In Pennsylvania city, the poor are paying the price for a bad water deal

Beleaguered Coatesville sold its water system to a private company in hopes of fueling a turnaround that never came

The East Lincoln Highway runs through the downtown area of Coatesville, Pennsylvania, a small city of 13,000 where the privatization of water services has exacerbated the economic struggles of residents.
Brad Larrison for Al Jazeera America
Coatesville resident Tony Washington stands outside of his home on East Lincoln Highway.
Brad Larrison for Al Jazeera America

COATESVILLE, Pa. — Tony Washington couldn’t understand why his water bill last month was almost $200. But, given where he lives, he wasn’t surprised.

“This is Coatesville,” he said. “The worst of the worst.” 

Washington is a disabled veteran who lives alone in a house perched on East Lincoln Highway, a potholed street that cuts through the heart of Coatesville, a small city less than an hour’s drive from Philadelphia. The buildings along the road — homes, diners, churches, bodegas — are old and worn down. On a recent May afternoon, with the temperature climbing into the high 80s, groups of families and friends gathered on the sidewalk to escape the sweltering heat inside. (Pennsylvania-American Water Co., the company that bills Washington, did not respond before press time to a question about the rates individual residents said they paid. After publication, PAWC provided Al Jazeera America with a copy of Washington's statement, which shows an average of $80 in charges for the last six months, with his recent charge much higher because of unpaid bills).

Sitting outside her mother’s apartment just a few blocks from Washington’s house, Shareese Vaughn also said she has trouble affording water for her apartment, which she lives in alone.

“Somebody was supposed to come up and check the meter and everything, and they did and said there weren’t nothing wrong with the meter,” she said. “They said it was the right price. Now I’m behind on my bills, but at least I have help from my mom and dad. I’m lucky.”

For Vaughn, who grew up in Coatesville, high water bills compound other long-standing problems. More money spent on the basics puts more stress on parents, who must raise their kids amid a well-organized, underground drug economy and few positive opportunities. Nearly 40 percent of the people living in Coatesville are too young or old to work, and unemployment is high among those who can. Almost a quarter of Coatesville’s population live below the poverty line, even though the city is located in the wealthiest county in Pennsylvania, and the rate of violent crime is well above the national average.

By all practical measures, Coatesville is 2 square miles of ghetto. Yet more than a dozen residents told Al Jazeera that, despite low use, they spend more than $100 each month for water, on par with residents of some major cities. All of their money goes to the private company that owns Coatesville’s water system, or PAWC.

The dilapidation of Coatesville is closely intertwined with the growing cost of water. Back in 2001, city officials sold the rights to the system to PAWC, in the hopes that the revenue from the sale could spark an urban renaissance. But that turnaround never came. Now thousands of low-income people must pay exorbitant prices to access a basic resource.

This is the purpose of Coatesville: It’s a dumping ground.

Paul Evans

local entrepreneur

The old Luken Steel Mill was once the town's main economic engine but downsizing of the industry led to Coatesville's decline in recent decades.
Brad Larrison for Al Jazeera America

Coatesville was founded by Quakers, and today nearly half of its 13,000 residents are African-American, and almost a quarter are Latino. In the decades following the downsizing of the town’s century-old economic engine, Lukens Steel, non-Hispanic whites left in droves, with their percentage of the total population falling from 70 percent in 1980 to 27.2 percent in 2010. The coinciding economic decline continued a long legacy of individual and structural racism; the last recorded lynching in the North happened here in 1911, when a black steelworker was burned alive by a mob.

Today Coatesville is the poorest of the 16 urban centers in Chester County and has become an island of vulnerable populations marooned in a sea of wealth. The county has spent less per capita on development and revitalization in Coatesville than it has on all but one of Chester’s urban centers. In the city, there are nine senior-citizen centers in addition to a veteran’s hospital, and in 2010, Chester unveiled a five-year plan to house the county’s mentally ill population here. Aside from caring for the aged, ill or indigent, there isn’t much work in the city for an able-bodied person, says Paul Evans, a prominent local investor.

