Private Equity, Public Inequity: The Public Cost of Private Equity Takeovers of U.S. Water...

7/31/2019 Private Equity, Public Inequity: The Public Cost of Private Equity Takeovers of U.S. Water Infrastructure

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Public InequityPrivate Equity,

HE PUBLIC COST OF PRIVATE EQUITY TAKEOVERS OF U.S. WATER INFRASTRUCTU


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THE PUBLIC COST OF PRIVATE EQUITY TAKEOVERS OF U.S. WATER INFRASTRUCTURE

Execuive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Privae Equiy Targes U.S. Waer and Sewer Sysems . . . . . . . . . . . . . . . . . . . . . . . 3

Rate Hikes Follow Private Equity Deals: Social Dynamite . . . . . . . . . . . . . . . . . 3

A errible deal in Sana Paula, Caliornia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Pushing Privaizaion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

The inrasrucure privaizaion bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

An indusry-backed deal in Chicago, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Privatization as a Mega-Credit Card and Budget Gimmickry. . . . . . . . . . . . . 6

Sheer olly in Nassau Couny, New York. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Financial Consultants Conlict o Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

A rejeced gamble in Reno, Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Publics Lack o Bargaining Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Eye-Waeringly High Prois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Squeezing Dry and Running . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Leveraging Risks and Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Gilding Inrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Circumventing Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Lacking Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Recommendaions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Local Public Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Public-Public Partnerships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Increased Federal Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Reauthorization o Build America Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Endnoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


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2 Food & Water Watch tXXXGPPEBOEXBUFSXBUDIPSH

Executive Summary

Invesmen bankers and oher major inancial players are

increasingly ineresed in aking conrol o waer and sewer

services across he Unied Saes. Privae equiy vehicles

are armed wih more han $100 billion or inrasrucure

worldwide. Alhough mos deals in he U.S. waer uiliy

marke have involved exising privae secor companies,

a number o und managers anicipae ha he ongoing

iscal crisis will drive some governmens o privaize heirwaer inrasrucure. To make ha predicion a realiy,

major inancial ineress are backing various governmen

proposals ha aciliae privaizaion and privae inancing

o public inrasrucure.

This is an alarming developmen. Privae equiy players

ypically ocus on shor-erm prois and may seek o lip

asses afer driving down service qualiy and driving up

prices. Households and businesses could end up paying

more or inerior service.

Key indings:

There have been only hal a dozen sizable privae

equiy akeovers o waer and sewer services in

he Unied Saes, bu our new deals were nearing

consummaion or awaiing regulaory approval in 2012.

(See Table 1, page 4.)

Major inancial irms are promoing large, complex and

risky privaizaion deals, which essenially ac as high-

ineres credi cards o inance budge shoralls and

inrasrucure projecs. Cash-srapped governmens

lack he bargaining power and know-how o properly

negoiae hese deals.

Privae equiy players have argeed annual reurns o

a leas 1215 percen.

Privae equiy players usually lip asses wihin a

decade.

Privae equiy akeovers end o be highly leveraged

and risky.

Privae equiy players are noorious ax avoiders and

evaders. In he las ive years, or example, he Carlyle

Group made more han $4 billion in proi bu paid an

eecive income ax rae o only 2 percen.

Privae equiy akeovers resric ransparency and

accounabiliy.

Given he risks and coss associaed wih privaizaion,

governmens should no ranser conrol o heir waer

and sewer services o invesmen bankers or oher privae

ineress. Cash-srapped communiies can insead explorepublic-public parnerships o reduce he cos and enhance

he perormance o heir public waer and sewer services.

The ederal governmen can suppor public secor uili-

ies by providing a dedicaed source o unding or he

Drinking Waer and Clean Waer Sae Revolving Funds

and by reauhorizing he Build America Bonds program.

A renewed ederal commimen and responsible public

managemen o our naions waer and sewer sysems are

he bes ways o ensure sae and aordable service or all.


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Private Equity, Public Inequityt5IF1VCMJD$PTUPG1SJWBUF&RVJUZ5BLFPWFSTPG648BUFS*OGSBTUSVDUVSF 3

Private Equity Targets

U.S. Water and Sewer Systems

Privae equiy irms, invesmen banks and oher major

inancial insiuions are argeing U.S. waer and sewer

services or akeover. Since he mid-2000s, inves-

men unds managed by inancial behemohs including

JPMorgan Chase, Ausralian bank Macquarie and he

Carlyle Group have assumed conrol o waer and sewersysems across he counry. (See Table 1 on page 4 or a

lis o major ransacions.) These deals are par o a larger

privae equiy push or inrasrucure worldwide.

Alhough privae equiy irms and banks can inves heir

own equiy in inrasrucure projecs, i is more common

or hem o use capial pooled rom oher wealhy individ-

uals and insiuions ino inrasrucure unds and similar

vehicles ha hey manage.1 (See Table 2 on page 5 or he

10 larges inrasrucure und managers.) As o January

2012, privae equiy players had raised $186 billion hrough

276 dieren inrasrucure unds and were seeking

anoher $93 billion hrough 144 inrasrucure unds.2

The privae equiy craze or global inrasrucure began

around 2005.3 Afer plummeing because o he lae-2000s

recession,4 invesor appeie picked up again in 2010.5

(See Figure 1, page 5.) The economic downurn repuedly

boosed he appeal o lower-risk projecs like inrasruc-

ure. Invesing in inrasrucure is considered a deensive

sraegy ha can proec agains marke lucuaions.

Uiliies, in paricular, end o have relaively sable earn-

ings because hey are naural monopolies wih sronggovernmen proecions.6 Perhaps or hose reasons, one

survey o privae equiy irms in 2011 ound ha waer was

he op area o ineres or invesmen managers,7 and in

anoher survey, insiuional invesors ranked waer and

wase managemen as he second leading area o ineres

in he inrasrucure arena.8

Rate Hikes Follow Private

Equity Deals: Social Dynamite

Alhough privae equiy players have raised a subsanial

amoun o money or inrasrucure projecs, his capial

is no cheap. Privae secor inancing especially equiy

invesmen is much more expensive han governmen

borrowing.71 Privae equiy invesors expec o be well

compensaed, and he public will pay ha price hrough

rae hikes. The abiliy o increase user ees orms one crux

o privae equiys ineres in aking over public inra-

srucure.72 Bu, as Thomas Puter, ormer chie execuive

o Allianz Capial Parners, said during a 2011 conerence

abou inrasrucure invesmen, This is social dyna-

mie.73

Indeed, privae equiy akeovers are a bad deal or hepublic. A governmen audi o privaely inanced projecs

in he Unied Kingdom concluded, Our indings sugges

ha he public secor may ofen be paying more han is

necessary or using equiy invesmen.74

A terrible deal in Santa Paula, California

In 2008, Sana Paula, Cali., privaized he design,

consrucion, inancing and operaion o a new $65 million

waer reclamaion plan. Alinda Capial Parners inanced

he aciliy, which PERC Waer Corp. agreed o build and

operae under a 30-year deal.75 Alhough privaizaionadvocaes poin o he arrangemen as an example o

how privae capial can be deployed in he waer secor,76

he ciys ormer inance direcor John Qinn called i

The Macquarie ModelIn the mid-1990s, the Macquarie Group, an Australian bank, pioneered the model of using private equity from insti-

tutional investors to buy roads and utilities.9 Since then, it has exported the model around the world.10 As of 2011, the

