Honor Work: Expand the Earned Income Tax Credit

A lot of folks in Washington like to talk about the economic recovery as though our work is finished. To listen to some politicians in their nice suits and fancy offices—working families are doing just fine. But while the country may have climbed out of the depths of the recession, too many hard-working families are still struggling. That’s because the gains from economic growth have gone largely to the wealthiest Americans, while low and middle-income workers have seen little to no income growth over the past two decades.

Earlier this month, the Senate Banking Committee, on which I serve as Ranking Member, held a hearing on the economic recovery, and I was proud to see ordinary Americans outnumbering lobbyists in the audience. Instead of expensive tailored suits, they wore T-shirts with a simple but powerful message: “Whose Recovery?”

That’s a question we must keep asking ourselves.

If we are serious about helping working families and reducing the persistent poverty holding too many Americans back, we need to get serious about expanding and strengthening one of the most effective poverty-fighting tools we have: the Earned Income Tax Credit (EITC).

27 million households earned an average refund of $2,400.

The EITC was created with broad bipartisan support in 1975, and it has been expanded by every president since. It encourages people to work by putting thousands of dollars back into the pockets of low-wage and moderate-wage workers. Last year, 27 million American households—950,000 households in my home state of Ohio alone—claimed the EITC and earned an average refund of $2,400. That means millions of families getting a check in the mail this spring—a check making their hard work pay so they can make a down payment on a new car, put a deposit on an apartment, pay off medical debt, or save for a rainy day.

Each year, the EITC protects more children from poverty than any other government program. What’s more, research shows that it is an investment that pays long-term dividends, improving children’s health, educational attainment, and even earnings in adulthood.

One of our most important accomplishments last year was the bipartisan tax package that permanently expanded the EITC, providing certainty for the millions of families who rely on the credit and are counting on it again this year. But there is one glaring hole in the program that we still need to fix.

Under current law, workers without children barely earn any EITC. And childless workers under age 25 don’t qualify for the credit at all.

We are talking about people working full-time, 40 hours a week, all year round. But at minimum wage or even $9 per hour, they earn less than $20,000 a year. And without a significant EITC, these workers can actually be taxed deeper into poverty.

That is shameful. It goes against our core values as a nation, and it has to end.

These people work hard and play by the rules. They contribute by paying Social Security and other payroll taxes. How will they save for the future and plan for their families if they constantly struggle to get by, paycheck to paycheck—all the while being taxed deeper into poverty?

In the final budget of his presidency, President Obama has proposed expanding the EITC by reducing the eligibility age from 25 to 21 and nearly doubling the maximum value of the credit.

This is a step in the right direction, but it does not go far enough.

The Working Families Tax Relief Act, which I introduced last year, would nearly triple the maximum value of the EITC to ensure that no one is taxed into poverty. Just expanding the childless EITC as that legislation would do, would lift more than half a million people out of poverty and reduce poverty for an additional 10 million Americans.

We must also combine the tax credit with an increase in the minimum wage, to make sure a hard day’s work is rewarded with an honest day’s pay.

Expanding the EITC will mean more people attending college and getting GEDs. It will mean more Americans working at higher salaries. And it will enable millions of people to earn their way out of debt or to begin saving a nest egg, potentially for the first time in their lives.

And that means stronger communities, and more stable families.

If we are serious about creating an economic recovery for all Americans—not just those who work on Wall Street or in Washington—we need to let working people keep more of their hard-earned money. Then when we are asked the question, “Whose recovery?” we will be closer to answering: “All hardworking Americans.”



Segregation in the Era of Housing ‘Choice’

A few months before I met Vivian Warner,* she got the call she had been waiting so long for that she’d forgotten to hope for it. It was Baltimore Housing, the agency that oversees subsidized housing in the city. After four years on the waitlist, Vivian would receive a housing voucher, and could finally move off of her sister’s couch into her own home. A few weeks later, Vivian boarded a bus with the other lucky winners and drove around the city to visit eligible homes. At the last stop, the bus pulled up in front of a low-rise apartment complex. It was not quite what Vivian had imagined, but there was a two-bedroom available, and Vivian would pay just $55 a month out of pocket from her part-time income. She signed the lease that afternoon.

