Detroit's Water War

Once again, Detroit’s tragic circumstances provide a window on the state houses and governors that were captured by right wing ideologues in the 2010 elections and are now at odds with urban (read “racial minority controlled”) governments. The state-appointed Detroit Emergency Manager has commenced a program of shutting off the water of a large portion of the 138,000 delinquent accounts, up to 90,000 of which are poor households and largely African-American. Private contractors have been engaged to put the program into effect. It is reported that 17,000 shutoffs have occurred. Widespread citizen protests have gripped the city.

This program is morally indefensible and contrary to basic principles of shared responsibility. It punishes Detroit’s citizens for a complex set of circumstances that have interacted to produce an economic crisis much more intense than the effects of the Great Recession in other cities. It also reinforces the myth that the people of Detroit cannot govern themselves without discipline from the rest of the state. 

In our comprehensive report last November, we pointed out that Governor Snyder and his colleagues in the legislature appeared to be angling for control of the Detroit Water and Sewerage System by either transferring it to a new governmental agency or outright privatization, or a little of both. The system is operated by a city department, but it is a vast enterprise, serving 40% of the entire population of Michigan (about four million citizens and thousands of businesses throughout eastern Michigan are customers). It collects fees from all of these customers from which it pays its operating costs and services its debt. 

The city is bankrupt, not this enterprise. Yet, from the earliest days of the state takeover, the emergency manager appointed by the governor was intent on pulling this enterprise into the bankruptcy. As our report described, the emergency manager continuously included the $5.8 billion of Water and Sewerage debt in the reported outstanding debt of the City even though that made absolutely no sense. (The oft-reported figure of $18 billion debt was inflated in other ways, probably to position the emergency manager to restructure every aspect of the city government, but the media never ceased repeating that number.)

The Water and Sewer System is a public enterprise, and that fact cannot be avoided. The people must receive basic services needed for survival. Even private utilities, like electricity and gas companies, have a duty to serve that they cannot simply choose to neglect. Of course, these utilities and water and sewerage systems throughout the land must collect usage fees and have the right to shut off a customer who will not pay. But this right is always used cautiously and in individual cases.

The Detroit situation is simply different. It is a program of mass enforcement to discipline the people. It is a misuse of the right to deny service.

It also completely ignores the fact that Detroit was hit by a cataclysmic disaster known as the Great Recession. In the three years prior to the onset of the financial crisis, as many as 75% of the mortgages originated in Detroit were subprime. Detroit has suffered more foreclosures than any of the other 100 largest cities, more than 70,000 in a city whose population is around 700,000. In 2008, unemployment spiked to nearly 30% as the auto industry and every other business sector downsized drastically. If Detroit had been devastated by a hurricane or an earthquake, we would see it as in our interest to rebuild and rehabilitate the community. However, Detroit was hit by an economic tsunami, and the State government and its agents running the City seem obsessed with ascribing fault to its citizens and public employees, making them suffer the consequences.

That much of the population is having a hard time paying for water and sewerage services should come as no shock. The shocking thing is that the governor's appointees have decided to put the hammer down.

It does make sense in a coldhearted way, though. The real political game being played out is to wrest this huge enterprise from the City Water and Sewerage Department and transfer the operation—and the valuable business that can be handed out to allies and potential contributors—to the state. (A prior blog points out why there is no financial advantage to such a transfer.)  

There are two paths to achieve this. First, the enterprise can be transferred to a new authority complete with gubernatorial appointees. Second, all or portions of the enterprise can be sold off out to private companies. In either case, the existing debt must be refinanced, either through new public enterprise bonds or private capital or some combination. To secure this refinancing, it would be very convenient if nearly all of the customers were current in their payments. Thus, to secure the political victory of capturing the Water and Sewerage System, it is essential to squeeze the customer base into paying by the threat of going without water. The unfortunate people who are cut off first will make fine examples for motivating the other customers.

Another approach would be to recognize that the inability to pay has to be remedied by the revitalization of the city. Unfortunately for the plan to pull the Water and Sewerage System away from the city government, that would also mean that some form of democracy would have been restored because the city would have emerged from bankruptcy and the emergency manger mandate would have lapsed.

Detroit has once again provided a stark example of the difference between governance in the people’s interest and political power politics based on ideology and racial stereotypes. It is shameful that the misfortunate citizens of this once great city will suffer the consequences.