Abstract
One of the primary impediments to the realisation and success of remunicipalisation can be financing. Not all remunicipalisations require additional funding, but the costs of bringing services back in-house can be enormous, preventing remunicipalisation efforts from getting off the ground and constraining what is possible once in place. This article discusses the conditions under which financing is necessary for remunicipalisation and examines a variety of (potential) sources of funding. It compares the financial needs of ‘pragmatic’ versus ‘transformative’ remunicipalisations and discusses the availability and suitability of different sources of financing for each. The paper also asks whether remunicipalisation provides an opportunity to ‘definancialise’ public services, exploring the pros and cons of different funding options in this regard, with a focus on the potential for public banks to play a role in reducing the influence of private finance in the public arena.
Introduction
There is a rapidly growing and increasingly robust literature on the phenomenon of remunicipalisation. Also known as ‘reverse privatisation’ and ‘insourcing’, remunicipalisation refers to a process of returning services back to state ownership and management after a period of private sector control. It largely occurs at the level of local government but can happen at multiple scales. The rationales for remunicipalisation are diverse, and often involve a complex web of state and non-state actors, representing one of the most intriguing shifts in public policy and grassroots activism of the past 20 years (Albalate et al., 2022; Cumbers and Becker, 2018; Kishimoto et al., 2014, 2015, 2020; Lu and Hung, 2023; Voorn, 2021).
Writing on remunicipalisation has focussed largely on three questions: Where is it happening? Why is it happening? What have its outcomes been? By contrast, relatively little attention has been paid to matters of finance – that is, how is municipalisation paid for?
Not all remunicipalisations require additional financing but it can be very expensive if a municipality is forced to buy back assets or company shares, pay for contract termination fees, hire legal teams or rebuild equipment, personnel and infrastructure. In some cases, these costs have prevented remunicipalisation projects from getting off the ground, while in others they have constrained the ability of service providers to achieve their post-remunicipalisation objectives by saddling them with debt (Lobina, 2016; Medarov and McDonald, 2019).
There is also the question of ongoing capital costs once a service is back in public hands. Are local authorities hoping to develop new financial partnerships and financing principles (particularly in cases where one of the objectives of remunicipalisation is to decommodify and definancialise public services) or is it business as usual in terms of financing infrastructure projects?
Very little has been written about either of these questions. There are case studies that refer to the rough costs of a remunicipalisation transition – many of which are cited in this article – but none provide details on the sources of finance employed, its terms and conditions, why these choices were made or how these financial arrangements have affected (or not) remunicipalisation outcomes. Even less has been written about longer-term financial decision making once a service is back in public control.
In short, there is no body of academic literature on the financing of remunicipalisation. There has been no comparative research and there are no established methodological or conceptual frameworks for doing so.
As such, this paper is necessarily exploratory in nature and aims to advance our understanding of the topic in three ways. The first is to establish a typology of cases where financing is required to make remunicipalisation happen (and when it is not), using empirical evidence to provide a range of the costs involved and how these costs are incurred. The second is to outline sources of financing that could be employed to pay for the costs of transition, drawing on actual examples as well as sources of finance that could theoretically be used. I explore eight financing options, ranging from local cooperatives to municipal bonds to public banks.
The third aim of the paper is to propose a conceptual framework related to the pros and cons of different sources of financing for remunicipalisation, for short term transitional costs as well as long term capital financing. For this assessment I employ the use of two ideal types of remunicipalisation –‘pragmatic’ and ‘transformative’– and ask whether different sources of finance are better suited for different types of remunicipalisation, and if there are any sources of finance that help to advance the goal of definancialisation.
My central hypothesis is that pragmatic forms of remunicipalisations are easier to finance because they tend to reinforce the ‘business as usual’ approach to service delivery once back in public hands. Financing for transformative remunicipalisations, on the other hand, can be more difficult to secure, particularly if their goal is to disrupt the established financial order. It would also appear that sources of finance are path dependent to some extent, contingent on a mix of institutional realities and ideological orientations related to infrastructure spending in general. Where public financial institutions are strong, and where support for (transformed) public services is widespread, public banks and national governments appear to play a significant role in financing remunicipalisation (e.g. Germany). Where private finance is dominant, and support for public services more ambiguous, private financing mechanisms appear to be more prevalent (e.g. United States).
I also argue that there is a unique case to be made for the involvement of public banks in financing remunicipalisation. Although public banks come in many different political stripes – with no inherent tendency to promote the larger public good – some have been engaged in remunicipalisation projects for over a decade and many have demonstrated a capacity to play a catalytic role in advancing the expansion of equitable and sustainable public services more broadly (Geddes et al., 2018; Marois, 2021; UNCTAD, 2019).
Evidence for this paper is drawn predominantly from the water and electricity sectors in the United States and Europe, where the bulk of remunicipalisation has taken place and where data on financing is most available, based on an extensive review of the academic literature on remunicipalisation (McDonald, 2024) as well as searches in the popular press and discussions with colleagues working in the field. Interviews with people directly involved in the financing of remunicipalisation have also been included to help flesh out information when none was available in the public domain.
Given how little has been written on the topic my conclusions are provisional. Detailed case studies from a wide range of sectors, regions and financing sources are needed to test and reframe these hypotheses, while a better understanding of the financing of remunicipalisation in general is urgently required, particularly as the scope and scale of remunicipalisations continue to grow (Cibrario and Cumbers, 2022; Kishimoto et al., 2020).