The housing voucher Vivian waited years to receive is part of the federal government’s most recent attempt to house the poor. Since the 1930s, it has employed housing assistance as a key tool in its war on urban blight and poverty. But these attempts have often failed those whom they were meant to protect, at times recreating the very inequality they intended to undo.

These attempts have often failed those whom they were meant to protect.

Post-war, the Federal Housing Administration underwrote home loans for millions of white Americans, while banks systematically denied them to black families, a process called redlining. Even in federally funded public housing, the poor had no respite from the marginalizing forces of inequality. In the 1950s and ‘60s, high-rise public housing was erected in neighborhoods that already suffered from segregation, underinvestment, and decline. And when the Fair Housing Act of 1968 outlawed housing discrimination by “race or national origin,” local housing authorities in cities like Chicago, Baltimore, and Dallas continued to keep two separate housing lists: one for whites, and one for blacks.

Vivian is part of a generation of poor urban dwellers who left the concentrated poverty of high-rise public housing towers, which by the 1990s were crumbling from neglect. Across the country the buildings were torn down, and along with them an entire system for housing the poor was dismantled.  In the place of public housing, the federal government needed a new solution, one that would remedy the concentrated poverty and segregation it had helped to create.

This solution expanded an existing program relying on the private market to house the poor: housing vouchers. These vouchers make up the difference between what a needy household can afford and the cost of a unit in the private market. They are meant to allow families to rent in any affordable neighborhood, offering men and women like Vivian their very first chance to choose where to live. Today, of the five million households across the country receiving some form of federal housing assistance, over half now live in privately owned properties, many through the Housing Choice Voucher program, previously called Section 8.

The program has undeniably positive effects. Vivian was able to regain custody of her twin boys thanks to her new home. For Tony Young, a 55-year-old man with HIV, receiving a voucher meant relief from the cold, hard bed under the bridge where he slept when there was no room at the homeless shelter. Joann Jones, a young mother of two, was able to buy fresh fruits and vegetables for her seven-year-old at the local store while he attended a high-performing public school nearby. The basic economic relief that vouchers provide cannot be understated. And they also give families something more: flexibility in times of crisis to respond to the demands of their jobs, their children’s needs, even the whims of landlords. By letting recipients choose where to live, vouchers confer dignity and affirm a sense of belonging potentially free from the stigma of “public” housing. Most importantly, they may help people to realize their dreams of a place to call home.

By untethering federal housing aid from the disadvantaged neighborhoods to which it was once attached, vouchers offer millions of poor Americans the opportunity to move to a new neighborhood where streets are safe, schools have resources to teach their children, and jobs are bountiful. But not everyone does. Vivian, for example, might have used her voucher in a number of safer, more affluent neighborhoods. But time and resources to find an ideal home are limited. And America’s long history of discriminatory housing practices have shaped the residential landscape in ways that cannot be undone by simply offering families a “choice.” Though voucher holders have moved to areas that are less poor than the ones available in the heyday of public housing, many are re-concentrating in poor neighborhoods.

This re-concentration matters for a reason that social scientists like William Julius Wilson have long known to be a social fact, but finally have the hard numbers to prove: where you live matters. It matters for your quality of life, for how much money you make in your lifetime, and for your children. Raj Chetty’s new work shows that a child growing up in a city like Baltimore will make 14 percent less over his lifetime than one in a typical American county, even after accounting for individual factors like income and education.

Vouchers fail to take account of an important lesson: A roof is not enough.

If where you live is so crucial, then we ought to pay attention to the role housing policy plays in where families end up. In a landmark case this past July, the Supreme Court ruled that housing discrimination need not be intentional to have harmful effects of segregation. This is the first time the legal concept of “disparate impact”—the idea that a policy may disproportionately affect certain groups even absent injurious intent—was applied to federal housing policy. The decision substantiates an important change in the way discrimination persists in contemporary America: we are moving away from the overt racism of Jim Crow, toward one maintained by enduring institutions that inadvertently perpetuate longstanding inequalities—a “racism without racists.” This shift is crucial to understanding how and why racial inequality continues to plague our nation.