Macquarie Group managed 95 infrastructure businesses in 23 countries,11 including companies that provided water

services to more than 8 million households worldwide.12

WVUVWZDWHUDFTXLVLWLRQZDVLWVSXUFKDVHRI6RXWK(DVW:DWHULQWKH8QLWHG.LQJGRP13 Then, in 2006, it led theFRQVRUWLXPWKDWSXUFKDVHG7KDPHV:DWHU 14WKHODUJHVWZDWHUDQGVHZHUFRPSDQ\LQ(QJODQGDQG:DOHV 15 Five years

ODWHU0DFTXDULHEHJDQDSLHFHPHDOVHOORRILWVVWDNHLQ7KDPHV:DWHUVHOOLQJSHUFHQWRIWKHFRPSDQ\WRD8QLWHG

$UDE(PLUDWHVVRYHUHLJQZHDOWKIXQGSHUFHQWWR&KLQDVVRYHUHLJQZHDOWKIXQG16DQGSHUFHQWWRD8.SHQVLRQ

fund.17

0DFTXDULHHQWHUHGWKH86ZDWHUPDUNHWLQZLWKWKHSXUFKDVHRI$TXDULRQ:DWHU&RPSDQ\ 18 (See Table 1, page

DQG)LJXUHSDJHWZDVWKHUVWLQYHVWPHQWRILWVELOOLRQ86LQIUDVWUXFWXUHIXQG19 At the time, Macquarie

Infrastructure said that it also sought long-term concessions of public wastewater systems and planned to target cash-

strapped cities and states.200DFTXDULHDQQRXQFHGDQHZELOOLRQ1RUWK$PHULFDQLQIUDVWUXFWXUHIXQGLQ 21


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YEAR PRIVATE EQUIT Y PLAYER DE AL T YPESELLER OR

CONTRACTORVALUE TARGET

200622$*+LJKVWDU&DSLWDO/3

via Hydro Star23

Acquisition of

privately held

water company

1XRQ%924

(Dutch utility

company)25

PLOOLRQ

(purchase

price)26

8WLOLWLHVQFVHUYLQJPRUH

than 300,000 water and sewer

FXVWRPHUVLQVWDWHV

200628

%&QYHVWPHQW0DQDJHPHQW

&RUSDQG&$&DSLWDO0DQDJH -

PHQW&RYLD%&/WG 29

&RUL[

Acquisition of

privately held

water company

.LQGHU0RUJDQ

QF86HQHUJ\

company)30

PLOOLRQ

(purchase

price)31

50% of Fairbanks Sewer

:DWHUQFLQ$ODVND 32via purchase of Terasen

:DWHUDQG8WLOLW\6HUYLFHV33

ZKLFKZDVUHQDPHG&RUL[34

(Acquired the rest of Fairbanks

6HZHU:DWHU&RPSDQ\IURP

private investors in 200935)

200736

0DFTXDULH%DQN via Macquarie

8WLOLWLHVQF38 (see Figure 3 on

page 12 for ownership structure)

Acquisition of

privately held

water company

.HOGD*URXS

%ULWLVKZDWHU

company)39

PLOOLRQ

(purchase

price)40

$TXDULRQ:DWHU&RPSDQ\

H[FOXGLQJ1


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a errible deal. Qinn old he rade publicaion Public

Works Financingin 2009 ha he ciy inended o reinance

he projec wih municipal bonds in 2013, adding ha unil

hen, were going o be paying premium prices o und

heir prois.77

Alhough Alinda had no received any waer deal since

Sana Paula,78 in 2010, afer closing a $4.1 billion inrasruc-

ure und, Alindas managing parner old Reutersha

increased privaizaion o U.S. inrasrucure was an inevi-

able rend as municipaliies seek new unding sources.79

Alinda, in collaboraion wih a Black & Veach subsidiary,

submited a proposal in 2011 or a 30-year lease o hewaer, sewer and elecric sysems o Gardner, Kansas.80

Pushing PrivatizationPrivae equiy akeovers o waer and sewer sysems

all ino wo broad caegories: (1) acquisiions o exising

privae secor waer companies, and (2) privaizaions o

governmen uiliies hrough public-privae parnerships

or asse sales. In general, privae equiy players have had

more success aking over waer and sewer sysems ha

were already privaely owned (see Table 1, page 4), bu i

governmen inances remain weak, privae equiy players

believe ha privaizaions will become more rampan.86

The infrastructure privatization bank87

In an apparen atemp o exploi he lagging recovery o

he public secor, various banks and privae equiy irms

RANK FUND MANAGERNUMBER OF FUNDS(closed and in market)

TOTAL CAPITAL(raised and targeted)

1 0DFTXDULHQIUDVWUXFWXUHDQG5HDO$VVHWVSDUWRIWKH0DFTXDULH*URXS81 19 ELOOLRQ

2*OREDOQIUDVWUXFWXUH3DUWQHUV

IRXQGHGE\&UHGLW6XLVVHDQG*HQHUDO(OHFWULF822 ELOOLRQ

3 $UF/LJKW&DSLWDO3DUWQHUV 5 ELOOLRQ

4 $OLQGD&DSLWDO3DUWQHUV 3 ELOOLRQ

5 GS Infrastructure Investment Group (part of Goldman Sachs)83 2 ELOOLRQ

6 +LJKVWDU&DSLWDOIRUPHUO\DOLDWHGZLWK$PHULFDQQWHUQDWLRQDO*URXS 84 4 ELOOLRQ

7 (QHUJ\&DSLWDO3DUWQHUV 3 ELOOLRQ

8 55(()QIUDVWUXFWXUHSDUWRI'HXWVFKH%DQN*URXS85 2 ELOOLRQ

9 %URRNHOG$VVHW0DQDJHPHQW 4 ELOOLRQ

10 Innisfree ELOOLRQ

2004 2005 2006 2007 2008 2009 2010 2011

Figure 1.Private Equity Appetite for Infrastructure:Annual Capital Raised by Unlisted Infrastructure Funds

SOURCE: %UDGEURRN(OOLRW)XQGUDLVLQJPreqin Infrastructure Spotlight, vol. 4, iss. 5. May 2012 at 6.

$50

$40

$30

$20

$10

0CapitalRaised(b

illionsUSD)

Table 2. Ten Largest Infrastructure Fund Managers, as of January 2012

SOURCE: 'DYLV(PPDQIUDVWUXFWXUH*3VPreqin Infrastructure Spotlight, vol. 4, iss. 1. January 2012 at 11.


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worked wih allied oicials and groups o promoe priva-

izaion and privae invesmen as viable ways o address

inrasrucure needs and budge shoralls.88 For example,

inance behemohs including he Carlyle Group,89 Goldman

Sachs90 and Swiss bank UBS suppored a naional inra-

srucure bank,91 which would promoe privae invesmen

in U.S. inrasrucure hrough public-privae parnerships.92

These invesors oreseeably would benei rom such an

insiuion.

