<div dir="ltr">
<div class="gmail-top-anchor"></div>
<div id="gmail-toolbar" class="gmail-toolbar-container">
</div><div class="gmail-container" dir="ltr" lang="en-US">
<div class="gmail-header gmail-reader-header gmail-reader-show-element">
<a class="gmail-domain gmail-reader-domain" href="https://popularresistance.org/wall-street-is-behind-the-jackson-mississippi-water-crisis/">popularresistance.org</a>
<div class="gmail-domain-border"></div>
<h1 class="gmail-reader-title">Wall Street Is Behind The Jackson, Mississippi, Water Crisis</h1>
<div class="gmail-credits gmail-reader-credits">By Matthew Cunningham-Cook and Ricardo Gomez, The Lever.</div>
<div class="gmail-meta-data">
<div class="gmail-reader-estimated-time" dir="ltr">October 5, 2022<br></div>
</div>
</div>
<hr>
<div class="gmail-content">
<div class="gmail-moz-reader-content gmail-reader-show-element"><div id="gmail-readability-page-1" class="gmail-page"><div>
<img src="cid:ii_l8x784iy0" alt="image.png" width="438" height="247"><br><p><font size="1">Above Photo: Jeremy Myers, left, of the Aids Healthcare Foundation,
delivers water to Shaun Brown in Jackson, Miss. AP Photo / Steve Helber.</font></p>
<h2>A major credit rating agency jacked up interest rates in Jackson,
Mississippi, curtailing infrastructure investments in the years leading
up to the city’s recent disaster.</h2>
<p>Jackson, Mississippi – In August, clean water stopped flowing from
residents’ taps in Jackson, Mississippi. The crisis lasted more than six
weeks, leaving <a href="https://news.yahoo.com/150-000-jackson-mississippi-without-230048644.html">150,000 people</a> without
a consistent source of safe water. The catastrophe can be traced back
to a decision by a credit ratings agency four years ago that massively
inflated the city’s borrowing costs for infrastructure improvements,
most notably for its water and sewer system.</p>
<p>In 2018, ratings analysts at Moody’s Investor Service — a credit rating agency with a <a href="https://www.justice.gov/opa/pr/justice-department-and-state-partners-secure-nearly-864-million-settlement-moody-s-arising">legacy of misconduct</a> — downgraded Jackson’s bond rating to a junk status, <a href="https://www.moodys.com/research/Moodys-downgrades-City-of-Jackson-MS-GO-rating-to-Baa3--PR_905506078">citing</a> in
part the “low wealth and income indicators of residents.” The decision
happened even though Jackson has never defaulted on its debt.</p>
<p>Moody’s move jacked up the price of borrowing for Jackson, costing
the cash-strapped city between $2 and $4 million per year in additional
debt service costs — a massive financial roadblock to officials’ plans
to fix the municipality’s aging water system. And since the state of
Mississippi and the federal government refused to use their powers to
address the city’s infrastructure problems, that meant Jackson was
essentially powerless to stop the impending catastrophe.</p>
<p>The situation underscores how Wall Street works to prevent
governments from fixing their public works and contributing to an
infrastructure crisis nationwide. Such actions by ratings agencies are
particularly harmful in majority Black and Brown areas like Jackson,
which have tight budgets and often receive minimal federal support.</p>
<p>All major — and most minor — cities, states, school, and utility
districts take on debt to pay for infrastructure improvements. That debt
is issued as bonds, which are agreements to pay back loans at a set
interest rate. Bondholders are typically wealthy residents of the state
where the bonds were issued who are seeking to accrue tax advantages,
banks, insurance companies, and mutual funds.</p>
<p>To determine creditworthiness for this debt, bond ratings agencies
give state and municipal governments a credit rating, based on factors
like the community’s existing debt load and its current pension
obligations. When the rating is lower, the debt is considered higher
risk, and the interest rate to pay back the loans increases
substantially.</p>
<p>Historically, the lowest possible bond ratings have been reserved for
Jackson, Puerto Rico, American Samoa, Detroit, and other places long
plagued by systemic disinvestment — meaning that it becomes almost
impossible for these communities to finance their way out of their
infrastructure crises.</p>
<p>“The practices of the ratings agencies are often extremely racist,”
Brittany Alston, research director at the Action Center on Race and the
Economy (ACRE), told <em>The Lever</em>. “We did an <a href="https://acrecampaigns.org/research_post/outlook-negative/">analysis</a> that
showed that all the cities at the bottom of the ratings scale have been
majority-minority. As I’ve been monitoring the reporting, I’ve noted
how the local government is characterized, I’ve heard the term
