Why Detroit will likely need a statewide fix for water affordability

It feels like this is the year where we should make it happen,” said State Sen. Stephanie Chang (D-Detroit)

The official end of Detroit’s water shutoff moratorium on Dec. 31, 2022 has increased a sense of urgency among water rights advocates to prevent the city from returning to the practice, which disconnected service to 140,000 accounts between 2014 and 2019.

“The folks running the water utilities keep thinking that this is a short-term problem,” said Sylvia Orduño, an organizer with the Michigan Welfare Rights Organization. She said the city and state should learn from the COVID pandemic when Gov. Gretchen Whitmer ordered a moratorium on shutoffs and service restoration to protect public health, which was later backed up by a state law preventing disconnections until April  2021. 

These actions followed research linking disconnections with water-associated illness and psychological distress, issues that could again come into focus if disconnections return.

“What we want is a ban on shutoffs altogether, and we want permanent affordability, not short-term assistance plans,” Orduño said.

Those fighting for affordability continue to be frustrated as cities like Saginaw and Detroit have returned to shutoffs or could soon do so. But advocates say Democratic control of the state house and governor’s office has created an opportunity to build on the decades of work done by lawmakers and organizers that could pave the way for statewide affordability legislation. 

Such legislation could mitigate the steep decline in federal money for water infrastructure that has helped create increasingly unaffordable water rates for many Michiganders. But how to fund and structure a water affordability plan statewide remains a debate among advocates and public officials.

“The fundamental issue is that we have a ratepayer-based model for funding utilities that were built with massive state and federal investments,” said Christy McGillivray, legislative and political director for Sierra Club Michigan Chapter. The Sierra Club supports a statewide ban on shutoffs, and McGillivray says the ratepayer model is “designed to fail” without state and federal funding support. 

However, Andrew Buchsbaum, a lecturer at the University of Michigan Law School who is working on affordability legislation with Monica Lewis-Patrick of the water affordability advocacy group We the People of Detroit, believes income-based programs like Philadelphia’s plan could work without outside money by increasing in the number of customers paying into the system and decreasing bad debts.

If there were a time to use state money for water affordability, it’s probably now. Michigan is projected to have a $9.2 billion budget surplus by the end of the fiscal year, and prominent Democrats like U.S. Reps. Debbie Dingell (D-Dearborn) and Rashida Tlaib (D-Detroit) are calling on state officials to address water affordability, although they haven’t backed specific proposals.

“It feels like this is the year where we should make it happen,” said State Sen. Stephanie Chang (D-Detroit), who expressed optimism about passing a statewide affordability plan and shut off protections for the most vulnerable. “There’s so much more public awareness about water affordability as a problem, in part due to COVID.”

Meanwhile, some progress towards reducing water shutoffs is happening. The Michigan House and Senate recently passed a supplemental budget with $25 million for a “water shutoff prevention fund.” Although there’s still no specific detail on the fund, Jeremy Orr, director of litigation for Earthjustice, said it was “pretty significant” and would be only the second permanent statewide assistance program after Illinois rolled out a similar effort

Still, he stressed that the funding in the supplemental budget appeared to be “assistance,” not “affordability,” an important distinction for those who believe that bills need to be lowered for low-income ratepayers rather than continuing to charge fundamentally unaffordable rates.

Chang says she’s working on affordability legislation using the Water Quality and Affordability Package framework, which she and other lawmakers introduced in 2015. That legislation would have declared water a human right, required more transparency around shutoffs and water rates, created categories of individuals who would be protected from disconnections and decriminalized the reconnection of pipes to restore service. Chang stressed that water bills must be based on an “ability to pay.”

Such measures could be transformative for water customers across the state, although some cities seem to be hit especially hard by high rates. A recent University of Michigan study found that the inflation-adjusted average cost of water increased by 188% in Michigan between 1980 and 2018, with Flint and Detroit seeing increases of 320% and 285%, respectively. According to the same report, 6.5 percent to 11 percent of Michigan households are water-burdened, meaning they spend more than 5 percent of their income on water service.

Paying for affordability

Chang will be convening a workgroup to update the previously introduced water affordability legislation, noting “there will probably be a lot of revisions.” Oakland County Water Resources Commissioner Jim Nash is weighing in, saying Michigan needs a $100 million statewide fund to support water utilities. He believes this funding is essential for Oakland County communities like Pontiac or Royal Oak Township, where water is currently unaffordable for many residents and municipal affordability programs could be financially burdensome without outside help.    