Rober Wol, chairman o UBS Group Americas and

presiden o UBS Invesmen Bank,93 has been a prominenproponen o a naional inrasrucure bank. According o

a 2010 aricle in he Wall Street Journal, Mr. Wols chie

obsession, Whie House oicials say, is pushing a naional

inrasrucure bank ha local governmens and he privae

secor could use o und big projecs like bridges and

waer-reamen plans.94

Wol, a gol buddy and campaign undraiser or Presiden

Barack Obama,95 has had ample opporuniy o prosely-

ize his ideas. Obama appoined Wol o his Economic

Recovery Advisory Board in 200996

hree monhs aferUBSs asse managemen arm closed a $1.5 billion inra-

srucure und97 and hen o his Council on Jobs and

Compeiiveness in 2011.98 Boh commitees recommended

privae capial invesmen in inrasrucure, a naional

inrasrucure bank and public-privae parnerships.99

An industry-backed deal in Chicago, Illinois

Alhough he Whie Houses inrasrucure bank proposal

was deemed dead on arrival in 2011,100 Chicago decided

o be he guinea pig or a smaller-scale version. Rahm

Emanuel Obamas ormer chie o sa and curren

mayor o Chicago pushed hrough he Chicago Inra-

srucure Trus ha will combine a small amoun o ciy

capial wih capial rom banks and oher privae inves-

ors (including Ciibank NA, Cii Inrasrucure Invesors,

Macquarie Inrasrucure and Real Asses Inc., J.P. Morgan

Asse Managemen Inrasrucure Invesmen Group and

Ullico) o inance more han $1 billion o public works proj-ecs.101Inrastructure Investor, a rade magazine, characer-

ized he plan as an indusry-backed deal o esablish PPPs

[public-privae parnerships] as a poliically and inancially

viable business.102

The ciys primary moivaion appeared o be he desire o

ake deb o ciy books o give he illusion o reducing is

liabiliies.103 We have a ool here ha akes some o he

pressure o axpayers, Emanuel claimed. Use somebody

elses money or a change, raher han heirs.104 In he real

world, however, banks do no provide ree lunches. Chica-goans will have o repay he privae capial invesmen

wih ineres hrough user ees.105 The ciys chie inancial

oicer admited ha privae invesmen inancing could be

more expensive han radiional governmen borrowing.106

Noneheless, he ciy council signed o on Emanuels plan

in 2012.107

Privatization as a Mega-Credit Card

and Budget Gimmickry

The inance indusry seemed o be encouraging cash-

srapped governmens o use privaizaion as a mega-credi card o inance inrasrucure projecs.108 As

researchers said in a repor or he Associaion o Char-

ered Ceriied Accounans, Jus as wih a credi card,

however, he ineres raes have been relaively high and a

some poin he debs have o be paid o. 109

Some localiies have even sough o use privaizaion as a

one-sho rick o ill a budge gap. These arrangemens are

iscally irresponsible and would likely increase long-erm

coss or households and local businesses.110 The New York

Sae Comprollers Oice called his ype o deal budgegimmickry because i provides a shor-erm cash benei

while pushing coss o he uure and poenially increasing

public deb.111 Reliance on one-sho revenue increases

long-erm borrowing coss and can hur axpayers.112

In a repor abou wasewaer privaizaion, he U.S.

Environmenal Proecion Agency explained ha he

paymen ha a governmen receives or privaizing a sewer

sysem is a loan rom he privae eniy which mus be

IMAGE COURTESY OF J. BENOIST / COMMONS.WIKIMEDIA.ORG


9/22


repaid wih ineres by he wasewaer reamen users in

he orm o addiional user ees.113 I also characerized he

governmen proceeds rom such a ransacion as addi-

ional deb he wasewaer reamen users mus repay.114

I coninued, I a local or sae governmen wans o

recoup all o is invesmen in a aciliy and ses a conces-

sion ee or sales price o relec ha amoun, he resuling

annual coss o he privae eniy could be very large and

may resul in signiicant increases in user eesor all hewasewaer users (emphasis added).115

Sheer folly in Nassau County, New York

In 2012, Nassau Couny, N.Y., proposed leasing is sewer

sysem as par o wha he couny execuive called a deb

reducion and sewer sabilizaion plan.116 The couny

seleced Unied Waer o run he sewers and Morgan

Sanley o serve as a inancial advisor. For is par, Morgan

Sanley would receive a leas $5 million o help selec he

privae invesor ha would supposedly pay he couny

upward o $750 million or he lease.117

Credi raing agencies viewed he privaizaion plan

unavorably because i was a one-sho ploy ha ailed

o address he counys underlying iscal problems.118

For similar reasons, he Nassau Couny Inerim Finance

Auhoriy, a sae-appoined oversigh board, rejeced he

counys conrac wih Morgan Sanley in hopes o killing

he lease alogeher.119

In a prepared saemen, he auhoriys direcor George

Marlin lambased he proposed lease: As or he Counys

so-called Deb-Reducion Plan, in my 35 years as aninvesmen banker, I have never come across such an

ill-conceived plan.120 Marlin called he privaizaion an ill-

conceived backdoor borrowing scheme ha was akin o

using a credi card wih a 15 percen annual ineres rae o

pay o a home morgage loan ha had a 4 percen annual

ineres rae.121 In shor, he said he plan was sheer olly.122

)LQDQFLDO&RQVXOWDQWV&RQLFWRIQWHUHVW

In addiion o managing privaizaion businesses, privae

equiy players may also have divisions ha ac as inancial

advisors o local governmens on privaizaion deals.123

For example, wih he inancial advice o Morgan Sanley,

Akron, Ohio, pursued a long-erm lease o is sewers

unil residens voed down he scheme in 2008.124 Morgan

Sanley was no sranger o inrasrucure privaizaion,125

and i has since enered he waer secor. In 2012, Morgan

Sanley Inrasrucure Parners and a Prudenial-managed

inrasrucure und purchased a conrolling sake in a U.K.

waer company.126

Occasionally, hese inancial irms even approach public

oicials wih unsolicied oers o advise hem on need-

lessly complex sopgap measures or budge shoralls.

An aricle in Governingmagazine said abou alernaive

inancing schemes or iscal gaps, Some o hese soluions

may be brough o heir atenion by invesmen bankers

who come o he able armed wih an array o exoic

and ofen diicul-o-undersand inancing ools.127

These advisors are no imparial judges. Even when hey

canno bid on he privaizaion projec isel, hey sill have

a srong incenive o push hrough a big deal because heir

compensaion ofen depends on i. Their paymen ypically

includes a success-based ee ha hey receive only i

he privaizaion goes hrough. Because his ee is usually

a percen o he ransacion value,128 he advisors have a

srong inancial incenive o recommend he bigges deal

possible, even i i were a errible deal or he communiy.