“When Chester County says, ‘Where are we going to send these people in distress?’ they remember Coatesville,” he said. “This is the purpose of Coatesville: It’s a dumping ground.”

But it wasn’t supposed to be that way, said Carmen Green, a Coatesville councilwoman who served her first term in the late 1990s when the city was soliciting offers from companies for its water system. At that time, Coatesville was experiencing a decreasing tax base resulting from high unemployment and poverty, and officials hoped the sale would generate substantial revenue.

The winning offer came from PAWC, a subsidiary of American Water, the largest investor-traded water company in America. PAWC offered Coatesville $38 million up front in exchange for the city’s water and wastewater assets, which were then owned by the City of Coatesville Authority. At first, Green said she opposed the sale.

“I was just very fearful of the water rates [increasing] and what that would do,” she said. “But as time went on and we began to explore the options, some of it made a lot of sense to me.”

As part of the deal, PAWC promised to modernize water and sewer infrastructure. Officials also hoped to invest money from the sale in a trust fund that would generate enough interest to support roughly 20 percent of the city’s annual expenses and limit tax increases. In the end, Green came around to the deal — but she says she had no inkling how much it would eventually cost Coatesville’s poor.

“We had no idea they would be seeking such a high rate increase. There’s no way that we knew that’s what their intentions were.”

‘[The buyers] pay massive amounts of money to municipalities, but the upfront payment is not because of corporations giving away money; it’s because they see an investment opportunity.’

Sam Bernhardt

Food & Water Watch

Coatesville City Councilwoman Carmen Green pictured in neighboring Thorndale, where she works at a Rent-A-Center. After initially supporting the PAWC deal, she now opposes it due to the high increase in rates.
Brad Larrison for Al Jazeera America

The Environmental Protection Agency estimated in 2007 that $774 million in capital investment would be needed over the next two decades to repair the nation’s water mains and update storage and treatment capacity. The vast majority of Americans are still served by community-run systems, but Sam Bernhardt, a senior organizer at the consumer-advocacy group Food & Water Watch, says his organization has had trouble keeping up with the pace of privatization deals in Pennsylvania, where large municipal debt burdens and aging infrastructure in need of billions of dollars worth of repair make selling off water assets an attractive option.

“There are probably a dozen municipalities where it’s actively going on,” said Bernhardt. “Whenever we hear about a fight going on, the low-level thing we’ll try and do is send some literature out to elected officials to educate them.”

Allentown, the third most populous city in the state, was the site of the last high-profile case in which a Pennsylvania community ceded control of its water system. Rather than selling, officials leased the assets for 50 years to Leigh County Authority, or LCA, the county’s nonprofit water utility. Officials hoped the infusion of quick cash would be a life raft out of a daunting pension crisis. In the coming years, LCA officials expect to win out in the deal, predicting total revenue of $2.5 billion over the next 35 years. Allentown is forecast to receive a third of that amount by 2047, which includes a $211.3 million upfront payment from LCA and $500,000 in annual royalty fees thereafter.

Bernhardt believes the Allentown deal exemplifies the worst aspects of water privatization even though the LCA is a nonprofit entity. “[The buyers] pay massive amounts of money to municipalities, but the upfront payment is not because of corporations giving away money; it’s because they see an investment opportunity,” he said.

A comprehensive study by Food & Water Watch also found that customers in communities that sold or leased their water systems paid 33 percent more for water, on average, than those served by municipally owned systems. In theory, higher rates for customers could be offset by revenue that municipalities gain from selling their water systems, which could come back to residents in the form of lower taxes and richer social services. But in Coatesville, financial mismanagement quickly depleted the town trust funds, leaving the city in worse shape.

Sometimes you make good decisions, and sometimes you don’t. We had so many obstacles against us. We made a mistake in how smoothly it was going to go.