Housing vouchers offer a chance to remedy this disparity, but are not yet equipped to fully do so. Not all voucher holders succeed in finding a place to live, and those who do are often unable to find homes in neighborhoods that have jobs and good schools. And although vouchers are a potential tool to dismantle concentrated poverty and segregation, it turns outs that black voucher holders live in neighborhoods that are poorer and far more segregated than those of white voucher holders, revealing the program’s shockingly disparate impact on white and black families. If black voucher holders face obstacles that prevent them from using their vouchers in the same neighborhoods as whites, then something needs to be done.

In their current form, vouchers fail to take account of an important lesson: A roof is not enough. Where you live matters. Vouchers shouldn’t merely keep people off the streets; they should help families move to neighborhoods with more opportunities. What can we do then to make the voucher program work better to reduce inequality? There are a number of policy fixes to reduce barriers that prevent families from using their voucher in low-poverty, integrated neighborhoods. For example, we could do a better job providing mobility counseling and transportation to help families explore new neighborhoods. There are also solutions related to landlords, like passing national legislation that makes it illegal to discriminate against someone who pays their rent with a voucher, and other policies that would encourage landlords in low-poverty areas to accept housing vouchers.

It is not enough to simply move the poor out of poverty-stricken neighborhoods.

Even with these fixes to modify the disparate impact vouchers often have, it is not enough to simply move the poor out of poverty-stricken neighborhoods. It is imperative that we address the root causes of poverty and inequality by implementing change at the level of the neighborhood itself, improving the environments around poor families by investing in schools, institutions, and the economy. But this systemic transformation cannot take place overnight, and it will face stark political opposition. It remains to be seen how the political climate of the next presidency will unfold to potentially make good on the Fair Housing Act’s recently renewed half-a-century old promise to “affirmatively further fair housing.”

While we wait for political change, we can act to undo the disparate impact this program has on minority families, who don’t fully reap its rewards. Housing vouchers could be a powerful instrument to remedy the indelible dangers of living in a poor environment, for families of all backgrounds.

*Name has been changed to protect confidentiality



The New War on Poverty

The 2016 presidential race is revving up, the Supreme Court and National Labor Relations Board are weighing union and workers’ rights cases, and questions of tax reform, living wages, and the right to unionize are hotter than they’ve been in generations. It may feel to some as though all the current talk of economic inequality came over us rather suddenly. But, of course, the current focus on inequality did not come out of nowhere. And its popularity today—among the young (who suffer from wildly disproportionate unemployment rates) and the poor (whose share of American annual income continues to fall)—should not surprise anyone who has been paying attention.

If Americans are talking about poverty again with greater urgency than they have since the 1970s, it is because they are rightly angered by the cruelties of the 21st-century economy. Wages have been stagnant for decades, steadily eroding what people can afford. Fewer and fewer jobs offer benefits. Even the success stories—young people who graduate from college—carry crushing levels of student debt that prevents them from purchasing homes or cars. Staggering health care costs have driven millions of American families into bankruptcy. And tens of millions of workers, even those in professional occupations, have become “contingent labor” with no job security. Their hours are changed whenever it suits management.

This new economy has fueled massive protest both here and abroad. And sustained organizing by millions of low-wage workers, students, immigrants, and the homeless has reframed the issue of American poverty in ways that are reminiscent of the 1930s. Poverty, these activists argue, is an issue of fairness to workers and to the middle class—it’s caused by corporate greed more than anything else.

Without question, the global crash of 2008 contributed to the change in thinking about growing economic inequality in the U.S. and abroad. But it was not the crash alone that caused this change. Rather, it has been a dramatic upsurge over the past five years of grassroots organizing and protest. Without those, concern about poverty had little staying power in American politics between the 1970s and the present. Poverty was briefly rediscovered as an issue after Hurricane Katrina devastated New Orleans in 2005. A then-little-known senator named Barack Obama pronounced it a shame “that it has taken a crisis like this one to awaken us to the great divide that continues to fester in our midst.” But, if Americans were indeed ashamed, we were not ashamed for long. The year after the hurricane struck, President George W. Bush proposed zeroing out funding for the Community Development Block Grant program, which is used for affordable housing, infrastructure, job creation and many other local antipoverty programs.