Nash said he doesn’t think income-based billing is an option because of Michigan’s Headlee Amendment, which requires voter approval for new local taxes or tax rate increases, and the state’s enterprise rules restricting the kind of charges utilities can make.

In addition to the state’s budget surplus, Nash said Michigan could create a statewide water assistance fund by adding a small fee to most customers’ bills — perhaps as little as 50 cents a month, similar to the Michigan Energy Assistance Program (MEAP)  which helps low-income households pay gas and electric bills with revenue from a charge that’s added to utility bills. 

However, Orr cautioned that without income-based rates, a state fund could function more as a large assistance program, allowing utilities to keep setting unaffordable rates.

Like income-based rates, a fee for an affordability fund could draw legal challenges that invoke the Headlee amendment and argue that such fees are really taxes. But, citing a 2020 report from the Great Lakes Environmental Law Center and National Wildlife Foundation, Orr said judges would likely dismiss such arguments because “water rates are not taxes, they’re a fee.” 

As for the enterprise rules that Nash mentioned, Orr believes these only restrict fees collected for infrastructure projects and wouldn’t apply to increases in water rates used to pay for an affordability program.

Lewis-Patrick of We The People of Detroit says that research conducted by the nonprofit Moonshot Missions in partnership with We the People, Freshwater Future, and the National Wildlife Federation showed that affordability programs could be “budget neutral” and not require state money for support.

The report looked at various affordability programs, which would charge less than 2 percent of household income for low-income individuals, finding that affordable rates “would result in additional revenue from customers currently not paying, thereby further reducing the revenue requirements from other categories of customers.” 

In other words, even customers not participating in the income-based programs could pay less if total revenue increases for utilities. However, this projection varies depending on the city and program. Some places like Flint and Benton Harbor could see more significant increases for non-participating customers because of factors like the number of low-income residents or current rate structures.

Buchsbaum, from the University of Michigan Law School,  says the affordability legislation he’s developing with We the People would require utilities to set income-based rates for those below a certain percentage of the poverty level, forgive some or all of customers’ past-due balances, and bar shutoffs for those who are participating in an affordability program.

While he says an income-based plan would provide more revenue for most water utilities, his legislation would likely also provide state funding for those struggling, perhaps pointing towards a hybrid solution of income-based rates combined with state assistance.

Filling in the gaps

Several unanswered questions remain, including the extent of utilities’ budget shortfalls and how pervasive shutoffs have been across different municipalities.

Gary Brown, director of the Detroit Water and Sewerage Department (DWSD), said at a Great Lakes Water Authority (GLWA) board of directors meeting on Jan. 25 that the city needed to end its moratorium on shutoffs because the collection rate had “fallen from 92% to 70%, losing $40 million.”

Bryan Peckinpaugh, a spokesperson for DWSD, offered support for Brown’s comments. 

“We know based on data pre-pandemic that using service interruption as [a] tool to collect from residential accounts that have the ability to pay has a positive impact on the collection rate,” he told Planet Detroit by email. However, Brown also said at the GLWA meeting that there’s a backlog of 7000 applications for people trying to sign up for the city’s Lifeline Plan for water assistance, which could help increase collections if more widely used.

Others question the financial wisdom of using disconnections as a collection tool, arguing that they cost more than they take in. For example, in 2018, Detroit City Council approved a $7.8 million contract for Homrich Wrecking to perform water shutoff, and previous contracts had been $5.6 million or higher.

“Water shutoff programs wind up being financially expensive to run, and the human rights cost is incalculable,” said McGillivray from the Sierra Club. She also pointed to the difficulties and expenses DWSD encountered when the moratorium was ordered at the beginning of the COVID pandemic because of plumbing problems and broken meters.

Elin Betanzo, a water quality expert who helped expose the Flint water crisis, says a lack of budgetary information from utilities raises questions about the financial benefits of ending shutoffs.

“There’s this complete lack of information,” she said. “Your water systems say, ‘we can’t do that; we need money.’ If they haven’t done a very good asset management plan, they can’t say exactly how much money they need.”

If the state or individual Michigan cities were to discontinue or ban shutoffs, they would have company. Chicago recently codified an earlier moratorium on shutoff, and Milwaukee doesn’t disconnect service for nonpayment.  

But for now, Orduño from the Michigan Welfare Rights Organization is pushing to extend Detroit’s moratorium by at least six months. She says this would allow DWSD to do more neighborhood-based outreach and get residents signed up for the Lifeline Plan. It could also buy time while a long-term affordability solution is developed in Lansing.

“This really is a statewide problem,” she said. “It requires a statewide response.”


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