Carmen Washington

former City Council member

The supposedly untouchable Coatesville trust fund dwindled over the decade following the water deal with PAWC, as city officials pulled out money for what they saw as emergency needs. The first withdrawal came after a protracted legal fight between the city and the owner of a plot of land that officials wanted to seize for a new municipally owned golf course, which they believed would bring in revenue from out-of-town golfers. But the eminent-domain battle made current officials unpopular, and many were voted out of office by 2005. Carmen Green, who stepped down from the City Council in 2004, chalked up the expensive fight to bad timing and bad press.

“Sometimes you make good decisions, and sometimes you don’t,” she said. “We had so many obstacles against us. We made a mistake in how smoothly it was going to go.”

The new crew pulled $6 million from the trust fund to pay off legal fees associated with the failed golf-course plan. That set a precedent for future years, each of which saw the city take out at least $1 million until 2014 because expenses eclipsed revenues every year. (John Carnes, the City Council solicitor general who oversaw each withdrawal from the trust fund, said the money will eventually have to be repaid to the bank).

The withdrawals happened in a period of general financial mismanagement. In 2012, an auditing company retained by newly elected city officials found conflicts of interest among previous officials’ duties, as well as incomplete accounting records, poor security measures and misappropriated funds. Another auditing firm hired by the city discovered that in 2008, cash marked as received in city records exceeded the cash actually deposited in the bank. The firm recommended that a formal investigation be opened.

By February 2010, after an epidemic of mysterious arsons in Coatesville left many homeless and resulted in millions of dollars in property damage, the City Council fired its city manager and named Wayne “Ted” Reed to the post. Reed had served as the executive director of the city’s water authority at the time of its sale to PAWC and then worked for the corporation as a business-development manager and manager of Coatesville customer accounts until he was selected to be city manager. Two months after Reed’s appointment, PAWC petitioned for the Pennsylvania Public Utility Commission to allow a 229 percent rate increase in wastewater bills for the eight townships served by Coatesville’s Regional Wastewater Plant, owned by PAWC.

Reed says the City Council was not concerned about his ties to the company and, in fact, selected him because its members hoped his connections could help Coatesville negotiate lower rates. After fielding complaints from parties concerned about high increases, the utility commission approved a 216 percent increase in wastewater rates for Coatesville residents, to be phased in over four years. Households in smaller townships served by the plant saw hikes of 197 percent, because they are charged as bulk customers rather than as individuals, as in Coatesville.

‘[F]or too long municipal leaders ignored infrastructure reinvestment. As a result, the systems’ customers are facing a heavy financial burden for the decades of deferred maintenance.’

Terry Maenza

PAWC spokesman

The wastewater plant in South Coatesville.
Brad Larrison for Al Jazeera America

In American Water’s annual report from 2014, the company stresses the need to generate sufficient revenue from its operations, given certain unpredictable factors — regulatory changes, environmental issues, political resistance — as well as the need to pay down outstanding debt it had accrued in the previous decade. Last year, 18.5 percent of its $2.7 billion in operating revenue came from customers served by its Pennsylvania subsidiary. The company uses revenue generated from customers to pay for increasingly complex infrastructural upgrades to facilities such as the Coatesville plant.

Although PAWC began upgrading the Coatesville plant in 2009, the company had already received approval for the improvements years earlier from the state Department of Environmental Protection. At that time, Coatesville officials believed a plant upgrade was needed because they presumed the city’s population would grow. By the time PAWC petitioned the public utility commission for a rate hike, the company had already spent $57.7 million on the plant. Even when construction dried up and population growth slowed after the recession, all that spending made it nearly impossible for state regulators to say no to PAWC’s request.

A few thousand residents are now paying for a system meant to serve a much greater population. Carmen Green, who was sworn in a second time to the City Council this past May, said nobody foresaw the steep rate hikes when the city council and manager first approved the deal.

“With them being a publicly traded company, it makes me believe these increases are not so much for what they say they’re for but for improving the pockets of investors, making sure the margins are what they say they are,” she said. “How many infrastructure improvements do you have to do? How frequently do you have to do that? If it’s that bad it should be something [handled] by a government program or agency.”