‘mismanagement’ multiple times.”</p>
<p>Alston continued: “I think that term has been used to really vilify
local governments who are working with what they have, and are
struggling because they’re stuck in a system that has denied them
federal support for decades.” The federal government’s share of
contributions to water infrastructure fell from <a href="http://www.uswateralliance.org/sites/uswateralliance.org/files/publications/The%20Economic%20Benefits%20of%20Investing%20in%20Water%20Infrastructure_final.pdf">31 percent in 1977 to just 4 percent</a> in 2017.</p>
<h3>Jackson’s Water Crisis Has Deep Roots</h3>
<p>Some of Jackson’s water infrastructure dates to <a href="https://mississippitoday.org/2022/09/15/jackson-water-system-by-the-numbers/">1914</a>. The city has a longtime <a href="https://www.clarionledger.com/story/news/local/2022/09/09/jackson-water-system-brandon-businessmen-accused-of-dumping-waste/67167873007/">problem</a> with
industrial concerns dumping their waste into the city’s water system,
in part driven by Environmental Protection Agency underfunding and weak
environmental regulations in Mississippi.</p>
<p>Nationally, federal government support for water infrastructure has
dwindled. And at the state level, Mississippi has seemed more interested
in diverting <a href="https://www.nytimes.com/2022/09/26/sports/football/brett-favre-mississippi-scandal.html">$8 million</a> of
state funding to enrich former NFL player Brett Favre than investing in
Jackson’s infrastructure, despite frequent water system failures in the
past.</p>
<p>In 2010, the transnational engineering firm Siemens made an offer to
automate Jackson’s water billing system, assuring the city that the
energy savings it could create would more than pay for the contract. In
the <a href="https://www.clarionledger.com/story/news/local/2019/11/25/siemens-jackson-ms-timeline-contract-lawsuit-water-meters-billing/4264596002/">largest contract</a> in
Jackson’s history, the city agreed to pay $90 million based on Siemens’
promise to create $120 million in “guaranteed savings,” according to a <a href="https://jacksonfreepress.media.clients.ellingtoncms.com/news/documents/2020/03/04/Jackson_amended_complaint_1.pdf">lawsuit</a> the city later filed against the company for what <a href="https://www.jacksonfreepress.com/news/2020/mar/04/siemens-settlement-explained/">appeared to be</a> a fraudulent and defective system.</p>
<p>The Siemens performance contract put Jackson on the hook to Wall
Street bondholders for over $200 million, with more than 55 percent of
that total collected as <a href="https://emma.msrb.org/EA538563-EA419692-EA816658.pdf">interest</a> on the $91 million principal loan amount.</p>
<p>Money that could have gone to new water infrastructure, in other
words, instead went to Siemens, as well as the banks and investors who
owned Jackson’s water sewer debt.</p>
<p>Progressive Jackson Mayor Chokwe Antar Lumumba <a href="https://www.clarionledger.com/story/opinion/columnists/2017/11/03/lumumba-offers-vision-capital-city/829119001/">pledged</a> during
his 2017 mayoral campaign to use the city’s bonding authority to fix
the water and sewer lines. But the following year, Moody’s downgraded
Jackson’s debt to junk status.</p>
<p>The drop in credit rating severely limited the city’s ability to
refinance the 2013 water bond it issued for the Siemens project. If
Jackson had been given the highest possible bond rating — AAA — it would
have been able to score a <a href="https://www.fmsbonds.com/market-yields/">3.55 percent</a> interest rate on the 20-year bond. Instead, it was forced to pay interest rates as high as <a href="https://emma.msrb.org/EA538563-EA419692-EA816658.pdf">6.75 percent</a>.</p>
<p>That move stopped Jackson from being able to get decent borrowing
terms for any new infrastructure investment, which is likely why the
bond Lumumba campaigned on was never issued.</p>
<p>One other major ratings agency, S&P Global Ratings, also rates Jackson’s municipal debt. While S&P has been <a href="https://www.jacksonms.gov/press-release-city-of-jackson-receives-a-long-term-rating-from-standard-poors-global-ratings/">less critical</a> of
Jackson’s general obligation debt, which was issued to fund day-to-day
operations of the city, it has rated the city’s water and sewer debt <a href="https://www.bondbuyer.com/news/drinking-water-crisis-envelops-junk-rated-jackson-mississippi-system">harshly</a>.</p>
<p>Meanwhile, Jackson has faced significant challenges. A freeze in
November 2021 that caused the city to lose potable water was the canary
in the coal mine, said Catherine Robinson, a community organizer based
in Jackson.</p>
<p>“For me, when the Jackson water crisis first hit in November 2021, my mom had just had a stroke,” Robinson told <em>The Lever</em>.