Pragmatic versus transformative remunicipalisation
Every case of remunicipalisation is unique, but most take place after some type of failure with private sector management or ownership of a service. This can include dramatic price rises for end users, increased costs related to contract monitoring, a lack of transparency on the part of private firms, non-compliance with contracts, or the withdrawal or collapse of a private company (Hall, 2015; Kishimoto et al., 2014, 2015, 2020; Lobina et al., 2019; Pigeon et al., 2012).
Final decisions about how and if to remunicipalise are also distinct to each situation. In some cases remunicipalisation is driven by ‘pragmatic’ bureaucrats trying to save money. Decisions are made based on the costs and benefits of remunicipalisation by a relatively small group of non-political administrators assessing the relative transaction costs of insourcing and outsourcing. If it is cheaper to do it in-house, then a service will be insourced. The corollary to this is that decisions to outsource are equally pragmatic, resulting in pendulum-like swings between public and private service operations based on which is less expensive for the local authority and end users (Clifton et al., 2021; Jansson et al., 2021; Schoute et al., 2021; Voorn et al., 2021; Warner, 2023; Warner and Hefetz, 2012).
This literature does not ignore political factors, but it does downplay the notion that ideological opposition to privatisation is the primary driver of remunicipalisation or that non-governmental actors tend to initiate the process. As Warner and Aldag (2021: 329, emphasis in original) note with regards to remunicipalisation in the United States: We do not find support for re-municipalisation as a political project. We find political interests
The bulk of this literature has focussed on the United States, which has recorded some of the highest levels of privatisation reversals in the world, but there has been a substantial growth of similar writing in Europe.
Other remunicipalisation projects are more ‘transformative’ in their origins and goals (Paul, 2024). Making a service public once again is not just about the calculus of money, or going back to what was in place before privatisation. It can be an attempt to create social, political, economic and environmental changes to the ways that public services are developed and provided. In these cases, de-privatisation initiatives are ‘driven by grassroots organisations promoting the provision of commons-based urban services’ (Weber et al., 2019: 3) which ‘understand themselves as a movement for “citizen value”’ (Berlo et al., 2017: 55) with the aim of ‘radical’ reforms (Cumbers and Becker, 2018; see also Becker et al., 2017; Cumbers and Paul, 2022; Lindholst, 2021; McDonald, 2018).
The nature and extent of these transformations can vary dramatically, however, from relatively modest reforms to tariffs to more fundamental demands for overhauling how public services operate in a market economy and the role of citizens in decision making. These goals can also be at odds with one another, with some remunicipalisation proponents insisting on increased state control while others seek to dismantle the way the state operates. Some advocates pursue modifications along Keynesian lines while others argue that markets and states are the sources of inequality.
These differences of opinion are substantial and deny any singular notion of transformative models of remunicipalisation. However, for the purposes of this paper it is useful to cluster them together to illustrate their collective difference from the financing needs and opportunities of pragmatic remunicipalisations. Although funding to support reforms to tariffs is presumably easier to secure than that for anti-capitalist makeovers, the hypothesis of this paper is that financing for any type of transformative remunicipalisation is more challenging than that of pragmatic, business-as-usual types of change.
When is financing required for remunicipalisation?
As noted above, not all cases of remunicipalisation require additional financing. Returning services back to public control can actually save governments money by eliminating the legal and managerial costs of monitoring contracts, retaining profits that would flow to private stakeholders, generating better efficiencies across public service units, improving health conditions for citizens and a host of other direct and indirect savings. Municipalities can use these savings to pay for the costs of remunicipalisation.
The City of Paris, for example, saved €35m a year after remunicipalising its water services in 2010 and immediately used these funds to pay for the costs of transition as well as increasing investments in infrastructure while also eliminating its debt and reducing tariffs (Lobina et al., 2019; Turri, 2022). In Norway, dozens of municipalities were able to self-finance the remunicipalisation of waste collection services after the collapse of a large private company, even as wages and pensions for employees increased, in part by avoiding expensive tendering processes and in part because full-time personnel were now able to carry out duties in other departments in the municipality (Monson and Pettersen, 2020).
Nevertheless, most remunicipalisations would appear to incur costs, depending on the type of privatisation involved and when the transition takes place. The most cost-effective remunicipalisations are those which involve (short term) contracts where a local authority retained ownership of assets and continued to employ frontline workers, requiring only the transfer of managerial tasks back to the state. It is also generally cheaper if remunicipalisation takes place after a contract expires. As Albalate et al. (2021: 472) note, remunicipalisation: can be expensive if governments are required to compensate investors for private property they expropriate. In addition, the costs of negotiating the termination of contracts are likely to be high. Governments are therefore incentivised to wait for contracts to expire if they choose to remunicipalise.
It is not always possible to wait for contracts to conclude, however. Many local authorities choose to terminate agreements early due to poor private sector performance, forcing them to pay the private company for loss of revenue and reputation, as well as the costs of going to court. In many of these cases local municipalities are up against deep-pocketed multinational companies with legal teams that specialise in defending contracts. Some remunicipalisations also involve investor-state dispute settlement mechanisms, making the process even more daunting, with evidence to suggest that the mere threat of such a lawsuit from a private investor can be enough to shut down a remunicipalisation effort (Kynast, 2019; Weghmann and Hall, 2021).
