illinois Commerce Commission has deemed reasonable, but which customers of municipal systems don’t have to pay.

Rather than sell their water systems, a wiser approach for small communities would be to form regional water districts or enter collaborative agreements that allow them to capture the scale they need to affordably upgrade their water systems. Money to help upgrade public water systems is included in President Joe Biden’s $1.9 trillion relief package, the American Rescue Plan.

Once sold, always sold

Once a water system is sold, the new owners almost always are loath to sell it back for any reason, and cities typically end up pursuing eminent domain in court. The city must prove that municipal ownership is in the public interest and pay a price set by the court. No system has ever been repurchased in Illinois, although communities — most notably Peoria — have tried.

“[The sale of a public water system] is almost irreversible,” Jan Beecher, director of Institute of Public Utilities at Michigan State University, told us. “Selling a water system is a very big decision.”

In their investor reports, private water companies have openly addressed their efforts to get legislation passed to facilitate sales of public water systems. In Illinois, private companies have made record profits since the 2013 law was passed, said John Connor, D-Lockport, who introduced the Senate bill to require a referendum.

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“Illinois is going to be at the forefront of water privatizations as these companies invest millions and millions and millions more [to buy systems] because there is no risk,” Connor said.

Pacing picking up

Since 2013, for-profit companies have purchased 34 public water systems in Illinois, and the pace is picking up, according to the Citizens Utility Board.

Last year, the American Prospect reported that private water companies in Illinois charge 95% more statewide than municipal systems.

Like other basic infrastructure systems, many aging water systems across the state are in need of upgrades. But to pursue those upgrades in a way that threatens to prohibitively drive up the cost of one of life’s most basic necessities — water — is a big mistake.

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