Why Privatization IS a BAD Idea

The Cape Council have been entertaining privatization notions of late.

Excerpts from a recent Newsweek Report follow...

There is no substitute for water...Most of us would probably agree that water is too precious for anybody to own.

But the rights to divert water—from a river or lake or underground aquifer—are indeed sellable commodities; so too are the plants and pipes that process that water and deliver it to our taps.

Markets don’t care about the environment, And they don’t care about human rights. They care about profit.

Privately owned water utilities will charge what the market can bear, and spend as little as they can get away with on maintenance and environmental protection.

Private operators often reduce the workforce, neglect water conservation, and shift the cost of environmental violations onto the city.

In the late 1990s the World Bank infamously required scores of impoverished countries—most notably Bolivia—to privatize their water supplies as a condition of desperately needed economic assistance.

The hope was that markets would eliminate corruption and big multinationals would invest the resources needed to bring more water to more people.

By 2000, Bolivian citizens had taken to the streets in a string of violent protests.

Bechtel—the multinational corporation that had leased their pipes and plants—had more than doubled water rates, leaving tens of thousands of Bolivians who couldn’t pay without any water whatsoever.

The company said price hikes were needed to repair and expand the dilapidated infrastructure. Critics insisted they served only to maintain unrealistic profit margins.

Either way, the rioters sent the companies packing; by 2001, the public utility had resumed control.

Private water companies usually have very little incentive to encourage conservation; after all, when water use falls, revenue declines.

In 2005 a second Bolivian riot erupted when another private water company raised rates beyond what average people could afford.

Even as many U.S. cities look toward ceding their water infrastructure to private interests, others are waging expensive legal battles to get out of such contracts.

In 2009 Camden, N.J., sued United Water (an American subsidiary of the French giant Suez) for $29 million in unapproved payments, high unaccounted-for water losses, poor maintenance, and service disruptions.

In Milwaukee a state audit found that the same company violated its contract by shutting down sewage pumps to save money; the move resulted in billions of gallons of raw sewage spilling into Lake Michigan.

And in Gary, Ind., which canceled its contract with United Water after 12 years, critics say privatization more than doubled annual operating costs.

It ends up being a roundabout way to tax people, Only it’s worse than a tax because they don’t spend the money maintaining the system.

The Nattering One muses... Privatizing overpaid city hall executive management is one thing...

However, privatizing the Cape's most valuable resource, its water production, distribution and reclamation, is quite another.

Losing control over the taxpayers most valuable resource, has been, is and always shall be, a fatal mistake.

Gentlemen, you would do well to take heed, as this regrettable mistake, oft made by the misinformed, is quite avoidable.

The Race to Buy Up the Worlds Water.

Sans Souci Bay: Too Good To Be True?

Much has been made of the recent council decision to vote the Sans Souci Bay project down.

Our council elected to decline, despite a very enticing offer from the developer...

which could have paid for all city infrastructure costs (est. $6 million) to support the project.

On the surface, the offer seemed almost too good to be true, and that's because it was.

Skeletons in the closet or flys in the ointment:

1. If a PDP is approved (including the RD zoning) and if "substantial construction" is NOT "commenced" within two years of project approval the PDP would become null and void.

However, any rezoning; vacation(s) of plat; or variances approved during the PDP shall remain in full force and effect.

In other words, if after receiving the PDP, the property were flipped or resold, the new owner would then be...

completely free, without question, to exercise any and all of the unfettered provisions of the RD zoning district.

2. Over 60% of the Sans Souci Bay site already lies within the CHHA (Coastal High Hazard Area).

It is known that the National Hurricane Center is currently reviewing the CHHA and the boundary delineating the CHHA will be elevated a minimum of one foot...

and possibly as much as two feet... the affect will be to move the boundary inland to include most it not all of the Sans Souci site.

The Nattering One muses... A hypothetical... I bought this swamp land and I know that all of the parcel will soon be in the CHHA.

But, if I get the city to grant me variances under the PDP, I can flip it to an unsuspecting investor at a much higher price.

Granted the new owner will be able to exercise all of the variances within the PDP, but the impending CHHA re designation would severely cut into the market value.

So if I make the city an offer they CAN'T REFUSE, as in we will break ground within 60 days and pay for ALL CITY EXPENSES and INFRASTRUCTURE...

we can expedite this little land scam at a nice profit, and never actually break ground.

If it sounds too good to be true, it usually is. Hat tip and Holla out to our man at City Hall, Paco... Orale ese vato!

FDIC, Lee County, Kalifornia, It's All Greek To Me

FDIC just liquidated all their Lee county FLA commercial properties, in "take it or leave it" blocks of 50...

a block including hotels and restaurants in Cape Coral was bought by a California investment LLC.

There's another group of investors, thinking they scooped a bargain, that will get pancaked on the next down leg...

FDIC SW FLA regional have notified their local contractors that their final day of employment is May 26th...

In other words, they will liquidate all their remaining residential properties in the next 90 days.

The fire sale is occuring because FDIC have exhausted their $65 billion reserve and are now quietly borrowing Treasury money to stay afloat.

Meanwhile, Lee county courts are backed up with 23,000 foreclosures that have YET to hit the GHOST inventory.

