Save Our Sewers in Akron Ohio

Below are several recent articles and reports on privatization. Each speaks to problems connected to selling or leasing public utilities.

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http://www.nytimes.com/2008/08/27/business/27fund.html
August 27, 2008
Cities Debate Privatizing Public Infrastructure
By JENNY ANDERSON

Cleaning up road kill and maintaining runways may not sound like cutting-edge investments. But banks and funds with big money seem to think so.

Reeling from more exotic investments that imploded during the credit crisis, Kohlberg Kravis Roberts, the Carlyle Group, Goldman Sachs, Morgan Stanley and Credit Suisse are among the investors who have amassed an estimated $250 billion war chest — much of it raised in the last two years — to finance a tidal wave of infrastructure projects in the United States and overseas.

Their strategy is gaining steam in the United States as federal, state and local governments previously wary of private funds struggle under mounting deficits that have curbed their ability to improve crumbling roads, bridges and even airports with taxpayer money.

With politicians like Gov. Arnold Schwarzenegger of California warning of a national infrastructure crisis, public resistance to private financing may start to ease.

“Budget gaps are starting to increase the viability of public-private partnerships,” said Norman Y. Mineta, a former secretary of transportation who was recently hired by Credit Suisse as a senior adviser to such deals.

This fall, Midway Airport of Chicago could become the first to pass into the hands of private investors. Just outside the nation’s capital, a $1.9 billion public-private partnership will finance new high-occupancy toll lanes around Washington. This week, Florida gave the green light to six groups that included JPMorgan, Lehman Brothers and the Carlyle Group to bid for a 50- to 75 -year lease on Alligator Alley, a toll road known for sightings of sleeping alligators that stretches 78 miles down I-75 in South Florida.

Until recently, the use of private funds to build and manage large-scale American infrastructure assets was slow to take root. States and towns could raise taxes and user fees or turn to the municipal bond market.

Americans have also been wary of foreign investors, who were among the first to this market, taking over their prized roads and bridges. When Macquarie of Australia and Cintra of Spain, two foreign funds with large portfolios of international investments, snapped up leases to the Chicago Skyway and the Indiana Toll Road, “people said ‘hold it, we don’t want our infrastructure owned by foreigners,’ ” Mr. Mineta said.

And then there is the odd romance between Americans and their roads: they do not want anyone other than the government owning them. The specter of investors reaping huge fees by financing assets like the Pennsylvania Turnpike also touches a raw nerve among taxpayers, who already feel they are paying top dollar for the government to maintain roads and bridges.

And with good reason: Private investors recoup their money by maximizing revenue — either making the infrastructure better to allow for more cars, for example, or by raising tolls. (Concession agreements dictate everything from toll increases to the amount of time dead animals can remain on the road before being cleared.)

Politicians have often supported the civic outcry: in the spring of 2007, James L. Oberstar of Minnesota, chairman of the House Committees on Transportation and Infrastructure, warned that his panel would “work to undo” any public-private partnership deals that failed to protect the public interest.

And labor unions have been quick to point out that investment funds stand to reap handsome fees from the crisis in infrastructure. “Our concern is that some sources of financing see this as a quick opportunity to make money,” Stephen Abrecht, director of the Capital Stewardship Program at the Service Employees International Union, said.

But in a world in which governments view infrastructure as a way to manage growth and raise productivity through the efficient movement of goods and people, an eroding economy has forced politicians to take another look.

“There’s a huge opportunity that the U.S. public sector is in danger of losing,” says Markus J. Pressdee, head of infrastructure investment banking at Credit Suisse. “It thinks there is a boatload of capital and when it is politically convenient it will be able to take advantage of it. But the capital is going into infrastructure assets available today around the world, and not waiting for projects the U.S., the public sector, may sponsor in the future.”

Traditionally, the federal government played a major role in developing the nation’s transportation backbone: Thomas Jefferson built canals and roads in the 1800s, Theodore Roosevelt expanded power generation in the early 1900s. In the 1950s Dwight Eisenhower oversaw the building of the interstate highway system.