A rejected gamble in Reno, Nevada

In July 2008, Goldman Sachs approached he ciy o

Reno, Nev., wih an oer o ac as a inancial advisor on a

long-erm lease o he Truckee Meadows Waer Auhoriy,

he waer provider or he area.129 The ciy was led o

believe ha a 50-year deal could have eched as much

as $165 million in cash.130 Goldman Sachs would have

charged a ransacion ee equaling a percenage o oal

ransacion value plus he amoun o any required capial

expendiures during he irs 10 years o he deal. Tha

percenage increased wih he ransacion value.131 I he

ransacion did no go hrough, he invesmen bank wouldhave received no paymen.132 This would have given he

company a srong inancial incenive o push hrough he

larges deal possible.


10/22


Afer he waer board voed o explore his idea, he uil-

iys general manager resigned in proes.133 The ollowing

week, afer considerable public opposiion o he lease

idea, he board unanimously voed o rescind is earlier

voe, keeping he sysem in public hands.134 As residen

Fred Thalke old he uiliy board, Gambling wih wha is

inarguably he mos imporan asse in his communiy is

no somehing ha should be endorsed.135

A monh earlier, Mark Florian, who was head o Goldman

Sachss Inrasrucure Banking Group a he ime, esi-

ied a a congressional hearing in suppor o a naional

inrasrucure bank and privaizaion, among oher hings.

Public-privae parnerships are also an opporuniy,

Florian said. We should encourage hese srucures since

our own U.S. pension plans are now ineresed in invesing

in hem.136 As o March 2012, Goldman Sachss inrasruc-

ure und had raised more han $10 billion.137

3XEOLFV/DFNRI%DUJDLQLQJ3RZHUWhen local governmens explore waer privaizaion under

iscal duress, hey are especially vulnerable o being misled

by privae ineress. A cash-srapped municipaliy can have

diiculy aording adequae legal and oher assisance

necessary o evaluae and negoiae a deal.138 Even wihou

iscal pressure, municipaliies usually lack he skills neces-

sary o eecively negoiae a privaizaion conrac or

waer and sewer uiliies. According o John Zielger in he

Public Contract Law Journal, Local governmens around

he counry, however, are legally ill-equipped o ener ino

high-value, long-erm concession conracs.139

Local governmens, especially iscally sressed ones, have

less bargaining power han naional or mulinaional

companies. This problem is exacerbaed when he priva-

izaion deals involve large privae inance players.140 I

would never be on he ciy manager in ha case, a ciy

advising irm old Governingmagazine.141 For example,

afer Chicago privaized is parking meers o a Morgan

Sanley-led consorium, meer raes quadrupled in some

areas and changes in policy ouraged consumers. Puting

us agains he invesmen banks in a deal like ha is likehaving litle leaguers play he New York Yankees, Chicago

Alderman Thomas Allen old Business Week.142

(\H:DWHULQJO\+LJK3URWV

Privae equiy players may use heir greaer bargaining

power o ge lucraive deals. Many privaizaions include

governmen guaranees or privae invesors or allow

renegoiaions afer he governmen selecs he winning

bid. Because o hese provisions, a irm may low-ball is

bid or a privaizaion projec by using, or example, overly

opimisic waer use and demand projecions.143 In his

siuaion, he governmen selecs a irm expecing subsan-

ial savings bu ends up paying more o compensae he

irm when acual revenues do no mee he irms rosy

projecions.

Privae equiy players may also ry o inlae heir reurnsby convincing governmens ha heir coss are higher

han hey acually are by using pessimisic inancial

projecions.144 The irms may use he semblance o risk

assumpion o exaggerae capial coss and demand higher

ees rom he public.145 In pracice, privae operaors and

invesors end o be risk-averse and expec o be well

compensaed or any risk hey do assume.146 They could

seek o pass on exra coss o consumers by increasing

raes or reducing service level.147

Wih argeed reurns o a leas 12 o 15 percen,148

privae equiy unds expec proi levels ha are oohigh o be pracical and useul or mos waer and sewer

uiliies.149 This is apparen in counries wih more experi-

ence wih privaely inanced inrasrucure. For example,

a U.K. Parliamen invesigaion o equiy invesmen in

privaized inrasrucure projecs concluded in 2012 ha

privae invesors were making excessively high reurns,

indicaing he counrys privae inance model was

inappropriae or uure public works projecs.150 Upon

releasing hese indings, Margare Hodge, who chaired he

commitee ha conduced he sudy, called or an end o

he era o invesors receiving eye-waeringly high rewards

while aking ever decreasing risks.151

Squeezing Dry and Running

Privae equiy invesors ofen sell heir sake in privaized

inrasrucure projecs beore he end o a conrac wih

governmen. In he Unied Kingdom, ypical reurns o

hese sales have averaged beween 15 percen and 30

percen and reached as much as 60 percen in some

cases.152 A European Services Sraegy Uni repor on equiy

sales in U.K. public-privae parnership projecs concluded,[T]he very high level o prois earned by consrucion

companies and banks provides urher evidence ha PPP

[public-privae parnership] projecs are litle more han

money-making mechanisms or he privae secor.153

Indeed, many privae equiy unds have shor invesmen

horizons, invesing in individual projecs or less han a

decade beore resale.154 For example, Alinda Inrasrucure

Fund II had a 10-year und horizon and a arge inernal


11/22


rae o reurn o 20 percen.155 Highsar Capial decided o

sell o Uiliies, Inc., a large U.S. waer company, six years

afer acquiring i.156 (See Table 1, page 4.)

This shor-erm ocus can conlic wih he public ineres,

especially when invesors own waer uiliies.157 As credi

raing agency Sandard & Poors warned, Regulaed

inrasrucure asses do no ypically lend hemselves o

operaional urnaround or inancial resrucuring wihinhe hree-o-ive-year invesmen period ypically adoped

by such [privae equiy] players.158

Privae invesors use a variey o acics o achieve hese

rapid earnings. Afer a privae equiy akeover, a waer

uiliy may undergo dramaic resrucuring,159 and he

holding company may issue a special dividend declaraion

o he equiy parners, reurning he equiy invesmen

o he invesors.160 The deb necessary o pay premiums

o sockholders o he arge company could weaken he

pos-acquisiion company, according o a repor or he

Naional Regulaory Research Insiue.161

Leveraging Risks and CostsPrivae equiy players ypically pay or waer sysems and

oher projecs by leveraging a small amoun o equiy

raised rom privae invesors wih a large amoun o loans

and oher deb.162 Leveraging borrowing money o

&RQVLGHUDPLOOLRQDFTXLVLWLRQRIDZDWHUXWLOLW\

WKDWKDVDQDQQXDORSHUDWLQJLQFRPHRIPLOOLRQ7KHQDQFHVRIWKLVGHDOFDQYDU\VXEVWDQWLDOO\GHSHQGLQJRQ

the buyer.

7KHDYHUDJHSXEOLFO\WUDGHG86ZDWHUXWLOLW\FRPSDQ\

has a capital structure of around 50 percent debt to

50 percent equity, and thus could borrow money to

QDQFHKDOIRIWKHSXUFKDVHSULFHDQGLQYHVWLWVRZQ

equity to pay for the other half. A private equity vehicle,

on the other hand, could leverage its equity investment

by using debt to pay for 90 percent of the acquisition.Such leveraging would likely increase the interest rate on

bonds and other loans.