Now we just need one more downdraft to create a major bank failure and thats all she wrote for the FDIC safety net.

Last week’s chilly reception to the Treasury’s 10 & 30 year auctions... served as a catalyst for the recent rise in rates.

The Fed surprised the market Thursday by raising the discount rate to 0.75% from 0.5%, the first RAISE in over three years!

If Greece's 5 billion Euro 10 year note test offering is not well accepted, this would raise fears of Greek insolvency...

then European leaders could be forced into some form of direct bailout. The threat of one default setting off a wave of defaults...

as scared markets would demand higher rates, would push many of the weak Southern European economies into imminent default.

Just waiting for the chaos to hit the street (Wall) again.... stay tuned as California makes matters worse by defaulting on its debt in May...

The California legislature have not shown the will to take the pain of accepting austerity spending cuts...

The shockwaves of the 7th largest economic entity going BK will make Greece's debt crisis and the plunging Euro look like nothing...

The Nattering One muses... Can you say, global panic and a second credit market freeze? I can...

Don't Build It and They Won't Come

A Nattering exclusive, regarding the biosolids project featured on NBC last week.

Tip o the hat to our inside sources, especially PACO at City Hall.

1. Who sez they don’t run this town? The city needs a full set of the building, electrical, mechanical, etc. specifications as drawn up by MWH.

These are specifications, which would have resulted from the $4 Million est. in engineering fees already paid to MWH for the CC11 project.

Until they are officially eliminated by the city from the bid process, MWH refuses to hand over a set of the plans to the city on a project, which the city has paid $20 million to date. Funny how that works.

2. Anti Trust. In addition, until MWH are eliminated from the bid process, Andritz (equipment manufacturer) and Haskell (contractor) cannot bid on the project as neither wish to damage their business relationship with MWH by directly competing.

3. The Book of Mark Up. On the last open bid, MWH have placed a bid of $26 million, of which their subs bid $14 million to complete a new structure and install the new equipment.

This means that $12 million of profit margin has been tacked on by the manager “at risk”. At the peak of the construction boom, Bonita Springs built a facility half the size, for under $5 million.

The city can easily manage the project and build this building for under $14 million, probably closer to $10 million.

4. The Book of Mark Up II. The city has already spent $20 million on engineering fees and new equipment for the new revenue generating process, which requires a new building.

The new equipment would have cost under $10 million had it been purchased directly from Andritz. However, the manager “at risk” tacked on $4 to $6 million in profit margin and $4 million in engineering fees.

5. To be or NOT to be. If the city opts NOT to build a new building, then the $16 million in equipment would be sold, for pennies on the dollar, resulting in a net $19 million loss.

Oh, by the way, as for the equipment sitting and rusting, there was a factory acceptance test late last year, for ANOTHER 28 pallets of equipment YET to be shipped to the city.

6. Die Hard. The existing building and equipment have NOT had a major expenditure in over 17 years. The law of averages is overdue to bite the city with a major failure on this existing system.

7. Die Hard II. It will cost $5 to $7 million to repair and bring the existing biosolids system up to snuff.

This update will NOT add new process and the associated revenue streams that the new equipment and construction of a new building would provide.

8. New revenue streams: These would come from acceptance from other municipalities, and processing of liquid sludge and cake sludge into solid pellets. The solid pellets could be sold at a profit, as fertilizer or soil amendment.

Cape Coral could become a regional sludge waste center, this would be looked upon favorably by the county, state and federal government. This could open up possibilities for future grants or low interest loans.

9. Cost vs Revenue: Current annual cost to chemically treat and transport the dried sludge is $1 million. The new process would eliminate these annual costs and generate an additional $1.5 million positive annual revenue stream.

10. Breakeven: on the $20 million plus $10 million for the building is $30Million/2.5Million = 12 years.

11. Rates UP. The city has already built in a $30 million price tag for the new building and equipment into the 92% utilities rate increase.

In other words, taking a $19 million loss on the $20 million in equipment and fees will NOT be the only loss.

The $2.5 million revenue stream that in the future, would have offset the 92% rate increases, will be lost.

12. Rates UP II. In the next few years, requirements will become more stringent, and fewer municipalities will be willing to accept our dried sludge.

Thus, the current $1million per year cost to treat and transport our sludge will increase in years to come. Thus, causing more rate increases.

City Council Action Items

1. Stop wasting time, the city MUST find a way to complete this project and implement the new revenue generating process.
2. MWH needs to be officially eliminated from the bid process, this will allow Andritz and Haskell to submit a bid.
3. The city needs to take ownership of the bid process and the construction project.
4. If necessary, the city needs to borrow against future water revenue streams to obtain the necessary funds for the building.
5. If still employed by the city, the parties responsible for signing off on a $20 million equipment purchase without approval for the structure to operate it in, need to be terminated for their complete lack of competence and common sense.

The Nattering One muses... Talk about putting the cart before the horse, or buying oats for a nag you don’t own yet.

This is the mayor and city councils job, find a way to come up with the $10 million and get it done. Common sense tells you, don't be penny wise and pound foolish.

Otherwise, just write off the $20 million already spent, kiss $2.5 million is annual cash flow goodbye and get ready for more rate increases.