Bush’s proposal was defeated, but the language and iconography used to stir up opposition to federal poverty programs after Katrina was deeply familiar to any student of 20th-century American politics. It came down to a simple formula: blame women of color, especially single mothers. Columnist George Will argued that poverty could be defeated only if poor women stayed in school and did not have babies out of wedlock. And George W. Bush created the Healthy Marriage Initiative (HMI), which siphoned off federal anti-poverty funds to private marriage counseling programs for poor women. Although the U.S. Department of Health and Human Services called for voluntary participation in these programs, women I interviewed in Reno said they were required to attend HMI sessions if they were enrolled in the Temporary Assistance for Needy Families (TANF) income assistance program.

Suddenly poverty in America began to look different.

The discourse about poverty in the U.S. did not really begin to shift away from that tired trope until around 2011 and 2012, when students, the unemployed, and the homeless began to move into Occupy Wall Street encampments from New York to California. Despite being mocked and excoriated by mainstream media for having “no clear goals,” these activists focused national attention away from the so-called “moral flaws” of the poor to the most important sources of 21st-century American poverty: predatory lending, immorally expensive medical bills that were causing people to lose their homes, and wages that were insufficient to pay people’s bills.

Occupy introduced into American political discourse a simple, effective image of the American economy, juxtaposing most of “us”—the 99 percent—against the 1 percent, to which a staggering proportion of national wealth had been flowing since the Reagan Revolution began in 1980. The reason was clear: since the late 1970s, top marginal tax rates had been cut from 70 percent to little more than 30 percent, redirecting almost all American wealth to the top 1 percent of earners. This image took hold, and did as much to raise consciousness about economic inequality as twenty densely argued economics texts. But it also prompted a spate of more closely reasoned economic arguments about economic inequality—most famously from Thomas Piketty, Paul Krugman, Joseph Stiglitz, and Robert Reich.

Suddenly poverty in America began to look different, and many average Americans began talking about it differently too. Maybe it wasn’t poor people’s fault after all. Recovery from the 2008 recession did create millions of new jobs but 58 percent of them did not pay enough to keep a full-time worker clothed, housed and fed. By 2011, the results were crystal clear: college graduates were defaulting on student loans by the millions; full-time workers were living in homeless shelters or sleeping on relatives’ couches.

When police were called in to break up Occupy encampments, the movement was declared over—another flash in the pan. But that’s not what happened. Organizers shifted gears, unions invested resources, and the banner of economic justice was picked up by low-wage workers.

The movement for a living wage got its start with small protests by Walmart workers across the country. The first came on Black Friday 2012, the biggest shopping day of the year. Outside Walmart stores, McDonald’s restaurants, and other fast food chains, workers let the world know that 52 percent of them were forced to rely on government cash and food aid to supplement their meager paychecks. These small protests in New York, Chicago, and the working-class L.A. suburb of Pico Rivera, would soon spread across the U.S. and around the world.

Workers captured and broadcasted video and still images on social media, no longer dependent on corporate media. Unlike the long, grinding strikes of the 20th century, flash strikes could be and were repeated again and again. Every few months there were more.

The banner of economic justice was picked up by low-wage workers.

In May 2014, fast food workers walked off the job in 190 U.S. cities, and in 33 other countries, on six continents. In November 2014, Walmart workers held the first retail sit-down strikes since the 1930s, carrying photographs of Depression-era Woolworth sit-down strikers. In April 2015 and again in December, low-wage workers in fast food, home health care, airports and chain retail stores struck in 500 American cities; hotel housekeepers staged actions from Providence, Rhode Island to Long Beach, California and from Karachi, Pakistan to Abuja, Nigeria. All of these groups of workers are continuing to organize and—as a result—public opinion about raising wages has become ever-more positive.

