By Yasha Levine, AlterNet
Posted on November 26, 2009, Printed on November 28, 2009
What are we getting in return for the bailout? So far, predatory credit
exorbitant bank fees and obscene Wall Street bonuses. But we're being robbed in other,
sneakier ways, too. It seems that taxpayers in the poorest, most vulnerable parts of the
county are getting plundered by the same institutions they bailed out. One example is
AIG's underhanded fleecing of residents of rural Kentucky.
Middlesboro and Clinton are two tiny, impoverished towns in southern Kentucky
combined population of 12,000. In 2008, Middlesboro's per capita income was $13,189
a year, only a few hundred dollars more than the average worker earned in third-world
Mexico. That is if they were lucky to even get a job. Real unemployment hovers
somewhere around 30%, and the state is so broke that half the people eligible for
unemployment benefits can't receive them. Life may be tough and most people live in
poverty, but that doesn't mean they can't be made a little poorer. That's the lesson locals
learned after bailed-out insurance villain AIG took over their water utility and instantly
raised rates to squeeze an extra $1 million in profits out of its new customers, forcing some
to consider choosing between running water and food.
The towns are so rural, their residents have yet to be touched by the Internet
Forget comment sections or forum threads. In Clinton, you have to track down actual
hand-written notes that residents filed with city hall to read their complaints about the rate
increase. Luckily, city officials were nice enough to scan some of them.
Here's one, dated August 8, 2009:
My husband and I are on a fixed income and with everything going up in
price this would be very a very large burden on us as well as most of the
citizens of Clinton. Our town is mostly of people like us and this would be
such a hardship for us. A 50.8% raise is outrageous on anything. Please do
not let this happen. It would mean the difference in bringing buying food and
medicine or paying a high water bill to make someone else's life easier.
Here is how the AIG takeover went down: In 2005, flush with cash from its
in the mortgage derivatives market, AIG announced that it was in the process of acquiring
Utilities Inc., a holding company that controlled scores of small water utilities across 17
different states. With just 300,000 customers, the company wasn't huge, but it boasted of
being the largest privately held water utility in the country.
"We have long considered water infrastructure as an attractive investment
an excellent complement to [our] existing energy infrastructure portfolio. Utilities Inc. is a
leader in this industry and we are pleased that [we have] the opportunity to acquire this
business,” AIG Chairman and CEO Win J. Neuger gloated in a press release.
AIG had reason to be pleased with its purchase. Water utilities are one
hell of a profitable
business, with international corporations easily making a 20 to 30% profit margin,
according to a 2007 report by Food and Water Watch. In the US, federal regulations limit
profits to 10%, a pesky rule that companies easily subvert by shuffling their income around
and “investing” it in side businesses. These kinds of returns would be the
envy of the pharmaceutical and oil industries. How do water companies do it? According
to Food and Water Watch, they charge 50% more for services than public utilities and
pocket the difference, thereby unleashing the potential of the free market.
People who have been ripped off by bailed-out banks' schemes to trick late
fees out of
their customers will recognize what Utilities Inc. did to the people of Middlesboro and
Clinton. In the summer of 2008, as AIG was teetering and desperate for funds, it
"upgraded" its billing system, and suddenly a slew of late fee charges hit the struggling
Residents had been getting their water bills like clockwork for as long
as anyone could
remember, but confusion and disorder set in as soon as Utilities rolled out its new and
improved billing system. Monthly statements started coming late or didn't come in for
months at a time. People were double-billed and double-penalized for bills that never
arrived. One month, a bill would include sewer fees, the next month it
wouldn't—and you'd be charged if didn't catch the omission. It's obvious the new
invoice system was designed for pure harassment, creating chaos and reaping the rewards
of the late fees it generated.
Internally, Utilities referred to their revamp of the billing system as
"Project Phoenix." It
sounded eerily similar to the CIA's "Phoenix Program," which was designed to terrorize,
kill and torture uppity Vietnamese villagers into submission during the Vietnam War. One
month after Project Phoenix started wreaking havoc on locals, AIG collapsed and took
the first of over $150 billion in taxpayer bailout funds. That meant Project Phoenix could
still go on terrorizing locals—which it did.