Assuming that the interest rate on debt would increase

from 5 percent to 6 percent, and with everything else

HTXDOOHYHUDJLQJWULSOHVWKHDFTXLULQJFRPSDQ\VUDWHRI

return on equity, while reducing its income tax burden by

more than a third. (See Table 3.)

(IN MILLIONS OF DOLLARS)PUBLICLY TR ADEDWATER COMPANY

PRIVATE EQUITYHOLDING COMPANY

D&RVWRIGHEW 5% 6%

Capital Structure

(b) Debt

F(TXLW\ + +

(d) Total purchase price

Income Statement INCREASE (DECREASE)WITH LEVERAGING(e) Operating income

(f) Debt expensea DIFFERENCE PERCENT

(g) Income tax expense

b

(39%)K1HWLQFRPH

L5DWHRIUHWXUQRQHTXLW\c 9%d 28% 19%

Table 3.6LPSOLHGEDODQFHVKHHWFRPSDULVRQRIDPLOOLRQDFTXLVLWLRQby a publicly traded water company and a private equity holding company

$GDSWHGIURPDQH[DPSOHLQ+LOO6WHSKHQ*1DWLRQDO5HJXODWRU\5HVHDUFKQVWLWXWH3ULYDWH(TXLW\%X\RXWVRI3XEOLF8WLOLWLHV3UHSDUDWLRQIRU

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NOTES: a 'HEWH[SHQVHFRVWRIGHEWGHEW>OLQHIOLQHDOLQHE@

b QFRPHWD[H[SHQVHRSHUDWLQJLQFRPHGHEWH[SHQVHDYHUDJHLQFRPHWD[UDWHLQWKHZDWHUXWLOLW\LQGXVWU\ >OLQHJOLQHHOLQHI@

c 5DWHRIUHWXUQRQHTXLW\QHWLQFRPHHTXLW\>OLQHLOLQHKOLQHF@

d This conforms with industry statistics. The water utilit y industry as a whole has an expected rate of return on equity RISHUFHQWWRSHUFHQWIURPWR

How Leveraging Can Increase Investor Returns

While Minimizing Income Tax Responsibility


12/22


inance deals and srech equiy capial is an inegral

aspec o privae equiy deals; i can boos invesor reurns

while lowering he eecive income ax rae.163 (See box on

page 9 or an example.)

Privae equiy deals in inrasrucure are ofen highly

leveraged. In he Unied Kingdom, abou 90 percen o

he unding or a ypical privaely inanced inrasruc-

ure projec was rom deb.

164

Similarly, one invesmenmanagemen irm recommended leveraging invesmens in

waer inrasrucure wih 60 percen o 90 percen deb.165

Highly leveraged deals are risky and can increase long-

erm borrowing coss.166 In ac, Sandard & Poors warned

in 2006 ha privaizing asses o global inrasrucure

unds could resul in a downgraded credi raing because

inrasrucure unds were increasingly highly lever-

aged.167 As risk increases, he company mus pay higher

ineres raes o debors and higher reurns o invesors,168

and he deb used o inance he acquisiion could impair

he uiliys abiliy o inance uure improvemen projecs,especially i is bond raing is downgraded.169

According o KPMG Inernaional, Excessive or poorly

srucured deb could cause he privae eniy inancial

sress, increasing he need or a governmen akeover

should he operaor deaul.170 I capial markes change

and long-erm ederal ineres raes rise, he privae equiy

irm could have problems reinancing is shor-erm acqui-

siion deb, increasing he risk o deaul.171

Leveraging generally does no occur on he books o a

regulaed uiliy bu a a higher corporae level. When

he deb is held a he holding company level, i gives he

alse appearance ha he equiy buyou does no change

he uiliys inancial risk and ha he paren holds all he

addiional risk.172 This is inaccurae. The uiliy remains he

source o cash lows o repay ha deb,173 and raepayers

ulimaely pay or he associaed risks and coss.174

Gilding Infrastructure

When privae equiy players acquire waer and sewer

sysems, i makes more inancial sense o keep he deb onhe books o he holding company insead o he acquired

uiliy company because a regulaed waer uiliys proi

depends on he amoun o equiy i has invesed in inra-

srucure. (See Figure 2.)

Sae public uiliy commissions regulae he raes o

invesor-owned waer and sewer uiliies. The regulaors

allow he companies o charge raes o recoup deb coss,

axes and operaing expenses and o earn a reurn on heir

equiy invesmen.179 Overcompensaing sockholders

The Carlyle Groups Water Strategy7KH&DUO\OH*URXSWRRNLWVUVWIRUD\LQWRWKH86ZDWHU

XWLOLW\LQGXVWU\LQZLWKWKHSXUFKDVHRI3DUN:DWHU

&RPSDQ\3DUN:DWHU&RPSDQ\ZKLFKKDGEHHQD

FORVHO\KHOGSULYDWHFRPSDQ\RZQHGDOPRVWH[FOXVLYHO\

E\+HQU\:KHHOHUDQGKLVIDPLO\ VHUYHG

SHRSOHLQ&DOLIRUQLDDQG0RQWDQD

$WWKHWLPHRIWKHSXUFKDVH&DUO\OHLQWHQGHGWRUHVHOO3DUN:DWHU&RPSDQ\ZLWKLQYH\HDUV Carlyles

:HVWHUQ:DWHU+ROGLQJVWKHQDQFLDOYHKLFOHLW

FUHDWHGWRPDNHWKHSXUFKDVHZDVLQIDFWDOLPLWHG

OLIHHQWLW\WKDWH[SLUHGEHIRUH$FFRUGLQJWRD

FRQVXOWDQWIRUWKH0RQWDQD&RQVXPHU&RXQVHO&DUO\OHV

SODQZDVWRVHOORWKHFRPSDQ\DIWHUEXLOGLQJXSWKH

&RPSDQ\VUDWHEDVHDQGHQWHUSULVHPDUNHWYDOXH

7KLVZRXOGOHDGWRUDWHLQFUHDVHVIRUFRQVXPHUV By

LQYHVWLQJLQLQIUDVWUXFWXUH&DUO\OHLQWHQGHGWRUHDOL]H

DVXEVWDQWLDOFDSLWDOJDLQZKHQLWUHVROGWKHFRPSDQ\

LQH[SHFWLQJDQLQWHUQDOUDWHRIUHWXUQRI

SHUFHQWD\HDU

$VRI&DUO\OHZDVDOVRWDUJHWLQJVHYHQZDWHUXWLOL -

WLHVLQ&DOLIRUQLDLQFOXGLQJRQHZLWKPRUHWKDQ

FXVWRPHUVDQGDQRWKHUZLWKDERXWFXVWRPHUV

DVSRVVLEOHDGGRQRUWXFNLQDFTXLVLWLRQVE\3DUN:DWHU

&RPSDQ\&DUO\OHVLQIUDVWUXFWXUHIXQGKDGDQDVVHW

YDOXHRIELOOLRQDQGDERXWSHUFHQWRIWKHWRWDO

FDSLWDOLQWKHUPVPDQDJHGIXQGVFRPHVIURPSXEOLF

SHQVLRQVDQGDJHQFLHVLQFOXGLQJWKH&DOLIRUQLD3XEOLF

(PSOR\HHV5HWLUHPHQW6\VWHP&DO3(56

Figure 2. Regulated Utilites MakeMoney by Investing in Infrastructure

Equity Investment

$UHJXODWHGLQYHVWRURZQHGZDWHUXWLOLW \VSURWGHSHQGVRQLWV

equity investment and its authorized rate of return on equity.