Low-wage strikes have highlighted the fact that the prime welfare cheat, it turns out, is not Ronald Reagan’s fictitious Cadillac-driving, African-American single mother, but the world’s wealthiest corporations. Unwilling to pay their workers a living wage, they use federal poverty programs to subsidize their labor costs. The majority of low-wage workers, and the majority of living wage protesters, are in fact single mothers of color, and the next largest group are men of color. Who is cheating whom, the protesters ask? The answer is clear.

Since 2012, the campaign for a $15 living wage has had more success than anyone imagined it would. Los Angeles City and County, Seattle, San Francisco and many other cities and states have passed increases to the minimum wage and adopted the idea of a living wage. In the 2016 presidential campaign, we are once again discussing the ideas of universal health care as a right in the United States, federally-subsidized day care, free public universities, and progressive tax reform. And millions of protesters are taking us back in time to rehash debates that raged in the eras of Franklin Roosevelt, Harry Truman and Lyndon Johnson.

Welcome to the new War on Poverty.



What Happens When Low-Income Mothers Call the Police

Amid the national discourse on policing, it is easy to lose sight of the day-to-day functions that police are expected to perform—the noise reduction, the carrying of groceries, the stopgap plumbing, the parenting support. But so much of their work is that mundane.

Shay,* mother of 17-year-old Lamar and a participant in my research with low-income African-American mothers in Washington, D.C., reminded me of this. A few months before I interviewed her, she had called the police to take her son away. “He looked at it like I had set him up because I had to get him to the house for them to get him,” Shay explained. “He was being a disrespectful child, talking back and being aggressive, not listening.”

Shay had grown increasingly alarmed by Lamar’s behavior in recent months. He was hanging out with friends who committed petty crime, and he had even gotten a few court summonses for minor offenses, appearances he usually skipped. Despite Shay’s distrust of police—a skepticism honed growing up in one of D.C.’s most violent housing projects—she reached out to them. She hoped they would link Lamar with resources he could use to avoid criminality, such as effective counseling and expanded educational and employment opportunities—resources she had not been able to provide.

Lamar wound up in a youth detention facility out of state. The statistics on long-term outcomes for teens who spend time in juvenile detention are not especially promising, but Shay insists that she made the best decision. “He knows now that mommy saved him,” she said.

The conventional wisdom is that poor African-Americans have nearly universal disdain for police, seeing them only as an occupying force. Yet research shows that African-American women living in high-poverty neighborhoods are part of groups most likely to report crime and disturbance to the police, even when researchers control for the higher crime rates they tend to experience. The key, though, is that when these women (especially mothers) call the police, they aren’t calling because they have faith in police officers’ crime-solving prowess or trust that police have their best interests at heart. They make the difficult choice to rely on police because they are one of the most readily available providers of social support—help that police are actually ill-equipped to furnish.

Of course, mothers are well aware that calling the police, especially on teenage sons, is risky. Those risks have gained national attention only recently, but nothing that Black Lives Matter activists brought to light is news to them.

Much to her chagrin, he’s now incarcerated instead.

Pam, another mother I interviewed, rattled off grievances against the police, including the shooting of an unarmed boy in a high-poverty, predominantly African-American neighborhood in Southeast Washington, D.C. some years ago. “There’s a lot of police brutality going on out there, a lot of crooked stuff. What can we do?” she lamented. Yet she reports calling the police on her drug-addicted son several times, hoping he could take advantage of a diversion program and get into drug treatment. Much to her chagrin, he’s now incarcerated instead.

For mothers living in poverty, the stakes of choosing not to contact police when a child is truant, addicted, or out of control can be high. Child welfare investigation is a regular occurrence for poor mothers, especially if they are African-American and living in central cities. Although calling the police can trigger a child welfare investigation, it can also serve as a gesture of diligent parenting. Thus the risk of reporting can seem worth taking to avoid the appearance of child neglect, a charge that could put the entire family in jeopardy.

Raising children is a tough task for anyone, particularly when those children are prone to misbehave. But when wealthier kids misbehave, their parents have better options for seeking help. They can redirect their children’s energy toward organized activities. They can find private counseling, or they attend schools where good counseling is more readily available. And, because child welfare agencies rarely investigate their homes or assume the worst about their parenting skills, they need not worry that one child’s misbehavior will threaten custody of all their children. When poor kids misbehave, these options are harder to come by. The social safety net, toilsome to access and often punitive in its own right, leaves mothers with few alternatives to the police department.