But since the early 1990s, the United States has had no comprehensive transportation development, and responsibilities were pushed off to states, municipalities and metropolitan planning organizations. “Look at the physical neglect — crumbling bridges, the issue of energy security, environmental concerns,” said Robert Puentes of the Brookings Institution. “It’s more relevant than ever and we have no vision.”

The American Society of Civil Engineers estimates that the United States needs to invest at least $1.6 trillion over the next five years to maintain and expand its infrastructure. Last year, the Federal Highway Administration deemed 72,000 bridges, or more than 12 percent of the country’s total, “structurally deficient.” But the funds to fix them are shrinking: by the end of this year, the Highway Trust Fund will have a several billion dollar deficit.

“We are facing an infrastructure crisis in this country that threatens our status as an economic superpower, and threatens the health and safety of the people we serve,” New York Mayor Michael R. Bloomberg told Congress this year. In January he joined forces with Mr. Schwarzenegger and Gov. Edward G. Rendell of Pennsylvania to start a nonprofit group to raise awareness about the problem.

Some American pension funds see an investment opportunity. “Our infrastructure is crumbling, from bridges in Minnesota to our airports and freeways,” said Christopher Ailman, the head of the California State Teachers’ Retirement System. His board recently authorized up to about $800 million to invest in infrastructure projects. Nearby, the California Public Employees’ Retirement System, with coffers totaling $234 billion, has earmarked $7 billion for infrastructure investments through 2010. The Washington State Investment Board has allocated 5 percent of its fund to such investments.

Some foreign pension funds that jumped into the game early have already reaped rewards: The $52 billion Ontario Municipal Employee Retirement System saw a 12.4 percent return last year on a $5 billion infrastructure investment pool, above the benchmark 9.9 percent though down from 14 percent in 2006.

“People are creating a new asset class,” said Anne Valentine Andrews, head of portfolio strategy at Morgan Stanley Infrastructure. “You can see and understand the businesses involved — for example, ships come into the port, unload containers, reload containers and leave,” she said. “There’s no black box.”

The prospect of steady returns has drawn high-flying investors like Kohlberg Kravis and Morgan Stanley to the table. “Ten to 20 years from now infrastructure could be larger than real estate,” said Mark Weisdorf, head of infrastructure investments at JPMorgan. In 2006 and 2007, more than $500 billion worth of commercial real estate deals were done.

The pace of recent work is encouraging, says Robert Poole, director of transportation studies at the Reason Foundation, pointing to projects like the high-occupancy toll, or HOT, lanes outside Washington. “The fact that the private sector raised $1.4 billion for the Beltway project shows that even projects like HOT lanes that are considered high risk can be developed and financed privately and that has huge implications for other large metro areas,” he said .

Yet if the flow of money is fast, the return on these investments can be a waiting game. Washington’s HOT lanes project took six years to build after Fluor Enterprises, one of the two private companies financing part of the project, made an unsolicited bid in 2002. The privatization of Chicago’s Midway Airport was part of a pilot program adopted by the Federal Aviation Administration in 1996 to allow five domestic airports to be privatized. Twelve years later only one airport has met that goal — Stewart International Airport in Newburgh, N.Y. — and it was sold back to the Port Authority of New York and New Jersey.

For many politicians, privatization also remains a painful process. Mitch Daniels, the governor of Indiana, faced a severe backlash when he collected $3.8 billion for a 75- year lease of the Indiana Toll Road. A popular bumper sticker in Indiana reads “Keep the toll road, lease Mitch.”

Joe Dear, executive director of the Washington State Investment Board, still wonders how quickly governments will move. “Will all public agencies think it’s worth the extra return private capital will demand?” he asked. “That’s unclear.”