Cancelling long-term contracts can be particularly expensive, given the lost revenues involved, but also because of the need to invest in new equipment and infrastructure which can run into hundreds of millions of dollars if private companies did not invest adequately (which is often one of the primary motivations for cancellation). Training new personnel adds to the costs, as can the development of new IT and management systems which might not be passed on to the new public entity by the former private operator (as was the case with the remunicipalisation of water in Paris (Lobina et al., 2019)). Stricter adherence to social and environmental regulations can increase costs further for a new public entity, as can commitments to more transformative change such as increased subsidies to low-income households, the development of participatory mechanisms for community engagement and transitioning to renewable forms of electricity.
Buying back assets of a service that was fully privatised can be the most expensive type of remunicipalisation. There are two types of such acquisitions. The first are instances where the service was always in private hands (in which case it is a matter of
Private companies also have an incentive to inflate their value – a process obfuscated by dramatic price increases associated with the financialisation of infrastructural assets over the past two decades (Bayliss and Van Waeyenberge, 2023; Grafe, 2020; Loftus et al., 2019). In the case of Missoula’s water, the company was bought and sold twice by private owners between 2010 and 2015 (as part of a cluster of municipal water facilities) with the sale price jumping from US$156 million to US$327 million, making it difficult for the municipality to determine a reasonable market value; a process made all the more challenging given that ‘investment in the actual physical infrastructure was quite low’ during that period (Mann and Warner, 2019: 733).
In the end, the Missoula municipality employed a legislative tool known as ‘eminent domain’ to force the sale, paying the private owner US$88.6m for the Missoula portion of the company, plus an additional US$50m in legal fees in a process that took years to finalise (author interview with Leigh Griffing, Finance Director, City of Missoula). Monterey, California, also used eminent domain to municipalise its water services, eventually agreeing on a purchase price of $448m (plus legal fees) (Taylor, 2023), but other municipalities have failed in their attempts, such as Apple Valley, California, which lost its court battle after five years and US$13m in legal expenses (Manat, 2022).
A second form of buyout relates to assets that were once public but were sold to the private sector. Costs are equally difficult to determine in these cases and often act as a barrier to reversing privatisation. The United Kingdom is a case in point. Despite widespread dissatisfaction with privatised water, energy, mail and railways services, and a growing number of organisations calling for their renationalisation (Cavendish, 2022; Reuters, 2023; Usher, 2023), debates about determining a fair market price for these assets, and how to finance the buybacks, have been a stumbling block to political action for years (Hanna, 2018; Jessop and Shackleton, 2019).
Finally, there are cases of remunicipalisation which involve buying back shares of public companies that were sold to private investors. Berlin, Germany, is a case in point. A referendum led to the remunicipalisation of water services in 2012 but legal wrangling forced the municipality to buy back private shares at a cost of €1.3 billion (Lobina, 2016: 155). This share purchase model has been employed broadly with remunicipalisations in Germany (e.g. the city of Hamburg paid €550m to buy the shares of Vattenfall for control of its electricity grid in 2014, followed by a €355 million purchase of shares from E.ON to control its gas grid in 2017 (Ilkhani and Woertz, 2019; Provost and Kennard, 2014)).
Not all reclamations of public assets and shares need be this expensive, however. In the debates over renationalisation in UK, the Labour Party once argued that repurchasing water, energy, rail and mail services could be done at no cost to taxpayers (Labour Party, 2018a). In the water sector, for example, it was argued that owners of the private utilities would be compensated with government bonds that would be ‘neutral to the public purse’ because ‘the public sector exchanges a liability (the bond) for a profitable asset (the water companies)’. It was also anticipated that purchase prices would be considerably lower than market value to account for ‘asset stripping … and state subsidies given to the privatised water companies since privatisation’. Existing debts would also be refinanced over a longer period so that the ‘costs of debt are reduced’ (Labour Party, 2018b: 6). Although attracting considerable media attention at the time, these renationalisation plans were condemned by the financial press and private utility companies and subsequently dropped by the Labour Party after its election loss and a change in leadership in 2020. Nevertheless, the debate continues (Laville, 2024).
There are also cases of renationalisation and remunicipalisation where ownership has been taken back without compensation for political reasons. In Bolivia and Chile, for example, it has been argued that reimbursement is unnecessary because privatisation was morally wrong, with water and energy assets having been sold or contracted out to private companies by autocratic regimes with no public input. Remunicipalisation advocates in these cases have argued that the privatisations were illegitimate, with private companies having made massive profits off the backs of the poor for decades (Dwinell and Olivera, 2014; González et al., 2020; Latta and Aguayo, 2012; Spronk, 2007).
In the case of Bolivia, a wide range of electricity, gas, mining and transportation assets were renationalised between 2006 and 2014, in large part because privatisation deals were seen as a form of ‘robbery, looting’ (Gaudín, 2013: 1). The Bolivian state used a combination of buyouts, joint ventures and expropriation to gain control of management and infrastructure with relatively little financial outlay. However, it did come at considerable political cost, raising the ire of foreign-owned multinational corporations and their governments and resulting in streams of legal action (Davalos Yoshida and Gil-Herrera, 2020; Kaup, 2010).
Refusal to compensate on market terms can also damage credit ratings and investment outlooks for a city or country, particularly in the Global South where pro-privatisation organisations such as the World Bank and the IMF act as de facto gatekeepers for multilateral funding, aid flows and foreign direct investment (Chorev and Babb, 2009). For many governments, therefore, refusal to compensate for remunicipalisation is not always politically feasible or financially prudent.