Against the backdrop of police bias and misconduct, police organizations have taken to publicizing dancing, jumping rope, and making music with children of color as if dance-offs will render forgettable the legacy of violence. These displays of goodwill are positive initial gestures. But long-term delivery of effective and respectful policing, coupled with a more robust and more usable landscape of non-criminal social services, is what’s really needed for violence reduction and police legitimacy. A dual strategy of police reform and safety net reform can ultimately aid in the fight against poverty by stemming the tide that inexorably pushes poor parents and kids toward penal entanglement, which tends to exacerbate hardship.

The social safety net, toilsome to access and often punitive in its own right, leaves mothers with few alternatives to the police.

This moment invites deeper questions about the functions and scope of police work. It beckons us toward reconsideration of how police regulation fits into a broader reform agenda. Body cameras and use of force standards are reasonable places to begin, but it will take more than police-specific reform to recast the work of police in communities. The Ferguson Commission, for example, integrated child well-being and economic opportunity into its agenda for change. Other proposals have suggested that multidisciplinary teams that include social workers respond to police calls, a helpful proposal even though it still operates in a crime control framework. Most towns and cities aiming to avoid becoming the next Ferguson, the next Baltimore, have turned their attention to police regulation, but they have not simultaneously sought ways to make social support more accessible in heavily policed communities beyond the criminal justice system.

As governments redefine the contours of policing, they can also tackle the deeper challenges of parenting in the toughest communities. They can make decisions like Shay’s and Pam’s less necessary.

*Name has been changed to protect confidentiality



The Unexpected Cause of Water Crises in American Cities

While the water crisis unfolding in Flint is perhaps the most egregious example of austerity in recent memory, it is part of a larger emergency developing nationally. In 2014, Detroit became the first major American city to enact mass water shutoffs, with 46,000 poor households receiving disconnection notices that May. And in Pittsburgh, Baltimore, and other cities, consumers face steep price increases in their water bills. These shutoffs and rate hikes can be traced back to one common source: Wall Street.

Baltimore is one of the most visible examples of how dangerous financial deals with Wall Street can push a city over the edge into crisis. In April 2015, just days after Baltimore began shutting off water to households behind on their bills, Freddie Gray died from injuries sustained while he was in police custody. This set up a bitter irony: as activists drew attention to the routine dehumanization of black and brown bodies by law enforcement, the majority of shutoff notices went to homes in predominately black neighborhoods. By May 15, 1,600 homes had lost their water.

In addition to the shutoffs, residents of Baltimore and its surrounding suburbs have also endured rate hikes amounting to 42 percent in just three years. To justify the surge in cost to consumers, Department of Public Works Director Rudy Chow pointed to delinquent bills totaling $40 million, saying: “We want to make sure all of our citizens pay their fair share.”

But what Chow failed to disclose is that responsibility for this debt does not entirely lie with residents. In fact, Baltimore has given away much more than $40 million to Wall Street to pay for toxic interest rate swaps. These toxic swaps are complex financial instruments that banks pitch to government entities—often without proper explanation of the risks involved—as a way to save money on infrastructure projects. And so, facing both crumbling infrastructure and falling revenues (due in part to declining federal support for infrastructure projects), many water department officials signed on.

Baltimore punished vulnerable residents for a crisis they did not cause.

But in 2008, when Wall Street crashed the economy and the massive risks associated with these deals came to light, cities across the country found themselves owing banks millions of dollars. And because of termination clauses written into the contracts, local governments could not get out of the disastrous deals without paying high penalties to the very institutions that caused the crisis. Baltimore had used toxic swaps in conjunction with auction rate securities, a type of very risky variable rate bond. So, by the summer of 2015, Baltimore had paid banks nearly $56 million in interest payments just for water and wastewater swaps, and another $43 million in penalties. The grand total for all the city’s swaps, not including the huge losses on the city’s auction rate securities, came to nearly $200 million.

