What an Emergency Manager Might Mean for Detroit’s Water Utility

There are many questions and few conclusions right now about Detroit’s water system.

Photo courtesy of Flickr/CC esynchronicity

Music lovers congregate at Hart Plaza Fountain in downtown Detroit during the Movement Electronic Music Festival in May 2012. Click image to enlarge.

By Brett Walton
Circle of Blue

On March 1, after reviewing a state audit of Detroit’s finances, Michigan Governor Rick Snyder (R) proposed a state-appointed “emergency manager” to right the city’s sinking fiscal ship. The emergency manager would have broad powers over the city’s budget, staffing decisions, and departments.

The city council will file an appeal — the hearing for which takes place Tuesday, March 12 — but it appears likely that the Motor City will join the nine other Michigan municipalities that have had an emergency manager take control of local government, an act which became an administrative option in 1990.

So what would an emergency manager mean for the Detroit Water and Sewerage Board, a public utility that itself has been under federal oversight since the 1970s because of Clean Water Act violations?

Because the emergency manager has yet to be appointed, no one knows what will happen. But those who follow Michigan government offered a few possible scenarios:

• The utility could be restructured and its management privatized, like what happened in Pontiac, another Michigan city with an emergency manager.
• The utility could be sold off to investors for a one-time cash bounty.
• Nothing could change, since the chief problems with Detroit’s finances are the gushing deficits from the city’s general fund.

“I don’t think anyone really knows at this point,” said Bettie Buss, senior research associate with the Citizens Research Council of Michigan, which specializes in public policy.

Hard Times

Both the city and its water department are struggling. Detroit’s population is less than half of what it was in 1970, when 1.5 million people made the city the fifth largest in the United States. Over the last decade, one in four residents have left town — and fewer people means less revenue.

Meanwhile, legacy costs such as pensions, infrastructure, and debt suck away precious dollars. Detroit ran a 13 percent budget deficit ($US 300 million) in fiscal year 2012, according to the city’s auditor.

“The city is in crisis,” said Buss, who worked for Detroit for 17 years as a budget analyst before doing policy research.

The water and sewer department, however, receives no subsidy from the city, Buss told Circle of Blue. Its financial problems are separate — and of its own making — even though it is a branch of city government.

Last August, a consultant recommended that Detroit’s water and sewer department should cut its workforce by 63 percent to reduce costs. The department has not made any changes based on that report, but it is looking for ways to be more effective and efficient, spokeswoman Mary Alfonso told Circle of Blue.

“Fixing the water system is not going to fix the city’s finances,” said Eric Scorsone, an expert on state and local government at Michigan State University Extension. “They are separate systems and have to be looked at separately.”

The department has more autonomy now because a federal judge ordered it in November 2011 to focus on obligations under the Clean Water Act. Buss said this relationship between the judge and an emergency manager is one matter that needs clarification.

Where Does the Water Department Fit?

There is little evidence that the water department would be a target for cuts, said Tom Ivacko, manager of the Center for Local, State, and Urban Policy at the University of Michigan’s Ford School.

“I haven’t seen any references to the water system yet,” Ivacko told Circle of Blue, citing the consent agreement signed between the city and the state last year. That consent agreement attempted to avert the need for an emergency manager, and it does not mention the water department — rather, public safety, the lighting department, and the transportation department are the top three priorities for reform.

Though the water department is not on the consent agreement, social justice groups are still worried that the utility might be a tempting source of money.

“Drinking water and wastewater systems are essential public services, not cash cows,” Tia Lebherz, a Michigan organizer for Food and Water Watch, told Circle of Blue. “But as the city looks for opportunities to increase revenue, an emergency manager could potentially treat them as such, taking money out of the systems and jeopardizing long-term service, quality, and affordability.”

Even the water department is uncertain where all this leads.

Last Wednesday, the Board of Water Commissioners, which governs the department, passed a resolution stating nine questions that it would like answered about how an emergency manager would affect its business. One of the questions asks if the department could consider breaking away from the city and becoming an independent organization; another asks if the department might be sold off.

For now, selling water department assets seems an unlikely course of action. It would provide a big one-time plug of money, but, in the end, the people who use the system would bear a greater cost, Buss said.

“In the long term,” she added, “the city has to develop a strategy to deliver services within a normal operating structure.”

Brett Walton

Brett writes about agriculture, energy, infrastructure, and the politics and economics of water in the United States. He also writes the Federal Water Tap, Circle of Blue’s weekly digest of U.S. government water news. He is the winner of two Society of Environmental Journalists reporting awards, one of the top honors in American environmental journalism: first place for explanatory reporting for a series on septic system pollution in the United States(2016) and third place for beat reporting in a small market (2014). He received the Sierra Club’s Distinguished Service Award in 2018. Brett lives in Seattle, where he hikes the mountains and bakes pies. Contact Brett Walton