National News / News Articles

Detroit Wades Through Bankruptcy with Water Debates

by Audrey Legrand

Last month, the Detroit Water and Sewerage Department threatened to shut off between 1,500 and 3,000 delinquent customers’ water per week in an effort to recoup tens of millions of dollars.

As of March 6, more than half of the city’s water customers were delinquent, either over 60 days past due or more than $150 behind. The Detroit News reported 164,938 business, school and commercial building accounts were delinquent out of a total 323,900, averaging approximately $175 million in overdue bills. The paper also reported 154,229 delinquent residential accounts out of a total 296,115, equaling about $91.7 million. In total, over $260 million in water bills remained unpaid.

While the department reserves the right to shut off delinquent accounts, they halted cutoffs for the winter out of fear of frozen pipes. However, with warm weather on the way, the department announced they will resume cutting services.

Department officials said the announcement was unrelated to Detroit’s ongoing bankruptcy restructuring, but rather is an effort to “shift the behavioral patterns of our customer-base right now,” as DWSD commercial operations specialist Constance Williams-Levye told the Detroit News.

“Not everyone is in the situation where they can’t afford to pay,” the department’s deputy director, Darryl Latimer, added. “It’s just that the utility bill is the last bill people choose to pay because there isn’t a threat of being out of service.”

Detroit filed for Chapter 9 bankruptcy on July 18 and on December 3 of last year. Federal Judge Steven Rhodes declared the bankruptcy official, leading the city earning the title of largest bankrupt city in the United States.

According to the U.S. Census Bureau, the median Detroit household income from 2008-2012 was $26,955 annually, and 38.1 percent of the 701,475 city residents lived below the poverty line. In comparison, just north of the city’s borders, Oakland County counted 9.9% of its 1.2 million population living in poverty in the same time period, and a median household income of $65,637 annually.

In mailings scheduled for delivery for March 24, the department warned that failure to pay overdue bills would result in the bill being considered a property tax lien, and possible foreclosure. In the case of service being cut, households wouldn’t necessarily have to move out, Latimer told the Detroit News, but there were instances where the department of social services could be called to households with children to take them away until water is restored.

The department does possess funds to help customers in poverty, according to Latimer; however, one of the funds hasn’t taken on new customers due to a lack of an administrative official, despite containing $1 million of distributable money. The New York Times reported that the department is now working with two firms, Wayne Metropolitan Community Action Agency and the Heat and Warmth Fund, to start helping those in need pay off their delinquent bills.

Detroit’s water issues aren’t limited to its customers’ inability to pay up; emergency manager Kevyn Orr, hired by the state of Michigan to restructure the city’s $18.5 billion debt in March 2013, is exploring options for privatizing the department, as reported by the Detroit Free Press. While water remains publicly owned and operated in the majority of the United States’ larger cities, smaller cities have been allowing private companies to step in, either selling or leasing the department to an outside company who could operate it at a lower cost. A 2009 study by the consumer rights group Food and Water Watch questions the efficiency of privatization, noting that private utilities typically charge more and don’t display significant cost reductions from public ownership.

The city has said in requests for information from prospective companies that an offer must include a limit to rate increases, not exceeding 4 % per year for at least 10 years. It set an April 7 deadline for companies to respond with their preliminary proposal to take over the water and sewerage system, and a June 1 deadline for qualified companies to provide detailed, binding proposals, according to the Detroit Free Press.

The privatization efforts come after Orr’s past efforts to create a regional water authority, dubbed the Great Lakes Water Authority, including Oakland, Macomb, and Wayne County, the latter for which Detroit is the county seat.  Currently, Detroit supplies water to 34 Oakland County communities and sewer services to 37 towns or townships. Under Orr’s proposal, the city would lease Detroit’s water and sewer facilities and infrastructure for $47 million annually.

His efforts have stalled, namely because the more stable and affluent Macomb and Oakland Counties are hesitant to risk getting caught up in the folds of Detroit’s bankruptcy. After 10 months of negotiations, the suburban communities don’t feel they have received sufficient financial information to make an informed decision for the regional authority.

On April 3, the finance committee of the Oakland County Board of Commissioners voted unanimously to approve $500,000 towards hiring consultants to examine the possibility of creating a suburban sewage and water system, with an additional $2.5 million set aside, “in case it is needed,” according to the Detroit Free Press. Macomb County has expressed interest in joining, though no votes have occurred yet.

“I clearly support regional cooperation… however, we all have a fiduciary responsibility to the citizens of Oakland County,” Commissioner Helaine Zack, D-Huntington Woods, told the Detroit Free Press after the vote.

As Detroit zeroes in on reclaiming delinquent statements and assesses its water and sewer system’s future, it may soon have to deal with the possibility of managing a city where half of the population is without running water, and handling a department whose timely, suburban customers are searching avidly for an escape hatch.

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