3URW

(Authorized

Return

on

Equity)


13/22


encourages overinvesmen and higher-han-necessary

prices, according o he Naional Regulaory Research

Insiue.180 Unorunaely, auhorized reurns on equiy

ypically exceed he acual cos o equiy.

Consequenly, invesor-owned waer uiliies have a

inancial incenive o overbuild, or gold plae, inrasrucure

projecs. This is a well-known phenomenon called he

Averch-Johnson Eec, named or he economiss who irsmodeled i in he 1960s.181 A privaely conrolled uiliy

may, or example, build an unnecessarily large reamen

plan or choose a more capial-inensive reamen process,

such as desalinaion.

Acquiring exising waer and sewer sysems is anoher

way ha invesor-owned waer uiliies can expand heir

invesmen base and drive up heir reurns. For example,

Aquarion Waer Company a privae waer uiliy in he

Norheas ha Macquarie inancial vehicles bough in

2007182 had a business model ha ocused on acquisi-

ions and rae hikes.183

Ineresingly, a 2005 sudy ound ha a higher corporae

income ax rae on uiliy companies could help couner

his incenive o overinves in inrasrucure.184 Leveraged

buyous, however, reduce a irms income ax responsi-

biliy,185 so hey may compel even greaer overinvesmen.

&LUFXPYHQWLQJQFRPH7D[HV

Privae equiy irms also are noorious ax avoiders and

evaders.199 Inrasrucure unds are ofen locaed in ax

havens, and a 2011 repor by he European ServicesSraegy Uni ound ha his was a growing phenom-

enon.200 Because o ax havens, ax reamen o deb and

capial gains, and oher legal loopholes and pracices,

privae equiy irms ofen pay very low income ax raes.201

For example, beween 2007 and 2011, he Carlyle Group

made $4.2 billion in proi bu paid an eecive income ax

rae o only 2 percen.202 In comparison, publicly raded

U.S. waer uiliy companies have an average income ax

rae o 39 percen.203 By no paying he sandard 39 percen

income ax rae, he Carlyle Group avoided $1.6 billion o

income axes over ha ive-year period.204

/DFNLQJ7UDQVSDUHQF\

Privae equiy akeovers usually involve complex corporae

srucures, which can obscure ulimae ownership and

responsibiliy. Transacions ypically occur hrough a

series o holding companies and inancial vehicles.205 (See

Figure 3 on page 12 or an example o how complex hese

srucures can be.) For a privaizaion deal, a privae equiy

player will likely orm a new special-purpose vehicle wih

an exising privae secor waer company. The privae

equiy player will inance he ransacion and he waer

company will operae he privaized sysem.206 (See Figure

4 on page 13 or an example o how his arrangemen could

be srucured.)

To make maters worse, hese privae equiy-owned busi-

nesses, as privaely held companies, do no have o comply

wih mos inancial disclosure requiremens o he U.S.Securiies and Exchange Commission.207 A privae equiy

buyou also ofen lacks disclosure requiremens regarding

inancial covenans or an amorizaion schedule or he

ransacion deb,208 and he special-purpose company se

up by invesors may reuse o disclose inormaion abou

capial coss.209 This presens diiculies or bond-raing

agencies, and can resul in downgraded credi raings and

increased deb coss.210

Sae public uiliy commissions also may have insuicien

inormaion abou he inancial srucure o a buyou deal,

making i diicul or a regulaor o gauge he risk o he

uiliy arising rom he buyou, according o a repor by

he Naional Regulaory Research Insiue.211 The repor

noed ha a privae equiy irm may conceal is inves-

men porolio, adding: The paren companys/privae

equiy irms ineres in keeping his inormaion privae is

no consisen wih he public ineres in eecive regula-

ion, which requires ull inormaion o all acors aecing

he uiliys inancial healh.212

Pension FundsSome pension funds are increasingly looking for

direct investments in infrastructure, but as of

2011, infrastructure remains a small portion of their

RYHUDOOSRUWIROLR/HVVWKDQSHUFHQWRISHQVLRQIXQGV

worldwide invest in infrastructure projects.2183HQVLRQ

funds should be wary of investing equity in water and

VHZHUSULYDWL]DWLRQSURMHFWV9HU\OLWWOHLVNQRZQDERXW

pension fund investments in infrastructure.219 There is

RQO\DERXWYH\HDUVRIGDWDWRHYDOXDWHDQGWKHSHULRG

ZDVVKDSHGE\WKHERRPEXVWHQYLURQPHQWRIUHFHQW

years, according to Georg Inderst, an independent

advisor to pension funds and other institutional inves-

tors, in an art icle in the journal Pensions.220

QVWHDGRISDUWLFLSDWLQJLQSULYDWL]DWLRQGHDOVSHQVLRQ

funds could purchase government debt if they want to

invest in infrastructure.2217RIDFLOLWDWHWKLVLQWKH8QLWHG

States, the federal government needs to create attrac-

WLYHERUURZLQJVWUXFWXUHVVXFKDVUHLQVWDWLQJWKH%XLOG

$PHULFD%RQGVSURJUDP


14/22


The Macquarie Group

Macquarie Funds Group

Macquarie Infrastructureand Real Assets

MEAP Utilities Ltd. MEAP Utilities LPMacquarie Utilities

Holdings Ltd.

Macquarie Utilities, Inc.

Aquarion Holdings LLC

Aquarion Company

Mass Capital Aquarion Water Company Aquarion Safety Valve

Aquarion Water Companyof Connecticut

Aquarion Water Companyof New Hampshire

Aquarion Water Companyof Massachusetts

Macquarie EssentialAssets Partnership

Macquarie InfrastructurePartners Canada

Macquarie InfrastructurePartners International

Macquarie InfrastructurePartners A

100%

100%

100%

100%

100%

100%

100%

Manages

74.06%9.88%

0.01%

46.03% 44.09%

45% 55%

Figure 3.Ownership Structure of Aquarion Water Company, of whichMacquarie-managed funds owned a controlling stake

(As of March 2011, prior to sale of Macquarie Essential Assets Partnershipto British Columbia Investment Management Corporation)

SOURCE: &DPHULQR6WHYHQ9':$TXDULRQ:DWHU&RPSDQ\RI1HZ+DPSVKLUHQF&RUSRUDWH5HVWUXFWXULQJ1HZ+DPSVKLUH3XEOLF8WLOLWLHV&RPPLVVLRQ0DUFKDW0DFTXDULH>3UHVHQWDWLRQ@0DFTXDULHQIUDVWUXFWXUHDQG5HDO$VVHWV-XQHDW13 and 15.


