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Government

Water woes

Increased Detroit rates put pressure on poor

"They keep increasing the bill," says Nicole Covington.
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Published 6/14/2006

Paying her water bill was tough enough for Nicole Covington when she still worked as a mall security guard. But when the Detroit resident and mother of four lost that job in January, making ends meet became impossible. And her debt to the city's Water & Sewerage Department kept mounting.

"I was having trouble keeping up, because I didn't have much income," she says, "but they keep increasing the bill."

Her average quarterly water bill was about $260, but after losing her job she was put on a plan that stretched the payment schedule. That still wasn't enough. After she missed a payment earlier this year, the department removed her from the plan and stuck her with a $500 bill. Unable to pay it all, she recently received notice that her water would be cut off at the end of this month.

In desperation, she went to the community activist group ACORN seeking assistance. The group helps almost a dozen people find aid for their water bills every month, but Covington says none of the agencies they suggested had funds available for her.

She says she's been able to scrape up some money to make a payment she hopes will be sufficient to stave off the disconnect. Whether her service continues depends on how well she can negotiate with department officials.

"It won't be as much as they're asking," she says, "but I can't afford it."

The problems Covington and thousands of Detroit residents are facing with their water bills are about to get worse. Last week, department officials asked Detroit City Council to approve its second rate hike in four months, an 11 percent "look-back" sewerage rate increase on top of the nearly 7 percent water rate increase they passed in February.

"Look-back adjustments" are rate changes based on how well the department estimated its budget for a previous fiscal year. After the year finishes, auditors for the department "look back" at their initial financial estimates and compare them to the real numbers. The corrected numbers are then considered when the department decides how much to charge users during the upcoming year.

The more accurate the estimates of revenues and expenditures are at the beginning of the fiscal year, the smaller the adjustments. If the department underestimates its income, the adjustment could actually be a credit. The last time that occurred in Detroit was in 1995, when a $3.5 million surplus resulted in a credit.

But this year's look-back is a debt, one distinguished by its sheer size. The water department expected to receive $133 million from city residents during the 2004-2005 fiscal year. KPMG, the private company that audits the department, found a shortfall of more than $44 million. Some of that was due to less water being consumed. But more than two-thirds of it was chalked up to "unanticipated bad debt" — in other words, uncollected water bills. Consequently, current city users might see an increase of roughly 24 percent in their combined water and sewerage bills beginning this August. That's more than double the increases for each of the past two years. Water department spokesman George Ellenwood says that will add roughly $10 to the current average monthly residential bill of about $45.

Residential users account for 75 percent of the unpaid bills, Ellenwood says, with commercial and industrial users owing the rest. The department considers a bill uncollectible if it's not paid within a year.

"This is a historical problem," Ellenwood says, caused partly by "people and businesses leaving the city." He adds that the period under review just happened to be a "bad year" for the department's collection efforts, saying he believes the department will exceed debt collection estimates for 2005-2006, resulting in a lowered look-back adjustment for 2007. But that doesn't help customers this year.

The other reason this year's look-back adjustment is controversial is its lateness in coming. Normally, the water department presents look-backs to the city's Board of Water Commissioners and City Council members for approval at the beginning of the year, rolling it into the general rate increase. But, as of this writing, KPMG still hasn't submitted its final report. Ellenwood says the delay is due to KPMG posing an unusually large amount of questions to the department. He says he doesn't know the nature of those questions and won't know until the firm hands its final report to the water commissioners. That's scheduled for sometime this month.

KPMG declined to discuss their audit, citing client confidentiality.

Some are saying a potential $10 a month rate hike is too much for Detroit's struggling low-income residents. Maureen Taylor at the Michigan Welfare Rights Organization in Detroit says many seniors and disabled residents are living on about $600 a month. But it's not just the elderly and the disabled. About one-third of Detroit's residents live below the federal poverty level.

"So the increase is quite a hit," she says. "And that's on top of the charge increase we're getting from DTE and the new charge for trash pickup. It all adds up. Where does it end?"

She adds that it isn't just the pocketbook the increase would affect. Child welfare agencies consider lack of water a form of neglect and can take children away from parents whose water is shut off, she says.

Some council members are refusing to approve the adjustments, saying they feel the 7 percent increase they approved in March should have been sufficient.

Councilman Kwame Kenyatta says he'll vote against the new rate. Since the water department isn't running a deficit it should be prepared to shoulder the burden of residents who can't pay.

"The main thing is that it's difficult economic times, not just in the city, but in the state and the country," he says. "We need some kind of amnesty program. Collect what you can collect. If we can't get the money, we'll just have to write it off."

But not everyone on council considers write-offs a workable option. Councilmember Sheila Cockrel calls the write-off idea a "phony argument," saying it would run afoul of the legal framework governing the department's fee-for-service payment system.

There's also a question of how possibly granting amnesty to low-income Detroit customers would play in the suburbs. Controversy over who pays what last erupted in March, when council initially approved wholesale rate increases for suburban customers while postponing a decision on retail rate hikes for Detroit residents.

But Oakland County Executive L. Brooks Patterson says suburbanites probably wouldn't protest any amnesty program for city water users as long as the suburban customers weren't asked to shoulder the losses.

"There wouldn't be any trouble as long as the city took responsibility for the department's revenue shortfalls," he says. If the department tried to balance its losses by increasing rates in the suburbs, he added, the cry for regional control of the city's department would grow louder.

Kenyatta also believes the department is partly to blame for its revenue shortage, saying it misses chances to reduce costs. "We've got places where the water is still running, but nobody's been there for years," he says. "That's just a question of efficiency."

This comes on the heels of the ruckus raised in March, when the department proposed its initial rate increase of nearly 7 percent (see "More troubled waters," MT, March 8).

Ted Phillips, executive director of the Detroit-based United Community Housing Coalition, told the council that nearly 40,000 Detroiters had their water disconnected because of failure to pay during the past year. He asked that the city implement a water affordability plan, something like the arrangements in California, Seattle and Philadelphia that help subsidize the water bills of low-income residents. Advocates of the affordability plan say helping low-income residents pay at least part of their bills makes more financial sense than disconnecting them from the system altogether.

Council agreed and asked the groups to work with the city's water and law departments to write such a plan. Taylor suggested the water department implement a voluntary program in which Detroit residents could contribute $1 a month to subsidize the bills of people having difficulty paying. Commercial and industrial customers could contribute more.

But John E. Johnson, a city lawyer in charge of vetting any such proposal, warned that the plan probably wouldn't pass muster. State law mandates that Detroit water rates be based solely on cost of service, he said, and any fee for an affordability plan could be seen as a de facto tax and would therefore be illegal.

Taylor counters that implementing the look-back adjustment would essentially be the same thing, charging users a higher rate to cover for people who don't pay their bills.

"They said charging $1 to each resident each month for a water affordability plan was an undeclared tax," she says. "But this look-back seems like it's the same kind of concept."

The department's Ellenwood disagrees, saying the adjustment would apply to all Detroit customers, including low-income residents.

Kenyatta says the council expects to vote on the plan in July, having already allocated $5 million in this year's city budget to implement it. But the draft Taylor submitted in March hasn't cleared the city's legal department yet. City lawyers did not return calls seeking the plan's status before press time.

Covington, meanwhile, says she's looking for any help she can get in the face of yet another rate increase.

"For people on low income," she says, "I don't think the department's bills are reasonable enough."

Ben Lefebvre is a Metro Times staff writer. Send comments to blefebvre@metrotimes.com or call 313-202-8015.

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