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http://blog.cleveland.com/metro/2008/08/east_cleveland_files_racketeer.html
East Cleveland files racketeering suit against Onunwor, Gray
Posted by Jesse Tinsley August 29, 2008 01:08AM
Plain Dealer, Cleveland

EAST CLEVELAND -- The city filed a multimillion-dollar racketeering suit Thursday against former East Cleveland Mayor Emmanuel Onunwor and Cleveland businessman Nathaniel Gray to recover losses stemming from a Water Department contract in which the city lost millions.

The suit, filed in Cuyahoga County Common Pleas Court, alleges in part that Onunwor, Gray and several other parties worked together to show that East Cleveland water and sewer rates needed to be raised by more than 40 percent.

The huge increase, however, was in contrast to accounting firm PricewaterhouseCoopers' 1998 findings -- paid for by the city -- that showed the water and sewer rates needed to be raised by only 4 percent, the suit alleges.
In addition to Onunwor and Gray -- both convicted on racketeering and other charges -- the suit also named engineering firms CH2M Hill/OMI of Englewood, Colo., and CH2M Hill of Ohio Inc., and Ralph Tyler and Ralph Tyler Cos. of Cleveland.

"It smelled like a back-door, no-bid contract," current East Cleveland Mayor Eric Brewer said in a news release. "I wrote a letter to council and to former auditor of state Jim Petro asking him to investigate."

The suit states that when the agreement was signed in November 2001, Onunwor convinced City Council to support a contract that caused the city to pay CH2M Hill $3.9 million a year to manage a Water Department that had been managed by the city for $1.4 million.

The city is seeking $14 million in damages.

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Waves of Regret
What some citizes have learned and other cities should know about water privatization fiasco’s in the United States.
Public Citizen
http://www.citizen.org/documents/waves.pdf

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Privatizing Our Water--Will the Air Be Next?
https://www.youtube.com/watch?v=yVoEN__ryHQ

Citizens group files petitions to block sewer sale without city vote

By Carl Chancellor
Beacon Journal staff writer

POSTED: 07:58 p.m. EDT, Jul 10, 2008

Akron voters are one step closer to having a say in deciding whether the city's sewers will be sold or leased.

Petitions bearing 5,293 signatures were presented this morning to the clerk of Akron City Council by members of Citizens to Save Our Sewers and Water.

The group — a grass-roots coalition of union workers and concerned citizens — is seeking a ballot measure that would amend the city's charter to require that any action to sell, lease or transfer a public utility be approved by a majority of voters.

''People we approached overwhelmingly supported letting the public decide to sell or lease the sewer system,'' said Willie Smith, with Save Our Sewers. Smith said the response to the petition drive was overwhelmingly favorable.

''It was very easy to collect signatures. People want to have a direct voice. This issue is too important to leave it up to the mayor and council alone,'' Smith said. He said SOS hopes to place the amendment on the November ballot.

SOS was formed on the heels of Mayor Don Plusquellic's announcement in February that he wanted to sell the sewer system as a way to pay for scholarships for Akron's public high school graduates to the University of Akron or trade schools.

The mayor later said that instead of selling the sewer system, the city would arrange a long-term lease in which Akron would maintain ownership and a private company would operate the system.

Jack Sombati, SOS campaign coordinator and an official for AFSCME, the union that represents Akron's sewer and water department workers, called the mayor's desire to raise scholarship money for Akron students honorable. However, he said selling off the city's sewers isn't the way to do it.

''Selling or leasing Akron's sewers to a private company will raise consumer rates — rates could double or triple,'' Sombati said, suggesting that such a deal would eliminate jobs and compromise service.

He said a private corporation would be accountable to its ''global shareholders and not local citizens.''

Sombati said he was confident that SOS had collected enough signatures to get the amendment on the ballot.

''The signatures we've collected are more than sufficient. What we need is 2,339 signatures, which is 10 percent of the electorate,'' Sombati said.

According to law, petitioners must collect signatures equal to 10 percent of the number of Akron voters in the mayoral-council elections last November.

The petitions will go to the Summit County Board of Elections, which has 10 days to validate the signatures.

Carl Chancellor can be reached at 330-996-3725 or cchancellor@thebeaconjournal.com.