15/22


A U.K. governmen audi o privaely inanced projecs

similarly ound, The amoun o inancial inormaion

invesors rouinely provide is limied.213 This lack o disclo-

sure has inerered wih he publics abiliy o monior

or excess prois and evaluae he role o privae equiy

invesmens.214 In addiion, unlike governmen eniies,

privaely conrolled waer uiliies are usually no subjec

o sunshine laws requiring open meeings and public

disclosure o cerain documens.215 Even i conrac provi-sions require cerain disclosures, The public, however, is

sill an addiional sep removed rom he eniy conrolling

a public aciliy or inrasrucure.216

Recommendations

Local Public Control

Cash-srapped ciies and owns will no resolve heir iscal

woes by urning waer and sewer sysems over o privae

ineress. As public oicials deermine how o cu he

growing budge deicis beleaguering many local govern-mens, hey mus avoid supericial soluions, such as

aucioning o waer uiliies, which can have lasing conse-

quences. Privaizaion can resul in greaer long-erm coss

or he public, and i can saddle generaions o consumers

wih deb ha mus be paid o hrough rae hikes.

Given he experiences o oher communiies, public

oicials should exercise he umos cauion when consid-

ering radical changes o waer and sewer services. They

should avoid privaizaion and oher irresponsible budge

gimmicks, which could price sruggling households ou o

waer service and jeopardize public access o sae waer.

Public-Public3DUWQHUVKLSV

Insead o privaizing waer sysems, municipaliies can

parner ogeher hrough public-public parnerships. In a

public-public parnership, wo or more public waer uili-

ies, governmen eniies or non-governmenal organiza-ions join orces on a no-or-proi basis and leverage heir

shared capaciies o improve waer and sewer services. The

public parners pool resources, buying power and ech-

nical experise o enhance public eiciencies and service

qualiy. These parnerships promoe public-service delivery

hrough sharing bes pracices.222

Through purchasing cooperaives or agreemens, uiliies

and oher public eniies can save ime and money by

purchasing chemicals, equipmen, uel and oher supplies

and maerials in bulk.223

Public waer uiliies can also savemoney when hey work ogeher hrough join capial

projecs or shared service agreemens.224 By parnering

wih more-eicien public uiliies or eaming up wih

non-governmenal organizaions or heir own employees,

public uiliies can creaively address ineiciencies or

make sysem improvemens.225 Compared o public-private

parnerships, public-public parnerships are more eecive,

eicien and equiable.226

Figure 4. Example Structure of a Privatization Involving Private Equity Entities

Lenders

Private EquityEntity

Private WaterCompany

Householdsand

Businesses

Government

Loans

Repayment

withInterest

$ Capital Investment

$$ Return on Equity

$ConcessionFee

$$$W

aterB

ills

Water Service

ControlofWaterUtility

Special PurposeVehicle

$Fee


16/22


QFUHDVHG)HGHUDO)XQGLQJ

A dedicaed source o ederal unding or he Drinking

Waer and Clean Waer Sae Revolving Funds (SRFs) can

help communiies make vial improvemens o heir waer

inrasrucure wihou severe increases in waer prices.

These programs provide low-ineres loans and grans or

waer inrasrucure and are an imporan inancing ool

or public waer sysems. Unorunaely, ederal unding or

he SRFs has allen since 2009.227 Wih a dedicaed source

o ederal unding, he SRFs would no longer be subjec o

he ickle annual appropriaions cycle.

5HDXWKRUL]DWLRQRI%XLOG$PHULFD%RQGV

In addiion, he ederal governmen can suppor waer

inrasrucure by reauhorizing Build America Bonds

(BABs) or a similar program. Under he previous BAB

program, a sae or local governmen issued a axable bond

and received a 35 percen direc subsidy rom he ederal

governmen o ose borrowing coss.228

Because BABsare axable, hey atraced new invesors including pension

unds and oher long-erm insiuional invesors ha

are ax-exemp and hus do no receive he ax benei o

buying regular municipal bonds.229

The Treasury Deparmen called his program highly

successul a simulaing inrasrucure invesmen.230

Build America Bonds unded more han $180 billion o

new public inrasrucure projecs in 2009 and 2010,231

saving saes and local governmens a oal o $20 billion

in borrowing coss.232 Insiuional invesors bough more

han a quarer o he $165 billion o bonds issued. 233

BABs are also an eicien way o subsidize public secorborrowing.234 The Treasury Deparmen repored, Unlike

radiional ax-exemp municipal bonds, BABs are target

eficient, meaning ha each dollar o revenue oregone by

he ederal governmen beneis sae and local govern-

mens by a dollar.235 Compared o ax-exemp municipal

bonds, BABs were a cheaper source o money or local

governmens while appealing o a broader se o invesors

including pension unds and oreign invesors.236

Wih responsible public managemen and a renewed

ederal commimen o our counrys waer resources, we

can bes ensure sae and aordable waer service or all.


17/22


Endnotes1 Beeferman, Larry W. Pension Fund Investment in Infrastructure: A Resource

Paper. (Occasional Paper Series No. 3). Harvard Law School, Labor and

Worklife Program. December 2008 at 18 to 21; Maxwell, Steve. The growing

role of private equity in the water industry.Journal AWWA, vol. 98, iss. 1.

:h^

/

can enhance long-term overall returns. September 2011 at 4 to 5.

2 Davis, Emma. Infrastructure GPs. Preqin Infrastructure Spotlight, vol. 4, iss.

1. January 2012 at 11.

W,^>>h/t^

Kentucky for Approval of an Indirect Change in Control of a Certain Kentucky

hWW>/WZ/

&^t/Ed

Z

Commission of Alaska. (Docket No. U-09-046). August 10, 2009; CAI. [Press

Z&^t/

&^t/WZ/: -

/&^

t/Z

and Request for Waiver of 3 AAC 48.400. Regulatory Commission of Alaska.

(Docket No. U-09-046). May 8, 2009 at 1 to 7.

36 Aquarion Water Company of CT, 2007 at 105.

WZ

Dt

Company. February 24, 2006.

Dh/E W

February 8, 2007 at 1.

39 Macquarie Group, 2006.

>t

:


18/22


54 Ibid.

W ^D&^

Dt

^

Transfer of Stock in Park Water Co. September 19, 2011 at 2 to 3.

56 The Carlyle Group, 2011.

57 Public Service Commission of the State of Montana, September 19, 2011 at 2

to 3.

58 The Carlyle Group, 2011.

^ZZ

Z

D

ZZhDD

D

at 1, 2, 9 and 14; Steinberg, Jim. Rialto city council Oks 30-year contract withAmerican Water Works.The San Bernardino County Sun. March 28, 2012;

^:Z

San Bernardino County Sun. June 27, 2012; Steinberg, Jim. New alliance may

run Rialtos water system. San Bernardino County Sun. July 11, 2012.

WZ

hh/

,

February 20, 2012.

61 Ibid.

Z

63 Corix, February 20, 2012.

tK Public Works Financing, vol. 269. March 2012 at 3; Bay-

DhE:D

Dh:

,

t

D

United Water deal. The Jersey Journal. July 24, 2012.