(Potential) sources of finance
In cases where financing is required for remunicipalisation, what sources of funding are available? This next section explores eight options, illustrated by actual examples where available, and supplemented by a discussion of financing sources that could theoretically be tapped into to illustrate a fuller range of possibilities. There is a scalar dimension to the review – moving from local to national to global sources of finance – as well as a discussion of the likelihood (and suitability) of different sources of finance being mobilised for pragmatic versus transformative types of remunicipalisation.
Cooperatives
The most local source of financing is arguably that of community-based cooperatives, many of which have been set up with the express intent of taking public/community control of a privatised service, occasionally in partnership with a government agency. Such cooperatives have been particularly active in Germany, notably in the electricity sector where the goal has also been to accelerate the transition to renewable energy.
In Berlin, for example, Citizen Energy Berlin (
It is not known how many such cooperatives exist or how easy/difficult it is to raise the capital required for remunicipalisation, but the potential for local communities to generate financing for remunicipalisation clearly exists and would benefit from detailed comparative research. It is also important to flag the limitations of such a financing model in low-income countries and neighbourhoods, where mobilising capital for large remunicipalisation projects would be far more difficult (Lal, 2019).
Taxes and tariffs
For some municipalities, local taxes and tariffs represent the bulk of their revenue and offer a potential source of financing for the initial costs of remunicipalisation through price increases and tax hikes, particularly in larger and wealthier municipalities with networked services with regular revenue streams such as water and electricity (Aronson and Hilley, 2010; Gordon et al., 2020). Other user fees could also be tapped into, such as increases in gas taxes and congestion charges to support the remunicipalisation of public transportation systems (Whegmann, 2018).
At first glance this may seem an unlikely source of financing given that most remunicipalisations would appear to be done with the aim of
Municipalities could also introduce more
There are structural concerns with such a financing strategy, however. The first is that remunicipalisation necessarily takes place in a single sector in a single location, making it difficult for localised tax and tariff reforms to achieve the kinds of overarching redistributional impacts that its supporters may hope for. Moreover, even minor changes to pricing and resource allocation can generate stiff resistance from private businesses anxious about competitors in other jurisdictions and wealthy ratepayers concerned with erosion of incomes and lifestyles. Fee and tariff changes in one service can also impact other sectors, with unintended knock-on effects that can worsen equity elsewhere. In the end, attempts to address financial inequities in a single sector via local tariffs, taxes and user fees may be a zero-sum game that pits municipalities and service departments against one another, potentially undermining the broader goals of a remunicipalisation effort.
It is also notoriously difficult to set taxes and tariffs that will adequately account for infrastructure costs over a long period of time (50–100 years in some cases), particularly in light of constantly changing technologies, environmental legislation and the unknown impacts of climate change. As a result, municipalities are unlikely to charge what is actually required to cover the long-term costs of an expensive remunicipalisation transition, notably for services that are (literarily and figuratively) buried out of sight and less likely to garner public support for increased fees, such as sewerage (Libey et al., 2020).
These limitations are made even more problematic by the almost universal introduction of corporatisation over the past 40 years. Governments have increasingly turned to the use of financially ringfenced public corporations to deliver services, contributing to the creation of commercialised public sector cultures and ideologies, with public utilities being run increasingly on market-oriented operating principles (Andrews et al., 2022; Brownlee et al., 2018). In Germany, Wagner and Berlo (2017; 404) found that 96% of newly established energy utilities employed some form of corporatisation. Not all corporatisations have been carried out with commercialisation in mind (McDonald, 2016a), but by their very nature corporatised agencies are compartmentalised silos, making it difficult to coordinate management and finance across departments, potentially undermining synergistic planning, resource use and economies of scale when remunicipalising a single service.
A fixation on agency-specific finances can also serve to intensify processes of commodification, with service users increasingly seen as ‘customers’ instead of ‘citizens’, with public amenities perceived as private commodities to be bought and sold on the market, dissociated from broader public goods and concealing the complex social and labour arrangements behind their exchange price (Clarke et al., 2007). In other words, even the most progressive forms of tax and tariff reform are unlikely to address the financing needs of deeper transformative types of remunicipalisation on their own and would need to be introduced alongside other financing mechanisms.
Municipal bonds
The multi-trillion-dollar global municipal bond market is another potential source of funding for remunicipalisation. Although historically conservative, municipal bonds have increasingly targeted social and environmental initiatives, with the latter being popular with investors looking to boost their green credentials (Karpf and Mandel, 2018; Saha and d’Almeida, 2017). They play a major role in financing infrastructure in some parts of the world, notably the United States, where, due to favourable tax-exempt status on interest earnings, municipalities were able to issue US$38 billion in municipal bonds to pay for water and sanitation infrastructure projects in 2016 alone (AMWA and NACWA, 2016).
There are also indications that investors are willing to buy bonds specifically targeted at remunicipalisation, illustrated by the aforementioned case of Ojai in 2013 and the more recent case of a US$24.6 million revenue bond issued in 2023 by York County in South Carolina to recoup the costs incurred in the take-over of a private water utility. These latter bonds were rated AA-plus by S&P Global Ratings, with JPMorgan Securities as the underwriter (Nocera, 2023).
