An economist says Detroit's charitable water assistance plan is 'bound to fail'

Affordability, not charity

The fight against Detroit's water shut-offs gained extra visibility last week, most noticeably with a fanciful protest at the Manoogian Mansion. That's where protesters from the Detroit and Michigan Coalitions Against Tar Sands symbolically took water from the mayor's residence to distribute to residents whose water has been shut off. Holding banners and clad in vests proclaiming "Water is Life," activists filled carboys with water (presumably from an outdoor faucet) to dramatize the issue of tens of thousands of households without water while the mayor lives in relative luxury.

That same week, another action took place that was — literally and figuratively — less splashy, but with greater potential to change the conversation about water shut-offs. It was the Forum on Water Affordability, held at St. Matthew's and St. Joseph's Episcopal Church in Detroit. The event brought together activists, state legislators, and economist Roger Colton to discuss affordability plans. Such plans range from charging low-income customers a set percentage of their household income to instituting a cap on what they may be charged. A special focus at the meeting was the city of Philadelphia, where such a plan was just approved.

Colton is the lawyer and economist who helped Detroit craft its original affordability plan almost a decade ago. It has been his specialty for 30 years now, a niche career that sees him go to bat for ratepayers by showing utilities that they can make more money by offering a bill customers can reasonably pay. He's no radical firebrand; he's a business consultant.

Speaking to News Hits from his Boston office, he tells us about affordability plans, which have been adopted more widely than some might think, including in such places as Winnipeg, Manitoba, Portland, Ore., and Cleveland. Colton told us that what's driving utilities to implement these plans isn't altruism, it's dollars-and-cents realism.

He says, "Addressing inability to pay is not only good social policy, but it's good business policy as well. ... Billing significant revenue to people who simply cannot afford to pay those bills causes two things to happen to the utility: One, they're not going to collect a lot of the money that they're billing, and two, they're going to spend a lot of money in the unsuccessful effort to try to collect that."

Both points ring true in Detroit's situation, especially the second. The city is already paying Homrich Inc. $5.6 million to carry out the shut-offs. In May, the board of governors of Detroit's water system considered adding another $1 million to the contract.

When a stick is this expensive, Colton suggests a carrot may be a better inducement. He says, "A utility would be better off if it were to make or to proffer an affordable bill, because it would both collect more revenue and it would spend less in the process of collection. And we have found that to be the case time and time and time again over the last 30 years."

It's a concept economists call "netback." In layman's terms, Colton says, "It's better to collect 90 percent of a $70 bill than it is to collect 50 percent of a $100 bill. You're getting $13 more in revenue, and then you spend less in the process."

But city officials seem opposed to these plans, instead putting together a pot of money to assist Detroiters with their bills. Colton says the charitable model doesn't have a good track record. He says, "They're responding to the symptoms of the problem rather than trying to prevent the problem up front. ... There's just not enough charitable money to address the problem."

Colton's remarks ring true again, as a report from the Michigan branch of the ACLU revealed that the Heat and Warmth fund, one of the charities administering money Mayor Mike Duggan raised from foundations, is completely empty. The Wayne Metropolitan Community Action Agency, another participant in the program, has been so overwhelmed with calls for help that it has temporarily stopped taking new applications. Only the United Way for Southeastern Michigan remains in a position to provide actual assistance, with about $950,000 remaining to help people being threatened with water shut-offs. Compare that to the amount owed by Detroit households at least 60 days behind one their bills and not receiving assistance — which the ACLU estimates is $20 million.

In addition to this tactical shortcoming, Colton sees a larger strategic problem: "They're going to run out of money, and even if you had enough money, it just means that they're going to fall into arrears next year as well and you have to start the whole process over again."

Bear in mind, Colton isn't saying that households should get free water, nor is he saying that households should get unlimited water. He's proposing an agreement that ensures the water keeps flowing and the utilities get more revenue.

He says, "What I'm proposing is a bargain between the city and low-income customers, and the bargain is, 'We realize that we've been billing you an unaffordable amount in the past, so henceforth, we will bill you an affordable amount, but in exchange for that, we have an expectation that you're going to pay it. And if we bill you an affordable bill and you don't pay it, you're going to go into the collection process. It's just that simple."

City officials have argued that their hands are tied by state law, which prohibits any kind of assistance plan that charges some customers less. It's something Colton has heard before. He says it's an excuse.

Colton says, "It's not really a legal argument. It's an ideological argument, and the ideological argument is, 'We have our standard way of setting rates, and it's the way we've always done it, and to do it differently would be against the law.' ... Rather than bemoaning the state law, they should start building the argument on why this fits within their traditional regulatory authority, and I think it does."

Colton says he'll likely be back in Detroit to help develop a response to the crisis as part of a blue-ribbon committee requested by Detroit City Council, which almost ensures affordability plans will likely be a part of that response.

In the meantime, however, the charitable model will remain the norm for the present time, a model Colton calls "bound to fail for the same reason that approach as failed in the past."

In other words, if you wanted to protect tens of thousands of poor people's access to water, a philanthropic approach would make about as much sense as trying to do it with the mayor's garden hose.

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