“I had to go outside of Jackson to take showers and to cook. It was a
winter storm — we really couldn’t travel like that because the roads
were so icy.”</p>
<p>There is an entrenched racial component to this state of affairs.
Mississippi’s leadership — every statewide official, the Speaker of the
House and the President Pro Tempore of the state Senate, and both U.S.
Senators — have been white since the Reconstruction era ended 140 years
ago, despite the state being 37 percent Black.</p>
<p>In an analysis of five million bonds issued to cities in the
municipal bond market between 1970 and 2014, economic historian C.S.
Ponder at Florida State University <a href="https://www.tandfonline.com/doi/abs/10.1080/24694452.2020.1866487">found</a> that
majority-Black cities are categorically charged higher interest rates
to build basic infrastructure for water systems and sewage.</p>
<p>The same applies to Moody’s. The firm is very disconnected from life on the ground in Jackson. Moody’s CEO Rob Fauber earned <a href="https://d18rn0p25nwr6d.cloudfront.net/CIK-0001059556/646e0ad4-8942-4577-b60e-024f6e350927.pdf">$9.7 million</a> in 2021. The firm spent <a href="https://seekingalpha.com/article/4495209-moodys-corporation-the-more-it-drops-the-better-it-looks">$6.5 billion</a> on stock buybacks over the past decade, using the capital of the company to drive up the stock.</p>
<p>Two of the largest municipal bankruptcies in U.S. history have been
filed by majority-Black urban areas — Detroit, Michigan, and Jefferson
County (Birmingham), Alabama — whose water systems were made targets of
financial extraction. In both places, the federal government mandated
upgrades to their water and sewage systems without providing funding to
do so, creating roughly $5.7 billion in debt for Detroit and $3.3
billion for Jefferson County on the municipal bond market.</p>
<p>For its part, the Federal Reserve has the <a href="https://www.levernews.com/how-the-fed-rescued-corporations/">authority</a> to
purchase municipal bonds directly to support the finances of
communities like Jackson, as it has done with bonds for major
corporations, such as when the Fed made a multi-trillion dollar <a href="https://www.investopedia.com/government-stimulus-efforts-to-fight-the-covid-19-crisis-4799723">intervention</a> in the early stages of the COVID-19 pandemic.</p>
<p>However, a Fed facility set up to support municipalities during the pandemic only purchased <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8776343/">$16 billion</a> worth of municipal debt, as opposed to the <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8776343/">$42 billion</a> thrown at the corporate market.</p>
<h3>Flooding Cities With Toxic Debt</h3>
<p>While state and federal government action, or lack thereof, has
factored into the shoddy infrastructure of several American cities,
Moody’s also bears significant responsibility for the current state of
affairs.</p>
<p>The bonds ratings agency made incredibly consequential decisions in the lead-up to the 2008 financial crisis, which caused <a href="https://www.mortgagenewsdaily.com/news/03142017-corelogic-foreclosures">7.8 million</a> foreclosures and nearly <a href="https://www.marketplace.org/2018/12/19/what-we-learned-jobs/">9 million</a> job losses. <a href="https://www.rollingstone.com/politics/politics-news/the-last-mystery-of-the-financial-crisis-200751/">Often deemed</a> the
most consequential factor contributing to the crisis was Moody’s
decision to rate large tranches of controversial Collateralized Debt
Obligations (CDOs) and mortgage-backed securities (MBSs), financial
products composed of low-quality mortgages, at the safest possible
rating of AAA.</p>
<p>The firm did so because of a perverse incentive model whereby Moody’s
and other ratings agencies would inflate ratings to generate additional
fees from Wall Street firms. Holders of many of those assets, however,
were nearly <a href="http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/2010-0602-Credit-Ratings.pdf">wiped out</a> in the 2008 financial crisis when the housing market collapsed.</p>
<p>The other two major ratings agencies, <a href="https://www.justice.gov/opa/pr/justice-department-and-state-partners-secure-1375-billion-settlement-sp-defrauding-investors">S&P</a> and <a href="https://www.reuters.com/article/fimalac-fitch-lawsuit/fitch-settles-lawsuit-over-ratings-of-debt-vehicle-idINL1N0CA96Z20130318">Fitch</a>, also engaged in the ratings inflation of risky Wall Street financial products leading up to the 2008 financial crisis.</p>
<p>At the same time, Moody’s and other agencies often rated many states
and municipalities with far lower ratings — even though they had much
