January 8, 2017

A New York Times investigation into rapidly rising water and sewage bills highlit the involvement of Wall Street finance in upgrading century old waterworks.

The paper has a detailed case study of three small towns across America,including Bayonne NJ, a rustbelt area.  The story shows that you might consider investing in your own well or rainwater harvesting if you live in a similar city:

n 2012, this blue-collar port city cut a deal with a Wall Street investment firm to manage its municipal waterworks.

Four years later, many of its old brown pipes have been replaced by shiny cobalt-blue ones, reflecting a broader infrastructure overhaul in Bayonne. But the water and sewer bill jumped so much that some are thinking about moving out of town.

“My reaction was, ‘Oh, so I guess I’m screwed now?’” said Ms. Adamczyk, an accountant and mother of two who received a quarterly bill for almost $500 this year. She’s not alone: Another resident’s bill jumped 5 percent, despite the household’s having used 11 percent less water.

Even as Wall Street deals like the one with Bayonne help financially desperate municipalities to make much-needed repairs, they can come with a hefty price tag — not just to pay for new pipes, but also to help the investors earn a nice return, a New York Times analysis has found. Often, these contracts guarantee a specific amount of revenue, The Times found, which can send water bills soaring.

Water rates in Bayonne have risen nearly 28 percent since Kohlberg Kravis Roberts — one of Wall Street’s most storied private equity firms — teamed up with another company to manage the city’s water system, the Times analysis shows. City officials also promised residents a four-year rate freeze that never materialized.

In one measure of residents’ distress, people are falling so far behind on their bills that the city is placing more liens against their homes, which can eventually lead to foreclosures.

In a typical private equity water deal, higher rates help firms earn returns of 8 to 18 percent, more than what a regular for-profit water company may expect. And to accelerate their returns, two of the firms have applied a common strategy from the private equity playbook: quickly flipping their investment to another firm. This includes K.K.R., which is said to be selling its 90 percent stake in the Bayonne venture.

Bayonne’s sales pitch to its citizens illustrates the bold steps town officials can take — including making promises that are at odds with the actual terms of the deal — to attract private equity money.

At a public meeting in city hall, a lawyer for the city promised that, after an initial rate bump, there would be “a rate freeze for four years,” according to a meeting transcript. Bayonne’s mayor, Mark Smith, later reiterated the four-year freeze in a magazine article.

That promise turned out …