Even though only about $15 million of the $40 million in delinquent water bills were attributable to residential accounts, Baltimore shut off water to more than 3,000 residences, many of which were among the poorest in the area. In contrast, by mid-July, only two businesses had experienced shutoffs. And so, in adopting the traditional austerity rhetoric of “paying their fair share” and “shared sacrifice,” Baltimore punished vulnerable residents for a crisis they did not cause, leaving wealthy corporations unscathed and even free to profit anew.


A year earlier, in 2014, Detroit began large-scale water shutoffs as the city’s bankruptcy case was working its way through court. Like Baltimore, interest rate swaps were also a contributing factor in Detroit’s financial crisis and to the struggles of the Detroit Water and Sewage Department (DWSD) in particular. After years of hefty payments on its swaps, DWSD ultimately had to borrow $537 million to pay banks in 2012 when expensive termination penalties in its water swap contracts were triggered. In addition, Detroit water customers have seen their rates spike by nearly 120 percent in the last decade; nearly half of their payments now go toward paying down the debt on the swap termination fees. In a city where nearly 40 percent of residents live below the poverty line, it’s not surprising that many have fallen behind on their skyrocketing bills.

In the austerity game, there are clear winners and losers. Because the DWSD borrowed money for the termination fees, ratepayers are paying not only for the banks’ payday, but also for interest payments to bondholders on the debt.


There are other cities where the water crisis is playing out less visibly. For example, in 2007 and 2008, as Pittsburgh faced aging and leaking infrastructure, banks pitched Pittsburgh Water and Sewer Authority (PWSA) a deal pairing variable rate bonds with swaps. But, as was the case with other municipalities, these deals seemed to go wrong almost immediately. Between 2007 and 2014, PWSA paid nearly $113 million in net interest payments and termination fees on the swaps. By the end of 2014, it faced an additional $87 million in bank penalties to get out of the deals. These swaps continue to drain resources from PWSA.

Facing $780 million in debt, PWSA became a good target for austerity crusaders and privatizers who promise savings and “efficiency” to desperate city officials. Enter Veolia, a multinational corporation that secured a lucrative three-year management contract with PWSA in 2012.

In a city where nearly 40 percent of residents live below the poverty line, it’s not surprising that many have fallen behind on their skyrocketing bills.

Despite Veolia’s promises of cost savings and “efficiency,” ratepayers learned that their rates would go up by about 20 percent by 2017. Many customers say that they are also being charged unfairly by the corporation. As part of its contract with PWSA, Veolia began installing its own water meters throughout Pittsburgh, known as water meter interface units, or MIUs. But according to an ongoing lawsuit filed in May of last year, “these MIU systems have catastrophically failed and customers have received grossly inaccurate and at times outrageously high bills,” including spikes of up to 600 percent. The lawsuit also alleges that PWSA turned off water to households—even in instances when individuals had never received a bill in the first place. All the while, consumers are charged with paying the generous salaries of Veolia’s executives in addition to PWSA’s debts—including the swap interest rates, the termination fees, the bonds, bank underwriting fees, and millions of dollars in insurance payments. (Veolia did not respond to TalkPoverty’s request for comment at the time of publication.)


This problem is not limited to these three cities. Water departments across the country, desperate to raise money to replace and repair deteriorating infrastructure, got entangled in highly risky deals that they did not completely understand. Now they’re stuck diverting resources from infrastructure improvements to bank payments and remain vulnerable to predatory companies dangling well-worn promises of cost savings.

Ultimately, this trend is not just about water. These examples are part and parcel of a cycle of destruction that is a key feature of “modern disaster capitalism.” This occurs when banks and other large corporations use their political clout to cut taxes, leading to big reductions in the revenue necessary to sustain vital infrastructure of all kinds. Elected officials and city staffs must then struggle to find ways to fund projects, becoming easily exploited customers for Wall Street’s risky and opaque financial deals. And when the deals fail and those responsible have collected their payday, there’s always another profiteering company ready with more promises of “cost savings” and “efficiencies.” The most vulnerable among us pay the highest price for their profits.