Here is how a local newspaper described the new billing program in Clinton
It wasn’t until the summer of 2008 that the new bills began to
and from Day One, they were messed up. Few customers here in Clinton
[called] the water company because they got multiple bills. One business
thought it got a break when its bill went down somewhat, only to discover
that the bill hadn’t included sewer costs. This went on for several
months. Finally, the [sewer bill] showed up – due in full – on
one bill. Requests to spread out the payment fell on deaf ears. . . . Some of
us were so confused by the bills, we paid them every time they came in. . . .
Fears of bad credit reports and shut offs kept most customers paying
whenever a bill arrived.
To make it harder for Clinton residents to file complaints, AIG closed
the utility's local
office as soon as it took over the company. Pleas made by phone were rejected.
Local citizens are angry, upset and fearful. Many senior citizens on fixed
already stretched past the breaking point. Others living below the poverty line without
hope of getting a job are worried about how to pay another rising utility bill.
Customers we’ve talked to “want to do something,”
but say they
cannot afford to file to intervene in the case. The trip to Frankfort is daunting and
expensive. Some dare not leave the jobs or businesses they have for the time it would take
to travel and attend a hearing in Frankfort.
In November 2008, right as AIG was recieving the second installment of
its bailout and the
economy was in a free-fall, AIG's water utility notified Middlesbro and Clinton residents
that it would be raising rates by 51%. It would mean more than $750,000 in additional
revenue a year, just from 8,000 customers. The money wouldn't be used to fund
infrastructure improvements—none had been made and none were planned. No,
according to a company spokesman, the utility was trying to recoup money it had invested
in its "improved" billing system, in effect forcing the victims of the billing system to pay for
their own fleecing.
It seems Utilities was quite honest about explaining that a good chunk
of the $750,000
would be transferred straight into the pockets of its investors, according to the West
Kentucky Journal of Politics and Issues.
[Another] reason came from [the] company's financial expert, Pauline M.
Ahern, who opined that a rate increase will allow [the utility] to “earn
a range of common equity cost ratio of 11.60% to 12.10%.” In the
present market, that is an attractive return on investment.
One million dollars may not seem like much these days, but it sure meant
a lot to the
poverty-stricken residents of Middlesbro and Clinton. There were quite a few bleak
handwritten statements filed with Clinton's city hall during a public hearing on the water
rates increase. It makes sense to quote them to get a feel for the level of despair that exists
in rural communities like this all over the United States.
Here's one from August 8, 2009:
I get $675.00 a month, if they raise the water, or utilities, I can't pay
would have to go without water, etc. or gas. I'm disabled and I can't walk.
Raising the utilities hurt a lot of people here in Clinton. Not just me but
everyone. As it is I can't pay the water bills because its high. But I pay what I
And here is another from August 12, 2009:
I feel that a rate increase of 50.8% will add a heavy burden on our small
community. Our citizin [sic] that lives in our city are on Social Security, have
full time jobs that pay barely minimum wage or are working as many as 3
part time jobs to make their monthly budget.
And another from May, 2009:
"I always have a high bills [sic] to pay. I pay what I can. I am on
disable. [sic] I try not to use too much water. But yet I have a high water bill.
If the bill goes up, I will be lucky to pay them $10.00 instead of $80.00.
In the end, Kentucky's regulatory commission reduced the water rate increase
to 30%. How long before they try raise the rate again? Or until the energy company
decides to follow suit? It's hard to say. But one thing is for certain: AIG's takeover shows
again that the American people were screwed by the bailed-out billionaires, who, instead
of showing gratitude or willingness to reciprocate, have been preying upon the most
vulnerable Americans like they are 15th century barons soaking the peasants.
And as our cities and states start leasing out and selling public infrastructure
to pay off their
municipal debts, we can expect banks to gain more control of public wealth. Middlesbro
and Clinton are a glimpse into the future of post-privatized America.
<===BACK TO THE AMERICAN MELTDOWN