Without further research it is impossible to say how widespread the use of bonds has been to finance remunicipalisation, or what their impact has been on the remunicipalisation process. Nor is it clear that investors would be willing to participate in a remunicipalisation bond that was designed to disrupt the business-as-usual model of municipal services (Ponder, 2021). The fact that the municipal bond market is also largely focussed on relatively wealthy cities in the Global North limits their potential to finance remunicipalisation efforts elsewhere (Mantso and Blaauw, 2010; Singh and Dhanda, 2021).
Higher tiers of government
For some remunicipalisations, relying on funding from higher tiers of government may be a necessary and unavoidable part of the financing equation. Legislative responsibility for water, health, electricity and other locally operated services often lies with national or regional governments, and this can extend to financing. In low-income countries many municipalities rely heavily on intergovernmental transfers for financing core services (Bahl and Linn, 2014; Masaki, 2018).
Given the role that national and regional governments have played in creating the conditions for privatisation (e.g. downloading service responsibilities while reducing transfers to cover their costs) it is also reasonable to assume that higher levels of government have a financial responsibility to help reverse this process (Cepiku et al., 2016; Streeck, 2014). Growing commitments on the part of national governments to address issues such as climate change, human rights and the Sustainable Development Goals provide further justification for their financial support for remunicipalisation if it improves service delivery, while their stronger credit ratings can provide cheaper and better access to international finance.
Despite these realities, there are no recorded examples of direct financial support for remunicipalisation from national or regional governments. There is evidence of legislative support – such as in Germany where the national government has worked to advance the country’s rapid transition to renewables by assisting with the creation of new public energy companies (Berlo et al., 2017; Wollmann et al., 2010) – but funding for this appears to be indirect in the form of grants and subsidies to assist with the energy transition as a whole, as well as a share of national income and sales taxes available to municipalities (Davalos Yoshida and Gil-Herrera, 2020). These sources of finance are not earmarked for remunicipalisation, per se, although intergovernmental transfers can theoretically be applied to a remunicipalisation process. Once again, more research is needed.
The likelihood of significant financial support for remunicipalisation from higher levels of government would appear to be limited in the short term, however. Many national and regional governments remain committed to privatisation and continue to create the legislative and financial edifice to promote it (Brehm, 2021; Goldfajn et al., 2021; van Den Berge et al., 2021). Competing political parties and ideologies can also be a barrier, with local governments that support remunicipalisation often at odds with their higher-tier counterparts, such as with tensions between Barcelona’s
There are also more existential questions about the role of higher tiers of government in remunicipalisation. If the goal is to advance local control and oversight then a strong financing role on the part of a national authority may be counterproductive, potentially squashing local transformations that do not fit with a national government’s agenda (Paul and Cumbers, 2023). There are cases of autocratic national governments supporting remunicipalisation for nefarious purposes, such as controlling local resources to manipulate politics and/or to reprivatise services to crony associates, as has taken place in Hungary (Horváth, 2016). In short, local advocates of remunicipalisation should be careful what they ask for from their national authorities.
Private commercial banks
Another potential source of funding for remunicipalisation is loans from private commercial banks (as distinct from the community-owned cooperative banks mentioned earlier), which are defined broadly here as for-profit lending institutions that are privately owned or publicly limited companies with shares traded on exchanges. Given the anti-private-sector sentiments of some remunicipalisation movements this may seem incongruous, but if bringing services back in-house is a pragmatic move designed to save money on the part of a local authority there is no reason to believe that private commercial banks would not consider lending for this purpose (assuming other financial risks are deemed acceptable).
In fact, a financially robust remunicipalised service provider could be an attractive lending opportunity, particularly if it is seen to advance other facets of economic growth through effective and sustainable service delivery. Private banks also earn profits from both swings of the remunicipalisation pendulum – lending to the private sector when services are contracted out and lending to the public sector when they are brought back in. A revolving door of bureaucrats between public and private service operators can further enable this dynamic, with long-term personal relationships between bank managers and utility managers potentially overriding the question of whether a service is publicly or privately run (Gabriela Castellani and Dulitzky, 2018; Seabrooke and Tsingou, 2021; Silano, 2022).
Once again research is scarce, but the potential for private banks to finance remunicipalisation would appear to be strong. Missoula offers a noteworthy example. Early in its eminent domain process the city issued a Request for Proposals to gauge the interest of financial institutions in assisting with the purchase of the private water utility. Six private banks submitted proposals, with Barclays Capital (based in the UK) winning the bid, based in part on its stated claim to have experience with financing remunicipalisations elsewhere. There was debate in city council about using local financial institutions, but the size of the financing required made this impossible. Knowing they had financial backing from a deep-pocketed bank also made it easier for the city to proceed with the eminent domain process. In the end, the city decided to issue bonds, which were purchased in their entirety by Barclays and resold on the market as 25-year revenue bonds. The cost of financing has been relatively low (as little as 1.47%) and has not had any negative effect on the operations of the new public utility, with no need to raise water tariffs (author interview with Leigh Griffing, Finance Director, City of Missoula). Similar financial arrangements have been made with Barclays in the $448m purchase of Monterey’s water system in California (author interview with Dave Stoldt, General Manager, Monterey Peninsula Water Management District).
Financing remunicipalisation with commercial banks does raise a number of concerns, however. The first relates to the question of indebtedness and whether local governments have the capacity to absorb the additional liability, even in relatively wealthy places. In Naples, for example, policymakers chose not to borrow to finance the remunicipalisation of the city’s sewerage system due to the ‘enormous costs, which would undoubtedly have exceeded the spending power of a municipality afflicted by a severe public debt and a stagnant economy’ (Turri, 2022: 1856). For many cities in the Global South increased debt to take on remunicipalisation is simply not an option.
