Legal blogger: Affordability plan for Detroit water doesn’t violate state law

Close readers of News Hits are aware there’s a water tug-of-war going on. At its center is how to best address the problem of ratepayers who can’t afford to pay their bills. On one side is a majority of Detroit’s officials, who insist upon a get-tough policy of shutting off service, coupled with charitable contributions to help customers pay their bills. On the other side is a group of activists, politicians, and consultants who declare that an affordability plan would produce better outcomes for Detroiters, suburban ratepayers, and even the utility itself.

It’s a subject that has cropped up in Detroit before. In 2006, Detroit City Council approved an affordability plan for the Department of Water & Sewerage. But the plan was never implemented, and several city officials now proclaim that any such plan would be illegal under state law. Earlier this year, Curt Guyette reported that DWSD Deputy Director Darryl Latimer had told him that state law “prohibits any kind of assistance plan that charges some customers less than the actual cost of service.” The same article mentioned that “DWSD attorney William Wolfson told the board he's in possession of two legal opinions stating that an affordability plan isn't allowed under current state law.”

That apparent sticking point came up again in an article in yesterday’s Detroit News, in which DWSD consultant Eric Rothstein said that water affordability plans ”aren’t currently legal in Michigan,” calling them “unconstitutional.”

The fine point of law seems to have gotten a reaction out of local blogger Nick Krieger. Krieger’s day job is as attorney with the Michigan Court of Appeals, but he also pens his own personal legal blog, Fix the Mitten. Yesterday, Krieger blogged about the claims that income-based affordability plans are illegal and unconstitutional and concluded that both statements are “misleading and probably incorrect.”

He writes:

Michigan law provides that a municipal water supplier authorized to sell water beyond its territorial boundaries must charge customers who live outside the city “a rate which is based on the actual cost of service as determined under the utility basis of ratemaking.” … However, there is no comparable statue requiring a municipal water supplier to charge city residents a rate that is based on the actual cost of service.

True, the Michigan Supreme Court has held in some cases that municipal utility rates which exceed the actual cost of service constitute a tax and violate a specific provision of the Headlee Amendment of the Michigan Constitution of 1963. But the Michigan Supreme Court has never struck down a municipal utility rate on the ground that it is less than the actual cost of service. Bear in mind that under an income-based payment plan established by the city of Detroit, the rate for out-of-city customers and non-indigent in-city customers would remain the same and would not increase. For example, out-of-city customers would still be charged a rate based on the actual cost of service. The only difference is that qualifying, indigent, in-city customers would be charged a lower rate based on their ability to pay. There is nothing unconstitutional or inherently illegal about such a system.

Article 7, section 24 of the Michigan Constitution of 1963 states, “Subject to this constitution, any city or village may acquire, own or operate, within or without its corporate limits, public service facilities for supplying water, light, heat, power, sewage disposal and transportation to the municipality and the inhabitants thereof.” Furthermore, Article 7, section 34 provides that “[t]he provisions of this constitution and law concerning . . . cities and villages shall be liberally construed in their favor.” In the end, neither the Michigan Constitution nor Michigan statutory law appears to place any restriction on a city’s authority to set lower rates for resident water customers based on their ability to pay.

It’s a bit dry and drawn, but it's about as strong an argument as we’ve heard that there is no prohibition on the progressive plan. When we spoke with economist and lawyer Roger Colton, he told us that such claims about affordability-based plans being illegal were an “excuse,” and added, “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.”

The question of the moment: Will Detroit could take a lesson from several other U.S. cities and their affordability plans, such as Chicago, St. Louis, Cleveland, and even Philadelphia, which recently approved an affordability plan for its ratepayers? Or will it continue to resort to a system that is ineffective, punitive, and expensive, based on unexamined claims that doing otherwise may be illegal?