PAWC spokesperson Terry Maenza placed the blame on the municipality. “[F]or too long municipal leaders ignored infrastructure reinvestment,” he wrote in an email. “As a result, the systems’ customers are facing a heavy financial burden for the decades of deferred maintenance. In contrast, we believe it is more prudent to make proactive, ongoing investments to provide communities with reliable water and wastewater service, and then request gradual rate increases from our regulators to pay for the necessary improvements.”

In 2013, PAWC applied for a second rate hike, this time statewide, with the Pennsylvania Public Utility Commission. A number of entities, including the state’s Office of the Consumer Advocate, filed complaints in response, alleging the hikes were unjust. The resulting settlement, drafted by the commission, raised rates around the state overall. But PAWC proposed, and regulators approved, a slight decrease in Coatesville residents’ projected wastewater bills for 2014, which were set to rise based on the annual phased-in hikes that began in 2010.

Coatesville households now pay an average of $58.50 a month (which includes a $90 annual service charge), up from $27.43 in 2010. But because residents are billed for sewer and tap water combined, the total can be far higher.

“You get your bill and you’re like, ‘What? It’s $200?’ And if you’re late they give you a late charge,” said Terry, a Coatesville resident who preferred to be identified only by her first name. “Since I’m retired, I make less money now. I was making a lot, but it’s kind of a little hard on a fixed income.”

Asia Pender, who is unemployed and lives in a house with her young daughter, said she paid $273 in April for water.

“With electricity and rent, it’s like $1,000 a month,” she said. “Certain things you want to go out and do, you can’t do. You got to pay your bills first. There’s not really nobody to complain to.”

In response to questions about financial assistance for low-income ratepayers, PAWC sent Al Jazeera a brochure about its “H2O Help To Others” program. In it, the company writes that it provides grants to low-income residents, which it pays for with a $260,000 annual corporate donation as well as customer and employee donations. The company also offers a 15 percent discount on wastewater rates for customers whose income falls below 150 percent of the federal poverty line.

‘In Coatesville, they really just do not care about you. This place is a melting pot for death and destruction.’

Tony Washington

Coatesville resident

With the trust fund nearly gone, the city is no nearer to a revival than it was 15 years ago. After vowing to no longer raid the fund, the city raised property taxes and cut workers from city payrolls to balance its budget the last two years (although it also pulled out $140,000 from the fund this year to repair leaks in the roof of City Hall).

Paul Evans, who came to Coatesville in the 1990s, still sees a reason to feel optimistic about the city. He pinned his hopes on the upcoming appointment of a new, permanent city manager to replace the interim manager that has served since January.

“I think we have just had an abysmal leadership since 2005. We had terrible [leadership] for the last 10 years,” he said. “If we can get a good city manager, I think we can turn it around.”

Dale Gravett, director of the Section 8 program for the Chester County Housing Authority, struck a similarly hopeful tone, noting the city’s revitalization plan for an old regional train station in Coatesville that will include a career and learning center.

“Because Coatesville is so isolated [from the rest of the county], you will be able to have employment throughout the region once that’s done,” Gravett said.

But according to Tony Washington, the African-American veteran, Coatesville’s problems are fundamentally the result of neglect stemming from racism. He points to the ghettoization of Coatesville amid the extraordinary wealth of Chester County. Unable to work because of physical and psychological ailments, Washington now collects a small income from Social Security and the Department of Veterans Affairs. He estimates that he spends upwards of $700 monthly for all utilities combined — in a house where he lives by himself.

“In Coatesville, they really just do not care about you,” he said. “This place is a melting pot for death and destruction.”

Correction: This story has been updated to reflect additional information on Washington's bills, which averaged $80 per month in recent months. This version of the story also removes a reference to water bills in San Francisco, which are higher than those in Coatesville; corrects the statement regarding how Coatesville residents are billed for the annual service charge (it is included in monthly bills and not levied separately); and provides clarification on PAWC's proposal in 2013 to lower Coatesville's wastewater bills by distributing the costs across other municipalities.     

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