It is also true that debts in one sector can undermine the fiscal health of other sectors if repayments affect the overall financial capacity of the municipality. Even if financially viable, municipal politicians may be reluctant to take on localised interest payments that could result in higher user fees and taxes as it may be too politically risky. Large loans can also undermine progressive remunicipalisation objectives by dampening the ability of a service provider to expand and improve services due to the costs of financing.
There is also the larger question of ‘financialisation’. Broadly defined as the growing power of financial actors in everyday activities, with a shift in the locus of profitmaking from the ‘real’ to the ‘financial’ economy, financialisation has become an increasingly significant component of private sector involvement in core services and infrastructure through complex (and often opaque) vehicles such as private equity funds and the securitisation of revenue flows (Ahlers and Merme, 2016; Bayliss and Van Waeyenberge, 2023; Loftus et al., 2019). Financialisation has also proved to be one of the primary motivations for remunicipalisation, with unsustainable levels of debt benefitting private financial institutions while reducing investments in infrastructure and raising costs for consumers (Beveridge and Naumann, 2013).
If escaping financialisation is one of the factors driving remunicipalisation, should private finance be employed when a service is back in public hands? The devil is in the details in this regard. If borrowing can be done on terms that are favourable to the goals and objectives of a remunicipalisation project then debt may be a necessary (and prudent) approach. But given how powerful financial capital has become, working out favourable terms that fit with the goals of a remunicipalisation project can be difficult, particularly for small local authorities and for municipalities with a more transformative agenda. Case study research is needed to shed more light on these dynamics.
Private finance has also proven to be a fickle partner when it comes to infrastructure investments, with commercial banks playing a minor role in financing essential services, particularly in riskier sectors such as water and sanitation (due to chronically low rates of cost recovery) and in low-income countries or smaller municipalities with weak credit ratings. Most private banks have ‘abandoned project finance completely’ in essential services (WWC (World Water Council) and OECD (Organization for Economic Cooperation and Development), 2015: 27), while public finance ‘remains the overwhelmingly predominant model worldwide, providing for well over 90 % of infrastructure investment’ (Hall, 2015: 10). According to the High Level Panel on Water, ‘private money can rarely fully substitute for public finance in major water infrastructure’, acting as a ‘junior partner in most cases, and even then will need comforts of various kinds’ (WWC and OECD, 2015: 58; Leigland et al., 2016).
To the extent that private banks do participate in the financing of remunicipalisation it will likely be restricted to relatively wealthy cities in sectors considered to be reliably ‘bankable’, with the fewest possible disruptions to business as usual. From the perspective of private investors this makes sense. Their remit is not to maximise public goods for the community; it is to increase private returns for their shareholders (
Public institutional investors
Another potential source of funding for remunicipalisation is that of public pension funds and sovereign wealth funds. With more than US$27 trillion in assets under management these are public monies that are owned, controlled and regulated to varying degrees by public agencies (Megginson et al., 2021; Megginson and Gao, 2020). They are also intrinsically geared to long-term, stable and patient investment strategies due to their financial objectives (e.g. funding pensions). As such, they could be a natural fit with remunicipalisations that aim to expand and improve public services and infrastructure over the long term, particularly if the public sector unions that pay into a pension fund are opposed to privatisation and supportive of remunicipalisation.
Despite this potential there are no documented cases of public institutional investors financing remunicipalisation. In fact, rather than advancing remunicipalisation many of these funds have become leading agents of privatisation, with rapidly growing investments in public infrastructure as an asset class (Braun, 2022; Hassel and Wiss, 2020). Public pension funds are particularly active on this front and are seen as world leaders in this investment trend. The Ontario Teachers’ Pension Fund, for example, has majority ownership of the fully privatised water and sanitation services in Chile (initially divested under Pinochet) (Ontario Teachers Pension Plan [OTPP], 2011; Skerrett, 2018). They are also active members of the Global Infrastructure Investor Association (with a mandate to ‘promote private investment in infrastructure’) and have resisted efforts to remunicipalise water services in Chile, arguing that privatisation has benefitted low-income Chileans and that the fiduciary responsibility of pension fund managers is maximising returns for their members, not engaging in political action (Pryke and Allen, 2022).
This is not to say that public pension funds and sovereign wealth funds will never play a role in financing remunicipalisation, but it will be difficult to reverse their current pro-privatisation inertia. A lack of transparency and public engagement makes such a transition more challenging, with the management of many public pension funds having been effectively privatised, shielding decision makers from input even from their own members (Oręziak, 2022) while many sovereign wealth funds are owned and operated by authoritarian regimes.
Multilateral development banks and bilateral aid agencies
Multilateral development banks (such as the World Bank) and large bilateral aid agencies (such as
Given the neoliberal orientation of many of these organisations, and the central role they have played in promoting privatisation over the past 40 years, one could assume they are not supporters of remunicipalisation. For the most part this appears to be true, with major multilateral banks and bilateral aid agencies having effectively sidelined the topic, either by ignoring it or by being outrightly hostile towards it (McDonald, 2019).