>ZWZ

:

WZ

//

-

>Z

November 21, 2011.

>ZdZ

&Dh

of Water and Wastewater Systems from the Lower Colorado River Authority.

ZZ&//W/

OECD. May 2012 at 11.

69 Lower Colorado River Authority, June 26, 2012; Lower Colorado River Author-

&Dh

Water and Wastewater Systems from the Lower Colorado River Authority.

70 Regulatory Commission of Alaska. Order No. 1. /D-

&/D//&^t/

(U-12-097). July 16, 2012 at 3.

EKh -

d

h^'K

t

/&^sE/

and Public-Private Partnerships. (GAO-10-728). June 2010 at 30.

d

Reuters. September 10,

2011.

& The Wall

Street Journal:

and 23 to 24; American Jobs Act of 2011 at 243(a)(12) and 253(b)(4); Long,

2011.

h^

Zt

global/en/investment-bank/meet-our-management/robert-wolf.html, ac-

h^

WZ

h^ -

ment appointments. October 22, 2010.

94 King, Neil Jr. Obamas lead blocker on Wall Street. The Wall Street Journal.

January 23, 2010.

95 Ibid.

t,WZ

K

February 6, 2009.

Wh^

Infrastructure

Investor. November 8, 2008.

t,WZ

WK

W:

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WZD

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-

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:

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100 Laing, Keith. House Republicans: White House plan for infrastructure bank

dead on arrival. d,. October 12, 2011.

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The

Bond BuyerKD/>

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102 Chicago redux. Infrastructure Investor. April 2, 2012.

103 Shields, 2012; Aldermen sink teeth into infrastructure bank debate. Crains

Chicago Business^D

/d

d,W. April 24, 2012; Renn, Aaron M. What exactly does an

infrastructure bank do for us anyway? h. April 22, 2012.

^&

Chicago Sun Times. April 25, 2012.

105 Hodge, Graeme A. and Carsten Greve. Public-private partnerships: An

WZ, vol. 67,

iss. 3. May/June 2007 at 549 to 550; Shields, 2012; Aldermen sink teeth into

infrastructure bank debate, 2012; Sledge, 2012; Renn, 2012; Spielman, 2012.

106 Shields, 2012.

107 Chicago Oks private investment for infrastructure. Reuters. April 24, 2012;

Dardick, Hal et al. City council approves Emanuels controversial rebuilding

plan. Chicago Tribune. April 24, 2012.

108 Hodge and Greve, 2007 at 552; Onishi, Masamitsu and Graham Winch.

Cross-country case analysis. In Winch, Graham et al. (eds.). (2012). Taking

Stock of PPP and PFI Around the World> -

d

109 Onishi and Winch, 2012 at 22.

110 Dannin, Ellen. Crumbling infrastructure, crumbling democracy: Infrastruc-

Northwestern Journal of Law and Social Policy, vol. 6, iss. 1. Winter 2011 at

/,. May 18, 2012.

118 Gralla, Joan. New Yorks Nassau County lease of sewer plant faces hurdles.

ReutersD/^

Z

D

EEz'K^

:>dDt Z':.

July 17, 2008.

134 Truckee Meadows Water Authority (Nevada). Minutes of the Board of Direc-

tors. July 25, 2008.

>:dDt

Reno

':. July 26, 2008.

136 Florian, 2008 at 31 to 32.

137 Sakoui, Anousha and Daniel Schfer. Goldman Sachs eyes bid for Veolia

Water. Financial Times. March 13, 2012.

h^'K

139 Ziegler, John. The dangers of municipal concession contracts: A new vehicle

to improve accountability and transparency. Public Contract Law Journal, vol

40, iss. 2. Winter 2011 at 571.

140 Dannin, 2011 at 75; Victor, 2012 at 40.

141 Victor, 2012 at 40.

142 Kelly and Keehner, 2010.

143 Onishi and Winch, 2012 at 21; Dannin, 2011 at 54, 55, 78 and 79; Marques,

Rui Cunha and Sanford Berg. Public-Private Partnership Contracts: A Tale of

d

W

vol. 90, iss. 4. 2011 at 1588, 1594 to 1595.


20/22


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157 Hill, 2007 at 22.

^Wd''/&

d

Good To Be True? November 30, 2006 at 3.

159 Hill, 2007 at 15.

160 Ibid. at 36.

161 Ibid. at 23.

162 Ibid. at 9 and 10.

/EW:

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Kd

dW

Equity Buyouts. (IFN Working Paper No. 841, 2010). May 4, 2011 at 1 to 4.

EKhWh^^

&^

Amendment No. 3. February 13, 2012 at 4 and 231.

197 Ibid. at 233.

198 Ibid. at 12 and 231.199 Morgan Lewis. Avoiding publicly traded partnership status for U.S. Federal

Income Tax Purposes. 2012; Norbck, 2011 at 1 to 4; dAubert, Franois.

The transparency challenge facing private equity. W^-

ment, no. 12. October 2011 at 18 to 20.

t

201 Morgan Lewis, 2012; Norbck, 2011 at 1 to 4; dAubert, 2011 at 18 to 20.

d'>Wh^^

&^

Amendment No. 7. April 13, 2012 at 99.

&

d

'>Wh^^

&^

E

/

billion more than it actually paid.

205 Camerino, Steven V. DW 11-068; Aquarion Water Company of New Hamp-

/Z

E,Wh -

mission. March 31, 2011 at 2.

/WWW

D>Dth

January 2012.


21/22


223 Flake, Marc. Purchasing co-op stretches dollars..

^:

d

E

/'W Go Pro Magazine, vol. 17, iss. 2. April/

May 2009 at 18 to 19.

,D>hZ

^WZh

>ZZ^

D

D

t

Canton

Observer. June 16, 2011.

,WWW,^

h'^W^/Research Unit. July 2005 at 5 to 7 and 12; Southeast Michigan Council of

Governments. Water Meter Updates. AgileGov Ideas for advancing local

:

226 Andrews, Rhys and Tom Entwistle. Does cross-sectoral partnership deliver?

equity. :WZd. vol. 20, iss.

3. July 2010 at 679, 689 to 692; Tucker, Josephine et al. Directorate B Policy

Department, Directorate-General for External Policies of the Union, European

W

partnerships for urban water services in ACP countries. May 2010 at 13 to 17

and 33 to 34.

227 Copeland, Claudia. Congressional Research Service. Water Infrastructure

&,W

and 30 to 32.

228 U.S. Treasury Department. Treasury Analysis of Build America Bonds and

Issuer Net Borrowing Costs. April 2, 2010 at 3.

229 U.S. Treasury Department and the Council of Economic Advisors. A New

Economic Analysis of Infrastructure Investment. March 23, 2012 at 16.

230 Ibid. at 15.

231 Ibid. at 2 and 15.

232 Ibid. at 15.

K121.

234 U.S. Treasury Department and the Council of Economic Advisors, 2012 at 16.

235 U.S. Treasury Department, 2010 at 3.

236 Ibid. at 2 to 3.


22/22

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