Agreements to put water, airports, and roads under private control often sour, because private firms guarantee investors that they will meet threshold profit targets. In Bayonne, KKR and Suez had guaranteed investors an 11 percent rate of return, and raised prices to keep up.
Although private equity deals often involve flashy ribbon-cutting ceremonies and projects politicians can point to as progress, they often leave unglamorous maintenance spending to the city. KKR and Suez gave Bayonne $150 million upfront, but required the city to put in $157 million over the life of the contract to upgrade the water system, with yearly payments for infrastructure repairs. Added to the rate hikes, Bayonne’s mayor said, that became increasingly burdensome.