But development banks and aid agencies are not entirely uninterested in the topic. Although they do not call it remunicipalisation, the World Bank has assisted numerous governments in rebuilding public services after an unsuccessful privatisation. In Uganda and Tanzania, for example, the World Bank initially promoted the privatisation of water services in urban areas, but after ‘botched’ failures (Bukenya, 2020: 3) reversed its position, arguing in favour of publicly owned corporatised water utilities run along commercial lines, ‘introducing private sector management principles and practices, including efficiency orientation, competition, performance management and entrepreneurialism’ (Mbuvi and Schwartz, 2013: 380), with the apparent hope of one day returning them to private management once business-friendly executives and ringfenced accounting systems were in place (Pigeon, 2012).
Such are the terms of neoliberal forms of remunicipalisation, with financing dependent on the creation of a highly commercialised public entity. As such, the potential for international financial institutions to play a role in financing transformative types of remunicipalisation would appear remote, although as outlined in the next section of this paper some regional development banks have engaged more positively with remunicipalisation, notably in Europe.
Public banks
One final potential source of finance for remunicipalisation is that of public banks – defined here as financial institutions that are owned and controlled by the state or some other public entity, governed under public law, or functioning according to a public mandate (Marois, 2021; Schmit et al., 2011). These banks can operate at a municipal, national and even international levels, but they are distinguished from their multilateral counterparts (such as the World Bank) by their ownership and governance models as well as their geographic focus.
As of mid-2020, there were an estimated 910 national and sub-national public banks around the world, holding close to $50 trillion in assets (nearly a fifth of total banking resources) and equating to a third of global GDP (Marois, 2021). Public banks are a diverse lot, however, and can function according to very different logics. Some are highly commercialised and neoliberal in their orientation (such as in Turkey; see Yamamura, 2019) while there are others for whom profits are secondary and which support the provisioning of more patient finance (such as with several Brazilian and German public banks; see Scherrer, 2017). Still others have mandates which put social returns on par with financial ones (such as the Banco Popular in Costa Rica; see Marois, 2021).
A resurgence of interest in public banks has resulted in a renewed debate on their purpose and potential, with writing on the topic generally falling into two polarised camps. Neoclassical economists tend to dismiss public banks as sclerotic, inefficient and corrupt – and therefore best privatised (La Porta et al., 2002, Calomiris and Haber, 2014; Demirgüç-Kunt and Detragiache, 2010). Keynesian-oriented political economists, by contrast, celebrate the developmental capabilities of public banks and their ability to stabilise economies at times of crisis via counter-cyclical lending (Andrianova et al., 2012; Griffith-Jones and Ocampo, 2018; Naqvi et al., 2018).
The framing of public banks in this paper falls into a third category of analysis which sees them as neither inherently good nor bad (Marois, 2021; UNCTAD, 2019). Taking an historical materialist perspective, public banks, like all state institutions, must be seen as constellations of social relations in which state power is a product of an ever-changing and ever-evolving mix of social forces (gendered, racialised and class-divided) that exist within and beyond their jurisdiction. The potential for public banks to be democratic, equity-oriented or otherwise progressive is not merely a matter of tweaking policy but a product of broader social struggle and change.
In terms of public services, public banks have long been active in financing infrastructure. Some have adopted a public–private approach, using public funds to leverage private investment (Loxley and Hajer, 2019; Whiteside, 2018), while others have explicit mandates to lend directly to the public sector at cheap rates and have done so for decades. The Nederlandse Waterschapsbank NV (NWB), for example, was formed in 1954 with the sole mandate of lending to the country’s public water authorities, with the aim of ‘keeping the public sector’s financing costs as low as possible’ via its AAA credit ratings (Nederlandse Waterschpsbank NV [NWB], 2018: 27). The German Kreditanstalt für Wiederaufbau (KfW) has a similar mandate, with an investment scope that covers social, infrastructural and ecological goals, as well as lending to low-income countries at concessional rates (KfW, 2019; Naqvi et al., 2018). The prospect for public banks to play a role in financing remunicipalisation would thus seem considerable, capable of offering low-cost loans driven by public-purpose mandates and patient finance that can account for broader social returns.
There are no detailed case studies of public banks financing remunicipalisation but there are examples, particularly in Germany where public banks play a large role in infrastructure spending in general and in the transition to renewable energy in particular (Marois, 2021). In the electricity sector, for example, a ‘key ingredient’ in the remunicipalisation of local power companies ‘has been Germany’s decentralised and largely socially owned banking sector, with funding for renewable energy projects coming primarily from local state-owned banks’Cumbers, 2016: 277-289). Efforts by Munich’s municipal electricity utility to become self-sufficient in renewables by 2025 have been ‘underpinned by local and regional state bank support, which has allowed it to embark on a €9 billion investment strategy’ (Cumbers, 2016: 277-289; see also Wagner and Berlo, 2017). As a manager of one German public bank noted: ‘Politically we have a very clear opinion about what we call re-communalisation … not all the energy suppliers are in municipal hands [but] there is a strong tendency to switch that and we support that switch’ (as quoted in Hall et al., 2016: 12).