lower probability of default, due to the unlimited taxing power of
states and municipalities, as well as harsh consequences for politicians
that allow defaults.</p>
<p>Lehman Brothers, the Wall Street firm at the epicenter of the 2008
financial crisis, was rated at A1 — seven notches above Jackson’s water
and sewer current debt — in July 2008, just two months before the firm
collapsed and Lehman’s bondholders received 25 cents on the dollar.</p>
<p>When government defaults do occur, as happened in Detroit in <a href="https://www.reuters.com/article/us-usa-municipals-defaults/detroit-leads-2013-u-s-bond-defaults-moodys-idUSBREA4603920140507">2013</a> and Puerto Rico in <a href="https://www.reuters.com/article/us-puertorico-debt-suspension-idUSKCN0ZG34D">2016</a>, Wall Street is almost always the culprit. Wall Street firms loaded up <a href="https://www.motherjones.com/politics/2010/03/swaps-deals-sinking-us-cities/">these</a> <a href="https://acrecampaigns.org/campaigns_programs-category/puerto-rican-debt-crisis/">communities</a> with <a href="https://www.levernews.com/when-a-swap-becomes-a-swipe/">toxic debt</a> that required huge debt service payments, precipitating their bankruptcies.</p>
<p>Moody’s largest <a href="https://www.wsj.com/articles/moodys-fined-for-ratings-linked-to-berkshire-hathaway-its-biggest-shareholder-11617116113">shareholder</a> is America’s fifth-richest person, Warren Buffett, who has also waged an <a href="https://www.levernews.com/railroad-ceos-were-paid-over-200-million-as-workers-suffered/">aggressive campaign</a> to keep rail workers from having paid sick days. In 2021, a European regulator <a href="https://www.wsj.com/articles/moodys-fined-for-ratings-linked-to-berkshire-hathaway-its-biggest-shareholder-11617116113">fined</a> Moody’s $4 million for inflating the credit ratings of other Buffett-owned companies.</p>
<p>Moody’s has in the past justified the yawning discrepancies between
its corporate and financial ratings and its municipal ratings by <a href="https://acrecampaigns.org/research_post/outlook-negative/">saying</a> that
it had different standards for each class of debt. Those claims were
not taken seriously when Congress wrote and passed the Dodd-Frank Wall
Street Reform and Consumer Protection Act in 2010 to address the
misconduct leading up to the 2008 financial crisis. The law <a href="https://www.sec.gov/spotlight/dodd-frank/creditratingagencies.shtml">mandated</a> that
Moody’s and the other ratings agencies use “consistent application of
rating symbols and definitions,” and that the Securities and Exchange
Commission (SEC) initiate rulemaking to that effect.</p>
<p>However, under President Barack Obama, the SEC <a href="https://www.nytimes.com/2014/03/23/business/the-stone-unturned-credit-ratings.html">failed</a> to
mandate that the ratings agencies actually use consistent ratings
symbols and definitions across the board, allowing the ratings agencies
to continue to rate municipal debt more harshly than other forms of
debt, despite its far lower likelihood of default.</p>
<p>The massive discrepancies have continued to today. In November 2018,
Moody’s rated Pacific Gas & Electric’s (PG&E) debt at <a href="https://www.moodys.com/research/Moodys-downgrades-PGE-to-Baa3-and-Pacific-Gas-Electric-to--PR_391756?cy=asia&lang=en">Baa3</a> — two notches above Jackson’s current water debt rating — just two months before the <a href="https://www.nytimes.com/interactive/2019/03/18/business/pge-california-wildfires.html">long-troubled</a> utility company suffered one of the largest bankruptcies in history.</p>
<p>Jackson, meanwhile, has never defaulted on its debt. And unlike PG&E executives, who collected <a href="https://www.mercurynews.com/2021/04/08/pge-execs-pay-raises-2020-sec-docs-gas-electricty-wildfire/">millions of dollars</a> in
raises in the aftermath of the company’s bankruptcy, a default by
Jackson would likely prove to be a major blow to Lumumba and his
expected campaign for a third term in 2025.</p>
<p>Congressional Democrats are now <a href="https://www.mississippifreepress.org/27591/rep-bennie-thompson-seeks-200-million-federal-aid-for-jackson-water-system">proposing</a> $200 million in aid to Jackson, which is a fraction of the <a href="https://www.wlbt.com/2021/02/19/lumumba-it-would-literally-cost-billion-dollars-replace-jacksons-entire-water-system/">$1 billion</a> that
experts say is needed to meet the scale of the crisis. If Republicans
gain control of either chamber of Congress in November, it is likely
that any additional aid to the city will be cut off.</p>
</div></div></div>
</div>
<div>
</div>
<div></div>
</div>
</div>