Public banks also have the potential to definancialise lending by rolling back the influence of financial motives, financial markets and for-profit financial actors and institutions, while foregrounding local interests (Block and Hockett, 2022; Karwowski, 2019). Many have taken up this challenge by financing infrastructure in less marketised ways, with equity and sustainability as core objectives. The German KfW is perhaps the most committed green public bank in the world (Geddes et al., 2018; Marois, 2021). Unique institutions, such as the Council of Europe Development Bank, continue to pursue an explicitly social mandate (Reyes, 2020). The centuries-old German system of local public savings banks (the Sparkassen) retains assets in excess of US$2 trillion, anchored to local communities and guided by public mandates, despite the efforts of private European banks and regulators to eliminate them (Cassell, 2021). One concrete example is the financing of the remunicipalisation of energy services in Thuringa, Germany, which cost €950 million. Initially there was considerable criticism ‘directed at the financial risk involved in taking on public sector loans of the required magnitude’, but the remunicipalisation project is now seen as ‘highly successful by actors across the political, financial, economic and administrative spectrum’ with the municipalities involved expected to be ‘debt-free before 2030’ (Paul and Cumbers, 2023: 175).
Less optimistically, public banks continue to face the impacts of four decades of neoliberal restructuring, with ongoing pressures to privatise them. Market-oriented regulatory changes, such as EU Competition Law and State Aid rules, have shrunk the spaces in which public banks can operate. The intensification of market-based competition and the overall rise of financialisation have also heaped pressures on public bank operations (Scherrer, 2017). Increasingly, European development banks source the bulk of their inflows of capital from global financial markets, while creditworthiness and credit ratings by market-oriented agencies have intensified. Public banks are also tasked with finding ways to de-risk private sector investments while pursuing public purpose impacts (Mertens et al., 2021). In this regard, weaning public banks off global private capital markets may be a necessary precursor to having them play a role in progressive forms of remunicipalisation, either through heavier capitalisation by higher tiers of government or by becoming deposit taking institutions that can redirect funds from local public agencies back into the neighbourhoods they serve in the form of ‘community wealth building’ (Dennis and Stanley, 2023; O’Neill and Guinan, 2021).
Given these challenges, public banks should not be seen as silver bullets in the financing of remunicipalisation. Berlin is a case in point. The €1.3 billion loan used to purchase shares of the private water companies in 2012 was financed by a public bank (
Many public banks also appear to be unaware of remunicipalisation, or are agnostic on the matter (i.e. indifferent as to whether services are run by public or private agencies) (Butzbach and Spronk, 2022; Garcia-Arias et al., 2022; Marois and McDonald, 2022). Nor do advocates of remunicipalisation seem to consider public banks as a possible source of financing (outside of Germany at least). This may be due in part to a general lack of awareness of public banks, with many working behind the scenes to finance municipal infrastructure in ways that do not register on the public radar. In the Nordic region, for example, municipal infrastructure banks are amongst the largest financial institutions in their country, but bank representatives often lament the fact that ‘nobody really knows who we are’ (Juuti et al., 2022). Perhaps this is the price to pay for being a ‘boring’ financial institution – another potential reason to involve public banks in the financing of remunicipalisation instead of riding the spectacular boom-and-bust cycles of private finance (Cassell, 2021).
Conclusion
Decisions about how to finance the costs of remunicipalisation are critically important. They can determine whether remunicipalisation takes place and can have far-reaching implications for how infrastructure is financed in the long term. Financing should therefore be taken seriously from the very start of a remunicipalisation debate.
This is particularly true if the goals of remunicipalisation are transformative in nature. Changes to equity, transparency and environmental sustainability are shaped in part by how they are financed, and if one of the stated goals of remunicipalisation is to definancialise it is all the more important to back up the rhetoric with concrete plans of action.
Advocates of more pragmatic forms of remunicipalisation should also pay closer attention to finance. As the growing literature on financialisation makes clear, the frantic pace and narrow calculus of private finance is limiting the potential of all types of governments to provide public services to communities (Bayliss and Van Waeyenberge, 2023; Reis and Sánchez Trujillo, 2024). In the same way that rising legal costs have motivated fiscally conservative managers to bring services back in house, so too should the potential for higher interest rates and speculative investment by for-profit financial firms be cause for concern.
Remunicipalisation provides an opportunity to implement new types of financial frameworks alongside other institutional changes. But definancialisation will not happen overnight. It will require new partnerships and the disruption of traditional financial logics. Calls for a ‘very different calculus of debt’ are emerging in this regard, most notably in the water sector where suggestions range from ‘transcendent values derived from life’s indebtedness to water’ (Muehlebach, 2023: 676) to new frameworks on ‘economies of worth’ (Valette, 2024).
Introducing new financial frameworks will be challenging. The inertia of existing financial arrangements can be difficult to change, and the urgency associated with many remunicipalisations can mitigate against radical reforms. So too can the corporatised nature of services make changes to the financial order difficult given the unit-based accounting that motivated their creation. Mainstream benchmarking models can also make change hard due to their emphasis on performance criteria that valorise narrow financial indicators such as return on investments, many of which remain stubbornly persistent even after remunicipalisation (McDonald, 2016b).
Public banks are no panacea in this regard, but they do offer a significant un(der)tapped source of capital that could help to keep financing
Remunicipalisation forces us to engage in these questions. Given the varied and contested natures of remunicipalisation and finance it makes for a rich field of study. Comparative investigations that focus exclusively on questions of financing are particularly welcome, but all studies of remunicipalisation should include some investigation of how it is paid for. Documenting the institutions involved and the types of financing employed will add to the empirical record, while assessments of how different financing models fit with different remunicipalisation objectives will test and expand conceptual frameworks. Whether the hypotheses advanced in this paper hold true will depend in part on these future investigations.
Footnotes
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
